How Much Can the Province Do About Car Insurance Rates in Brampton?
It’s no secret that car insurance is high in Brampton.
The high rates for auto insurance premiums was an issue that garnered some attention during the recent provincial election campaign. Two of the four major parties proposed eliminating the geographical rating by one's postal code in order to solve the issue of high insurance premiums.
But, as stated in this previous article, you can’t remove one rating factor without affecting all other factors because that may lead to higher insurance for people outside Brampton.
An emerging financial technology company specializing in financial services agrees with that assessment.
LowestRates.ca allows people to compare insurance, credit cards, mortgages, and loans offered by North America's leading financial institutions.
"When I worked in the United Kingdom, people everywhere used rate comparison sites for all their financial needs," said CEO Justin Thouin.
He said when he moved back to Canada, he was astounded by the fact that so few Canadians used similar methods of comparing rates, and generally lacked financial literacy, preferring to stay with the insurance companies or banks they were using for years.
I chatted with Thouin about insurance premiums based on postal code in Brampton and surrounding cities.
With the actuarial science that is involved in rating insurance premiums, what would happen if you take out the rating by postal code factor?
"The bottom line is that insurance companies need to make a profit, otherwise they wouldn't be around very long. But as much as they need profits in order to pay staff, cover expenses such as rent and hydro, there is no benefit for companies to engage in what the public perceives as gouging consumers with exorbitantly high premiums."
"If you remove the rating based on postal code, you will see insurance companies have to adjust that formula to accommodate the missing factor and other place such as rural areas, will start seeing higher premiums. You will see fewer companies operate in Ontario because they can't make enough money. So there needs to be a clear understanding of how auto premiums get rated."
According to Kanetix.ca, Brampton and Scarborough are some of the highest regions for auto insurance rates. What is that based on?
"The simple answer is: claims. More specifically, claims based on the amount for each individual, and high amount of claims leads to frequency of insurance fraud, where people are trying to claim more under their insurance that they're entitled to."
"But a silver lining is that insurance companies, because they want to ensure profits by not overpricing the consumers, are constantly reevaluating their rates, usually around every quarter, in order to remain competitive."
"This is one of the reasons I don't think a policy such as public auto insurance would work in Ontario; you take a look at BC which has some of the highest rates in the country right now. Competition drives down costs, and incentivizes the companies to improve their products. But the issue of claims still exists, and that's the reality of the situation."
The incoming (Ontario PC) provincial government did not make a specific promise on auto insurance. What would you advise the new premier to do when it comes to lowering auto insurance rates?
In response to this question, Thouin said it wasn't as much as the need for government to take action, but they could encourage the industry to undertake certain measures:
Put a real emphasis on combating insurance fraud.
Make the installation of winter or all season tires mandatory.
Encouraging consumers to utilize usage based insurance, otherwise known as telematics, to measure driving behaviour.
Get more people to shop around by comparing insurance companies' rates with each other, but Canadians are rather complacent and stay with the same company year after year, because of peace of mind.
Thouin believes reforming auto insurance is a minor issue in comparison to other more important issues such as health care and education.
Overall, the issue of high insurance rates is intrinsically tied back to the accumulation of claims on an individual basis in certain areas, such as Brampton. And according to this particular organization which specializes in comparing rates for a variety of financial products, including insurance, the key to getting something more affordable is as traditional as perusing around the market for something better.
So it looks like high auto insurance rates don’t always require government solutions.
What do you think?