Your Car Is Watching You: How Telematics Is Rewriting Your Auto Insurance Policy

Once considered driver improvement and safety devices, telematics programs collect reams of data that insurers now use to calculate risks, assess claims, set rates, and expand coverage options.

Some companies are already testing real-time pricing based on the streaming data from your car, according to insurance executives.

“Drive like a lunatic in January? Your February bill goes up,” said John Espenschied, principal at Insurance Brokers Group LLC. “Behave yourself in March? It drops back down.”

But with the rise in telematics data comes the need to protect it, Espenschied said. And as the options for this technology expand, so do the concerns.

For example, “some hacker locks your car and demands $500 in Bitcoin to unlock it,” he said. “That’s a real financial loss. We already have cyber insurance for businesses. This is just the car version. In three to five years, it will be standard on comprehensive policies.’’ 

Indeed, an auto policy may one day include ransomware reimbursement, data recovery, and identity theft coverage, some experts predict.

Data collection far exceeds the public’s understanding

“Most people have no idea how much of their data is being collected,” Yosi Yahoudai, co-founder and managing partner of J&Y Law, a Los Angeles-based personal injury firm, told Insurify. “With telematics, we’re talking real-time speed, braking, location — even phone use behind the wheel. That data is used to calculate premiums, assign fault in accidents, and, in some cases, deny claims outright. So yes, it’s changing the risk landscape, but it doesn’t always favor the consumer.”

Yahoudai said he and his colleagues are seeing car-crash cases in which data becomes a key witness. Sometimes, telematics data helps prove a driver’s side of the story, and sometimes data works against the driver.

Insurers in many U.S. states already use telematics data as part of usage-based car insurance. Some may use telematics data to justify rate increases or coverage decisions, something consumer advocates have fought. California and New York, for example, prohibited insurers from using electronic data when considering driver premiums.

“Policyholders increasingly challenge these decisions based on telematics on the grounds they lack transparency or that the insurer failed to investigate other factors that could explain anomalous telematics readings reasonably,” said Mark S. Davis, founding partner at Davis Levin Livingston, a Honolulu-based plaintiff’s attorney firm. “As telematics becomes more embedded, courts will likely see a surge in disputes over what constitutes a reasonable basis for rating adjustments, cancellations, or non-renewals.”

Davis says instead of relying solely on police reports or claimant statements, insurers may pull stored telematics records to reconstruct accidents — when speed, braking patterns, and GPS data can paint a detailed picture of events.

“For attorneys handling bad-faith cases, this raises issues about the adequacy of an insurer’s investigation,” he said. “Was all relevant evidence considered? Was the telematics data properly interpreted within the context of the accident? These questions will become courtroom flashpoints.”

Connected vehicles everywhere, but danger awaits

The U.S. has the highest percentage of connected vehicles in the world, according to Smartcar.com. This includes cars with features that enable data transmission and recording, navigation, diagnostics, and emergency services. Smartcar estimates that 96% of all new vehicles will be connected by 2030.

That growth brings serious cybersecurity threats, as hackers have demonstrated they can remotely manipulate vehicle functions.

“Hacking and data theft are no longer sci-fi,” said Yahoudai. “If your car is essentially a rolling smartphone, ransomware coverage might not be far off.”

As telematics become even more sophisticated — integrating artificial intelligence (AI), predictive analytics, and internet-connected vehicle ecosystems — the industry may expand coverage. This expansion could include coverage for cyber risks, data breach remediation, theft of telematics-linked personal information, and even ransom-related losses, experts say.

These developments will create entirely new classes of claims and, inevitably, new bad-faith disputes when insurers attempt to interpret exclusions or deny emerging risks as “unforeseen” in the narrowest sense, said Davis.

What’s next? Understanding data ownership

An overarching legal consideration, Davis said, is the ownership and access rights to telematics data. In most cases thus far, according to Yahoudai and Davis, the car’s manufacturer owns the telematics data and considers it proprietary.

Given concerns about data privacy, drivers should be aware of their rights to consent and how to protect their telematics data actively. Such understanding ensures transparency and control over personal information.

The real danger is who gets to use the data and how it can be used, Davis said.

“Telematics can be powerful, but power needs guardrails,” he added. “We need stronger consumer protection laws around who owns the data, who can access it, and what they can do with it. Until that happens, drivers should assume their car is being watched at all times. Scary thought, no?”

Related articles