You can save yourself some money if you ask the right questions
By Olev Edur
Automobile insurance is a necessary evil—it’s complicated and costly, but it can also save you untold grief, should you ever have need of it. It’s an essential expense—indeed, mandatory for all drivers—but there are ways you may be able to reduce the annual bill.
The amount you can save will depend, first, on the province or territory in which you live—each has different regulatory frameworks and rules regarding what’s required, so average costs vary dramatically from one jurisdiction to another. Policies themselves can also vary widely from one insurer to another. (According to the 2015 edition of Insurance Bureau of Canada’s (IBC) Facts of the Property and Casualty Insurance Industry in Canada, there are about 110 private auto insurance businesses in the country, in addition to government-owned insurers in British Columbia, Saskatchewan, Manitoba, and Quebec that provide the mandatory component of auto insurance in those provinces.)
As a result, the dollar figures cited below applied in their specified jurisdictions at press time; when you’re ready to buy, you’ll need to talk to an agent or broker where you live. Based on all the specifics, he or she will be able to provide an accurate up-to-date dollars-and-cents picture of your car insurance savings prospects.
Multiple Policy Components
In looking for economies within the coverage itself, you need to understand how auto insurance policies are structured and what the various elements provide.
Karen Ritchie, vice-president of Baird MacGregor Insurance Brokers in Toronto, explains that a typical policy usually consists of several basic components:
1. Third-party liability (TPL) pays the costs if you are at fault in an accident and cause property damage or injury to another party. According to IBC’s Facts, this coverage is mandatory in all Canadian provinces and territories.
The minimum TPL coverage requirement in most provinces is $200,000, with a minimum of $50,000 in Quebec and $500,000 in Nova Scotia. MacGregor suggests these amounts are all inadequate, given today’s high costs for almost everything.
“We never recommend less than $1 million in liability,” she says, “and it might cost only another $20 or $30 a year to raise that to $2 million.”
Similarly, Lynne Belanger at Pat Anderson Insurance (now part of the Reliance Insurance Group) in Burnaby, BC, believes the TPL coverage offered by Insurance Corporation of British Columbia (ICBC) is inadequate. “The basic coverage through ICBC’s Autoplan is only $200,000, and we encourage people to increase that amount,” she says.
2. Accident benefits (AB) coverage, mandatory in all provinces but Newfoundland and Labrador, pays the cost of injuries to you and any passengers in the event of an accident, regardless of who caused it. As such, it’s a form of what is called no-fault insurance (see box below). “Autoplan covers up to $150,000, and generally we don’t believe additional coverage is necessary,” Belanger says.
3. Collision coverage pays for repairing damage to your own vehicle to the extent that you are at fault in an accident. If it’s another driver’s fault, his or her insurer pays your costs under its TPL provisions, and if you’re both partially at fault, the costs are pro-rated according to responsibility.
“If, for example, you are 100 per cent at fault, the damage is $5,000, and your deductible is $1,000, the collision coverage would pay $4,000, plus possibly the cost of a replacement rental car while the repairs are done,” Ritchie says. “If you and the other driver were each 50 per cent at fault, the costs and the deductible would be split evenly by both insurers.”
As for the allocation of blame, Ritchie says there are standard rules for doing this, even in multi-car accidents: “They look at where the cars were, what they were doing, and what damage resulted, then apply the rules to arrive at a fault determination.”
While collision coverage is optional in most provinces, it’s part of mandatory basic coverage under the Saskatchewan Government Insurance (SGI) plan and is required under the Manitoba Public Insurance (MPI) plan.
4. Comprehensive auto insurance covers damage done to your car other than through a collision—for example, if the car is stolen, the windshield is cracked, or somebody keys a scratch into the paint. As with collision coverage, comprehensive insurance is mandatory in Saskatchewan and Manitoba but optional elsewhere.
Finding Some Savings
Although there’s obviously little you can do about saving money where coverage is mandatory (and as Ritchie and Belanger point out, you shouldn’t skimp on TPL anyway), it’s a good idea to take a close look at your policy’s collision and comprehensive provisions. Sometimes it may make sense to reduce or even eliminate them entirely, or to ensure you have only the minimum mandatory coverage. (If you’re financing or leasing a vehicle, however, collision and comprehensive may be required by the lender even though the provincial government treats it as optional.)
