We admit it — insurance can be confusing. Our Agents often get questions from consumers 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 for you and your family, and that you can get the full benefits of your coverage when you need it most. You can also help lower your rates by making informed decisions.

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

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 premiums for the coverage you may choose. Just keep in mind that this is a simplified breakdown meant to explain general trends and it might not apply to your specific situation. We encourage you to speak with your insurance provider to learn more about what factors are impacting your insurance rates.

There are three main categories an insurer considers when calculating an auto insurance quote: the drivers insured to drive the vehicle, socioeconomic factors, and the car itself.

The Drivers

Experience

Generally, the better the driver’s driving record, the lower the rates. Insurance companies may consider the record of each person in the household who is a driver of any car described by your policy, including the number of driver violations received, as well as the number of years they’ve been licensed and collision-free. Speeding tickets, impaired and distracted driving charges, and collisions could result in higher premiums. In fact, it can sometimes take up to 10 years for your record to be considered clean by insurers. So, drive safely, avoiding traffic violations and collisions.

Usage

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

If you drive less and are a safe driver, consider looking into a usage-based insurance program. These programs are designed to reward safer driving practices, with lower rates.

Location/Geography

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

Policy

A driver’s deductible, liability limit and any additional coverage may factor into the cost of their auto policy. Increasing your deductible may save you money, whereas selecting higher limits of coverage could cost you slightly more.

Significant life events

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 teenager; 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.

Socioeconomic Factors

Social Factors

There are some elements that affect insurance rates that you may not have control over. For example, theft is a major problem in Canada with Équité Association estimating stolen vehicles cost over one billion dollars in 2022.

Economic Factors

Another factor is inflation. As prices for automotive parts and labour rise, so does the cost for the insurance sector. As insurance can help pay to repair or replace a damaged or stolen vehicle, when prices rise insurance premiums will as well.

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 an accident, 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.

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 is calculated can be found at How Cars Measure Up.

Disclaimer: This information and the websites referenced are provided for your convenience only and should not be construed as providing legal or insurance advice. Allstate does not control or guarantee the accuracy of any content on any third-party site.  Allstate is not responsible for the privacy practices of any third-party site.

Originally published, August 2016