Introduction
Telematics-powered usage-based insurance (UBI) is transforming how auto premiums are calculated, shifting from traditional demographic-based pricing to models that consider actual driving habits. As these programs collect detailed information about how we drive, when we drive, and where we go, questions about data privacy and consumer trust have become increasingly important. This explainer breaks down the fundamentals of UBI, its benefits, privacy concerns, market trends, legal challenges, and recommended practices for insurers.
1. What Is Telematics-Powered UBI?
1.1. Core Concept
Sometimes called "pay-how-you-drive," "pay-per-mile," or "pay-as-you-drive," UBI represents a shift away from traditional pricing factors like age, gender and credit score. Instead, insurers use real-world driving behavior to determine rates. This happens through telematics technology—devices or apps that gather driving data—allowing companies to create personalized risk profiles and reward safer or less frequent drivers with better rates.
1.2. Data Collection Methods
- Plug-in devices that connect to your car's diagnostic port
- Factory-installed hardware that comes built into newer vehicles
- Smartphone apps that sync with your vehicle
1.3. Types of Data Gathered
- How many miles you drive and how often
- Where you drive and which routes you take
- Driving habits (how you accelerate, brake, and turn)
- When you drive (daytime versus nighttime)
- Additional vehicle information (like airbag deployment or seatbelt use)
2. Benefits and Industry Drivers
- More precise risk assessment leading to personalized pricing
- Potential discounts of up to 40% for safe or low-mileage drivers
- Better loss ratios for insurers and faster claims processing through detailed event records
- Growing consumer interest in fair, usage-based pricing models
- Technological advancements: widespread smartphone adoption and more affordable tracking sensors
- Regulatory frameworks that increasingly support these innovative programs
3. Data Privacy Concerns
3.1. Global Privacy Trends (2025)
With AI assistants becoming commonplace, there's increasing debate about personal control in decision-making spaces. Policy discussions are centered on finding the right balance between technical innovation and maintaining human agency as we enter what some call an "agentic AI" era.
3.2. Alarming Privacy Statistics
- 9 out of 10 Americans consider online privacy important
- 85% of adults worldwide want stronger privacy protections
- Nearly 73% of iOS applications track private user information
- Free apps are four times more likely to collect your data than paid ones
- Less than a quarter of American smartphone users feel they have control over their personal data
3.3. U.S. State Privacy Law Expansion
By the end of 2025, sixteen comprehensive privacy laws will cover nearly half the country, creating compliance challenges for insurance companies operating across multiple states:
| State | Effective Date | Coverage Type |
|---|---|---|
| Delaware | Jan 2025 | Comprehensive privacy law |
| Iowa | Jan 2025 | Comprehensive privacy law |
| Nebraska | Jan 2025 | Comprehensive privacy law |
| New Hampshire | Jan 2025 | Comprehensive privacy law |
| New Jersey | Jan 2025 | Comprehensive privacy law |
| Minnesota | July 2025 | Comprehensive privacy law |
| Tennessee | July 2025 | Comprehensive privacy law |
| Maryland | Oct 2025 | Comprehensive privacy law |
3.4. Federal Enforcement
January 2025 marked the FTC's first action regarding connected-vehicle data, resulting in a settlement with General Motors and OnStar. The agreement prohibits GM from sharing sensitive location and behavior data with reporting agencies for five years. Additionally, both companies must now obtain clear consent from customers, maintain transparency in their practices, and allow drivers to access or remove their personal information.
4. Consumer Sentiment & Market Dynamics
4.1. Adoption and Demand
Three-quarters of Americans support insurance premiums based on actual driving behavior, and 64% would be willing to install an app for personalized quotes. The global market for telematics-based auto insurance is expected to grow substantially from $3,542.1 million in 2025 to $19,339.7 million by 2035, representing an annual growth rate of 18.5%:
| Year | Market Size (USD Millions) | CAGR |
|---|---|---|
| 2025 | 3,542.1 | N/A |
| 2035 | 19,339.7 | 18.5% |
4.2. Penetration Gap
Despite strong consumer interest, only 27% of American drivers have been offered telematics programs by their insurers. Overall market penetration remains below 10%, suggesting significant room for growth.
