Is usage-based car insurance right for you?

What is usage-based insurance?

Usage-based car insurance (UBI) is one approach to car insurance pricing. It’s also called pay-as-you-go, pay-how-you-drive, or telematics. UBI uses various methods to directly track a driver’s behaviour while they’re on the road.

While sometimes people refer to UBI as “telematics,” this term actually refers to the tracking technologies themselves. Telematics may monitor speed, trip distance, idling time, braking, acceleration, fuel consumption, and more.¹ Based on telematic data, the insurer adjusts the driver’s car insurance premiums. Theoretically, smooth, careful driving results in lower insurance costs. On the other hand, driving habits that the insurer deems unsafe cause prices to increase.

How does usage-based insurance work?

There are several methods that insurers may use to collect the data they need for UBI. Each uses some combination of GPS and the vehicle’s built-in technology:

1. Black box devices collect data specifically about accidents. They require someone to manually download the data afterwards. These are not common devices for UBI programs.
2. Dongles are devices the insurer provides that plug into the vehicle’s onboard computer. They collect many types of data about the vehicle’s performance, like acceleration, top speed, and more. Often, they can transmit data automatically to the insurer.
3. Embedded telematics monitor vehicle information, just like plug-in dongles. Modern vehicles have advanced computer systems that monitor all sorts of vehicle data — these systems can be used for UBI, too.
4. Apps use a smartphone’s internal systems (GPS, accelerometers, gyroscopes, etc.) to measure how far and how fast a phone is moving. Basically, it uses the phone’s movement as a proxy for the car it’s sitting in.²

Smartphone-based UBI is typical for most present-day programs. One benefit of this method is that it helps the insurance company know who’s driving the car at any given time. Most apps also provide updates as to how the driver is performing, allowing them to adjust their habits.

The details of each company’s UBI program vary. Some basic programs monitor little more than the distance driven. Others UBI programs track detailed information, which could include:

• The car’s movements, including:
  • GPS positioning
  • Top speeds
  • Braking and acceleration
  • Directional changes and cornering speed
• Time of day
• Trip length, and time between breaks
• Smartphone usage (whether the driver accesses their phone while driving)

Which information to collect and how to use it is up to each insurance provider. Smooth driving, including gradual acceleration and breaking and low-speed cornering are all good habits. Staying under the speed limit is never wrong. Driving during daylight hours is better than driving in the dark. On long trips, frequent rest stops are a positive. And (of course) avoiding distracted driving by not accessing one’s phone while driving is a no-brainer.

Depending on the program, the data may be analyzed once per year, with any discounts or surcharges applied at policy renewal time. Other companies recalculate premiums multiple times throughout the year.

UBI differs from traditional car insurance mainly in how detailed the usage-based rating is. All car insurance policies require you to disclose how you use the insured vehicle. But, traditional policies usually only need a broad definition like “I commute daily, under 10 kilometres” or “I only drive occasionally for pleasure use.” UBI literally tracks how and when you drive at all times.

Where is usage-based insurance available?

UBI is very common throughout the United States, but is currently only available in six Canadian provinces:

• Alberta
• Ontario
• Quebec
• New Brunswick
• Prince Edward Island
• Nova Scotia

Even in these provinces, not every provider offers a usage-based car insurance option.

In the provinces with public insurers (BC, Saskatchewan, and Manitoba) there has been some experimentation with UBI. For example, ICBC offers discounts for drivers who drive less than 15,000 km per year. Though this isn’t a telematics-based program — drivers simply provide photos or other proof of their odometer readings.³ In Saskatchewan, SGI ran a pilot UBI program for motorcycles in 2013.⁴

At this time, Square One does not offer usage-based car insurance.

Pros and cons of usage-based insurance

Now you know how UBI works. But how do you decide if it’s the right insurance for you?

