Credit-based insurance scores have been used by insurers for about 20 years, but it's never been an easy sell to legislators and consumers. Insurance regulators see usage-based insurance as an opportunity to get the same kind of accurate risk information on a consumer from data that is more relevant, NAIC director of regulatory services Eric Nordman said during a panel discussion at the Insurance Telematics USA conference.
"For the past ten to fifteen years, regulators have been trying to explain how credit scores work," Nordman says. "It makes more sense to the consumers to have data from a monitoring device affect their rate rather than whether or not they paid a bank loan on time."
At the same time, Nordman added, insurers have to be transparent about the kind of data they collect and their reasons for collecting it — or regulators could stop UBI before it starts. "You need to ask yourself, 'How will the public perceive this?'" he says. "The regulators are really sitting on the side of the public. If you take it to the ridiculous extreme, you could track a person who stops at a bar on the a way home. When you get to that level of invasion, you are going to have a problem. Insurers need to take a measured approach and rely on the factors that they absolutely need."