Big Brother Can Save You Money

A new discount plan from GMAC Insurance gives a discount on premiums to drivers of General Motors vehicles with the OnStar service if they let the insurer track the number of miles they drive.

Other companies have been experimenting with similar programs, which is causing concern about how much privacy drivers may unwittingly give up in exchange for savings.

OnStar is a program built into most newer GM (Charts, Fortune 500) vehicles that allows occupants to communicate with a help-desk operator.

Among the services are travel directions and restaurant reservations. An OnStar call can also be initiated automatically in the event of a crash to get help quickly. OnStar subscribers can also get a monthly diagnostic email detailing any needed maintenance or potential problems for their car.

The only information OnStar would share with GMAC insurance, both companies said, would be the number of miles driven each month. GMAC would use that information to help it calculate risk. Drivers must enroll in the OnStar Vehicle Diagnostics service to get the discount.

"I wouldn't really consider that to be particularly invasive," said Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse.It's data that is commonly given out that doesn't dig very deeply into a driver's habits, he said.

The biggest discount of 54 percent would go to those who drive fewer than 2,500 miles per year. The smallest discount of 13 percent would go to those who drive between 12,501 and 15,000 miles per year. No discount would go to those who drive more than 15,000 miles per year.

The plan will be available in 34 states, but will roll out in more states next year, the company said. OnStar currently claims over 5 million total subscribers.

GMAC Insurance has been offering the discount on a test basis since January, 2004. So far, according to the company, 10,000 people have signed on.

GMAC Insurance, which is 49 percent owned by General Motors, insures all types of cars, not just GM cars, the company said, but this program would only be available to GM drivers.

Others testing the waters

Progressive Insurance offers a similar program in a few states. It's called TripSense, and it requires participants to plug a computer chip into a port in the the car's dashboard.

The chip collects data, including the number of miles driven and time of day when the vehicles is driven. Participants remove the chip on a regular basis and connect it to a computer to upload the data to Progressive's computers. In exchange, they receive discounts of as much as 25 percent on their insurance premiums, according to the company.

Adding time of day invites the potential for unforeseen uses of the data, according to Stephens. For example, the information could be subpoenaed in a divorce case to prove that someone was taking a few extra trips that weren't being divulged to his spouse.

"I saved $100 on my auto insurance, but I've got a pretty damning piece of evidence here that can be used against me and cost me tens of thousands of dollars," Stephens said.

Progressive (Charts, Fortune 500) also collects data about vehicle speed, acceleration and braking, but that information is used only for research purposes, the company said, and it would not be used to set rates, or as a basis for canceling a policy.

These discount programs are voluntary. As long as consumers understand fully what data is being collected and how it's being used, it's up to them to decide how much information they're comfortable with sharing to save money, said Stephens.

The GMAC/OnStar announcement may spur larger insurers to begin experimenting with programs like these soon, said Brian Sullivan, publisher of the insurance industry newsletter Risk Information.

Spokesmen for State Farm and Allstate (Charts, Fortune 500) said their companies are looking into it.

Keep on Truckin

Data-tracking discount programs that collect and analyze even more detailed data than those used by GMAC and Progressive, are already used by the commercial trucking business, according to Sullivan.

Customer acceptance is less of an issue there because the customers aren't the drivers but the trucking company owners who share the insurance company's interest in regulating and tracking driver behavior, said Sullivan.

"The nice thing about truckers," he said, "is if you can make them pee in a cup you can make them do anything."

Programs like that will provide more information about how much impact various data points should have on computing insurance risk and, therefore, premiums, said Sullivan.

And they actually change the way truck drivers operate their vehicles, said Sullivan. When truck drivers are told they are being tracked, as opposed to when they are tracked without their knowledge, they drive more carefully, Sullivan said.

"If everyone had this device on their car," he said, "we'd have far fewer accidents on the road."