States Beginning to Regulate Popular Usage-Based Car Insurance

Usage-based auto insurance has been around for over 25 years. But recently it has been drawing more interest from insurers and consumers, as well as state lawmakers.

UBI works by using vehicle “telematics” to track an individual’s driving behavior, such as how fast they drive, how hard they brake and corner, when and how much they drive, and whether they talk on the phone while driving.

That data is then used to calculate more precise car insurance premiums. Basically, the better you drive, the cheaper your insurance rates.

The first UBI program was launched in 1997 by Progressive. But it wasn’t widely embraced until the technology became cheaper and more user-friendly.

Now, with the technology having come of age, UBI is growing rapidly in popularity among both insurers and the insured.

“I think the technology has improved quite a bit over the last 10 years,” said Janet Ruiz, spokeswoman for the Insurance Information Institute, “and will continue to do so.”

Understandably, this has made state governments across the country take interest in UBI.

State Lawmakers Look to Regulate Telematics

Since the beginning of the year, at least 15 states have considered bills mentioning “telematics” or “usage-based insurance,” according to the LexisNexis® State Net® legislative tracking system. Many of the bills mention telematics in passing. But some are substantive.

Four bills in New York (AB 7614, SB 7129, SB 7014 and SB 553), for example, seek to regulate the use of telematic technology, the data it creates and what disclosures car insurance companies must make regarding the tech and data.

Massachusetts HB 1809 would also regulate the tracking of motor vehicle data. And two other bills in Massachusetts (HB 290 and HB 329) and at least one in Maine (HB 1227) seek to loop telematic technology into consumers’ right to repair their automobiles.

Right to repair is a national movement to establish that consumers and independent repair shops have the right to access parts and manuals to fix their own cars and electronic devices, like cell phones.

California’s AB 893 includes telematics technology in its plans to clarify existing rules and regulations governing the operation of personal vehicle sharing programs.

States Targeting Telematics, Usage-Based Insurance

At least 15 states have considered legislation this year concerning the use of “telematics” to track motor vehicle driving data like speed and mileage. Bills in four of those states deal specifically with usage-based insurance, which relies on vehicle telematics data to calculate premiums, or the use of telematics by insurers more broadly.

 

Regulators Concerned About UBI Data

Three states—Alabama, Iowa and Utah—have also adopted regulations related to telematics since the beginning of the year, according to State Net data.

Telematics appear in a reg governing an Alabama program for Public Safety Telecommunicator certification (15376 2023), in an Iowa reg on 911 telephone systems (10314 2022) and Utah regs on a road usage charge program and requirements for driver safety committees (101670 2022, 101803 2023).

That states are looking to regulate UBI, even at the margins, should come as little surprise, as the Dublin-based data-insurance platform Inaza says that while “UBI programs have the potential to be beneficial,” they also “can come with a variety of obstacles, including concerns about data accuracy.”

“UBI programs rely heavily on the accuracy and reliability of the data collected from the policyholder’s vehicle,” Inaza writes. “Inaccurate data can lead to inaccurate premiums, which can result in lost revenue for the insurer. Additionally, UBI programs present a potential risk to the policyholder’s privacy, as the data collected can reveal personal information about the policyholder.”

“To address these obstacles, insurers must ensure that the data collection processes are accurate and secure. This means that they must be able to collect real-time data from the policyholder’s vehicle, as well as use encryption methods to protect the collected data from unauthorized access, Inaza states. It also warns that UBI programs “present an increased risk of fraud,” as scammers can try to manipulate their driving data to obtain lower insurance premiums.

Other Applications of Telematics on Horizon

Writing late last year for InsuranceNews Net, Jeff Piotrowski, the insurance market leader at Verisk Marketing Solutions, speculated that we may be on the cusp of “entering the golden age of usage-based insurance.”

“With claim frequencies and miles driven eclipsing pre-pandemic levels, and premiums increasing by double-digit percentages in many states, insurers may soon find themselves in a great position to attract new customers with UBI or ‘pay-as-you-drive’ plans, especially as cost-conscious shoppers find few lower cost alternatives in the marketplace,” he wrote. “In fact, Nationwide projects 70% or more of new business will come from usage-based insurance programs by 2025.”

What's more, Piotrowski suggested that the use of telematics in car insurance may just be the beginning. “It is possible that telematics could emerge within the health and life insurance verticals,” he wrote. “A ‘pay-as-you-live’...model could be similarly promising for insurers and policyholders alike, and the technology is already available to make it happen.”

“In this instance, insurers could offer policyholders smartphone applications, external devices or sensors that collect data on things such as heart rate, blood pressure or number of steps taken in a day,” he wrote.

In an interview with SNCJ Piotrowski said he believes UBI is poised to catch on, potentially both within the car insurance sector and other insurance sectors, because the cost of insurance is rising. Consumers, he said, are likely to discard their hesitancy about sharing data about themselves if it results in a decrease in their insurance costs.

He added that an expansion of UBI into other insurance sectors, like life or health insurance, will be sure to attract the attention of consumer watchdogs and legislators. The only question, as far as he’s concerned, is when the UBI explosion will occur.

“We continue to wait for that tsunami to happen,” he said.

—By SNCJ Correspondent BRIAN JOSEPH

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