What is usage-based car insurance?

With rising insurance rates, inflation, and the cost of living climbing, it's no surprise that people are looking for ways to save on their insurance bills. One great option to consider is usage-based car insurance. Basically, if you’re a safe driver, this type of car insurance rewards your good habits with discounts and lower costs. Sounds good, right? But what exactly is usage-based insurance, and how does it work? Let’s find out.

Usage-based insurance explained

Usage-based insurance (UBI) takes a different approach to setting your auto insurance premiums. Instead of relying on factors like your age or where you live, it focuses on how you actually drive. Usage-based car insurance is often called telematics, but it goes by a few other names—pay-per-use insurance, UBI, pay-as-you-drive (PAYD), or even pay-as-you-go insurance.

It’s one of the newer ways drivers in some Canadian provinces can save on car insurance. By using telematics technology, it tracks things like your driving habits, mileage, speed, phone usage, acceleration, and braking to determine your insurance costs. The best part? It’s completely optional, so you can decide if it’s the right fit for you. Usage-based insurance is currently available in Alberta, Ontario, Quebec, New Brunswick, Prince Edward Island, and Nova Scotia.

How does usage-based insurance work?

A usage-based insurance program uses telematics technology to assess your driving habits and adjust your premiums based on how you drive. The insurance company monitors your driving for a set period, analyzes the data to evaluate your risk level, and then offers discounts or lower premiums if you’re a safe driver. The idea is simple—if you’re a good driver, you deserve to pay less for your insurance. Insurance companies use various tools to collect this data, including:

• Smartphone apps
• Built-in car systems
• GPS receivers
• Plug-in devices
• Trackers placed on your windshield or rear window

Types of usage-based insurance

In Canada, there are two types of usage-based car insurance: mileage-based and behaviour-based. These two UBI options both use telematics technology to help you save on insurance, but they go about it in very different ways. Whether you drive less or drive smarter, there’s potential for significant savings. We’ll go into more detail about each one below:

Mileage-based

Mileage-based, or pay-as-you-go, insurance is a flexible car insurance option that adjusts to how much you actually drive. It works by letting you choose a mileage range that suits your needs. Your insurer then calculates your premium based on the distance you cover within that agreed limit. It’s a simple and customizable way to make sure you’re only paying for the miles you drive.

With this type of policy, you start with a lower base rate compared to a standard insurance plan. However, the more you drive, the more your costs can add up. Therefore, pay-as-you-go policies are a budget-friendly choice for low-mileage drivers who don’t use their cars often but still want to keep them road-ready.

Behaviour-based

Behaviour-based, or pay-how-you-drive, tailors your premium based on your driving habits and history. Your insurer keeps an eye on things like your speed, braking, and acceleration over a set period.

Pay-how-you-drive policies might also track your car’s location at all times, which is a handy security feature. Additionally, it can monitor the type of roads you’re driving on, your direction and speed before a collision, the force of impact in an accident, and even report the collision to local authorities.

Traditional car insurance policies tend to focus on factors like your age, location, and gender to set your premiums. But with pay-how-you-drive policies, your premiums are based more on how you actually drive. While traditional factors still play a role, safe drivers have the chance to earn discounts by demonstrating good driving habits. This can be especially beneficial for young drivers who face high insurance premiums.

Benefits of usage-based auto insurance

If you're on the hunt for a reliable insurance plan, you might be wondering if usage-based insurance (UBI) is the right choice for you. UBI offers some unique advantages that traditional plans might not. Here are some of the key benefits to consider:

Cheaper insurance

The biggest benefit of usage-based insurance is the chance to save money with discounted premiums and long-term cost reductions if you maintain good driving habits. With this type of plan, you pay based on how much you actually drive, so if you’re covering fewer miles than most drivers, you can cut your insurance costs significantly.

On top of that, car insurance companies use tracking devices to monitor your driving behaviour. This data helps determine your driving score, which could lead to even more savings. Many insurers offer safe drivers discounts ranging from 10% to 25% for responsible driving.

Improved driving habits

Many drivers choose usage-based insurance for the discounts it offers. Knowing that their driving is being tracked, they’re more likely to drive cautiously to avoid penalties that could impact their savings. These programs monitor key behaviours like turning, speeding, and braking, encouraging drivers to stay safe on the road. With good habits, they can earn high scores and enjoy the rewards.

Plus, many insurers offer mobile apps that give you real-time feedback on your driving. These apps can point out areas for improvement, help you understand your mistakes, and even suggest tips to make you a safer, more confident driver.

Helps with vehicle tracking

Usage-based car insurance relies on a software platform installed in your car to track your driving. With an approved tracker and GPS, it can pinpoint your car’s location in real-time, meaning if your car ever gets stolen, you can reach out to your insurance provider for accurate location details to help recover it quickly.

Speeds up insurance claims

Telematics devices can be a game-changer when it comes to determining fault in an accident. If you’re involved in something like a head-on collision, the device can show details like your braking intensity, acceleration, and speed right before the crash. If you weren’t at fault, this data could help your insurer resolve your claim much faster.

Possible drawbacks of usage-based insurance

Telematics insurance comes with plenty of benefits, but it’s not without its challenges. Here are some obstacles faced by usage-based insurance:

Your rates could increase

One downside is that your rates could go up if the device frequently picks up risky driving habits. Sharing your car with family members can also make it harder to score those discounts, especially if you can’t control how they drive.

