Perception vs Reality

Usage-based insurance (UBI) is finally gaining momentum in Canada. Increasing in popularity around the world, UBI programs use telematics-driven data to monitor driving habits and determine whether or not drivers are risk-averse enough to receive discounts on their auto insurance premiums. In theory, it is a win-win for providers and consumers alike, but the nature of the technology makes it expensive for insurers to install, and difficult for consumers to understand.

CLIENT AWARENESS

In a recent survey commissioned by Kanetix Inc., 79% of Canadians polled said they were either “not at all familiar” or “not very familiar” with UBI. The survey was based on a Leger online panel of 1,555 Canadians. A probability sample of the same size would yield a margin of error of +/- 2.4%, 19 times out of 20.

Aside from the relative infancy of UBI in Canada, part of this lack of familiarity may be due to the confusing nature in which “telematics,” “usage-based insurance” and customized program names are used interchangeably.

Six insurance companies to date – Industrial Alliance Home and Auto Insurance Inc., Intact Financial Corp. subsidiaries Intact and Belair, CAA South Central Ontario, The Co-Operators Group Ltd. and Desjardins General Insurance Group Inc. – have introduced UBI programs in Ontario and/or Quebec, but each company has its own name for its program, not to mention its own approach to promoting how it works. Desjardins’ program, for example, goes by Ajusto, while Belair’s is called Automerit. There is little consistency in identifying these programs as UBI programs across the board.

Despite this, UBI is moving forward. At least half a dozen more providers are expected to introduce UBI programs over the next year. Soon it will not be a question of who offers UBI programs, but who does not?

In order for UBI to find success in Canada, a number of barriers need to be addressed, one of which is the issue of “the device” and its associated data collection. Once customers learn that a device is installed in a vehicle to monitor and record driver habits, they express concern over the privacy of their personal information and the way in which the collected data is used and shared.

In the survey commissioned by Kanetix, 75% of the Canadian respondents said they are concerned that their personal information could be stolen, while 73% fear the data could be used to deny an accident claim or cancel their policy. The results indicate that seven out of 10 Canadians worry about who owns the information, and whether that information would be shared with other insurers.

Beyond this, two-thirds of respondents worry that a UBI device would not capture their driving habits accurately, and 60% are concerned it would capture too much by reporting accidents that the driver does not want to claim.

More work needs to be done to help potential UBI customers understand how their information is used and protected, who owns it and how it will impact their rates.

ACCOUNTABILITY OF DRIVERS

Despite these privacy concerns, the allure of insurance premium savings and the potential for greater driver accountability is enough for the majority of Canadians surveyed to express interest in UBI programs. Sixty-nine per cent of those surveyed believe that people will drive more safely if they know their driving is being monitored, and 61% said they would plug a device into their vehicle if it meant there was a chance to save money. In fact, these drivers expressed confidence that they would see savings.

This relationship between safety and savings may be UBI’s biggest selling point. Not only will accountability help drivers lower their insurance rates, but it has the potential to make roads safer, ultimately reducing the severity and frequency of claims.

“Telematics can help reduce claim frequency by making people conscious of their driving habits and reinforcing them with positive or negative feedback,” says Sean Graham, a principal broker at KTX Insurance Brokers. “It will help people – especially teens-change their driving behaviours to avoid things like hard braking, which can lead to fender benders.”

It is argued that drivers will be motivated to adjust their habits to maximize savings. If they see that they can save by reducing speeds, tweaking the time of day they are driving, or embracing other savings-related driving practices, then they will likely be driven to correct bad driving habits. This discipline will help them to become better and more attentive drivers overall, producing long-term results that benefit both the drivers and insurance companies.

By targeting young and new drivers in particular, as many insurance companies are presently doing around the world, UBI programs can help establish smarter and safer driving practices at an early stage in one’s driving career.

Still, many polled Canadians remain apprehensive and would prefer proof of potential savings before signing up for UBI programs. Sixty-one per cent of those surveyed said they would download a smartphone app if it would help them gauge whether they could benefit from a usage-based insurance program.

Apps – such Kanetix’s DriveSmart app for Apple and Android mobile devices – work much like other accountability apps. They can encourage the development of positive habits through positive reinforcement.

DriveSmart is analogous to the social media tool Foursquare, in that DriveSmart rewards drivers with badges. This lets drivers share their driving performance with their friends. But more importantly, the app gives consumers a better understanding of how an actual UBI program works by providing a sense of what driving behaviour is being tracked by their insurers. This allows a driver to become comfortable with an offering before subscribing, and gives him or her an indication as to whether or not he or she could pay a lower auto insurance premium based on driving behaviour.

At the time of writing, DriveSmart is not connected to an insurance company. It is currently being used as a tool to gain consumer awareness and acceptance of UBI; however, several insurance companies have expressed early interest in leveraging the technology to encourage their own customer-base to embrace telematics.

Installing usage-based insurance devices is a cost presently absorbed by insurance companies, but if insurance companies were to offer app-based technology, a format most drivers are already familiar with, then adoption could be increased and implementation costs could be reduced.

CHANGING PUBLIC PERCEPTIONS OF UBI

Apps such as DriveSmart may be a crucial step in creating awareness about UBI programs and how they work, but it is not the only method. To truly change public perception, the industry needs to really understand consumer sentiment, and be more transparent and direct when it comes to the messaging surrounding UBI.

Telematics is not going anywhere. The sooner UBI programs become clearer to consumers, the sooner the technology can expand across the Canadian insurance landscape.