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If you were expecting your auto insurance rates to immediately drop because of the pandemic, you might want to think again. While fewer people may be on the roads owing to work-from-home practices, any impact it might have could take years to reach consumers’ pocketbooks, and some industry experts suggest drivers may not see much of a benefit or may even see rates rise in the short term, given the way insurance premiums are set.

Insurance companies base the price of auto coverage on a number of factors. The most important is the presumed risk that the driver will be in an accident that requires the insurer to pay a claim. That’s why rates are higher for drivers with recent tickets or convictions, a background of at-fault claims or new drivers with less experience. These drivers typically represent a higher risk and generally pay more.

Rates are also influenced by the insurance companyʼs ability to make a profit. They look at the loss ratio, which is the difference between how much money they bring in from premiums and how much they pay out in claims, explains Justin Thouin, founder and chief executive officer of LowestRates.ca, a web-based service that allows people looking for car insurance to comparison shop.

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Insurers need to ensure they are still making an acceptable margin of profit after theyʼve paid all of their fixed costs, which include salaries and rent.

Insurers blame the rising cost of repairing todayʼs technologically advanced cars, a greater number of accidents caused by distracted driving and a surge in insurance fraud for worsening loss ratios, Thouin says.

“In most provinces across Canada, over the past few years, insurance companies have found that their loss ratios were not acceptable. Therefore, theyʼve had to increase their rates,” he notes.

However, itʼs not quite that simple. Because auto insurance is mandatory, it is heavily regulated. In Ontario, for example, insurers must propose rate increases supported by data about past claims to prove they are justified. The Financial Services Regulatory Authority (FSRA) evaluates the proposals and decides whether they are acceptable.

In Alberta, drivers have seen premiums rise since the government removed a 5-per-cent rate cap at the end of 2019. But insurers in that province have still complained that rates are too low and are being very selective about who they will insure as a result, says a report by LowestRates.ca.

Some believe insurers are unfairly raising rates in spite of the regulatory oversight. Toronto-based trial lawyer and consumer advocate Nainesh Kotak says the COVID-19 pandemic “has been a windfall for auto insurers.” He cites data published by the FSRA in October, in which it allowed for $198-million in premium increases in Ontario – an average $30 premium increase multiplied by the 6.6 million policies in the province – in spite of the $992-million in pandemic relief offered by insurers to some customers.

Pete Karageorgos, the Insurance Bureau of Canadaʼs director of consumer and industry relations for Ontario, says that auto-insurance premiums in the province have increased on average 5.5 per cent since 2012, while claims have become 24 per cent more costly.

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He also notes that while the pandemic certainly changed some peopleʼs driving habits, as workers stayed at home, the most recent rate increases approved by the FRSA were based on data collected some time ago. Drivers see “premiums that would have been approved perhaps six or 12 months previously … but the data that went into making those assumptions are likely even older than that – could be 12, 18 months prior,” Karageorgos says.

That doesn’t necessarily mean that rates will fall in another year or 18 months unless pandemic-related declines in driving turn into a longer-term trend, he adds.

Given the complex calculations that go on in the background, what can drivers do to keep their premiums down?

Thouin points out that insurance is a custom product, so drivers need to take control. “Itʼs important for them to be advocates for themselves,” he says. That means when your circumstances or driving habits change – such as shifting to working from home during the pandemic – you need to get in touch with your insurer. With fewer kilometres driven, you maybe eligible for a break on rates.

Other tips include shopping around for a better deal every year as insurers frequently change the way they price premiums. In some regions, winter tires qualify you for a 5-per-cent discount. Bundle your home and auto insurance for more deals. Ensure your driving record is correct.

But be sure you know what you are paying for. The cheapest deal is not necessarily going to meet your needs. “You need to have the right coverage and not just the right price,” Thouin says.

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Kotak agrees. “You get what you pay for,” he says.

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