In Canada, business models for usage-based insurance (UBI) are evolving, as is the regulatory environment in each province. And as Kati Rubinyi reports, insurance industry insiders are optimistic that the business opportunities for UBI will overcome the barriers.

In Canada, business models for usage-based insurance (UBI) are evolving, as is the regulatory environment in each province. And as Kati Rubinyi reports, insurance industry insiders are optimistic that the business opportunities for UBI will overcome the barriers.

Insurance companies are succeeding in offering products that make the business case for off-boarding and analyzing data while adapting to ever changing technology and regulations.

While commercial insurance based on telematics is widespread in many Canadian provinces, the provinces of Quebec, Ontario and Saskatchewan, currently offer UBI for personal automobile insurance and Alberta is taking steps towards opening its market.

Regulators there are reviewing industry comments with an interpretive bulletin coming later this spring.

“Overall the landscape is in flux with Quebec being the most liberal followed by Ontario and Saskatchewan. Saskatchewan is interesting because it allows for both car and motorcycle telematics,” explains Blair Currie, VP of Business Development at Intelligent Mechatronic Systems (IMS).

The challenge for the provinces is to make the most of benefits offered by UBI, while safeguarding against negative consequences.

The government is very clear on what data can and can’t be used, and for what purposes. In order to use any information generated by vehicles, insurance companies will have to file a Privacy Impact Report.

They will need to prove they can meet a province’s standards for maintaining individual privacy.

Government officials emphasize that the data is there for people’s own benefit. So they could, if they choose, use it for their protection in proceedings.

For example, if a vehicle malfunctioned, individuals could obtain their own data to make their case. But the insurance company cannot use an individual’s UBI data in any way except to set his or her rates.

Aside from keeping drivers’ information private, industry experts say the key issue is the potential fragmentation of the risk pool.

If the market pressures behind UBI push too hard on customizing how much consumers’ pay, some peoples’ insurance could potentially go up exorbitantly, while others pay much less.

Insurance companies and government regulation needs to find a sweet spot where the system is responsive enough to set prices meaningfully based on how people are driving, but still share the cost of claims broadly.

If driving behavior sets prices, and this is taken to an extreme to a point where the cost of claims is not shared broadly enough, it defeats the purpose of insurance.

Hugh McTavish, president of Alberta brokerage firm InsureMy is thrilled by how many exciting insurance innovations telematics are making possible.

His firm, a branch of Godfrey-Morrow Insurance and Financial Services, currently offers Time Based Insurance (TBI) products for commercial fleets. McTavish says InsureMy plans to offer personal TBI and UBI products in Alberta, as the firm already does in Ontario, as soon as provincial regulations permit it; they are expected to do so this spring.

McTavish explains that for years, fleet management firms have been using telematics for purposes separate from insurance. For example, telematics suppliers meet customized data needs for haulers in Alberta's oil extraction industry who need records of how long trucks spend on the privately-owned land of an oil patch.

InsureMy initially leveraged telematics-based fleet management systems for offering time-based commercial insurance that provides refunds for vehicles not in use. In InsureMy’s time-based system, when a vehicle in a fleet is simply used less or not at all, the policy owner gets a refund. The next step was UBI for commercial fleets.

InsureMy has two suppliers of telematics hardware and software. Their devices are installed in customers’ commercial vehicles to keep track of their location, usage, and provide feedback on driver behavior. The most promising aspect of the system is how customizable it is.

“We work with the customer to determine their particular data requirements for risk assessment,” McTavish explains, adding, “Our Effective Fleet Management product is focused on pre-empting claims and expenses, rather than being reactionary. Ultimately, insurance is for covering the losses of the few by the premiums of the many, and telematics fine tunes how we do that.”

Each Canadian province and territory that has UBI has a unique regulatory landscape, and insurance products vary depending on which companies do business in that area. Uptake of the new products has been accelerating at a rate faster than in the US, but overall, the Canadian market lags behind the US by about two years.

UBI experts say Quebec has the most accommodating regulatory environment, and the greatest number of customers insured by UBI policies per capita, but Ontario’s market has the most potential because it’s the largest. Ontario represents 30 percent of the Canadian property and casualty business.

In general Canadian regulators find it difficult to keep current with technology advances and insurance telematics is not an exception to this rule,” says Currie from IMS, “The regulators are keen to learn and adapt and open to ideas.

But often the processes governing regulation keeps them conservative.  As such it’s important for technology companies such as IMS to be in constant dialogue with the various regulators. We try to help them by sharing global examples and enhance their learning.  It’s a constructive process.

Insurance Telematics Canada Conference & Exhibition will take place in two week's time. It is the no.1 event dedciated to insurance telematics in Canada. 

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