The basic idea is that if you drive more safely, you have fewer accidents and insurance companies like that. Some of my students might recall one of the lessons from the supply and demand game. That was that one condition for markets to work optimally is that buyers and sellers have equal access to information. When they don't, markets won't work as well as they should.
For instance, in used car markets, the sellers know alot more about the product than the buyers. Economists have studied the problems this causes in the "market for lemons" research. If you want to sell your used car for $1,000, some people won't believe it is worth it. So they only offer maybe $800. If you believe your car is worth $1,000, you won't sell it. Then there are not enough sales in that market and the quantity is too low or sub-optimal. And many of the cars on the market are lemons.
But in insurance markets, buyers know more than the sellers. You know how risky you are but the insurance companies don't. Insurance companies want your premiums to reflect your risk. The riskier people need to pay higher premiums. If insurance companies can learn more about your driving habits, they can know better what to charge you.
Here is an excerpt from the article linked above:
"A patent issued earlier this month to Allstate mentions using sensors and cameras to record "potential sources of driver distraction within the vehicle (e.g. pets, phone usage, unsecured objects in vehicle)." It also mentions gathering information on the number and types of passengers — whether adults, children or teenagers.See also The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender. Woman are generally safer drivers than men, so insurance companies charge men higher premiums. But the EU said they could no longer do this.
And the Northbrook-based insurer isn't just interested in the motoring habits of its own policyholders.
Underscoring companies' interest in collecting and analyzing information on you, also known as big data, the patent also envisions gathering information on nearby cars so it can compare its policyholder's habits to other motorists in the area. The patent, called "traffic-based driving analysis," is for a server that will receive driving behavior data from sensors, cameras and other devices.
"So my car spies on me and on other drivers near me?" Bob Hunter, insurance director for the Consumer Federation of America and a former Texas insurance commissioner, said after reviewing the patent. "Even if I give permission for this intrusive technology, my car spies on unsuspecting passengers and even on unsuspecting pedestrians or cars passing by?"
Hunter wondered about the "liability for that intrusiveness" as well as the potential to pick up such sensitive data as ATM PINs. It's "the invasion of the spy car," he said.
Allstate said it filed the new patent a few years ago. Company spokeswoman Laura Strykowski said the "technology would provide drivers with broader information about traffic conditions and external factors that could better equip them to drive safe."
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