Bob Passmore, senior director of personal lines at the Property Casualty Insurers Association of America (PCI), on whether insurance telematics needs government regulation.
Sometimes you want a nationwide regulatory framework to streamline complex processes and trim needless confusion. In the case of insurance telematics in the United States, not so much. And Passmore likes it this way. According to him, it is important that states are able to serve their purposes as policy laboratories – if something doesn’t work in one state, the whole system doesn’t have to be reworked.
As part of his responsibilities at PCI, Passmore monitors automobile insurance issuesfrom a countrywide standpoint and deals with different states and the federal government on legislation and regulation. He spoke to TU’s Jan Stojaspal about what’s happening (and not happening) in the regulation of insurance telematics, and how to educate policymakers in order to alleviate some of their fears.
Insurance is typically extremely well regulated, so insurance telematics is a bit of an anomaly. Or is it not?
While there may not be much regulation specifically directed at telematics, it’s important to remember that all the other regulations that are in place for auto insurance in every state still apply. Telematics fits within the current regulatory regime. Some of the laws regarding insurance regulation date back to the 30s because they still work today.
Now, the question becomes: Do the laws need to be adapted? And a lot of that is to be determined by what kinds of issues pop up. Nothing happens unless there is a public pressure to do that.
What are some of the considerations when it comes to government regulation of insurance telematics? It’s a fairly new space, and there are concerns over privacy, data security, data portability.
There hasn’t been a whole lot of activity from a legislative or regulatory standpoint on telematics. As I said, the primary reason for that is that these programs generally fit within the regulatory schemes that are out there in the states. But there are some places where, in the last couple of years, we’ve had a couple of issues pop up.
One was Washington [state] and protecting trade secrets. If a company has developed its program – its proprietary formula, so to speak – it has to file its rates. And generally those are public documents available for public inspection.
If you’re filing a program that you’ve spent a lot of money and time to develop, you want that protected from your competitors. In Washington, it took a couple of years, but that was an issue that was ultimately resolved successfully.
As for the future, privacy is something that is often cited as a potential issue. But the beauty of these programs is that they’re voluntary. You have to actually opt in, you have to put the device on your car. This doesn’t happen without the person’s knowledge.
Now, for protecting that data, there are some existing laws that require companies to protect their customers’ data – so there may not need to be additional regulation on that point.
Still, are there areas where regulation will be inevitable? Are there particular sensitivities around some parts of insurance telematics that you’re aware of?
Privacy is one issue. The other is probably going to be [data] portability. There are no court cases about telematics per se. But the courts have decided on event data recorders – black boxes if you will – that have been in cars for a long time. And the courts have consistently come down that that data really belongs to the owner of the vehicle. I think those precedents that have been set will most likely carry over to telematics.
What are the insurers saying? Do they want to police themselves? Are there voluntary guidelines? I’m just wondering how the industry itself is preventing someone from coming down really hard.
Generally, insurers are in favor of regulation that allows and encourages competition. The way to achieve that is to make sure that we, the insurance industry, educate the policymakers about what these programs are, how they work, and what protections are in place for consumers. It’s also about being able to respond if there is an issue.
What are some of the areas that the policymakers need the most education on?
One of the misconceptions is that these things aren’t voluntary and that they’re tracking a lot of things that aren’t being tracked. You have to overcome that ‘Big Brother’ factor.
In the United States, the regulation and licensing is state-based. What are your thoughts on how there might be some harmonization there?
Our members support the state regulatory system. It has worked very well and continues to do so. The federal role has been increasing a little bit lately. But our members support the state-based system.
The argument is always made that, if you have one set of standards, there’re certain benefits to that. But you also have benefits of each state being able to do what’s right for the state. Companies have, over the years, been able to adapt to that, and they’re comfortable with that. At least our members are.
Are there benefits to the companies as well?
Well, sometimes you can have changes in the legislation, changes in the regulatory regimes. If you have one set of standards, and something changes not for the positive, you have that all over the country. If you have 50 different systems and one of them changes something, that’s one of many. So I guess it’s a basic principle of risk management.
Jan Stojaspal is the executive editor of Telematics Update.
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