The Basics

All drivers are required to carry valid auto insurance for their vehicles in Alberta. Drivers cannot register their vehicles without proof of insurance. Driving without insurance is a serious offence, and you can be ticketed or have your driver’s license suspended. While many drivers know carrying insurance is mandatory, not everyone is familiar with what their insurance policy covers, the available optional coverages, or the key terms and processes.

The Basics

Who is insured?

An auto insurance policy covers drivers, passengers, and potentially any pedestrians involved in a collision with a vehicle.

The insurance company refers to the main driver of the vehicle as the principal driver and any other listed drivers as occasional or additional drivers. An auto insurance policy may also provide coverage for damage to the vehicle.

How is the cost of your auto insurance calculated?

Like all businesses, an insurance company must cover its costs to stay viable. The difference with an insurance company is they do not know how much the product costs.

An insurance company collects premiums to pay for insurance claims, administration, and taxes.

Claims are the largest expense for an insurance company. They pay for bodily injury and vehicle repair or replacement. They are also the most unknown expense at the time of purchase, making them difficult to predict and posing a considerable risk to the insurance company.

To cover the high risk and expense of claims, an insurance company:

• Considers the number of past claims when setting their base rate.
• Uses premiums collected from all of their policyholders to pay for few who will make a claim.
• Invest the money collected from policyholders to reduce financial risk.

Insurance companies use a formula based on several identified risks to determine the price of your auto insurance policy. These risks include where you live, your age, vehicle type, how much you drive, and any past insurance claims.

Base Rate

Insurance companies have access to significant amounts of data, such as personal characteristics like age, years licensed, and marital status, to predict the risk of you making a claim.

Rating Factors

Insurance companies have access to significant amounts of data, such as personal characteristics like age, years licensed, and marital status, to predict the risk of you making a claim.

Generally, they also focus on the following four types of rating factors:

1. How Much and Where You Drive

If you live or drive in a city, the cost of your auto insurance will likely be higher due to the greater risk of vehicle theft or accidents. Also, insurance companies determine risk by examining the number of kilometers driven. The more you drive, the higher your risk of being in an accident, which raises your insurance costs.

2. Your Driving Record

Insurance companies use your driving record to determine how much of a risk you pose on the road. Generally, the better your driving record, the lower your insurance rate. For example, a driver with at-fault accidents poses a higher risk to an insurance company. Your rate may also increase if you have more than one traffic conviction in the last three years, such as speeding or careless driving.

When looking at your driving record, insurance companies consider the following:

• The number of years you have been licensed.
• The number of traffic convictions due to driving infractions, such as speeding tickets.
• The number of accidents you have had.
• If you have taken driver training.

3. Your Vehicle

Your vehicle make, model, and year affect your insurance rate. Insurance companies consider the cost of replacing your vehicle if it was stolen or damaged. Your insurance rate might be lower if the vehicle model has been statistically proven less likely to be stolen or involved in an accident. It also might be lower if the vehicle has better safety and handling features or is less costly to repair. Generally, auto insurance rates are higher for new vehicles and sports cars, but a vehicle’s safety features may help lower the price. The Insurance Bureau of Canada has a thorough list rating how expensive a vehicle is to insure.

4. Type and Amount of Coverage

The more coverage you have, the higher your auto insurance costs. You can customize your insurance to meet your needs by adding or removing specific types of coverage, such as collision or comprehensive. If you drive an older vehicle, you may remove collision coverage, or if you are leasing or financing your vehicle, you may be required to carry collision.