Car insurance can seem pretty unfair. No matter how carefully you drive, how scrupulously you follow traffic signs, or how few miles you’re putting on the road, your insurance company charges you the same rate.
But what if there were another option? What if your insurer rewarded you for safe driving — or gave you a reduced rate for only taking a few trips a month?
Welcome to the world of usage-based car insurance. Here’s how it could make insuring your car a lot less expensive.
Traditional vs. Usage Based Car Insurance
In car insurance, like all insurance, the company is taking a bet by insuring you. Based on your driving record, experience, age, claims history and other factors, they calculate how much of a risk it is to insure you.
Your rate can change based on certain factors — for example, if you’re 18 years old, your rates will tend to go down as you get older, since older drivers tend to be safer. But overall, not much changes from term to term. The insurance company only has some very basic information about you, so they can’t react to changes in your driving habits unless you start getting into accidents or receiving tickets.
Usage-based car insurers collect more information, so they can give you a more tailored insurance rate. With Usage Based Insurance (or UBI), your insurer installs a gadget called a telematic device in your car that monitors your driving habits in detail.
It records where you go, how fast you travel, acceleration and braking, as well as other bits of data relating to your driving. All of this information is pulled together to create a complete picture of your driving habits over several months. If that information looks good, they’ll offer you a discount for safe driving.
Some insurance companies use a more interactive model, coupling telematics with a safe driving app.
For example, the Liberty Mutual app gives you feedback as you’re driving, beeping if you speed, brake or accelerate too rapidly. The app also estimates how much you will save, and has a range of other functions, such as automatically alerting the police and your emergency contact if you crash and keeping track of where you parked your car.
As usage-based insurance becomes more popular, expect a growing number of tools and options from insurance providers.
Usage Based vs. Pay as you Go Insurance
Pay as you go insurance is similar to usage based, but with a crucial difference: it is based on how much you drive, not how you drive. Pay as you go insurance uses a tracking device, but that device doesn’t directly monitor factors like speed and acceleration — it only records how far you’ve driven and the time trips take.
Mathematically inclined readers will notice that you can calculate speed using distance and time, but pay as you go insurers aren’t interested in how fast you drive — they just want to know how many miles you’re logging.
Pay as you go isn’t as widely available in Canada as usage based insurance — in May 2018, the Canadian Automobile Association debuted the first pay as you go program in Canada for Ontario drivers who travel less than 9,000 kilometers annually. However, other auto insurance companies are quickly following suits, offering Canadian motorists more choices in more areas.
How Much Does Usage Based Insurance Save?
Insurance companies use complex formulas to monitor your driving behavior and set rates. What you save will vary based on your insurer, as well as your own driving habits. In some cases, insurers will give significant upfront discounts, awarding 10-15 per cent just for installing the devices, with the possibility of a greater discount after several months.
In other cases, you may not be rewarded until the insurer has evaluated your driving habits. That timeframe can vary significantly between insurers, so calculating your total savings up front can be a challenge.
Usage based insurance tends to be very beneficial to low-mileage drivers. Traditional car insurance doesn’t really reward drivers who don’t hit the road all that much — you may be paying as much as a daily commuter just to leave your car sitting in the driveway.
Usage-based and pay as you go insurance empirically demonstrate to your insurer that you pose a lower risk, since you’re rarely on the road, and that can save you money. UBI is also good for people in high-risk groups (such as young drivers) who drive safely, because it shows your insurer that you personally aren’t a risky driver.
What Other Benefits Does Usage Based Car Insurance Have?
According to a recent study at the University of British Columbia, usage based insurance may actually make motorists safer drivers. The study looked at data from 30,000 volunteers, who had a telematic device installed in their vehicle for 26 weeks.
They found that drivers tended to form new, safer habits in the first six to eight weeks. Younger drivers tended to improve more than older ones (possibly because they valued the savings more) and women improved more than men, but there was an overall trend towards safer driving.
That benefits you in an obvious way: as a safer driver, you’re less likely to be injured in a crash, or damage your car. But it also may lead to long term insurance savings, even if you don’t continue using the telematic device.
As a safer driver, you’ll be less likely to get tickets or be involved in accidents — the kinds of incidents that hurt your rates with traditional auto insurance. And with almost over 10,000 Canadians seriously injured and almost 2,000 motor vehicle fatalities in 2016, anything that can make you more conscientious on the road is a good investment in your long-term health and safety.
Considerations and Drawbacks to Usage Based Car Insurance
The Telematics Device Could Show You Unpleasant Truths
Do you consider yourself to be an above average driver? We’re willing to bet you answered yes — most people do. A study on driver self-assessment found that most drivers see their own driving skills as exceptional. They used their own standards and self-assessment to rate their driving skills as above average, even when they’re given driver safety resources that say otherwise.
Statistically speaking, you’re probably not as good a driver as you think you are, and usage-based insurance will prove it. Before having your insurance company install a telematic device, you should consider how you’ll react if it turns out you’re speeding around town and slamming on the brakes more often than you think you are. If you’d rather not know, it might not be for you.
Sharing Personal Driving Data Comes With Risks
A more serious concern is what you don’t want your insurance company to know. Usage based car insurance poses privacy concerns for some Canadians. As part of monitoring your driving habits, the telematic device records everywhere you go, and broadcasts that data — either directly to your insurer or to a third party who collects it on behalf on your insurer.
Sure, that data is legally protected for Canadians — companies have to spell out what information they’re collecting and how they’re using it. Under the Personal Information Protection and Electronic Documents Act, they can only legally store it for as long as necessary to calculate your rate. You also have the right to revoke consent, after which they have to destroy the data within a year.
However, there are still risks. As is the case with any personal data, you’re hoping that all the parties holding on to your data can keep it safe. Even if a hacker never gets their hand on your data, there are also legal risks.
Courts could subpoena your telematics data while your insurance company still has it in their possession. If you were in a car accident, for example, your telematic data could conceivably be used to prove that your speeding or slow reflexes contributed to the accident.
Multiple Drivers Could Undermine Your Usage-based Discounts
Your telematic device doesn’t monitor how you drive — it measures how your car is driven. If your spouse or your teenage child uses the car regularly, the insurance company will see more driving, and a combination of their driving habits and yours. This could make it harder for you to earn discounted car insurance rates.
Choosing the Right Car Insurance Model for You
Usage-based insurance is still a relatively new type of car insurance, and like any new technology, not everyone will want to sign up right away. For drivers who are concerned about privacy or don’t think their driving habits will be rewarded, traditional car insurance or a pay as you go option may be better.
However, if you’re a safe driver with a clean driving record, or someone who only drives occasionally, usage-based insurance could save you a lot of money.