Motorists in Ontario, Alberta, Nova Scotia and Newfoundland and Labrador should be allowed to buy pay-per mile insurance, an Insurance Bureau of Canada official says.
Those four provinces already allow usage-based insurance, wrote Ryan Stein, IBC’s executive director of auto policy and innovation, in a recent article on LinkedIn. But what this actually means is that motorists get charged a regular premium which could be discounted if the insurer thinks they are driving safely.
UBI has been part of some Canadian auto insurers’ regular offerings since 2012. Initially, special devices would be put in diagnostic ports to monitor data such as location, distance driven, hard braking and sudden acceleration. Now, UBI is also available as apps on wireless cellular devices.
In Ontario for example, Intact Insurance gives motorists a 10% discount for enrolling in UBI through their broker. Clients could get a discount of up to 25% after six months.
Offering a discount factor on a traditionally set premium is not the same as pay-per-mile, notes Stein. Instead, the status quo is motorists get charged a regular premium and get a discount if they seldom drive and/or drive safely, according to the data collected by the app or in-vehicle device.
“Insurance premiums based on people’s actual driving habits sound nice, but have been too scary for regulators to allow. 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.”
Ontario’s regulator allows insurers to adjust rates for UBI clients mid-term. But those must be calculated and applied based on the method set out in the usage endorsement approved by the regulator, the Financial Services Commission of Ontario noted in an earlier bulletin.
“As part of the consumer enrolment and consent process for UBIP programs, insurers that intend to vary the UBIP discount mid-term must clearly articulate that the maximum premium that will be charged is the undiscounted rate (the rate without a UBIP discount) shown on the Certificate of Automobile Insurance, as well as the method for determining the amount of the UBIP discount,” noted FSCO, which was replaced in 2019 by the Financial Services Regulatory Authority.
By contrast, in some parts of the United States and Europe, consumers can buy pay-per-mile insurance for which they pay a monthly base rate and an additional amount that reflects how much they have driven that month, Stein reported. So, for example, if a client takes a two- or three-week vacation one month and doesn’t drive as much, the driver will pay less for insurance that month than for the previous month when he or she drove to work five days a week.
In Ontario, CAA Insurance Company was approved in 2018 for MyPace, which is intended for vehicles driven fewer than 9,000 kilometres per year. Clients who select MyPace start with a base rate, which is based on the same rating factors for traditional auto insurance, such as make and model of vehicle, drivers’ experience and location. Then CAA tracks the vehicle’s mileage. The insurer bills clients for kilometres in advance of the client driving them. So as a client nears the end of their 1,000 km increment, notices are sent telling the client they have driven 750 km, 900 km and finally when they reach 950 km of the current 1,000 km increment. At that point, they are automatically charged for their next 1,000 km increment.
In 2012, Industrial Alliance Home and Auto Insurance rolled out UBI 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%.
Ontario does not allow surcharges, which some industry executives describe as a major weakness.
“Studies show that when you get prices moving in both directions, combined with education, you can actually reduce the total loss cost,” George Cooke, president of Martello Associates Consulting, told Canadian Underwriter in 2014, shortly after several carriers rolled out UBI. “You have to have surcharges, and you have to have discounts, so you reward and punish,” added Cooke, who served from 1992 until 2012 as CEO of the The Dominion of Canada General Insurance Company.