Why auto rates are increasing despite fewer drivers on the road

Average auto insurance rates rose in Canada during the second half of 2020 despite the COVID-19 pandemic and lockdowns that led to fewer drivers on the road, a new report from LowestRates.ca found.

The average auto insurance premium climbed by about 30% in Alberta, 17% in Atlantic Canada and 4% in Ontario over the course of 2020 (2020 Q4 versus 2019 Q4), according to data collected by the comparison site for home and auto insurance, and other financial products.

Price increases were due to the fact that more inexperienced drivers have been hitting the roads since the pandemic began. “More young adults, who might have eschewed car ownership pre-pandemic, are applying for car insurance quotes amid concerns about taking public transit,” said LowestRates.ca’s latest Auto Insurance Price Index, released Wednesday. The index is created from hundred of thousands of insurance quotes the site receives every year.

There is a trend of former public transit users now opting for vehicles as concerns about health and safety remain. “But while new drivers pushed prices higher, we also saw many drivers save money as they switched from commuting to work daily to working from home,” the report said. There is also a large increase in the number of drivers aged 50 and over that are no longer commuting to work, “which has enabled them to find substantial savings.”

Of the regions examined, Alberta saw the largest average price increases — 29.5% in 2020 Q4 compared to 2019 Q4. “Unfortunately for drivers in Alberta, auto insurance prices in the province have been on a relentless upward tear since last year,” the report said.

Prices have risen since a cap on insurance rate hikes was removed in 2019, when Premier Jason Kenney was elected. “Insurance companies had long complained that the cap, which limited annual rate hikes on consumers to 5% meant they lost money selling insurance in Alberta,” said the report, noting that auto insurance prices have risen by 36% since the cap was removed in the third quarter of 2019.

LowestRates.ca CEO Justin Thouin said drivers can expect to see prices to continue to rise until more insurers return to the Alberta market and make it more competitive. For Alberta, one of the biggest shifts was that fewer adults in the prime working years shopped for auto insurance as COVID-19 cases grew. “We’re hearing from brokers in Alberta that drivers between 25 and 49 are staying with their current providers because insurance is hard to get.”

Atlantic Canada (New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador) is facing some of the same challenges as Alberta. For example, in New Brunswick, insurance companies have said they are either restricting new business or thinking about pulling out due to caps on what they can charge drivers. And like much of the rest of Canada, LowestRates.ca saw an increase in the number of new drivers from Atlantic Canada that quoted on the comparison site in the last quarter.

In Ontario, prices were 4.1% higher in the last quarter of 2020 than they were one year prior. “Our data show that Ontarians are increasingly trading in their public transit passes for a set of car keys — even if it means paying some of the highest car insurance premiums in Canada,” said the report. “Year-over-year, the number of inexperienced drivers shopping on our site increased by 2.9% (Q3) and 8.7% (Q4).”

Inexperienced drivers are those with less than four years of driving experience.

Since the start of the pandemic, the comparison site also saw an increase in the number of older drivers who quote with very low mileages, and who do not drive to work. “The distribution of users aged 50+ with personal-use vehicles who said they drove zero kilometres to work increased from 28.6% in 2019 Q4 to 35.9% in 2020 Q4,” LowestRates.ca said. “As a result of lower average mileage and fewer drivers using their car to get to work, average prices for drivers aged 50 and over fell by 8% in the fourth quarter on our site.”

The reduction in traffic has led to few claims and might even lead to lower prices down the road, but it will take some time, said LowestRates.ca’s chief operating officer, Dave Dyer. “The question is, will any recent drop in traffic and any decline in accidents remain for the long term? That is less certain, and insurers won’t price that in until they have certainty.”

 

Feature image via iStock.com/benedek