Stereotypes and spies

I have noticed that certain insurance companies are moving towards individualized rates. What I mean by this is that they adjust rates based on measurements of things co-related with lesser risk to them financially. For instance, this article is about health plans http://articles.latimes.com/2009/nov/04/nation/na-wellness4 and Progressive has a device that will plug in and monitor your driving habits http://www.progressive.com/auto/snapshot-common-questions.aspx .

I have mixed feelings about these practices. I guess it boils down to a fight between prejudice and privacy. This is not to single out insurance companies, as policies for all industries change with time; but insurance is the one of the few products that we put up with being charged different rates based on demographics.

Traditionally, and still commonly today one's insurance rates are based upon factors such as age, sex, zip code, marital status, credit rating, occupation, and education. The amount paid depends not upon the person's ability but by the combination of boxes that they fit into. For the longest time, this was the only option based on limitations of technology and cultural norms. I have many older family members who would have a Orwellian heart attack if they understood how much information we volunteer to the world and what it means to post on blogs or social networking sites. These older relatives grew up in a time where fear of spies was almost unmatched. To them the idea that I would put my thoughts out for all is ridiculous. This, in combination with the institutionalized social categorizing that was seen as natural, check-box policies were appreciated and suggesting anything else was dangerous. The issue with this is that people are pigeon-holed based upon the past behavior of others like them and there is less incentive to drive safely/ have healthy habits.

Currently, companies such as those described by the above links have begun using technology to adjust rates based upon individual behavior. This is more fair than basing rates on demographics because it places the individual as responsible for heir behavior as opposed to the behavior of past people like heir. However it can also be dangerous. For one, if my auto insurance company collects info on how I drive they could give or be forced to give it to others for purposes other than the original intent. It would not be a far stretch to combine the snapshot technology with a GPS receiver and have instant and constant access to someone's whereabouts. This maybe a positive if your child gets kidnapped, but I for one am uncomfortable with the idea that my little flashing dot can be traced via computer. I guarantee that if the government or a company has technology, it can be copied by skilled hackers or eventually sold commercially. Working at a domestic violence shelter, I have seen abusive people track down their “family” and threaten their lives. I am not looking forward to the time when you can spend just $9.99 to find someone in seconds. I realize tracking someone is possible now, but still requires skill, time, and work; enough so that I do not find it to be common problem. Another issue I have with this approach is that it claims to bases things on statistics, but statistics tend not to differentiate between correlation and cause/effect. If health insurance is partially based upon BMI (hailed as an indicator of health), than it unfairly punishes those that are healthy despite size as discussed here: http://www.health.harvard.edu/fhg/updates/update0505c.shtml . Likewise with the snapshot program, one way to get a discount is by “Minimizing driving during peak hours or between midnight and 4 a.m.”. Now I bet that there are more accidents per mile driven during those times, but again the time itself is likely not the factor. My guess is that more accidents happen then because most people usually sleeping during those hours which means that when they have to drive they are groggy and less capable. As a 3^rd shifter I am a much safer driver at night when I am usually awake than in the afternoon when I go to bed.

I suppose there really isn't too much difference between these new rating policies and old ones. They both group you into risk piles based on trends of others with certain characteristics. The new ones just get more specific about which trends to follow. I suppose the question remains: What is the optimum level of privacy to fairness? My prediction is that we will move closer towards the individualized policies as people grow more comfortable with technology and less comfortable with the idea of stereotyping; both of which seem to be the current trends.

A bit off topic is this whole idea of discounts. I am a big fan of feeling like I have saved money through whatever means the seller requires (coupons, paying in cash, having a student id...). I think it is interesting though that we phrase these differences in amount paid as discounts as opposed to surcharges. People would be pissed off if the “discounted” rate was posted as the norm and then surcharges were added to make up for the cost (say of using a credit card over cash for small purchases, or that non-senior adults eat more at buffets). While in reality it adds amounts to the same thing; if it was the standard that things were sold with surcharges, I bet people would start claiming discrimination. Ironically, we forgive the very same discrimination when we feel like we are saving money or maybe we just don't recognize it as discrimination, but a fair average of trends. Uh-oh, I think just looped back to insurance policies and their traditional check-box policies.