Telematics bill could change how insurance rates are calculated

A new bill could offer California drivers discounts on their car insurance for safer driving; however, critics contend that if the bill becomes law, it could force drivers to choose between privacy and better insurance prices.

AB 1833 by Assemblymember Tina McKinnor (D-Inglewood), the Consumer Driving Data Protection Act of 2026, would allow drivers to establish their driving record by voluntarily opting into usage-based telematics programs that collect data accessed from smartphones and other devices to track driving behavior.

Insurance rates are now set under the auspices of 1988’s voter-approved  Proposition 103, which among many things limits the factors that go into calculating a driver’s insurance rates.

Carmen Balber, executive director of Consumer Watchdog, a non-profit founded by Prop. 103 author Harvey Rosenfield, said voters endorsed the ballot measure specifically to rein in rapidly rising insurance rates.

“Prop. 103 was written at a time when insurance rates were skyrocketing across the state and people living in some parts of California inner cities often could not get insurance at any price,” Balber said.

The result was that insurance rates in California must now primarily be based on three main factors: driving record, miles driven annually and years of driving experience.

“You must use those three as an insurance company in California,” Rex Frazier, president of the Personal Insurance Federation of California (PFIC) said. “Then, over time, the Department of Insurance can allow other optional rating factors that are substantially related to the risk of loss.”

Insurance rates in California must now primarily be based on three main factors: driving record, miles driven annually and years of driving experience.

Currently, the DMV establishes a person’s driving record by using up to 10 years of that driver’s accidents, tickets and convictions.  Allison Adey, a PFIC legislative advocate, said telematics could allow drivers to clear their driving record if they become safer drivers.

“It is reasonable for people to be able to control what information is on their driving record,” Adey said. “Seven years is a really long time; there’s a big difference between a 22-year-old and a 29-year-old in terms of what their typical risk behaviors are.”

Technology advances
Insurers have been utilizing GPS tracking systems since the late 1990s, with smartphone telematics coming into wide usage in the 2010s after a company called Cambridge Mobile Telematics (CMT) developed the first app-based service for gathering driver information in real time. Founded by a pair of MIT professors, CMT’s system paired cellphones and technology already found in most vehicle to identify the risk characteristics of individual drivers.

“The insurance industry realized that there was an opportunity to advance the technology through what CMT had invented,” McMahon said. “That was the ability to analyze and understand the sensors of a smartphone and then translate that information.”

CMT also offers a device called a DriveWell Tag that restricts app data collection to insured vehicles, McMahon says. “When that tag is in the vehicle, then the phone is restricted to recording only when the tag is present.”

The tag, however, records rudimentary data even when a connected phone is not present.

“It will calculate things like the distance and time driven, it will calculate hard braking events, but it won’t look at distraction or speeding because the tech is pretty rudimentary,” McMahon said. “Ultimately, the way that insurance works is you’re insuring the car and the driver.”

McMahon said the biggest benefits from telematics come from the feedback given to drivers.

“A few minutes after the trip is completed, they get a notification on their phone, they get an evaluation that was done based on that trip,” McMahon said. “Then they can see and understand things like destructive driving elements like aggressive driving, hard braking, harsh acceleration and speeding.”

Adey said there is also proof that telematics supports the goal of incentivizing safer driving habits, citing a report from the AAA Foundation for Traffic Safety that found usage-based insurance programs led to a decrease in risky driving behaviors, even after leaving the program. The report noted an 11-13 percent reduction in speeding, a 16-21 percent reduction in hard braking and a 16-25 percent reduction in rapid acceleration.

Who makes the rules?
McMahon notes that telematics are already widely in use for rideshares and delivery services.

“The question is, should you as a consumer be able to opt into a program to pay less for your insurance based on your own individual risk assessment?”

But how that would happen is unclear.

“The question is, should you as a consumer be able to opt into a program to pay less for your insurance based on your own individual risk assessment?”

“Allowing usage-based insurance in California doesn’t require legislation,” says PFIC’s Frazier. “It just requires a change of regulation at the Department of Insurance.”

But Balber says the insurance commissioner does not have that authority, and doing so would quickly incite a lawsuit.

“Were a commissioner to try to move forward and approve the use of telematics in a way that violated the law, and everything we’ve so far seen would violate the law, it would generate a lawsuit and would not hold up in court,” she says.

Senator Roger Niello (R-Fair Oaks), Vice Chair of the Senate Insurance Committee, disagrees, saying a change to insurance factors could happen with a two-thirds vote in the legislature, “as long as it would be consistent with Proposition 103.”

Not surprisingly, there is no consensus on that possibility.

“The legislature has passed laws that they said furthered the purpose of Prop. 103,” Balber says. “Then we sued to say ‘No in fact it did not’ and then the courts overturned them.”

