Under New California Insurance Bill, Drivers Could Swap Data for Discounts

State law requires insurers to prioritize safety record, miles driven and driving experience as the main factors when they set drivers’ premiums.

The bill would let drivers choose to use telematics data to establish their driving records in addition to what their Department of Motor Vehicles records show. Telematics data is collected by smartphone app, systems embedded in vehicles or other connected technology.

Supporters say the legislation would make streets and highways safer by encouraging better driving, while opponents worry about privacy, lack of transparency and possible bias in insurance pricing.

Kellie Montalvo, a parent whose son died after a distracted driver hit him, testified before the Senate Standing Committee on Insurance on June 24.

She said her son Benjamin, 21, was riding his bike in 2020 when he was hit by a driver who had been texting while driving. She said the driver had a record of “speeding tickets, prior crashes and this was her fourth hit-and-run.”

“I spend many sleepless nights wondering if she had been stopped at any point prior to that horrific night, would my beautiful son be here today,” Montalvo said, her voice breaking. She urged lawmakers to pass the bill, saying it will save lives.

Other witnesses, also clearly emotional, expressed support for the bill as they carried enlarged photos of the loved ones they’ve lost because of crashes.

The bill’s author, Assemblymember Tina McKinnor, a Democrat from Inglewood, said at the committee hearing that she has lost three friends in vehicle crashes in the past several years. She called telematics a tool to help make streets safer, saying her bill would “incentivize safer, good driving behavior.”

Safer Streets for Everyone, a nonprofit organization advocating for road safety, co-sponsored the legislation. The group’s founder and executive director, Damian Kevitt, is a cyclist who was hit by a car and lost his leg. He testified before the committee, citing a couple of studies that show drivers improved their behavior — including reducing their use of mobile phones — while behind the wheel when financial rewards were involved.

Both studies were backed by the insurance industry. None of the proponents who testified recently before two Senate committees advanced the bill mentioned any independent studies around whether telematics has helped improve safety.

Other supporters of the bill include several road-safety coalitions and bicycle associations from around the state.

Insurance department’s concerns

The state’s insurance department is opposed to the bill, saying the legislation is not compatible with California insurance law, Proposition 103.

The law came out of a ballot proposition written by Harvey Rosenfield, the founder of consumer advocacy group Consumer Watchdog, in response to rising car and home insurance premiums almost four decades ago.

It was approved by 51% of the state’s voters in 1988 and includes a mandate for insurance companies to give “good drivers” 20% discounts. (Some drivers also receive discounts for low mileage — it’s a form of monitoring that’s OK under Prop. 103 because miles driven is an allowed factor in rate-setting.)

“The bill creates broad liability loopholes, dilutes regulator oversight, and allows insurance companies to shift core regulatory responsibilities to unregulated third-party telematics vendors, among other concerns,” wrote Josephine Figueroa, deputy insurance commissioner and legislative director for the department, to Sen. Steve Padilla, chairperson of the Senate insurance committee, on June 20.

Figueroa wrote that the bill contains vague language about how insurance companies are supposed to do “due diligence” around third-party telematics providers, and using telematics data as part of drivers’ records. She said the insurance department has documented cases “where facially neutral criteria produce disparate impacts, such as the use of census-tract voter registration rates as a proxy for race or citizenship.”

In addition, she said “consumer savings also remain generally unproven and varied.” She cited data from the Maryland Insurance Administration, which showed that in 2023, 31% of that state’s drivers enrolled in their insurers’ telematics program saw their rates drop; 24% actually experienced an increase; and 45% saw no change in their premiums.

Maryland’s research also showed that the telematics systems collected a lot of data that included trip route, days driven, G-force, unsafe following, aggressive turning and many more driver behaviors. Most insurers outsourced the collection of that data to third parties.

California’s Senate insurance committee passed the bill four days after Figueroa’s letter.

The insurance department is meeting with McKinnor’s staff about its concerns, according to Michael Soller, spokesperson for the department. McKinnor and her staff would not answer CalMatters’ questions about the bill.

Some of the insurance department’s concerns about the legislation align with those of Consumer Watchdog.

