I’ve been hearing about usage-based insurance plans that track how you drive and give you discounts if you’re a decent driver. Can you also end up getting higher rates if you’re a bad driver? I thought it was only an American thing, but do we have it here? – Jan, Markham, Ont.
Usage-based insurance is a little like having your insurance company in the car with you.
It tracks nearly everything you’re doing on the road, including how hard you brake, how fast you accelerate and whether you break the speed limit and even whether you use your phone.
It’s been in Canada since 2013. Up until this year, insurance companies could use telematics apps on your phone or devices that plug into your car to reward good drivers by lowering rates.
But, until this year, they couldn’t punish bad drivers by raising rates.
“It’s been around for a while, but until this year, most companies did not do it…they didn’t like it,” said Adam Mitchell, a broker with Mitchell & Whale in Whitby, Ont. “Only really great, slow, self-conscious drivers would opt into it.”
But the rules have changed in Ontario and Alberta to allow companies to raise rates if, for instance, you regularly speed. Now more companies now offer usage-based plans.
At least eight companies, including Desjardins, Intact, Travelers, and TD offer programs that score how you drive, said Matt Hands, director of insurance at Ratehub, a financial comparison site.
While the plans reward you for good driving – with discounts as high as 30 per cent, depending on the company – only two impose a surcharge for bad driving, Hands said.
“Just Travelers and Desjardins are doing that,” Hands said. “But it’s only a matter of time before other companies adopt that model.”
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Bad drivers pay more?
With those penalties, you could end up paying more for insurance than you do under your current plan.
How much could your rates go up if the app says you’re a lousy driver?
With Travelers’ IntelliDrive, they could go up 10 per cent over what you’re paying now. With Desjardins’ Adjusto, they could go up 20 per cent.
Several companies will give you an initial 10 per cent discount for joining, Hands said.
Then the apps will typically use your phone’s GPS and motion sensor to watch your driving for a set amount of time to determine a driver score.
With the companies that could potentially penalize you, you could get a bigger discount, lose that ten per cent discount, or pay more depending on your score.
Desjardins, for example, sets your score after six months and at least 1,000 km of driving. Then it keeps watching your driving and adjusts your score every year.
With Desjardins for instance, if you’re paying $2,500 a year now, you could save up to $625 – 25 per cent – for good driving.
Or, you could end up paying $500 a year more – 20 per cent – than you’re paying now.
But it’s not just how well you drive – the apps can also look at when and how often you drive.
For instance, if you’re driving at times where there’s a greater risk of accidents – at night, for instance, you could see an increase.
Insurance companies also see shorter trips as less risky than longer ones.
Opting out?
So what happens if you change your mind and decide that you don’t want your insurer to be a backseat driver?
You’ll lose the discounts. But, you could keep any penalties.
On its website, Desjardins says if you opt out of the program before six months have passed and you’ve driven more than 1,000 km, they can use any score “below 60″ to set your rates in the future.
If it’s been more than six months and you’ve already been given a penalty, it will stick with you.
“At any time, you are encouraged to enrol again in the program and start a new trip analysis period to once again attempt to improve your driving,” the site said.
But that score shouldn’t follow you to another insurance company, Hands said.
“The only thing that carries with you from one provider to another provider is accident history, as far as I know,” Hands said.
Right now, there are limits on how long at-fault crashes or traffic tickets can affect your insurance rates.
“Through regulations, your insurance company is not allowed to know about your conviction four years ago,” Mitchell said. “They can track it for three years, but any longer they have to bleach their systems.”
But Mitchell said it’s still not clear how long companies can keep your driving information from telematics apps – and how long they can use it to set your rates.
“It’s still the Wild West,” Mitchell said. “It’s kind of like the people who grew up making bad decisions on Facebook that stuck with them – they have a permanent record of how you drive.”
Despite the uncertainty, usage-based insurance might appeal to newer drivers who would normally have to wait years for their rates to go down.
“You can get way ahead,” Mitchell said. “If you’re a new driver with a less than great record, you could advance yourself a year or two in discounts.”
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