While brokers last week debated whether Allstate’s new telematics patent constituted a privacy breach, Thom C.J. Young, CEO of Lundgren & Young Insurance Ltd., believes this is not the issue most worthy of industry scrutiny.
“UBI data is about tracking usage. Geographical exposures, distance of driving and driving habits are collated into a rather benign group of stats that can be factored against an actuarial model for prediction of loss experience,” Young said. “There really isn’t anything personal about it even if the client’s driving habits are inferior.”
Instead, Young believes the focus should be diverted to the impact UBI may have on the stability of the Canadian auto insurance market.
“I think what concerns me the most about the impact of UBI is that it doesn’t change the overall cost of insurance for Canadians, it simply redistributes the charges to smaller groups,” he said.
Young, who sat on the National Facility Association Board of Directors for ten years, says that changes in underwriting practices were always analyzed closely since they can produce a class of business faced with no appetite for their offerings.
“This always left the residual market of the facility with the majority of the take up of this class of business and the impact on the insureds was often a severe increase in pricing and in some cases, limitation of coverage,” he said.
Young feels that the proliferation of UBI may result in a similar outcome.
“Changing the amount paid by some people will simply offload the amount that needs to be paid by others. Unless UBI can be seen to change behavior and reduce overall claims costs, it will not be a positive thing for those consumers who will have to pay a larger share of the claims costs,” he said.
While this may have been the original intention of telematics, Young says the only place it’s been proven effective is with young drivers, but notes that “quantifying this is difficult from an actuarial perspective.”
Still, he believes brokers should continue advocating for the adoption of UBI devices for reasons unrelated to client acquisition and pricing.
“It certainly should be encouraged for the fact that it seems to be keeping our young people alive and uninjured through the learning process,” he said. “In a perfect world, it would be mandatory for underage drivers.”