“If your car is very old and not worth much and you’re a good driver, you might not need collision or comprehensive,” Ritchie says. “You still have coverage through the other driver’s third-person liability coverage if you’re in an accident and it’s not your fault. The amount you can save by dropping your collision and comprehensive varies dramatically and could be anywhere from $200 to $2,000 yearly, depending on rating factors such as your driving record, where you live, how you use the car, and what it’s worth.
“It also depends on your financial tolerance,” Ritchie says. “Can you absorb the loss of your car’s value if you’re at fault in an accident? If so, or if the car’s not worth much, you could forget about collision and comprehensive.”
Another savings possibility lies in the amount of deductible you have to pony up before the insurer starts paying.
Ritchie says a $1,000 deductible is typical these days, but you could save as much as a couple of hundred dollars a year by raising it to $2,500 or even $5,000. “Again, it goes to your financial tolerance, and the amount you can save is going to depend on your rating factors and province of residence.”
One relatively new option on some policies is that you can have a chip installed in your vehicle to monitor your driving. “Some companies say it’s for six months, others leave it in longer,” Ritchie says. “They’re looking out for things like hard braking, or speeding all the time. A good driver could save 10 or 15 per cent on premiums by getting a chip.”
And of course, you should be on the alert for any further discounts that may be available in certain cases. For example, ICBC offers a seniors’ discount. “ICBC’s seniors’ ‘pleasure rate’ provides a 25 per cent discount on basic coverage, but it’s not available on optional coverage,” Belanger says. “To qualify, the registered owner and the principal driver must both be aged 65-plus, and you can’t use the car for commuting, business, or delivery purposes.”
(ICBC also offers a discount for those with disabilities and an experienced drivers’ discount if everyone in the household who drives the vehicle in question has 10 or more years of driving experience.)
The higher the car price, the higher the insurance premium, other things being equal. “Obviously, high-priced Mercedes and Porsches are going to be more expensive to insure,” Ritchie says. “Four-door models cost less than two-door models, and sporty models can cost a lot more. Much depends on the cost of parts, too, so you’re better off sticking with cars you see a lot of.”
If you’re trying to choose a car but would like more detail on which cars are most insurance-friendly, Insurance Bureau of Canada (IBC) produces an annual publication called How Cars Measure Up, in which hundreds of recent makes and models are rated on the basis of actual insurance claims. IBC also produces a multi-year assessment compilation called Worst and Best Ten Models culled from the previous listings. These ratings and costs help insurers calculate the appropriate premium for each vehicle.
“These listings look at what happens when a car is involved in an accident, or when there is a fire, or theft or vandalism,” says Pete Karageorgos, IBC’s director of consumer and industry relations. “It’s not about which cars are cheaper to operate. Honda, for example, is in the top 10 when it comes to stolen vehicles.”
Karageorgos concurs with Ritchie that the cost of parts can be an important factor in setting insurance premiums; he therefore suggests buyers consider the source when making comparisons. “Depending on where the car is made, it may be harder or easier to get parts,” he notes.
Size can be another costing factor. “Bigger cars offer better protection because there’s a lot more metal around you and you’re positioned up higher,” Karageorgos says. “If there’s an accident between, for example, an SUV and a small car, the small car is not going to fare as well.”
On the other hand, small cars generally are cheaper to operate, so any insurance savings can easily be offset by the cost of gasoline and routine maintenance on an SUV or luxury cruiser. And in any event, there’s personal taste—the kind of vehicle you want may trump all other considerations. Your choice is therefore going to depend on more than just the insurance implications.
Finally, the most important thing you can do to keep insurance costs down is to drive safely—because nothing is going to drive up your rates as much as bad driving. Traffic and speeding infractions, and of course accidents, are all going to affect your premiums, although the extent to which they do so depends again on a range of variables, including the insurer’s rate structure, where you live, and the type of car you drive.
And don’t forget to shop around, either yourself or preferably through a broker who deals with the products of many companies; as noted by Ritchie and Karageorgos, different insurers can have dramatically different offerings, and that applies to price as well as coverage.