Car-tracking device could lower premiums, insurers claim

Would you give up a little of your privacy if it meant you could save money on your car insurance premiums? That's the proposition from two Canadian insurance companies that have adopted something known as vehicle telematics.

The technology consists of a device that attaches to the diagnostics port in your car and measures everything from acceleration, speed and braking to the time you're behind the wheel.

It's part of a trend called usage-based insurance.

"Usage-based insurance is the ultimate in rating fairness because it essentially lets the driver control their own insurance rate through their driving behaviour," said Donna Harpauer, the minister responsible for the provincial insurance agency in Saskatchewan, which is launching a pilot program with the devices aimed at motorcycle riders. 

Drivers can track behaviour online

In Ontario and Quebec, two companies are already using the devices, and the Insurance Bureau of Canada, the industry group representing insurers, has expressed strong interest in the technology, holding a symposium on the topic of usage-based insurance earlier this year.

Desjardins Insurance launched its program, dubbed Ajusto, in the two provinces last month. Industrial Alliance began offering usage-monitoring devices to its Quebec clients in April 2012 under a program called Mobiliz.

In other parts of the world, including Europe, the U.S. and Japan, such devices have been used for years, with insurers claiming they result in fewer accidents, fewer insurance claims and more consumer choice.

Desjardins says that so far, more than 7,000 people have signed up for its program,  which also applies to customers of its subsidiary The Personal, which sells group insurance plans.

Desjardins's devices will be collecting data on the number of kilometres driven annually, the number of times a driver brakes hard or accelerates quickly and the time of day that a car is driven (the hours between midnight and 5 a.m., for example, are considered to have a higher likelihood of accidents).

Customers sign up voluntarily and receive an immediate discount of five per cent on their premiums. They can monitor the data that the device collects on a daily basis by checking a website, which also shows them a running total of the discount they're accumulating for the coming year based on their driving behaviour.

The discount amount is updated each month up until the time when the plan is due to be renewed, at which point it's applied to the following year's premiums. Desjardins says drivers will be able to save as much as 25 per cent on their premiums.

If they don't qualify for any savings, they will be assessed as usual and pay the normal premium they would have paid had they never used the device.

Information won't be used to punish drivers

Desjardins insists the program is risk-free and can only bring benefits to the client.

'It can't be used to your disadvantage.' — Joe Daly, Desjardins spokesman

"This program is solely for the purpose of offering good drivers additional savings," Ken Lindhardsen, vice-president of claims operations and legal counsel for Desjardins Insurance, told the CBC's Aaron Saltzman. "There are no surcharges, no additional charges. We're not using this information for any other purposes."

Desjardins said it won't use the devices to punish "bad" drivers and won't use the data collected down the road when renewing the policies of drivers who have opted out of the program.

"It can't be used to your disadvantage," said Desjardins spokesman Joe Daly. "We're only allowed to use it to determine what the discount will be. For example, each year, we ask, 'How many kilometres do you drive every year?' If you say, ‘I drive 20,000, and you get this device, and it shows you drive 25,000, we cannot use that information.… We can't re-rate your policy and say, 'Well, you lied to us, you said you drive 20,000, but you actually drive 25,000.'"

'Invasive technology'

Still, some are not convinced that the device is entirely benign.

'Whenever the insurance company is advocating something, I'm a little skeptical about whether it's going to be for the benefit of the consumer.' — Leonard Kunka, lawyer

"Whenever the insurance company is advocating something, I'm a little skeptical about whether it's going to be for the benefit of the consumer as opposed to the insurance company," said Leonard Kunka, a Toronto lawyer who specializes in motor vehicle litigation.

"It's an invasive technology. It provides a lot more information than insurers currently have to set premiums, and I question whether it's any better than what the insurers use today to set premiums, which is a person's driving record and their history of collisions and accidents."

Kunka also fears that insurers will eventually pass on the cost of purchasing the devices and analyzing the data they collect to consumers — despite the companies' claims to the contrary.

"I'm skeptical," said Kunka. "The insurance companies have promised premium reductions many times in return for reduction of benefits, and the premium reductions never came."

Insurance regulators in Ontario have barred Desjardins from charging clients for the device, and it won't be charging its Quebec customers for it either, but some insurers in the U.S. do charge drivers a regular fee for the service.

Desjardins says it won't need to pass on any additional cost to the consumer because the program will end up saving the company money by attracting good drivers as new customers and improving the driving of existing customers.

"Experience shows these devices encourage people to drive more safely," Daly said. "So, as a result, they will be less likely to have an accident and more likely to be profitable customers for us. That was the purpose of being first [with the device in Ontario]. We attract more of the good customers before our competition can."

What makes a 'good' driver?

But Kunka says the type of data insurance companies will be collecting, while perhaps more exact, may not accurately reflect how safe a driver is. A person may clock a lot of kilometres because they spend a lot of time on the highway driving to and from work and be flagged as more of a risk than someone driving short distances in the city, but that doesn't mean they are necessarily a riskier driver, Kunka said.

"The biggest concern for the consumer is how high are they going to set the standards for what's a good driver and a bad driver," he said. "The insurers are the people collecting the data and analyzing the data and making the decisions about who is a good driver and a bad driver. They can set the standard virtually wherever they want."

Kunka acknowledges that the introduction of the devices will be a "dramatic change" in how insurers sets premiums, but says the devices will ultimately be more useful for new drivers who don't have a driving record than for those already on the road.

"In the case of a person who’s been driving for many years, I don’t really see how this information is going to be more useful than the information that insurers currently use to set premiums," he said.

For Lindhardsen and his colleagues in the insurance industry, however, it comes down to one bottom line: "There's only the opportunity to save money with this program," Lindhardsen said.