It can't tell who's behind the wheel

The telematics device records how anyone driving your car operates it, whether it’s your kids, spouse, or another family member. If their habits aren’t the safest, their driving could affect your score and, ultimately, your discount.

Defensive driving can affect your score

Another limitation is that the device can’t always tell the difference between defensive and reckless driving. For instance, if you slam on the brakes to avoid hitting a pedestrian or cyclist, the device might log it as hard braking and flag you as a high-risk driver, even though you were being cautious.

Privacy concerns

Some people worry about how the data collected through telematics might be used, especially if it’s shared with third parties or falls into the wrong hands due to a data breach. To protect yourself, check that your insurer requires your consent before using or sharing your data with anyone outside the company.

What data does usage-based insurance track?

Whether you’re using a UBI app or a device in your car, they work the same way. They track your driving habits and gather data on things like:

Braking

This tracks how quickly you slow down, whether it’s matching traffic speed or coming to a complete stop. Consistent, steady braking demonstrates safe habits and can work in your favour. Sudden or harsh braking may indicate risky behaviour.

Accelerating

This measures how quickly you increase your speed, whether from a stop or while cruising. Smooth, gradual acceleration shows safe driving and could help lower your premiums. Aggressive acceleration, on the other hand, might raise concerns.

Following the Speed Limit

The telematics device uses GPS to check the speed limit of the road and compare it to your driving speed. Staying within the limit makes you more likely to qualify for discounts. Speeding, however, could harm your score.

Cornering

How you take turns matters, too! Slowing down and taking corners at a safe speed is another way to show responsible driving behaviour. Abrupt or sharp cornering could be flagged as unsafe.

Phone Usage

If your UBI device is a phone app, it can detect when you use your phone while driving. Drivers who avoid distracted driving are more likely to earn discounts compared to those who interact with their phones behind the wheel. Keeping your phone untouched during trips is key.

Vehicle Usage

This refers to when and where you drive. Regular driving during rush hour or in high-traffic areas increases accident risks. Discounts may be available to drivers who stick to low-traffic areas and quieter times of the day.

Your insurer uses this data to get a complete picture of your driving habits and assigns you a score based on how you drive. That score plays a big role in determining the discount you’ll get at renewal. How these scores and discounts work can vary between companies, so it’s a good idea to reach out to your insurance company or broker directly for the details.

How much can you save with usage-based insurance?

There’s no one-size-fits-all formula for calculating car insurance premiums with a usage-based insurance (UBI) plan, but your driving habits play a big role in how much you can save. Many auto insurance companies in Canada also offer tailored packages designed to help you enjoy lower premiums.

Some companies might give you a participation discount—usually around 10%—just for signing up. Others may monitor your driving for six months before adjusting your rate, potentially increasing your savings based on your performance. On average, you can save 10%-15% on your annual premium if you consistently show good driving habits. It really can be a smart way to keep your insurance costs down.

What does a usage-based car insurance policy cover?

Usage-based insurance gives you the same mandatory coverage as any other auto insurance policy in Canada, depending on where in Canada you live. This may include:

• Third-party liability coverage
• Accident benefits coverage
• Uninsured automobile coverage
• Direct compensation-property damage (DCPD) coverage

You can also add optional coverages, like collision coverage, comprehensive coverage, and accident forgiveness to customize your policy further.

To find the best fit for your needs and budget, consider working with an insurance broker like BrokerLink. We can shop around and provide you with several competitive quotes. We’ll help you compare options and choose the right auto insurance and usage-based insurance program for you.

Start saving today with BrokerLink

If you’re interested, Intact Insurance offers the My Driving Discount™, which gives you an instant 10% off to lower your insurance premium when you install their free money-saving device or use their application on your phone. As your vehicle monitors your driving habits, you could save up to an additional 15% at renewal, making it a total savings of up to 25%!

You’ll also have access to an online dashboard where you can check in on your driving habits anytime and see how close you are to earning those extra discounts. Looking to save? Talk to one of our local BrokerLink insurance brokers today to learn more about how the Intact My Driving Discount can work for you!

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FAQs about usage-based insurance coverage

Is the coverage with usage-based insurance the same as traditional car insurance?

Absolutely! Usage-based insurance offers the same coverage as regular car insurance. The big difference is the potential for discounts on your premiums. You’ll still get all the mandatory coverages like liability insurance, accident benefits, uninsured automobile coverage, and direct compensation-property damage (depending on where you live). Plus, you’ll have the same options to add extra coverage like collision coverage, comprehensive coverage, accident forgiveness, and more.

How do insurers use data from telematics devices?

The data your provider collects is used to assess your driving habits and calculate potential discounts. It won’t impact your current premium, nor can it be used to cancel your policy or deny renewal. However, it may influence your premiums when it’s time to renew. Rest assured, all your information is protected under Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA).

Is usage-based insurance worth it?

Usage-based insurance can be a great way for Canadians to save 10%-30% on car insurance—if you’re confident in your ability to maintain safe driving habits. In most cases, these programs are designed to help you save money without any downside. However, legislative changes for Ontario, Quebec, and Alberta auto insurance allowed insurers to introduce penalties for poor driving behaviour recorded by usage-based programs. This means your rate could go up if the data shows risky driving habits.

How much can you save with usage-based insurance?

Savings with usage-based insurance can vary depending on your provider and your driving habits, but you could save up to 30% on your premium for driving safely. Most insurers start you off with a 10% telematics discount just for signing up. From there, it’s all about how you drive—your habits will determine if you qualify for even bigger discounts down the road.

If you have any questions, contact one of our local branches.