Five assorted cars of different colours in a parking lot

February 2, 2016

How your auto insurance rates are set – Part 1

1 min read


One of the most common questions that people ask when purchasing car insurance is how the rates are set. If you’ve ever compared your auto insurance rates with someone else, you probably noticed that you had different rates, possibly hundreds of dollars per year difference. While this may seem unfair and random, it actually isn’t. Car insurance rates are simply the result of a complex formula based on a number of intersecting factors. All these factors combined determine your automobile insurance rates.

1. Type of vehicle

The Insurance Bureau of Canada keeps statistics on every model of car on the road. These statistics include how often a car is stolen, involved in an accident, ticketed for speeding infractions, and more. Insurance companies use these statistics to help determine your auto insurance rates. If you drive a vehicle that is commonly stolen or is involved in a higher than average number of accidents, your rates will be higher.

2. Your driving record

In the simplest terms, the better your driving record, the lower your car insurance rates will be compared to similar individuals. If your record only includes infrequent minor infractions, your rates won’t likely be affected.

However, if you have major infractions, especially infractions for driving while intoxicated, frequently rack up small infractions, or you are found to be more than 25% at fault for an accident, your car insurance rates will increase. Good news: even if you have a poor record in the past, clean driving for many years will once again decrease your rates.

3. How much you drive

The more you drive, the more likely you are to have an incident that requires an insurance payment. Since the risk is higher for someone who drives more, the rates are also higher.

4. Where you live

People who live in urban areas pay more than those who live in rural or suburban areas. This is because cars are more often stolen in urban areas and higher congestion in urban areas increases the risk of accidents. As usual, higher risk increases auto insurance rates.

5. Age

Drivers under the age of 25 years old are statistically proven to have higher risk than those who are older. There are a few ways to mitigate the age penalty, but generally younger drivers pay more.

Other factors influencing your auto insurance rates

In Part 2 of this article, we discuss other factors that influence your auto insurance rates. If you have any questions about your car insurance, or would like some no obligation quotes, call Mitch at 1-800-731-2228 or email us at See what our team of auto insurance brokers can do for you!

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