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Usage-Based Insurance: What it is, How it Works [Updated]

September 2, 2016

According to a report from IHS Automotive, by 2023, 142 million people worldwide will be subscribed to usage-based auto insurance, in comparison to the reported 12 million that use it today. Since usage-based insurance was introduced in Canada a few years ago by a handful of insurers, many more are now offering this type of coverage to consumers. Consumers, however, still have not yet fully embraced the technology and many are still unsure about how it works and if it will really save them money in the long-run.

On this episode of #AskAnneMarie, insurance expert Anne Marie explains how this special type of policy works and how it can lead to discounts on your car insurance. Watch the video below and learn more from our #AskAnneMarie episodes!

What is usage-based insurance?

Usage-based insurance (UBI) is a voluntary type of policy that bases your insurance rates on your specific driving skills and behaviours, rather than solely relying on the traditional formula most insurers use. With usage-based insurance, the way you drive will determine if you’re eligible to get a discount off your insurance.

How are premiums calculated?

Traditional methods of determining insurance rates use the information provided by the driver (like where you live, the type of vehicle you drive, your driving record, and your insurance history) coupled with the insurer’s own claims and loss experience. All of this is pooled together to determine how much you’ll pay for car insurance.

Usage-based policy premiums use much of the same information; however, premiums may be discounted on renewal depending on how you drive throughout the year. With the use of a device that plugs into your car, indicators of how safely you drive are monitored; like the actual distance you drive, how often you drive, and habits such as how often you brake hard, turn sharply or if you regularly speed.

How information is gathered

UBI systems use a special telecommunication device (also known as telematics) to gather information. The small device is easily plugged into the car and requires minimal attention once installed. Some insurers even offer a discount of five to 10 per cent upon just installing the device.

Privacy concerns

One of the major concerns that most people have with UBI is privacy. All insurance companies and brokers must ensure that the use of driver and vehicle information meets with the privacy legislation in the province. That way, your information will be protected properly and can’t be used for any purposes other than the determining if you’re eligible for a further discount.

With that being said, the data collected cannot be used to deny a claim, cancel your policy, or even increase your rates. The data is only used to monitor your eligibility for discounts.

How to purchase usage-based insurance

This is a completely voluntary policy and not all insurers carry it. So if you’d rather opt for usage-based insurance than a traditional policy, compare rates from providers that carry UBI policies at InsuranceHotline.com. Canadians who have opted in have already reported to see a decrease in their insurance rates of up to 25 per cent upon renewal.



Ask the Expert. Anne Marie Answers

Ask The Expert

At InsuranceHotline.com, we get tons of questions from our customers on a range of insurance issues. Follow our Ask the Expert series featuring resident insurance expert Anne Marie Thomas as she answers your most frequently asked insurance questions. Do you have a question about your policy, coverage, or anything else? Ask Anne Marie by using the hashtag #AskAnneMarie and posting your question to our Facebook or Twitter page. Or email us at contactus@insurancehotline.com. Your question could be answered in our next #AskAnneMarie video.

  • john doe

    Big Brother

  • Anonymous

    The article does not deal with downside of what they call
    usage based insurance, such as misuse of information and privacy, equipment
    malfunction and dispute resolution. I understand that these gadget
    operate much the same as a GPS unit and can track where you drive. The
    system is Eerily reminiscent of big brother, watching one’s every move. I
    actually see only a benefit for insurance companies and really not much for
    drivers, since they will still be able to tack on traditional methods of assessment.

  • Agooddriverthanksforasking

    How long will it take before they start increasing rates for those who choose not to have one of these gizmos because they claim you’re a greater risk because you might be driving like a maniac?? Once the participation rate reaches 1/3 you will see rates incease to force everyone to “voluntarily” have these installed! This only benefits the insurance companies.

  • TailoredReaction

    This is complete BS. I filled in an application for Usage Based Insurance and it spewed out an insurance quote that was 25% higher than the high rate that I was already paying, but explained that with “good” driving habits, I could reduce this inflated figure by as much as 15%, thus ‘only’ increasing my rate by 10%.! I drive very little, not even once a week, usually two or three small trips to stores/malls etc per month. I also choose to drive when traffic is light, rarely venturing out during rush hours. Insurance companies know there are hundreds of thousands of consumers like me making noise with our provincial govenments to significantly reduce rates for those of us who value our independence by owning a car, but shouldn’t be paying insurance for the most of the time we are not out driving. In three months I pay approximately $336 of car insurance to drive less than 500 kilometers using $60 worth of gasoline!

