Could it be that Canadian auto insurers will ultimately be driven to adopt pay-as-you-drive insurance schemes once consumers learn how to say ‘Telematics?’
Rob Carrick wrote a piece in the personal finance section of the Globe and Mail last week, entitled “Car insurers just don’t get Generation Y”. Citing information from a recent J.D. Power report on consumer satisfaction in Canada, Carrick notes that while consumer satisfaction with auto insurers is up generally, there is a notable difference between Boomers and Gen Y: “Part of this relates to the fact that young drivers pay higher premiums, and part speaks to the fact that insurers are still doing business the way they did before the Internet was invented. Boomers may be okay with that because they’re used to it. Gen Y, quite rightly, questions this complacency.”
Carrick cites Lubo Li, a senior director at J.D. Power & Associates, who notes that insurers have not embraced the on-line world that many Gen Y citizens inhabit. We’ve written on this extensively, so we won’t beat that horse here.
What is interesting to us is Mr. Li’s follow up point: insurers lack flexibility in their products to take Gen Y consumers’ special requirements into account. Acknowledging that younger drivers do have a higher rate of claims generally, Carrick writes that “in bludgeoning every young driver equally on premiums, car insurers are making a good case for not owning a car and, thereby, avoiding the cost of insurance.” (We noted the trend away from car ownership in a post earlier this year.) Is the intent of insurers to help reduce market size? Probably not.
Carrick notes an alternative:
Mr. Li said there’s technology available that allows premiums to be personalized for all drivers, not just young ones. Insurers could have drivers install a remote-sensing device in their cars that notes the distance and speeds travelled. People who drive only a little and keep to the speed limits would be in a position to pay lower premiums after sending their data to their insurer.
In other words: Pay-As-You-Drive insurance based on Telematics. Why aren’t consumers demanding this? Probably because they don’t have the vocabulary. Yet.
And ‘yet’ may be the operative word. In July, we noted that there seemed to be increased ‘buzz’ around this topic; driven, in no small part, by the strong marketing thrust from Progressive in the US. Progressive’s commercials are on high rotation on shows that find their way to Canadian TVs (and iPads, and …..). And, as Li notes, “The insurer with the highest level of brand awareness is Geico, which doesn’t even sell insurance in Canada.”
So, our question to you: Will consumer demand be the critical factor in bringing Telematics-enabled personal insurance to Canada in a big way? Leave a note below.
This is an interesting discussion on telematics-based insurance, because there are strong reasons why the Canadian insurance companies are avoiding it at this time.
First it’s expensive to build a new category, as Progressive has found in the United States. If one Canadian insurance company jumps in on telematics-based insurance it will need advertising spending to build awareness and understanding and considerable channel support to make it successful. This will give it a “first mover advantage” but it must be prepared to capitalize on this with long term support.
While Canadian consumers do receive a significant amount of media spill across the border from Progressive’s advertising, it is not enough to float a business north of the border.
A second reason why the insurance companies are reluctant to adopt Usage based insurance is that the costs of the devices, software and telecom rates remain high. For example, Canadians pay the highest telecom rates in the developed world, so this puts an additional stress on the business model for insurance telematics. Canadian auto insurance companies are waiting for the business model to turn profitable through the effect of Moore’s Law on decreasing technology costs. The costs are certainly coming down but perhaps not fast enough!
The third reason is that Canadian insurance command much higher premiums than they do in the United States and they will try to avoid reducing these for as long as possible. And these high premiums don’t only affect Generation Y. They affect experienced drivers as well, and particularly immigrants with significant out of country experience, but little Canadian experience. Personally I’ve insured vehicles in 7 different countries and the rates I have paid in Canada – particularly after returning from a 20 year hiatus (to my previous broker who insured me for 10 years before leaving Canada) – are the highest I’ve ever experienced.
Consumer demand could help propel telematics-based insurance, but it would take a lot to make this a big issue. Perhaps a leading media company such as the CBC could do an expose on the high relative prices we pay in Canada relative to other markets? Or perhaps legislation will come to Canada based on sex or age discrimination related to auto insurance as it being discussed in Europe?
As a Telematics Services Provider, these are some of the thoughts , we at IMS (www.intellimec.com), see in accelerating the introduction of usage based insurance, north of the border.
http://www.mobiliz.ca is the very first “Pay as you drive” insurance in Canada. It’s only available in Quebec though but still pretty intersting. We pushed the limit of telematic a bit further so that now we can call it “Pay HOW you drive” instead. We’re using km driven and speed limits as well as sudden acceleration and hard breaking to calculate the user’s premium. It is primarily intended for 16-24-year-olds and aims to raise this clientele’s awareness about responsible driving behaviour.
However, we’re still waiting for some other Canadian insurer to jump on the boat! As Industrielle Alliance Auto and Home insurance are not selling car insurance outside Quebec, we’re looking for other insurer across Canada who’d like us to share our knowledge on this new technology!