Why are auto rates increasing despite fewer drivers on the road?

Average auto insurance rates rose in Canada during the second half of 2020 despite the COVID-19 pandemic and lockdowns that led to fewer drivers on the road. The average auto insurance premium climbed by about 30% in Alberta, 17% in Atlantic Canada and 4% in Ontario over the course of 2020 according to data collected by the insurance rate comparison site for home and auto insurance, LowestRates.ca.
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Price increases were due to the fact that more inexperienced drivers have been hitting the roads since the pandemic began. More young adults, who used public transit or ride sharing pre-pandemic, are applying for car insurance amid concerns about taking public transit. The number of inexperienced drivers shopping for insurance on LowestRates.ca increased by 2.9% (Q3) and 8.7% (Q4) reflecting the growth in use of personal use vehicles.

There is a trend of former public transit users now opting for personal use vehicles as concerns about health and safety remain. While new drivers pushed prices higher, many drivers saved money as they switched from commuting to work daily to working from home. There is also a large increase in the number of drivers aged 50 and over that are no longer commuting to work, resulting in reduced auto premiums. In addition to reductions in premiums for insurers, there were restrictions on new business by some insurers in an effort to limit certain risks in higher loss ratio areas.

In Ontario, prices were 4.1% higher in the last quarter of 2020 than they were one year prior. Even with auto insurance rates the highest in Canada, the trend away from public transit to personal use vehicles is increasing. Many of those obtaining insurance quotes are Inexperienced drivers are those with less than four years of driving experience. 

Since the start of the pandemic, the comparison site also saw an increase in the number of older drivers who quote with very low mileages, and who do not drive to work. The distribution of users aged 50+ with personal-use vehicles who said they drove zero kilometers to work increased from 28.6% in 2019 Q4 to 35.9% in 2020 Q4. As a result of lower average mileage and fewer drivers using their car to get to work, average prices for drivers aged 50 and over fell by 8% in the fourth quarter.

The reduction in traffic has led to fewer claims and might even lead to lower prices down the road, but it will take some time for insurers to gather the data and file for rate changes. Will the recent drop in traffic and any subsequent decline in accidents remain for the long term? Will the increase in younger drivers result in higher loss ratios? Will the trend towards use of private vehicles increase or return to past levels of public transit and ride sharing, with the end of the pandemic? Will older drivers return to daily travel or continue to work from home and enjoy lower premiums?

With so much uncertainty and difference from past trends, insurers won’t be able to price these changes until they have more certainty.

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