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‘Snapshot’ your auto insurance?

By Jay MacDonald ·
Tuesday, December 11, 2012
Posted: 10 am ET

Cave dwellers excluded, most of us by now have heard of and perhaps even considered Progressive's "Snapshot" program, which offers customers a shot at saving up to 30 percent on their auto insurance rates based on how they actually drive.

To make this individual tweak to its standard underwriting, Progressive plugs a device into your vehicle's diagnostic port that allows the company to track your driving behavior, including how many miles you drive, how frequently you slam on the brakes and how often you drive between midnight and 4 a.m. Come to think of it, a caveman probably could save 30 percent off the top. But that's another company's commercial for another time.

This appealing little marketing tool has opened up a broad new horizon called usage-based insurance, or UBI, that extends well beyond auto insurance. Here's why:

Historically, insurance has been underwritten based on a mix of your personal attributes (age, vehicle year, make and model, ZIP code, credit ratings, claims history) and the data of all other drivers, good and bad, in your insurance pool. The company then crunches the numbers and charges you a premium that's based on the pool's collective accident risk. Both you and your insurance company "save" by spreading the risk in this way.

Snapshot and similar UBI programs, however, present at least the potential to calculate risk individually based on real-time, ride-along data.

Which begs the question: Would you be better off being rated as a statistical pool of one?

Progressive has been using UBI for more than a decade in various configurations. Last summer, it surpassed $1 billion in premiums written using UBI data. The company says its experiment has confirmed what most of us assume: that the highest-risk drivers cost 2.5 times more in claims than the lowest-risk drivers and good drivers pay more to subsidize them.

While UBI to date has collected fairly innocuous data -- Progressive has purposely steered clear of GPS tracking, for example -- it is data nonetheless that could prove harmful in the wrong hands. Would you want a potential employer to know that you frequently drive in the wee small hours, for example? Or, should UBI grow to include this: that you text or talk on your phone while underway?

Anita Ramasastry, a law professor at the University of Washington, says UBI's relatively benign infancy could lead to other, more disturbing consumer "bargains" across the insurance spectrum.

"How would we feel if insurers started monitoring our daily lives, via a pedometer, thermometer or blood pressure cuff, to determine our premiums? Or imagine a health insurer tracking our grocery store spending patterns to see if we are making healthy choices," she says. "Once the data is collected, we need to ask what safeguards will stop the data from being stored and used again to rate us in a new and different context."

It's the old price vs. privacy dilemma. Are you comfortable giving your auto insurance company a snapshot of your day-to-day driving behavior to save a few bucks on your premium?

Follow me on Twitter: @omnisaurus.
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