Telematics in Canada

April 2016    |    By Pete Frey, Head of Product and Alliances at Hubio & Glen Piller, Head of Canada at Hubio

This paper examines the UBI market and the opportunities it presents. This starts with a brief discussion of the current state of the industry across North America, before turning to examine the largest segment for UBI, that of Young Drivers, and how this market is poised for high acceptance. Then we examine current market leaders, and what they are doing to succeed. The paper also looks at Connected Car, and how this is impacting insurance and insurance providers through add-ons products and services and segment-specific solutions. The discussion concludes with an overview of plug-in devices and smart phone apps, and how overall societal and regulatory goals including improvements in driver safety, and reductions in greenhouse gas emissions, impact UBI.

Usage-based insurance (UBI) is moving steadily into the mainstream in many large insurance markets. With over 200 UBI programs in place globally, it is one of the fastest new product enhancements in insurance history. Analysts predict nearly 100 million vehicles will be insured globally by 2020, which will increase to 50% of the world’s vehicles by 2030.

This represents a huge opportunity for insurance carriers to grow and expand their market share, improve risk selection, enhance underwriting performance, increase retention rates through engagement, and combat de-selection. While first-movers have a competitive edge at present, most insurers are well positioned to be a fast follower, and make their own mark in transforming the industry through UBI.

UBI programs feature a telematics device that can be plugged into a vehicle’s diagnostic on-board computer to track mileage and driving habits, a smart phone app that tracks driving habits, or a combination of both devices, depending on the insurers mix of end-use products and services.

Early insurance adopters in Canada offered discounts of 5 – 15% for UBI customers, relying heavily on self-selection to attract safer drivers with better risk profiles, as well as the fact that drivers made behavioural changes knowing their driving was monitored through a plug-in-device. As the market evolved and is predicted to evolve, insurers are moving away from the exclusive reliance on discounts, to offer additional value-add products and services. Current program participation rates in North America range greatly for insurers offering telematics programs, overall averaging 25% to 30% of new customers opting for UBI. However adoption rates are extremely variable, with successful programs seeing over 50% participation rates.

In order to differentiate their offerings insurers are looking at the development of compelling propositions for their customers, and segment-specific offers. Consumers are ready for such activity.

Millennials are one group that indicated they would prefer insurance rating and pricing based upon UBI to that of traditional models. In fact, 72% prefer UBI to age, gender, and credit score as a premium calculation factor. 84% would “change how they drive” in order to secure rewards, and 66% are receptive to having driver behaviour monitored.

ingenie is a UK and Canadian-based broker offering UBI programs exclusively with drivers 16 to 24 years of age. They have a business model, supported by several years of consumer activity, that young drivers implementing an in-car driving device and receiving constant driver feedback via their smart phone, will improve their driving ability and drive more safely.

ingenie’s research work indicates that Millennials that engage with insurer feedback on their driving behaviour via a smart phone device reduce their crash risk. They drive safer, and their loyalty improves. Customers who check feedback just twice a month achieve a significant improvement in driving score and reduced crash frequency. Drivers with good driving scores of 90 or higher were 3X less likely to have a crash than those with low driving scores.

In addition, the parents of young drivers that are looking for ways to help improve their child’s safely represent a future opportunity. Motivated by worries about their children (over 70% reveal they have lost sleep worrying about their young drivers) they are looking for help in efforts to monitor and improve their child’s driving.

Several Canadian Insurer programs target young drivers. Aviva, working with ingenie, is a participant in this segment. They are seeking to improve young driver safety, and secure new, long-term customers.

Beyond young driver receptiveness to UBI programs, they represent an ideal segment for other reasons. Premiums are higher than that available to other segments, offering room for price reductions for safer driving; young drivers are newer, more receptive to safe driving coaching; and insurers struggling with the high costs of this segment will benefit from the reduction in claims costs.

Glen Piller works with Hubio, one of the North American market leaders in providing turnkey UBI solutions, and says “young drivers respond very positively to UBI programs. They interact with dashboards and messaging extremely well, and change their driving behaviour in order to take advantage of incentive programs such as discounts or reward points. These driving improvements will greatly improve road safety.”

Industrial Alliance has also developed young driver programs. Based on the Pay-as-you-drive model, “Mobiliz” uses telematics technology to monitor distance travelled as well as three driving behaviours: speeding, forced acceleration and hard braking. Industrial Alliance provides free installation of a GPS-type module to Quebec drivers aged 16-24 that join the initiative.

“Mobiliz will enable youths who drive responsibly, but frustrated with their high premiums simply because they are young, to benefit from the lowest rates in the industry,” says Michel Laurin, president and CEO of operations at Industrial Alliance Operations, Auto and Home Insurance Inc. “As for youths who currently have extreme driving habits, Mobiliz will offer them the necessary financial incentives so that they can adopt more responsible driving habits.”

In the US several brand name insurers have embraced telematics, with the clear market leader being Progressive Insurance Company. Their program, Snapshot, has over 3 million members, and participation rates for new business of over 50%. The program not only provides them with strong growth, it also provides them with access to vast quantities of data to enhance their risk assessment and premiums, and enhances the frequency and quality of interactions with their customers. This leads to new sources of revenue growth. Progressive believes that such data gives them insights into car operations well ahead of the competition. Progressive recently indicated that their understanding of car data provides them with knowledge often before the vehicle experiences problems.

