For a few years, drivers in some Canadian provinces have been able to earn discounts on their auto insurance premiums by driving safely — or not driving much — thanks to apps or telematics devices that track their behaviour behind the wheel.
But recent rules changes mean that in a growing number of jurisdictions drivers could also see their premium increase if the tracking in so-called pay-as-you-drive programs reveals risky behaviour like speeding, abrupt braking or accelerating, or texting and handheld calls while the vehicle is in motion. Similarly, with pay-per-kilometre insurance, drivers could see surcharges for exceeding a certain number of kilometres driven in a certain period of time.
In November, Ontario’s insurance regulator announced insurers would be allowed to charge more for risky driving and high kilometres revealed by apps and telematics devices. In Quebec, where private insurance covers property damage caused or incurred by drivers, insurers are also allowed to adjust premiums.
Alberta approved the ability to increase premiums for insurance programs that rely on tracking in December as part of a broad auto insurance reform, with the new rules expected to come into effect in early 2022.
And some form of telematics insurance are also available in New Brunswick, Nova Scotia and Prince Edward Island.
For consumers, the allure of pay-as-you-drive or pay-per-kilometre — also known as usage-based insurance (UBI) — is the potential for significant savings. TD Insurance, Intact Insurance, Desjardins and others promise potential discounts for safe drivers who sign up for the data-tracking policies. The same technology is behind the Canadian Automobile Association (CAA) MyPace policy, which offers a discount to those who drive less than 9,000 kilometres per year.
The rationale is simple: if your insurance knows you’re not using your vehicle much, it can charge you a lower premium. Drivers can save up to 25 per cent or, in some cases, 70 per cent compared to their base rate by letting insurers monitor their behaviour.
For many Canadians, the attraction of usage-based insurance became clearer during the COVID-19 pandemic, which has dramatically reduced vehicle use for workers who no longer have to commute to the office. CAA says enrolment in its MyPace policy between April and December 2020 increased by almost 300 per cent compared to the same period in 2019.
Privacy advocates have raised concerns about usage-based insurance continuously gathering customer data. But when it came to insurance premiums, consumers could rest easy knowing they wouldn’t be penalized for sharing their data. If you turned out to be a bad driver or had to drive more kilometres than anticipated, the worst-case scenario was your premium would remain what you’d have paid with traditional insurance.
Consumers should consider whether they can afford surcharges
Now, though, a growing number of provincial regulators are lifting restrictions and allowing insurers to also increase premiums based on what the data shows.
In Ontario, the Financial Services Regulatory Authority of Ontario (FSRA) says the changes will provide more choice and flexibility for consumers.
“Good drivers will be rewarded with lower rates. Drivers with high-risk driving habits may pay more. Drivers control their driving behaviour and therefore have some control over rewards that are available to them,” the regulator said via email.
The rule changes do not automatically affect existing UBI programs, and any changes of the terms and conditions of current policies must be vetted and approved by the regulator, the FSRA said.
For now, all UBI policies examined by Global say drivers can only earn discounts on the premium at renewal. In the worst-case scenario, users fail to earn any savings when their policy renews and are stuck paying the insurance premium they’d normally have to pay.
The IntelliDrive app by Travelers Canada, for example, is a 90-day program that Ontario drivers can use to save up to 30 per cent on their regular premium through safe driving. Users receive a 10 per cent discount just for enrolling, but they could lose some or all of those savings if the app detects “riskier driving habits,” the company’s website warns.
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The program tracks speed, acceleration, braking and distracted driving, such as texting and physical interactions with your phone while driving, although users can manually indicate whether they’re riding in the car as passengers of drivers. The apps also monitors the time of day when the driving happens.
“When you drive can be as important as how you drive,” the website says. “Avoid driving really late at night to help improve your score.”
TD MyAdvantage, which is available to Ontario- and Quebec-based drivers, works in a similar way. Users can receive a discount of up to 25 per cent on their premium at renewal for a minimum of 120 days and 1,000 kilometres of safe driving.
With CAA MyPace, which is available in Ontario, New Brunswick, Nova Scotia and Prince Edward Island, drivers get a discount if they drive less than 9,000 kilometres per year. The average Canadian motorist, by CAA’s own estimates, drives over double that much, logging in 20,000 kilometres annually. MyPace users who happen to go over the 9,000-kilometre mark simply fail to earn a discount, says Elliott Silverstein, director of government relations at CAA.
“We’re seeing a lot of our customers seeing upwards of 50 per cent savings compared to a traditional auto insurance policy,” Silverstein told Global News.
But recent rule changes could pave the way for using data to apply surcharges that go beyond simply wiping away any welcome discounts, according to Matt Hands, director of insurance at financial products comparison site Ratehub.ca.
“We could open ourselves up to is different programs that would have different rules regarding surcharges,” Hands says. “This could vastly change the landscape for how you drive programs.”
Consumers considering UBI should make sure they understand all the terms and conditions and consider whether they’d be able to afford a premium surcharge, he adds.
“I would do the math, make sure that, whatever situation I’m putting myself in as a driver, financially I can afford all scenarios,” Hands says.
Potential for fairer auto insurance premiums
Insurers argue UBI could eventually make driving safer for all.
“UBI can … incentivize better driving behaviour on our roadways through real-time feedback for drivers,” Vanessa Barrasa, a spokesperson for the Insurance Bureau of Canada, told Global News via email. “Better driving behaviour leads to safer roads.”
But Peter Kochenburger, who teaches insurance law and regulation at the University of Connecticut, says the more likely potential short-term impact of UBI that allows for surcharges is a widening gap between the premiums applied to safe drivers and those charges to bad drivers.
“That’s not necessarily a bad thing,” he says.
UBI, which is more common in the U.S. than Canada, could allow insurers to base more of their risk assessment on how customers actually drive and less on proxies of risk, such as age or where the insured lives, Kochenburger told Global News.
More data, better monitoring and more sophisticated algorithms are allowing insurance companies to fine-tune and personalize their risk assessments a great deal. This could be great news if you are, say, a young driver in a sports car who actually always drives the speed limit.
But the implications are potentially broader, according to Kochenburger. In the U.S., one of the concerns around some of the risk proxies insurers have traditionally been relying on is that they may have a disproportionate impact on groups like people of colour, Kochenburger says.
A 2015 study by the Consumer Federation of America, for example, found that good drivers in predominantly African American neighbourhoods paid premiums that were on average 70 per cent higher than in those paid by drivers in neighbourhoods where African Americans made up less than 25 per cent of the population.
“There’s a real fairness issue,” Kochenburger says. “Especially in auto insurance, there is often a perception that you should pay based on your risk.”