Pros

• Potential savings. Obviously, the chance of lower insurance premiums is the main reason to sign up for a UBI program.
• Accident evidence. If you’re in a vehicle accident, telematic data may be helpful for the investigation if it can demonstrate that you were driving safely. Of course, the opposite is also true.
• Safer driving. UBI encourages drivers to adopt safer driving habits, which has the obvious benefit of fewer accidents or close calls.⁵
• Better fuel efficiency. The smooth, predictable driving that UBI encourages also happens to boost fuel economy.⁶

Cons

• Potential surcharges. If your driving habits are a little more on the dynamic side, you can end up paying more with UBI than standard insurance.
• Privacy. Depending on the insurer, many UBI programs require you to share a lot of personal information about how and where you drive.
• Information security. Any information collected for UBI has to adhere to the PIPEDA privacy laws. Nevertheless, you’ll need to be clear (and comfortable) about how your insurer uses and protects your personal information.⁷
• Administration. There are a few extra steps involved with many UBI programs, like remembering to indicate who’s driving, or telling your tracking app that you’re a passenger if you’re not driving. Some providers impose penalties if you have a device but don’t activate it.

Commonly asked questions

Is usage-based insurance worth it?

Whether UBI is worth it for you depends on your typical driving habits. UBI benefits drivers who corner, brake, and accelerate smoothly and gradually, and who drive under the speed limit. Depending on the provider, factors like the time of day you typically drive or how long you drive without resting also factor into the price.

To decide whether UBI is right for you, you would need to investigate various providers’ programs and see which data they track, comparing it to your own driving habits.

Is usage-based insurance available for leased or financed vehicles?

Most providers who offer UBI will have no issue with insuring a leased or financed vehicle. However, any policy will still have to meet the lessor or lender’s insurance requirements, such as collision and comprehensive coverages.

Is telematics insurance the same as usage-based insurance?

Usage-based insurance is the standard name for car insurance that adjusts pricing based on driver behaviour. Telematics is the name for the tracking technology that most usage-based insurance programs use to collect driver data. “Telematics insurance” is not a term that insurance providers generally use.

Does usage-based insurance actually save money?

Whether you save money with usage-based insurance depends greatly on your driving habits and what data your insurer tracks. If you drive safely (however your insurer defines that) you will usually pay less than traditional car insurance. However, you can also pay more if your driving habits are unsafe. On average, drivers save 12% with a UBI policy compared to a traditional one.¹

Before signing up for a usage-based insurance policy, make sure you know how the insurer will track and rate your driving. And remember: UBI can also increase your premiums.

Who is eligible for usage-based insurance?

For providers who offer usage-based car insurance, most drivers who qualify for a traditional policy could also choose a UBI policy. After all, the point of usage-based insurance is to adjust the price based on the driver’s actions on the road. If reckless driver buys a UBI policy, they’ll simply have to pay more unless they adjust their habits.

Of course, particularly unsafe driving habits or certain driving convictions can still lead to policy cancellations under a UBI program.

Sources

1. “What Is Telematics?” Geotab, www.geotab.com/blog/what-is-telematics. Accessed 22 May 2025.
2. Arumugam, S. and R. Bhargavi. “A Survey on Driving Behavior Analysis in Usage Based Insurance Using Big Data.” Journal of Big Data, vol. 6, no. 1, September 2019, doi.org/10.1186/s40537-019-0249-5.
3. “Distance-Based Discounts.” ICBC, www.icbc.com/insurance/costs/distance-based-discount. Accessed 22 May 2025.
4. “SGI Investigating Groundbreaking Rating Technology for Motorcycles.” Government of Saskatchewan, 4 June 2013, www.saskatchewan.ca/government/news-and-media/2013/june/04/sgi-investigating-groundbreaking-rating-technology-for-motorcycles.
5. Soleymanian, M., et al. “Sensor Data, Privacy, and Behavioral Tracking: Does Usage-Based Auto Insurance Benefit Drivers?” UBC Sauder School of Business, January 2017 news.ubc.ca/wp-content/uploads/2017/06/UBI_Paper_Latex_Marketing_Science-with-name.pdf.
6. “Driver’s Handbook.” SGI, September 2024, sgi.sk.ca/documents/37148/138037/drivers_handbook.pdf/cdd760de-a90c-401e-9a5e-f2d60b4041e2.
7. Brawley, A., et al. “Promoting Competition in P&C Insurance: Reducing Switching Costs for Canadian Insurance Consumers.” Max Bell School of Public Policy, McGill University, 13 July 2021. www.mcgill.ca/maxbellschool/files/maxbellschool/competition_bureau_policy_brief.pdf.

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