Insurance Industries and the Quest for Perfect Information

For years, insurance has been a product of simple factors: age, location, gender. But new monitoring technology that allows insurance agencies to know how fast drivers are going and how safe they are driving may reshape the way insurance works. These so-called “telematic” devices monitor speed and how well a driver brakes. And these new innovations may only be the first step in a larger trend of driver monitoring, designed to encourage safer driving practices. For example, Progressive has already collected over one trillion seconds of driving data.

Those in favor of this new technology say that it will eliminate the sometimes arbitrary nature of the insurance business, shifting agencies’ policies from categories of drivers to individuals. This would eliminate the classic example of a good driver who happened to be 18 and male paying substantially higher insurance premiums. Detractors however, say that the technology is too large and too uncertain as of yet to warrant widespread deployment. They point to cases like that of Nathalie Blanchard, who had her health insurance cut off because of a similar program operated by her insurer.

On the one hand this new technology is poised to make serious progress towards reaching one of the inherent prerequisites for perfect competition: perfect information. Nevertheless, it also raises serious questions about personal privacy, and whether/how much information firms should be allowed to collect from individuals.

http://www.bbc.co.uk/news/business-24941415

3 thoughts on “Insurance Industries and the Quest for Perfect Information

  1. I wonder if these information gathers could be hacked or manipulated? With most new technology hacking and tampering could impact results from the devices.

  2. I would not be surprised if consumers react the way Nathalie Blanchard did to her health insurance. There seems to be a widespread public sentiment that people do not appreciate being monitored. With the backlash against the NSA, I wouldn’t be surprised if insurance companies hesitate a little while longer to implement technology like this.

  3. I wonder why insurance companies would want to do this. If individual drivers are significantly safer than the average driver, then his/her insurance costs will decrease. If this is the general trend, then consumer surplus will increase, while profits will decrease. Insurance companies will be highly motivated to maintain rigorous standards for “safe” driving and increase profits.

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