It’s never a good day when you discover that your car insurance policy premium has gone up on renewal. You may be left scratching your head, wondering if car insurance companies can increase premiums insurer increased your premium. Premium increases are never random occurrences, though. Here’s a guide as to why your car insurance company may have increased premiums.
Can car insurance companies increase premiums: Frequently Asked Questions
What factors affect car insurance rates?
It’s always a good idea to understand how insurance premiums are calculated so you can see what’s affecting your rate and whether there is something you can do to save money now or in the future. In Ontario and Alberta, car insurance premiums are based on these main factors:
Make, model, and year of the vehicle – Your premium is based on the repair cost. How much it will cost to repair or replace your car. More expensive or exotic vehicles cost more to replace than less expensive cars, which will usually result in a higher insurance premium.
Location – Where your vehicle is located can also affect your premium. A vehicle that is driven and parked in a particular city might be more prone to theft or vandalism than a car located in a rural setting. It may also cost more to repair a vehicle in certain cities than in other areas.
Vehicle usage – How you use your car is also considered when rating your policy. A vehicle that is used to commute to work each day is more likely to be involved in a collision than one that’s usually parked in a garage except during grocery runs or other errands.
Driver experience and record – A mature driver with no traffic tickets on their record will almost certainly pay less than an inexperienced driver or one who has been convicted of a traffic offense such as speeding. Maintaining a clean driving record is one of the best ways to reduce auto insurance costs. Traffic violations such as distracted driving, speeding, and many other fineable offenses often result in a higher insurance premium.
Claims experience – Car owners who have been involved in one or more at-fault accidents will likely be deemed a higher risk than one who has a clean record, resulting in a higher premium being charged.
Coverage & deductibles – What coverage you buy and the deductibles you choose will directly impact your premium. A bare-bones policy that includes only liability and accident benefits coverage will cost less than a policy that includes collision coverage and comprehensive coverage. Policies with lower deductibles will usually pay more than the same policy with a higher deductible.
Can insurance companies increase premiums for existing customers?
Assuming that none of the rating factors identified above have changed since your previous renewal, an increase in your premium might be tied to an increase in the rates your insurance company is charging.
Insurance companies are able to increase their rates, if it’s approved by your provincial insurance regulator. Insurers need to provide the regulator with proof that their costs have increased or that they are unable to make a profit using the current rates. Requests for a premium increase need to be accompanied by proof, in the form of an actuarial analysis that shows the increase is needed. It’s not uncommon for the regulator to push back on a request for a rate increase or to ask for additional proof before any agreement is made.
Why are insurance companies allowed to raise rates?
Insurance is a heavily regulated industry because the government wants to know that an insurance company is able to honour its commitments to its policyholders by paying any claims it receives. This means that the amount of money that an insurance company spends on expenses and pays out in claims needs to be less than the amount it receives in premiums.
To ensure this balance is maintained, the regulators will usually allow insurers to increase the cost of auto insurance in certain cases. Some examples include:
Inflation – If the cost to repair or replace a vehicle increases due to inflation or other factors such as supply-chain issues or part shortages, it may be necessary to increase rates to cover the extra expense.
Change in risk – Changes in risk occurs all the time. For example, in recent years, car thefts have risen dramatically, resulting in more insurance claims payouts. A company may be able to prove that this change in risk since they established their previous rates is preventing their ability to make money, and they may receive approval for a rate increase.
Technology changes – Technology changes in the cars we drive may also result in increased auto insurance premiums. Take for example electric vehicles. While insurers did not have much information to go by when setting the rates for the first several years, they now have more information on the cost to replace or repair these vehicles – and the unique risks they face. The same can be said for drive assist systems and sensors and the cost of repairing or replacing them following a collision.
Does credit score affect car insurance increments?
While some insurance companies may use your credit score to help rate your homeowner or rental insurance policy, the same is not true for auto insurance.
In Ontario, insurers are prohibited from using credit reports or scores to rate or underwrite car insurance policies.
In Alberta, credit information can only be used if the policyholder chooses to finance their insurance using a payment plan.
How can you prevent an increase in insurance premiums?
Now that it’s clear why car insurance companies increase premiums, it’s important to know what can be done about it. While none of us can change the rate of inflation or the cost of repairing our vehicles, there are some things we can do:
Drive safely – Traffic tickets and at-fault claims can result in large premium increases. Following the rules of the road and avoiding situations that could result in an accident can help avoid these premium increases.
Coverage & limits – Speak to your insurance professional about how you use your vehicle and your personal financial situation. It may make sense to increase your deductibles or reconsider whether collision coverage is a good investment for your particular vehicle.
Usage – If you are one of the many Canadians who moved from working in an office to work-from-home in recent years, ensure your policy reflects that change. Daily commutes increase the chance for accidents and if you aren’t using your car this way, your premium may decrease.
Credits – There are many different types of credits and discounts available to vehicle owners and some of them are easy to miss. Be sure to speak to your insurance professional to ensure you have all the discounts applied to your policy that you’re eligible for.