Don’t look now, but you might pay less
Usage-based rates would make good on 15-per-cent cut
Car insurance companies are lining up at the door of Ontario’s financial services regulator seeking approval to launch a new type of policy they say can cut the average annual cost of insuring a car by 15 per cent.
For GTA drivers, who pay the highest premiums in Canada, it is welcome news. If so-called usage based insurance is rolled out in a big way and you are willing to give up some privacy, you may be able to save a fair bit of money. If the Ontario government makes good on its promise of a two-step, 15-per-cent cut in rates starting next year, the combined savings could be substantial. Traditional car insurance polices reward past behaviour: if you don’t make claims, are in a lower risk demographic and live in a place with fewer accidents you get a break. Usage-based insurance rewards current behaviour by monitoring how you drive today and comparing it to a benchmark. Quebec-based Desjardins Insurance opened the door in May when it launched its Ajusto program. The company offers a 5-per-cent discount for enrolling and installs a wireless device in your car’s diagnostic port that tracks your driving patterns. The device measures distance travelled, frequency of hard braking and fast acceleration, how quickly you turn and the time of day you use the car. The information is used to create a profile of your driving habits, which is compared to the benchmark.
You can view your profile on Desjardins’ website and see a rolling estimate of how much of a discount you will get at renewal. Given that the average cost to insure a car in the GTA is $1,500 per year, according to the Insurance Bureau of Canada, the savings could be substantial.
My household is a two-car, suburban family. Our renewal with TD Meloche, though below average, still came in at $2,700. Desjardins says the maximum you can save is 25 per cent, so the thought of shaving $675 a year from the insurance bill is appealing. Insurance Bureau spokesman Pete Karageorgos says most of the big players are looking at applications to sell the product.
TD Meloche has not applied, “but is exploring its options,” a spokesman said. Since each plan must past a rigorous review by the Financial Services Commission of Ontario (FSCO), which regulates insurance, progress may be slow.
The agency wants to make sure benchmarks are fair and transparent and that the assumptions behind the plans are reasonable.
One issue is the privacy of the information collected. A FSCO presentation delivered at insurance industry events says that since the devices “could be viewed as an intrusive big brother” technology, it is important that consumers are fully informed of the type of information being collected, how the information will be used and give consent in writing when agreeing to participate.
Ryan Michel, an actuary and chief risk officer for Allstate Canada, says Allstate hopes to offer a plan within the year. The company has 5 per cent of the GTA car insurance market and is one of the top 15 insurers in Canada.
“We think in markets like Ontario there will be demand for this,” Michel says. “It gives people a better understanding of how they are driving and if you drive better than average you can get a reward.”
Michel says there are four A justo- type programs operating in 47 U.S. states. Allstate has been offering a U.S. plan since 2010 and in three years has attracted 430,000 new customers. He says the policies appeal to cash-strapped families with children ever eager to save money. Parents wanting to reduce the high insurance cost of young drivers are another group.
The driving information is readily available online, so parents can see exactly how well their teens were driving last night. Seniors who drive less frequently and also more cautiously also like the plans.
The good news, is that if your driving is worse than average, you will not face a rate increase. But if you have an accident, you won’t be able to fudge what happened: in- surers are required to share the information with police. Desjardins spokesman Joe Daly says his company has attracted 40,000 new customers in four and a half months and is very happy with the launch. He cautions that few people will be the “perfect drivers” who get a 25 per cent discount. The average is more likely 12 to 15 per cent. In Desjardins’ model, if you drive more than 15,000 kilometre a year — not a lot for GTA commuters — you can’t earn more than a 15 per cent reduction. That’s because you’re penalized for exceeding that mileage limit and are probably driving at high risk times of day like rush hour. You are also penalized for late-night driving, because adverse weather tends to have a greater impact on accidents at night and statistically the accidents are worse. Daly says the usage-based plans are ideal for someone who lives in the city proper, uses the TTC to get to and from work and drives less frequently. If they avoid rush hour and late-night driving, they can do well. I put about 30,000 kilometres a year on my car, use major highways in rush hour and hit the road early when it’s dark. So a usage based plan may not give me much of a break. But for many others, when coupled with the Ontario government’s promised cuts, it could provide relief from the country’s highest car insurance rates.