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:
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:
Just to give you an idea of what goes into your total premium, check out the following chart:
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.
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%.
If you want to save on premiums, here are a couple other things to consider:
Want to add to this story? Let us know in comments below! Mitchell & Whale is a fast-growing insurance brokerage in Ontario, striving to make insurance _not suck_ one customer at a time. Give us a call today to discuss any of your insurance needs at 1.800.731.2228.