Why more auto insurers may opt for UBI

Ontario motorists can expect to see more insurers offering telematics now that the province is allowing carriers to impose surcharges on risky drivers.

“The bottom line is that insurance companies always want to find the right price for a risk and the prohibition in the past on surcharges [on usage-based auto insurance] prevented them from doing that,” said Justin Thouin, co-founder and CEO of LowestRates.Ca, in a recent interview with Canadian Underwriter.

LowestRates.Ca generates auto and home insurance sales leads for brokers and direct writers through its online quoting system, which is free for consumers.

With UBI, or telematics, the insurance company measures behaviour such as total distance as well as sudden acceleration, hard braking, speed and time of day. The insurers can use either a device plugged into the vehicle diagnostic port or an app that the driver installs on their wireless cellular device. Some app-based UBI products also track whether clients are making calls or texting while driving.

Ontario’s Financial Services Regulatory Authority (FSRA) recently changed its rating rules to allow insurers to impose surcharges on drivers with high-risk habits. Until November 2020, Ontario had a discount-only model for usage-based insurance (UBI).

“Allowing surcharges should attract more carriers to UBI. So I think this is a good thing, in the end, for consumers because more insurance companies offering UBI means more competition and more competition means better prices for consumers,” said Thouin.

“We think a surprising implication of this is that rates could go up even for drivers who don’t participate in UBI.”

This, suggests Thouin, is based on the assumption that motorists choose UBI because they are confident that they are safe drivers. “These will out-number the UBI adopters who see surcharges due to poor driving.”

In its recently-released Auto Insurance Price Index, LowestRates.ca reported that rates in Ontario in 2020 Q4 were 4.1% higher than they were a year earlier. The index is based on quotes that LowestRates generates for consumers shopping for insurance.

Thouin predicts UBI will get more popular, especially among motorists who drove less during the COVID-19 pandemic. “Everyone realized they were driving less during the pandemic and they have learned they should be entitled to lower car insurance premiums because they are driving less.”

Thouin pointed to the increased popularity of MyPace, a pay-as-you-go product from CAA Insurance Company, which is intended for vehicles driven fewer than 9,000 kilometres per year. With MyPace, CAA tracks the vehicle’s mileage, billing clients for kilometres in advance of the client driving them. As a client nears the end of their 1,000 km increment, notices are sent telling the client they have driven 750 km, 900 km and finally when the reach 950 km of the current 1,000 km increment. At that point they are automatically charged for their next 1,000 km increment.

CAA earlier reported a 300% increase in the number of clients using MyPace.

There is going to be competitive pressure for insurers to offer a pay-as-you-go type of UBI, similar in concept to what CAA has with its MyPace, Thouin told Canadian Underwriter.

“I think the fact that UBI is getting more mature, and that insurance companies are becoming more apt to price it correctly to the risk, I think you will see more UBI being offered by a number of different companies that do not offer it right now,” Thouin predicted.

Feature image via iStock.com/metamorworks