Smart cars are getting smarter. To achieve this outcome, automakers such as General Motors, Ford, Honda, Kia, and Mitsubishi have been collecting driving data from their vehicles, with the assertion that doing so will enable them to improve their automotive technology and the driving experience for consumers. 

But in addition to using the information for their own innovation processes, the automakers have been selling these vast, detailed data to brokers such as LexisNexis and Verisk, which then pass the information on to car insurance companies. Those insurance companies are willing to pay a premium for the insights; the data collected include information about multiple driving behaviors, including when, where, and how frequently the driver engages in speeding, hard braking, and acceleration, as well as where they go most often and at what times.  

In turn, the insurance companies can use the information to determine drivers’ insurance rates. Insurance companies always have developed risk profiles for customers, which previously relied mostly on demographic traits (e.g., young, male drivers tend to engage in riskier driving habits and thus get charged higher premiums) and location (e.g., a car parked on a city street is at greater risk of theft than one parked in a locked garage). But now they can develop more personalized, detailed, accurate risk profiles based on their individual clients’ actual driving habits. 

Such practices raise significant and reasonable concerns about privacy and consent; many drivers are unaware that their driving habits are being monitored, shared, and then factored into their insurance premiums. Certain data-sharing programs, like General Motor’s OnStar Smart Driver, enroll drivers automatically, so people’s participation in the program is unintentional. Other programs bury the consent language in lengthy privacy statements, with the knowledge that few consumers read these passages. In turn, some consumers have discovered their enrollment only when they receive notice that their insurance premiums are going up, sometimes substantially. Others even have lost coverage on the basis of the driving data.

One consumer noted his great surprise at finding a 21 percent increase in his annual premium, despite having had no accidents on his record. When he looked into the cause, LexisNexis provided him with comprehensive driving data, which took into account his trip dates, start and end times, and distances driven. In turn, the consumer’s irritation shifted, from a focus on the substantial price increase to complaints about the total lack of transparency associated with his unwilling enrollment in a data-sharing program. Mirroring this attitude, consumer surveys indicate a clear decline in consumers’ trust of automakers, once they learn of the data-sharing practices.

Regulators in turn have raised concerns about violations of consumer privacy laws, including the Federal Trade Commission Act, which prohibits deceptive business practices. In proposing solutions, some legislators call for clearer disclosure practices and stronger guidelines to protect consumers, whereas others suggest establishing an industry-wide standard to ensure equal treatment across automakers—as well as universal awareness among consumers. 

Of course, an alternative view exists too. Personalized insurance rates based on driving behavior offer both individual and societal benefits. Careful drivers might enjoy lower premiums, and incentivizing safe driving behaviors is beneficial for everyone on the road. Furthermore, basing premiums on behaviors, instead of factors that people cannot control (e.g., age, gender), arguably represents a fairer, less biased method. In this sense, an ethical dilemma arises: Do we prioritize consumer privacy? Or is it better to ensure fair treatment while also protecting the roads?

Discussion Questions

1. How would you answer the ethical dilemma raised in the last line of this abstract?
2. Which kinds of data are acceptable for automakers to collect, if any? Why?
3. Does data sharing incentivize safer driving?

Sources: Breck Dumas, “Automakers Tracking Drivers, Sharing Data with Car Insurance Companies,” FOXBusiness, March 14, 2024; Kashmir Hill, “Automakers Are Sharing Consumers’ Driving Behavior with Insurance Companies,” The New York Times, March 11, 2024; OpenAI ChatGPT, “Assistance with Research on Automakers Sharing Driver Data with Insurance Companies,” May 19, 2024; Tanya Gazdik, “Automakers Share Driving Data With Insurance Companies,” MediaPost, March 18, 2024.