Canadian Underwriter

Paid Usage Based Insurance – What’s in it for Brokers?

May 9, 2021   by CAA Insurance Company

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A fundamental need for today’s insurance consumer is flexibility. As witnessed over the past year, consumers want choice when it comes to their auto insurance, and the ability to take control of their costs.

Usage based insurance (UBI), otherwise known as insurance telematics, is a clear solution for consumers. So why aren’t more adopting the technology?

UBI was first introduced in Canada in 2013. Since then, many insurers have introduced the technology as a means for their customers to potentially save money. CAA Insurance first launched our CAA Connect® telematics program – a way for drivers to save through a discount, based on observed good driving behaviour. However we wanted to take our UBI efforts a step further.

In 2018 we launched our CAA MyPaceTM program – the first of its kind in Canada, and the only true pay-as-you-drive solution. The way it works: we charge a non-driving based premium upfront based on traditional variables, and we add on 1,000 kilometers worth of driving premium to start. Once this distance is exhausted, we add on another 1,000 kilometers, and so on. Distance driven is measured through a device plugged into the vehicle’s diagnostics port, similar to many UBI programs. Drivers are able to take control of their insurance costs, because they can monitor their driving distance (through an app or a portal) and make behavior and habit-forming adjustments. The program is suited to those who drive less than 9,000 kilometers a year, and customers who enroll can stand to save up to 60% on their insurance, versus a traditional automobile policy.

Being Canada’s first pay-as-you-drive product, we worked closely with the Ontario regulator to develop the program, ensuring it was straightforward for customers. One key requirement was ensuring policyholders were notified well in advance of reaching their next 1,000 kilometer threshold. We do so by sending messages once they’ve reached 750, 900 and 950 kilometers.

CAA MyPace has experienced strong interest, in excess of 300% since the onset of the pandemic, reflecting the changed nature of commuting – people are working from home and driving less.

So what’s in it for brokers to sell UBI products?

Over the past year, some drivers have adjusted their policies by lowering mileage and changing vehicle usage to pleasure only, among other updates to lower their costs. Never has there been a better time for customers to consider UBI programs, because customers can take full advantage of potential savings. This gives drivers the flexibility of choice they demand, and control over their insurance premium. As their broker, you demonstrate care by working with them on their coverage, customizing it to meet their needs. When people save on their insurance, there’s less of a chance of them shopping on renewal. And, with this satisfaction comes loyalty, retention, possible referrals, the list goes on. The customer wins, and so does the broker.

There are some nuances about UBI that differ from the traditional auto policy, and vary by insurer, which can make it challenging to explain to customers. But think about the ‘black box’ of underwriting. Every insurer has their own ‘secret sauce’ on how they determine rate. Most have adopted individualized rating which has created even more confusion and ambiguity. How easy is it to explain to your customers what factors are used to determine their premium? A lot more challenging than in the past.

But with UBI, there are elements that can be quite easily explained. Variables used to determine rating differ by insurer.  With CAA Insurance there is no additional cost to switch to our CAA MyPace payment plan. And should driving habits ever revert to normal commuting distances, there is no penalty to switch back to a traditional auto policy. It’s simple – you pay for the distance you drive.

In terms of our CAA Connect program, explaining what can impact savings is also straightforward:

  • Drive less, save more
  • Driving at certain times during the day can impact your premium
  • Things like hard braking, speeding and quick acceleration will lower your discount
  • We will never surcharge for observed occurrences – only adjust the discount being offered

Customers can monitor driving events through our app or our web portal, and know precisely what is contributing to their savings. They can take control of their costs by making positive changes to their driving behavior, which can lead to greater savings.

The use of telematics continues to evolve, particularly with recent regulatory changes in Ontario signifying that insurers can begin to charge premium for observed poor driving behaviour (previously, insurers could only provide discounts through UBI programs). Looking ahead, this evolution speaks to the fact that UBI is here to stay.