When Brett Caldwell faced a $700 increase in the cost of his annual automobile insurance last spring, he decided to shop for a better rate. His legwork paid off.
Using the Internet to compare prices, the 40-year-old owner of a Toronto fire protection services company switched insurers and purchased a policy that saved him $250 and provided better coverage.
"I was paying $1,800 and my insurance company wanted me to renew at $2,500, even though my record was clean and nothing had changed over the previous year," says Caldwell, whose new $1,550-a-year policy with Royal Insurance boosts his liability coverage to $1-million from $500,000 and ads $1,000 a week in injury benefits, coverage not included in his previous policy.
Although auto insurance costs have eased in the past year, rates continue to differ widely for people with similar experience and driving records. For instance, the price of the same coverage for a 50-year-old Ford Windstar minivan driver living in London, Ont., can range from $1,158 to $2,677, says the Insurance Bureau of Canada (IBC), a trade association that represents about 90 per cent of Canada's 210 general insurance companies, including 120 in Ontario.
A 24-year-old Acura driver in Toronto with a clean record would pay anywhere from $3,250 to $7,192, says Lee Romanov, founder of InsuranceHotline.com, a Toronto-based website that bills itself as "an unbiased insurance rate comparison service."
Such severe rate spreads have convinced many drivers to search the market for the best price, says John Belyea, vice-president of Creighton & Co. Insurance Brokers in Mississauga. Belyea estimates shopping around can shave as much as 25 per cent from the cost of premiums offered by about 40 insurance companies that service the Toronto area.
Caldwell saved big by logging on to InsuranceHotline.com, which provides consumers with the lowest rates offered by 30 insurance companies listed on its website. After receiving quotes, drivers who elect to sign on with a particular insurance company are directed free of charge to a broker representing that company. If the insurance company does not have a broker participating in the website service, motorists pay an $8.50 fee to be linked to one.
Other drivers are landing lower rates in a more traditional way: phoning (or e-mailing) brokers who deal with a number of insurers to find the best possible deals among the firms they represent.
Either way, when shopping for car insurance, Romanov says it is imperative to deal with outlets that represent a variety of companies with clients ranging from drivers with poor records to those that have never had a speeding ticket and who drive vehicles ranging from compact cars to luxury sedans.
"Every insurance company creates its rates based on where and with whom they are having the highest losses," she says. "If you are in a part of a city where that insurance company had bad losses and you have a clean record, you will pay higher rates because everyone in that area pays for losses of a few."
Similarly, if you drive a luxury car and your company has paid out dozens of claims similar expensive vehicles, you could pay more than a neighbour who drives the same car but is insured by a company that has had fewer pricey claims.
"We match your driving profile to the insurance company that wants your business and that has created a competitive rate to capture you," Romanov says. "People don't understand it or believe it, but increasing rates is an insurance company's way of telling you to go away. Unfortunately, many consumers get paranoid and just pay the higher rates."
Brigid Murphy, vice-president of underwriting and business analysis for the Dominion of Canada General Insurance Co. in Toronto says that although rates are regulated, companies are able to justify what they charge based on the statistical performance of their clients.
"If one company is paying out more money in a certain part of its business, it has to charge more and some drivers pay the price," she says.
Brokers concede that shopping around won't always produce lower rates because some drivers may already be paying rock bottom prices. While others with abysmal driving records may not find companies willing to discount what they are currently paying until they are accident or ticket free for several years.
They also warn drivers that switching companies for a lower rate is not always the best move because less expensive rates may mean reduced coverage or tardy service when you make a claim or have questions about your policy.
Here are some strategies that can save money without switching companies:
By consolidating home and car insurance on one policy, auto premiums can be reduced by up to 10 per cent, Belyea says.
Ten to 15 per cent can be trimmed by writing one policy for two cars that previously were insured separately; up to 2 per cent can be saved by increasing the collision deductible to $1,000 from $500.
A further 3 per cent saving is available to drivers who raise their comprehensive deductible to $1,000 from $300, Murphy says.
The collision deductible is the amount you have to pay out of pocket in the case of an accident that is your fault; comprehensive deductible is a driver's portion of the cost in the case of theft, vandalism or damage to a vehicle's glass.
Money can also be saved by increasing the deductible connected to a part of the coverage known as Direct Compensation for Property Damage, which pays for repairs to your car if you are not at fault in an accident, Murphy says. Most drivers have a zero deductible, which means the coverage pays the entire cost of repairs but if that is raised to $1,000, you could save more than 7 per cent, she says.
If you drive an older car, consider removing collision and comprehensive totally, which, according to Belyea, can produce savings of up to 20 per cent. Romanov says she knows of drivers whose rates have been cut by as much as 33 per cent by dropping this coverage.
Another $50 to $60 can be shaved from a premium by deleting glass coverage from the comprehensive section of the coverage, Belyea says, adding that many drivers have a $500 deductible on their windshields but replacement costs for a chipped or smashed windshield are usually less than that. "If you're going to pay the full cost of a new windshield anyway, why not delete the coverage and save yourself some money?"
People who use public transit rather than their vehicles to get to and from work can save even more. For example, a 55-year-old driver with a clean record who lives in Toronto and drives a 2004 Volvo S60, would save $106 or 6.3 per cent by eliminating travel to work, Murphy says.
"If you're driving to work or using your car for business you pay more because there is a direct relationship to the amount a car is used and the chance you will have an accident," says John Woodburn, an information officer with IBC.
And while it may sound extreme, you can always move to a different community to reduce your insurance rate. Smaller cities have less traffic, which reduces the chance of being involved in an accident and results in lower premiums.
The aforementioned 55-year-old Volvo driver would pay $1,694 for car insurance in Toronto, but only $992 for identical coverage in Ottawa or Peterborough, Ont., Belyea says.
If you'd rather stay put, consider the Autograph program, to be offered on a test basis in early 2005 by Aviva Canada insurance company. It would have motorists track their driving behaviour with a data-gathering device that plugs into the diagnostic port typically found under the steering column of most cars made since 1996. As they drive, the device will record data on factors statistically proven to impact risk, including how much, how fast and when a car is driven.
Drivers who participate in the program and submit their data to Aviva will automatically receive a 5 per cent discount on insurance premiums, says Paul Fletcher, senior vice-president of marketing at Aviva Canada.
Those who consistently drive at 120 km/h or less on the highway and avoid driving in rush hours or the wee hours of the morning when more accidents happen, and restrict the amount they travel could be eligible for a further 20 per cent discount. Failing to adhere to these conditions would reduce their discount.
"Insurance consumers have been asking for more clarity and control over how their premium is set," Fletcher says. "Autograph is a way for drivers to better understand and positively influence their auto insurance premium."
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