Canadian Auto Insurance Facts
Canada
Qualifying For Discounts: A Quick Way To Lower Your Car Insurance Rates
08 days
Auto insurance companies have known for years that certain behaviors exhibited by drivers lead to fewer claims and less risk of insurance loss. In an effort to encourage such behaviors, insurers reward their policyholders with discounts. These discounts offer one of the easiest methods for lowering your car insurance rates.
Our goal below is to introduce some of the discounts your auto insurer might offer. Although you’ll be familiar with many of them, some may be new to you. It’s important to realize that every car insurance company is different, and thus it pays to shop around for the lowest rates.
Discounts Earned By Your Actions
One of the most important factors in calculating your rates is your driving record. Your record has substantial predictive value to insurers. It helps them to gauge the likelihood that you will cause an at-fault accident sometime in the future. Given its weight, it should not be surprising that most insurers offer a discount for maintaining a clean record. If you manage to steer clear of tickets, convictions, and at-fault accidents, you’ll qualify for a rate reduction.
You can also earn a discount by limiting the number of miles you drive. The more you drive, the more likely you are to be involved in an accident. For this reason, most insurance companies extend a low-mileage discount to their policyholders.
If you have recently received your driver’s license, consider enrolling into a driver education course. These courses teach enrollees to drive safely, whether in the presence of aggressive drivers or during poor weather. Graduating from this type of course indicates to your insurer that you’ll make safe decisions while behind the wheel.
Many companies will also apply a discount to your policy once you reach a certain age (e.g. 65). They do so because older drivers tend to drive less, and thus present a lower risk of future claims.
Discounts Influenced By Your Automobile
The type of car you drive will affect your premiums. Insurers take into account that some vehicles are associated with more frequent and costly claims than others. The reasons vary. Some cars are equipped with fewer safety features; some are more attractive to thieves; and some offer less-responsive steering controls.
Each make and model is assigned a score by the Canadian Loss Experience Automobile Rating (CLEAR) system. If your car is given a low score, which implies a low-risk claims history, your rates will be lower than otherwise.
A lot of insurance companies will lower your premiums if your car is equipped with an alarm system or “kill switch” (to cut the ignition). Such anti-theft features lower the likelihood that your vehicle will be stolen.
Anti-lock brakes and air bags may also cause your rates to drop. The former help you to stop your car more quickly, which reduces the risk that you’ll cause an accident. The latter reduces the risk that you or your passengers will sustain serious injuries during an accident.
Discounts Related To Your Insurance Policy
Insurers also extend discounts to policyholders who agree to bundle their policies. For example, if you carry your auto insurance coverages with one company and your property insurance with another, you’ll enjoy a rate reduction for consolidating them under a single company. This is also the case if you have more than one vehicle, and each is covered by an individual policy. Placing them on a single policy is usually less expensive.
You can also save money by paying your premiums on an annual basis. Many people pay monthly, and as a result are required to pay a small administrative fee ($5 to $10) each month. During the course of a year, this can add up to over $100 in extra fees on a single policy.
The deductibles on your coverages provide another opportunity to lower your rates. By raising them, you’ll reduce your insurer’s risk of loss in the event you file a future claim.
One of the best ways to enjoy a discount on your car insurance rates is to compare quotes from other insurers whenever your policy is about to expire. You may be able to save hundreds of dollars each year by shopping around.
The History of Car Insurance in Canada
075 days
Insuring against loss can be traced back to ancient times when Babylonians established the famous Code of Hammurabi, circa 1750 B.C., which was practiced by early Mediterranean sailing merchants. If a merchant took out a loan to finance his shipment, he paid an additional amount to the lender in exchange for a cancellation guarantee from the lender to mitigate the risk of the theft of the shipment.Marine insurance grew in prevalence in the 17th century A.D. as Mr. Edward Lloyd ran a coffee house that became a central gathering place for merchants, ship captains and ship owners. Parties who needed to insure their ships and cargoes and the parties willing to insure their ventures. Today, Lloyd’s of London is the best known insurer for the marine industry and many other types of insurance specialties, which utilize a very different set of rules than standard insurance.
Insurance Mysteries Revealed
Modern insurance policies follow similar concepts of spreading the risk of loss across a large pool of people with similar levels of risk. Every policyholder pays a premium amount that is based on the probability they will make a claim. The pool of people making payments is much larger than the projected number of people who will make claims during the year the pool exists.
A striking example of this concept was an ice storm that occurred across parts of Quebec, Ontario and New Brunswick in 1998. From the one event, approximately 700,000 claims were generated, which totaled $1.4 billion.
