Here are some helpful tips and information courtesy of the
Insurance Bureau of Canada. (IBC)

How Insurance Works

What type of car do you drive?
How much will it cost to repair or replace your car in case of a total loss does have an influence on the premium you are expected to pay. The more expensive cars are usually more expensive to insure.


Where do you live?
Because collisions are more likely to happen where there is a high volume of traffic, people who live in a urban area are more likely to be involved in a collision (70% of all collisions occur in urban zones)


How is your driving record?
Drivers who have demonstrated poor driving behaviour by “collecting” moving violations (speeding, dangerous driving fines) are also more likely to be involved in a collision and the premiums reflects the added risk factor.


Principles

There are three basic principles of auto insurance:
1. The premiums of the many fortunate policyholders who do not suffer insured losses reimburse the insured losses of an unfortunate few.

2. The only “dividend” is financial peace of mind (unlike “whole life” insurance, for example, there is no promise of financial enrichment).

3. Within reasonable limits, some of which are prescribed by law, premiums reflect the degree of risk... a distinction that differentiates insurers from gamblers.

4. It is this third point which requires the collection and analysis of personal information by insurers. The only alternative would be a one-size-fits-all style of underwriting, with everyone paying much the same premium... and lower-risk policyholders thus subsidizing the higher-risk ones.


Insurance Myths

1. Insurance companies are making a fortune on premiums.
Auto insurance premiums alone don’t cover the cost of paying claims. For each 90 cents you pay in premiums, 97 cents is spent paying claims. A further 25 cents goes to related expenses for processing and other administration. Some of the difference is made up from income generated through investments. Your insurer takes in about 10 cents in investment income for each 90 cents you pay. It still doesn’t cover the costs of claims.

The industry’s return on equity was at an all time low in 2001 of 3.0 per cent, a low profit for any business. Some secure bank accounts could generate the same return with much less risk.

Revenue from premiums in 2001 increased by 8 per cent, but insurance claims increased by 12 per cent.

2. It’s difficult to get paid for a claim.
In fact, auto insurers write cheques for more than $7 billion each year to help Canadians get the care they need, replace lost income, and repair cars and other property.

3. My premiums are being held in an account until I file a claim.
Premiums are invested. Insurance companies generate income from both premiums and investments. Recently, premiums alone have been insufficient to cover claims and related operating expenses. Investment profits enable the industry to make up for the shortfall in premiums and to earn an overall net profit.

4. You’ll always get less than you ask for so inflate your claim.
Filing an insurance claim is not the beginning of a negotiation. Insurers may scrutinize receipts and details to ensure that everyone is getting value and appropriate service. But inflating the cost of a claim is fraud and insurance fraud is a crime.

5. Insurance companies keep changing the rules on what’s covered.
Car insurance is highly regulated by provincial governments. Laws and regulations set out minimum standards for accident benefits in most parts of the country and automobile liability insurance is mandatory across Canada. You can’t legally drive without it. Governments also keep tabs on how much insurance companies charge for their products. Premiums cannot be increased without approval.


Claims Costs Across Canada

Insurance Bureau of Canada has looked at 119.2 million policies in every part of Canada and learned that when it comes to car insurance, as with most things in life, you get what you pay for.

 

For more information or to view the IBC web site