Balber says adopting telematics for the purpose of usage-based car insurance is a matter for voters to determine, not lawmakers.

“We would say the appropriate way to do this is to send it back to voters [and] then the voters could decide,” Balber says. “We might not agree with it, but if the voters said yes, okay.”

Damian Kevitt, founder of Streets Are for Everyone, or SAFE, is the bill’s main sponsor. He has advocated for safer streets since he was dragged onto the 5 freeway in Los Angeles by a hit-and-run driver in 2013, ripping off his right leg. He believes that usage-based insurance is a “no-brainer” to incentivize safer driving.

“Were a commissioner to try to move forward and approve the use of telematics in a way that violated the law, and everything we’ve so far seen would violate the law, it would generate a lawsuit and would not hold up in court.”

Kevitt says many drivers with bad driving habits think they are safe drivers until they hit someone; he hopes feedback from usage-based insurance would change that.

“It gives you an option where you can have your rates lowered if you are a safe driver,” Kevitt says. “It gives you a feedback loop to make sure that you know what safe driving means.”

But Balber questions whether telematics actually results in safe driving.

“Consumer Reports did a really interesting report about what many insurance companies were considering hard-braking,” Balber says. “They did some testing of braking at certain speeds and what insurance companies were considering risky hard-braking, and therefore penalizing consumers for, was in fact safe driving.”

Kevitt says if drivers disagree with a change to their driving record, the bill will allow them to dispute it with their insurance company.

Privacy concerns
UBI systems come with another inherent concern – data privacy.

“It infringes upon people’s privacy rights, so at its very outset this is a measure that puts people’s data at risk, not the other way around,” Balber says. “It allows insurance companies to use anything that they classify as driving-related or related to the use of your automobile as the driving safety record.”

Frazier counters that many concerns about data privacy are already covered by the California Consumer Privacy Act. Most issues with undisclosed collection or misuse of consumer data are from states that “don’t have those types of protections,” Fraizer says.

“What we have discussed with privacy advocates here in California is that any telematics program or usage-based insurance program that would come into the state would also fall under those same protections.”

The bill currently would bar insurance companies from sharing telematics data with anyone “other than a third-party telematics provider under contract to provide telematics services to the insurer.” Kevitt says it would require insurance companies to delete data upon request unless faced with a court order.

“The federal government can subpoena anything if they have a court order; sometimes they do it even without a court order, without your knowledge,” Kevitt says. “The truth of the situation is if that is something that you’re concerned about, then don’t have a cell phone; you don’t have to opt-in if you are truly concerned about that.”

However, Balber says such protections aren’t enough.

“The bill doesn’t contain any sort of protection for de-identified data [data with personal identifying information removed]. It does say you can’t sell consumers’ telematics data, but it doesn’t say that you can’t sell de-identified data,” Balber says.

Discrimination concerns
Balber and other opponents of McKinnor’s bill also argue the system would contain “a lot of proxies for race,” including the time of day a person is driving, which she argues would “inherently target lower income” drivers.

“In the broader field, when you’re looking at how the algorithm then uses all of the data it’s collected to predict what your driving risk might be, and that could turn into which neighborhoods did you drive through, it really opens the door to a lot of potential rating based on race.”

But supporters like Frazier argue that telematics might actually solve issues of discrimination under the DMV’s driving record system.

“The truth of the situation is if that is something that you’re concerned about, then don’t have a cell phone; you don’t have to opt-in if you are truly concerned about that.”

“Policing practices can have a racial element linked to them,” Frazier says. “That leads to a racial impact on insurance premiums that people pay.”

Balber acknowledged the concern of discrimination as a result of over-policing, but didn’t see it outweighing the concerns with telematics.

“It does not make sense to replace one type of discrimination with another,” Balber says. “That is not a solution.”

To date, California is the only state that does not allow the opt-in use of telematics usage-based technology in insurance ratings, something Kevitt calls “a little bit bizarre.”

But Balber rejects the argument that California is behind on telematics.

“California is not behind the rest of the country in this,” Balber says. “We are ahead of the rest of the country just as we’re ahead of the rest of the country in, for example, banning the use of credit scores in insurance rates.”

Balber says she thinks usage-based insurance and telematics are not something most people want.

“It would not pass muster with the public either, telematics have not been widely adopted even though they’re widely available in a lot of other states and it’s because people don’t trust them,” Balber says. “Nobody wants Big Brother in their car.”

AB 1833 was originally scheduled for a hearing on April 13^th, but was been pulled from the schedule after further objection from privacy rights groups came into play. It is now expected to be moved to the Senate and be considered there as a gut-and-amend bill later this session.