Where does your auto insurance money go?

Auto insurance isn’t just one thing. When you call to get an auto insurance quote, you’ll get a premium that includes a number of different coverages. The quote will always include the following coverages that are mandatory in Ontario:

• Accident benefits (25% of premium) – for medical and rehabilitation care if you should get into an accident. Learn more
• Third party liability (43.6% of premium) – to pay for injuries or losses that you cause someone else while driving. Learn more

In most cases, unless you drive an older car with little resale value, your quote will probably also include the following coverages, which your lender will require if your car is leased or financed:

• Collision (19.8% of premium) – to pay for fixing/replacing your car after an accident. Learn more
• Comprehensive (11.5% of premium) – to pay for fixing/replacing your car if it’s vandalized, damaged by severe weather or stolen. Learn more

What does this mean for your premium?

If your car is new, then you probably need full coverage, and the chart above is just for your information.

If your car is older, many people consider getting only the basic coverage. The chart above gives you a rough idea how much that could save you, but keep in mind that your older car is not worth as much as the average car in Ontario, so you won’t save 30% by removing collision and comprehensive. You might save a couple hundred dollars.

How much of your premium is profit?

When insurance premiums go up, some people like to say that insurance companies are jacking up rates in order to pad their wallets. In Canada, insurance is highly regulated, especially auto insurance, and insurance companies don’t make huge profits. Here’s a breakdown from Insurance Bureau of Canada that uses data from 2012 to 2018 to show how your premium dollar is broken down.

The reality of auto insurance is that governments mandate that insurers keep rates as low as possible, and so insurers often pay an even higher percentage of the collected premiums to pay claims. For auto insurance in Ontario, the average loss ratio (the percentage of premium used to pay claims) ranges from the mid 60s to the high 70s, and profit margins for some companies are razor thin.

If you buy your insurance through a broker, the commission paid to the broker is included in the operating expenses, along with staffing costs, marketing, rent for office space etc. For companies that sell direct or use their own agents, more of these costs are in-house, but in total, they average around the same portion of your premium, between 20 and 25%.

Other factors that affect your premium

If you want to save on premiums, here are a couple other things to consider:

• Increasing your deductible from $500 to $1,000 can save you about 10%.
• If you put snow tires on your car in winter, you can save around 5%.
• Stop speeding – tickets cost you a bunch
  • 10% for the first one
  • 20% for the second one
  • After that, 50% or more
• Stop hitting things
  • First at-fault claim uses up your accident forgiveness or increases premium by 20%
  • Second at-fault doubles your premium
• If you’re shopping for a new car, some cars are a lot cheaper to insure than others. Call for quotes on the different cars you’re considering before you buy. You could save 10% or more.