The Hidden Cost of Connectivity: How Driving Data is Impacting Auto Insurance Rates

As recently reported by the New York Times and other media outlets, Kenn Dahl, a 65-year-old owner of a software company near Seattle, saw his car insurance premiums skyrocket by 21 percent in 2022. When he questioned his insurance agent about the sudden increase, he was told that his “LexisNexis report” may have played a significant role in this hike.

LexisNexis, a global data broker headquartered in New York, has a division named “Risk Solutions” that caters specifically to the auto insurance industry. Traditionally, it has tracked car accidents and traffic tickets. However, upon Dahl’s request, LexisNexis sent him a consumer disclosure report, as mandated by the Fair Credit Reporting Act. What Dahl found inside was over 130 pages documenting the specifics of every trip he or his wife made in their vehicle over the previous six months. This data included 640 trips with details of dates, start and end times, distances driven, and incidents of speeding, hard braking, or sharp accelerations.

The report revealed that General Motors (GM), the manufacturer of his Chevy Bolt, provided these trip details. LexisNexis had analyzed this driving data to create a risk score, which it intentionally marketed to insurers for the purpose of providing more personalized insurance coverage. According to industry watchdogs, the case of Kenn Dahl underscores the need for transparency and consumer understanding regarding data collection and its impact on insurance rates.

GM is not alone in sharing driving behavior data. Numerous automakers contribute to LexisNexis’s “Telematics Exchange,” which pools consumer-approved connected car data for subsequent sale. Despite some companies asserting they share only limited data, the interconnectedness of modern vehicles means that more comprehensive data sharing is feasible.

The New Face of Insurance Monitoring

In recent years, insurance companies have introduced incentives for drivers to install monitoring devices in their cars or download smartphone apps to track driving behavior—such as driving distance, cornering speed, braking intensity, and adherence to speed limits. However, a patent application by Ford Motor revealed that drivers are often hesitant to join these programs. Accordingly, it appears that car manufacturers have stepped in to fill this void collecting data directly from internet-connected vehicles, frequently without the driver’s explicit consent or even knowledge.

Among the various automakers, Kia, Mitsubishi, and Hyundai have “Driving Score,” Honda and Acura have “Driver Feedback,” and GM has “OnStar Smart Driver,” all of which, until recently, collected and shared data to third parties. While some drivers may choose to activate these features, others might unknowingly agree to data sharing through complex privacy policies and fine print that are seldom fully read or understood. Omri Ben-Shahar, a law professor at the University of Chicago, supports usage-based insurance for its potential to improve driving safety. However, he criticized the “stealth enrollment” in data collection programs, stressing that drivers were unfairly surprised by the scope of subsequent data collection.

Many drivers, especially those with GM vehicles equipped with OnStar Smart Driver, often unknowingly enroll in data sharing services at the dealership, where salespeople can receive bonuses for enrolling customers in the services.

Automakers argue that the main purpose of these driver feedback programs is to promote safer driving habits. However, Mozilla researcher Jen Caltrider reviewed privacy policies for over 25 car brands last year and labeled cars as “a privacy nightmare.” She highlighted that drivers have little understanding of what they consent to regarding data collection, as privacy policies are often filled with incomprehensible legalese.

Addressing Privacy Concerns

In December, the Alliance for Automotive Innovation issued a statement emphasizing that cars are not spying on drivers but are instead focused on safety. Yet, the statement did not tackle the sale of data. It suggested that manufacturers are complying with privacy principles enforceable by the Federal Trade Commission (FTC) and called for a unified federal standard to address privacy concerns.

As automakers continue to build connected cars, concerns about data privacy and the ethical use of driving data will persist. Ensuring that consumers are fully aware of and consent to data collection and sharing practices is crucial in navigating the increasingly data-driven landscape of modern automobiles. Some automakers are trying to get ahead of this potential public relations headwind. In fact, GM recently discontinued its data collection service in response to multiple class action lawsuits and vociferous criticism from privacy advocates.

A GM spokeswoman, Malorie Lucich, reiterated that the OnStar Smart Driver service is optional and offered benefits such as insights into safe driving behavior and vehicle performance, which drivers could use to obtain insurance quotes. Customers could unenroll from the service at any time. However, the reality is far from straightforward. For example, Frank Pasquale, a law professor at Cornell University, was taken aback when he realized there was no prominent disclosure about third-party access to his driving data during the enrollment process for Smart Driver. “Because it’s not within the reasonable expectation of the average consumer, it should certainly be an industry practice to prominently disclose that is happening,” he noted.

The Role of Policymakers

This issue has also caught the attention of policymakers. California’s privacy regulator is currently investigating automakers’ data collection practices. Additionally, Senator Edward Markey of Massachusetts has urged the FTC to investigate potential violations of federal laws prohibiting unfair and deceptive business practices. “The ‘internet of things’ is really intruding into the lives of all Americans,” he remarked, citing the potential downside of providing vehicle data to third parties without explicit driver consent.

The Future of Vehicle Data Collection

The integration of connectivity and data collection in modern vehicles offers both opportunities and challenges, particularly in the realm of auto insurance. While existing data collecting and sharing technologies aim to promote safer driving habits, they also introduce legitimate privacy concerns. Policymakers and regulators must balance innovation with consumer rights, ensuring that data privacy standards keep pace with technological advancements. Ultimately, fostering trust through clear disclosures and fair practices will be essential as the automotive and insurance industries continue to navigate the digital age.

Copyright Nelson Law LLC

The opinions expressed in this blog are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates. This blog post is for general information purposes and is not intended to be and should not be taken as legal advice.