Posted by Eugene Volokh:
Car insurance discounts based on where you drive:
[1]Ted Balaker (Out of Control, Reason Public Policy Institute)
writes:
Insurance companies are beginning to monitor customers' driving in
exchange for lower rates:
* Progressive will announce its TripSense trial in Minnesota on
Aug. 24. Customers who sign up will get a device the size of a Tic
Tac box to plug into their cars. The device will track speed and
how many miles are driven at what times of day. Every few months,
customers would unplug the device from the car, plug it into a
computer, download the data and send it to Progressive. Depending
on results, discounts will range from 5% to 25%.
* In Great Britain, major insurer Norwich Union will start its Pay
As You Drive test in a few weeks. Volunteers will get a device the
size of a Palm computer installed in their cars. The gadget will
use global positioning satellite technology to track where the car
goes, constantly sending information to Norwich Union wirelessly.
Cars that spend more time in safer areas will qualify for bigger
discounts. . . .
I wonder if technology used by Progressive and Norwich Union could
be [broadened] . . . . Perhaps (with the driver's ok) the act of
buckling up could be tracked by insurance companies. This approach
would also throw a carrot into the mix, for buckling up would be
rewarded with lower rates. . . .
Read the [2]rest of Ted's piece for more.
I think this sort of monitoring is a good idea. Naturally, I'd want
insurance companies to promise to keep the information confidential;
and if I were an insurance company, I'd offer a deal by which people
could disconnect the device for some time and lose part of the
discount (naturally the fact of the disconnection would itself be
interesting information, but less informative than the collected
details would have been), perhaps a part related to the time the
device is disconnected. But while I realize that such confidentiality
can never be perfect -- and certainly if the insurance companies don't
promptly throw out the data, a subpoena could pierce the
confidentiality -- I think that on balance the benefits of giving more
choices to safe drivers and drivers who drive in safe parts of town
make the proposals worthwhile.
I realize that some drivers are stuck in bad parts of town because
they live or work there, and they're not morally at fault for that.
But I don't see why that's relevant. Those drivers will have
foreseeably more expenses for which insurance will have to pay. If you
make it illegal for insurance companies to distinguish those drivers
from other drivers, then the low-risk drivers will essentially be
legally required to cross-subsidize the high-risk drivers. I think
that's both wrong and economically inefficient. If you want to
subsidize drivers who may not be able to afford insurance, subsidize
them directly (with the equivalent of food stamps) rather than by
requiring the low-risk drivers to subsidize the high-risk ones,
whether those high-risk ones are rich or poor. And this goes double if
the insurance company does measure easily changeable behavior, such as
speeding or seat belt use.
We don't require life insurance companies to charge the same premiums
to old people as to young people. It's not the old people's fault that
they're old, but they are higher risk than the young, and it would be
wrong and inefficient to make young people subsidize the old. (The
inefficiency comes because the result will be that young people will
buy too little life insurance, since it's a bad deal for them; and the
old people will still end up paying high prices, since as young people
fall out of the pool, the old people will have to pay more.)
And, yes, I'd also support health insurance companies charging
high-risk people more, though I'd want to make sure that the system
doesn't discourage the buying of health insurance early in life (or
even before your birth, when your parents would buy it for you), when
your future health is relatively uncertain, and when you can pool risk
with a lot of other people. If we think that we should compensate
people with genetic predisposition to disease, or help poor sick
people, we should do that directly, rather than by requiring
cross-subsidization. And at the very least this should be so as to
people whose diseases are in part affected by their lifestyles
(smoking, low exercise [like me], obesity, high-risk sports, excessive
drinking or drug use, and the like), to the extent that this can be
determined.
Finally, I realize that there are some prohibitions on race and sex
discrimination in insurance sales that don't make actuarial sense, in
that they require people who are known to be higher risk to pool their
risk with people who are clearly lower risk. But if they are
justified, they are justified because of some special concerns about
race and sex discrimination, concerns that shouldn't, I think, carry
over to other situations (such as age in life insurance, which is just
as much outside our control as race or sex).
References
1. http://www.rppi.org/outofcontrol/archives/000500.html
2. http://www.rppi.org/outofcontrol/archives/000500.html
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