Progressive has also formed partnerships to broaden their reach. One such partnership is with a direct-to-consumer telematics provider that sells devices directly to consumers, and provides an insurance score, (based upon generic algorithms), which they can then provide to Progressive for new business quoting.

A second U.S. insurer with a clearly defined UBI strategy, and success to-date, is Allstate. The Allstate Connected Car business, which extends beyond a UBI offer, has approximately 1 million users in the US. Their program is available to not just each Allstate customer, but to every driver in the US. They are able to do this through the Drivewise app, which collects data on all trips, evaluates the driving and scores the driver performance, all available for a UBI rate. The twist – the user is also entitled to rewards, using incentives from partner retailers, and registration in the Allstate Loyalty Program.

Customer loyalty programs are an area in which the insurance industry has lagged, compared to other service providers.

In North America there are over 2 billion loyalty memberships and the average US household has registered for over 18 programs. With UBI as a central tool to reach and touch consumers more frequently, and interact using meaningful information, insurers can now develop strong loyalty programs.

In the US, UBI is a busy market, with over 70% of U.S. insurance companies offering, or soon to offer, UBI. In Canada, activity is slower, with an estimated 10 insurers currently offering UBI programs. Desjardins, Industrial Alliance, CAA, Co-Operators and Intact are a few examples (not an all-inclusive listing) of insurers that have successfully launched UBI programs. Desjardins, through the Adjusto app and/or in-car device is a market leader.

Desjardins stated that they wanted to develop a UBI program in order to improve their underwriting capabilities, which they view as a source of strategic advantage. The success of Adjusto, and the data they are accumulating is helping them meet this goal.

While most of the success to-date in the market has come from insurers selling directly to consumers, Intact offers UBI through both its direct and broker channel. Intact sells directly through the brand Belair Direct, while brokers sell the Intact brand. Success has been achieved with both.

Others, like CAA Insurance with its large sister company auto club are able to extend UBI beyond insurance, into the health of the vehicle. Vehicle health programs may include tracking all diagnostic signals issued by the vehicles onboard computer, as well as all maintenance and repair notifications, in order to help the vehicle operator maintain the performance of their vehicle.

Does a healthy car translate to the insurance business? Several North American carriers think it does, moving their UBI efforts into this arena, and also into the offer of roadside assistance programs. Such efforts allow the insurance carrier to move from “cure” solutions, to “care” solutions. As insurers evolve into auto protection, with the goal to reduce accidents, reduce the cost of claims, and offer programs consumers view positively, retention and loyalty will improve.

Insurer segmentation efforts have resulted in the introduction of several fleet programs. Commercial fleets may be an easier entry point for telematics in the insurance market, according to Angelique Magi, National V.P. Transportation and Strategic Initiatives at The Guarantee Company of North America.

“Unlike perhaps with the personal lines market, we have the benefit of the insured coming to us,” Magi says, “They want us to help them understand the data, give them risk insights, help them manage their fleets. There is so much data in the onboard vehicle systems, but the question is how it is utilized so that fleet operators can get a handle on what it means.”
Robin Harbage, Director of Global Marketing, UBI for Towers Watson said, “When you peel back the information and look at it, there are all kinds of benefits,” he says. “If you have safer fleets, it obviously means fewer losses and lower insurance costs, but it also tends to result in lower fuel costs. Where we have seen safer fleets, there has also been a 10% reduction in fuel consumption – that is a huge cost factor.”

OEM’s in the automotive business are tackling the Connected Car, which provides data for UBI offerings.
GM is projected to have 75% of their global vehicles connected with OnStar connectivity by 2020, and are promoting their capability to provide UBI scoring based upon driver scoring and vehicle usage to insurance carriers, and to fleet managers in Europe, in 2016.

Other OEM’s are working on similar programs often tied to their brand image. Volvo has developed early remote car start and interior warming features, ideally suited to cold northern climates like Canada.

It is projected to be only a matter of time before OEM’s more aggressively partner with forward-thinking insurers. Insurers are faced with decisions concerning how they should participate, and with whom. The size and scale of such efforts makes “getting it right” very important.

Insurers are also recognizing that other add-on services can be offered in addition to UBI. Towers Watson research (July 2015) indicates that the following are the most attractive add-ons for those interested in purchasing a UBI policy: 

1. 87% wanted theft tracking
2. 86% automated emergency call services
3. 83% breakdown notification services 

Not only were they valued, but also survey respondents were willing to pay extra for these services.

While insurers evaluate services beyond core insurance, those outside the UBI market, including telecom providers in North America and Europe, are offering value-added services for their customers that include insurance. This represents an opportunity for insurers wiling to consider partnerships and strategic alliances.

Segmentation, and the need to improve consumer loyalty, is leading insurers to examine their customer base to assess the program options for each segment. Young drivers have already emerged as a priority, while the Senior Market is a segment with strong promise.

