MPI is a public insurer, but the current rate system has the same general outline as that used by private insurers. Rates are set by looking at where drivers live, the kinds of vehicle, how they’re used and individual driving records. Auto insurance under the PAYD model could add in where and when the car is driven, and driving style. Monitoring technology would be needed to determine how these factors apply to each driver.

 

Marilyn McLaren, president and CEO of MPI, has gone on the record as saying that there is no evidence showing that pay-as-you-drive is better than what is already in place, noting that most of Manitoba’s citizens would want two drivers with the same driving record and the same car to pay the same rates, regardless of how much each drives per year. McLaren has also gone on the record as saying that it isn’t within MPI’s mandate to control how much Manitobans drive.

 

However, a simple calculation of the distance driven is not the only way for a usage-based insurance model to function.

 

Bern Grush is the principle of Bern Grush Associates, a transportation consultancy company based in Toronto. He is also the co-founder of Skymeter Corp., a company that produces ready-to-operate meters that can be installed in cars to gather data about driving and parking, based on rules set up by the organization doing the installations.

 

“When it comes usage-based insurance, there are basically two models. The first is pay-as-you-drive, based on distance. If you pay for 5,000 kilometres, but only drive 4,000, then you would receive a discount,” says Grush. “The second is more pay-HOW-you-drive, where good drivers are rewarded for avoiding behaviours such as aggressive driving and fast braking.”

 

Grush believes that the future of auto insurance will be usage-based, for reasons of both fairness to drivers and the long-term profits of the automotive insurance industry.

 

“Most drivers are actually paying more than their risk indicates, so the insurers can segment risk,” says Grush. “Usage-based insurance helps to make sure the non-distracted drivers aren’t subsidizing the distracted ones.”

 

Hard data on an individual’s driving good behaviour should certainly lead to discounts for those drivers, but how does that lead to long-term benefits for the insurers?

 

“Insurance companies can better manage their risk when they’ve got a hard correlation between driving behaviour and claims,” says Grush, but also notes that it goes deeper than that. “You know how you drive, so you might seek out one of these products. The early entrants to the business of usage-based insurance will start to capture a bigger and bigger share of the good drivers. The companies that don’t adopt it will be left with a smaller pool, and they’ll find that they will have to pay out more in claims.”

 

Efforts from insurers to avoid being the last one to adopt the model may end up pushing usage-based insurance forward faster than the idea of fairness ever could. A number of insurance companies have rolled out programs like this in recent years. In Canada, Aviva ran the Autograph pilot program from 2005 to August of 2011.