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Understanding Usage-Based Insurance in Canada

Usage-based insurance (UBI) leverages technology to give motorists more choice in how their auto insurance premiums are calculated

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Usage, Insurance, Canada
While still a relatively new auto insurance solution, it has quickly been adopted by major carriers such as Intact, CAA, Co-operators, Desjardins, and others. Pixabay

Usage-based insurance (UBI) leverages technology to give motorists more choice in how their auto insurance premiums are calculated. 

Usage-based insurance (UBI) has been available in Canada since 2013. While still a relatively new auto insurance solution, it has quickly been adopted by major carriers such as Intact, CAA, Co-operators, Desjardins, and others. Thanks to the growing popularity of UBI, more insurers are likely to follow suit with their own products. 

One of the reasons usage-based insurance is valued amongst drivers is that it gives them the opportunity to easily reduce their premiums. Many motorists welcome the idea of being able to have their premiums determined by how often they drive, as well as their driving behaviour. 

Because UBI uses technology-based driver data, it is a more personalized auto insurance solution that rewards good drivers with premium savings. Customers who have embraced UBI may see savings of up to 25 percent per policy term.

While a new concept in Canada, usage-based insurance has been widely available in other nations for some time, such as the U.S. and U.K. Those countries served as an ideal test bed for the integration of UBI and its functionality in the market. Variations have been made to UBI over the years, tweaking coverage to make it more efficient for insurers and customers. 

Usage, Insurance, Canada
Usage-based insurance (UBI) leverages technology to give motorists more choice in how their auto insurance premiums are calculated. Pixabay

There are two types of usage-based insurance available in Canada: pay-as-you-drive (also called pay-as-you-go) and pay-how-you-drive. While the latter is generally more readily available, both coverage types are becoming increasingly popular. 

Pay-How-You-Drive Insurance

Pay-how-you-drive insurance is the most common type of usage-based insurance and has been available in Canada since 2013. Traditionally, auto insurance providers have used very strict methods to calculate premium rates. Among those blunt methods were demographic information like location, age, gender, and the driver’s past record (violations, claims history, experience levels).

With these traditional methods, insurers could get a broad idea of risk level posed by the driver when on the road. Pay-how-you-drive usage-based insurance plans to be more dynamic and informative for insurers, giving them access to real-world driving data to calculate the risk. 

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To achieve that, the first step is installing a telematics device. This is a little black box that slots into a diagnostic port in the vehicle (usually located near the steering column). While a telematics device is usually around the size of a matchbox, it can gather a wealth of information on driving habits. It collects measurable driving behaviour such as:

  • Hard braking 
  • Rapid acceleration
  • Speeding
  • The time of day you typically drive
  • Where you drive
  • How much the vehicle is used (kilometres driven)

Data collected by the telematics device is transmitted to the insurance company through cellular networks. Armed with accurate individual data, auto insurance providers can make a more bespoke premium for the driver. 

For motorists who observe safe driving behaviours, the benefit of Pay-how-you-drive usage-based insurance is discounted auto insurance rates. 

Usage, Insurance, Canada
Usage-based insurance (UBI) has been available in Canada since 2013. Pixabay

Pay-As-You-Drive Insurance/Pay-As-You-Go Insurance

Pay-as-you-drive insurance (or pay-as-you-go insurance) is a less common type of UBI, and has only been available in Canada since July 2018 when CAA Insurance debuted a solution. 

As the name suggests, this type of usage-based insurance focuses on how much you drive. Customers are given a base rate premium that is based on traditional criteria like driving record, claims history, type of car, and demographics information. When the base rate is calculated, the insurer will name a price based on each 1,000 kilometres travelled in the vehicle. 

CAA Insurance is the only carrier that offers the solution currently. The company says pay-as-you-drive UBI is ideal for drivers who don’t use their vehicle frequently: 

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“[It] is ideal for the Monday to Friday public transit commuter who leaves their car at home, someone retired who likes to visit family on weekends, or motorists that drive under 9,000 kilometres [per year] due to their overall lifestyle.”

Like pay-as-how-drive UBI, the pay-as-you-drive solution requires the placement of a telematics device in the vehicle. Motorists can track the kilometres through an accompanying smartphone app.

Changing the Industry

In many ways, Canada’s journey with usage-based insurance is just starting and the market is still nascent, especially for pay-as-you-drive coverage. However, in the future it is likely more auto insurance companies will offer both types of UBI options. Technology is refining the accuracy of UBI and predictions that the model could replace traditional ways of calculating auto insurance are not without merit. 

Perhaps the most interesting thing about UBI in its infancy is that it seems to be working on several levels. One recent study from the UK, showed telematics-driven auto insurance results in safer driving behaviour, especially amongst young motorists. 

