July 18, 2018 by Michael McKiernan
In the summer of 2015, Tim Currie believed telematics was ready to explode into the auto insurance mainstream. Aviva Canada had just added its name to the list of major companies underwriting a product in a collaboration involving U.K.-based telematics provider Ingenie, while a number of other broker-focused insurers had indicated an interest in following them into the burgeoning usage-based insurance market.
But two years on, the vice-president of Markham, Ont.-based brokerage Navigators Insurance says things haven’t quite turned out the way he expected.
“It never really went to the levels I thought it would. It has ended up being a niche product for certain groups of consumers,” Currie says.
Drivers with spotty histories or new Canadians without any track record in the country in particular have jumped on the idea as a way to carve a chunk out of extremely high premiums, he says. Outside those relatively narrow consumer sectors, sales have remained “fairly consistent,” but “the lift has been nowhere near what we were hoping for,” Currie says. That’s especially true among parents with younger drivers, whose high rates he expected to spur more interest.
“I don’t really understand why people aren’t all over it, because the savings are significant. If you’re a good driver in Toronto or somewhere else where rates are very high, it doesn’t make sense to keep paying the full rate,” he says. “But if you’re unable to get the consumer support, it does take the wind out of your sails a bit.”
Comments from brokers and insurers make it clear that consumer education is key to the successful uptake of telematics, and that much more needs to done in Canada to allay fears about insurance companies as Big Brother. However, clunky technology and turf wars between brokers and insurance companies about the relationship with the customer have also impeded widespread adoption by Canadian drivers.
Telematics hardware or their app-based alternatives generate safe-driving scores for individuals by monitoring various elements of driver behaviour, including distance travelled and the time of day a car is in use, as well as the prevalence of sudden acceleration and braking. Underwriters then translate these scores into a discount that more accurately reflects the driver’s risk profile, typically rewarding the very best drivers with a premium discount of up to 25%.
Valérie Lamarre, a spokesperson for Desjardins, says “everybody wins” with a good telematics program. Desjardins’ own offering, Ajusto, dates back to 2013, with the average customer earning between 10 and 12% off their premiums. The vast majority of active participants also report an improvement in their own driving performance, according to customer surveys conducted by the insurer.
“For us, listening to our clients and offering them innovative insurance solutions is the key to success. It allows us to put our creativity to work and stand out from the competition to maintain a prominent position in the market,” Lamarre says. “In addition, we build a more in-depth relationship with our customers, and benefit when they drive more safely as they have fewer or less severe accidents.”
According to Currie, Big Brother fears are the most common among telematics skeptics.
“I underestimated how uncomfortable people would be about having their driving habits monitored by a third party,” he says. “There are some who don’t care at all, but overall the general public seems suspicious and protective of their privacy.”
The Co-operators vice-president Paul Mlodzik says the company launched its en-route Auto Program in tandem with a “robust communications plan” designed to alleviate such concerns. It seems to be having the desired effect, since the take-up rate among the company’s customer base is increasing. The Co-operators now has 40,000 devices in the vehicles of Ontario policyholders, and has plans to expand the telematics service to customers in other provinces, according to Mlodzik.
Although the device installed in cars can feed back individual trip details, maintenance information, environmental impact and more to users, he explains that only a small portion of the data actually makes it back to the insurer for rating purposes.
“We get information on braking, accelerating, the total distance and time of day, which is enough to get a good indication of how big the discount should be,” Mlodzik says.
In any case, he says consumers in most parts of the country have nothing to lose from signing up to a telematics program, since only Quebec’s regulator allows insurers to adjust premiums in both directions based on their measurements. Everywhere else, prices can only go down.
That restriction sounds consumer-friendly, but Pete Karageorgos, the Insurance Bureau of Canada’s Ontario director of consumer and industry relations, says tight regulation may be holding back telematics from realizing its full potential. He points to the U.S. startup Metromile, which allows customers to pay for insurance by the mile; an innovation that would not pass muster with Canadian authorities.
“Consumers constantly tell me they’re fed up of paying for the bad records of their neighbours,” Karageorgos says. “They want a rate that is directly related to how they drive, and based on their individual record, but insurers are limited in what they can do.”
“I underestimated how uncomfortable people would be about having their driving habits monitored by a third party.”
Pete Bode, a commercial insurance advisor with BrokerLink Insurance in Edmonton, says the dramatic improvement in the quality of in-car telematics systems means most insurers are currently operating well within their capacity in the area. Newer vehicles collect so much information about their performance that it could even be used in accident reconstruction to determine the cause of crashes and who was at fault, he says.
