If regulators continue to prohibit auto insurers from imposing surcharges when they detect risky driving behaviour through telematics, it will be difficult for usage-based insurance to be commercially viable, an Aviva Canada data science expert suggests.
“Telematics is a good way to offer competitive pricing to customers who drive safely and to low-mileage customers, especially in a post-COVID world,” said Baiju Devani, chief data officer and senior vice president of data science at Aviva Canada, in a recent interview.
He was referring to auto insurance products where either a smartphone app or a device plugged into a diagnostic port detects vehicle behaviour – such as time of day, distance driven, speed, hard braking and sudden acceleration.
A major drawback is that several Canadian provinces, including Ontario, allow discounts only, notes Devani. They do not not allow surcharges for usage-based insurance.
Ontario auto insurers who offer usage-based insurance include Intact, which gives motorists a 10% discount for enrolling in the program. Depending on their driving behaviour, clients could get a discount of up to 25% after six months. Several other carriers have similar programs.
But if a discount-only model persists, “prices will have to rise in order to subsidize the customers using telematics who are more likely to have a claim. So this makes it hard to scale up telematics as a commercially viable product,” said Devani.
He was asked by Canadian Underwriter what Ontario’s Financial Services Regulatory Authority could do to help insurers improve auto underwriting and pricing accuracy.
FSRA recently announced it is creating a Technical Advisory Committee for Auto Insurance Data and Analytics Strategy, which Davani says is a great initiative.
Among other things, FSRA is looking for advice from the new committee on regulatory implications of governing the use of artificial intelligence and big data analytics in the auto insurance system to protect consumer interest while promoting market innovation.
Submissions to FSRA were due Aug. 10.
“For the auto industry to be more responsive to customer needs and market changes, it requires the regulators to take more of a principles-based approach to regulation and allow them to balance their public interest mandate with fostering innovation,” Devani told Canadian Underwriter.
Telematics has been generally available in Canada since 2012. That year, Industrial Alliance Home and Auto Insurance rolled out telematics in Quebec under the Mobiliz brand. At the time, motorists were able to get reductions of as much as 25% after the first month, depending on driving behaviour. They were also at risk of surcharges of as much as 100%.
Industrial Alliance is not longer offering Mobiliz in Quebec. IA told Canadian Underwriter in 2017 that it “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.”
Meanwhile, The Insurance Bureau of Canada is advocating for pay-per-mile insurance in Ontario, Alberta, Nova Scotia and Newfoundland and Labrador.
At the moment, usage-based insurance means motorists get charged a regular premium that might be discounted if the insurer thinks they are driving safely, Ryan Stein, IBC’s executive director of auto policy and innovation, wrote in a recent article posted on LinkedIn.
“Insurance premiums based on people’s actual driving habits sound nice, but have been too scary for regulators to allow,” Stein wrote on his LinkedIn article, We can advance auto insurance by 25 years in 25 days. “It is a challenge to convince them to move away from the stability and familiarity of the traditional approach of using proxies to assess risk — such as driving experience, gender and where the vehicle owner lives — and to produce an annual premium that can be split into uniform monthly instalments.”