Insuring Right Hand Drive

A trend of importing right-hand-drive vehicles to Canada has raised concerns that underwriters and insurance companies will walk away from coverage due to the perceived risks of insuring vehicles not originally intended for the Canadian market. The concerns have been widely misinterpreted. The question most companies should be asking is not: “Why would I write this policy?” Rather, it should be: “Who do I lose if I don’t?” The loss of clients associated with the rejection of such vehicles is creating a divide between insured and insurer, all due to risks that may not actually exist.

Transport Canada classifies such vehicles as part of the “Grey Market.” This includes vehicles of at least 15 years of age that are allowed exemption from meeting existing Canadian Motor Vehicle Safety Standard (CMVSS) crash safety standards, but still compliant with current Safety and Emissions requirements.

According to Transport Canada, there are no plans for amending the rules of import for these vehicles. Finding a common ground in the insurance marketplace is therefore pivotal, since more of these types of cars are imported each year. Currently 95,000 of them are in Canada, according to JEVIC, the Japanese Export Vehicle Information Centre. Most of these vehicles are coming from Japan, where the status quo is Right Hand Drive (RHDV).

Risk Exposure

The risks associated with insuring right-hand-drive vehicles might be greater than those of insuring newer, left-hand-drive vehicles (LHDV), but the absence of CMVSS documentation does not suggest right-hand-drive vehicles are not compliant with Canadian crash standards. For example, a 1993 Mitsubishi Montero received a 3.5-star National Highway Traffic Safety Administration (NHTSA) crash rating when tested in 1994 (a three-star driver rating and a four-star passenger rating). The domestic market Japanese version of the Montero is the Mitsubishi Pajero. They both have the same chassis code, both are built in the same manufacturing plant and both consist of identical body panels and structures. However, the Pajero was optionally fitted with a 2.8-litre turbo diesel engine. So it seems safe to assume the crash test results of these two vehicles would be the same. Sure enough, according to both the Insurance Corporation of B.C. (ICBC) and the Société de’lassurance automobile du Québec (S’AAQ): “… from the perspective of occupant protection, no evidence could be found to suggest that the RHD vehicles were inferior.”

ICBC’s 2008 Study of Right Hand Drive Vehicles in British Columbia, which published these results, also suggests right-hand-drive vehicles are 40% more likely to be involved in a collision. But Dr. Mohua Podder and Rick White, both with the University of British Columbia’s department of statistics, suggested “caution [with] the use of the ICBC report as anything more than an indication that further study is needed.”

In particular, Podder and White looked at the methods of tabular analysis used in the study and noted they do not equally measure the smaller RHDV sample groups and the much larger LHDV sample groups. “In addition to data issues, there are some issues with the analyses themselves,” Podder and White write in The Assessment of the ICBC Report regaurading the Study of Right Hand Drive Vehicles. “The relative risk analysis completely ignores the repeated measures within each subject. This analysis is easily corrected by using a Cochran-Mantel-Haenszel test instead of a Chi-squared test.”

ICBC’s study also fails to recognize several other important factors, including the characteristics of the people purchasing RHDVs and their vehicles. For example, many owners or operators of these specialty imports choose their vehicles based on the mentality of a “collector” or aficionado. In countries such as Japan, tax credits are dispensed for travelling few kilometers each year. Given also a generally ‘winter-free’ climate, Japan is among many prime markets for the exportation of older vehicles. These vehicles are therefore largely in pristine condition, rust-free and showing low levels of recorded mileage. This is a primary attraction for North American car owners looking to add a secondary or tertiary vehicle to their family, collection or business.

Even though right-hand-drive vehicles in Canada demonstrate low levels of risk in traditional underwriting risk categories, insurance companies in Ontario have nevertheless showed reservations about underwriting such risks. There appears to be an assumption that in a predominantly left-hand-drive environment, a right-hand-drive vehicle is simply too dangerous to operate. Some say a lack of available claims data exists to disprove such an assumption. In fact, right-hand-drive vehicles have been safely operating on Canadian roads for more than 30 years, according to the Transport Safety Commission. From collector vehicles to Canada Post delivery trucks and garbage disposal trucks, tens of thousands of right-hand-drive vehicles are on Canadian roads on any given day. No significant claims statistics suggest these vehicles are any more dangerous to drive than LHD counterparts. In addition, insuring all three of the aforementioned vehicle types requires no additional driver training. All comply with all Canadian Safety, Emissions and Highway Traffic Act standards.

International Issues

In the United Kingdom, Japan, South Africa, Australia and much of Europe, left-hand-drive and right-hand-drive vehicles share the same road space. Domestic dealerships in the United Kingdom, where right-hand-drive vehicles are common, offer newer prestigious models like the Cadillac CTS and Chevrolet Corvette only in a left-hand-drive trim. Gerry Bucke is the underwriting manger at Adrian Flux Insurance, a brokerage in London, England that underwrites both left-hand-drive and right-hand-drive vehicles. He reports that in his experience, claims numbers are no higher for left-hand-drive vehicles than right-hand-drive vehicles. Even though the number of right-hand-drive vehicles in the United Kingdom is greater than the number left-hand-drive vehicles, the claims ratios are no worse for the left-hand-drive vehicles, he says. As for how to underwrite the business, he says: “We calculated our rate groups by uniquely pairing the insurable vehicle against the next closest counterpart, and then adding or deducting points accordingly for differing performance characteristics.”

