How COVID has influenced usage-based auto insurance adoption

Motorists who are driving fewer kilometres than they were before the pandemic are more likely to select usage-based auto insurance, Intact Financial Corp. observes.

“COVID has pushed consumers to recognize that maybe UBI would be a tool that will immediately re-price [auto coverage] based on how much driving they are doing, and therefore made it more attractive for them,” said Louis Marcotte, Intact’s chief financial officer.

During a recent virtual fireside chat, Marcotte suggested that Intact’s main effort for UBI sales is on new auto business (not so much on renewal business), and the takeup rate of UBI is now about 40% to 50% on new business.

The percentage of Intact auto policies in force that have UBI is in the mid-teens, Marcotte said during the virtual fireside chat with Credit Suisse analyst Mike Rizvanovic. That’s about double the percentage of UBI policies that were in force before COVID-19 was declared a pandemic in early 2020.

“The crisis has actually pushed consumers to look for products that mimic their driving habits – first on the number of miles, given the reduction [during] the [pandemic], and then quality of driving,” said Marcotte. “As people realize that that reduces the cost of insurance, we think the takeup will be greater.”

Rizvanovic asked Marcotte how telematics will affect Intact in the medium to long term.

“We are big believers that the data you get from telematics provide a huge advantage from a segmentation point of view. The predictability of the data is so much higher than the current existing data pieces,” Marcotte said last month during the 22nd Annual Credit Suisse Virtual Financial Services Forum.

By existing data pieces, Marcotte was alluding to traditional private passenger auto rating factors such as territory, age, and gender.

One thing that dampened UBI adoption in Canada until recently was regulation. Only recently did Ontario’s insurance regulator start to approve rate filings that would penalize motorists who show risky behaviour in the driving data. Until then, telematics was allowed only on a discount basis.

“You have [provincial insurance regulators] who want to keep control of prices, and then they will accept a price discount. But if you want to add a penalty for the price, [until recently] they would not accept it. So it took a while to get the regulators to think positively of telematics; therefore, the penetration is somewhat limited and still very much oriented towards a discount model, as opposed to a model that has discounts and penalties,” said Marcotte.

In addition to Intact, Marcotte counts six insurers that currently offer usage-based auto in Canada. he observed that The Travelers Companies Inc. recently started offering UBI in Ontario.

“I think there is recognition by other insurers that telematics provides an advantage,” he said, “and if you don’t have a product, you might be left out over time as the product gets a bit more recognition.”

Feature image via iStock.com/yackers1