5 Key Factors That Affect Auto Insurance Premiums in BC

Auto insurance premiums are not determined solely by whether you have been involved in an accident. They can also depend on the characteristics of your vehicle, your driving experience, and how you use your vehicle.

In British Columbia, I generally divide the factors affecting auto insurance premiums into two main categories: vehicle-related factors and personal factors.

1. Vehicle-Related Factors: What Do You Drive?

1. Newer and More Valuable Vehicles May Cost More to Insure

Generally, newer or higher-value vehicles may have higher premiums for Optional Coverage, particularly Collision and Comprehensive coverage.

The reason is straightforward: if a vehicle is involved in an accident and requires repairs or replacement parts, the insurer may face higher claim costs.

For example, repairing a newer vehicle worth $40,000 after a serious collision could be very expensive. By comparison, a similar accident involving an older vehicle worth $5,000 may result in a lower vehicle-loss payout.

However, this does not mean every new vehicle will necessarily cost more to insure than an older one. The vehicle’s make, model, safety features, repair costs, and applicable rating factors can all affect the final premium.

The key consideration is not simply how old the vehicle is, but how much it may cost to repair or replace if an accident occurs.

2. Electric and Hybrid Vehicles May Have Higher Insurance Premiums

Electric vehicles (EVs) and hybrid vehicles have become increasingly popular. However, when purchasing one, it is worth considering not only fuel or charging costs but also auto insurance expenses.

One reason is that some EVs and hybrids may be more expensive to repair.

For an EV, the battery pack is one of the vehicle’s most important components. If it sustains significant damage in an accident, repairing or replacing it can be costly. In addition, some vehicles have sophisticated electronic systems, sensors, and driver-assistance technology. Even a relatively minor collision may require multiple components and systems to be inspected or repaired.

Another factor to consider is the possibility of a Total Loss.

Suppose a vehicle has a market value of $30,000, but the reasonable cost of repairs following an accident is very high. The insurer may need to assess whether repairing the vehicle is economically justifiable. If the repair costs are too high relative to the vehicle’s value, the vehicle may be declared a total loss.

Of course, the outcome depends on the specific vehicle, the extent of the damage, parts availability, and repair costs.

When buying an EV, do not focus solely on how much you could save on fuel. Insurance and potential repair costs should also be part of your calculations.

I personally have a rule of thumb: if you drive fewer than approximately 20,000 kilometres per year, I would recommend carefully calculating the overall costs before deciding whether switching to an EV makes financial sense.

Although EVs can reduce energy costs, you should also consider the purchase price, insurance premiums, depreciation, maintenance and repair costs, and whether convenient and affordable charging is available.

If you drive 20,000 to 30,000 kilometres annually, particularly if you do a lot of city driving and can charge at home at a relatively low cost, the energy-cost savings from an EV may become more significant.

By contrast, if you drive only 8,000 to 10,000 kilometres per year, fuel savings alone may not be enough to offset other additional costs.

Of course, 20,000 kilometres is not a fixed threshold. Ultimately, you should compare the total cost of ownership (TCO) of the specific gasoline-powered and electric vehicles you are considering over several years. You may also wish to consider the personal enjoyment and emotional value that owning an EV brings you before making a decision.

3. Some European and Higher-Value Vehicles May Cost More to Insure

Many people believe European vehicles are particularly expensive to insure. There is some basis for this observation, but the country where a vehicle is manufactured is not the only factor that matters. The repair costs, parts prices, vehicle value, and associated claims risks of a particular model can all affect its premium.

Based on my experience in the industry, I have observed that some Lexus models and Toyota Siennas may not necessarily become cheaper to insure as they age. In some cases, their renewal premiums may even increase.

One factor worth considering is that these vehicles may retain relatively high resale values. If a vehicle is involved in a serious accident and declared a total loss, ICBC generally calculates the settlement based on the vehicle’s actual cash value before the accident. As a result, a vehicle with a higher market value may involve a higher potential payout for an individual total-loss claim.

However, resale value is not the only factor that determines insurance premiums. Repair costs, claim frequency, and other rating factors can also influence premiums. Therefore, it would be inaccurate to conclude that a vehicle’s ability to retain its value is the direct cause of an increase in renewal premiums.

