Automobile insurance is mandatory in Ontario. If you are cited for driving without insurance, you may have your license suspended, your vehicle impounded and, going forward, have trouble finding an insurance company that will insure you for a decent rate.
There are many factors that affect your insurance premium. Knowing how your rate is calculated may help you save some money.
It is important to note that insurance premiums in Ontario are regulated by the Financial Services Regulatory Authority of Ontario (FSRA). The FSRA is a regulatory branch of the Ministry of Finance that was established to protect the public from unfair or fraudulent practices. These regulations are in place to give you confidence when purchasing insurance.
Should an insurance company want to raise their basic rates, it must submit a request to the FSCO for approval. The FSCO will then consider the insurer’s rationale to determine whether the increase is justified. Insurance companies can submit their requests quarterly and, if approved, the rate increase will take effect when your policy renews.
Breaking it Down: How Your Premiums Are Calculated
Car insurance premiums vary based on several factors, from your driving record, age and demographics to how you drive your car, the coverage, and even the insurance company you do business with.
To better illustrate these aspects, let’s break things down a bit further:
1. The Driver
Your driving record, age and where you live all have a significant effect on insurance rates. Some of these considerations are related to your driving and some are not.
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- Age of the driver: Younger drivers are considered a higher risk since they have not had a lot of driving experience. Younger drivers also tend to get into more accidents so, as a result, drivers under the age of 25 end up paying higher insurance premiums.
- Where you live: Urban areas tend to have more cars on the road. More cars mean more accidents. Additionally, cities have more crime and there are more opportunities for loss from a range of sources. This drives insurance premiums up considerably.
- Your driving record: Any driving convictions on your record will have a negative effect on your insurance rates. Any at-fault accidents, speeding tickets or tickets for distracted, impaired or reckless driving make you a high-risk driver in the eyes of an insurance carrier.
- Your insurance history: if you have ever had your insurance cancelled or if you have let your insurance lapse for any reason, your premium will be higher.
- Your driving habits: if you use your car for work, hae a long commute or regularly put a lot of kilometers on your vehicle for any other reason, your insurance premiums will be higher.
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2. The Vehicle You Drive
The type of vehicle you drive, along with how you use it on a daily basis, has an impact on your insurance premiums.
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- Type of vehicle: Some make and models of car are more frequently stolen. If you happen to drive one of these vehicles, you could be required to pay a higher premium.
- Safety rating of vehicle: Generally speaking, the safer the car, the lower your insurance rate will be. Statistically, some cars simply get into more accidents, which can drive premiums up. High-performance cars, for instance, will carry a higher risk, so if you drive a car like a Porsche, Mustang, Camaro or other sports car, you can expect to pay for the privilege. Family cars, crossovers and SUVs are often much less expensive to insure as they represent lower risk.
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3. The Coverage You Choose
The amount of coverage you choose will have a direct impact on how much you pay. Many insurers recommend carrying $1 million in third-party liability, with most opting for $2 million.
Beyond third-party liability, you may choose accident, theft, injury, loss or damage, collision or comprehensive coverage. If you purchase a new vehicle, your financing may require you to purchase a comprehensive policy that protects you against all perils.
4. Your Deductible
All insurance policies carry a deductible, which is the amount you will pay out-of-pocket should you need to file a claim. Most policies come with standard deductibles in the range of $300-500 per incident, but you may have the option to raise the deductible.
Raising your deductible to $1,000 could lower your premiums by 10% or more. Speak to your insurance carrier directly to find out your options.
5. Your Insurance Company
As you shop for rates, you may notice your quote will vary from one insurance provider to another. This is because the insurer pools its insureds into “risk groups.” The more claims experience they have with a certain risk group, the higher the premiums will be. This is estimated by projecting the estimated cost of future claims based on this experience.
What Your Insurance Company Can’t Consider
So, now that we know the factors insurance companies consider when determining your auto insurance premium, let’s have a look at the factors they can’t use against you:
1. Minor Accidents Within the Last 3 Years
This includes at-fault accidents where you were less than 25% responsible. This also includes at-fault accidents that did not result in a claim or where the damages were less than $2,000.
2. Not-at-Fault Accidents
Accidents you were involved in but were not responsible for in any way.
3. Your Credit History
Your credit history does not affect your insurance premium. Bad credit, no credit, no credit card or a bankruptcy are not factors insurers can consider. However, if you have a history of missing insurance payments, you will likely pay more.
4. If You Own or Lease Your Car
Whether you own or lease your car is not a consideration. Additionally, if there was a period of time when you were uninsured, an insurer cannot use this as a factor in determining your rate unless your uninsured time was the result of a cancellation.
Conclusion
There are many factors insurers consider when calculating your auto insurance premiums. Therefore, it always pays to shop around. Be sure you are getting the coverage you need and always make safety a priority.