The Canadian UBI market is at a tipping point, as an increasing number of carriers begin to appreciate the benefits of offering a telematics insurance solution and consider how best to offer their product. Siegfried Mortkowitz of TU Automotive looks at the options they must consider.
As usage-based insurance (UBI) begins to gather steam and enter the mainstream market in Europe and the United States, the product is still very much in its infancy in Canada. One reason for this time lag, says Dan Maddison, director of market research and development at the Co-operators, is that auto insurance is highly regulated in Canada and provincial regulators must approve UBI products.
“It took time for them to determine what kind of telematics programs would best address data privacy and fairness to consumers,” he says. “It took a while to get the programs approved.”
Currently, Maddison says, “a minority” of carriers have UBI products, “but most of them are thinking about it and it is now perceived as a competitive disadvantage not to have it.”
There is also a competitive disadvantage in provinces such as British Columbia and Manitoba where insurance is written by the provincial government, according to Colin Wright, principal at Corner Two Consulting, which focuses on UBI and digital service delivery for the insurance industry in those two provinces and others.
“It’s not a competitive environment,” says Wright.
He adds that in Quebec the regulators are “a lot more laissez-faire and you are allowed to discount and surcharge. However, as rates are already low, you have less premium room to play with.” (continued.)
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This leaves the provinces of Ontario and Alberta as the most attractive large markets for insurance telematics solutions.
“Ontario has the highest premiums in the world, I think,” says Wright, only half-joking. “And this is basically because of accident benefits. Here you have consumers looking for rate relief.”
He explains that the elevated rate of fraudulent claims is one reason the premiums are so high, but it is also the biggest province with the most drivers, “so this is where you want to see some action in UBI.” But the conservatism of the regulators has limited the solution’s expansion.
“The regulators want to be assured that data is carefully collected, accurate and accurately predictive,” says Wright.
Wright suggests that the currently small Canadian UBI market is impairing the predictive quality of the data.
“Today, the definition of a good driver is very limited,” he says. “For example, discounts are only given if you drive less than 15,000 kilometres a year and there are no benefits to someone who drives at night and is often in stop-and-go traffic. But in the Greater Toronto Area, you have people who drive 100 kilometers to work and back every day. These people are automatically not eligible. Are they bad drivers? Not necessarily.”
These regulations limit the ability of carriers to accurately price their premiums. “The more people you have in the program, the more you can identify different driver types, recognize the good drivers and re-price the market,” says Wright.
TOMORROW… WHAT UBI DEVICE TO CHOOSE?
