Car insurance, while serving an important role of financial protection for most of the middle class, does not have the best reputation when it comes to price. Because of more stringent regulations concerning the type and level of automobile insurance required to legally own an automobile, insurance has actually been known to stop the purchase of a car simply because the insurance would make the monthly fees of ownership too expensive. Nevertheless, governments take the position that automobile insurance not only protects the owner of the insurance, but actually serves a societal purpose as well – protecting society against the trickle down financial pressure of defaults on auto loans because of damage incurred in accidents. Because cars usually pay for themselves as transportation to work, if too many people were left uninsured and unable to pay for damage, there would be consequences to gross domestic product as those people were unable to travel to their place of employment.
Anger against prices on car insurance may stem from the fact that many factors which affect the individual’s premium are out of the control of the individual. A few factors that insurance companies use to justify raising premiums and keeping them high:
1. Uninsured motorists. Drivers who get into accidents and can not pay place the burden of their property, personal, and punitive damages on insurance companies, for which they receive no compensation or premium. There is no way to reimburse themselves these monies other than to raise rates on their current customer base. Government’s best answer to this free ride has been to require a minimum of insurance in some areas.
2. False claims. Claims of whiplash, which is impossible to medically prove or disprove, top this list. However, many who submit false claims for monetary gain drive up the prices of insurance for honest people. Again, insurance companies have little recourse over claimants; therefore, their only recourse to recoup monies is to raise rates on their current customer base.
3. Truthful claims. If you have ever truthfully been in an accident and claimed it on insurance, you may have found that your rates increased slightly not long after. The insurance company justifies this claim by saying that you are now a greater risk of getting in an accident again, even if you were not at fault. Insurance formulas also calculate rates by miles driven and the actual geography covered. If you get into accidents, even if you are not at fault, the insurance company will say that you are driving in more unsafe conditions, and are therefore more of a risk to insure.
4. Cash back incentives. Incentives offered by insurance companies, like cash up front, accident forgiveness for certain customers, and other things are paid for by the rest of the customer base. Insurance companies tend to prey on the more helpless of their constituency, like parents with teenage drivers and drivers with points on their records. They are much less likely to switch companies or even compare prices.
There are direct actions that consumers can take to address rising Canadian car insurance costs. Many drivers have recently learned of comparison shopping websites which make it efficient to compare competing insurance quotes. Comparison shopping really is your best bet, as every insurer has their own formula for computing insurance rates.