Young drivers have often been subject to among the highest auto insurance premiums because of the risk they pose. Looking at over 200 million miles of telematics data across insurers from young drivers since 2011, the report shows a 40 percent decrease in the risk of collision when a driver has UBI coverage. 

Usage-Based Insurance in Combination with Traditional Auto Insurance

Despite its potential to overhaul the premium calculation paradigm, UBI in Canada is not quite there yet. Certainly, traditional methods of determining auto insurance are still a viable option. At InsuranceHotline.com you can compare rates from both UBI policies and traditional auto insurance options to find the cheapest car insurance in Toronto

 

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Over One Third of Healthcare Costs in the U.S. Goes to Bureaucracy: Study

U.S. insurers and providers spent more than $800 billion in 2017 on administration, or nearly $2,500 per person

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Healthcare
The reason why administrative costs in U.S.A are so high are because the insurance companies and healthcare providers are engaged in a tug of war. Pixabay

U.S. insurers and providers spent more than $800 billion in 2017 on administration, or nearly $2,500 per person — more than four times the per-capita administrative costs in Canada’s single-payer system, a new study finds.

Over one third of all healthcare costs in the U.S. were due to insurance company overhead and provider time spent on billing, versus about 17% spent on administration in Canada, researchers reported in Annals of Internal Medicine.

Cutting U.S. administrative costs to the $550 per capita (in 2017 U.S. dollars) level in Canada could save more than $600 billion, the researchers say.

“The average American is paying more than $2,000 a year for useless bureaucracy,” said lead author Dr. David Himmelstein, a distinguished professor of public health at the City University of New York at Hunter College in New York City and a lecturer at Harvard Medical School in Boston.

Healthcare costs
Over one third of all healthcare costs in the U.S. were due to insurance company overhead and provider time spent on billing. Pixabay

“That money could be spent for care if we had a ‘Medicare for all program’,” Himmelstein said.

To calculate the difference in administrative costs between the U.S. and Canadian systems, Himmelstein and colleagues examined Medicare filings made by hospitals and nursing homes.

For physicians, the researchers used information from surveys and census data on employment and wages to estimate costs. The Canadian data came from the Canadian Institute for Health Information and an insurance trade association.

United States vs. Canada

When the researchers broke down the 2017 per-capita health administration costs in both countries, they found that insurer overhead accounted for $844 in the U.S. versus $146 in Canada; hospital administration was $933 versus $196; nursing home, home care and hospice administration was $255 versus $123; and physicians’ insurance-related costs were $465 versus $87 They also found there had been a 3.2% increase in U.S. administrative costs since 1999, most of which was ascribed to the expansion of Medicare and Medicaid managed-care plans.

Overhead of private Medicare Advantage plans, which now cover about a third of Medicare enrollees, is six-fold higher than traditional Medicare (12.3% versus 2%), they report. That 2% is comparable to the overhead in the Canadian system.

Why are administrative costs so high in the U.S.?

It’s because the insurance companies and health care providers are engaged in a tug of war, each trying in its own way to game the system, Himmelstein said. How a patient’s treatment is coded can make a huge difference in the amount insurance companies pay. For example, Hammerstein said, if a patient comes in because of heart failure and the visit is coded as an acute exacerbation of the condition, the payment is significantly higher than if the visit is simply coded as heart failure.

More and more paperwork required

“It’s clear that healthcare costs in the U.S. have soared,” said Dr. Albert Wu, an internist and professor of health policy and management. VOA

This upcoding of patient visits has led insurance companies to require more and more paperwork backing up each diagnosis, Himmelstein said. The result is more hours that healthcare providers need to put in to deal with billing.

“(One study) looked at how many characters were included in an average physician’s note in the U.S. and in other countries,” Himmelstein pointed out. “Notes from U.S. physicians were four times longer to meet the bureaucratic requirements of the payment system.”

The new study is “the first analysis of administrative costs in the U.S. and Canada in almost 20 years,” said Dr. Albert Wu, an internist and professor of health policy and management at the Johns Hopkins School of Public Health in Baltimore. “It’s an important paper.”

‘Inefficient and wasteful’  system

“It’s clear that health costs in the U.S. have soared,” Wu said. “We’re paying for an inefficient and wasteful fee-for-services system.”

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“Some folks estimate that the U.S. would save $628 billion if administrative costs were as low as they are in Canada,” said Jamie Daw, an assistant professor of health policy and management at Columbia University’s Mailman School of Public Health in New York City.

“That’s a staggering amount,” Daw said in an email. “It’s more than enough to pay for all of Medicaid spending or nearly enough to cover all out-of-pocket and prescription drug spending by Americans.” (VOA)