Canadian insurance companies have seen an increase in car insurance rates across the board, causing a lot of people to wonder “Why?” Even people with perfect driving records are seeing their prices go up. This can be very frustrating, especially if you don’t understand the reasons behind your price hike. To help provide some clarity, we’ve compiled 10 common reasons for car insurance rate increases. We’ll also explain who decides on these increases, and offer suggestions on where to look for savings on your policy.
Who plays a role in setting insurance rates?
Government regulators play a big role; they make sure insurers are charging fair rates and so that they are able to pay out a claim. Here’s how:
- The federal government: They monitor insurance companies to ensure they can cover the potential claims costs for every insurance policy they have sold.
- Regulators: They oversee how insurance companies assess potential risk, determine prices and handle claims.
- Provinces and territories: They determine which factors insurers can use when setting auto insurance rates and also how they can be used.
- Insurers: Each insurance company must have their “rating rules” approved by regulators and must get government approval every time they want to change their rates.
In Ontario, the Financial Services Regulatory Authority of Ontario (FSRAO) has to approve rate increases before a private insurance company can increase their rates.
Reasons for the increase in car insurance rates
There are a number of factors that can cause your car insurance rates to increase on renewal. These can generally be broken down into two categories:
Things that impact your driving record or insurance history (generally within your control)
1. Traffic tickets
The more traffic tickets you have, the more likely you are to cause an accident than other drivers with no tickets. You should try avoiding tickets to keep your insurance rates low by being a safe driver. However, things do happen. There are generally three different types of tickets that range from minor and major tickets, to criminal:
- Minor driving tickets: 20% increase for two or more convictions, with 20% added to each subsequent conviction. Examples: Speeding or failing to have your insurance with you.
- Major driving tickets: Possible 25% increase per conviction. Example: Distracted driving.
- Serious and/or criminal driving tickets: Possible 100% increase for each conviction. Examples: Stunt driving or driving while impaired.
Most traffic tickets come with some demerit points. Demerit points DO NOT impact your insurance rates unless you have enough that merit a licence suspension.
If you have someone on your auto insurance policy who is a problem driver, your insurance rates will keep rising. An excluded driver endorsement (OPCF 28A) is a request to intentionally remove a specific driver from your Ontario car insurance. Excluding a driver from your policy is normally done because removing them will lower your premiums.
2. At-fault accidents
Just like traffic tickets, at-fault accidents on your driving record may cause your car insurance premiums to increase as you no longer have an accident-free driving record. Generally speaking, insurance companies reward you based on the number of years you go without making an at-fault claim. When you make a claim following a collision where you’re found to be at-fault, you start over again and have to re-build your claims-free reputation. If you are more than 0% at-fault for a car accident, you will now have an at-fault accident on your record. If you are more than 25% at-fault, your insurance premiums will be affected.
3. Adding drivers and cars
If you add a car onto your policy or replace an existing car with a newer one, your insurance premium may go up if your new vehicle costs more to replace or repair than your old car. Adding other drivers, newly-licensed drivers, and drivers under 25 years of age to your existing policy may also cause your insurance premium to increase. Secondary motorists can influence the costs a great deal. However, the additional cost will be much less than if they are primary drivers on their own policy.
The cost of including others may increase significantly when you add a teenager to your policy. However, the effect on your premium may not be much if the additional person has experience and a clean driving record. This might include an adult family member or friend.
4. Loss of insurance discounts
Your eligibility for certain discounts may depend on your driving record. Accidents or traffic tickets may cause you to lose any discounts you may have. Many insurers offer discounts for loyal customers who renew their policies each year. If you switch insurers, you may end up losing a 5% to 10% loyalty discount you once enjoyed with your previous insurer.
5. Distracted driving
If you’re caught driving while distracted and receive a ticket, this charge will definitely impact your auto insurance in the three following ways:
- Higher insurance rates: If you receive charges and get a conviction, you can see rate increases of up to 100% when it’s time to renew your policy.
- Loss of insurance coverage: Not only can you expect your rates to be very high, but in some cases, insurance providers may cancel or not renew your policy.
- High-risk driver label: If you receive a DD charge, the majority of insurance providers will deem you a high-risk driver, meaning you’ll need high-risk auto insurance.
One simple thing you can do to remove the temptation is put your phone on “Do Not Disturb While Driving” mode and encourage your friends to do the same.
6. Your insurance coverage selections
The insurance coverage you select will have a tremendous impact on your auto insurance rates. An OPCF 43 Waiver of Depreciation, for example, ensures reimbursement for the full purchase price in case of an accident only during the first two years of ownership. If you are still paying for it five years later, it’s an unnecessary cost.
Things that impact insurance claim payouts in general (generally outside of your control)
1. Car insurance fraud
In Ontario alone, the Insurance Bureau of Canada reports that car insurance fraud costs drivers an estimated $1.6 billion each year (or about $236 per driver). People who commit car insurance fraud try to game the system with false underwriting information, false or staged claims and inflated payouts. Additionally, the Insurance Institute of Canada says that car insurance scams are becoming more prevalent and is a multi-billion dollar problem that drivers should be aware of. Fraud can happen during any stage of the insurance process and your claim can be exposed to fraud through no fault of your own. You can play your part to avoid this by following these tips from the IBC.
2. Inflation and rising cost of living
When the cost of living puts pressure on the Canadian economy, you can expect your auto insurance premium to reflect that. Many of our daily expenses increase when inflation is high, including transportation costs, like gas. However, Statistics Canada’s Consumer Price Index (CPI) also regulates passenger vehicle insurance premiums and the cost of auto parts, maintenance, and repairs. Unfortunately, with inflation hitting 8.1%, these costs are higher than usual.
In June 2022, Canadians experienced the sharpest annual inflation increase we’ve seen in almost 40 years. Statistics Canada says it’s the fastest annual increase in the cost of living in decades. Gasoline is the biggest single contributor to the overall rate going up. Pump prices are up by 54.6% in comparison to the same month a year ago.
3. Higher cost of accidents
It used to be that if you hit someone in a parking lot, the cost to repair a bumper can be covered out of pocket without needing to touch your deductible. Today, if you need to replace a bumper on a modern car, you’re looking at a lot more than just metal and paint. That bumper likely has sensors, a backup camera, etc. You can be looking at $800 to $1,600! This is causing more people to put through insurance claims for minor accidents and fender benders, and the cost of those claims is much higher than it used to be.
4. High insurance claims in your area
Your car insurance rate may increase depending on where you live. Certain areas may have higher weather-related claims, motor vehicles accidents or theft that can affect the price. Insurance companies need to charge their customers enough that they will be able to pay all claims that are made. So, as your risk of making a claim increases, so will the cost of your insurance. Your premium may increase if your insurance company’s analytics show that your area has become more prone to congestion or extreme weather events that lead to collisions.
What can you do if your auto insurance premium goes up?
Try looking for savings elsewhere, such as:
- Bundling your home and auto policies
- Carry a higher deductible so that your premium, in turn, goes down
- Make sure the usage details of your car are accurate
- Shop around and compare rates
Reviewing your car insurance regularly will help to spot changes that can be made or need to be made on your policy given changes to your circumstances. It’s important to speak to one of our isure representatives to help you discover more ways to save on your premiums. Insurance rate increases will happen, but let us help you cut costs while keeping you covered!