Ontario’s Financial Services Regulatory Authority (FSRA) recently approved a 10% surcharge allowing Travelers Insurance to charge usage-based auto insurance policyholders, when they are found to be engaged in higher risk driving behaviour.
Travelers Insurance said that its IntelliDrive app allows the company to “personalize” auto insurance pricing by basing it on an individual’s known driving behaviour. According to the insurer, this can save good drivers money and also incentivize any driver who purchases the product to practice safe habits behind the wheel.
Until now, usage-based auto insurance programs could only reward policyholders with premium discounts for good driving behaviour, but this new ruling will likely allow other usage-based insurers to surcharge policyholders for poor driver safety.
Automobiles currently fitted with telematics devices will not be affected until the insurance company for the vehicle obtains permission from the FSRA to raise rates for bad drivers. If drivers are unlikely to drive according to the safety standards of the usage-based program, they need to be aware that there could be a surcharge and that these usage-based insurance programs might not be right for them. Consumers should be careful about agreeing to allow their personal information to be collected by insurers, since they run the risk that their behaviours could be used against them. Will the costs savings be worth the premium reduction if the auto useage data can be used to raise the premium at renewal or even mid-term?
As insurers review the opportunity to add surcharges to usage-based auto policies, there may be more insurers moving in this direction due to the potential to improve loss ratios and allow more individual risk based pricing.
Those insurers that do not institute auto premium surcharges, may be seen as a market for those drivers who do not wish to have their unsafe driving surcharged, resulting in potentially higher risk profiles moving from one insurer to another. This may increase the business volume of those insurers who do not surcharge but it may also increase the loss ratios derived from this new business depending on how well their risk assessment tools operate.