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Usage-Based Car Insurance and what you need to know.

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As we all know, COVID-19 has had a big impact on the way we live. One of these changes is how Nova Scotians and Canadians drive – the long-term effect on this is still to be determined. For the last year and a half, drivers have been taking fewer trips back-and-forth to work, the gym, restaurants, and other locations. As a result, the insurance industry has ramped up options for usage-based car insurance (UBI). Also known as pay-as-you-drive or telematics insurance, UBI allows a driver’s car insurance premiums to more accurately represent both their time spent on the road and how they drive. In this blog, our Bauld Insurance Advisors shed light on the topic of usage-based insurance and what you need to know in terms of the benefits and drawbacks of UBI.

What is usage-based insurance?

UBI uses technology to monitor your driving habits based on how far you drive AND how you drive. The premise is this – if you drive less and you’re a good driver, your insurance should be cheaper. Until recently UBI technology used to be measured with a “black box” or a little computer chip plugged into your vehicle’s computer system. Now, insurance providers that offer UBI are using a mobile/smartphone app to collect and track this behavior.

How does usage-based insurance work?

Each insurance provider that offers UBI does so in their own unique way. You may hear the term “pay-as-you-go” insurance which refers to insurance based on how far you drive, while “pay-as-you-drive” is insurance based on the way you drive. Today, a UBI policy will more often track both of these factors when determining the cost of your car insurance. A UBI mobile app measures the distance you drive, the time of day, your acceleration, how you handle turns, and how hard you brake. The insurance provider uses this data, which is more accurate than stereotyping and historical demographic statistics, to determine your insurance rate. Any applicable discount from safe driving habits is applied based on your tracked driving performance.

Common Benefits of usage-based insurance.

  • Savings. UBI is designed to encourage and reward good driving behaviour by offering reduced insurance costs in return for this behavior. If you are a careful driver, for example, you avoid sudden braking or unnecessary acceleration and largely stay within the speed limit, you could earn as much as a 30% savings on your car insurance premiums.
  • Promotes Safe Driving. UBI is a clear incentive as drivers know they’re being tracked and adjust their behaviour accordingly. Drivers that choose UBI for the discounts are less likely to drive with a “lead-foot” or speed around corners. For the driver, they get to the benefit of lower insurance premiums, while others on the road benefit from the safety of their fellow drivers.
  • Better Claim Investigations. If you have an accident/collision, UBI can help determine what caused the accident and use data to determine who may be at fault. Insurance claims adjusters can use this data to help resolve claims faster and more accurately.

Potential Drawbacks of usage-based insurance.

  • Privacy Concerns. UBI has a GPS feature that easily tracks a driver’s whereabouts. Since many UBI programs require the use of a smartphone app, these mean drivers wind up getting tracked outside of their car, as well. This is not everyone. There are some concerns as to how that data can be used and whether this increases the potential risk of a cyber attack.
  • Potential Accuracy Issues. Critics of UBI remain skeptical that the technology used is 100 percent accurate when it comes to interpreting driving behaviour. Specifically, for example, why instances of speeding or hard braking may occur. Also, not all UBI telematics can identify who, specifically, is driving a vehicle. In particular, for families sharing a car, this can create an inaccurate snapshot when evaluating a customer’s driving behaviour, and in turn, their insurance premiums.

Usage-Based Insurance is a significant development in the Canadian Insurance market. It is likely to grow in terms of prominence and availability. If you’re interested in UBI, make sure you ask your Bauld Insurance Advisor about what car insurance options are available. You need to know exactly what the UBI app will track and how it will interpret your driving behaviour. Each insurance provider that offers UBI takes a unique approach, so make sure you get a complete understanding of the implications before you proceed.

– Your Bauld Insurance Advisors