Telematics (Usage-Based Insurance). How does it work, where do I get it, and what’s the catch?
Telematics is the use of technology to measure and communicate information. It’s a word you may not know now, but will know very soon. Already popular in the United States, telematics is a tool insurance companies are using to better analyze your driving habits, and subsequently give you a better premium. This process is becoming known as Usage-Based Insurance, or UBI. With Desjardins Insurance’s Adjusto being launched in Ontario and Quebec yesterday, it’s become clear that Telematics will be a fixture in the Canadian insurance industry for the foreseeable future. So how does it work? Where can you get yourself a fancy gadget to tell you how good of a driver you are? And is it really all it’s cracked up to be? Read on brave insurance researcher, the answers are in the blog.
So how does it work? The concept is pretty simple. Your vehicle currently has an array of sensors to capture information about your driving, as does your smartphone (or a gadget sent to you by your insurance company). The insurance company passively collects this information as you drive, and discovers trends about your driving (how quickly you decelerate, how fast you drive). It then uses the information about your driving to infer what kind of a driver you are. If you decelerate extremely rapidly, you are probably braking too quickly and may be more likely to be involved in an accident. Conversely, if you are always traveling at the speed limit, you are probably a safer driver. These inferences allow the insurance companies to better adjust their premiums, and offer you discounts.
The insurance companies benefit because they can attract new customers and provide better service to their current ones, and you benefit because the insurance company now actually believes you when you tell them you are a good driver – you now have proof. Even if you aren’t a good driver, telematics gives you a bit of control over your insurance premiums. Want to pay less? Don’t speed. The choice is yours.
This concept touches another benefit of telematics, which is gamification. We already mentioned how insurance isn’t fun, but by measuring how good of a driver you are (because that what telematics boils down to), telematics provides you with a bit of a challenge. Your game is to improve driving, you play by slowing down more gradually, and you get rewarded with discounts when you achieve your goals! It’s even hypothesized that Telematics could give you reports on how you drove on trip-by-trip basis. How safe were you driving to work today compared to yesterday? How good were you really when you drove home from the airport at one in the morning? It’s these kinds of questions that people love to answer, and anything that an insurance company can do to improve the customer experience will be jumped on. At the end of the day, it really is all about you.
Nowhere. Only one company offers telematics in Canada, currently the sole provider approved by FSCO (The Financial Services Commission of Ontario, which regulates insurance). That doesn’t mean you should be cancelling your current policy and switching today however, because your insurance company will be watching this project closely (it’s also expensive to switch insurers). Although you may love the idea of this new technology, the system will undoubtedly have its challenges and it may benefit you to wait until the insurance companies get to learn the technology a bit better. Additionally, canceling your policy midterm will cost you money, and you could lose valuable discounts like a loyalty, or multi-policy, discount.
The move into telematics signals a technological shift in the Canadian insurance scene, and much like it has in America, the industry will change with it. There is a monopoly on telematics in Canada currently, but competition from other large insurance companies is on the horizon. Aviva Canada, a major insurer in the country, actually offered a telematic system several years ago, before withdrawing it in 2011. Along with Aviva, several other companies have heavily researched the field and are preparing their own responses to the introduction of telematic programs. Telematic insurance could be coming to a policy near you very soon, and you can bet your broker will make sure you are aware of any opportunities.
With all of the press, and telematics apps and promotions becoming widespread across North America, you would think that Usage-based Insurance is a cutting edge, new technology. But nothing could be further from the truth. Progressive Insurance actually began campaigning for telematics in January of 1996, when they filed an initial patent in the United States. The technology required to run a usage based program has been available for years. So why hasn’t it been used before now? One word:
In all your fun thoughts about saving money and being a better driver, you maybe didn’t realize that a corporation was going to know exactly how you drive, when you drive and where you drive. If a telematics system uses GPS, then that system can broadcast where you are parked, where you typically go during a day, and even if you are at home or not. This system, despite admirable intentions, seems to hold the potential for abuse and certainly infringes upon your privacy. Additionally, there will be a question of who owns this information, you or your insurance company? Credit card companies already sell information regarding purchasing habits and Big Data is becoming extremely popular; insurance companies could monetize your telematics data by selling it to the highest bidder. The infringement of privacy is scary, and has been the major hurdle for insurance companies developing telematic systems. However, in this day and age when privacy seems to take the backseat to innovation, telematics may be a privacy infringement you are willing to accept. That sentiment is the primary reason telematics has started to bloom, and is why usage-based insurance will become a staple in the insurance industry for years to come.