How telematics impacts auto insurer’s risk

Auto clients who think they are paying too much should consider telematics, the co-founder of LowestRates.ca suggests.

With telematics, or usage-based insurance, the client normally installs an app on their smart phone or hardware into their vehicle diagnostic port, the OBD-II port, so the insurer can track things like when and where a vehicle is driven, how fast and whether the driver does things like brake sharply or accelerate suddenly.

“What we are hearing from insurance companies is that those who choose telematics are two-to-three times less likely to make a claim than those who don’t choose telematics,” Thouin said Monday in an interview. He made the observation while discussing test data his firm released comparing quotes by gender. The date show in certain circumstances that men pay more than women, all other factors being equal.

LowestRates.ca works with direct writers and P&C insurance brokers to deliver leads from consumers who are shopping online for auto and home insurance.

For younger drivers especially, men were quoted more than women using the test data, the results of which were released May 20. But choosing telematics, not having policies cancelled for non-payment, and following the rules of the road are among some examples of how men can lower their rates, Thouin told Canadian Underwriter Monday.

“We encourage consumers, as much as possible, to try telematics because it’s not much of an intrusion upon them,” said Thouin. “It’s an app on your phone, or it’s an unobtrusive device in your car, and you can save a lot of money as long you respect the rules of the road.”

In its comparison of pricing by gender, LowestRates.ca repeated the same process for men and women using six different age groups in Toronto, Montreal and Calgary. The age groups were: 17 to 19; 20 to 24; 25 to 30; 30 to 40; 40 to 50; and 50 to 60. All owners/drivers were single and employed.

The study assumed the following profile of the insured and the vehicle:

• The vehicle is a 2018 Mazda CX-5 GS four-door all-wheel drive, not leased, bought in March 2019, with winter tires
• street parking
• Ontario G licence (or provincial equivalent)
• the driver is insured consistently without any gap
• the driver has been insured with their current insurance company for two years
• the vehicle is driven 10 kilometres daily to and from work, a grand total of 30,000 km in a year
• the client wants comprehensive and collision coverage, has a clean driving record and has not authorized a credit check.

For a man 19 or under fitting that profile, the quote in Calgary came to $8,214, 12% higher than $7,346 for a woman in the same age group. The disparity — at 27% — was higher in Toronto, with the man 19 or under quoted $7,245 while the woman was quoted $5,727. The disparities generally dropped with age. For example, in Toronto, men and women between 40 and 50 meeting the profile were both quoted $1,830.

However, in Montreal, a man between 50 and 60 was quoted $1,351 while a woman in the same age group was quoted 11% less at $1,222.

Gender-based pricing has been banned in Europe since 2013 after the European Union’s highest court barred the insurance industry from charging different rates for men and women. It said the widespread practice amounts to sex discrimination against millions, the Associated Press reported at the time.

Nevertheless, it is still common in Ontario and other Canadian jurisdictions. LowestRates.ca has heard complaints from men that using gender as a rating factor is unfair.

“The difficulty of insurance is the sins of the few are paid by the many,” Thouin told Canadian Underwriter. “People out there may think, ‘I am a young man, I have never had an accident, I have never made a claim, and yet I am painted with the broad brush that I am more likely to make a claim and therefore my insurance should go up.’ There are also people who, just because they live in a particular area, they get charged more.’”

But actuaries need to predict the amount they will be paying out in claims based on historical data. “It’s impossible for insurance companies to get to individual pricing, outside of things like telematics,” he said.

Feature image via iStock.com/LightFieldStudios