Stop? Or gun it? Those are often the competing voices running through drivers’ heads when they approach a yellow light.
Grant Thomas of Chattanooga, Tenn., hears another sound in that situation: a disapproving beep emanating from under the dashboard of his 1998 Honda Civic.
The noise comes from a device provided by his insurer, Progressive, that beeps when it detects hard braking. The more the device beeps, the more Progressive considers him an accident-prone driver, one of several pieces of data that the device sends to the company to help calculate his insurance rate.
Since the earliest days of the automobile, actuaries have hungered for a way to price insurance premiums based on the daily driving habits of customers. But they have had to fall back on group-based statistics like age, gender and marital status to help determine someone’s risk behind a wheel.
That has begun to change in recent years, as insurance companies like Progressive began promoting “telematics” devices that tell them how much, when and how aggressively their customers drive. Customers who install the devices can get up to 30 percent off their premiums.
Insurance companies are only getting started, though. Vehicle telematics devices are becoming smaller and cheaper, which will encourage insurance companies to push them more heavily to customers. Some companies are testing smartphone apps that can track driver behavior, which could further lower barriers to consumer use.
Even bigger changes are expected in the types of data collected and how it is analyzed. Some companies are beginning to examine vehicle location data, for example, which could offer insights into how often someone speeds and drives on highways, both helpful for determining risk.
Some roadblocks lie ahead for vehicle telematics. Already, many people have blanched at the idea of letting an insurer track every car movement. Consumer advocates are concerned that insurance companies will use the driving data in inscrutable ways to set premium prices. Those advocates also worry that insurers will use the data to penalize consumers who work a late shift, for example, or in a low-income neighborhood.
“Telematics hold great promise but pose dangers,” said Birny Birnbaum, executive director for the Center for Economic Justice, a nonprofit group that acts as an advocate for the economic interests of low-income and minority consumers. “Right now the balance is to the dangers side.”
Still, even skeptics concede that telematics offer potential benefits, enabling a shift to a concept called usage-based insurance. The technology can be used to reward good drivers with lower premiums, forcing risky drivers to pay more. It could help make roads safer by giving drivers constant feedback on their behavior - like those beeps during hard braking.
In theory, if insurers decide telematics data surpass other methods of determining driver risk, it could reduce the widely criticized reliance on factors like credit scores and education. By enabling insurance companies to charge higher-mileage drivers more, telematics gives motorists an incentive to drive less, reducing road congestion and environmental impact.
“I do believe that usage-based insurance, because of the fairness of it and practicality of it, will be the dominant form of delivery for car insurance in the U.S. and worldwide,” said Robin Harbage, a director with Towers Watson, a company that helps insurance companies run their telematics programs.
Just over two dozen U.S. carriers offer usage-based insurance programs, Harbage said. Progressive’s Snapshot program is by far the most popular, representing nearly 15 percent of the company’s overall business and generating about $2.6 billion in premiums last year.
The palm-size, oblong Snapshot device has a wireless connection that transmits data to Progressive automatically. It tracks the time of the day the car is driven, miles driven and hard braking, which the company defines as sudden decreases in speed of 7 mph or greater.
Dave Pratt, general manager for usage-based insurance at Progressive, expects that by next year the company will be able to start using smartphones to track Snapshot customers, which will lower the cost of the program for the company.
Location-tracking and use of smartphone telematics apps by insurance companies, though, is likely to only accentuate the privacy concerns that many drivers already have. About a third of Progressive’s customers say they have no interest in the Snapshot program for privacy reasons, which is why the program will remain voluntary, Pratt said.
One car insurance startup, Metromile, focuses only on how much - not how - someone drives. Dan Preston, chief executive of Metromile, cited studies that said most of the risk drivers pose is associated with miles driven, rather than behavior.
Metromile customers are charged a base rate that varies based on demographic factors and the type of vehicle. The company uses telematics devices to track mileage, charging customers anywhere from a couple of pennies to 6 cents or so a mile.
Its drivers like the straightforwardness of its pricing. If they drive more, they pay more.
“I think overall our message has been, have a clear per-mile rate that’s transparent to you so you know how to play,” Preston said.