You have been driving for many years, you do not have any accidents or tickets and have always made your payments on time. You receive your automobile insurance renewal and see that your rate has increased! How does this happen?
The nature of insurance is that the payments (or premiums) of the many pay for the losses of the few. Insurance companies collect your premiums and “pool” them together to cover such things as:
- their own operating costs
- the claims they have to pay out for their policyholders
- and the claims they may have to pay in the future
An insurance company, like any other company, needs to maintain profitability and stability in order to stay in business. It has been many years since an insurance company in Ontario went bankrupt and this is done by ensuring they are collecting enough premium to cover their current and future losses. If an insurance company has a significant claim to pay, they need to ensure that they are able to cover the loss. You wouldn’t want to find out that the policy you’ve paid for over the last 20 years will not cover your loss when you need it.
Who plays a role in setting rates?
Government regulators play a big role and they make sure the insurance companies are charging fair rates and that they’re able to pay out claims when customers need it. Here’s how:
- The federal government monitors all insurance companies to ensure they can cover the potential claims costs for every insurance policy they have sold.
- Regulators oversee how insurance companies assess potential risks, determine prices and handle claims.
- Provinces and territories determine what factors insurers can and can’t use when setting auto insurance rates (for example: age and gender) and also how they can be used. Keep in mind, each province will be different.
- Insurance companies must have their “rating rules” approved by regulators and must get government approval every time they want to change their rates.
What contributes to the increases in premiums outside of your personal record?
Insurance Fraud: In the last few years, the Ontario Automobile Policy has undergone some changes in order to try to stabilize the rates. Insurance companies are working tirelessly to crack down on fraud, according to a report created by Aviva Canada, consumers are shelling out an additional $2 billion a year in costs thanks to those who commit auto insurance fraud. Insurance fraud is always changing and becoming more difficult to detect each year. Staged automobile accidents, lying about what happened in an accident, and conspiring with health care providers to receive payments for treatments not received are all examples of ongoing fraud issues that are plaguing the system.
All payments made by insurance companies on fraudulent claims and/or the legal fees associated with these claims comes from the “pool” of payments (or premiums) of the many. If there are a lot of claims being paid out by an insurance company, that insurance company will likely have to file for a rate increase to ensure that their “pool” doesn’t dry up! According to the Aviva Canada report, entitled Crash, Cash and Backlash: Aviva Fraud Report 2017, stated honest drivers are paying higher premiums based on a small minority of people who are ripping off the system.
Increased cost of repairs: As vehicles become more and more integrated with technology, the cost of repairs for these vehicles also increases. A windshield on a compact vehicle used to only cost around $300-$400 to replace. The cost to replace a windshield on some newer vehicles can cost well over $1,000, yikes!
What can you do if your auto insurance premium goes up?
Try looking for savings elsewhere, such as:
- Bundling your home and auto policies.
- Carrying a higher deductible so that your premium, in turn, goes down (we only recommend doing this if you can afford it).
- Making sure your info is accurate (eg. maybe you’ve found a job closer to home and your commute isn’t as long).
- Shopping around and compare rates.
At Petley-Hare, we want to be honest with you about these topics, and hopefully help clear some things up! If you have any questions, contact us at any time, or let us shop around for you, request a free no-obligation quote from our experts, we are here to help!