Brigid Murphy, president and CEO of The Dominion, says she can see a time when telematics will be used to determine auto insurance premiums.
“This is potentially a game changer from the automobile point of view,” Murphy said on Tuesday during a luncheon hosted by the Insurance Brokers of Toronto Region. “I have no doubt, and I think most people in the industry will say, that ultimately this is what will drive prices for automobile insurance,” she said.
It has been estimated that by 2018, “95% of cars will have these gizmos in them when you buy them off the lot,” Murphy told luncheon attendees. “You will have something in your car that says where you drive, how you drive, how much you drive,” she said.
Basing insurance prices based on this “eliminates the whole credit score argument on automobile insurance because if you can see the actual risk, then you don’t need to use a reasonable facsimile,” Murphy suggested.
Her view is that credit scoring is ultimately a fool’s game. Insurance is a business where the losses of the few are paid for by the premiums of the many and credit scoring may take “us to a situation where the losses of the few are paid for by the premiums of the few,” Murphy commented.
The response in the United States to good driving behaviour, as indicated by telematics, has been to offer discounts, she said. “If you’re a good driver, you’re probably way more likely to say ‘sign me up.’”
However, this is “actually problematic for companies because it takes money out of the pocket and you have to raise rates for everybody else.”
Murphy pointed to a company in Quebec that claims its approach with young drivers – each answers a few questions, receives a quote and then see the rate adjusted up or down based on monthly driving behaviour – is helping to change driving behaviour for the better.
More time will be needed to determine if the reported behaviour changes are long term or lasting only a few months.
Murphy suggested the model looks like “the right model if you really want to make this work and change driving behaviour.” She added, however, that there is a need to ensure efforts to find a place for telematics within existing rules does not result in dumbing down the technology.
The Dominion will likely try to start building some data around telematics to help identify “where the price point should be or might be,” Murphy said.
“The only jurisdictions where you can do it in a really low-risk way is British Columbia and Quebec, where there’s no bodily injury,” she said, adding that it would be nice to get some sense of how this would play out in another jurisdiction, perhaps Nova Scotia or Alberta.
“I expect it’s going to be fairly rigid in Ontario in the short term so it may not be the place to experiment,” Murphy added.