The difference between telematics, UBI, and pay-as-you-drive insurance

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In 2018, the Insurance Bureau of Canada conducted a  survey  that revealed 66 per cent of Canadian auto insurance customers believe pricing premiums based on driving performance or vehicle usage is fair.  

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This pricing method is often referred to as  usage-based insurance (UBI) or pay-as-you-drive insurance, both of which use telematics technology to track driver behaviour. But these three terms — UBI, pay-as-you-drive, and telematics — often get thrown around interchangeably, even though they have subtle differences. Let’s break down what each term means.

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The difference between telematics, UBI, and pay-as-you-drive insurance Back to video

Telematics

Telematics is often used as a catch-all term for both usage-based insurance (UBI) and pay-as-you-drive insurance, but it actually refers to the technology used in both products to monitor your driving habits. Telematics programs track your driving either via an app installed on your phone or a device installed in your car that uses on-board diagnostics and GPS techno logy to track your driving behaviour, and then transmits that information to your insurance provider.  

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Insurance companies then gather metrics and data on different criteria, such as how fast you accelerate, how hard you brake, and how quickly you take turns. They either reward you for safe driving in the form of insurance discounts, or in some provinces, they penalize you for bad driving by tacking on surcharges to your premium.  

Currently, telematics programs are only offered in Ontario, Alberta, Nova Scotia, New Brunswick, P.E.I., and Quebec. And depending on the insurance company’s devices or apps, telematics may not be available for all cars, including electric or diesel cars, or cars made before 2005.

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Usage-based insurance (UBI)

UBI and pay-as-you-drive are similar but different in a few ways. Most notably, pay-as-you-drive monitors the distance you drive, whereas usage-based insurance (UBI) monitors a variety of driving habits.  

UBI will track things like how and when you accelerate (which shows insurance providers if you have aggressive tendencies), braking, and cornering speed. Some companies also monitor where and at what time of day you’re driving to predict the likelihood of future claims. Other programs track texting or handheld calls while you’re driving.  

Usage-based insurance is gaining popularity in Canada. In fact, recent LowestRates.ca data show a  43 per cent year-over-year surge in usage-based insurance quotes  on our site from 2019 to 2020.

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Pay-as-you-drive insurance

Pay-as-you-drive insurance is based not on how you drive, but on  how far  you drive; however, standard rating practices like age, driving history, and where you live are still factors when setting your rate.   

With pay-as-you-drive, you’re charged by the kilometre, so if you’re not driving a lot, you’re saving money on insurance. The idea is that if you use your car to only get groceries once a week, you shouldn’t be paying the same insurance rate as someone who drives 100 kilometres to and from work every day.   

Those who rarely use their vehicles may stand to benefit the most with pay-as-you-drive. For example, if you drive fewer than 9,000 kilometres a year, the  Canadian Automobile Association’s MyPace program offers a discount: at 1,000 kilometres a year, you can save up to 70 per cent; 3,000 kilometres, you save 50 per cent; 5,000 kilometres, you save 30 per cent, and for 7,000 kilometres, you can save up to 15 per cent.

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Are telematics programs right for me?

The better your driving habits, the more likely you are to save on your car insurance  with telematics-based insurance. So, if you speed often, these programs are probably not going to save you money. In fact,  some provincial telematics apply surcharges for poor driving habits.    

If you’re a new driver, UBI can help you see where your driving needs improvement to make necessary changes to build up a good insurance history, and secure lower rates in the future.  

Some customers are concerned about the privacy aspect of these programs, particularly the worry of insurance companies feeding their data to the police. But  every insurance provider in Canada must adhere to provincial privacy laws as well as the  Privacy Act  and the  Personal Information Protection and Electronic Documents Act.  

It’s best to speak to an insurance provider to see which insurance companies’ offerings suit your best driving habits to maximize the most savings.       

LowestRates.ca  is a free and independent rate comparison website that allows Canadians to compare rates from 75+ providers for various financial products, such as auto and home insurance, mortgages, and credit cards.