Driving in the passing lane of the highway, a woman sees the image of an antenna pull up behind her in the rearview mirror. As a horn blares, she pulls into the right lane and an orange Lamborghini Aventador speeds by, leaving her in the wake of its vapour trail.
“That guy must be paying a fortune in insurance premiums,” she says to herself, trying to feel better about owning a battered, two-door 1998 Honda Civic.
According to the latest poll from Rates.ca., the woman wouldn’t be alone in drawing that kind of mistaken conclusion. In fact, even if she correctly assumed the Lamborghini driver had more licence demerit points than her, she’d still be perpetuating a myth about how car insurance rates are calculated.
The latest findings of the Rates.ca survey find that underwriting criteria for setting auto insurance rates remain a mystery to many Canadian drivers and brokers alike. The P&C insurance industry, as a whole, still has its work cut out for it in explaining the “black box” mystique of how auto insurance rates are determined.
For example, 1513 Canadians received a failing grade (2.6 out of 7) when asked whether they thought seven auto insurance statements were true or false, according to a new survey conducted by Leger Marketing in August.
In some of the statements, Canadians were asked whether:
- The colour of a vehicle can affect the cost of an insurance premium (38% incorrectly think it does, while 23% did not know).
- An expensive or high-end vehicle costs more to insure than a less expensive one. (79% said yes, although this is not necessarily the case. Insurers consider many factors when determining a customer’s premium, including how easy it is to steal the vehicle and repair expense. Based on the theft factor alone, the aforementioned1998 Honda Civic that once appeared on a list of Canada’s Top 10 Most Stolen vehicle may actually cost more to insure than the Lamborghini!)
- Insurance companies base their auto insurance premiums on the number of demerit points a driver may have. (Although 68% of the respondents think they do, this is a mistaken perception. Only 10% answered that one correctly: Demerit points are used by provincial governments to determine whether or not a driver’s licence should be revoked. They do not directly affect premiums. That said, the number and severity of tickets received by a driver will certainly affect insurance rates.)
The survey also paints an interesting picture of consumer awareness regarding both comprehensive auto coverage and the premium discounts available for reduced driving due to pandemic lockdowns.
The survey results make it clear that by “comprehensive,” consumers think that means everything is covered — including damage caused by a collision. In fact, as Rates.ca notes, it’s an optional coverage added to a policy that pays for damages or losses resulting from specific perils such as theft, vandalism, fire, hail, and objects that a) fall on your vehicle (like a tree branch) or b) fly off the road (like a stone off the back of a truck).
When asked, 42% of the respondents believed it was true; 34% said it was false, and 24% did not know.
Likewise, a misfire on communications with drivers appears to have occurred during COVID-19. Many Canadian auto insurers offered premium discounts for reduced driving after the World Health Organization declared the novel coronavirus to be a global pandemic on Mar. 11, 2020.
In the survey, Canadians were asked the following by Rates.ca: “If you are not driving at all because of the COVID-19 pandemic, can you temporarily suspend your car insurance coverage?”
The answer: you can, if you’re not driving because of the COVID-19 pandemic. Just 39% got it right, 25% were incorrect and 36% said they didn’t know.”
Overall, no one participating in the survey got all of the answers correct. A total of 9% of Canadians who participated in the survey actually got all seven questions wrong.
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