“In California, auto insurance has to be rated in a driver’s actual driving history, not the product of an unverified algorithm or (artificial intelligence) system predicting future driving,” said Carmen Balber, executive director of Consumer Watchdog, in testimony before the Senate insurance committee.

In an interview with CalMatters, Balber wondered why the legislation — a “gut-and-amend,” a bill that has been substantially reworked or rewritten, has missed the introduction deadline and is meant to be fast-tracked, often because it’s controversial — is bypassing the typical hearing process. The new language was submitted to the Senate June 10; Balber said her group had less than a week’s notice that it was coming up for discussion.

That worry, too, is in line with that of the insurance department. Figueroa wrote in her letter to Padilla that she was concerned that the bill, as gutted and amended, contains language the department had reviewed and expressed reservations about several months ago.

The list of the bill’s supporters includes insurance industry groups that have long pushed for telematics use in California. One group in particular, the Personal Insurance Federation of California, has given about $1,000 worth of dinner and travel to McKinnor several times over the past few years, according to CalMatters’ Digital Democracy database. She has also received campaign contributions from the group, as well as other insurance industry groups and employees, totaling $38,000 since 2022, state campaign finance records show.

Padilla, a Democrat from the San Diego area who chairs the Senate insurance committee, was unavailable to respond to CalMatters’ questions about the concerns the insurance department raised in the letter it sent him, spokesperson Cameron Sutherland said.

Padilla also is on the Senate Standing Committee on Privacy, Digital Technologies and Consumer Protection, which passed the bill a few days after the insurance committee did and referred it to the appropriations committee.

Padilla has received about the same amount of campaign contributions from the insurance industry since 2022, according to campaign finance records.

The insurance department sent the chairperson of the privacy committee, Sen. Christopher Cabaldon, a Democrat from Napa, a similar letter with its concerns about the bill, according to Soller. Cabaldon’s office did not immediately respond to CalMatters’ request to talk about the letter.

Cabaldon showed strong support for the bill, saying during his committee hearing that consumers should have the choice to use their driving data how they want and that he believed in the technology’s potential. He has also received campaign contributions from the insurance industry — about $27,000 going back to when he ran for the state Assembly in 2008, campaign finance records show.

The numbers, or lack thereof

California has some of the highest rates for full auto insurance coverage in the nation, according to at least one analysis, by MarketWatch, a news publication with an arm that publishes commerce guides. Another analysis, by insurance-comparison site Insurify, says California’s car insurance rates have been rising for the past couple of years and are projected to increase 1% this year.

Maryland’s research on the effects of telematics is the first by a state insurance regulator, according to Consumer Federation of America, a national association of consumer nonprofit organizations. The group is urging other state regulators to follow suit.

“You can’t trust companies to do this without oversight,” Michael DeLong, research and advocacy associate for the group, told CalMatters. He said companies can collect a lot of information about drivers and use it to make money; an example of that is a recent settlement between the California Justice Department and General Motors, penalizing the automaker for selling driver data associated with its OnStar emergency roadside and navigation service.

DeLong said the group plans to write a letter criticizing AB 311.

At least one other independent survey, by Consumer Reports in 2024, has shown that telematics can help reduce drivers’ premiums. The survey found a median annual savings of $120 — including higher savings for Black and Latino drivers than for white and Asian drivers — but also found that some drivers’ insurance costs rose.

Consumer and privacy advocates,  including ACLU California Action, Consumer Federation of California and TechEquity Action, worry that some drivers will feel like they have no choice but to give up their privacy in exchange for possibly saving money. In doing so, they could also open themselves up to bias depending on where they live, work and drive.

The bill “would authorize an opaque surveillance pricing infrastructure for a product Californians are legally required to purchase,” Becca Cramer, speaking for Privacy Rights Clearinghouse, told both the Senate insurance committee and privacy committee. “Californians have a constitutional right to privacy and not have to choose between exercising that right and affording a mandatory product.”

Cramer also cited the Consumer Reports survey and said telematics companies score drivers based on “factors that correlate strongly with race and income.”

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.