We have been posting on the use of telematics and Pay-As-You-Drive (PAYD) or Usage Base Insurance (UBI) schemes for some time. It seems clear that these plans are gaining traction with insurance providers and insurance customers in the UK, Europe, and the US, but not in Canada yet. Why is that? We’d like your thoughts.
Back in February, we noted reports from several analysts that indicated a tipping point had been reached in the US. Recent information from Telematics Update seems to bear that out: insurers representing 50% of US auto insurance premium are either using or implementing PAYD schemes.
In addition, Verizon, the US telecommunications giant, recently purchased Hughes Telematics at a substantial premium over book value. Hughes Telematics manufactures the technology used by State Farm to collect and bundle vehicle data for its PAYD programme. Tom Kavanaugh, director in the financial services practice at PwC, told Insurance&Technology that such investments by vendors will help stimulate PAYD programmes by large and mid-sized carriers. “Encompassing the data management and analytics will absolutely help to accelerate some of the efforts, especially of your smaller regional players who don’t have the capital resources,” Kavanaugh said.
Insurance-Canada.ca conducted an informal poll earlier this year. Three-quarters of respondents felt that UBI would be embraced in Canada within two years. At the 25% mark, implementation announcements are scarce (Industrial Alliance is a notable) exception.
In the same poll, Insurance-Canada.ca asked what the obstacles were. Almost 50% of respondent felt that customer acceptance was a barrier. However, a Pembina Institute study published in April 2012 found that two-thirds of Toronto drivers would try a UBI insurance scheme.
Now, there are reports that some of the major insurers are actively studying UBI, and attendance at conferences discussing PAYD insurance has a good representation of Canadian actuaries and marketers. However, there does not appear to be the groundswell found elsewhere.
So what are the issues? Here are some thoughts:
- Canada has a widely dispersed population with provincial jurisdiction over automobile insurance. PAYD would add another layer of complications.
- Internal systems would require substantial changes to accommodate the new data. Many insurers are undergoing system transformations now, and would not have the cycles to take on additional work.
- Rating based on PAYD requires several years of experience against a wide range of possible variables and there is no common data source to act as reference.
- There is no set of competitors creating pressure.
We’d like your thoughts on two questions:
- Can Canada continue its current wait-and-see attitude?
- What would cause a change?