How is car insurance determined?

For many people, car insurance represents one of their most significant financial commitments each year. But for many, how car insurance is determined and rated remains a big mystery, with quoted premiums seemingly coming out of nowhere.

However, how car insurance is determined isn’t random. There is a lot of science behind your insurance premium. So, in this article, we will dig deep and answer: How is car insurance determined?

How is car insurance determined: Frequently Asked Questions

How is the cost of insurance calculated? 

The most important thing to understand about auto insurance is that your premium is based on the risk your insurer needs to cover. This risk could be the insurance company’s financial risk for repairing and replacing your vehicle. It can also be the risk that a driver will experience an accident or theft. The higher the risk the insurance company takes, the more expensive the car insurance. 

What elements influence your car insurance? 

Your car insurance premium is calculated using several factors about you, other drivers in your household and the vehicle itself. Here are the elements that influence your car insurance premium. 

How is car insurance determined by my vehicle? 

One major factor when calculating your car insurance rate is the type of vehicle you are insuring. The year, make, and model of the vehicle you insure plays a significant role in calculating your insurance premium. More expensive cars are usually more costly to repair and are more expensive to replace than cheaper vehicles. In addition, more exotic imports such as Land Rovers, Porsches and Jaguars often cost more to insure because parts and body components may need to be shipped overseas to complete repairs after damage to your vehicle.

Even less expensive cars with driving assist devices such as blind-spot monitors and lane assist can be more pricey to repair because even minor traffic accidents may damage or misalign the sensors. In addition, such technology repairs often result in hours of installation expenses and recalibration costs. However, advanced safety features can lower overall car insurance costs by helping reduce collision frequency and severity. 

How is car insurance determined by my location?

Where you live is also important when calculating insurance rates. People who live in cities may be more susceptible to car theft than those who live in small towns. City drivers may be involved in more fender-benders than their rural counterparts. In some areas, extreme winter weather may result in more single-vehicle accidents than in other, less snowy regions. 

Your insurance quote may go up or down, depending on how your insurance provider rates risk for these geographic factors. That’s why it’s helpful to work with a broker who can compare insurance quotes from multiple companies to find you the best coverage option.

How is car insurance determined by yearly mileage?

How far you drive in any given year also affects your insurance premium. Statistically speaking, the more anyone drives, the higher the likelihood they will experience an accident.  

How is car insurance determined by my coverage?

It should be no surprise that the more your insurance policy covers damages, the higher your premium. For more protection, it’s wise to consider increasing your mandatory liability and accident benefits coverage limits or adding optional policy endorsements such as collision and comprehensive coverage.

How is car insurance determined by other drivers of my vehicle?  

Who’s driving your car plays a prominent role in how much you will pay for your auto insurance. Therefore, each motorist’s driving history is used to calculate insurance premiums. 

How is car insurance determined by my driving record?

Insurance companies will request a motor vehicle record from your provincial government. If a driver were convicted of driving violations in the past three years, such as speeding or failing to stop at a signed intersection, their premium would be higher than someone with no recent tickets. 

Suppose a driver has experienced a criminal violation such as driving under the influence or careless driving. In that case, you may not qualify for regular insurance coverage and may have to buy more expensive coverage from a specialty insurance provider. 

How is car insurance determined by accidents?

If a driver has experienced an at-fault accident in recent years, their insurance premium will be higher than someone who is accident-free. The data shows that the likelihood of a second accident is much higher if someone has experienced an accident in the past five years.  

If you have a policy with accident forgiveness, your insurance company won’t increase your premium after your first at-fault accident. After that, however, you will likely lose claims-free discounts and the ability to purchase accident forgiveness coverage for the next six years.  

How is car insurance determined by my age?

The driver’s age plays a role in determining your auto insurance premium, with younger and inexperienced drivers paying more than older individuals with years of safe driving experience. We will explore this in more detail below. 

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Does the cost of the vehicle affect auto insurance? 

As stated above, your vehicle’s value directly influences your insurance premium: This is especially true if you purchase collision or comprehensive coverage. Your rate goes beyond price, however. For example, an expensive vehicle built in North America may be less costly to insure than a similarly priced car from overseas due to more accessible materials if an insurer covers the cost of sourcing parts and body panels.

Other factors relating to the vehicle include whether it is a family van, sedan or sports car, with sportier, higher-powered vehicles such as a Mustang or Camaro being more expensive to insure due to data showing higher claims frequency for these vehicles. 

Does credit score affect how car insurance is determined? 

In Ontario, it’s illegal for insurers to use your personal credit information to underwrite or rate your car insurance. 

In Alberta, insurers can only pull a credit report if you have applied for premium financing or a monthly payment plan. 

Why does my age affect my insurance? 

Unfortunately, young and inexperienced drivers have more accidents than older, seasoned drivers. For example, the Traffic Injury Research Foundation reports that younger drivers have an accident fatality rate that is three times higher than the rate among 35 to 44-year-olds, and their injury rate is double that of the same group. In addition, the data suggest that inexperienced male motorists are more likely to have an accident than new female drivers, resulting in higher insurance rates for younger men. 

Older new drivers are less likely to experience an accident than their teenage counterparts. Still, they too have higher accident rates than experienced drivers and will pay more for their insurance until they have more experience as a safe driver.  

How can I keep insurance costs down? 

The easiest way to keep insurance costs down is to drive safely and follow the rules of the road. All insurers reward good driving behaviour with lower rates for those without tickets or at-fault accidents.

You can also keep insurance costs down by only purchasing the coverage you need to protect you, your family and your vehicle. Talk to your insurance professional about reducing coverages, increasing deductibles, how to bundle your home and auto insurance, and whether usage-based insurance is right for you.

Usage-based insurance plans monitor your driving habits to help good drivers save 20 to 30% on their insurance. Call us to discuss how you can save more with our usage-based insurance partners.

For more information about reducing your premium, check out our Ontario car insurance discount tips.





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