NYT Missed the Point! Consumers’ Driving Scores are the BIG Opportunity

The New York Times (NYT) recently published “Automakers Are Sharing Consumers’ Driving Behaviors with Insurance Companies” exposing how some auto manufacturers are collecting and selling consumers’ driving data to insurance companies who use it to change premiums.  The main story was that consumers were shocked to learn their driving data was shared with insurers resulting in their premiums being increased.

Most of us regularly click through terms and conditions without carefully reading the legalese to fully understand what we just agreed to.  If you ever have taken the time to read them, you know the auto manufacturers are not alone in including rights of use within the agreement.  The real surprise is that there are still people who don’t realize that companies routinely include clauses buried in required user permissions allowing the collection and use of data for other purposes. 

The more interesting point is that the connected car data exchange isn’t consumer-friendly even if we ignore the consent issue.   The auto manufacturers, LexisNexis and the insurance companies knew (or should have known) that sharing the driving data would result in some consumers paying more and some paying less.  While some individual auto manufacturers shared some driving feedback, the broader mechanism failed to give the consumers clear insights about their driving and how their insurance premium could be impacted.  Even consumers who went through the onerous process to acquire their driving data from LexisNexis got raw data that was practically impossible for them to interpret.   The big opportunity is a more consumer-centric model that proactively helps customers understand their driving data and how their premiums may be impacted before asking them to share their data.

We should all want insurers to use driving data in rating as it is a much more accurate, fairer way to determine auto insurance premiums and gives the consumer control.  Without access to driving data, insurance companies rely on traditional factors (e.g., age, insurance credit score, and prior traffic violations) to determine each customer’s premium.  These characteristics are proxies for how, how much, when and where a vehicle is operated.  The proxies are used to segment the driving population into groups who, on average, deserve to pay higher or lower premiums.  A consumers’ actual driving data (or score) is a much more direct and accurate indicator of their risk exposure and finds the drivers that aren’t like the “average” of their group.

Consider the case of 50-year-old drivers who, as a group, are considered low-risk drivers and have lower insurance premiums.  Of course, we all have ridden in the car with 50-year-olds where we felt perfectly safe and others where we were praying for the ride to end.  The driving data reveals which type of 50-year-old each driver is.

Consumer groups frequently complain that several traditional variables (e.g. insurance credit scores and traffic violations) are unfairly discriminatory.  People with poor credit scores and/or several traffic violations are considered high-risk and pay more for insurance.  Consumer groups argue those factors disproportionately impact minorities and lead to affordability issues for protected classes.  The driving data is objective and, it could be argued, is free from any systemic bias.  Using driving data gives people who would otherwise be considered a high-risk to objectively show they are safe drivers and pay lower premiums.  Seems like a great outcome!

Consider the case of an adult driver with a poor insurance credit score and two prior minor speeding tickets.  Relying solely on traditional factors, this consumer would be considered a high risk and pay higher insurance premiums.  Actual driving data would reveal a significant number of customers with those characteristics who are low-risk drivers and deserve to pay less.  

As a nerdy but important fact, the driving data we have examined suggests most of the insurance losses come from a relatively small percentage of the population.  If driving data was used for everyone today, most consumers would see their premiums go down and less than one-quarter would see a material increase.  In other words, most of us are overpaying to subsidize the unsafe drivers who aren’t paying their “fair share”.  

Critics may argue using driving data to identify those very unsafe drivers and charge them more creates an affordability crisis and is contrary to the concept of insurance pooling.  That may be a good argument against using pre-existing conditions, like cancer, in healthcare.  Unlike patients with cancer, drivers have a choice to drive safer.  Low-risk drivers should not be asked to subsidize drivers who choose to drive like maniacs, putting all of us at risk.  If the high-risk drivers don’t want to pay the extra cost, then they can change their behaviors and make the roads safer for all of us.

So, what should be done?  A better mechanism would be a consumer data exchange that converts driving data from any source into a consumer-facing “universal” driving score.  The primary focus would be to help consumers understand whether they are high- or low-risk drivers and deliver programs designed to help improve their driving and reduce their chances of having an accident.   Once the driver understands their driving score, they can make an explicit and informed decision whether to share their data or not with one or more insurance companies. 

There are no current safety initiatives with more potential to improve safety in the next 10 years.  Our envisioned exchange would fit very well into the current insurance ecosystem given the clear benefits to consumers and how it enables the expansion of innovation coming from safety organizations, auto manufacturers, insurance service providers and insurance companies.  By focusing on programs to improve driving behaviors, these companies could have an immediate impact on road safety while simultaneously delivering fairer, transparent, and controllable insurance pricing!  If this message resonates with you and your organization, we would be happy to join forces!

Geoff Werner and Bill Costa are driving data experts, insurance innovators, actuaries, and parents who suffered through teaching multiple teen drivers how to drive.