Insurance Industry Good at Adapting: Lloyd's of London
Paying for auto insurance in Canada can get expensive. For drivers looking to lower their expenses, auto insurers have been touting pay-as-you-go and usage-based insurance.
Those are the two main types of so-called telematics programs, said Matt Hands, director of insurance at Toronto-based Ratehub.ca.
Usage-based insurance is based on how you drive rather than solely how many kilometres you travel.
"It used to be a piece of technology that you'd plug into the diagnostic port of your car and it would track how you drove, such as how fast you were going, how you're braking, the corners you're taking, even the distance you're driving, just to get a sense of whether you're a quality driver or not," Hands said.
Many insurers have since switched to app-based systems that follow additional metrics, including when a driver touches their phone or does other things that constitute distracted driving.
"These calculations have gotten a little bit more accurate and the data transfer is quicker because of cloud-based computing. It can download the information instantaneously into each insurer's rating program."
Telematics program can be advantageous for young drivers, who often pay the highest insurance rates because they're statistically more likely to be involved in collisions and file claims. Those premium rates can decrease quicker if drivers can meet an insurer's specific driving requirements.
For drivers who use their vehicles to drive fewer than 10,000 kilometres a year, a pay-as-you-go plan can offer significant savings. It's not possible to shop around, however, because CAA's MyPace is the sole Canadian option.
And many drivers are hesitant to adopt usage-based insurance over concerns about rate increases, program accuracy and privacy issues, Hands said.
Natalia Pasha, a 31-year-old consultant in Toronto, for instance, said she's deterred by its collection of data.
"We've witnessed the rise of the internet and the rise of the smartphone, and now we're dealing with the after-effects of how that data is being used," she said, in reference to data compromises or misuses at Facebook, Equifax, and even Tim Hortons. The Office of the Privacy Commission of Canada recently concluded that the fast food chain had unlawfully collected location information from people who downloaded the Tim Hortons app.
Pasha said she doesn't think these apps are clear enough about the downfalls of using them.
"It puts a bad taste in my mouth."
Hands said he hasn't jumped on board yet because it's still not clear how accurate the calculations are.
"If I had more transparency and understanding of how it actually calculated every scenario, I myself would probably opt into it, but without knowing that I'm very apprehensive. I see value in them and I see the promise in the technology, I just don't know that it's fully there yet."
Both Hands and Pasha expressed concerns about whether they'd be penalized for speeding on highways when driving faster than the limit to keep up with the flow of traffic.
A spokesperson for Aviva, an insurer with a smartphone-based offering called Aviva Journey, said speed is just one of the factors that goes into a driver's score.
"When assessing driving behaviour, we'll compare the driver's speed against the posted speed limit for the road that the driver is on.
The extent to which speed factors into the driver's score depends on how much they exceed the limit by and for how long."
Using Aviva Journey provides drivers an automatic 10 per cent discount for the first year and up to 20 per cent on auto insurance premiums each year after that.
Hands noted that many usage-based insurance programs allow feedback on exceptional situations that might factor into the driving record, such as whether your friend was driving your car or if someone driving ahead of you had to slam on the brakes.
Before forging ahead with a usage-based program, Hands recommends people compare providers and determine if only good driving is rewarded or if bad driving is also penalized.
That's because in November 2020, the Financial Services Regulatory Authority of Ontario removed earlier guidance that usage-based insurance could not lead to policy cancellations or surcharges.
"If you exhibit poor driving behaviour based on the rules of the program, they could potentially hit you with a surcharge at the end of the evaluation period and that could be anywhere from a one per cent to 25 per cent increase in your rate," Hands said.
Those programs that can both reward and penalize, however, tend to offer higher discounts if you demonstrate strong driving habits, he added.
"It just depends on what you're looking for and what your risk tolerance is in those scenarios."
While there's good discounts to be had, you'll need to think hard about what kind of driver you are, and if you'll be able to consistently obey the rules of the road, Hands said.