If you drive a car in Ontario, you may be in for some sticker shock when it comes time to renew your auto insurance policy. Many insurance companies are planning to raise rates in the coming months. Industry insiders say this trend is also likely to continue. If you have to renew your car insurance any time soon, prepare for a possible rate increase on your renewal notice. In this article, we explain the reasons for auto insurance increases in 2023, and offer some tips on how to lower your premiums to perhaps offset the predicted increase.
There’s a rise in auto premiums
Along with inflation rates that are the highest we’ve seen in decades, higher car insurance premiums will be another hit to the wallet of Ontario consumers. Some Ontario drivers are expected to pay more for their auto insurance this year. The Financial Services Regulatory Authority of Ontario (FSRAO)—the government body in charge of overseeing the province’s private insurers—is responsible for vetting companies’ requests to proceed with hikes. And many insurers have been filing them. After just one rate increase approval in 2021 (for 0.29 per cent) and none at all in 2020, 29 increases have been approved so far in 2022-23.
Higher premiums in Ontario
Ontario’s Auditor General, Bonnie Lysyk, released her annual report in November of 2022. In it, Lysyk states that Ontario has the highest private passenger auto insurance premiums in Canada, despite having one of the lowest rates of car crash injuries. “Despite several reports providing recommendations over the past decade to improve Ontario’s private passenger automobile insurance framework and lower premium costs, the (regulator) and the Ministry of Finance have not sufficiently improved the framework to provide less costly private passenger automobile insurance to Ontarians,” Lysyk wrote. A government-commissioned report in 2017 called Ontario’s auto insurance system “one of the least effective insurance systems in Canada”. According to Lysyk, little action has been taken so far on the report’s recommendations. Hence, aiding the expectation of auto insurance increases in the new year.
Ontario finance veteran, David Marshall, says that the Ontario’s system is too tightly regulated to take advantage of the flexibility and competitiveness of a more open private market. He says provinces like Quebec have public insurers, which means “you can spread the risk among everybody”. This will, in turn, drive down costs, which is why he recommends substantially reforming Ontario’s system to make it more competitive.
The government directed the FSRAO to start reviewing that framework earlier this year. The auditor said the preliminary review is expected to be done in March.
The effect of rate increases on insurance
Insurance providers are seeking a rate increase again because their own costs are going up. Inflation, labour and supply-chain shortages, and a post-acute pandemic return to the roads are driving up the amount insurers have to pay out for claims. With continued supply shortages in the auto industry, such as catalytic converters and windshields, the cost of auto parts are increasing. In addition, wait times for those parts grow longer, and the price and demand for rental vehicles goes up.
Let’s breakdown the main reasons for auto insurance increases:
1. Claims cost
Auto insurance rates are partly based on insurers’ claims costs, which are affected by inflation. “With increased claims costs very often comes increased insurance premiums,” states Anne Marie Thomas of the Insurance Bureau of Canada. Canada’s inflation rate hit a nearly 40-year high of 8.1% in June 2022, but auto insurance premiums actually decreased 0.7% nationwide during the pandemic, Thomas said.
2. Return to normal traffic levels
Another reason for auto insurance increases is traffic is becoming denser. As more people return to the office and other activities outside the home, the likelihood grows of claims increasing. Over the last two-and-a-half years, car insurance companies processed fewer claims compared to the pre-pandemic period. Lockdowns and the shift to working from home meant fewer drivers on the roads and fewer accidents. Companies responded by decreasing rates, keeping them flat. Some even provided rebates to customers! Companies are seeking to raise rates now because their costs are increasing as driving rates return to normal.
3. Repair costs
Inflation is driving up the cost of new, used and rental cars, as well as car parts. Lingering supply chain issues are making it hard to get parts on time. High demand and low supply often means price hikes, particularly for auto service and parts. The increasingly complex design of cars has made it more difficult to repair them.
