The telematics car insurance discount will result in modest short-term savings. But giving your insurance company access to information about your driving and driving behaviors, it can also cause your insurance premiums to go up. It can also result in claims being later denied and your auto insurer even refusing to renew your policy. Buyer beware.  

For years, I’ve been writing on this blog that auto insurance companies should stop using discriminatory non-driving-related factors like zip codes (redlining), credit scores, gender, marital status, education and occupation to determine how much people should pay for car insurance.

I have also advocated that auto insurers should instead base drivers’ car insurance premiums by how people drive – such as whether they get in car accidents, speeding tickets, and other more relevant factors. It simply isn’t fair that a woman in Detroit with a perfect driving record who has never caused a car accident should be paying substantially more for car insurance than a man in Bloomfield Hills with a terrible driving record.  

But insurance companies using vehicle event recorders to dangle the idea of savings on car insurance and offering discounts to drivers to monitor their driving is something else entirely.  

 Insurance companies are using telematics to closely examine driving behaviors and habits.  The rub is that they can then use this information to raise drivers’ car insurance premiums and even to deny claims if they don’t like what they see.

Think of the “discount” these insurers are offering more akin to a fee that insurers will pay drivers to have full access to all of their private driving information and full authority to use that information however the insurance company sees fit.

To learn more, check out this video:

What is a telematics car insurance discount?

A telematics car insurance discount is a discount that you receive for signing up for and continuing to participate in your auto insurance company’s app-based program which allows your auto insurer to track and monitor how you drive.

How do you get the telematics car insurance discount?

You download your auto insurance company’s mobile app onto your smartphone. So long as your phone is on, adequately charged, set to all motion and/or physical activity and the location services have been enabled, then the app will detect and monitor any trip you take in a vehicle.

Is a telematics car insurance discount the same thing as a reduction of your insurance premium?

No. The telematics car insurance discount depends exclusively on your signing up for and continued participation in your insurer’s app-based program to monitor your driving. However, any reduction – or increase – in your car insurance premium will depend on your driving behavior (about which the app is gathering data). 

By signing up for a telematics car insurance discount, what information about my driving am I allowing my insurer to gather?

In return for offering a telematic car insurance discount, a Consumer Reports study reports that auto insurance companies will want to use their phone-based app to gather data about: (1) the times of day or night that you drive; (2) how far you drive; (3) sudden accelerations; (4) braking (slowing down gradually while maintaining a safe distance from the vehicle ahead); (5) “hard braking” (slowing rapidly in a very short period of time, i.e., decreasing one’s speed by approximately 7mph or more over the course of one second); (6) cell phone use; (7) speed (driving over the speed limit or maintaining a high average speed over multiple trips); and (8) cornering (i.e., sharp and/or quick turns at a high rate of speed). 

How is the information used to increase or reduce car insurance premiums?

After identifying some, but not all, of the driving behaviors they are tracking with their telematics technology, most auto insurers will vaguely state that “safer driving habits” could result in discounts and savings on your car insurance premium. 

What insurance companies are not saying is that certain driving habits or behaviors could go cause your premiums to go up. What are these driving habits and behaviors that can cause your car insurance premiums to go up? Unfortunately, we do not yet know all of them, and the insurers are so far not telling.  

In other words, there is still quite a lot of information that the auto insurance companies DO NOT tell you about how they will use your driving information. They also are not saying that this information may raise as well as lower the price of your car insurance. Many drivers may be in for a very unpleasant surprise.  

For instance, insurance companies that offer telematics car insurance discounts do not tell you all of the driving factors and behaviors that they will be monitoring. They also do not disclose which of these factors they deem the most significant. No insurance company has yet to disclose what the criteria or threshold will be that may result in a car insurance premium increase.  

Without knowing what standards will be applied, it is impossible to understand – or to challenge – the reasoning for big changes in your premium. Essentially, promises of these telematics car insurance discounts and the lure of some unspecified savings on insurance are being used to allow insurance companies unfettered access – because the vehicle-data-recorder themselves are effectively a mysterious “black box” that may be used by the insurer to raise or lower rates without giving any reason to the consumer whatsoever.  

And if the goal of the telematics car insurance discount is to motivate drivers to drive more safely, how can consumers be expected to do so if they are not even informed about what areas of their driving the insurer deems less safe or the areas of their driving that need improvement?

Are there any legal limits using the information from a telematics car insurance discount?

It appears that the only telematics factor that Michigan’s Insurance Code allows to be used to actually set auto insurance rates is the “distance” that an insured drives.  (MCL 500.2111(2)(a)(iii) and (vi)(“Average miles driven weekly, annually, or both” and “Daily or weekly commuting mileage”)

However, it should be noted that consistent with what I said above about how rates should reflect accident and tickets, Michigan insurers are required to include in the rate-setting process both “[s]ubstantially at-fault accidents” and convictions or findings of responsibility for violations of the Michigan Vehicle Code. (MCL 500.2111(3))

Can the information that you traded for a telematics car insurance discount be used to deny your claim?

It appears that information about how you drive, which your auto insurer was able to gather as a trade-off for your telematics car insurance discount, can be used by insurance companies, adjusters and defense lawyers to deny your claims and against you in lawsuits that you file or that are filed against you.

A Consumer Reports study on telematics car insurance discounts reported that “[n]early every company we studied, for example, reserves the right to use vehicle event data to analyze insurance claims—which means that information about your car’s movements in the seconds before a crash could have important ramifications.”

That means your auto insurance company could use your driving information to challenge your claims for “uninsured motorist” and/or “underinsured motorist” benefits or collision coverage. 

What if you were injured in a car crash and you are suing the at-fault driver who hit you and caused your injuries? Is he or she able to subpoena your vehicle event data from your insurer? 

Alternatively, are you able to subpoena the vehicle event data from the insurance company for the at-fault driver who injured you?

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(Source: Consumer Reports, “What You’re Giving Up When You Let Your Car Insurer Track You In Exchange for Discounts”)