Insurance brokers are widely sceptical about the promised virtues of pay-as-you drive insurance, with many saying there are still too many unknown variables around how insurers will rate and price the product.
“They need a test study done,” Olivier Bue, a commercial insurance account executive at the Hull Group, told Insurance Business when asked if brokers would support usage-based auto insurance. “The main concern from the broker’s standpoint is how the charges and the rating of the product be made transparent for the client.”
Canadian insurers recently made a public pitch to introduce more usage-based insurance products in Canada. In these programs, a driver’s premium is based on specific measurements of how often they drive, where they drive, and their driving behaviours (braking patterns, etc.). Insurers say driver’s premiums are much more precisely defined and related to their driving behaviours in usage-based insurance schemes.
Brokers across Canada have a lot of questions about how the pricing would be done.
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Questions
Bue said he didn’t know how pay-as-you-drive schemes were priced in the United States, where usage-based auto insurance is much more prevalent than it is in Canada. The Insurance Bureau of Canada (IBC) says eight out of the top 10 personal motor insurers in the United States have implemented programs, and U.S. companies representing over 75% of the market already have programs or are actively pursuing them.
Ontario’s regulator, the Financial Services Commission of Ontario (FSCO), said in an IBC conference on the topic that pay-as-you drive schemes would not be allowed to do “mid-term rating.” Plus, the 30-day notice requirements of policy variations under section 236 of the Insurance Act would still apply.
Bue didn’t want monthly charges for pay-as-you-drive schemes. “If it’s charged on a monthly basis, and all of a sudden someone calls and says they’ve just got charged $500 instead of $100 the previous month, those are issues we brokers have to deal with,” he said. “It causes a strain on our resources from a customer service standpoint.”
In fact, for some brokers, the premiums for non-frequent drivers in pay-as-you-drive schemes may not be worth the effort it takes to write them.
Not Worth the Effort
“If it’s a user who is hardly using the car, you’re not going to get enough premium for it,” said Brad Jefferson, owner of Rand &Fowler Insurance in B.C. “It takes as much to write that policy as it does to write a policy where you know what you are insuring; you know how much the client is going to use the car; you know how much the client is going to be paying. Everybody knows the risk. They know the premiums they are getting for the risk.
“In this [pay-as-you-drive] case, the client may only use the car a little bit, and you’re picking peanuts up all day long. Then he has a claim and you’re really backwards that way. So that’s why I don’t like it.”
FSCO said it would only allow the introduction of pay-as-you drive products in Ontario on a discount basis only. It added that the long-term effects of who opts into the program and who opts out on every driver’s premium would have to be considered.
One poster on Insurance Business agreed. “The problem I see is for the insurance company that will find that only those who are really good drivers will opt for the program and get a rate reduction, while the poor drivers will stay in the regular group and get no increase,” Peter DaSilva said. “If they [the insurers] take too much reduction, it will not be sustainable.”
