Auto insurance should be expensive, insurer explains

The high cost of auto insurance isn’t a mystery to brokers. But it’s as clear as mud to consumers. 

“When it costs more to buy the new iPhone than it does your auto policy, we’re in a problematic situation,” said Martin Ross, director of broker relationships at SGI Canada, at the Young Brokers Conference in Niagara Falls.  

“We need to start to educate our customers that it’s a very valuable product that protects them immensely. But it needs to be expensive,” he told attendees during a senior leadership panel. 

 

What consumers should know  

The increased cost of claims is chief among the reasons for expensive auto insurance. 

And clients with newer, more advanced cars must be aware their choice of car will have a direct impact on rates. 

Modern vehicles with advanced technology are safer thanks to their collision avoidance systems, navigation software and blind spot monitoring, to name a few. But that tech also costs more to repair when a claim occurs.  

“For example, a 2017 Toyota Rav 4 rear bumper requires 17 parts and a total average cost of $2,769 to repair. The 2022 model of the same vehicle requires 39 parts and costs an average of $4,144 to repair – an increase of 50%,” the Insurance Bureau of Canada recently reported. 

A client’s choice of car may also increase the likelihood of theft, which means higher claims costs.  

The cost of auto insurance claims to replace stolen cars in Canada skyrocketed to an expensive $1.5 billion in 2023 — a five-year increase of 254%.  

Medical costs for treatments and rehabilitation following car accidents also increases the claims expense. And in no-fault provinces, each person’s own insurance company pays for their accident benefits (AB) and bodily injuries (BI).  

This is an area of the insurance product that brokers and insurers have lobbied for reform nationally.  

“For non-catastrophic injuries we’re paying [far] too much money,” said Ross. “We talk about auto theft all the time. But if we can fix AB and BI, we’d run it at least breakeven and probably make some money on the auto product.” 

In fact, the personal auto market hardened by 13.3% in 2024 Q1 compared to 2023 Q1. 

Legal costs in partial or full tort jurisdictions (like Alberta, Ontario and Atlantic) are also driving up auto insurance premiums, due to lengthy and complex litigation processes.  

Payouts for legal settlements following collisions have grown rapidly and are now three times higher in Alberta than anywhere else in Canada, according to IBC.  

 

Driving change 

Fixing the system requires small, continuous improvements rather than expecting a single solution address all issues at once, Ross said.  

“There is no one magic solution to fixing the auto product. You kind of have to eat the elephant one bite at a time.” 

But there is one place regulators could start.  

“The quick and easy answer that I actually think we can implement today is file and use,” he said.  

Under Ontario’s prior approval system, an insurance carrier who wishes to make any change to their auto product must file an application with the regulator for review and acceptance of the changes. Only then is the carrier able to bring it to market.

“And so right now, if we identify a problem, we’re anywhere from six to 12 months before we can get rate or rule changes in to fix that problem,” Ross said.  

Under a file and use system, carriers still must apply with the regulator but can put their change into the market right away. 

“If we get file and use, we can hopefully start to stop some of those wounds, [but] it’s not a magic wand.” 

 

Feature image by iStock.com/Jinda Noipho