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Insurance Guide

Expensive but essential: Navigating the insurance quagmire

Experts help explain the dizzying array of premiums and policies

Published November 21, 2013

Originally a 17th-century coffeehouse popular with mariners, Lloyd’s of London became famous for insuring ships and cargo against loss or theft in exchange for hefty premiums.

But when its underwriters were approached for the first time to insure an automobile in 1904, they resisted amending their carefully worded policy, choosing to describe the car as a “ship navigating on land.”

Insurance was an unfathomable luxury then, but motorists today can’t legally drive without possessing some basic coverage.

In Ontario, you must have a minimum of $200,000 in third-party liability coverage, which protects you if someone else is killed or injured, or their property is damaged, by paying for claims as a result of lawsuits against you.

Mandatory accident benefits coverage provides you with supplementary medical, rehabilitation, attendant care, caregiver, non-earner and income-replacement benefits if you’re injured in a collision, regardless of who caused it.

You aren’t required to purchase comprehensive (fire, theft, water, vandalism) or collision coverage — which pays for damage to your own vehicle when you’re found at-fault — but if you’re contemplating a new model, you’d be foolish not to have them.

New vehicles just cost too much to fix out of pocket. And if you lease or finance your vehicle, the lien holder may require you to have these coverages in any case.

Shopping for car insurance reveals a bewildering range of premiums. Why so much variation in cost?

“Premiums vary based on the value, age and model of vehicle driven, the deductible selected, how often the vehicle is driven, and whether it is for business or pleasure,” explains Pete Karageorgos, consumer and industry relations manager for the Insurance Bureau of Canada.

“Being a safe driver without any tickets or convictions, and specifying a higher deductible, are ways to reduce premiums. Look for discounts insurers may offer, for example, by insuring home and auto together.”

Insurers keep accident reports on file for six years, while tickets for moving violations are kept for three. Needless to say, these can boost premiums to unmanageable heights.

Rick Orr, board chair of the Insurance Brokers Association of Ontario, says the cost of insurance pales in comparison to the potential costs of going without.

“Besides not having any coverage for your car, you also don’t have any coverage to make yourself better (accident benefits), nor do you have any liability coverage if you hit someone else and they sue you.”

Motorists found without proof of insurance can be fined up to $5,000. If a driver doesn’t qualify for coverage from any insurer, the industry operates the non-profit Facility Association (facilityassociation.com) to provide basic coverage for high-risk drivers.

Most people acquire insurance from three sources: Direct writers sell insurance directly to the owner, often over the phone or online. Agents sell insurance on behalf of one company. Brokers sell insurance for many companies.

Direct writers have taken to the airwaves in a big way, touting lower premiums because there are no middlemen. But their massive advertising campaigns don’t come cheap. Don’t be so quick to dismiss agents and brokers.

“A broker is the best person to provide advice and recommendations regarding your car insurance coverage options,” says Orr. “In the event of a claim, your broker is on your side, someone who can call the insurance company and advocate on your behalf.”

The newest industry trend is usage-based coverage, which closely monitors how the vehicle is driven to better determine the risk and appropriate premium.

“A couple of insurers have begun to offer telematics — connecting a device into the vehicle’s diagnostic port that monitors a driver’s behaviour — which could qualify drivers for discounts,” says Karageorgos.

The “black box” solution has its advocates, but Orr recommends drivers become fully informed before signing up.

“Brokers are advocating strongly to ensure that the correct consumer protections are in place, such as satisfying privacy legislation and ensuring a consumer fully understands what they are consenting to when installing a device in their car.”

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