Recent years have seen a dramatic growth in the use of geolocation technology, or telematics. For many of us, our location-enabled smart phone is rarely out of sight. It even settles down beside us when we go to sleep at night.
The motor insurance industry presents a major growth area for telematics. Location tracking devices installed in cars allow insurers to gather a wealth of information about their customers’ driving habits. Relevant data include the car’s speed, the type of road, the number of driving hours, and aspects of driving technique such as braking and cornering. As well as serving these primary purposes, telematics devices can provide the location of a vehicle to a breakdown service, raise an alarm if the car is involved in an accident and trace the vehicle’s position if it is stolen.
These key pieces of information enable insurers to craft policies that are tailored to the precise driving habits of the individual driver. Traditionally, insurance premia were based on a person’s risk profile as assessed by reference to general characteristics. Essentially, drivers were categorised into different ‘types’ and charged accordingly. Telematic data promises to enable insurers to dispense with ‘types’ all together.
For consumers the attraction is the promise of lower insurance premia if they can prove they’re good drivers. Most people (rightly or wrongly) consider themselves to be good drivers and feel they should be rewarded for that. A recent decision by the European Court of Justice that effectively prohibited gender-based distinctions in insurance rates has provided an added reason to move to individualised risk profiling.
The policies are commonly known as ‘pay-as-you-drive’ or ‘pay-how-you-drive.’ Some policies, more common in the US than in Europe, also offer discounts to drivers who use their cars less than average. This application of the technology has found favour with the environmental lobby because it rewards drivers who choose to leave their cars at home. Another public benefit is the fact that the sheer presence of the tracking device appears to encourage safer driving and deter drivers from taking risks.
The key challenge for this new technology is a potential risk to personal privacy. Cheaper insurance premia are seductive, but many people may hesitate to adopt such technologies out of privacy concerns. Furthermore, care needs to be taken to ensure that new products of this sort comply with the requirements of European data protection law.
In 2011, the Article 29 Working Party (a body consisting of various European privacy regulators including the Irish DPC and UK's ICO) produced an opinion on geolocation services in smart mobile devices. The opinion concluded that location data from GPS devices and smart mobile devices should be treated as personal data where it is linked to an identified or identifiable person.
As "data controllers", insurance companies may need to obtain proper consent to the processing of their drivers’ location information and only collect as much information as is needed to properly assess individual risk. The purpose of the data collection needs to be clearly defined and articulated. The data must only be retained for as long as is necessary, though insurers may choose to anonymise it and keep it for general risk assessments in the future.
Earlier this year the Association of British Insurers published guidance for insurers on how to ensure telematics-based policies are compliant with data protection law. The guidelines emphasise that insurers should get explicit consent if they wish to share personal data with “non-essential” third parties. This includes situations where there are a number of named drivers on a policy, and one of them requests details that relate to the others.
One strategy that insurers could consider is to measure driver behaviour for a limited period – a month or so – and set the premium based on that. This approach has been taken by some US providers, and it might help keep data protection concerns to a minimum. There is little doubt that telematics have the potential to revolutionise the insurance industry. However, effectively rolling out these products, and getting acceptance from regulators and the public, will require that data protection considerations are appropriately considered and addressed.
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