Car insurance rates have always been a sore spot for many Canadians but insurance telematics coupled with a change in direction by Ontario’s regulator may give some drivers a chance to lower their rates.
Made a strategic investment
In 2016, Intact Financial made a strategic investment in Metromile, a San Francisco-based car insurance start-up that offers pay-per-mile insurance and a driving app. It helped the insurer determine pricing based on how people drive in terms of safety as well as how much they drive, Julie Nolette, Intact vice president, told the Insurance Bureau of Canada’s (IBC) 20th annual regulatory affairs symposium.
Intact then began to implement its own version, dubbed my Drive. As the COVID-19 pandemic hit and then wore on, a number of Canadian insurers issued refunds to customers, helping drivers lower their rates, said Nolette.
While traditional insurers were scrambling to issue refunds to customers – an administrative burden on many – those with telematics didn’t have to do anything because they could track usage in real time.
“As customers, they already showed the savings with customers driving less and savings that could have been up to 70 per cent,” she said.
During the first wave of the COVID-19 pandemic in Canada, the number of kilometres Canadians drove dropped by about 50 per cent. That number rose again during the summer when some businesses were able to open up, she said.
Traditional variables
Nolette said the industry still relies heavily on traditional variables like driving record and where they live to determine costs.
“We use these traditional factors to determine a base rate and then offer them [my Drive] as an option to receive a discount.”
Chances of an increasing number of insurers picking up on the telematics theme began more than a year ago when the Financial Services Regulatory Authority of Ontario (FSRA) took over from the Financial Services Commission of Ontario (FSCO) and changed its modus operandi to a principles-based approach rather than a rules-based approach, said Bruce Green, director of Rates Operations at FSRA.
Green was asked whether he thought the Ontario government would be open to determining car insurance rates based primarily on how residents drive.
Consumer interest is rising
“I don’t think we’ve ever seen a situation in the past 10 years where consumer interest in telematics or usage-based pricing has ever been higher,” said Green. “I think the disparity between what people are paying and the presumed return for that monthly premium is being questioned more by Ontario drivers than ever before.”
The biggest winners of telematics will probably be those who work from home or who take public transit a short distance to work, he added.
Green said FSRA will be looking to change how insurance is currently calculated and let Ontario drivers pay for their insurance any way they want. Even before COVID-19, FSRA slashed review times down to 25 days or less and allowed companies to respond to market conditions much faster.
As the province moves to eliminate regulatory barriers, insurance companies will need to think about building out a telematics program that differs from current discount offerings, with pricing models that better integrate data around driving habits, said Green. The insurers can then bring their models to FSRA and work collaboratively to get their packages to market.
“We are up to the challenge,” said Nolette.
