Car
insurance premiums, like all insurance premiums, are determined based
on risk. That is, how likely it is that a customer – and a group of
customers with the same set of circumstances – will make a claim, and
how much those claims will likely cost. Actuaries (those with
mathematical training in the principle of large numbers and the theory
of probability) must also predict how much it will cost to settle these
claims, the company’s overhead, selling costs, industry taxes and the
amount that must go into reserve funds to cope with catastrophes.
These factors affect what you pay for automobile insurance:
- Where you live: If you live
in a bustling city, for example, accidents and vehicle theft are more
likely, which may translate into higher premiums.
- The type of vehicle you drive:
Insurers consider the make and model of your vehicle in terms of what
the risk factors associated with it might be. For example, some makes
and models fare better in collisions than others, meaning injury to the
occupants and damage to the car end up being less severe. Also, newer,
more expensive vehicles cost more to replace, so they are more
expensive to insure. In determining your vehicle’s risk and expected
claim severity, your insurance company may rely to some degree on IBC’s
Canadian Loss Experience Automobile Rating (CLEAR).
- How you use your car: The
more time a car spends on the road, the higher the chance of an
accident. That means higher premiums if you drive a lot, you drive long
distances or you drive to work everyday.
- Your driving record: Your
driving record has a big impact on the premiums you pay. For example, a
long driving history with no accidents can help keep your premiums
down, and every accident where you're at-fault
may push your premiums up. Speeding tickets and other moving
violations may also increase your premiums, but parking tickets will
not.
- Your statistical group:
Depending on what province you live in, your insurer may consider
the claims history of the group to which you belong as a driver –
for example, the group of drivers of the same age and in the same
geographic location. If you belong to a group that is more likely to
make claims, your premiums may be higher.
- Other factors: In the highly
competitive field of insurance, prices are also affected by the
interplay of market forces, government regulations, taxes at many
levels, discounts and unpredictable catastrophic events.
Because insurers consider a policyholder’s individual history
in combination with that of his/her group, there is no
one-size-fits-all method of determining premiums. Therefore, it is not
the case that all 30-year-olds driving Fords and living in downtown
Calgary pay the same amount for their car insurance. If the factors
listed above weren’t considered, lower-risk policyholders would be
subsidizing the higher-risk ones.
These factors DO NOT affect what you pay for automobile insurance:
- The colour of your car:
The colour of your car does not affect your automobile insurance
premium. You will not be asked to specify the colour of your vehicle on
your auto insurance application.
- Whether your car is foreign or domestic:
Insurance premiums will not necessarily be higher for a foreign
vehicle than they will be for a domestic automobile. See “The type of
vehicle you drive” in the list above for more information.