The Car Insurance Rate Approval Process

When it comes to insurance, it's hard to miss the following phrase in the media today — "car insurance rate approval." No doubt you've heard about this, but what does it mean, exactly, and what is car insurance rate approval all about? And, more importantly, how does it impact your auto insurance?

Automobile insurance rates are on the rise again in the province on Ontario. The average rate increase for the second quarter of 2009 was 5.86 per cent, according to the Financial Services Commission of Ontario (for full details of the rate increases by insurance company, click here).

Does that mean that you will see an increase of 5.86 per cent to your policy this year if you live in Ontario? The answer is maybe- or maybe not. You may see more or you may see less of an increase; it depends upon the insurance company you are with as well as a number of other factors, which we'll review in a moment.

First, know that each insurance company must have their proposed rate increase approved by the Financial Services Commission of Ontario (FSCO), which is a provincial regulatory body. Before FSCO approves a rate increase, the insurance company must show evidence that the rate increase is warranted. An insurance company does this by proving its claims experience within particular cities (or within certain types of business) is much higher than the premiums being charged.

FSCO then reviews the rate increase that the insurance company is applying for. The approval may or may not happen, plus FSCO may require that the proposal be modified. If modifications are needed, the insurance company will work with their actuaries to create a new rate proposal, then reapply and the approval process starts again.

When you hear in the news that we can expect to see a 5.86 per cent increase to your insurance rate, what you should remember is that this applies to the average increase for the companies that applied for an increase, not your personal rate directly. Not all insurance companies made an application for a rate increase in the second quarter of 2009. Of the companies that were approved for a rate increase, remember the average was 5.86 per cent. For your particular driving profile, you may find that your rate is higher or lower.

Also keep in mind that you have some control over your insurance costs. You can reduce your premium by keeping a clean driving record, increasing your deductibles, changing some of your driving habits (e.g. taking public transit to work) and making sure that you are receiving all discounts available to you. But as you can see from the rate-approval process, rates can vary greatly from insurance company to insurance company; so the most effective thing that you can do to ensure you are paying the lowest rate is to shop around. Take a moment and visit, where you can compare offerings from over 30 competing insurers to find the lowest rate available for your driving profile.