The pros and cons of usage-based insurance
Since the start of the pandemic (which appears to be a long time ago), drivers have been commuting less to work, the gym, restaurants and other places; more Canadians are turning to usage-based insurance (UBI). Also called driving insurance or telematics insurance, UBI allows driver premiums to more accurately represent time spent on the road.
According to arecent report from LowestRates.ca, interest in UBI increased significantly in 2020 compared to 2019. In fact, there was a 43% year-over-year increase in the number of drivers who opted for the UBI discount when they are looking for auto insurance quote on the website. Of all the provinces where UBI is offered – Quebec, Ontario, New Brunswick, Nova Scotia, Alberta and Prince Edward Island – Nova Scotians and Albertans were particularly interested in UBI this year, with interest up 61% and 59%, respectively.
Similar to these results, CaliforniaInsurance revealed that Enrollment in its pay-as-you-go auto insurance payment program, CAA MyPace, has increased 300 percent over the past year.
UBI entered the Canadian auto insurance market in 2013 as a unique alternative to the industry standard insurance premium valuation method. Rather than looking at traditional factors, such as age and driving history, UBI primarily relies on telematics, a technology that uses vehicle tracking to monitor a driver’s driving behavior, and rewards – or penalize – the driver as a result, in the form of discounted bonuses or in certain cases
This highly intelligent technology can capture and store data related to how quickly a driver accelerates, as well as how often the driver brakes and accelerates in a turn. UBI can also track the number of kilometers traveled by a car. While UBI adoption and interest has been on the rise lately, you’ll still want to weigh the pros and cons of telematics before signing up.
Benefits of usage-based insurance
- Potential savings: UBI works to encourage and reward good driving behavior. If you’re safe and careful on the road, which means avoiding sudden braking or accelerating, and generally staying within the speed limit, you could earn up to 30% savings on your annual bonuses.
- Collision investigations can be easier to solve: If you find yourself in a collision, UBI could help you identify what happened and who is at fault. Insurance adjusters can use this data to help resolve claims faster and more accurately.
- Encourages safer driving: UBI can encourage better driving behavior because drivers know they are being followed. Since most consumers choose UBI for discounts – and want to avoid the possibility of a penalty – they will be less inclined to drive with a lead foot or to accelerate in the corners. It’s a win-win for the driver, who gets lower insurance premiums, and for everyone else on the road, who will benefit from the safety of fellow drivers.
Disadvantages of usage-based insurance
- Supplements can be added: In some provinces that offer UBI, such as Quebec and Ontario, surcharges may be added if insurance companies believe customers are driving recklessly; this may be news for some customers. In Ontario, before November 2020, for example, drivers could not be penalized for reckless driving, but the rules have since changed.
- Lack of privacy: While UBI may offer significant discounts, they can come at the cost of your privacy. UBI has a GPS function which makes it easy to track the whereabouts of a driver. Since many UBI programs require the use of a smartphone app, this could also mean that drivers find themselves being tracked outside of their cars as well. Not everyone is comfortable with recording their location history, and there are some. concerns about how this data may be used. There is also the potential risk of a cyberattack.
- Potential accuracy issues: In 2016, when explaining why UBI data couldn’t be used to apply surcharges (a rule that has since changed), the Ontario auto insurance regulator at the time expressed “Uncertainty about the statistical accuracy and reliability of the data.” Six years later, critics continue to doubt whether the technology UBI relies on can be 100% accurate when it comes to interpreting driving behavior or why speeding or hard braking can occur. produce. Moreover, not all telematics can identify who, specifically, is driving a vehicle. For families sharing a car, this can create an inaccurate snapshot when assessing a customer’s driving behavior and, subsequently, how their premiums are changing.
If you are interested in UBI, be sure to ask your insurance company or broker exactly what the app will track and if surcharges will be applied for any interpretation of reckless behavior. Each policy is unique, so make sure you have a complete picture before signing the dotted line.
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