  • http://www.insurancehotline.com/ InsuranceHotline.com

    Hello George,

    This is something to discuss with your insurance broker/agent directly to see what your options are as each insurance company is different.

  • http://www.insurancehotline.com/ InsuranceHotline.com

    Hello Guessagain,

    Thank you for your input. There are so many factors and variables in each province… I’m not sure there is an answer we can give you for this question!

  • Brian

    So if I decide to take a long uncommon trip across the country for a vacation, would the usage based system misjudge me as a very active driver and charge me a higher premium because of that? What about hard braking? If I slam on the brakes to avoid going through red lights a few times, will it know that I slammed on the brakes for a good reason?

  • http://www.insurancehotline.com/ InsuranceHotline.com

    Hi Brian,

    These are great questions, and similar to many other questions we receive from consumers. Currently, usage based car insurance is only going to work to your benefit by rewarding you for good driving habits… it is best to speak directly with your insurance professional to find out the different policies that are available for your profile from the companies who are offering this discount.

  • anon.idought

    Stick this plan of control where the sun don’t shine. We have enough fascist rules to live by as it is. Ontarians must pull their heads out of their **** and start fighting back. If we don’t then millions will have died fighting fascism in the forties. I have already experienced a law that severely punished me, cost a bucket full of money. I received no charges because I did not commit a crime and so was denied any defence. Program is just another way government can sleep with business to control the people. FASCISM!!! Our for fathers killed and died to protect us from this. What should we do. Live on our Knees. I would rather die on my feet. Now they want my e-mail address. Can I not just make my opinion heard without being tracked. Will I be punished for what I am saying. Probably.

  • Edgar Barrington

    Stop throwing around incoherent phrases such as “Fascism” when we, the public, are struggling to pay exorbitant insurance premiums. Maybe, you should get half a brain! Keep your f***ing email address – you are not that valuable to the rest of us! We will keep the savings. This proposal sounds good to me. Maybe, you don’t drive very well!

  • Edgar Barrington

    Only the guilty will come out fighting with a cacophony of unreasonable, illogical, unrelated arguments. If you drive decent, you have nothing to fear!

    To the insurance companies – bring it on!

  • Edgar Barrington

    Hmmm…in which case, all is not working the way it should. They better get their act together before rolling it out!

  • Edgar Barrington

    We better be able to – if it does not suit us!

  • Edgar Barrington

    What guarantee is there that after the device is placed in our vehicle and we drive carefully, doing all the right things, that our rates will not go up suddenly, for no reason? Can the device be removed and the rates be rolled back?

  • perfectcritic

    Come to BC and you would end up paying $600 for same 3 month period for a car which is atleast 8 years old and almost 0 residual value. If you got a new car then add 100 bucks more.

  • perfectcritic

    Come to BC and you would end up paying $600 for same 3 month period for a
    car which is atleast 8 years old and almost 0 residual value. If you
    got a new car then add 300 bucks more.

  • Fran

    I just got an email from Intact to say they want the device back as my assessment period is over. I will get a 13% discount which is good but I didn’t know I wouldn’t have the chance to continue improving my driving. I believe I’ve had it for a year.

  • 1Max

    there are so many idiots and so many scams out there. I have a device on my car and I have found that it is BS. if u just touch your brakes just a little too hard u get a hard braking event. you are penalized if you decrease speed by more than 12 km per sec. if you approach a light and it turns orange you are fucked unless you slow down on the green light and are only doing about 15 km per hr when it turns orange. otherwise you go through the orange and get ticket for red light or have an accident. this is a dangerous device unless you just ignor it.. also you have to drive at least 150 km without incident to get increase of 1 percentage point. im retired and only drive 2 or 3 km some weeks and so no changes are recorded. I went 15 weeks sitting at 16% because I did not drive at least 150 km a week. do the math if you have to drive that far to get a 1 point discount you spend more on gas than the discount is worth. it is only good for people driving long distances every week. ( PS ) THEY DONT GIVE YOU COODOS FOR ( PERCENTAGE POINTS ) FOR LESS DRIVING AND IF YOU HAVE TO DRIVE THAT MUCH TO GET A DISCOUNT THEN YOUR GAS BILL WILL BE 10 TIMES MORE THAN THE DISCOUNT SAVINGS. I have learned that if you just shop on insurance hotline you can get a 10 to 15 percent discount from any of the lowest ins comp. all you have to do is tell them you can get a better rate someplace else and ask them if they can do better and you don’t have to go through hell to get it

