Regulator challenges rosy telematics picture
December 2, 2017 by Greg Meckbach, Associate Editor
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Canadian auto insurers have been using telematics to gather data on driving behaviour for years, with one insurer having billions of miles’ worth of data, but it remains debatable whether pay-as-you-drive technology actually reduces insured losses.
Claims costs “could conceivably be reduced” but it will still take time to determine whether or not telematics has actually reduced such costs for Canadian insurers, A.M. Best Company Inc. associate director Raymond Thomson told Canadian Underwriter Friday.
“There are no studies or reviews that provide actuarial evidence to quantify” the effectiveness of usage-based insurance [UBI] in Ontario, a Financial Services Commission of Ontario (FSCO) spokesperson wrote Friday in an e-mail to Canadian Underwriter. Since 2013, FSCO has been letting Ontario auto insurers use UBI to offer discounts based on driving behaviour.
“Insurers that offer usage-based insurance programs will be required to provide ongoing actuarial support for these programs in their future rate filings applications made to FSCO,” the spokesman noted Friday, adding FSCO does not release individual insurers’ UBI program data.
The first Canadian insurers to offer telematics to determine private passenger auto rates include The Co-operators Group Ltd., Canadian Automobile Association (CAA)’s club in south central Ontario, Intact Financial Corp. and Desjardins General Insurance Group, the latter of which announced Ajusto in 2013. Industrial Alliance rolled out its Mobiliz in 2012 but that product is now defunct.
“With a telematics program that needs to be upgraded and in order to keep pace with quickly evolving technology and the growing needs of our clients, iA Auto and Home has decided to take a moment to reposition itself in light of new technologies and to give a break to its Mobiliz program by the end of 2018,” an Industrial Alliance spokesperson told Canadian Underwriter Friday.
Under the brand name en-route, The Co-operators says it offers vehicle owners a device that monitors information including distance travelled, time of day, sudden braking and rapid acceleration. Like Desjardins, The Co-operators offers discounts of up to 25%.
Data collected through usage-based insurance can be used “in more sophisticated and granular pricing focused on the driver(s), with the purpose that better driving habits equal lower premium for the consumer,” Thomson wrote Friday in a statement to Canadian Underwriter. Most Canadian insurers using UBI “offer a discount just to participate.”
Since it launched in 2014, Intact auto customers “have more than three billion miles driven under telematics,” Intact president Jean-Francois Blais said Oct. 26 during the CEO Panel at the Insurance Brokers Association annual convention in Ottawa.
“Every day you can get an update on your driving and see if you qualify for a discount,” Blais told brokers at the time.
Yes, there is no evidence that it reduces insured losses overall. And a slightly different question: is there any evidence that it gives more accurate pricing than conventional underwriting? That is, does telematics “sort” good and bad drivers sufficiently more accurately to be worth its costs? Everyone just assumes that it will, but I have not seen any good evidence.
More generally: if telematics “sorts” good and bad drivers more accurately, is that a good thing? Not necessarily, if it reduces “Loss Coverage” – see my book with that title.
Unlike a house, a boat, an office building, there can be no ‘underwriting” of auto insurance unless and until technology allows us to climb into the brain of a driver to determine the best that he has to offer while behind the wheel. Previous losses and convictions, or the absence of them, can only go so far in establishing what the underwriters can expect. A typical example of best underwriting was a letter sent to a client by one of the largest auto insurers in the U.S. The letter acknowledged the client’s loss-free business for some 30 years and at the same time it informed him that they were lapsing his policy. The reason, as it came out? Stats showed him in line for an accident and they didn’t want to be on risk when it happened.
Closer by, a “man in the street interview” in Toronto asked a number of people if they thought they were average in their driving or above average. They all claimed above average. So stats being what they are, any effort to control loss in a sector of insurance that is beyond underwriting control is better than nothing.