Types of Usage-Based Insurance in Canada

By InsuranceHotline.com Team
A woman placing her weekly groceries into the trunk of her car.

Usage-based insurance (UBI) gives drivers options in how their auto insurance premiums are calculated.

Usage-based insurance hasn’t been around long in Canada. It was first introduced to drivers in 2013. Since then, however, it has grown in popularity. Auto insurance companies like Desjardins, Intact, Allstate, Co-operators, CAA and belairdirect, for example, all offer it today and more will likely follow suit.

Many drivers like the idea of usage-based insurance. It gives drivers the option to have their premiums determined, in part, on how, or how often, they drive. UBI makes use of actual driver data to calculate premiums that are more personalized than traditional methods. For good drivers, or people who don’t drive often, it often results in premium savings.

Although relatively new in Canada, usage-based insurance has been available to drivers in the U.S. and U.K. for some time. As a result, a couple of variations have been developed over the years with each using slightly different information to determine your rates.

The two basic types of usage-based insurance rating include pay-as-you-drive (also called pay-as-you-go) and pay-how-you-drive. Both options are available in Canada but availability will vary by insurance provider.

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

Pay-as-you-drive insurance (or pay-as-you-go insurance) is the newest of the two options available in Canada.

First introduced in July 2018 by CAA Insurance this type of usage-based insurance focuses on how much you drive. Basically, the way CAA’s works is you’re given a base rate that factors in the usual stuff: the type of car you drive, your driving record and insurance history, for example. Once your base rate is determined (which is cheaper than their non-UBI policy) you’re then given a price for how much each 1,000 kilometres of travel will cost you.

According to CAA, their pay-as-you-go policy “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.”

Kilometres travelled are tracked through a telematics device that is plugged into the vehicle and drivers can track their mileage online or through an app. And don’t worry, you won’t find yourself stranded at the side of a road if you use up your kilometres: kilometres are reloaded automatically.

Pay-How-You-Drive Insurance

Pay-how-you-drive insurance is also as simple as plugging in a telematics device into your car. In some cases, it’s even easier because all you have to do is download an app. Whichever method is used, the information the device or your smartphone gleans is more than just how many kilometres you drive. It also takes into account measurable driving behaviours such as:

  • Hard braking and rapid acceleration
  • Speeding
  • The time of day you typically drive

For drivers who consistently stick to safe behaviours on the road the reward for sharing your information is discounted auto insurance rates. For drivers who don’t however, the good news is that the information is not used to raise your rates, it simply disqualifies you from possible discounts.

Comparing the Options

In the future, it’s likely more insurance companies will offer one or both of these types of usage-based insurance systems to their customers. As the technology progresses, it’s also possible that the traditional way of calculating auto insurance rates could go the way of the Dodo bird. Until such time however, usage-based insurance is optional and drivers can decide for themselves whether or not a usage-based insurance policy makes sense. Safe drivers may benefit greatly from a pay-how-you-drive insurance policy. Those who drive infrequently may do well on a pay-as-you-drive policy.

Usage-Based Insurance in Combination with Traditional Auto Insurance

Although usage-based insurance is one of the newest trends in insurance, traditional methods of determining your auto insurance rate continues to be an option. At InsuranceHotline.com you can get auto insurance quotes for both. All you have to do is say “Yes” when asked: “Would you consider using a device in your vehicle that scores your driving performance?” If you’re looking to drive down your premiums, taking UBI for a test drive might be the way to go.