“The way cars are these days, they can act almost like an aircraft’s black box. It makes the insurance version of telematics look quite primitive,” Bode says. “I can see a point where the capabilities of the two merge a little more, but that may be a few years down the road. The insurance industry is a cautious one, so steering it is a bit like steering the Queen Mary: it’s a very slow process.”
Despite that, Bode sees signs that a second wave of telematics could be about to hit the market. “More and more people are talking about it. I’ve noticed a marked difference in the last six months,” he says.
At Desjardins, Lamarre says the slow build in popularity of telematics is gathering momentum. When Ajusto first launched, she says some customers “embraced the new technology and welcomed the savings,” while others “were suspicious and refused to sign up, no matter what.”
That left a majority in the middle, “taking a waitand- see approach.” But as time passes and word spreads, more are coming off the fence.
“Gradually, the concerns about privacy and how the driving information will be used appear to be lessening as telematics become more common,” Lamarre says. “People need to familiarize themselves to new technology before they can adopt it and feel comfortable using it. So our job is to make things simple for them to use, to understand and to benefit from.”
But if telematics really does take off this time, brokers may not be as well placed to take advantage. Since 2015, Ingenie has stopped taking new customers in Canada and Aviva has backed out of the area altogether, while RSA failed to follow through on its enthusiasm for the idea with an auto insurance program offered through brokers.
And it was direct operator Desjardins that pioneered the use of a mobile app that has cut the barriers and overhead costs associated with telematics. The downloadable program removes the need for physical hardware that plugs into a vehicle’s on-board diagnostics port or is professionally fitted elsewhere in the car.
Intact Insurance followed suit when it expanded its telematics program, my Driving Discount to Alberta in March, but Adam Mitchell, the president of Whitby, Ont.-based Mitchell and Whale Insurance Brokers, says the trend concerns him.
“An app is infinitely scalable with little to no costs, and it’s a really strong branding play for them, because of the level of customer interaction. As a broker, that’s worrying because it goes in conflict with our brand,” he says.
In addition to consumer skepticism, Mitchell puts the slow progress in telematics development down to the state of the auto insurance industry.
“I don’t think anyone is begging for a way to find out how to discount a product that is already unprofitable enough as it is,” he adds.
Rosa Nelson, Intact’s vice-president of sales and business development in Western Canada, says broker buy-in was key to the success of the Alberta launch of its app-only program in March.
“A lot of our brokers use the program themselves, so they understand how simple it is. We only deal through brokers, so we worked really hard to help them understand the value of the program and the ways it can benefit customers,” Nelson says. “At the end of the day, they are the ones who hold the relationship with customers, and they have been very receptive to the program.”
Mlodzik says that The Co-operators’ direct relationship with consumers makes it easier for the company to communicate the benefits of its own telematics program.
“I think some brokers will be wary of it, because they tend to be more wary of technological solutions in general,” he says. “But eventually, they will have to go there.”
“I don’t think anyone is begging for a way to find out how to discount a product that is already unprofitable enough as it is.”
So far, he says, better drivers are the most likely to sign up for telematics because of the potential for discounts. If that trend continues as the sector becomes more mainstream, Mlodzik says those without good telematics options on offer will inevitably end up attracting a poorer class of driver.
Hugh McTavish, the president of telematics-focused brokerage InsureMy in Calgary, is one of those trying to stay ahead of the game.
“Brokers tend to be responsive creatures. As soon as customers start demanding something we’ll jump on it,” he says. “This is an industry in transition, and to remain relevant, brokers need to understand what their customers are looking for and what they might want in the future… I think telematics and this whole data analytics piece is going to be crucial, and we want to be the distributors for that data.”
McTavish says he’s been “obsessed” by telematics since the turn of the decade after seeing it in action in the U.K., where adoption levels are much higher among drivers. He formed the company in 2014, launching with a commercial fleet product that refunded customers part of their annual premium based on the time their vehicles spent stationary over the year. His company now offers personal line products, and has teamed up with U.K. telematics provider Carrot Insurance to launch a new driver program that offers coaching tips and rewards to users.
“The idea is to help them develop driving habits that improve their safety and environmental impact, while saving on their insurance,” McTavish says.
He is also looking beyond the auto insurance world, explaining that telematics technology presents exciting possibilities for the owners of commercial buildings in an era of connected devices.
“There are products that could be used to assist landlords and owners of industrial buildings, to give them a clearer idea of what is going on in terms of heat and water and so on,” McTavish says. “We’re always looking at what we can do to help our customers.”
Copyright © 2017 Transcontinental Media G.P. This article first appeared in the August 2017 edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.