Smart Phone Technology and Cheaper Car Insurance

New York City officials announced this week that the city is looking into “DriveSmart” technology, an in-vehicle device that tracks mileage, speed and other driving habits to calculate individual car insurance premiums. The pay-as-you-go, usage-based car insurance approach is already in place in other states and municipalities, resulting in cheaper car insurance for many formerly high-rated drivers. Many also see it as a way to replace dwindling gas tax revenues as cars become more fuel efficient.

Tying good driving habits to lower car insurance is nothing new. Car insurance companies have been looking for ways to connect those dots for over a decade. What is new is the use of embedded telematics technology to take reporting out of the hands of the driver (who might inclined to fudge the numbers) and hand it over to a totally objective computer chip. With the prevalence of smart phones and wide-spread cellular server networks, the cost to do so is feasible for a growing number of insurers. Progressive’s Snapshot product has been available in all U.S. markets since March, AllState introduced Drive Wise in Illinois this spring,  GMAC’s OnStar uses a telematics program and State Farm uses the OnStar technology. SafeCo of Seattle recently signed with Italy’s Octo Telematics, which has installed more than 1.2 million of the devises in car throughout Europe. Other insurers, such as American Family, are also testing the telematics platform.

In exchange for plugging a telematics device into your car’s diagnostic port, car insurers are offering car insurance premium discounts ranging from 30% to more than 50%. Among the things measured are the miles you drive, speed, braking habits and time of day you drive. Telematics also track the location of your vehicle.

For consumers the downside of all that data gathering is privacy issues. There currently is no comprehensive federal law preventing personal data gathered from these devices from being sold or shared with commercial partners. Others are concerned that negative data might be used to increase car insurance rates. The fact that for now, at least, telematics car insurance programs are entirely voluntary should lessen the specter of Big Brother in your backseat.