UBI and the changing role of Canada’s independent brokers

Despite its relatively modest population size and embryonic state of its insurance telematics industry, Canada is shaping up as an important test market when it comes to the future role of Independent insurance brokers within UBI.

This is because Canada’s privacy laws not only require that all driver data collected by telematics devices be protected but also enshrine telematics data portability, which means that drivers are free to take their data and use it to shop around for a different UBI solution.

And so while insurance brokers in the rest of the world, where data portability remains a foreign concept, are struggling to define their roles in the coming telematics-driven environment, Canada’s brokers are already moving to broaden their role, not just as intermediaries between the insurer and the insured, but also as educators, advisors, analysts and custodians of data.

In the process, they are setting an important precedent, which their counterparts in the rest of the world may well feel compelled to replicate.

UBI and (the lack of) data portability

At the moment, the problem is how to provide price transparency in the absence of driver data, says Basil Enan, founder and chairman of the U.S. price-comparison shopping site, CoverHound.

According to him, his staff is being continually asked for details about Snapshot, the leading UBI product in the United States. “What does it do? Will my rate go up? What about privacy? What about all the other carriers’ offerings?” he recounts some of the most common questions. “The value proposition of CoverHound, as well as other independent agencies, is price transparency and consistency. When you think about UBI, though, how do we do that? How do we drive price transparency when the biggest question in our consumer’s minds is: Are they going to get a zero percent discount or a 30% discount? How do you help that consumer make a smart decision?”

The best CoverHound can do is tell its customers something vague like, “we cannot tell you exactly what discount you are going to get, but people like you save on average X amount of dollars,” Enan says.

UBI evolution in Canada

In Canada, depending on the province, it is possible to buy automobile insurance directly from an insurer, through an agent working exclusively for the insurer, or through an independent broker who acts as an intermediary matching the driver with an offering that best suits his or her needs.

Except for in the western provinces, where automobile insurance is sold through government-owned companies that operate as monopolies, most Canadian drivers still buy their insurance through independent brokers.

Although telematics has existed in Canada in different forms for roughly two decades, it mostly was limited to fleet management and theft prevention. UBI was attempted only once – by Aviva, which staged a UBI pilot program in Quebec between 2005 and 2010.

Although Aviva demonstrated that there was a potentially viable market for UBI in Canada, it also concluded that the technology was not, at the time, sufficiently mature. The technology has since matured, and in the last year or two several new UBI initiatives have been launched across Canada.

In April 2011, Industrielle Alliance, a regional insurance company in Quebec, launched a UBI-based product called Mobiliz. And Desjardins followed with a UBI product called Ajusto. Intact Insurance, Canada’s largest P&C insurer, is also due to launch a UBI product this year in Quebec through belairedirect.

In many ways, Quebec is the logical province to launch UBI programs, since, compared with Ontario, regulation there is less strict.

Challenging Ontario

Ontario, on the other hand, presents a big challenge. Since UBI ultimately involves relying on driver-generated data instead of proxies, such as gender and age, to determine rates and pricing models, the approval process from government regulators can get complicated.

The Financial Services Commission of Ontario (FSCO) is, by most accounts, Canada’s most influential provincial regulator. And while it recognizes that telematics might be the key to driving down Canada’s high auto insurance rates, it also insists that the pricing models be fair, accurate, reasonably predictive of risk and not self-serving.

It also insists that the insurer, or whoever it is that provides the telematics devices, directly bear the costs of installation and operation. And being a strong consumer advocate, the FSCO has interpreted the nation’s privacy and transparency laws to mean that the telematics provider also be responsible for insuring that the telematics data be portable so that customers can take the data and use it to get a better deal with a different insurer.

That may be a headache for an insurer trying to offer a UBI program. But, for Canada’s independent insurance brokers, this presents an unparalleled opportunity to redefine themselves and strengthen their role as not just drivers’ advocates but also intermediaries between insurers and telematics service providers (TSPs).

Insurance brokers step in

Though the assumption has always been that it will be the insurers to implement UBI programs, Ontario’s independent brokers have recently made the unparalleled move by taking that role onto themselves.

In September, Independent Broker Resources (IBRI), a wholly-owned, for-profit subsidiary of the Insurance Brokers Association of Ontario (IBAO), announced that it was partnering with Quindell for telematics services.

A press release noted “the partnership will be focused on consumer protection and data privacy” and that, unlike other offerings that are currently on the market, the consumers will truly own their own data and “be in control of how they share the data and with whom.”

Shortly afterwards, two insurance companies, Gore Mutual and RSA Canada, began active discussions with IBRI on developing broker-owned telematics solutions.

Patrick Vise, Director, I/T, Frank Cowan Company, a provider of comprehensive municipal and specialty insurance, calls IBRI’s move “a very high-profile initiative,” adding “the purpose is to put brokers in some sort of position in respect to usage-based Insurance.”

And that position appears to be right in the middle of things.

The thick of things

Vise notes that IBRI plans to both install telematics devices and collect the data, instead of leaving the task to insurance companies. And brokers, not the insurers, would also be responsible for storing the data and, come renewal time, they would have it available to assist the customer in shopping for a better deal.

The advantage for insurers would be, if they signed up for such an arrangement, avoiding the costs of administering the telematics end of a UBI program.

Addressing the public’s deep-rooted suspicion of UBI is another area where the brokers can possibly weigh in. Their hope is that by staking out a strong position regarding data privacy and portability, they can dispel much of the atmosphere of distrust towards UBI.

Also, consumer knowledge is critical to consumer uptake. And education provided by the broker can keep the consumer involved and allay their mistrust of the technology. “You have to help the consumer understand the product, and, in order for them to understand that product, you have to understand how it works,” says Randy Carroll, CEO of IBAO. “It actually affords you the opportunity to go back to the basics of underwriting from a different perspective and become an educator for the consumer.”

Will they pull it off?

George Cooke, special advisor on insurance applications to the CEO of Intelligent Mechatronic Systems(IMS), agrees that the brokers are trying an interesting gambit, but he’s not sure they’ll actually pull it off.

“I personally doubt that [insurance] companies will support it for a variety of reasons,” says Cooke. “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.”

(For more on UBI in Canada, see Insurance telematics makes its initial beachhead in Canada, part I and Insurance telematics makes its initial beachhead in Canada, part II.)

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, Advanced Automotive Safety USA 2014 on July 8-9 in Novi, Michigan, and Telematics Munich 2014 on Nov. 10-11 in Munich, Germany.

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.

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