The pros and cons of usage-based insurance

Since the pandemic began (what seems like ages ago), drivers have been taking fewer trips back-and-forth to work, the gym, restaurants, and other locations; more Canadians are turning to usage-based insurance (UBI). Also known as pay-as-you-drive or telematics insurance, UBI allows the driver’s premiums to more accurately represent their time spent on the road.

According to arecent report from LowestRates.ca, interest in UBI jumped significantly in 2020 compared to 2019. In fact, there was a 43 per cent year-over-year increase in drivers who opted in to the UBI discount when seeking car insurance quotes on the website. Among all the provinces where UBI is offered — Quebec, Ontario, New Brunswick, Nova Scotia, Alberta, and Prince Edward Island — Nova Scotians and Albertans were particularly keen on UBI this last year, with interest rising 61 per cent and 59 per cent, respectively.

Similar to these findings, CAA Insurance revealed that signups for its pay-as-you-go auto insurance payment program, CAA MyPace, increased by 300 per cent over the last year.

UBI entered the Canadian auto insurance market in 2013 as a unique alternative to the industry’s standard method of assessing insurance premiums. Rather than look at traditional factors, such as age and driving history, UBI primarily relies on telematics, a technology that uses vehicle tracking to monitor a driver’s road behaviour, and rewards — or penalizes — the driver accordingly, in the form of discounted premiums or in some casessurcharges. 

This highly intelligent technology can capture and store data related to how fast a driver accelerates, as well as how often the driver brakes, and speeds through a corner. UBI can also track how many kilometres a car has driven. While UBI adoption and interest have seen an uptick as of late, you’ll still want to weigh the pros and cons of telematics before signing up. 

Benefits of usage-based insurance

• Potential savings: UBI works to encourage and reward good driving behaviour.  If you’re careful and cautious on the road, meaning you avoid sudden braking or acceleration, and typically stay within the speed limit, you could earn as much as 30 per cent in savings on your annual premiums.
• Collision investigations can be simpler to solve: If you find yourself in a collision, UBI could help pinpoint what happened and who was at fault. Insurance claims adjusters can use this data to help resolve claims faster and more accurately.
• Encourages safer driving: UBI can incentivize better road behaviour because drivers know they’re 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. 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. 

Drawbacks of usage-based insurance

• Surcharges can be added: In some provinces that offer UBI, such as Quebec and Ontario, surcharges can be added if insurance companies think customers are driving recklessly; this may be news to some customers. In Ontario, prior to November 2020, for instance, drivers couldn’t be penalized for careless driving, but the rules have since changed.
• Lack of privacy: While UBI can provide some serious discounts, they can come at the cost of your privacy. UBI has a GPS feature that easily tracks a driver’s whereabouts. Since many UBI programs require the use of a smartphone app, this could mean drivers wind up getting tracked outside of their car, as well. Not everyone is comfortable with having their location history on record, and there are some concerns as to how that data can be used. There is also the potential risk of a cyber attack.
• Potential accuracy issues: Back in 2016, when laying out why UBI data could not be used to apply surcharges (a rule that has since changed), Ontario’s auto insurance regulator at the time expressed “uncertainty about the statistical accuracy and reliability of data.” Six years later, critics remain doubtful that the technology UBI relies upon can be 100 per cent accurate when it comes to interpreting driving behaviour or why instances of speeding or hard braking may occur. Further, not all telematics can identify who, specifically, is driving a vehicle. For families sharing a car, this can create an inaccurate snapshot when evaluating a customer’s driving behaviour, and subsequently, the change in their premiums.

If you’re interested in UBI, make sure to ask your insurance company or broker exactly what the app will be tracking and whether surcharges will be tacked on for any interpretations of reckless behaviour. Each policy is unique, so make sure you get the full picture before signing the dotted line.

Source: Driving.ca