Financial Services Regulatory Authority of Ontario’s (FSRA) recent approval of auto insurance rate increases for several insurers signals inflation may finally be making its way into the world of auto insurance prices. Below, we discuss FSRA’s role in auto insurance, breakdown their three main reasons for the increase in auto insurance rates, as well as look at how market conditions affect insurance premiums.

What is FSRA?

Whether you are buying auto insurance or renewing your policy, FSRA’s role as a regulator is to ensure that insurance companies’ proposed rates are fair, reasonable and not excessive for consumers. Auto insurers need the regulator’s approval to change the rates they use to calculate premiums for their customers.

Learn more about rate change reviews and how auto insurance rates get approval for every auto insurer in Ontario by visiting their website.

What affects auto premiums in Ontario?

Your car insurance premium is the amount you pay your insurance company in exchange for insurance coverage. Your premium can change because of an insurer’s approved rate change overall. Premium changes can also be a result of changes in your own circumstances, such as:

  • Type of vehicle
  • Moving to a new location
  • Purchasing a new vehicle
  • Personal driving characteristics (age, gender etc.)
  • Driving record

Market conditions affect premiums, as well. These conditions are factors that can continually change and influence the cost of auto insurance and the price you pay. FSRA is observing that three main factors are driving up costs currently:

  1. Inflation
  2. Physical damage costs
  3. Drivers on the road

1. Inflation

Your premiums are affected by rising inflation and the effect it is having on the price of goods and services. According to Statistics Canada data, consumer prices increased by 8.1% year-over-year in June 2022. The disruptions from the COVID-19 pandemic and its economic effects have driven up the rate of inflation. March 2022 saw significant year-over-year price increases for auto parts, new vehicles and used vehicles. New vehicle supply shortages began at the start of the pandemic, when demand was forecast to dwindle significantly. Automakers cut production and in turn, so did other manufacturers that supply them with parts. At the same time, the pandemic boosted demand for cars. The domino effect of supply-chain issues pushed the industry to boom like never before, leaving many car sellers just as desperate as buyers.

2. Physical damage costs

Insurers adjust premiums based on the expected cost of covering future auto insurance claims. However, while inflation is wreaking havoc in all major lines of P&C insurance, its effects seem to be most acute in auto insurance, particularly auto physical damage, reports Aviva Canada CEO, Jason Storah.  Inflation affects car insurance rates because repairing or replacing a car is more expensive. In 2022, Aviva Insurance estimates inflation from auto damage has gone up around 15%, and this means that car insurance rates will likely also increase.

Normally, when your vehicle is in an accident, an adjuster will either send it for repairs or write off the vehicle for a cash settlement. A shortage of labourers in autobody repair is driving up wages, and the shortage of replacement parts means higher costs and longer wait times. This, therefore, increases the need for rental vehicles. As dealerships are selling new and used vehicles at or above list price as a result of the inventory shortage, replacing your car becomes more expensive should your vehicle be a write-off. According to Storah, “For us, that means not only are cars more expensive to fix or to replace, but it also means customers are in rental cars for longer because their cars are in body shops for longer.” Canadian drivers can expect an increase in their car insurance premiums when their policy is up for renewal as a result.

New technology in vehicles also plays a role

In addition, new technology increases the cost of fixing vehicles. For example, most cars now have rear view cameras and sensors in their back bumper. This means the repair includes not just the bumper, but the technology in the bumper, as well. In the past five years, physical damage costs per claim increased by 22.5%. According to the General Insurance Statistical Agency (GISA), it continues to increase at the speed of 7.4% per year. These increases can be explained by the rising price of automobile parts and escalating labour costs.

3. Increased number of drivers on the road

A change in how much we drive has an impact on premiums. For example, more cars on the road results in more collisions and higher claims costs. Data shows that 2021 saw a 2% increase in the number of cars insured compared to 2020. It is not unfair to assume this in response to loosening restrictions imposed due to the pandemic. To support this, the latest cell phone mobility data shows that Ontarians’ driving behaviour is now trending towards pre-pandemic levels, meaning more drivers are on the road.

Other factors affecting increase in auto insurance rates

Auto theft

Increased vehicle theft activities are also a driver of higher physical damage claims. There is no denying that the advancements in automobiles has made our lives much more convenient when it comes to driving. However, it is important for us to remember that it can also cause corruption. New technology, such as smart keys, has made stealing your vehicle easier. A pandemic-driven shortage of semiconductor chips needed for new cars has driven the increase in technology-fueled car theft. Over the past five years, the amount of theft claims increased by 40%.


During the recent COVID pandemic, there were unique changes in market conditions. Because people were staying home and driving less, there was a significant drop in the number of collisions and claims. To address this, FSRA allowed for ways that insurers could quickly adjust their rates. As a result, auto insurance rates were reduced for many drivers in the province. The financial relief being offered to drivers resulted in more than $1.3 billion in insurance savings dispersed to motorists who were driving a lot less during the lockdown. However, as the province plans to drop pandemic restrictions, this is a good indication that these savings will give rise to higher premiums.

An increase in auto insurance rates is coming

According to Tanisha Kishan, a ratesdotca insurance expert and chartered insurance professional, many should expect to see an increase in their rates. “Given the rate of inflation and supply chain issues pushing up the cost of claims combined with Canadians returning to the roads as pandemic restrictions ease, these rate increases aren’t unexpected.” If you are with an insurance company that got approved for a rate hike, prepare for a higher rate when your policy renews. Since auto insurance is regulated, however, the rate changes won’t happen immediately. The good news is that once collision rates return to previous numbers, you should start to see savings find their way back.

Speak with one of our our isure representatives to gain a better understanding of how today’s market conditions affect premiums. Also, be sure to ask about adding cost-cutting solutions, like telematics, to your policy to help bring down your premiums.

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