Canadians all across the country having been feeling the weight of rising costs over the past few years. With higher inflation and cost of living, it’s not surprising that your car insurance rates have seen the effects, as well. As a result, cost-cutting measures, like usage-based insurance or ‘telematics‘, is becoming more popular. In this article, we touch on some of the reasons for the steady increase in car premiums, and dissect the benefits of usage-based insurance to help cut monthly costs.

Car insurance rates keeping rising

Insurance providers are seeking a rate increase again because their own costs are going up. Inflation, labour, and supply-chain shortages, and a post-acute pandemic return to the roads are driving up the amount insurers have to pay out for claims. With continued supply shortages in the auto industry, such as catalytic converters and windshields, the cost of auto parts are increasing. In addition, wait times for those parts grow longer, and the price and demand for rental vehicles goes up.

Let’s breakdown the main reasons for auto insurance increases:

1. Claims cost

Auto insurance rates are partly based on insurers’ claims costs, which are affected by inflation. With increased claims costs very often comes increased insurance premiums.

2. Return to normal traffic levels

As more people return to the office and other activities outside the home, the likelihood grows of claims increasing. Companies are seeking to raise rates now because their costs are increasing as driving rates return to normal.

3. Repair costs

Inflation is driving up the cost of new, used and rental cars, as well as car parts. Lingering supply chain issues are making it hard to get parts on time. High demand and low supply will often mean price hikes, particularly for auto service and parts. The increasingly complex design of cars has made it more difficult to repair them.

4. Rise in auto theft

The increase in auto thefts in 2022 is putting upwards pressure on rates as insurance companies pay out more to replace stolen vehicles.

5. Cost of health care

The cost of providing healthcare to accident victims, such as rehabilitation and disability benefits, is another factor driving up costs for insurance companies. Roughly half of the (auto) premium comes from the need to cover the cost of replacing the car if it’s damaged or stolen, or of repairing it. The other half goes to personal-injury-related costs. The costs that insurers incur for this portion of their payout is much higher in Ontario than in other provinces.

FSRAO estimates that about 30% to 35% of settlements paid in personal injury disputes between insurance companies and claimants are used to pay for professional and legal fees, such as contingency fees, instead of benefitting injured parties.

What is Telematics?

Usage-based car insurance is also called telematics. It’s referred to by other names, including pay-per-use insurance, UBI, pay-as-you-drive (PAYD), and pay-as-you-go insurance. Not surprisingly, it’s becoming increasingly popular with drivers. UBI determines your premiums based on your driving behaviour. It rewards you for being a safe driver and having good driving habits with lower costs and discounts.

How does Usage-Based insurance work?

The premise behind telematics technology is that your driving behaviours are assessed for a specified timeframe. The safer you drive, the more you will save on your premiums. UBI sets your rates based on your personalized driving behaviours, while standard policies are more based on demographics and perceived levels of risk.

Not all insurers offer telematics. However, while their programs may differ, there are two main ways to participate in a UBI program:

  1. Using a UBI app: Downloaded onto your smartphone, the app will track your driving data in real-time.
  2. Installing a device in your vehicle: Your insurer will mail you the device to install in your vehicle. Once installed, it will track your data. You can view performance on the company website or through an app.

CAA Insurance – the number of new CAA MyPace policies between April and December 2020 increased by close to 300% compared to the year prior. 

What does Telematics track?

Telematics is meant to analyze your driving behaviour and collects information about:

  • Braking and acceleration
  • Time of day you are driving
  • How you maneuver your vehicle
  • Your speed while driving
  • Phone use while driving

These factors will make up an overall picture of your driving habits for your insurer. Your insurance company will then assign you a score based on your driving habits. Then, at renewal, that score will pay a part in your premium determination. How scores and discounts apply will vary by company. Talk with your insurer or isure broker directly for more information.

Millennials are 44% more likely than the average consumer to use a UBI device.

Benefits of a UBI program

There are a number of advantages to signing up for a UBI program:

  • Immediate discounts offered upon signing
  • Good driving habits can net up to 30% in savings off your rates for your good driving habits
  • Plugging in the data collection device into your vehicle or downloading the app from your provider is all that’s needed to get started
  • The amount you pay for insurance is based on how you drive – putting you in the driver’s seat for savings!

Quotes for usage-based car insurance expected to increase by nearly 20%

According to RATESDOTCA, Ontario auto insurance rates are expected to increase by 7-8% in the second quarter of 2023. The site reasons that the increase is linked to several Ontario insurance providers being approved for rate changes late last year. Canadians looking for a solution to the rate hikes, have turned to telematics. The number of inquiries and quotes for UBI have seen a spike over the past six months. RATESDOTCA data also confirms that quotes for UBI have been on the rise since September last year. For example, January saw an 18.22% increase in UBI quotes, when compared to the same period last year.

Is Usage-based insurance the future?

Usage-based auto insurance seems to be the future of the insurance industry. Consumers now have the option to be rewarded for their safe driving habits with lower premiums.  Compelling evidence exists that telematics will only become more widespread:

  • Several countries, such as the United States and the U.K. have already started adopting it.
  • Vehicles are now designed with built-in telematics. This will make it easier and more cost-effective for insurers to offer usage-based insurance products.
  • It’s also easy for drivers to add it to their current policy.
  • Many believe that it will modernize an out-dated system that judged drivers on past driving records or demographics.
  • Telematics can also provide insights and data that can help speed up the claims process.

Carriers of Usage-based Insurance programs

Intact Insurance: Intact my Drive

Program offers good drivers rewards and savings up to 25%. Drivers can save 10% just for enrolling in the program.

Learn more about the Intact my Drive savings program.

Aviva Insurance – Aviva Journey

Automatically save 10% on your insurance rates in the first year with Aviva Journey. Safe drivers can save up to 20% on premiums each year after. If you are already an Aviva customer, simply contact your isure broker to sign up for the program.

Travelers Insurance – Travelers IntelliDrive

Travelers Insurance usage-based insurance program is IntelliDrive. Drivers can save up to 30% of premiums at renewal. Save 10% for signing up!

Pembridge Insurance My_BRIDGE

Through the My_BRIDGE program by Pembridge Insurance, drivers have the opportunity to save up to 30% annually. You’ll get a 10-15% discount for signing up.

Final thoughts on UBI

Ontario has the highest private passenger auto insurance premiums in Canada, despite having one of the lowest rates of car crash injuries. Ontario Finance Veteran, David Marshall, says that the Ontario’s system is too tightly regulated to take advantage of the flexibility and competitiveness of a more open, private market. While Ontario will not adapt the private market system that Quebec enjoys, allowing for access to usage-based insurance to all Canadians can help to ease some of the financial burden of owning a vehicle in the province. UBI, at its heart, is simply allowing drivers to pay the amount of coverage they deserve based on good and safe driving habits. If you’d like more information about telematics, please see some of our articles below:


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