UBI Taking Hold

Canadian drivers are being given more opportunities to purchase auto insurance policies based on their driving behaviour and they appear to be quite open to the concept.

With several of the major insurers now offering usage-based insurance (UBI) policies in Ontario and Quebec, consumer interest is increasing. Earlier this year, Towers Watson conducted a survey of more than a thousand Canadian consumers and recently updated the same survey for consumers in the United States and Brazil.

The results demonstrate the openness of consumers in major markets and the increasing acceptance of these UBI policies, or “pay-as-you-drive” insurance (see infographic on page 76).

The UBI Consumer Survey results are fairly consistent across other global markets and offer a clear indication that UBI is gaining even more momentum. Significantly, well over half (56%) of polled Canadian drivers reported that they have a strong interest in buying a UBI policy. Drivers’ appeal to UBI programs deepens when they are asked to consider the possibility of enrolling in UBI programs.

An overwhelming majority (85%) said they would be open to such programs. This compares to acceptance of 79% in the U.S. and 92% in Brazil. The comparisons are interesting because UBI policies have been available for several years in the U.S., but just began to be offered in Brazil.

NEW ENTRANTS ON THE SCENE

The Canadian UBI market has quickly developed into a rapidly changing landscape. Until recently, UBI in Canada was limited to just a few programs, but over the past year new entrants have entered the marketplace and increased the range of products available. Canadian insurers should be very pleased to know that drivers are so amenable to participating in UBI programs, and that the acceptance is as high or higher than in other countries with very developed UBI products.

The percentage of interested consumers in Canada increases from 85% to 94% should insurers guarantee that drivers’ premiums will not rise. This is a very important statistic that insurers in most markets, including Canada, have taken to heart.

The vast majority of UBI products are based on discounts from standard rates for insureds who demonstrate better than average driving behaviour. Insurers understand the value of attracting these very safe drivers who self-identify by accepting a policy that requires them to provide a record of their vehicle operation to the insurer.

This is not an average insured. Insureds understand they have something to gain by proving they are good drivers. These consumers are clearly not prone to fraud and feel they have nothing to hide. The self-selection alone has led to lower than average loss costs in markets where UBI programs are widely available.

Three countries – Italy, South Africa and the U.S. – have led the way in the penetration of UBI policies among consumers, but the accelerating availability and high consumer acceptance indicate Canada will be a prime market for the expansion of UBI.

Even regulation in Canada is on the leading edge with the Financial Services Commission of Ontario (FSCO) already having published guidelines for the regulation of UBI policies in Ontario and the Alberta Insurance Rate Board (AIRB) having sponsored seminars to improve the understanding of UBI in Alberta.

These actions are much more proactive measures than regulation in most countries, where regulators have been open to UBI, but have largely taken a wait-and-see approach.

IMPORTANT SIGNAL TO INSURERS

Towers Watson’s survey also assessed consumers’ take on value-added services, which can be bundled with a UBI policy, and enabled by the underlying technology. Nearly two-thirds (65%) of those interested in UBI (i.e., those saying they definitely or probably would buy a UBI policy) indicated they are willing to pay for these services.

When asked which services appealed to them most, polled drivers chose vehicle theft tracking (86%), automated emergency call (85%) and vehicle wellness reports (79%). More than half (56%) of those interested in UBI reported that they are prepared to pay between $3.75 and $7.50 a month for those services.

Canadian drivers’ indication that they acknowledge the usefulness in purchasing UBI-related value-added services is an important signal to insurers. These services can really benefit insurers in a number of ways, such as differentiating and de-commoditizing their products.

Insurers globally have introduced a multitude of value-added services through the telematics technology that enables UBI policies. These services include theft tracking, emergency response to a known vehicle location, geo-fencing parameters for teen drivers, vehicle wellness reports and vehicle breakdown response, among other popular options.

DRIVING SAFETY

A leading interest among insurers, consumers and regulators is the potential to reduce accidents through improved driving behaviour. The ability of drivers to improve their driving through feedback and coaching is attractive to all stakeholders.

Notably, almost half (48%) of survey respondents reported that they would be willing to change their driving behaviour if UBI technology was installed in their cars.

When asked how they would do so, sticking to the speed limit (55%), keeping a safe distance from other vehicles (52%), and driving more considerately (49%) were the top changes.

Surveyed consumers said that their primary concern with UBI centred on their finances, while nearly half (47%) voiced worries their premiums would go up. Privacy issues were another leading uncertainty, with specific misgivings about the sharing of consumer data (46%) and apprehensions around using data to invalidate claims (46%).

These concerns are similar to those expressed by consumers in other countries, though the percentage of consumers in the U.S. who indicated privacy as a major concern declined by 15% in just the last 17 months.

These concerns, while understandable, are not really significant enough to hinder the many benefits that UBI offers Canadian drivers – and all indications are that concerns decline rapidly once consumers are introduced to the benefits.

This is especially true if insurers are very transparent with consumers regarding what data is collected, how the data will be used, and with whom the data will be shared. Clear communication about these three key issues is critical to high consumer acceptance.

The clear opportunity for insurers to improve their auto insurance products is made only more obvious when considered in the light of the high consumer interest and acceptance of these products. Towers Watson has estimated that roughly 200,000 customers in North America will buy a UBI policy each month in 2014, and the interest continues to increase.

The benefit to innovative insurers who are early-adopters of UBI is obvious if this pace of policy acquisition for better than average insureds continues.