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THE FINE PRINT

Auto insurers want to monitor your driving

Allstate is among the companies that the state Division of Insurance has approved to use telematics in Massachusetts.
Allstate is among the companies that the state Division of Insurance has approved to use telematics in Massachusetts.Christopher Dilts/Bloomberg

It is sometimes called “usage-based insurance” and sometimes “insurance telematics.” It’s when you agree to allow your auto insurer to ride along with you — quite literally.

If you agree, a constant stream of data flows from your vehicle to your insurer, via a telecommunication device, including how fast you are going, the time of day you are driving, and when and how hard you are hitting the brakes.

What’s the purpose? Insurers say they want to reward good drivers with lower premiums: for example, those who drive within the speed limit, mainly during daylight hours, and without frequently jamming on the brakes. (For drivers whose reckless driving habits correlate to higher risk for crashes, higher premiums may result, although few bad drivers are expected to opt in for telematics.)

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It’s not a new experiment. Auto insurers have toyed with it for more than two decades while drivers have shown only lukewarm interest in it. But as technology advances, and our digital connectedness becomes increasingly acceptable, if not inevitable, here’s what you should know:

Q. How does it work?

A. Basically, you agree to have your driving habits very closely monitored and reported to your insurer, which uses the data in its formula for setting your insurance rate.

Q. How are my driving habits monitored?

A. An increasingly popular way is to simply download an app onto your smartphone. From there, the app does all the work, collecting, transmitting, and analyzing your every move. (Your phone contains GPS, which tracks your route, plus a very sensitive component that detects rate of speed, turns, and other movements.) You don’t have to open the app each time you get into your vehicle; it operates in the background.

Some insurers provide drivers with a small plug-in device for vehicles equipped with an OBD (on-board device) port for data collection and transmission.

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And many new vehicles now come embedded with a “black box”-like device that can be used for the same purpose. (It must be activated and linked to your insurer.)

Q. What gets monitored?

A. Miles driven, time of day (nighttime driving is deemed more prone to crashes), where the vehicle is driven, rapid acceleration, hard braking, hard cornering, and airbag deployment, according to a list compiled by the National Association of Insurance Commissioners.

App-based programs also track and report every time you pick up your smartphone while driving, including texting, a dangerous distraction that is illegal in Massachusetts. (A first-time violation results in a $100 fine; second time, $250, plus a mandatory distracted driving course; third time and beyond, $500 each, plus the course.) Hands-free use of your phone is deemed safe and isn’t detected or reported. Neither is listening to music or using your GPS navigation system.

Q. Do insurers favor these kinds of programs?

A. Yes, 23 of the top 25 insurers nationally offer some form of telematics, according to a recent report from Cambridge Mobile Telematics, which partners with insurers to provide technology. The same report says drivers are warming to telematics, too, especially since the pandemic hit, when many policyholders realized they were still getting charged for insurance at the same rate, even as the number of miles they drove dwindled to near zero.

The state Division of Insurance says these insurers are approved to use telematics in Massachusetts: Plymouth Rock, Progressive, Esurance, Allstate, Liberty Mutual, Safeco, MAPFRE, Safety, and Travelers. (The DIO scrutinizes insurers’ telematics as part of its rate-setting review process.)

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One research firm estimates that a little more than 2 percent of all auto insurance policies now include telematics. And, according to a National Association of Insurance Commissioners report released last month, telematics “is gaining popularity and many auto insurers are beginning to offer it.” Two start-ups, Metromile and Root Insurance, only offer usage-based insurance, the NAIC report noted.

Q. What’s in it for insurers?

A. The auto insurance industry is notoriously competitive. In the battle for market share, insurers strive to get their prices as low as possible while still taking in enough premiums to cover claims and earn a profit. The best way to do that is to match risk to rate as precisely as possible. But risk is a measure of something (bad) happening in the future, a mere prediction. Insurers have traditionally relied on actuaries poring over historical data to predict it. Now, insurers are able to access data on an individual driver’s actual real-time driving habits, and many are lowering rates for their best drivers, to keep them from being lured away by a competitor.

Q. How exactly are good drivers rewarded?

A. MAPFRE, by far the largest auto insurer in the state, with almost one-quarter of the market, will introduce MotionSmart next month. To entice policyholders to opt in, MAPFRE is offering a one-time 10 percent discount. On top of that, drivers can earn up to an additional 20 percent off their premium depending on “how well” they drive, according to MAPFRE. (The company said it would not raise any premium due to high-risk driving more than 5 percent.) MAPFRE is not disclosing its formula for parceling out discounts to good drivers, saying it “considers a variety of factors when determining premiums, with particular focus on driving-related factors.” (Insurers consider such formulas proprietary.)

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Q. What are the factors traditionally used to compute premiums?

A. Your vehicle type, garage location, usage, accident and driving records. Some states allow insurers to consider credit history and other “non-driving” factors, but Massachusetts and a few other states ban it as having a socioeconomic bias. Still, even the safest drivers in Massachusetts who happen to live (and garage their cars) in a community where lots of claims are generated are forced to pay a higher rate than would be otherwise warranted because they are grouped with their less careful neighbors.

Q. Do drivers who opt in to telematics drive better?

A. Yes. Drivers who agree to be monitored drive significantly better, with one Harvard study quantifying the improvement at about 30 percent. Drivers who use an app get a “report card” on their phones on their driving performance after every trip, with comparisons to previous trips and to all drivers in the database, and with rankings in such categories as braking, acceleration, cornering, speeding, and phone use.

Q. What are some of the concerns about telematics?

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A. In a report released last month, the Consumer Federation of America cited concerns about unfair pricing, misuse of data, and loss of privacy. The CFA report said states must establish strict rules governing the insurance industry’s “use of telematics, pricing transparency, and consumer privacy.”

But the CFA report also noted the “substantial promise” presented by telematics for reducing crashes. And it said telematics “could end the use of non-driving factors” such as credit reports “that disproportionately harm lower-income consumers and commonly have disparate impacts on people of color.”

Q. What role does the state Division of Insurance play?

A. The DOI must review and approve all rate increases proposed by insurers, as well as the use of telematics.

As the use of telematics expands, the DIO said it is “exploring other states’ experience to see if any regulatory guidance is necessary.”


Got a problem? Send your consumer issue to sean.murphy@globe.com. Follow him on Twitter @spmurphyboston.