Buying Data from Consumers: The Impact of Monitoring in U.S. Auto Insurance
We study the impact of a voluntary monitoring program by a major U.S. auto insurer, in which drivers accept short-term tracking in exchange for potential discounts on future premiums. We acquire a detailed proprietary dataset from the insurer and match it with competitor price menus. We first quantify the degree to which monitoring incentivizes safer driving and allows more accurate risk-based pricing. We then model the demand and supply forces that determine the amount of information revealed in equilibrium: structural demand estimates capture correlations among cost and demand for insurance and for monitoring; a dynamic pricing model links the firm's information on driver risk to prices. We find large profit and welfare gains from introducing monitoring. Safer drivers self-select into monitoring, with those who opt in becoming 30% safer when monitored. Given resource costs and price competition, a data-sharing mandate would have reduced short-term welfare.