Most vehicle owners are used to buying their car insurance policies from an insurance company. However, the day you can purchase both your vehicle and insurance at the same time from the company that made your car may soon be upon us.
It may sound like a strange idea, but some automakers are already offering insurance to their customers in Canada. For example, InsureMyTesla is a comprehensive insurance program being provided by Tesla in co-operation with Aviva.
But south of the border, automakers are going one step further by creating insurance divisions. Tesla launched its own insurance company in 2019 a. And General Motors (GM) jumped into the insurance market last year with its OnStar Insurance Services. The move is somewhat of a departure for an industry that has focused mainly on selling, servicing, and financing vehicles.
For GM, history seems to be repeating itself. The company was in the insurance business at one time. It also expanded into the mortgage sector, created a real estate business, and launched an online bank. However, that side of the business was split off from GM more than a decade ago as it reverted to focusing on manufacturing vehicles.
Will automakers create Canadian insurance divisions?
It may be a while before automakers launch their own insurance companies in Canada. They might not even do so at all. It will likely be a business decision based on how well the U.S. insurance division performs and whether the Canadian market is large enough. Keep in mind that Canada’s population of around 38.1 million people is nearly nine times as small as the United States’ population of about 331 million.
Automakers would also be competing for business with a lot of established insurance companies in Canada.
However, the automakers will have an advantage when you’re buying a new car. The dealer can sell insurance simultaneously just like how a bank tries to sell you investment products when you get a mortgage or open an account.
If automakers decide to get into the insurance business in Canada, it will take some time before they can sell products to consumers. It can take anywhere between 15 and 27 months for a property and casualty insurer to become fully licensed in this country after applying to the federal government to approve the registration of the Canadian branch of a foreign insurance company.
A property and casualty insurer also needs to be licensed in every province and territory where it sells insurance. For example, provincial car insurance regulators such as the Automobile Insurance Rate Board in Alberta or the Financial Services Regulatory Authority in Ontario would have to give an automaker the green light before selling insurance in those provinces.
A quicker way for a carmaker to get into the auto insurance game is to buy a domestic insurer, or the Canadian division of a foreign insurance company already licensed across the country. The process to complete a takeover could take as long as nine months instead of up to 27 months.
As a result of an acquisition, the automaker would likely insure vehicles that it didn’t manufacture. But that doesn’t necessarily mean those who drive a different manufacturer’s vehicle are out of luck. GM has said OnStar will insure non-GM vehicles in the U.S., so it might not be an issue if one of the automakers purchased an insurer in this country. However, GM plans to give additional discounts to drivers of its vehicles.
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The role of telematics
Both Tesla and GM have said that the insurance policies they offer to their U.S. customers will be discounted. Tesla announced that rates could be as much as 20% to 30% lower than what customers are used to paying.
Their policies will determine rates on consumers’ driving behaviour. Usually, rates are determined by a consumer’s age, gender, driving record, insurance history, and where they live. However, in Ontario, the provincial legislature is considering whether it should prevent insurers from basing rates on someone’s postal code. It was proposed in Bill 42, which was introduced in late 2018, but the bill still hasn’t passed.
If you choose to go with an automaker’s insurance policy, you’re likely going to have to agree to provide some personal data. For instance, those who become OnStar Insurance customers agree to have their driving habits tracked by the OnStar equipment in their vehicle.
Some insurers in Canada today offer drivers the opportunity to save money on their premiums by signing up to a usage-based insurance program. But, if an automaker and its insurance division collect all that data, it does raise questions about privacy and data security. The vehicles of today can potentially be hacked and subject to data theft.
While insurers must stick to regulations regarding the telematics data they collect from customers who are willing to provide it, a report by the B.C. Freedom of Information and Privacy Association finds privacy laws governing how data carmakers collect and use are inadequate.
While automakers don’t currently offer insurance directly in Canada, it could only be a matter of time before you can purchase a vehicle and car insurance from the manufacturer of your choice.