UBI will not realize full potential until regulatory constraints are removed, telematics conference hears

Usage-based insurance (UBI) is failing to gain traction in Canada because of the country’s regulatory regime, suggested Colin Wright, principal of Corner Two Consulting, during a presentation at the Insurance Telematics Canada 2015 conference in Toronto on Friday.

“Everyone I spoke with in the industry, to a greater or lesser extent, thinks the regulatory regime [is what holds] UBI back from gaining traction,” Wright said during his presentation, titled Global case studies: Tailor UBI to Canada. “We’ve heard the term disruption all the time, what I think that means is fragmentation. To survive, it’s important to focus on the fragment that belongs to you.”

Telematics can be a “challenging business case,” Wright acknowledged. “I’m going to suggest that the programs we have today don’t suit the vast majority of drivers,” he told conference attendees. “The discount-only model effectively limits UBI programs to low-risk drivers and low-risk behaviours. It’s a pretty narrow subset of the driving population.”

The challenge is that according to current discounts in UBI programs, “a good driver doesn’t drive much, they only drive during certain hours of the day, they don’t speed and they drive smoothly, with no sudden braking or acceleration,” Wright said. “Good driving varies across the spectrum of behaviour. By only collecting data from a subset of drivers, self-selected from the UBI program because they had the reasonable expectation of getting a discount, you don’t much closer to really understanding the full spectrum of behaviours. As a result, we’re failing to realize the full promise of UBI.”

It could be argued that other jurisdictions are taking a different approach. For example, South African insurer Discovery Insure offers rewards such as up to 50% off BP fuel to good drivers. In Oregon, OReGO, a new road usage charge program, allows drivers to calculate their estimated OReGO payment and compare it to their current monthly fuel tax cost.

Toronto-based Pay by Sky uses a model “where drivers are actually awarded for driving calmly in residential areas,” Wright noted during his presentation. “Effectively, Pay by Sky is a telematics-based parking metre” that could eliminate the need for parking metres and kiosks.

For insurers, Pay by Sky could be valuable by reducing congestion and clearing traffic more effectively. “For consumers, it’s hyper convenient because you can get a Pay by Sky product, get out of your car and walk away. At the end of the month, you get a bill and of course all of this is accessible through [the consumer’s] mobile device or computing device of their choice.”

It is this mobile convenience that means the future of UBI will be “one platform and one link,” Wright predicted. “You have apps that make sense to you as an individual and that are of a value to you and make sense in the way you live your life. I believe a telematics platform provides the same opportunity to aggregate services and maximize utilities” that enable consumers to pick and choose the services that make the most sense for them, he said. “It really makes sense to have a common platform.”

What consumers want are “apps that actually deliver utility, that actually work and I think at present, we don’t really have that yet,” Wright said. “I think that is ultimately the objective.”

More coverage of the Insurance Telematics Canada 2015 conference

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