Usage-based insurance (UBI) is a type of car insurance that uses telematics technology to track driving habits, such as braking, acceleration, speed, and phone use. Drivers who demonstrate safe driving behaviour can often qualify for insurance discounts of up to 30%, depending on their insurer.
Canadians all across the country have 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, such as usage-based insurance or telematics, are 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.
Why Do Car Insurance Rates Keep Rising?
Insurance providers are seeking another rate increase because their costs are rising. Inflation, labour, supply chain shortages, and return-to-office mandates are increasing the amount insurers have to pay out in claims. With continued supply shortages in the auto industry, such as catalytic converters and windshields, the cost of auto parts is increasing. In addition, wait times for those parts grow longer, and the price and demand for rental vehicles go up.
Let’s break down the main reasons for auto insurance increases:
- Claims cost: Auto insurance rates are partly based on insurers’ claims costs, which are affected by inflation. With increased claims costs, very often come increased insurance premiums.
- Return to normal traffic levels: As more people return to the office and other activities outside the home, the likelihood of claims increasing grows. Companies are seeking to raise rates now because their costs are increasing as driving rates return to normal.
- 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 them more difficult to repair.
- Rise in auto theft: The increase in auto thefts continues to put upward pressure on rates as insurance companies pay out more to replace stolen vehicles.
- 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 are much higher in Ontario than in other provinces.
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What is Telematics?
Usage-based car insurance is also known as telematics. It can also go 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. Telematics technology will determine 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.
Unfortunately, not all insurers offer telematics. However, while their programs may differ, there are two main ways to participate in a UBI program:
- Using a telematics/UBI app: Downloaded onto your smartphone, the app will track your driving data in real-time.
- Installing a device on 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.
What Does Telematics Track?
Telematics is meant to analyze the driving behaviour of the driver it’s connected to. It will collect 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 play a part in your premium determination. How scores and discounts apply will vary by company.
Benefits of Usage-Based Insurance
There are several advantages to signing up for a UBI program:
- UBI can offer discounts as soon as you begin the program
- Good driving habits can net up to 30% in savings off your rates for your good driving habits
- Your provider gives you everything you need to start a UBI program: a data collection device to install in your vehicle or an app to download.
- The amount you pay for insurance is based on how you drive – putting you in the driver’s seat for savings!
Is Usage-Based Insurance The Future?
Usage-based insurance continues to grow in popularity in the insurance industry. This, as a result, is drastically changing how insurers determine rates for their customers. 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 Canada, the United States, the UK and Europe, 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 outdated system that judges drivers on past driving records or demographics
- Telematics can also provide insights and data that can help speed up the claims process
Usage-based Insurance: Frequently Asked Questions
Can usage-based insurance help save me money?
Yes. Many insurers will offer initial participants a discount upon joining. At the same time, safe drivers may qualify for additional savings upon renewal. The exact amount of savings will depend on the insurer and your driving score.
Is usage-based insurance the same as telematics?
Yes. Telematics is the technology that powers usage-based insurance programs by collecting driving data to help calculate personalized insurance premiums.
What does telematics track?
In most cases, telematics will track:
- braking
- acceleration
- speed
- mileage
- time of day
- phone use behind the wheel
It is important to note that programs may vary depending on the insurer.
Does a telematics car app track your GPS location?
In many cases, telematics apps will collect GPS location during trips, while others may only collect information regarding driving behaviour. Always review your insurer’s policy to understand what information it collects.
This depends on your insurer and driving habits. Some programs will only provide discounts, while others may look at your driving habits when it comes to renewal pricing.
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Should You Choose Usage-Based Insurance?
Ontario has the highest private passenger auto insurance premiums in Canada, despite having one of the lowest rates of car crash injuries. As insurance rates continue to rise, finding ways to reduce these premiums has never been more important. Usage-based insurance offers many drivers a method of taking control over what they pay for insurance while rewarding safe driving habits.
Safe drivers can save significantly with usage-based insurance. However, it isn’t the right fit for everyone. If you’re looking to lower your auto insurance costs, don’t hesitate to reach out to us at isure. Contact us or request a quote today!
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