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Why is car insurance in Toronto so expensive?

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Toronto is a city filled with an exciting culture, diverse neighbourhoods, and it remains one of the most liveable cities in the world. One thing residents will never boast about is how much they pay in auto insurance in Toronto.

In Ontario, a 2017 report by the Special Advisor to the Minister of Finance showed that car insurance rates stood at an average rate of $1,458 per car. That’s almost 55 percent higher than the average rate in the rest of Canada.

Anyone living in Toronto will see rates climb as much as $1,000 higher than the Ontario rate. And it can go even higher depending on individual circumstances, driver history etc.

The question is: Why are rates in Toronto so expensive for drivers compared to other parts of the country?

Let’s start with simple geography. Toronto and the surrounding area (GTA), is densely populated, which means a lot of vehicles on the road. The more drivers there are on the road equates to a lot more accidents and claims that occur. That alone causes car insurance quotes to rise. Toronto’s increasing population faces another problem that raises premiums: fraud.

In 2017, the Finance Minister of Ontario said the cost of auto insurance fraud was estimated to be as high as $1.6 billion per year. According to the Insurance Bureau of Canada (IBC), the additional claims costs as a result of fraud drives up premiums by as much as 15 percent.

But a good driver should pay less for car insurance, right?

Unfortunately for good drivers, insurance companies will provide car insurance quotes based upon actuarial calculations of risk. In English, that means a good driver will receive higher car insurance quotes based on a collective reading of drivers in an area, rather than particular habits of an individual driver. If generally, drivers in Toronto file a lot of claims and commit fraud, all drivers will pay for those issues.

Did you know, according to a survey conducted by Kitchener, Ontario-based law firm Deutschmann Law, less than one in five drivers are aware of Ontario’s $37,983.33 statutory insurance deductible they are required to pay if they receive an award for damages and pain from an auto accident. Meaning, if you’re in a crash and awarded some money, a significant portion of it will go to the deductible first. You may want to claim for more to account for that deductible but know it will increase rates for everyone.

Are there options then if it’s out of our control?

In Canada, some provinces have instituted mandatory public government-run car insurance, which ultimately has led to lower car insurance quotes for drivers. British Columbia, Manitoba, Quebec and Saskatchewan all have public insurance, but there are indeed arguments on both sides with private insurers touting the efficiencies of a free market and competition and public supporters suggesting one company with similar rates makes the insurance playing field fair for all.

The IBC has been looking into these high car insurance quotes and is making recommendations for solutions.

A recent poll done by IBC in Newfoundland shows that 85 percent of respondents believe auto insurance is operating at a substantial profit. In fact, depending on the province, sometimes insurance companies can be losing money and will lobby the IBC to raise rates.

Also, 82 percent think drivers in Newfoundland pay more for car insurance than other parts of Atlantic Canada, which is true. Also, 23 percent of those respondents believe the rates are higher in Newfoundland due to the number of claims and accidents.

What the IBC has suggested for Newfoundland is:

  • A cap amount of $5,000 on minor injury damages with annual adjustments, along with a definition of minor injury that reflects “the prevailing medical literature;”
  • Bring Newfoundland in line with other Atlantic provinces on accident benefits and make them mandatory as well as establishing pre-approved evidence-based treatment protocols for minor injuries;
  • Make it easier to repair or replace damaged vehicles with a “direct compensation property damage model” that pays for collision insurance by the insurance company regardless of fault; and
  • Change the current rate regulation process to make it less costly and quick

As Newfoundland considers these proposals, other provinces, like Ontario, should take note. With this in mind, we’re hopeful car insurance quotes can come down in big cities like Toronto.


Photo by Jorge Vasconez on Unsplash