Second Layer of Insurance
The financial impact on insurance companies is substantial, but there is another layer of protection for the companies, which is called reinsurance. Insurers participate in this type of insurance that spreads their risk across multiple companies with similar levels of risk. When very large events occur, the reinsured insurance company relies on their additional layer of insurance protection to handle the costs of claims made by their policyholders.
Annual Refresh
Each year, insurance companies evaluate the costs sustained by each of the insurance pools that existed in the previous fiscal year. Very expensive pools are broken apart and spread across other pools. This practice prevents claim expense from overwhelming the insurance company.
Premium Calculation Methods
Car insurance premiums are calculated based on the actual repair statistics for the make and model of the vehicle and the driver profile. Even if a driver with a poor driving record has not made a claim, that specific driver is grouped with other higher-risk drivers, and they are charged higher annual auto insurance premiums. Insurers cannot target individuals for a certain annual premium amount. An entire class of policyholders must be created to mitigate the risk of loss that the pool might incur.
Breakdown of the Canadian Insurance Dollar
Based on a seven-year national average calculated between 2004 and 2010, every Canadian dollar of insurance premium is used in the following ways:
• Claim payments – 53.1 cents
• Government taxes – 15.9 cents
• Operating and regulatory costs – 20.5 cents
• Profit – 10.5 cents
Insurance Covers Certain Losses
All policyholders must realize that the documentation that accompanies the policy states exactly what is covered by the insurance policy. Dollar limits in each major insurance component will determine how much money is paid for a single claim. Drivers who choose to carry liability coverage only will pay all repair or replacement costs after an accident or natural disaster causes damage to the insured vehicle.
Canadian Car Insurance
Each provincial government determines which coverage components that must be carried by every driver to comply with minimum insurance requirements. Accident coverage is mandatory in every Canadian province except Labrador and Newfoundland. The no-fault insurance model is followed in some form in each province with the difference being the extent to which no-fault or tort is emphasized.
Private companies sell auto insurance policies in each of the three Canadian territories and all ten provinces. Government-run insurance companies provide basic car insurance coverage in Manitoba, Saskatchewan and British Columbia, which includes injury coverage for the driver and passengers.
Auto insurers are closely regulated through a strict framework of laws that are written by each provincial government. All companies are supervised by various government agencies, including the rate review boards in the provinces. Provincial and federal regulators monitor the activities of all insurance companies and their handling of claims.
Car insurance policy choices can be tailored to the driver’s specific needs, so insurance coverage will vary between car owners. Deductibles, coverage limits and optional coverage types are set for each individual. The insurer will determine the annual premium for each policy based on the coverage included.
Car Insurance by Canadian Province
Alberta
Seventy private car insurance companies compete for the business of drivers throughout Alberta. By law, every driver must carry a minimum amount of insurance and companies offer many additional types of coverage to suit each driver’s specific needs. Insurance coverage will pay to repair damaged vehicles and compensate injured people involved in the accident.
The provincial government in Alberta has written laws that require certain mandatory benefits that must be included in every auto insurance product offered by the insurers. Drivers must address the challenge of selecting a balance between the best price and sufficient coverage. Recent updates to the auto insurance system in Alberta have improved the balance between coverage and affordability.
Prices on auto insurance in Alberta have been lowered because of the legislation that was written in 2004. The intent of making these changes was to make insurance more affordable, particularly for young drivers with good driving records.
A cap on the amount of money awarded for pain and suffering has been set at $4,504. An objective third party determines which injuries are deemed minor, and the limit does not apply to rehabilitation costs or income replacement. There was a recent court case filed in the Court of Appeal of Alberta that claimed the cap is discriminatory, but the case dismissed the argument. Prior to the implementation of this law, strains and sprains could yield a court award of $20,000 or even $50,000. This fact caused premiums to escalate year after year.
British Columbia
The Insurance Corporation of British Columbia, or ICBC, is a government-run insurance company that provides car insurance in British Columbia. Auto insurance consumers in B.C. have had little choice concerning their car insurance since ICBC was established in 1973. Policyholders do not have the option to switch insurance companies if they become dissatisfied with the service provided. Optional car insurance choices are similar to those of other Canadians because they can carry collision, theft and fire insurance offered by other private auto insurers who compete for the business of B.C. drivers.
Auto insurance consumers in British Columbia struggle against government inaction. Their fellow Canadians receive better insurance coverage from insurance companies that must provide product innovations like replacement cost coverage, first accident forgiveness, payment plans and roadside assistance. In 2001, the B.C. provincial government committed to increase auto insurance competition and submit to a lengthy investigation of the mandate provided for ICBC’s operation. The results of the investigation did not result in a completely competitive insurance market for consumers in British Columbia, and drivers must continue to buy the mandatory portion of the auto insurance from ICBC.
