How Your Auto Insurance Rates are Set


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Your auto insurance rates are determined by a combination of factors including:

Your Personal Profile 

The type of vehicle you drive: Insurance companies rate makes and models of vehicles according to their actual claims experience, such as the cost of repairs, the rate of injury, and the likelihood that a particular vehicle may be stolen or involved in an accident. The Insurance Bureau of Canada (IBC) has a document available on its website called 'How Cars Measure Up [New Window]'. This document provides information on the claims experience of most models of passenger vehicles.

Your driving record: The premium you pay also depends on your driving record. This includes accidents where you are more than 25 per cent at-fault, the length of time you have been licensed to drive, whether or not you have taken a driver-training course that your insurance company recognizes, and driving convictions (such as: speeding and impaired or careless driving).

Generally, your first minor conviction will have little or no impact on your rates. But if you have had a second minor conviction in the last three years, it will most likely affect your premium. If you have had a number of minor driving convictions or even one major or serious conviction over the last three years, your premium will be higher. Likewise, the better your driving record, the lower your premium will be.

NB: Only those accidents occurring on or after September 1, 2010 where you were more than 25 per cent at-fault can be used in determining your premium. Any at-fault accident that occurred before September 1, 2010 can still be used in rating. In addition, insurers can no longer use a minor at-fault accident occurring on or after June 1, 2016 'meeting certain criteria' (no payment by any insurer, no injuries and damages less than $2,000 are paid by the at-fault driver) to increase your premiums. This provision is limited to one minor accident every three years.

How much you drive: Your auto insurance premium will also be affected by how much you drive. This is because the more time you spend on the road, the higher the chances of becoming involved in an accident. Driving to work may include driving to a subway, bus, or train station. If you live close to work, you will probably have a lower premium than someone who lives far from work or who needs to use his or her vehicle for business.

Where you live: Auto insurance rates are generally higher in larger urban centres. This is because there are a greater number of vehicles on the road, and the chances of getting into an accident are higher. Also, more vehicles are stolen in urban areas.

Your age: In general, mature drivers have fewer accidents than younger drivers, particularly teenagers. Drivers who are 25 years of age and over can generally buy insurance at a considerably lower cost than younger drivers.

The Amount of Coverage You Purchase

Many people buy additional protection beyond the mandatory coverage. For example, if you buy optional Comprehensive Coverage, which protects you against theft, vandalism, hail, or explosion, your vehicle will be covered against any such incidences, but you will pay more.

There are also other options, such as increasing your Third Party Liability protection or increasing your Standard Accident Benefits Coverage. These options give you more choice and flexibility over your coverages that will allow you to customize your policy to better suit your needs. All of these optional coverages will have an effect on the cost of your policy.

If you have an older vehicle, you may choose to reduce your premium further by dropping Collision and Comprehensive Coverages entirely.

Discuss your options and costs with your agent or broker.

Your Deductible

Your deductible is the portion of a loss that you are required to pay. Your deductible can vary, depending on the type of coverage you have and the percentage of fault you are assigned in the event of an accident. There are deductibles for Collision or Upset, Comprehensive, All Perils, Specified Perils and Direct Compensation-Property Damage (DC-PD) coverages.

You can lower your premium by raising the deductible.

For example, by having a higher deductible of $1,000, instead of the standard $500, on Comprehensive Coverage, you may save about 10 per cent off your Comprehensive premium.

These savings are due to the fact that higher deductibles mean you pay more towards the cost of repairing your vehicle, while your insurance company pays less toward the total cost of repair. As a result, your premium will be lower.

If you'd rather have lower deductibles, you may be able to do so if you meet certain conditions and if your company offers them, but your premium will be higher. (Recognize, however, that since Collision and Comprehensive are both optional coverages, your insurance company may obligate you to carry higher deductibles if you have had a lot of prior claims.)


The Insurance Company You Choose 

Auto insurance premiums for the exact same coverage can vary substantially from one insurance company to another based on financial factors unique to each company, such as its claims experience for the group of insureds it covers, how it rates you as a driver, and the competition it faces. You can save on auto insurance by shopping around!

Insurance works according to a "pooling" concept. Insurers group risks with similar risk characteristics into risk groups. You are one member of a risk group in the company you select as your insurer. Your company charges premiums based on the claims experience of the entire group. If an insurance company's claims experience for a particular risk group is significantly higher than another insurance company, its insurance premiums will be higher.

To establish individual premiums for policyholders in a risk group, the insurance company's actuaries (professional business people skilled in the application of mathematics to financial problems) will estimate the number and cost of future claims for that risk group and will then estimate the cost to administer these claims. They use this information, along with each individual's personal profile, the amount of coverage they purchased, and their deductibles, to set individual premiums.

The "pooling" concept means that some individuals in a risk group may receive insurance benefits that total far more money than they have ever paid to the insurance company. Others will pay their premium annually, but never make a claim.


What Insurance Companies Can't Use to Determine Rates 

Your insurance company cannot use the following rating criteria to determine how much you should pay for automobile insurance:

  • credit history;
  • bankruptcy;
  • employment status;
  • whether you own a credit card;
  • how long you have lived in your current home;
  • accidents where you are less than 25 per cent at-fault where the accident occurred on or after September 1, 2010;
  • minor at-fault accidents that occurred on or after June 1, 2016, meeting certain criteria (no payment by any insurer, no injuries, damages less than $2,000 paid by the at-fault driver) – limited to one minor accident every three years.
  • not-at-fault accidents;
  • whether your vehicle is owned or leased; and
  • whether there was a period of time where you had no automobile insurance coverage.
As discussed above, factors such as age, sex, and marital status; where you live or the location of the vehicle; and whether you are newly licensed or a driver new to Canada ARE permitted as rating criteria (i.e., what the policyholder will pay for coverage). 

FSCO's role in approving insurance company rates

If an auto insurer needs to make a rate change — either upwards or downwards — it must file an application with FSCO for approval. FSCO determines whether the proposed rates are reasonable and justified, reviews and approves each company's criteria for setting rates, and reviews its underwriting rules — the grounds the company uses to determine if it will sell auto insurance to a consumer. 



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