Why is Car Insurance more expensive in Weston and Mount Dennis?
For some years now, people have been complaining about the cost of car insurance in Weston and Mount Dennis. People have discovered that your postal code is one of the factors determining how much you pay. Other factors are your age, your driving record, how much you drive, and your gender.
To get an idea of the postal code variations, Kanetix Insurance publishes a map on their website (https://www.kanetix.ca/insuramap) which colour codes Ontario with the base rates (before all the other factors) based on geography. Rural and Northern Ontario get lower rates, understandably, because there are fewer vehicles. Zoom in on the city of Toronto, however, and you will see wide variations in rates just a street away. Weston is one of the highest rates, while places like Forest Hill and the Bridle Path are among the lowest.
Insurers when questioned by their clients will claim that higher rates where you live are caused by more frequent accidents in your neighbourhood. It’s just not true. I downloaded data from Toronto Police of accidents involving personal injury for the past 7 years. You can see the map here https://drive.google.com/open?id=13f2Hj-S7f7r3pOGAlghbZfOIsvhPISnm
It shows that the only place with more frequent accidents is the downtown core. Accidents are distributed quite evenly otherwise.
I met with the Insurance Bureau of Canada to try to get an explanation. They told me that insurers base their rates on the ‘cost per collision’. At the time (2011) the average cost per collision in Ontario was about $8,000. The cost in York South – Weston was $30,000. The annual insurance rate based on those costs was about 10% of the cost per collision. So the average in Ontario was $800 per year while in York South -Weston it was about $2500.
Why are these costs so much higher in our neighbourhood? We don’t drive more expensive vehicles. We don’t drive faster (just try driving fast on our potholed streets).
It appears that the average income is what drives the rates. I plotted the average incomes in Toronto from the 2016 census on a map. https://drive.google.com/open?id=1pJIy3AhxQIipfzFO8hp-CtiyNWxHllsP If you compare it to the Kanetix map, you can clearly see that where incomes are highest, car insurance is lowest. And vice versa.
How is this possible? When someone is injured in a collision, the insurer is obligated by law to provide income replacement and medical costs. For persons with good employment and good benefits, they usually have sick leave and medical plans paid for by their employer. So the insurer doesn’t pay until those employer benefits are exhausted. For persons with precarious, low wage, service sector jobs, or those who are retired and on fixed incomes, there is less likely to be good sick leave or medical benefits paid for by the employer. So when that person is in an accident, the auto insurer pays out. Simple explanation.
In 2005 the regulator granted permission to the insurance companies to divide Ontario into 55 territories and Toronto into 10. http://www.fsco.gov.on.ca/en/auto/autobulletins/2005/Pages/a-01_05.aspx When they did this they specifically expressed concern about unintended consequences of such divisions.
“Auto Bulletin A- 1/01, issued by FSCO in February 2001, outlined the fact that in determining whether the statutory standard of “just and reasonable” is satisfied, the Superintendent considers societal fairness when reviewing risk classification systems, and not just actuarial soundness. One of the concerns from a public policy perspective is that if a territory is based on a small geographical area, even though densely populated, socio-economic factors may be influencing loss costs. In addition, drivers may operate their vehicles all over the city, so narrowly defined territories may not be logical. A limit on the number of territories that may be proposed is reasonable and would minimize rate differences due to socio-economic factors.”
It seems that their fears were justified, and socio-economic factors are influencing loss costs. In turn the loss costs are driving rates higher.
The NDP put forward a bill that would have ended postal code discrimination in the GTA. It was defeated. The Conservatives have put forward a bill which would prohibit insurers from using postal codes as the ‘primary’ rate determinant. Some have suggested this creates a huge loophole, as your age, gender and record are the primary determinants.
It doesn’t need an act of parliament to change this. If the regulator gave permission, and socio-economic factors are clearly at play, the regulator can withdraw permission. However, if rates go down in Weston, they will go up in Forest Hill and the Bridle Path.