Report of the Task Force on Automobile Insurance Issues: Canadian Institute of Actuaries

March 2005 — The cost of automobile insurance has become a major issue in virtually every Canadian province. Often, premium levels are the only basis upon which consumers and others make comparisons of automobile insurance rates across jurisdictions, and impressions abound as to what drives premium costs. We believe that a more appropriate basis for comparing insurance regimes lies with an examination of the largest cost component of any insurance system: the cost of claims.

Against this backdrop, the CIA established a task force to study the issue, and work to substitute �facts for impressions�. Members of this task force are Hugh White, Ron Miller, Paula Elliott, Don Palmer, Alain Lessard, Claude D�silets, Andrew Cartmell and Dave Oakden (Chair).

This report is intended to accomplish two things:

  1. Provide readers with a provincial comparison of average claims costs, the largest single component in setting premium rates, and to provide a useful starting point for comparing rates; and

  2. Clarify the role actuaries play in setting insurance rates.
    In examining these issues, this report focuses on two areas:

    • Provincial Claims Costs; and

    • Pricing Automobile Insurance.

The �Provincial Claims Costs� section includes a table showing average claims costs by province. We have included the claims costs comparison rather than a premium comparison in our report because premium comparisons depend on the characteristics of the driver and car selected. For example, comparisons involving young male drivers or drivers with several accidents or convictions may favour provinces with public insurers. This is due to the fact that private insurers normally charge much higher rates for young male drivers and often have larger surcharges for drivers with several accidents and/or convictions. Provincial automobile insurers usually have a lower variation in rates and smaller surcharges.

Another problem with rate comparisons is the selection of the insurance companies. In Ontario, there are more than 50 insurance companies providing private passenger automobile insurance. In many cases, the difference between the highest and lowest rate is large.

We believe that our table showing average claims costs by province will provide a good indication of the basis from which companies start in setting premium rates which then take into account specific factors surrounding the insured. As noted above, projected claims costs are the largest component of price: typically they comprise more than three quarters of the final premium.

Although we are not able to explain all the reasons for the cost differences by province, the level of benefits is a very important element in this. Other contributing factors are:

  • traffic density;

  • weather patterns;

  • physical road infrastructure; and

  • public versus private insurance.

An appendix to this report provides a table illustrating selected coverage levels across Canada which take into account some of the most recent changes enacted by provincial governments.

The section on �Pricing Automobile Insurance� describes how actuaries calculate premium rates. This section is included to show the role actuaries play in estimating prices and to indicate the professional standards the actuary is subject to when setting rates. It should be noted, however, that not all companies employ actuaries to establish rates.

Ultimately, we believe this report will contribute to an informed debate on auto insurance costs by providing a clearer understanding of the role of claims costs and other factors in determining premium rates.

The report is available as a pdf, 12 pages, at

The Canadian Institute of Actuaries

The Institute is focused on advancing and developing actuarial science; promoting the application of actuarial science to human affairs; and establishing, promoting and maintaining high standards of competence and conduct within the actuarial profession.