Auto Insurance Premiums

When it comes to Auto Insurance, we find that the general public are not well enough informed on what really goes into generating that insurance premium. The answer is slightly more complicated than you would think. A great article from the Toronto Star explains some of the logic behind what goes into making your insurance premium. It can be found here. To summarize the article; a ton of things. Each precise detail can affect the final premium which is why it is so important to fully disclose all relevant information to your trusted insurance broker.

So What Exactly Goes Into My Rating?

A variety of things including but not limited to: The year, make, model of the vehicle, if it was bought used or new, is leased or owned, the area you live in, the number of drivers, the number of convictions received, the number of claims made, the age of the driver, the gender of the driver, the loss history of that particular insurance company in that particular area with that particular type of vehicle, and so on and so forth. As you can see, there are many factors that are involved in how a premium is made and it is quite complicated. It is the job of the actuaries to determine the rates and the job of the underwriter to apply those rates to your particular case.  The rating system is called the Canadian Loss Experience Automobile Rating system or CLEAR and is intended to determine the likelihood of the vehicle to be involved in a claim as well as what the typical settlement cost would be. Now that you understand what information goes into your auto insurance premium, the question you should be asking is:

Why Do I Get Different Premiums with Different Companies?

The premium you get is composed of 2 things:

  1. Pure Premium – The amount required to pay only for the anticipated losses (what the actuaries spend all day calculating)
  2. Expense Loading – This amount is added to the pure premium and includes:
    1. Acquisition Costs
    2. Processing and Servicing Costs
    3. Taxes
    4. Contingencies
    5. Profit

As with all companies, the objective is cover all the costs and to make some profit. Companies will price their premium according to the losses they faced in the past and the costs they are facing in the present. This is where an informed and knowledgeable broker separates themselves from the average broker. Their knowledge of the market can help you by placing your coverage with the company that best fits your needs. Whether you are only focused on the lowest premium or you are concerned with claims service or perhaps company stability the best brokers understand your priorities.

To speak with one of Pacific Insurance Broker Inc.’s knowledgeable brokers to find out more about your available options please call (416)494-1268.