Manitoba
In 1971, a government-run insurance company called Manitoba Public Insurance, or MPI, was established to provide auto insurance coverage for drivers in Manitoba. Choices for Manitoba drivers are minimal because they do not have the choice to switch insurance companies if they are not happy with the service provided by MPI. All of Manitoba follows a “pure” version of the no-fault insurance model. If injuries are sustained in a car accident, the court will award a standard, pre-established set of monetary benefits provided through the government-run insurer. A lawsuit to pursue additional monetary compensation is not possible.
Newfoundland and Labrador
Fifty private companies provide auto insurance policies for drivers in Newfoundland and Labrador. Provincial law requires that all drivers carry a minimum amount of insurance.
Previous to 2004, the insurance premiums in Newfoundland and Labrador were rising each year because of the large court awards provided to anyone who sustained a minor injury in a car accident. The provincial government passed legislation in 2004 to establish a $2,500 deductible on pain and suffering court awards. The impact of this legislation did not yield the long-term cost control realized by other Atlantic Provinces that passed a $2,500 cap, instead of a deductible.
New Brunswick
More than 65 private car insurance companies compete for the business of drivers in the Canadian province of New Brunswick. Every driver must carry minimum levels of insurance and the companies compete to offer the additional auto insurance coverage that will suit each driver’s individual needs.
Early in 2001, the provincial government was receiving complaints from citizens who were having trouble finding affordable insurance coverage. Efforts began to determine the cause, and in 2003, a $2,500 cap on awards for “pain and suffering” was established for anyone who sustained a minor, non-permanent injury in a car accident. Establishment of this cap has controlled the cost of claims, but does not affect the funds available for medical care or replacement of income.
In 2005, the First Chance premium discount was introduced to offer new drivers, who have a clean driving record, the chance to pay comparable rates as those paid by experienced drivers with clean records. If the young driver receives a traffic-related citation or causes an accident, their rates would revert to those charged to their peers with similar driving records.
Northwest Territories
Private insurance companies compete for the business of drivers in the Northwest Territories. All drivers must carry minimum levels of insurance to comply with provincial law.
Ontario
More than 140 private insurance companies offer auto insurance to drivers in Ontario. All drivers in Ontario must carry minimum levels of coverage to protect themselves against loss related to property damage or personal injury.
In June 2010, IBC and the Coalition Representing Health Professionals in Auto Insurance Reform began working with insurers and health professionals understand the needs of claimants set forth under the new auto insurance rules.
Nova Scotia
Sixty private companies compete for the business of drivers in Nova Scotia. All drivers must carry minimum levels of insurance to be in compliance with Nova Scotia provincial law. In 2003, a $2,500 cap on minor injury awards was implemented in Nova Scotia to slow the increase of car insurance premiums. Along with other Atlantic Provinces, Nova Scotia experienced reduced costs without impacting the funds available for medical expenses or lost income experienced by policyholders.
Prince Edward Island
Fifty companies compete to provide auto insurance coverage for the people who live on Prince Edward Island. All drivers must carry minimum levels of auto insurance coverage to comply with provincial law.
In April 2004, Prince Edward Island, along with the other Atlantic Provinces, adopted a $2,500 cap on the awards provided by the courts for minor injuries. When awards were provided for every minor injury, drivers were experiencing skyrocketing auto insurance premiums. The cost reductions realized have made insurance more affordable for all drivers without reducing the funds available to pay medical expenses and replace lost income for policyholders.
Quebec
All auto insurance in Quebec is provided through a combination of private insurers and a government insurer. Personal injuries are covered by the government insurer while property damage is insured by the private insurance companies.
A pure no-fault system is followed in Quebec for all bodily injury cases. Anyone injured in an automobile accident receives a predetermined award and has no right to sue for additional economic or medical expenses or compensation for pain and suffering.
More than 100 private insurance companies provide the property insurance required by the provincial governmental laws. All drivers are required to carry sufficient coverage against loss, which must include a minimum amount of third-part liability insurance.
Saskatchewan
In 1945, Saskatchewan Government Insurance, or SGI, was established to provide drivers in the province with the required auto insurance coverage. Residents do have a choice between following the no-fault insurance model offered by Saskatchewan or opting to follow the tort system that was made available to them in January 2003. Only .05 percent of the population, or 500 residents, have chosen the tort system option.
Yukon
Private insurance companies provide auto insurance coverage to anyone who wishes to drive in compliance with Yukon provincial law. Every driver must carry minimum insurance coverage for property damage, physical injury and liability.
FinalThoughts
Canada has a rich history of auto insurance laws that have been focused on making insurance more affordable for drivers of all ages. Each driver is given choices based on the province in which he lives, and drivers do have a voice when insurance entities are raising rates too quickly.