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Types of car insurance
Buying car insurance can seem daunting. Between mandatory coverage and personal preferences for add-on insurance, it can be difficult to know where to look. This article aims to unpack how car insurance is structured and sold to customers to help you understand what options best suit your needs and which approach will help you best insure a car.
Canadian car insurance rates vary from one province to another. In Saskatchewan, Manitoba, and British Columbia, Crown Corporations supply car insurance. Crown Corporations are government or state run businesses (the opposite of a private company). This means insurance on cars in these provinces are largely standardized, removing the need to compare different insurance prices. In all other provinces, car owners must buy coverage from private corporations. This gives buyers the chance to compare different insurance rates and potentially pay less insurance on a car overall than in the state-run system.
If you are in need of private insurance for a car, it can be daunting to start comparing all the different options on the market (there are 53 private insurance companies in Ontario alone). In order to establish which car insurance provider best serves your needs, it helps to understand who is actually providing your coverage. In this next section, we will examine the main ways insurance is marketed and sold and how each method affects the relationship between the insurer and the insured.
Quick note: Quebec offers both private and public insurance. The public insurance system only offers driver’s accident benefits, not third-party liability. If you are looking for additional coverage, you’ll need to purchase private insurance.
Who provides auto insurance?
If you purchase a car from a dealership, the salesperson will put you in touch with an insurance agent of your choosing who will help you purchase car insurance coverage. But what exactly is an insurance agent and who do they represent? Let’s have a look at how different car insurance options are structured. Keep in mind, all of these options will cover the minimum liability coverage required in Canada, but it’s up to you to built the best car insurance policy for your needs by using various add-ons (eg. comprehensive coverage or collision insurance.)
There are three principle categories of car insurance providers in Canada:
1. Insurance Companies: These are private, independent companies who market and sell their own insurance plans to car owners. Although an independent business, insurance companies might be owned by larger parent corporations.
2. Independent Brokerages: This is basically an aggregate service that works with a range of insurance companies. Brokerages are staffed with teams of licensed brokers who sell insurance on behalf of the different insurance companies, including the public government-run programs in the relevant provinces.
3. Banks and Credit Unions: These are the largest scale insurance providers. Banks and credit unions work with the government to provide insurance through the public system. They also operate their own private insurance companies across the country.
Each of these car insurance models will implicate you in a unique relationship with a company representative. If you choose to work with a private company, you will likely purchase your coverage from a captive agent; if you purchase from a broker you will be in touch with an independent agent; and if you work with a bank, it will deliver its services through a direct writer.
Let’s unpack what each of these titles actually means:
1. The Captive Agent: A captive agent is a person who works for a particular car insurance company. These agents are paid a salary as well a commission for each sale. Because the parent company requires rigorous training, captive agents are extremely knowledgeable about their product. By virtue of operating within a single company, captive agents also usually deal with a limited group of underwriters and claim specialists. These tighter knit, more personal connections can result in better payoffs when filing auto insurance claims. On the other hand, being restricted to one company can also be a disadvantage. If the parent company reduces its range of coverage, captive agents will not refer you to another car insurance company. Similarly, if your own insurance plan changes, they will either be forced to raise your deductible, decrease their coverage or try and raise your premium.
Examples: All-State, Co-operators.
2. The Independent Agent, or Insurance Broker: Independent agents are employed by brokerages and work with a range of auto insurance providers. This means independent agents can offer a wider selection of insurance plans to choose from and compare rates between providers. If you are unhappy with a particular insurance company, independent agents are in a better position to help you find an alternative. Predictably though, the compromise for more options is a less-in-depth view of each particular plan, as well as a slightly depersonalized relationship to claims representatives and underwriters.
Examples: Intact, Aviva.
3. The Direct Writer: Direct writers get the name because they work “directly” for a bank or credit union and sell “directly” to the consumer. These are also captive agents as they only sell on behalf of the insurance company they work for. The difference between a direct writer and a captive agent lies in their affiliation to their employer. A captive agent usually works a little more independently of the larger company and is paid commission for their work whereas a direct writer is employed by the company to sell prewritten plans. Many companies tend to be hybrids of these two models.
Examples: Desjardins, Sonnet.
4. The Online Experience: Many insurance buyers (especially if you’ve already had experience purchasing coverage) want to find the quickest solution possible. The online approach essentially involves you surfing the web and sorting through the options available. With new services appearing online all the time, it is becoming easier to purchase insurance without having to interface with another person. This approach places the bulk of the work in your own hands by allowing you to shop around from your living room. It also necessitates that you will have to do more of the legwork to compare insurance premiums. The biggest risk with this option is that you will solely responsible for making sure the coverage you purchase meets all federal and personal criteria. In addition, the internet interface does mean that there is little to no interpersonal relationship between you and your insurance company representatives (usually taking the form of a stranger on the phone).
Essentially, when considering these options you are choosing what kind of connection you want to your provider: a personal connection that privileges depth of information, a personal connection that prioritizes breadth of information, or an impersonal connection that shoulders you with more responsibility. Keep in mind, if you find yourself in the position of making an insurance claim, it can pay off to have a real connection with an agent who will help you navigate the process smoothly.
Each of these services will offer a range of different insurance premiums. It’s almost impossible to declare one of these methods as the most cost effective because they are in constant flux. As a rule, car insurance is getting more expensive in Canada. All insurers must compete with one another while trying to maintain appeal for new clients and the only real way to get a finger on the pulse of car insurance rates is to get nosy and get googling (or calling around if you’re a little more old school). Most major car insurers also offer a free quote estimate directly from their websites, and all of them will include standard discounts (for example, car insurance is always cheaper for drivers with a clean driving record.)
What will I need to buy car insurance?
Now we’ve dissected who will actually be selling you the insurance, time to figure out what you will need in order to buy an insurance policy (after you shop around a little). In order to give you accurate quotes on an insurance policy, your prospective insurance provider will need a detailed picture of you as a driver.
First, you will need to provide your:
- Date of birth
- Job title
- Marital status
Usually, you won’t be asked for proof of information concerning personal details but if you want to be sure, it never hurts to have a piece of correspondence (eg. a bank statement) on hand to verify all of the above.
You will then need to provide:
- Driver’s license
Along with your license, insurers will look at your driving history to note any previous accidents or insurance claims. It’s important to acknowledge any incidents because if you leave out certain details and your insurer spots them, they can easily refuse to insure you or declare your policy void after you’ve bought it. If you can’t remember the details of your driving history, you can request a copy of your driving record from the Ministry of Transportation by mail. If you are insuring more than one driver on the same policy, you will need to supply their information as well.
Now, since you are insuring a car, you will need to supply thorough information about the vehicle. This includes but is not strictly limited to:
- Make, and model of vehicle
- VIN number (if you have it)
Again, most of the time insurers won’t ask for proof of information (inaccuracies also give insurers an easy excuse pay less towards any claims you make) and may not require all these details, but it’s best to have everything on hand.
Lastly, you will need your all your banking details. When you purchase insurance either in person, online or over the phone, you will set up a plan for either monthly, quarterly, or yearly payments. If your aren’t choosing a yearly payment plan, insurers will usually request that you set up a direct debit transaction for them to access payments on time.
Who can buy car insurance?
This is a small aside, but an important thing to remember: you do not need to own a car to purchase insurance. Car ownership is different from car guardianship.
Let’s say you get a new job and your new employer offers you a company car. While the company still owns the car, you are now what is called the vehicle’s “registered keeper” and can purchase your own insurance for the vehicle. If you purchase insurance as a registered keeper, you will need to provide details of the car owner along with your own.