This highlights an important point: vehicle depreciation and auto insurance premiums do not necessarily move in the same direction.

A vehicle’s market value may decline over time, but if repair costs remain high or the model has less favourable rating factors, the premium for Optional Coverage may not decrease at the same rate. I have personally observed similar situations involving some of my clients who drive Mercedes-Benz vehicles.

Therefore, before purchasing a vehicle, I recommend checking insurance quotes in addition to comparing the purchase price, fuel economy, and maintenance costs.

2. Personal Factors: Who Is Driving, and How Is the Vehicle Used?

4. Driver Factor: Less Driving Experience Usually Means Higher Premiums

In British Columbia, ICBC uses a Driver Factor to assess driving risk. This factor reflects driving experience and crash history, among other considerations. A lower Driver Factor generally indicates a lower assessed risk.

Put simply, drivers with less experience generally do not qualify for the same Basic Insurance driving-experience discounts as more experienced drivers.

As you accumulate more driving experience and maintain a good driving record, your Driver Factor will generally improve over time, which may help reduce your premiums.

However, there is a common misconception worth clarifying: premiums are not determined simply by whether you hold a Class 5 or Class 7 driver’s licence. Your actual driving experience and relevant crash history are more important considerations.

For more details, please see my article, Class 5 vs. Class 7: Does Your Licence Class Directly Affect Your ICBC Premium?

It is also important to remember that the Driver Factor is only one component of the premium calculation. Vehicle use, location, vehicle model, and the coverage you select can also affect the final cost.

So, if you have recently obtained your driver’s licence and find that your premium is higher than that of a family member or friend who has been driving for years, it does not necessarily mean you chose the wrong vehicle. Your limited driving experience may be one of the reasons.

5. Vehicle Use: Delivery, Business, Commuting, and Everyday Driving

In addition to the driver and the vehicle itself, how you use your vehicle is another important factor ICBC considers when determining premiums.

In BC, vehicles are assigned different rate classes based on their use. Common examples include Pleasure, Commuting, Business, and Delivery.

Here is a simple overview of some common vehicle-use categories:

• Delivery: For example, using your vehicle to deliver food or packages. The applicable classification depends on the type of delivery, vehicle, and relevant rules.
• Business: For example, regularly driving to meet clients, attend appointments, or conduct business activities.
• Commuting: Primarily driving to and from work or school. The applicable classification may depend on the one-way commuting distance.
• Pleasure: General personal use, such as grocery shopping, running errands, picking up family members, and weekend trips.

For commuting, ICBC distinguishes between applicable distance categories. For example, a one-way commuting distance of less than 15 kilometres versus more than 15 kilometres may determine which category applies, depending on the relevant rules.

Similarly, occasionally driving to work may be treated differently from commuting by car every day or frequently using your vehicle for business purposes.

The most important thing is to accurately disclose how you actually use your vehicle to your insurance broker. If your vehicle’s actual use does not match the rate class on your policy, it may affect your coverage and claims handling. You should never choose a classification that does not reflect your actual use simply to save money on premiums.

Conclusion: Understand Insurance Costs Before Buying a Vehicle

Auto insurance premiums are determined by multiple factors. Even when two drivers have similar driving records, their premiums can differ significantly because of their vehicles, usage, location, and selected coverage.

Before buying a vehicle or renewing your policy, I recommend considering the following:

1. The vehicle itself: Its age, value, make, model, and repair costs.
2. Driver information: Driving experience, Driver Factor, and relevant crash history.
3. Vehicle use: Whether the vehicle is used for everyday driving, commuting, business, or delivery.
4. Coverage options: Whether you need Optional Coverage, such as Collision and Comprehensive, in addition to Basic Insurance.
5. Overall ownership costs: Look beyond the purchase price and factor in insurance, maintenance, repairs, and day-to-day running expenses.

If you are planning to purchase a new vehicle or wondering why your auto insurance premium is higher than expected, I encourage you to speak with an insurance broker about quotes and coverage options before renewing your policy or buying the vehicle.

Comparing your options in advance can help you avoid discovering that your insurance costs exceed your budget after you have already made your purchase.