Many Canadian drivers are enrolled in usage-based insurance ("UBI") programs to benefit from a discount on their auto insurance premiums. Using telematics, UBI programs record a host of factors - such as acceleration, hard braking, mileage driven, time of day travelled and sharp turns - to analyze driving behaviour and reward safe driving. New technology now allows smartphone applications to track such driving habits.
Currently, only certain insurers in the provinces of Ontario and Quebec offer such UBI programs. Similar programs are expected to launch in the provinces of Alberta and Nova Scotia in the upcoming year.
This technology can be particularly useful for certain groups of consumers, such as younger drivers, allowing insurers to set a premium based on their actual driving habits rather than statistics drawn from other drivers of a similar demographic. The Financial Services Commission of Ontario ("FSCO") has stated that these programs also incite safe driving practices and could result in fewer accidents on the road.
However, concerns have been raised regarding the use of this technology, particularly as it relates to privacy and the use of collected data.
Personal information
In a bulletin published concerning UBI's in October 2013, FSCO stated that the data collected through UBI technologies should be treated as "personal information" as defined in the Personal Information Protection and Electronic Documents Act, and that insurers must comply with all applicable legislation. This legislation includes requirements that organizations obtain an individual's consent to collect, use or disclose his personal information, and use appropriate safeguards to protect any personal information held by organizations.
FSCO expects insurers to disclose the impact of the operation of the vehicle by a person other than the policyholder. Furthermore, in Ontario, pricing programs related to UBI must be filed and approved by FSCO's Superintendant and where the enrollment discount is only offered for one term, or where the impact of the actual pricing program discount is expected to differ materially from the enrollment discount, the insurer will be required to submit annual reports to the Superintendent.
Following in the footsteps of FSCO, the Autorité des marchés financiers ("AMF"), which regulates the automobile insurance industry in Quebec, published on April 9, 2015, a Notice regarding the offering of usage-based automobile insurance products ("Notice"), outlining its expectations for UBI programs. Similarly, it stated that the collected data must be treated as "personal information" and that insurers must comply with the provisions of An Act respecting the protection of personal information in the private sector.
Regulatory oversight
The AMF is of the opinion that the existing supervisory framework, in particular the Sound Commercial Practices Guideline and the Outsourcing Risk Management Guideline, apply to UBI programs.
The AMF, like FSCO, states that participation by consumers in UBI programs should be done on a voluntary basis only, and expects them to be properly informed about the program and the changes made to it during the term of the insurance contract. For instance, it expects consumers to be informed of:
- Program eligibility criteria
- Type of data collected
- Use of data (e.g., as part of an investigation for the settlement of a claim, where applicable)
- Impact of data on automobile insurance premiums
- Period used for insurance premium reviews
Regulators expect insurers to make the consumer's UBI data accessible to them. In our view, the advent of smartphone UBI apps will make it easier to comply with this requirement. They also expect insurers to cease receiving data once the consumer opts out of a UBI program, and that data should not be used to decline, terminate or refuse to renew an insurance policy.
It is interesting to note that earlier this year, the Société d'assurance automobile du Québec (the "SAAQ"), Quebec's public automobile insurance plan, announced a voluntary UBI program to be introduced in 2016. The SAAQ and the Quebec Transport Ministry have also indicated that the tracking device may become mandatory for convicted dangerous drivers.
We can assist insurers with any regulatory issues related to UBI and in ensuring their programs are compliant with the applicable privacy laws. For more information, please contact Michael Garellek or any member of our Insurance & Professional Liability team.
Note: The author wishes to thank articling student Joey Suri for his assistance in preparing this article.