4. Rise in auto theft
To say that Ontario has a car theft problem is an understatement. From the beginning of 2022 up until the end of August, more than 4,808 vehicles were reported stolen in Toronto. The increase in auto thefts in 2022 is also putting upwards pressure on rates as insurance companies pay out more to replace stolen vehicles. Car thieves continue to focus their attention on catalytic converters as a prized and lucrative item within your vehicle. According to CBC News, “catalytic converter thefts rise nationally as metal inside [is] ‘more valuable than gold’.” Although it is not a new issue, cases of these types of theft remain problematic for car owners nationally.
5. Cost of health care
The cost of providing health care to accident victims, such as rehabilitation and disability benefits, is another factor driving up costs for insurance companies. Two major components figure into the cost of premiums. According to David Marshall, “Roughly half of the (auto) premium comes from the need to cover the cost of replacing the car if it’s damaged or stolen, or of repairing it,” he says. The other half goes to personal-injury-related costs. Driven by inflation and the shortage of medical professionals, the costs that insurers incur for this portion of their payout is much higher in Ontario than in other provinces, he adds. This is partly due to the lawsuits that the province’s system allows.
Ontario’s auto insurance system allows you to sue an at-fault driver if you are injured in an accident. They will then in turn rely on their insurance company to pay. The litigation aspect raises costs for the system as a whole. FSRAO estimates that about 30% to 35% of settlements paid in personal injury disputes between insurance companies and claimants are used to pay for professional and legal fees, such as contingency fees, instead of benefitting injured parties.
How to save on your auto insurance premium
There are a number of things you can do to ease the pain of rising insurance rates:
- Shop around and compare rates. Unlike other provinces across Canada that have a single, public insurer, Ontario has dozens of companies that offer car insurance. This makes it possible to compare plans and prices. Speak to an isure broker to help find a rate that works for you!
- Telematics. If you’re confident in your driving abilities and perhaps don’t spend that much time on the road, it may be worth looking into usage-based programs that provide discounts based on driving behaviour.
- Reduce coverage. Drivers of older cars with little market value may want to consider not purchasing optional add-on coverage, like collision and comprehensive coverage.
- Increase your deductible. Increasing the dollar deductible from, say, $200 to $500 on your auto insurance can reduce collision and comprehensive coverage premium costs. Going to a $1,000 deductible may save you even more!
If you are notified that your rates will increase upon renewal, be sure to use that 30- to 60-day notice period to shop around and see what other offers are available, as not all insurers will provide drivers with the same policy.
Your isure broker or insurance agent might also be able to spot if you’re eligible for a group or additional discount(s).
- Alumni group discount. If you graduated from a particular college or university, you may be eligible for a group discount.
- Bundling your home and auto insurance can save you money!
- Multi-vehicle discount. If your household has multiple vehicles and you place them on the same policy, you can save.
- Install winter tires. Many insurance companies will offer a discount to drivers who purchase and install winter tires.
- Affinity programs. People can often get access to discounts through organizations, associations, non-profits and clubs.
- Decide not to drive. While many experts predict that consumer driving overall will increase post-pandemic, some experts contend rising prices may discourage drivers from hitting the roads. Factoring in the price of gas, the convenience that many have experienced working from home, and the impact of the inflationary environment can potentially have a counteracting effect to the number of kilometres driven.
For a full list of automotive discounts available, please click here.
Auto insurance endorsements allow you to customize your coverage:
- Increase or decrease coverage limits
- Deduct certain parts (in allowance by law) to lower the total premium amount
- Change your personal information
- Make other special amendments to restrict or expand certain terms covered by your car insurance policy, giving you more flexibility
Final thoughts on auto insurance increases
Inflation will impact auto insurance rates, just like it does every other industry. It’s just a matter of when consumers will see that rate change. You can check whether your insurer has been approved for a rate increase on the FSRAO website, though it’s important to note that the percentage listed on this page is the maximum increase an insurer has been approved for, and your rate may be increased by less. For more information about possible reasons for auto premium increases in 2023, contact our offices today and speak with one of our isure representatives about your rates.