CB Insights

How usage-based insurance will change the way consumers drive

Insurance companies are turning to telematics to monitor your good driving habits and lower your rates. And they may raise them if you're bad


Auto insurance companies usually sell services, not physical things. But last year when Desjardins General Insurance Group introduced its usage-based insurance (UBI) program, Adjusto, the company had to make sure the device that collects and transmits data on driver behaviour would stay firmly in place under the car’s dashboard. UBI transmits information on a customer’s driving habits to an insurer who can then adjust premiums according to good—or bad—behaviour.

Number crunchers at Desjardins found themselves overseeing laboratory testing of the performance of the device’s strap in extreme conditions. “The actuary in charge of that program said he would never have thought that working with Velcro would ever be part of his job,” says Denis Côté, Desjardins’ vice president of marketing and marketing research.

A UBI telematics device usually contains a transmitter, a GPS, an accelerometer and a gyroscope to determine position, mileage, speed, sudden acceleration and sudden braking. This information can be sent to a central database periodically or in near real-time. The “black box” itself may only be a temporary phenomenon, since telematics sensors will eventually be built into most cars. And telematics data in all forms is set to permanently reshape the auto-insurance landscape.

One of the first big Canadian insurance companies to offer UBI, with 50,000 customers signed up since May 2013, Desjardins is not alone in asking customers to trade in some privacy for better rates. Intact Financial and The Co-operators have since introduced programs, and other auto insurers are investigating, piloting or negotiating to acquire UBI technology. “I don’t think anybody can ignore it anymore,” says Paul-André Savoie, CEO and president of Baseline Telematics. He’s worked with more than 30 insurance companies, including Industrial Alliance, which launched its Mobiliz program targeting younger drivers in 2012. Savoie says there are already more than 160 telematics-based insurance programs in the world, covering six million private passenger vehicle policies.

Telematics service providers (TSPs) like Baseline sell not only the technology to collect and transmit data with an onboard device, but are able to layer factors like weather conditions, time of day, speed limit and even speed relative to the flow of traffic, and then process, analyze and deliver the data in a useful form on a computer screen or phone. Depending on the system and the policy, the insurer may learn that a driver braked hard 20 times last month, or it may learn that the driver braked hard 20 times at night on a remote highway while it was snowing. Regardless of the factors that are monitored, they are considered better indicators of risk than mere demographic factors such as age and gender. So far, Canadian insurers have been offering discounts, rather than charging premiums, an approach that’s likely to attract customers who are confident they are safe drivers.

Many customers also get access to data, so they can improve their driving and therefore their discount. But some TSPs go further, collecting and analyzing additional information about what’s going on in the car, which can be used for things such as coaching drivers, improving fuel efficiency and providing alerts when vehicles go beyond specific geographic boundaries, a service called geo-fencing, which is important to car-share and car-rental companies. “We see ourselves playing an important role between the people who have the data and the people who want that data,” says Christopher Dell, director of product management at IMS, a TSP that offers a range of connected car technologies, including UBI, fleet management and roadside assistance.