Usage Based Insurance

In a world influenced and directed by technological enhancements, the insurance industry partakes as well in their revolutionary advances. One of the latest phenomenon that is greatly impacting the auto industry is usage-based insurance (UBI).

 What is it?

Usage-based insurance is automobile insurance that is driven by technology. It relies on telematics (telecommunication devices) to track driving behaviour, which is then used to calculate potential discounts and savings on your auto insurance rate. With usage-based insurance, your insurance premium depends on your driving habits, such as how often you drive, how long you drive, how frequent you brake or make sharp turns, etc. The intent of this new type of policy is to create more personalized insurance rates and to lower automobile insurance premiums, while rewarding safe and smart driving behaviours. Other names that UBI goes by are pay-as-you-drive (PAYD), pay-how-you-drive (PHYD) and time-based insurance (TBI).

How does it work?

The key in usage-based insurance is the data-tracking telematics device. This is a small device that is plugged into the vehicle’s diagnostic port in order to analyze driver behaviour. Once attached to the car, it records everything without the driver having to do anything. The device collects information, including braking, acceleration, distance travelled, time-of-day driven, cornering, and speed. This information is sent back to the insurance company to calculate your rates.

What happens to my premium?

Before there was usage-based insurance, insurance companies solely used traditional rating methods to determine auto insurance premiums. This meant using statistics and information from the driver (driving records, type of car, living location, distance of commute, etc) to determine the risk level for the car and the driver. As this information is subject to change, it can provide an inaccurate calculation for your insurance rate. However, with usage-based insurance, your mileage and driving behaviour are dynamically tracked by telematics, leading to more accurate calculations and cheaper premiums.

Drivers that participate and install a telematics device generally earn introductory discounts on their auto premium, helping to reinforce safe driving. To precisely determine your insurance rate, insurance companies use the information from the telematics device in conjunction with traditional rating methods. This means that your current driving behaviour will be taken into account, not only your past driving habits and incidents. This creates a more personal and fluid analysis for determining insurance rates. . Additionally, good driver discounts are applied to those who have been driving smoothly and safely. Data that is collected by the device will not be used to increase insurance premiums.

One company who is adopting this technology is Intact insurance. They offer incentives such as an immediate introductory 10% discount which depending on your driving behaviour may increase to 25% on renewal. For more information regarding Intact’s telematics program: Intact Insurance – My Driving Discount

 Advantages of UBI

  • more individualized and precise premiums tailored to the driver
  • increased affordability for low-risk drivers
  • ability to control/lower own premium costs by reinforcing safe driving habits and by reducing mileage
  • Data collected will not be used to increase your premium
  • Option to opt-out anytime with no policy cancellation fee
  • Potential savings and discounts on insurance premiums
  • Encourages safe driving practices, leading to fewer accidents

 Although the advantages of usage-based insurance are abundant, the tracking of driving behaviour raises concerns in personal privacy. As a result, some insurance companies limit the information collected. Nonetheless, the sharing of information has become more and more acceptable thanks to mainstream social media (Facebook, Twitter, Instagram, etc).

 Is UBI for you?

Usage-based insurance is beneficial for everyone. The policy rewards you for practicing safe driving behavior. In terms of discounts, those that have safer driving behaviour will save more off their auto premiums. However, everyone who participates in the program receives an introductory discount.

Usage-based insurance is popular and expanding in Canada. The technology it uses is helping consumers to save money and insurers to cater effectively to their clients. If UBI is something that you are considering or that you want more information about, do not hesitate to contact one of the brokers at Pacific Insurance Broker Inc.