4.3. Consumer Motivations
- Fair pricing that reflects actual driving risk rather than broad categories
- Family safety features like emergency assistance and trip analysis
- Transparency that builds confidence and rewards responsible driving
4.4. Preferred UBI Models
- Discount-oriented programs that lower premiums for safe driving habits
- Pay-How-You-Drive (PHYD) options that track specific behaviors like speed, braking patterns and total mileage
5. Legal Landscape: Lawsuits & Regulatory Action
5.1. Notable Class-Action Filings
- April 2025 lawsuit against Toyota and Connected Analytic Services claims they shared driver data with Progressive without proper authorization
- Over 25 lawsuits targeting GM for selling driver information have been consolidated into larger legal action
- A case in Texas alleges that GM collected and sold sensitive information from approximately 1.5 million drivers
5.2. Core Legal Arguments
- Lack of truly informed consent and misleading opt-out procedures
- Unauthorized selling of precise location data and behavioral information
- Insufficient transparency during program enrollment
5.3. FTC Settlement Highlights
- Five-year prohibition on sharing sensitive driver information with consumer reporting agencies
- Requirement for explicit consent before future data collection
- Recognition of drivers' rights to access and delete their personal information
6. Best Practices for Insurers
6.1. Ethical Data Collection
Focus on gathering first-party data like mileage and vehicle condition while practicing data minimization—collecting only what's necessary for accurate underwriting.
6.2. Informed Consent & Opt-In/Opt-Out
Provide straightforward explanations about what data is collected and how it's used. Give customers easy ways to opt out of data collection and respect those choices.
6.3. Privacy-By-Design Frameworks
Build privacy protections directly into telematics devices and applications from the start. Conduct thorough privacy risk assessments during product development.
6.4. Transparency & Communication
Give drivers real-time feedback about how their driving affects their premiums. Send proactive notifications explaining rate changes and the data behind those decisions.
6.5. Compliance & Continuous Audits
Conduct regular internal reviews and third-party audits of data handling practices. Keep policies aligned with evolving regulations at both state and federal levels, and publicly share assessment findings.
7. Industry Outlook & Future Directions
7.1. Adoption & Growth Projections
The UBI market is projected to grow from $30.6 billion in 2023 to $80.7 billion by 2028, with a compound annual growth rate of 21.4%. The telematics segment specifically is forecast to expand from $5.9 billion in 2025 to $19.2 billion by 2032 (18.4% CAGR). Nearly 90% of new vehicles sold in America will come with built-in telematics by 2025.
7.2. Emerging Trends
Built-in and mobile telematics solutions, Internet of Things analytics, and intelligent real-time ecosystems are reshaping insurance pricing models. Stricter privacy laws and increased consumer demand for transparency are influencing program design.
7.3. Challenges & Opportunities
Insurance companies face the challenge of securely and ethically handling detailed driving information while building consumer trust and navigating complex regulations. Those who actively engage with regulators and clearly communicate the value they offer will stand out from competitors.
Conclusion
The sustainable growth of telematics-powered UBI depends fundamentally on data privacy practices and consumer trust. Insurance providers that successfully balance innovation with ethical data handling, clear communication, and strong compliance measures will create lasting value. When drivers feel educated and empowered, and programs operate transparently, the result can be safer roads and stronger relationships between insurers and their customers.
References
- Exploding Topics. (2025, April 13). Data privacy stats. Retrieved from https://explodingtopics.com/blog/data-privacy-stats
- Geotab. (2016, November 2). Usage-based insurance. Retrieved from https://www.geotab.com/blog/usage-based-insurance/
- Insurance Information Institute. (2023, September 28). Background on pay-as-you-drive auto insurance (telematics). Retrieved from https://www.iii.org/article/background-on-pay-as-you-drive-auto-insurance-telematics
- National Association of Insurance Commissioners. (2025). Consumer insight: Want your auto insurer to track your driving? Understanding usage-based insurance. Retrieved from https://content.naic.org/article/consumer-insight-want-your-auto-insurer-track-your-driving-understanding-usage-based-insurance
- Wiley. (2025, January 9). 10 key privacy developments and trends to watch in 2025. Retrieved from https://www.wiley.law/alert-10-Key-Privacy-Developments-and-Trends-to-Watch-in-2025