For years, insurance companies have used estimates of your annual mileage to determine your car insurance rates. But with recent changes in technology, insurers now have an unprecedented ability to judge your actual driving habits. Armed with detailed data on how often you slam on the brakes and what times of day you're on the road, insurance companies are increasingly relying on precise, technological means of assessing risk — and using that information to set your monthly premiums.
Liberty Mutual, the country's third-largest property-and-casualty insurer, took the latest step in that direction Monday when it announced a partnership with Subaru. Beginning later this year, Subaru drivers who have paid for the automaker's Starlink infotainment system will be able to download an app to their cars that notifies them when they are accelerating too aggressively or braking too hard.
The app is part of Liberty Mutual's RightTrack program, which gives drivers a 5 percent discount on their rates for enrolling and additional discounts up to 30 percent for heeding the app's guidance on driving safely.
Liberty Mutual, which began offering RightTrack in 2012, isn't the only insurer to embrace usage-based insurance — a tactic that draws on a person's real-world driving behavior to gauge his accident risk. Progressive, Allstate and State Farm operate similar programs, too.
When implemented well, analysts say, usage-based insurance can encourage drivers to behave more safely, lowering the risk of a crash and saving money all around.
But as more Americans begin buying high-tech, connected cars that can talk to the Internet, other analysts say the rise of usage-based insurance raises uncomfortable questions for consumers and insurance companies alike.
"Don't assume this is always going to be a way to lower your rates," said Karl Brauer, an analyst at Kelley Blue Book. "It could be used against you to raise your rates long before you ever have an accident."
Although many insurance companies say that agreeing to be tracked can only result in a discount, not a rate hike, those terms could always change in the future, Brauer and other analysts say. And people who drive safely one year but more riskily the next could effectively see their rates rise when an insurer decides to grant a smaller discount than before.
Then there's the matter of consumer privacy. How long insurance companies can hold onto your data, and whom they can share it with, depends on each firm's policies as well as state or local regulations. Insurers would also have to obey court orders for user data.
"In a subpoena situation with a court, we're going to comply with the law," said Scott Bruns, director of telematics at State Farm. "But that would be a situation where data can help drive at the truth."
Driver data could someday even be used to assign blame in the event of a fender-bender.
Consumers who don't want to be tracked don't have to sign up. But when such programs become more common, opting out could serve as a "red flag" to insurance companies, according to Renee Stephens, vice president of U.S. auto quality for J.D. Power and Associates.
Insurers find behavioral monitoring attractive because it provides them with a clearer picture of the entire risk pool. By understanding better how each driver behaves, companies can design insurance plans that match a person's risk more accurately and determine how much coverage a given driver requires.
"That's really essential when you're pricing a product — being able to adequately match price to risk," said Bruns. "If an insurance company can't do that effectively, they'll very quickly find themselves not in business."
Insurance companies even hope to use consumers' smartphones as a way to track their driving habits. In December, Liberty Mutual began testing a voluntary extension of RightTrack in Michigan and Indiana that uses a phone's accelerometer and GPS to monitor sudden changes in speed or other unsafe behavior. State Farm is testing its own voluntary phone-tracking program in Ohio, and has plans to expand it to five other states in 2016.
More-sophisticated programs rely on a device that plugs into a special port near the steering columns of most newer cars. Beyond keeping an eye on vehicle speed and time of day, these devices can even take note of strong turns of the wheel, which may indicate unsafe swerving.
"Usage-based insurance is a very exciting way to offer real benefits to our customers," said Jeff Wright, a vice president at Liberty Mutual. "Customers can take a bit more control over what they're charged in their insurance premiums."
For consumers who are already considered safe drivers, these solutions may be a way to save money. For those who currently live on the wild side, signing up gives them the financial incentive to moderate their behavior. But no matter how you drive, this type of tracking is here to stay.