Buying Data from Consumers: The Impact of Monitoring Programs in U.S. Auto Insurance
New technologies have enabled firms to elicit granular behavioral data from consumers in exchange for lower prices and better experiences. This data can mitigate asymmetric information and moral hazard, but it may also increase firms’ market power if kept proprietary. We study 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. Using a proprietary dataset matched with competitor price menus, we document that safer drivers self-select into monitoring, and those who opt in become yet 30% safer while monitored. Using an equilibrium model of consumer choice and firm pricing for insurance and monitoring, we find that the monitoring program generates large profit and welfare gains. However, large demand frictions hurt monitoring adoption, forcing the firm to offer large discounts to induce opt-in while preventing the unmonitored pool from unraveling given the competitive environment. A counterfactual policy requiring the firm to make monitoring data public would thus further reduce the firm’s incentive to elicit monitoring data, leading to less monitoring and lower consumer welfare in equilibrium.
We thank our advisors Ariel Pakes, Nathan Hendren, Robin Lee, Dennis Yao, Leemore Dafny, and Elie Tamer; our data providers Quadrant Information Services and an unnamed auto insurer; Harvard and the Geneva Association for financial support; Jie Bai, Liran Einav, Ashvin Gandhi, Nir Hak, Ben Handel, Oliver Hart, Kevin He, Panle Barwick, Ginger Jin, Myrto Kalouptsidi, Scott Kominers, Jonathan Kolstad, Jing Li, Alex MacKay, James Savage, Steve Tadelis, Andrew Sweeting, Chad Syverson, John Wells, Thomas Wollmann, and various seminar participants for valuable comments. Ability to publish is not contingent on results (data usage agreement contact email@example.com). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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