Demystifying Auto Insurance Rates

Demystifying Auto Insurance Rates

We admit it — insurance can be confusing. Our Agents often get questions from customers who want to get a better understanding of their insurance. And we encourage questions! Because the more you know, the better choices you will make to ensure you have the right coverage and that you can get the full benefits of your coverage when you need it most. You can also help lower your insurance rates by making informed decisions.

To help us all get a better understanding of how car insurance rates are determined, we spoke with Daniel Oh, Pricing Director for Allstate Canada. His team analyzes data and information, such as past claims and trends, to help make predictions on future claims activity and what Allstate will need to collect in payments to ensure all our customers are well protected. Here’s what we learned.

How auto insurance rates are calculated

The cost of car insurance depends on many factors, including the types of coverage you want included in your policy. We’d like to outline some of the most common factors that impact rates. Just keep in mind that this is a simplified breakdown meant to explain general trends. It might not cover all factors specific to your situation.

There are two main categories an insurance company considers when calculating an auto insurance quote: the drivers insured to drive the vehicle, and the car itself.

The Drivers


Generally, the better a driver’s driving record, the lower the rates. Insurance companies will consider the record of each person in the household who is listed as a driver of any car covered by your policy, including the number of driver violations received, as well as the number of years they have been licensed and collision-free. Speeding tickets, impaired and distracted driving charges, and collisions will most likely result in higher rates. In fact, it can sometimes take up to 10 years for a driver’s record to be considered clean by insurers. Driving safely; avoiding traffic violations and collisions can help keep your rates low.

Read more about the dangers of distracted driving

If you are a safe driver, consider looking into a usage-based insurance program, like Allstate’s Drivewise. These programs are designed to reward safer driving practices with discounts.


How often and how far you drive your vehicle is factored into your insurance rate calculation. Generally, as usage increases, so does the potential of being involved in a collision. The greater the risk of being in a collision, the higher the rate you may be required to pay.


Where a driver operates their vehicle will also affect insurance costs. Large urban centres and high-traffic regions can have a higher potential for collisions, theft, or damage to the vehicle. Insurance rates are also partially based on the historical claims data of other drivers insured in a particular area.


The deductible, liability limit, and any additional coverage chosen by the vehicle owner will factor into the cost of the auto policy. Increasing your deductible can help save money because you’ll share in the cost of a claim, whereas selecting higher limits of coverage could cost you slightly more on an annual basis.

The Car

Type, year, and safety rating

How much a car costs to repair, how often cars like it are stolen, how likely it is to be damaged in a collision, as well as how safe the car is for its occupants are all factored into the cost of insurance. While two cars may have a similar retail value, their safety and security features—or lack thereof—can mean a significant difference in terms of insurance.

Be wary of auto insurance myths that can misinform and misguide people shopping for insurance or even when purchasing a new vehicle.

Ways to save on your car insurance rates

In summary, here are some ways to potentially save on your auto insurance:

  • Drive safely, avoid traffic violations and collisions
  • Drive less. Take public transit, carpool, or ride your bike
  • Consider enrolling in a usage-based insurance program like Drivewise
  • Increase your deductible
  • Drop collision coverage on an older car
  • Bundle your car insurance policy with your home insurance policy
  • Install an approved theft deterrent system in your car

In addition to reviewing your insurance policy annually at renewal, you should have it reviewed when significant life changes arise. This includes – but isn’t limited to – adding new drivers to your policy, such as a spouse or your teen; getting a new job, which may change the distance you drive; or buying a new home, so you can bundle your insurance policies for savings.

Predicting the future with accuracy is not an easy task, but that is exactly what insurance companies must do to help keep everyone protected and properly covered.  The information we gather from customers, such as what kind of car they drive and how far they drive each day, helps us to make the best predictions possible.

More information on how car insurance rates are calculated can be found at How Cars Measure Up.

For information on how home insurance rates are calculated, read our article on Demystifying Home Insurance Rates.

article originally published August, 2016