Canadians weathering the COVID-19 crisis are facing tough financial times due to an economic downturn following the nationwide lockdown. During the pandemic, many people are using their vehicles less and want to maximize their savings by reducing their auto insurance premiums. Many drivers are turning to pay-as-you-go or usage-based insurance (UBI), which is increasingly becoming a popular choice, particularly for customers with stellar driving records.
What Is UBI?
UBI is a technology that monitors your driving habits based on how far you drive (pay-as-you-go) or how you drive (pay-as-you-drive). Insurers use the information to determine customer driving habits. For good drivers or people who don’t drive often, it often results in premium savings.
It has been successfully rolled out in several global markets, including the United States and the United Kingdom. In 2013, Canadian insurers took notice of the telematics technology that drives UBI and began creating customized solutions. Several insurers in Ontario today offer a version of the UBI concept.
Whether it’s a pay-as-you-go or pay-how-you-drive program, it is underpinned by telematics, which combines telecommunications and informatics technologies. It functions through a plug-in device in a vehicle or through the use of a smartphone app.
UBI Growth in a COVID-19 World
According to CAA Insurance, motorists are increasingly turning to UBI. Specifically, the company says it has seen a significant uptick in drivers buying its MyPace solution. CAA’s pay-as-you-go program discounts premiums if a vehicle is driven less than 9,000 kilometres a year.
Jeff Walker, CEO for CAA North and East Ontario, says MyPace has seen a 50% increase in enrolments month-on-month over the last three months.
“Actually, people who are two-car households — you’d say it’s a two-income household — in the COVID environment, one or maybe even both of the people aren’t necessarily driving, maybe one of them or both of them are working at home.
“You could theoretically have regular insurance on one car and go to the MyPace product on another car. It’s a no-brainer for a lot of people.”
Two types of UBI programs exist in Ontario today:
- Pay-How-You-Drive Insurance. The most common type of UBI is pay-how-your-drive insurance, which rewards motorists with good driving discounts. Using telematics data, insurers assess metrics including acceleration habits, speeding, the time of day a vehicle is typically in use, hard braking, what distance the vehicle covers, and where the vehicle is in use. It gives drivers have more control over their auto insurance costs, as their usage patterns and driving behaviour can directly influence their rates.
- Pay-As-You-Drive/Pay-As-You-Go Insurance. This coverage is not as common but has been offered by CAA Insurance (MyPace) since 2018. Under a pay-as-you-go policy, the customer pays a base premium rate, and another amount based on every 1,000 kilometres travelled.
UBI: A Straightforward Solution for Controlling Costs
UBI’s growing popularity with drivers is easy to understand since it rewards motorists with good driving habits or who are driving less by reducing their premiums. It’s beneficial for insurers too since these programs attract low-risk drivers, encourage safe driving habits, and help reduce claims-related costs.
In the COVID-19 pandemic, for many people who are no longer using their vehicles as much, paying per kilometre is an easy way to save money on their premiums.