Will telematics make territory-based rating a thing of the past?

The use of telematics in pricing auto insurance is going to become more “prevalent,” and a major property and casualty insurer is trying to use the technology to get a better idea of driver risk, speakers said during a recent webinar.

Intact Insurance is trying to get beyond the use of proxies for determining risk in underwriting auto insurance, Jean-François Larochelle, director of Intact’s data lab, said during the July 18 webinar, Insurance Analytics to Supercharge Performance. Examples of “proxies” include rating factors such as the driver’s age, or where the vehicle is parked at night.

Telematics collects vehicle data such as distance travelled, where a vehicle was driven, as well as behaviours such as speeding, hard braking and sudden acceleration. “What we are trying to get [from telematics] is, are you a good driver or not?” Larochelle said. “The next question is, is [the telematics data] strong enough to remove all the other variables?”

In Ontario, auto insurers may base rates on territory (the street address of the vehicle owner or principal driver), age, gender and marital status. Some political parties took issue with territory-based ratings in the Ontario election campaign this past spring, but insurers say territory is actually one of the best predictors of claims frequency.

Ontario auto insurers may use telematics to give discounts for low-risk driving behaviour, but they may not impose surcharges for behaviour that they perceive as risky (frequently slamming on the brakes, for example).

Telematics “is going to become a really prevalent instrument for what I call real-time pricing and real-time underwriting,” Fernando Moreira, senior vice president of global insurance at Scotiabank, said during the insurance analytics webinar. “The old models for underwriting – they are, over time, going to become part of a museum.” The webinar was produced by Insurance Nexus, a unit of London-based FC Business Intelligence Ltd.

In addition to Intact, Canada’s largest insurer, telematics-based auto insurance is also available from The Co-operators Group Ltd., Desjardins General Insurance Group and CAA Insurance. CAA announced July 12 that its MyPace offering, which uses telematics to set auto insurance rates based on distance driven, is now available in Ontario.

CAA has been using what it calls “traditional” telematics for a few years. MyPace is different because it targets low-mileage vehicles and only uses distance, rather than other telematics-gleaned data such as time of day, hard braking and sudden acceleration to offer discounts. The target market for MyPace is motorists who drive fewer than 9,000 kilometres per year. Motorists start with a base rate and are charged in 1,000-kilometre increments, which are reloaded automatically.