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Car Insurers Find Tracking Devices Are a Tough Sell | WSJ

Companies that don’t offer a usage-based program could be impacted by “adverse selection,” according to Carl Smith, a director of product management in the U.S. car-insurance operations of Spanish insurer Mapfre SA, meaning they could be stuck with many bad drivers as rivals’ usage-based programs attract good ones. Mapfre began rolling out a program in 2012.

Among the few big insurers that have yet to publicly acknowledge at least experimenting with usage-based insurance is Berkshire Hathaway’s Geico unit, which has bigger market share than Progressive. In the past, Berkshire CEO Warren Buffett has said that Geico doesn’t see evidence that usage-based pricing would provide an advantage. Through a spokeswoman, he declined further comment.

State insurance regulators generally have welcomed usage-based insurance programs because they are voluntary and provide the opportunity for drivers to learn how to improve their driving. Still, location tracking raises bigger concerns, and not just for the privacy implications, some consumer advocates caution.

Some people could get higher pricing “not because of the manner of driving, but because of where and when they drive due to long commutes to work or driving through neighborhoods disfavored by insurers,” says Birny Birnbaum, a former Texas insurance regulator who now heads an Austin-based nonprofit, Center for Economic Justice, which advocates for low-income consumers.

Progressive’s Mr. Pratt says: “It’s too early to tell how location data may factor into determining rate.”

Insurers are still on a learning curve when it comes to usage-based systems. Last year for instance, Progressive concluded Snapshot was overestimating the potential for accidents from midnight to 4 a.m. driving on week nights, and now considers late-night driving to be high-risk only on weekends.

Insurers and their trade groups note that usage-based programs are subject to regulatory review by state insurance departments and must be in accordance with laws that prohibit unfair pricing practices.

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Car Insurers Find Tracking Devices Are a Tough Sell – WSJ.

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