  • 1Max


  • 1Max

    HEY SOMEONE ELSE THAT SEES MY POINT. I don’t drive much either and to get a reduction in insurance from this scam you have to drive at least 150 klm per week and spend a shit load of money on GAS. I think they Have teamed up with gas companies to fuck us over. its cheaper to pay for the ins that we already have than to have to drive 150klms a week and pay all that extra money on gas.

  • 1mAX


  • 1mAX


  • Wayne Gagne

    U R AN IDIOT. This program is only good for people who drive more than a 150 kms per week. For those who only drive to the store and back for groceries every week and only drive mabe 2 to 10 kms a week the percentage does not change. This was not taken into consideration when these devices were programmed and put into vehicles. I know first hand because i have one. It has taken me 14 weeks to gain 1 percentage point and that is only because i finally got my miles over 150 kms. if i have to drive up to 150 kms every week then it will cost me 50 times or more in gas than the savings even if i could get 25% savings on insurance. THIS DEVICE IS NOT FOR EVERYONE, IT ONLY BENEFITS THOSE THAT DRIVE MORE THAN 150KMS PER WEEK ANYWAY.

  • Wayne Gagne

    we in ontario cannot have the same because some idiot premier ( BOB RAY) said he was going to look into the insurance because they wanted an increase of 17% and said that was not going to happen. This is why the ahole got elected. After that idiot looked into it he said the insurance companies were not getting enough and gave them double what they asked for ( 34% ). Now does that not sound like he got a huge payoff ?

  • Wayne Gagne

    A lot of double talk bs, it wont make your rates go up if you slam on brakes for red or orange lights or even slowing down a little faster. if you touch your brakes to hard it will slow down your car more than 12 kms a second and that will give you a hard braking event and no this device doesn’t care what the reason. this device program is flawed in more ways than one. first you have to drive more than a 100 miles per week not kms with no incidents, second if your job requires you to drive between the hours of 12:00 midnight to 4:00 am you get bad result . third if you have to get out of the way and accelerate you will get another bad mark on this device. it will not give you credit for low miles driven. this system device is only good for people who drive a lot of miles and drive very slow so they can stop in time for lights whenever they change or if some fool pulls in front of you. and you don’t have have to drive after midnight. it took me 14 weeks just to get 1 percentage point doing all this because i only drive on average 5 kms per week.

  • Wayne Gagne

    your an idiot it doesn’t matter how well you drive if you dont put on enough miles in a week you don’t get a percentage point increase and only if you put on a hundred or more kms a week can you increase your percentage points so go ahead out there and put on a lot of miles and drive perfect to get up to 25% discount if you can and pay 50 times more in gas than you will get back for your 25% in insurance premiums

  • Wayne Gagne

    Change companies you idiot

  • Wayne Gagne

    and if you are paying that much you are probably a bad driver and should not be on the road anyway

  • Wayne Gagne

    in my opinion this is not a usage based insurance because it does not benefit anyone that does not drive very much. this is only good for those who can keep one foot on the gas pedal and ther foot on the brake at the same time. you cant take off fast and you cant slow down fast. also you have to drive 100 to 200 kms a week.. it doesnt matter if you are retired and only go out to shop for food once and only drive 2 to 5 kms a week, these people dont get discounts. people that don’t drive much should get huge discounts but with this device it does not take that into consideration.

  • TailoredReaction


    Its at least $500 a year less than you. Every newbie on the internet thinks they thought up trolling first. Have fun with your new toy!


  • TailoredReaction

    And pay what you pay? No thanks.


  • InsuranceHotline

    most insurance companies offer you a discount just for using the device.