Turning the Corner

Desjardins General Insurance Group has launched a new, widely available usage-based insurance (UBI) program in Ontario and Quebec, with plans to expand to Alberta and the Atlantic provinces in the near future.

Canadian insurers have been watching the development of UBI in the United States and Europe for some time. In Canada, Aviva Canada ran a limited UBI pilot, but disbanded its Autograph program as of August 2011; Industrial Alliance launched its Mobiliz program (focused on drivers aged 16 to 24) last year in Quebec.

Although UBI has been around for at least a decade, only in the past few years has it really taken off thanks to advancing technology, and better and less costly wireless networks.

Gone are the days when a device would have to be professionally installed and the consumer would need to periodically unplug it from his or her vehicle, and then plug it into a computer to upload driving information to his or her insurer. Today’s technology allows our customers to plug a cellphone-sized telematics device into the diagnostic port in their vehicles. The customer can then register online to access a personalized, secure online dashboard, which can be used to track driving behaviour and potential savings.

UBI programs are now available in most U.S. states, with eight of the 10 largest insurers having UBI offerings. Progressive, the leader in the field, has over 1.4 million UBI customers and last year alone generated US$1 billion in premium volume from its “Snapshot” program.

In many ways, this is an ideal time to introduce UBI into the Canadian market, particularly in Ontario, where there is political pressure to reduce what are the highest auto insurance rates in the country.

But even in other parts of the country, consumers are looking at ways to better control their auto insurance premiums. Certainly, there is a growing dissatisfaction with some of the traditional predictive factors, such as age, gender, type of car and postal code – not to mention some of the more contentious variables, including insurance or credit score.

There are other factors behind the growth in UBI programs. In Europe, for example, using gender as a ratemaking variable is no longer allowed, and all new cars must be fitted with imbedded telematics by 2015.

Although the telematics requirement is aimed at improving safety – enabling drivers to automatically contact the nearest emergency services in the event of an accident – it does provide an opportunity for insurers to piggyback and cost-effectively expand their UBI programs.

Another factor supporting UBI growth is the fact that consumers are increasingly comfortable in sharing personal information on social networks and through the use of cellphones and online transactions. 

THE RESPONSE

Based on the experience of UBI programs elsewhere, low-mileage, low-risk drivers in Canada will be attracted to the potential savings from UBI offerings. As we say in the business, these drivers will self-select.

For our program, Desjardins is using a telematics device from Montreal technology company iMetrik that relays driving data over Bell’s wireless network. The telematics device stays in the vehicle for as long as the customer is enrolled in the program. This differs from Progressive’s Snapshot program, which determines the customer’s discount based on six months of monitoring, after which time the customer removes and returns the device.

The telematics device used by Desjardins collects information on three key driving behaviours, each of which will influence potential discounts for the user: annual mileage (as much as a 10% discount if under 15,000 kilometres); extent and frequency of hard braking and acceleration (up to 10%); and time of day the vehicle is most likely to be driven (as much as 5% if the vehicle is mostly driven during the daytime at non-rush hour times).

A 5% discount is available upon sign-up, with this being replaced on renewal by whatever discount the customer has earned based on his or her driving behaviour.

We expect about 25% to 50% of new customers will sign up for our two UBI programs – one for Desjardins Insurance customers; the other for customers of our group insurer. A few weeks into the program, roughly 35% of our customers are signing up for the two programs. Of course, customers can opt out at any time without penalty.

UBI programs are popular for a number of reasons. Obviously, good, low-mileage drivers can save substantial amounts. Those good drivers in high-risk categories – such as young males in densely populated urban areas – have the potential to save the most because their premiums are the highest.

In addition, there is plenty of evidence that having a telematics device in the car, and receiving regular feedback on driving behaviour, results in better driving.

Various studies have shown a big drop in fleet accident rates (93% for Iron Mountain; 56% for the Pepsi fleet in Iceland) following the implementation of a telematics program. In addition, the U.K. company, insurethebox, analyzed more than 300 miles of driving data and determined that the use of telematics encouraged better driving and reduced accidents involving young motorists by 35% to 40%.

Another important advantage is the aggregate driving data that is collected. Progressive reported last year that it had collected data on more than five billion real-time driving miles through its UBI.

THE CUSTOMER

Before launching our two programs, Desjardins ran a four-month pilot with about 200 employees in Ontario and Quebec. Feedback during the program offered insight on how customers would view the technology and potential benefits. Some highlights from the pilot project are as follows:

• Installation – Some users were initially intimidated by having to install the device in their vehicle’s diagnostic ports. Clear instructions with graphics helped alleviate this concern.

• Driving feedback – Participating employees regularly checked their personalized dashboards to track driving behaviour records (updated daily), particularly hard braking, acceleration and potential savings.

• Behaviour changes – Many employees reported that feedback prompted them to change their driving for the better. Some pilot participants even said they drove less, particularly during higher-risk times, because of the financial incentives associated with lower mileage and time of use.

• Perception – Virtually all pilot users viewed actual driving behaviour as a fair and reasonable way to determine a driver’s premium – even employees who did not earn that large a discount.

• Young drivers – Employees with teenage drivers said they valued having information about the way their teens drive, and used the information to reinforce good (and safe) driving behaviours. Although there were some concerns about “spying” on their children, the financial savings provided a good reason for highlighting any potentially worrisome driving behaviours.

• Privacy – Pilot participants (employees) expressed some reservations about having their driving information collected and used. Reassurance was needed to explain that information would only be used to determine savings, and not for any other purpose, for surcharges or to be shared with any other group.

The pilot participants were on track to realize average savings of about 12%, in addition to any other discounts they were receiving.

Not surprisingly, employees with the greater potential discounts (10% or higher) indicated that they were much more likely to sign up for the program when their policy renewed. It is anticipated that early self-selecting customers would probably earn a somewhat higher discount.

THE FUTURE

It is clear that UBI will mean big changes to Canada’s auto insurance industry over the next several years as more and more insurers introduce their own programs. This will help reduce the industry’s reliance on traditional, less accurate predictive variables, give drivers greater control over their insurance costs, and deliver social dividends in the form of safer and possibly less-congested roads.

But that is only the beginning. Telematics offers tremendous potential for use in managing claims, fighting fraud and providing a wide range of value-added services, such as roadside assistance, automatic emergency calls, theft prevention and driver feedback, to name a few.