The COVID-19 pandemic has sparked a surge of interest in usage-based insurance (UBI) among Canadian drivers, a recent study by Lowestrates.ca found.
Data gathered by the Toronto-based financial comparison website revealed a 43% spike in customers opting for UBI discounts in 2020 compared to the previous year as the pandemic triggered a shift in driving behaviour and motorists searched for ways to cut car insurance premiums.
The rise was most pronounced in Nova Scotia and Alberta, registering respective year-on-year increases of 61% and 59%, driven primarily by escalating auto insurance prices despite motorists spending significantly less time on the road. There was also an uptick in interest from Ontario and Québec drivers, with those considering usage-based car insurance climbing 37% and 42%, respectively.
How does usage-based car insurance work?
Usage-based car insurance was introduced in Canada in 2013 as an alternative to the industry’s standard method of assessing premiums, according to the online news and information website Driving.ca. UBI works by adopting onboard technology or mobile applications to monitor a policyholder’s driving habits and using the information gathered to reward safe drivers in the form of discounted premiums or, in some instances, penalize risky motorists in the form of surcharges.
Traditionally, insurance companies use demographic data, including age, gender, and profession, coupled with driving history, which includes years of experience and number of traffic violations and claims, to determine if a motorist is low- or high-risk. With UBI, insurers rely on “real-world” data collected by a telematics device installed in the vehicle, serving as a little black box or an app.
The type of data each insurance company gathers varies, according to Lowestrates.ca, with most telematics boxes capturing these key metrics:
- Acceleration: The rate at which the speed of the vehicle changes within a set period.
- Braking: The rate at which the vehicle’s speed decelerates. A pattern of hard braking is often a strong indicator of unsafe driving tendencies.
- Cornering: The rate and angle at which a vehicle turns a corner.
- Speed: This is compared against a database of speed limits across Canada.
- Driving time and location: Most telematics boxes have GPS capabilities that let insurance companies see when and where the policyholder drives, which are among the largest predictors of future insurance claims.
How much can drivers save by taking out usage-based car insurance?
Drivers can save between 10% and 30% on their annual car insurance premiums if the data gathered indicates that they practice safe driving habits.
Previously, the purpose of UBI was to reward motorists for good driving behaviour by slashing their auto insurance rates. Drivers were not penalized for having a bad score. However, Ontario, Québec, and Alberta have begun imposing surcharges on premiums of those who are deemed to be risky drivers based on the information the telematics has collected.
What are the benefits of usage-based car insurance?
Taking out UBI yields several advantages, according to industry experts. These include:
1. Reduced premiums
Lowestrates.ca describes usage-based auto insurance as a “great way to obtain cheaper [premiums]” as motorists “pay for the kind of driving you actually do, instead of the driving the insurance company thinks you do.” Because of this, cautious and careful drivers tend to pay lower rates.
Personal finance website Ratehub.ca adds that UBI “removes biases typically set by [certain] demographics like age and gender.”
2. Encourages safer driving
According to Driving.ca, usage-based insurance can incentivize better road behaviour because motorists know they are being tracked.
“Since most consumers choose UBI for the discounts — and want to avoid the chance of a penalty — they’ll be less likely to drive with a lead foot or speed around corners,” the firm wrote on its website. “This is a win-win for the driver, who gets lower insurance premiums, and everyone else on the road, who will benefit from the safety of their fellow drivers.”
Another benefit is that motorists get instant feedback on their driving habits. Many insurance companies have apps that give drivers real-time insights into driving tendencies and share recommendations on how they can improve, Lowestrates.ca noted.
Read more: Usage-based insurance could encourage better driving behaviour: Study
3. Facilitates collision investigations
If a collision occurs, the telematics device can help identify what happened and who is at fault. According to Driving.ca, insurance claims adjusters can use the data gathered to resolve claims faster and more accurately. This can also assist insurance companies in catching fraudulent claimants.
What are the disadvantages of usage-based car insurance?
The use of this technology, however, also has its drawbacks, including:
1. Privacy concerns
Some drivers are concerned that the information collected from them can be disclosed to third parties or used to reject claims. There is also the potential risk of a cyberattack, which can compromise private data. But according to Lowestrates.ca, most insurance companies maintain that customer data remains secure. The financial website also advised customers to make sure that their insurer requires consent before they can share information with a third party.
2. Accuracy issues
According to Driving.ca, some critics remain doubtful that the technology that UBI relies on to gather data can be 100% accurate when it comes to interpreting driver behaviour or why instances of speeding or hard braking may happen. The online magazine added that not all telematics can identify who specifically is behind the wheel, especially for families sharing a vehicle, which could paint an inaccurate picture of a customer’s driving behaviour.
3. Potential surcharges
In some jurisdictions, including Ontario and Québec, auto insurance premiums can increase if a driver’s telematics data indicates that they have unsafe driving tendencies.
Is usage-based car insurance available across Canada?
As of November 2021, pay-per-mile insurance is widely available in Alberta, New Brunswick, Nova Scotia, Ontario, Prince Edward Island, and Québec, according to Lowestrates.ca. The firm noted that Saskatchewan has not yet made further announcements about implementing a UBI program since the province’s pilot program for motorcycle drivers ended in 2014.
British Columbia is taking a “wait-and-see” approach regarding the use of telematics due to privacy concerns, while Manitoba and Newfoundland and Labrador have not made announcements regarding plans for a UBI rollout.
Canadian insurers offering usage-based car insurance policies
Here are some insurance companies in the country providing UBI policies.
Insurer | UBI app | Key features |
Allstate | Drivewise |
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Belair Direct | Automerit |
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