Seniors, particularly those over age 75, face claims loses comparable to those of younger drivers, based upon data collected in the Italian market. While older drivers do not tailgate, or take corners too quickly, they can drive too slowly, miss turns, and generate claims in a different manner.

No Canadian insurers have introduced senior driver specific programs, but it is under evaluation, and is seen as critical for some, as the Canadian population ages in the coming years.

Liberty Mutual subsidiary Safeco Insurance’s Rewind program in the U.S. market turns the UBI incentive from the front-end discount to the back-end claim, providing instant forgiveness for an at-fault accident, ticket or minor violation for the first policy term. In return, customers plug in a telematics device that monitors driving habits for an evaluation period, according to Safeco. Drivers who qualify can get their accident or ticket permanently waived from their insurance record.

This program is well suited to the seniors market, and also recognizes how critical the claims process is to ensuring overall policyholder satisfaction.

The following two options have emerged in terms of UBI hardware: 

1. Insurers initially used Telematics dongles that plug into the vehicles diagnostic port to collect information directly from the vehicle, and send the information directly to central servers. This can also, via Bluetooth, send data to a smart phone, which in turn sends the information to central data collection hubs. This hardware collects extremely detailed and accurate data that can be used to calculate the driver score and the performance and health of the vehicle.

2. In recent years, because most smart phones can assess acceleration/deceleration, speed, and are equipped with GPS, they can be used to also calculate the driver score. While data quality and quantity is more limited due to device limitations, this option is easy to use, less expensive, and dispenses with the logistics costs of providing the driver with a plug-in device. 

While insurers are using both these options, it appears that they are opting for a mixture of hardware options tied to the specific end-use segment. For mainstream driver score calculations, the smart phone device is used. In cases where vehicle performance is to be tracked, or for rehabilitating drivers, plug-in hardware is used. This is also dependent on the value-add services. If theft tracking is important, or mileage-based offers are used, then a plug-in dongle is essential. Dongles have up-front purchase costs, and distribution challenges that make the smart phone apps attractive for broader usage.

In the past few years dongle costs have dropped significantly, however, it is not clear what the next 3-5 years will bring. Prices that were $200 a few years ago can be as low as one-third of that price today. The expense of setting up a UBI program involves more than just the actual price tag of the devices, but also the cost of capturing, storing and analyzing the data. Even here, however, insurers have benefited from advances in technology. In most cases, companies do not charge customers for the cost of the device or participation in the UBI program.

“The costs have come down and that is true for data storage, speed of data transfer and analytics,” notes Harbage of Towers Watson .

“Part of the cost issue has to do with logistics,” says Allstate’s chief risk officer Ryan Michel. “An insurance company has to invest in a device that can be installed easily in the customer’s vehicle, can capture data and send it seamlessly back to the insurance company. The technology is there and the costs are coming down, but UBI is also about volume. You have to get the numbers and that can take some time.”

For proponents of UBI programs, the benefits of telematics in underwriting and rating far outweigh the costs associated with offering the service to drivers.

“In the past we have relied on customers talking to agents and saying, ‘here is how frequently I drive, here is where I live, here is my safety record,’ and we gave them a rate,” says Michel. “These models only partly reflect the individual risk. With telematics, we get a much more detailed view of the data. We get a much more individualized risk profile.”

While research shows that young drivers want UBI and predictions are for universal acceptance of UBI over time, there are challenges and the need to align UBI efforts with broader societal goals.
In Canada, new products and pricing is regulated, and insurers must convince regulators that UBI programs are beneficial to their customers, and do not generate new risks.

While underwriting knowledge and rate accuracy are clear goals for insurers, a positive societal benefit emerges in terms of safer driving, and with potential environmental benefits arising from safer, slower driving. As a result, governments in many provinces are looking at how telematics can be used for the public good.

For instance, helping new drivers in their initial years of driving through a UBI “coach”, that helps safe driving is currently under evaluation. This could easily extend into programs for rehabilitating drivers, perhaps those with some troubles in past driving that could be helped by an on-board driving monitor.

Reduced greenhouse gas emissions from slower, safer driving makes for an attractive side benefit. Other potential societal and public policy benefits of UBI programs involve changes in driving habits/frequency, lower car emissions, fewer road casualties, improved emergency response times to accidents and even reduced insurance fraud – if insurers can demonstrate that alleged injury claims were incurred at extremely slow speeds. 

UBI has come a long way in the past few years, and while the success to-date may be less than the hype that preceded program rollouts, it is clear that insurance based upon how a driver operates their vehicle is here to stay.

It is also clear UBI is moving beyond discounting and a one-program-fits-all mentality. Insurers are refining their offers and segmentation. Public safety, reduced claims, improved loyalty, and higher renewals are all factoring into UBI planning.

First movers into UBI are continually evolving, and because of these changes, there is lots of room for “first followers”. UBI can provide insurers the capability to grow and expand their market share, improve risk selection, enhance underwriting performance, increase retention rates through engagement, and combat de-selection.

Change like that brought on by UBI represents risk, but insurers sitting on the sidelines also face risks. A market with many successful UBI programs leaves non-participant insurers with only a sub-set of the market, a sub-set that is potentially higher risk.