Q&A: UBI and the transformation of Canada’s auto insurance

As a special advisor to the CEO of Intelligent Mechatronic Systems (IMS), George Cooke plays a key role in developing and executing IMS’ UBI strategy for the Canadian market.

He previously served as the CEO of The Dominion of Canada General Insurance Company, now part of Travelers Canada, director of the Insurance Bureau of Canada and The Facility Association, among others.

In addition to his advisory role with IMS, Cooke is also the president of Martello Associates Consulting, a business strategy company he established after leaving The Dominion in 2013.

In this wide-ranging interview with TU’s Brendan McNally, Cooke talks about what two business models dominate Canada’s UBI sector at the moment, about the changing role of the country’s independent insurance brokers, about UBI-based claims management and whether Canada’s strict privacy laws are a threat to insurance telematics.

Can you give us an idea on the impact that telematics and usage-based insurance (UBI) are going to have on the Canadian auto insurance sector?

Frankly, the telematics devices, the things you can do with them, the data they provide, it becomes a very disruptive technology, and it will be very transformational. In Canada at the moment, there are two distinctly different models or ways in which telematics or usage-based insurance is being deployed.

One of them is the Snapshot approach, which is commonplace in the [United] States, where the device is placed in a vehicle for a period of time. You score [the data the device provides] in some way, and that scoring is utilized, along with traditional rating variables, most typically, to provide a discount to, in theory, the better drivers.

What’s the other model?

The alternative is the model being utilized by Industrielle Alliance, which actually replaces virtually all the traditional rating variables with variables that come out of the telematics analysis, and the UBI piece is done [in] such [a way] that the price adjusts in both directions going forward.

Basically, the premium you pay in June will depend on how you drove in May, within boundaries, and [what] you pay in July will be determined by what you did in June. But that also gives you, at least in theory, a much more accurate take on individual risk rating.

How do the brokers figure into this?

Given that a large part of the Canadian marketplace is still principally broker-driven, regardless of whether the broker is independent or owned, there’s still a brokerage play.

The introduction of different variables that can be accessed as you’re driving with [telematics] technology … introduces all kinds of opportunities into the distribution channel for any intermediary, whether it’s a broker or an agent.

It means the opportunity to change, along with the prospect of gains in efficiency and effectiveness.

In Ontario, it appears the independent brokers are themselves trying to become the purveyors of telematics devices.

As you’ve seen in Ontario, the brokers’ association has come forward with a particular model that they think may be useful in introducing telematics into the brokerage industry.

I personally doubt that [insurance] companies will support it for a variety of reasons: who pays the cost, being one. Revenue from value-added programs, of which there are many, becomes a second. [Then there is] commoditization that could ensue, the ownership of data, privacy considerations, the absence of standards. They’re all huge issues, which, in my opinion, will not be resolved easily, early or, perhaps, at all.

How is telematics going to transform the claims management side of the business?

The telematics presence can be an incredibly useful tool to deal with fraud. [It could be used in] the identification of staged collisions, or, alternatively, it could be used [for] additional and earlier impact analysis [of] actual events in terms of getting a more accurate, more timely appraisal cost, better service levels, these sorts of things. There’s just an unlimited opportunity there on the claims management side.

Canada has some of the strictest privacy laws in the world. Is this a threat to telematics and UBI?

I don’t think any of us know for sure. We’re all looking into our crystal balls. But my personal view is that the privacy laws certainly will accommodate sound application with telematics.

Because some of the early applications of the privacy laws have done some scary things to people, we tend to define ourselves as being at the mercy of privacy laws.  I don’t think there’s any need to do that.

My own experience with the privacy people has been that, if you actually talk with them in advance and incorporate the principles of “Privacy by Design” into what you’re doing, [they] can become quite pragmatic and so can the privacy regulations.

And what’s interesting … the privacy laws and your particular way of coping with [them] may very well become a competitive advantage, as opposed to a disadvantage. I think it’s all a question of how you approach it.

Brendan McNally is a regular contributor to TU.

For all the latest telematics trends, check out Telematics for Fleet Management Europe 2014 on March 12-13 in Amsterdam, The Netherlands, Content and Apps for Automotive Europe 2014 on April 8-9 in Munich, Germany, Insurance Telematics Europe 2014 on May 6-7 in London, Telematics India and South Asia 2014 on May 28-29 in Bangalore, India, Insurance Telematics Canada 2014 on May 28-29 in Toronto, Telematics Detroit 2014 on June 4-5 in Novi, Michigan, and Advanced Automotive Safety USA 2014 on July 8-9 in Novi, Michigan.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.