Usage-based insurance (UBI) or 'pay-how-you-drive' insurance could fundamentally alter the auto insurance business in the coming years, industry experts predict.
By combining a GPS system with on-board diagnostics, it's possible to record exactly where a car is and what’s happening with it, providing auto insurance carriers an opportunity to change drivers' behaviour and reduce subsequent costs.
Such telematics could be used to combat insurance fraud, such as staged accidents or bogus damage claims. The devices could also record information on collisions, similar to a black box in an airplane.
Monitoring individual driving styles
The principal attraction is to use them to monitor individual driving styles – including the speeds at which you drive, the time of day you make your trips and how long you’re behind the wheel – and then feed this data back to your insurer for assessment.
Insurance companies are attracted to the technology, because it’s a more accurate and more equitable way to price auto insurance risk. They can then use this information to adjust your car insurance premiums according to how you drive, potentially rewarding well-behaved drivers with lower costs.
Canadian drivers are slowly becoming more receptive to purchasing UBI auto insurance policies, according to the research from professional services firm Towers Watson.
Younger drivers most likely beneficiaries
More than half (56%) of drivers admit to having a “strong interest” in purchasing a UBI policy. Younger and newer drivers, who often face high insurance premiums, show the most interest in UBI, the report shows.
The first Canadian usage-based program was launched by Industrial Alliance in Quebec in 2012. More recently, both Desjardins Insurance and The Co-operators have introduced parallel programs in Ontario, a move that could allow for greater competition and lower premiums for safe drivers.
Using data collected through the small wireless device, Industrial Alliance sends its Mobiliz customers an email each week telling them how well they drove. The report includes a Google Map, showing locations where they were driving over the posted speed limit, as well as incidents of sudden acceleration and hard braking.
Insurers say that scoring well in each of these areas should mean a greater discount on renewal – as much as 25% in some instances. On top of this, drivers can access their driving data online, including routes traveled, mileage, travel time.
Privacy issues a concern
But it’s precisely those reports that worry some critics when it comes to privacy. They aren’t sure where their information is being stored and whether it’s being used for other purposes.
Their primary apprehension with UBI revolves around the possibility that premiums might increase (47%), although privacy issues such as sharing of consumer data (46%) and apprehensions around using such data to invalidate claims (46%) rank equally high, Towers Watson reports.
However, insurers are quick to point out that all data collected is at the vehicle level, meaning that it’s not possible to distinguish individual driving behaviour – and the numbers can’t be used to your disadvantage anyway, at least not in Ontario.
The provincial government in Quebec allows auto insurers to add certain surcharges for poor driving behaviour. Under Ontario’s regulations, however, data collected by telematics can only be used to reduce rates, not boost premium prices.
Expect more insurers to move in this direction since the technology is both scalable and cost-effective. The Canadian Automobile Association, for instance, expects to introduce a similar program this summer.