FSCO lays out how insurers should take on usage based insurance programs

The Financial Services Commission of Ontario is looking at how to take on usage based insurance (UBI) in the province, but it’s still taking things slow before jumping into approving new programs.

The regulator has been looking at UBI and its implications for auto insurance since the announcement of the 2012 Ontario budget, Bruce Green, senior manager of FSCO’s rates and classification unit said during the Insurance Bureau of Canada’s symposium on UBI Tuesday in Toronto.

“We’re very interested in talking to companies about their plans, about what they’re thinking and about what model they’re thinking about rolling out in the Ontario marketplace,” he said.

“We’ve even personally experimented with some devices,” Green added, commenting that his personal experience measuring his driving habits was useful.

Meeting standard regulatory criteria key

FSCO has also looked at what has been done in the United States and in Europe regarding UBI, he noted. “It really means something different for each jurisdiction because each jurisdiction has a different rate approval process,” he said.

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First and foremost, any UBI programs in Ontario must meet the regulatory criteria for rates and rate classification systems, he noted. Those legislated criteria include that rates must:

• Be just and reasonable in the circumstances.
• Be reasonably predictive of risk.
• Distinguish fairly between risks.
• Not impair the solvency of the insurer.
• Not be excessive in relation to the financial circumstances of
• the insurer.

The regulator is considering conditional approval for some UBI programs before fully approving anything, he noted. Introduction of such a program should begin with a discount-based approach only, with no surcharging initially permitted, Green said. UBI programs should also be voluntary, he said and should not initially be used for underwriting purposes (changing terms mid-contract or non-renewal). 

Clear consent language, data access is critical for consumers 

Insurers should cover the costs involved with UBI programs, Green also noted, including initial installation of devices and ongoing maintenance. In the long-term, insurers will also have to determine how the costs of a UBI program will be spread (only among those participating, or among all policyholders), Green added.

“I think it’s equally important that we proceed cautiously and that consumers fully understand what they’re getting into when they sign up for these programs,” Green said.

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That includes having clear contract language when policyholders sign up to participate. “What you really need to ensure is that the criteria for participation are clear, understood, transparent,” he said.

“We are currently thinking that FSCO will need to see that consent language to ensure that we’re comfortable that due diligence has been made,” he said. In cases where a UBI program would modify the terms of a contract, FSCO would require insurers to file a non-standard endorsement form, he added.

Privacy regarding the data collected through a UBI program is a critical issue, Green said. “We simply want to make sure that any program we approve is compliant (with federal privacy laws).”

“I think it’s really important that the consumer understand how the data being collected translates into a specific discount,” he added. Consumers should also be able to access that data for transparency, he said.

How insurers should work with FSCO 

How the programs are marketed will also be a consideration for FSCO, Green said. Consumers often get upset when they didn’t get the discount they perceived, and often take complaints to the regulator, he added.

Overall, FSCO suggests that if companies want to launch a UBI program, they should keep it contained, learn from it and generally tweak it before launching in a more widespread basis, he noted.

“We’d really like to start small,” he said. “Let’s learn together.”