why does my car insurance premium increase every year?

If you own a vehicle, you know auto insurance is a mandatory fixed expense over the term of your policy. But as the years progress, your auto insurance premium can increase — even for reasons beyond the individual risk you pose as a driver.  

Though your rate isn’t guaranteed to increase every year you’re insured, it can fluctuate for a few reasons, from Canada’s economic state to the current claims data on your particular vehicle model, as well as your current postal code. Provinces can also experience rate increases at different times, depending on the provincial auto insurance regulator’s approval process. Though many of these factors are out of your control, it’s possible to counteract any increases you may experience upon renewal by comparing auto insurance rates annually. 

Factors that can increase your car insurance rate  

When the cost of living puts pressure on the Canadian economy, you can expect your auto insurance premium to reflect that. For example, in June, we experienced the sharpest annual inflation increase we’ve seen in almost 40 years, and it’s made an impact.  

Many of our daily expenses increase when inflation is high, including transportation costs like gas. However, Statistics Canada’s Consumer Price Index (CPI) also regulates passenger vehicle insurance premiums and the cost of auto parts, maintenance, and repairs. Unfortunately, with inflation hitting 8.1 per cent, these costs are higher than usual.  

Due to ongoing supply chain delays brought on by COVID-19, auto parts are also more difficult to acquire, causing longer wait times for repairs. Drivers are left without their primary method of travel and need replacement rental vehicles for longer periods, which can drive up claims costs and subsequently, premiums.  

Your vehicle model’s risk rating can also change annually according to its Canadian Loss Experience Automobile Rating (CLEAR), which measures its claim likelihood, how much a claim may cost, and whether it’s likely to be stolen. This risk can change year-over-year based on insurance claims data, as can your postal code’s collective claim frequency, which can also raise your rate even if you yourself haven’t made a claim. 

How rate increases are approved across the provinces 

When insurance companies notice the cost of claims rising, they can file for a rate increase with their provincial insurance regulator. However, if granted, this increase can only be applied at the start of the next policy year. Customers will therefore only see a rate increase once their policy renews, rather than in the middle of their term.  

For example, in Ontario, the Financial Services Regulatory Authority of Ontario (FSRA) has to approve rate increases before a private insurance company can increase their rates.  

Similarly, government-owned auto insurance corporations like those in British Columbia, Manitoba, and Saskatchewan must submit a proposal for a new rate program to a provincial review panel that must be approved by the government.  

How to get the lowest auto insurance rate annually

One of the best ways to avoid paying more for your auto insurance premium every year is to compare car insurance rates before your policy auto renews. While it may seem convenient to have your policy renew automatically with your current insurance provider, you could be missing out on savings.  

Comparing rates among different providers in Canada can ensure you’re getting the lowest rate possible for the coverage you need. Similar to how rates can vary from province to province, they also range from company to company, based on the number of claims they’re paying out. So be sure to shop the market before renewing your policy.

LowestRates.ca is a free and independent rate comparison website that allows Canadians to compare rates for various financial products, like auto and home insurance, mortgages, and credit cards.

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