June 20, 2018 by Greg Meckbach
Hard numbers showing the impact of telematics remain elusive, but Canada’s largest property and casualty insurer says the technology does separate the good risks from the bad.
Telematics is a vehicle diagnosis technology that collects data such as distance travelled, where a vehicle was driven, and potentially risky behaviour such as speeding, hard braking and sudden acceleration.
Several Canadian auto insurers are using telematics for usage-based insurance (UBI), whereby motorists can get discounts if their behaviour perceived as low risk.
“For us, it’s a big success,” Louis Gagnon, president of Canadian operations for Intact Financial Corp., said of telematics, though he did not provide hard numbers. “For sure, there is a world of difference between people who are on UBI and people who are not on UBI.”
Gagnon made his remarks at the recent Property Casualty Underwriters Club CEO Luncheon in Toronto. Intact has been offering discounts to some auto insurance customer through UBI since 2014.
Gagnon said usage-based insurance is much better than credit scores at predicting frequency and severity of claims. (Ontario prohibits auto insurers from using credit scores as rating factors but there is a general consensus in the industry that the frequency and severity of claims is higher among policyholders with poor credit scores than among policyholders with good credit scores).
When assessing a policyholder’s risk of having a claim, “every data point is important,” Gagnon said. “The fact that you say ‘yes’ to UBI is a data point. The fact that you enroll after you say you accepted UBI, that’s a data point.”
The Financial Services Commission of Ontario told Canadian Underwriter in December 2017 that it has “no studies or reviews that provide actuarial evidence to quantify” the effectiveness of UBI. FSCO allows Ontario auto insurers to use telematics to reduce rates for good driving behaviours, but the regulator has disallowed the province’s insurers to use telematics to increase rates for bad driving behaviours.
Even without hard data to prove it, an insurer “could conceivably” reduce claims costs if its auto customers use telematics, Raymond Thomson, associate director at A.M. Best Company Inc., told Canadian Underwriter earlier.
Telematics is “a risk selection tool at best,” Adam Mitchell, principal of Mitchell & Whale Insurance Brokers Ltd., said at the PCUC luncheon. “I believe it does allow insurers to get really good risks.”
But if insurers could actually price according to true risk, “this isn’t going to fly in Canada” with consumers, Mitchell suggested.
Pricing auto insurance according to risk “says that Grandma should pay $50 bucks because she doesn’t drive and Billy in high school should pay $40,000 because he is risky as all hell,” Mitchell quipped. “Once it gets to a point where Grandma is no longer subsidizing Billy, what happens then?”