Insurance Premiums drop by 15%: Cheaper Car Insurance and an Insurance Broker’s Perspective.

Auto insurance premiums are dropping by 15% as part of the budget currently being set by the minority Liberal Government. This story is being extensively covered in the news, as cheaper car insurance is one way to make EVERYONE happy. Makes you wonder what else the government has in store for us.

You’ve heard a lot about the politics behind the budget, but this 15% drop in Insurance Premiums raises two main questions. The first is: How will this 15% work? And the second: Why have these insurance companies not dropped their rates already, if they can afford a 15% cut? Although the details of the plan have not been finalized, we interviewed senior members of staff to find a consensus on what we as an insurance broker deem likely to occur. The real answers won’t be revealed until the actual details of the 15% Insurance Premium Cut are disclosed and the Insurance Companies comment, but our almost 70 years of insurance experience give us a pretty good intuition.

I’ll answer the second question first, and the cliff-notes version is: no, insurance companies have not been scamming you and no, right now they probably can’t afford a 15% drop in their auto premiums. Insurance is an expensive industry to be in for Auto Insurers, with Finance Minister Charles Sousa stating “claims in Ontario are ten times higher than elsewhere in Canada”. That’s a lot of money Auto Insurers have to pay out, and it gets worse. Fraud has become a major problem, especially in dense urban areas, which is driving the costs of insurance up for all companies. Combined with the unstable financial markets, this puts Insurance companies in a pretty precarious position.

Now that’s not to say the companies are failing – far from it. The Accident Benefits reform in 2010 has certainly benefited them, and they may be able to reduce premiums due to it. But this reduction would not be 15%, so the proposed reforms likely will be introduced gradually, and only with government assistance to reduce claim payouts and tackle fraud.

This ties in nicely with what you should expect to happen with your insurance premiums: Not a whole lot.

If the changes are going to be implemented slowly, which appears to be the path the government is taking; it could be a while before you get money in your pocket. Often when insurance premiums fall, you don’t see a change in your personal price until your renewal date, which could be a year away. The last time the government instituted a program like this, price changes were applied instantly, so Insurance providers sent refunds mid-term. This seems less likely given the gradual nature of this program, and the need to couple it with change to assist the companies.

Even if a 15% drop is legislated effective today, you probably won’t see exactly a 15% change. There will always be many factors which tie into your insurance premium, and they will likely prevent a clean 15% insurance premium cut. Changes to your insurance policy, like switching vehicles, changing or adding drivers, or even moving, will have marked impacts on your premium. So if you buy a new car as the 15% cut is implemented, you could actually see your premiums increase. This 15% is also unlikely to be applied evenly across all insurance policies, and you will see variation on which territories, and also which kinds of drivers, get the greatest savings.

A more gradual approach which reduces your premium upon renewal would also result in imperfect drops in premium, as your driving record is reevaluated and new speeding tickets and claims are included in determining your rate. This could again result in your premium spiking; cancelling out any reductions legislated by the government.

McDougall Insurance loves cheaper car insurance, and if you don’t feel like waiting for the bureaucratic 15% reduction to kick in, get the Insurance you need by checking out our online quoting tool or calling us at 1-800-361-0941.

Lorne McDougall