If you’ve been paying attention over the last decade, Big Data is changing the way insurance companies set rates for auto insurance. Progressive, for example, was the first major insurer to use a telemetry-based system to monitor driving habits, frequent locations and mileage to fix rates.
That’s a voluntary program, though. If you don’t feel like participating, you pay a fixed rate and Progressive doesn’t monitor your habits. However, if you’re using State Farm insurance, they’ll use some fairly unconventional means to gather data on your mileage. And if you don’t fit into a prescribed mileage bracket that qualifies for a “low mileage discount,” then your insurance rates are going to go up.
That’s what one BestRide reader learned when he got the following letter from State Farm last week:
The meat of the letter is this: State Farm buys third party data, and if it finds that you’re over a mileage threshold according to that data, you’re going to get charged more.
The question is, where’s that data coming from?
Our reader lives in Illinois. Illinois has no annual safety inspections, nor does it run an annual emissions inspection, so the data isn’t coming from the Registry of Motor Vehicles. Our reader was never asked to self-report the mileage, either.
We asked him to run a CarFax report to see where the mileage information may have come from.
….annnnnd there’s your answer. He had his oil changed at Dobbs Tire & Auto Centers, a local chain of quick lube and tire stores in the Greater St. Louis area, and that turned up on a CarFax report.
Months before, a similar “Services Performed” flag turned up from Valvoline Instant Oil Change, a nationwide chain of quick lube stations.
Likely, State Farm isn’t purchasing data from every Tom, Dick and Harry’s Quick Lube franchise. But when Tom, Dick and Harry’s sells its data to CarFax, State Farm can buy it in a bundle.
We contacted Dobbs Tire and Auto Centers to find out if they inform customers of the data they collect and sell, but we didn’t receive a reply.
Usage Based Insurance is all the rage in 2017. We learned a lot about these programs from Ptolemus Consulting, which wrote the bulk of a book on the subject, which it shares in a 135-page, downloadable abstract at its website.
Most Usage Based Insurance falls into three basic categories, according to the report:
• Self-reporting based insurance: the premium is calculated based on the driver’s reported milage,
• Pay-As-You-Drive (PAYD) – also called Pay-As-You-Go (PAYG): a device in the vehicle sends mileage data to the insurance company. The premium is entirely or partly mileage-based (Sometimes combined with time and location data),
• Pay-How-You-Drive (PHYD): a device in the vehicle sends driving style data to the insurance company. The premium evolves with the driver’s risk rating.
You’ll note that none of those basic categories is “Pay As Your Quick Lube Place Says You Drive.” We were curious enough about the practice that we contacted Thomas Hallauer, Research and Marketing Director for Ptolemus’s London office, and the co-author of its paper on Usage Based Insurance.
“I would first check if the customer has any box or OBD dongle fitted to his car for whatever reason,” he said via email. Zubie, for example, has a “dongle” that fits into the OBD port to monitor driving, mileage, and other data. It sends that data to the cloud and Hallauer rightly suggested that our reader’s data may be getting pulled from there. That wasn’t the case, though.
So what about pulling third party data from a source like CarFax? “To me, the idea that insurers would check for mileage without telling their customers is unfathomable,” he says. “Too little to gain and far too much to lose.”
We got in touch with State Farm to figure out whether or not they were alerting customers that they’d be using such a data source to determine rates. We heard from State Farm Insurance Spokesman Jim Camoriano. “While I can’t comment on a customer’s specific situation, I can tell you State Farm’s goal is to match price to risk, and we use a variety of factors in our effort to charge the most appropriate price for each policy, including how the vehicle is driven,” he wrote. “This approach results in fair, competitive premiums for the individual customer and the broad customer group we insure.”
On the subject of informing customers, he added: “State Farm obtains annual mileage from customers, the telematics technologies (Drive Safe & Save), and sometimes through the use of a third party vendor.
Customers receiving a mileage discount apart from participation in Drive Safe & Save are notified of the possible use of vendor data for mileage verification as follows: Your auto insurance rates have been reduced through our low mileage rating. To ensure we’ve priced our insurance coverage accurately, we verify odometer readings through a third party provider. If we’re unable to verify the information needed, we may follow up with you to provide your odometer reading information. Please contact your State Farm® agent with questions.”
So if you’re actually reading your State Farm policy at renewal time, you’re agreeing to have third party data verify your mileage.
But what about the quick lube station? Are they informing customers that they’re collecting data and selling it to anyone with a checkbook? We attempted to contact the Marketing Director at Dobbs Tire and Auto Service and got no response. However, we did have someone in the area of one of their stores walk in and verify that there is, in fact, no posted policy regarding the sale of non-anonymized customer data.
We also stopped in to our local Valvoline Instant Oil Change store to see if there’s a posted policy. We didn’t see one there, either. What’s more, when you have your oil changed at a Valvoline, you don’t even enter the waiting area. You’re waved into the service lane, and you stay inside your car the whole time. There’s no obvious posting of a policy on data security, matched to your vehicle’s VIN.
So how do you protect yourself from something as innocent as an oil change resulting in an insurance increase of $140 per year? You can change the oil yourself, but most folks don’t have the time, inclination or space to do the job. The best result is to take the artesanal approach that you take with your favorite raw milk cheese, Saison beer and free-range eggs: Find a local supplier.
Local auto shops aren’t collecting data other than when you were in the shop the last time, and when you may be due for an oil change or a tire rotation the next time. They’re certainly not selling your data to giants like CarFax.
State Farm may still want some kind of verification of mileage, but at least you’ll know your data is protected.