Telematics enabled Usage Based Insurance (UBI) should be mandatory in Ontario. The advent of the Internet, digital cellular networks, and global positioning systems over the last twenty-odd years has transformed the way we live. These innovations have been disruptive for countless industries and enabled the birth of many new ones. Used to deliver UBI, these technologies have the potential to disrupt auto insurance by revolutionizing ratemaking and making current practice seem like an artifact from an earlier time.
We’re Heading There Anyway
Just because it’s possible to do something doesn’t mean you should do it. In Ontario today, where auto insurance rates are possibly the most expensive anywhere, there is a need for significant change. While there are problems with fraud and product design, there are also significant problems with fairness, equity and transparency.
The recent provincial budget includes vague plans to reduce costs and rates by 15% and calls for greater “accountability and transparency”. According to the budget, insurers will be required “to offer lower rates for consumers with safe driving records.” The government will also be “investigating additional new measures to reward safe driving and reduce costs and premiums.”
The government should vault Ontario ratemaking into the current century by mandating that all insurers must offer UBI and by establishing a timeframe for its deployment in the province. UBI is inevitable – eventually the government and the industry will have to catch up with the technology.
Paying for UBI – a Multi-application, Shared Cost Solution
Already overburdened Ontario drivers aren’t likely to welcome something that adds additional expense. Implementing UBI could be partly funded with some of the savings made through fraud reduction and product redesign. UBI typically ramps up the frequency of interaction between consumers and insurers, which could be leveraged to reduce marketing costs.
The government should get out in front of the curve by looking at how the technology platform required for UBI could be used to serve other policy initiatives. There is a lot of debate over how to fund needed transportation infrastructure. The same platform that supports UBI could be used for road tolling, favoured by many as a funding source. Such a platform could also be used for an automated crash-alert system, like the Europe-wide eCall program slated to launch in 2015. A multi-application, shared cost platform would help to make the business case for UBI viable.
So-called “connected car” concepts rely on the same technology. Looking even further ahead, when “driverless” vehicles become available the government and insurers will be forced to adapt to the technology. Any vehicle-to-vehicle (V2V) or vehicle-to-infrastructure (V2I) communications will require oversight and regulation. Even though driverless cars are probably a long way off still, it’s better for everyone to get their feet wet now.
Back up Bold Talk with Bold Action
The provincial government is duty-bound to improve safety, protect the environment and ensure that citizens are treated in a fair manner by regulated industries. UBI addresses all of these concerns by increasing awareness of poor driving behaviours and wasteful driving habits, and by providing the basis for more fair and accurate rates through the use of empirical data rather than outdated and poorly fitting proxies.
Today, good drivers and those who drive little subsidize the less prudent and those who drive a lot. That’s not fair and the solution to the problem is available right now. What’s lacking is the will and foresight to make it a reality.
For a more in-depth examination of the topic, go to corner2.ca and download Corner Two Consulting’s white paper, The Case for UBI in Ontario.
Editor’s note: Colin Wright is a proponent of UBI and Principal of Corner Two Consulting, which focuses on UBI preparedness. Colin has extensive experience in financial services, including managing business analytics units for two leading insurers and managing Aviva Canada’s Autograph UBI pilot from 2008 to 2010. He holds an MBA from York University’s Schulich School of Business.