For Canadian insurers, the crossover between the international context and the domestic context presents some administrative difficulties related to Vehicle Identification Numbers (VIN). Some point to difficulties entering data into the Ministry of Transportation of Ontario’s system if a vehicle has fewer than 17 digits on its VIN plate. Given that some imported right-hand-drive vehicles have only 12 or 13 digits in its VIN code, some insurance underwriting programs may not physically allow a manual override even though Ontario’s Compulsory Automobile Insurance Act does not specify a vehicle insured in Canada is required to have a compliant SAE 17-digit VIN.

Asked about this issue, John Vu, PLP coordinator at the Ministry of Transportation of Ontario, said: “Assigning a new VIN would effectively be VIN-washing this vehicle and deleting valuable information and history for this vehicle. VINs are not just an algorithm used to verify the make, model, motive power or number of axles on a vehicle, or a check-digit system. VINs also speak to the safety features installed on the vehicle – i.e. supplementary restraint systems, anti-lock braking systems, etc. In the interest of cradle-to-grave tracking of vehicles, this is information that we would not want to compromise…Altering the VIN to 17 digits is more of an internal insurance industry problem rather than a Ministry or legality problem.”

Some concern has been raised about how to decode the international VIN and classify vehicle characteristics such as gross vehicle weight, wheelb ase, length, engine size, fuel type, owner history, etc. The way Transport Canada deals with each import is as follows: the Vehicle Export Form contains these details and is required at the time the ministry generates the vehicle’s ownership. This information can be recalled at anytime by the Ministry’s Freedom of Information office.

Parts Availability and Repair Length

If it can be shown that any potential problems related to insuring right-hand-drive vehicles can be answered or overcome, that begs the following question: What is the real problem with insuring right-hand-drive vehicles?

One reason may be the size of the overall marketplace. This plays a role in claims, by shaping parts support and thus the length of the repairs. Some would argue that because the market is small, the consumer – and the insurer – must wait longer for parts to become available. Where a rental vehicle is part of the coverage, longer repair times drive up the claims costs for insurers.

If this is indeed an issue, it is a red herring. As mentioned above, roughly 95,000 private, non-commercial, right-hand-drive vehicles exist in North America. Approximately 88 dealerships specialize in right-hand-drive sales, 15 of which carry parts inventories worth more than $250,000.

For the majority of right-hand-drive vehicles imported into Canada, a North American dealer can make parts acquisition easily available, with one or two parts sellers in every province. The Nissan Figaro, of which only 20,000 were produced, can have each and every part ordered from a local Nissan dealership. This is true of any Original Equipment Manufacturer (OEM).

John Hamilton is the owner of Rocky Mountain Imports in B.C. His operation specializes in parts and diesel truck sales. “We have over $500,000 worth of parts inventory from body panels to glass to engine components,” he says. “We also have a linked-in network with other RHDV dealerships across the country should a quick order come in and we cannot fill it. If it’s something extremely specialized, it can take on average two to three weeks – unless the part required is major (engine assembly, transmission, etc) – to ship directly from Japan… [This is] no different from an OEM on a vehicle produced more than five years ago.”

Another point to make is that, apart from the specialized shops, most original equipment manufacturers can locate any repair part for a right-hand-drive vehicle using the vehicles’ shorter 12- or 13-digit VIN numbers. They do this through the same programs they use to quote parts for North American vehicles (i.e. Nissan F.A.S.T., Mitsubishi AXA, etc).

Losing Business

Some companies have expressed concern 18-year-olds are buying ‘souped up’ sports cars for a cheap price, but it might be argued the polar opposite is true. For people older than 50 who are more likely to be turned on by fuel savings than status, diesel powered Mitsubishis and Toyotas are attractive – and these sales outnumber sports car sales nearly two-to-one. But where insurance underwriting is concerned, the right-hand-drive issue seems to cut against the grain of their driving experience, claims history and loyalty.

For example, John Davies, a 54-year-old paralegal, says: “I’ve been with Allstate for more than 30 years, claims-free. They have my house, my life insurance and my three vehicles, but when I wanted to add a right-hand-drive diesel truck to ease the cost of commute to and from the city, they quoted me facility rates. I’ve moved all of my business from them now. There was no loyalty there whatsoever.”

The average assumed age of the right-hand-drive owner is 42 years, with a near 50-50 split between male and female drivers. With the perspective of a female driver, Emily Jones states: “With over 20 years of driving, I am claims-free and we own six vehicles total. Only after fighting with my current insurance company for days did they come back with a rate group that seems far too high to be true. For my right-hand-drive 1995 Honda CRV, I am being placed in the same risk category as a 20-year-old male wanting a 1000cc motorcycle. I’ll switch my house, life and other vehicles as soon as a better deal comes along.” A better deal did come along, and she switched her business.

Consumers who possess these vehicles are feeling unfairly penalized for owning a product that is in all ways compliant with Canadian standards, but deemed to be uninsurable in a regular market. As noted above, for every one right-hand-drive vehicle policy lost, potentially another three regular market policies might be lost. This should be of concern to companies that might lose clients who have shown years of servitude and a claims-free history over a problem that is more perceived than real.

The hope for current right-hand-drive owners is that an insurance company will look towards how these vehicles are being insured in other markets and adopt a suitable rate group in Canada. It is safe to assume clients in search of a competitive rate for their right-hand-drive vehicles will have no issue transferring all of their existing business just to have their right-hand-drive vehicles fairly covered.