Monday, June 30, 2008

Honesty can cost in auto policies

AB 2800, a bill by Assemblyman Jared Huffman, supported by California insurance lobbyists and one environmental group (Environmental Defense Fund), is seeking to let insurers charge drivers differently based on whether they use a GPS "technological device" to verify their mileage. The concept is that drivers that use these devices would be encouraged to drive less, therebye reducing their emission levels while saving money. However, there is more to AB 2800 than meets the eye.

The Consumer Federation of California has decided to oppose this legislation on a number of grounds, most notably that of privacy, but also on the basis that it would discriminate against a certain "class" of driver in favor of another.

As Consumer Watchdog's Carmen Balber writes (who are also opposed to the bill): This would also create a unfair system where two drivers who are otherwise the same would pay a different premium. Take one driver who installs a GPS monitor in his car that tells his insurance company that he drove 5,000 miles at the end of the year. A second driver verifies the 5000 miles he drove by having his odometer checked by his insurance agent at the end of the year.

Especially in the case of technology, which a driver may not want because of privacy concerns, or may not be able to use because his car is too old, it is unfair to penalize one for verifying his mileage in a different way. Creating two classes of insurance customers who are otherwise equal (as both of these plans would) is illegal under Proposition 103’s fair rate requirements. In fact, either of these programs – either discounts based on the use of technology, or based on whether a driver estimates or verifies – could easily create a situation where a driver who verifies or accepts the technology could drive more, but pay less, than a driver who reduces her mileage but estimates or doesn't use the device.

The possibility of installing technology in peoples' cars also brings up a host of privacy concerns: Should Californians be forced to pay higher premiums if they want to protect their privacy and reject technology?

(AB 2800)...would invite the spyware in. What kind of data do insurance companies really want to collect? They're already using a huge range of information - like speed, location and time of day - in different parts of the country and across the world.

The Sacramento Bee got wind of this bill and the growing debate around it:

Ultimately, passage of AB 2800 could set the stage for battles over whether the state should allow insurers to require high-tech devices for tracking mileage and whether to encourage pay-as-you-go policies that charge drivers for each mile traveled.


Opponents counter that the push for AB 2800 exaggerates insurers' woes and piggybacks onto environmental activism to achieve corporate gain."I think there's always sort of a credibility gap between the industry's claims and its actual performance," said Richard Holober of the Consumer Federation of California.


Opponents contend the legislation is a thinly veiled push toward allowing insurance companies to require use of satellite technology – known as GPS – that can track not only how far you drive, but where and how aggressively. "That's a huge invasion of privacy," Holober (executive director of the Consumer Federation of California) said. "It's nobody's business."

"I should not be required to give up my privacy in order to pay fair insurance rates," added Carmen Balber of Consumer Watchdog, an industry watchdog group.

I will be posting more on this bill and the larger debate over privacy in the coming days and weeks.

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