Chapter 9: Automobile Insurance

The Need for Automobile Insurance

  • Vehicles create three basic exposures
    • Cost to repair/replace a damaged or stolen vehicle (first-party property)
    • Injury or death of occupants of the insured vehicle (first-party injury/death)
    • Legal liability for injury or property damage to third parties (third-party liability)
  • Uninsured Motorist
    • Operates a vehicle without the statutory minimum liability limits
    • Usually discovered only after a collision
  • Under-insured Motorist
    • Carries liability limits that prove insufficient once a loss occurs
  • Defendant (civil context)
    • Party being sued for damages
  • Without adequate insurance, at-fault drivers face fines, licence suspension, vehicle impoundment, restricted access to accident benefits, and loss of the right to sue other drivers

Financial Responsibility & Proof of Insurance

  • All provinces require drivers to be “financially responsible”—able to pay for damage they cause
  • Automobile insurance is the primary proof of that responsibility
  • Third-Party Liability (Section A in some provinces)
    • Protects the insured for BI/PD they are legally liable for
  • Proof of insurance varies
    • Registration alone (some jurisdictions)
    • Certificate of Automobile Insurance / pink card (others)
  • Driving without insurance can forfeit certain benefits and rights to sue

Why Buy Through an Agent or Broker?

  1. Product Knowledge
    • Recommends coverages based on prior loss experience
  2. Market Knowledge
    • Matches client with an insurer that will underwrite the risk
  3. Customer Service
    • Explains coverages, answers questions, assists with claims
  4. Peace of Mind
    • Professional advice builds client trust

Automobile Insurance Regulation in Canada

  • Jurisdiction is provincial/territorial; basic coverages are compulsory everywhere

Distribution Methods

  1. Private insurers
    • Direct to consumer, through captive agents, or independent brokers
  2. Crown corporations
    • Direct sales or via government agencies/licensing offices

Government Insurance Schemes (Compulsory Basic Coverages via Crown Corporations)

Saskatchewan – Saskatchewan Government Insurance (SGI)
  • Premium paid with annual vehicle registration
  • No individual policy; coverage defined by legislation (master policy)
  • Basic coverages
    • Third-party liability
    • Personal injury benefits
    • Mandatory physical damage (collision + comprehensive)
  • Two benefit options
    1. Part II Bodily Injury (tort) – lower benefits, retains right to sue for excess economic & non-economic loss
    2. Part VII Personal Injury (no-fault) – higher benefits, limited right to sue
Manitoba – Autopac (Manitoba Public Insurance)
  • Personal Injury Protection Plan (PIPP) – pure no-fault
  • Right to sue only for out-of-province accidents or when the other vehicle is not Autopac-insured
  • Basic coverages
    • Third-party liability
    • Accident benefits
    • All-perils physical damage
British Columbia – Autoplan (Insurance Corporation of BC)
  • Basic insurance mandatory for all licensed owners (some entities exempt)
  • Registration + plate number serve as evidence of insurance; no separate policy document
  • Provides
    • Third-party liability
    • No-fault accident benefits (must be considered before tort action; prevents “double-dipping”)
Quebec – Dual Private / Public System (Automobile Insurance Act – Bill 67)
  • All insurers adhere to Direct Compensation Agreement; fault determined by “Driver’s Fault Chart”
  • Four components
    1. Bodily Injury Compensation – administered by SAAQ (no-fault within Quebec)
    2. Property Damage – handled by private insurers under a standard policy
    3. Fonds d’indemnisation – compensates innocent victims of uninsured / unidentified motorists (mostly PD)
    4. Groupement des assureurs automobiles – ensures availability of insurance, manages direct compensation, certifies appraisal centres

Private Insurance Provinces/Territories

  • Alberta, NB, NL, NS, Ontario, PEI, Yukon, NWT, Nunavut
  • Compulsory coverages: Third-party liability, Accident Benefits, Direct Compensation Property Damage
  • Standard policy wording in each jurisdiction is identical among all insurers but differs province-to-province
Facility Association (Residual Market)
  • Industry-wide pool ensuring availability of coverage to any licensed driver regardless of record
  • Servicing carriers issue policies & handle claims for the pool; non-servicing carriers share losses by market share

Automobile Insurance Application (12 Key Sections)

  1. Applicant’s name & primary address
    • Determines rating territory; supported by a 3-year Driver’s Abstract
  2. Policy period
    • Commences and terminates at 12:01 a.m.12{:}01\,\text{a.m.} on the dates shown
  3. Described Automobiles
    • Year, make, model, VIN (17 characters); lienholder/lessor interests; ownership status; modifications; car-pooling disclosure
  4. Driver Information
    • All household drivers: licence class, DOB, gender, marital status, first licensed date, driver-training, impairments, prior cancellations or fraud
  5. Previous Accidents & Claims (6 years)
    • Verified via AutoPlus industry database; salvage codes flagged
  6. Convictions (3 years)
  7. Rating Information
    • Class, record, surcharges, CLEAR code, territory, discounts
  8. Coverages Requested
    • Mandatory + optional (collision, comprehensive, specified perils, all-perils, family protection)
  9. Remarks
  10. Applicant’s Signature – authorises data retrieval & affirms truthfulness
  11. Penalty Clause – misrepresentation can void coverage & deny claims
  12. Broker/Agent Report – binding status, length of relationship, pink-card issued?

Assessing Commercial Risks

  • Same core data plus additional business factors
    • Exact use, attached equipment, cargo details, radius, passenger exposure (e.g., ride-sharing usually excluded)
    • All drivers’ qualifications
    • 3–5 years detailed loss runs, including uninsured losses
    • Broker’s personal knowledge of client

Premium Calculation & Rating Factors

  1. Age, Gender, Marital Status
    • Young single males = higher frequency; some provinces have banned these factors
  2. Driving Experience
    • Years licensed; foreign experience may receive partial credit
  3. Driving Record
    • Convictions & at-fault accidents (usually last 6 years)
  4. Other Regular Drivers
    • Usage percentage per vehicle
  5. Territory & Annual Distance
    • Urban = more minor crashes & theft; rural/highway = more severe losses
  6. Vehicle Use
    • Pleasure, commute, business
  7. Vehicle Description & CLEAR Rating
    • MSRP, body style, theft susceptibility, repair cost, injury potential
  8. Chosen Coverages & Deductibles
    • Broader coverage + lower deductible = higher premium

Insurance Fraud & Control Measures

  • Fraud inflates claim costs → higher premiums
  • Industry initiatives: Insurance Bureau of Canada (IBC), Canadian Coalition Against Insurance Fraud (CCAIF)
  • Provincial programs
    • BC: prevention-device discounts, dedicated hotline, civil actions
    • Manitoba: theft-reduction task force and prosecutions
    • Ontario: vehicle branding (irreparable/salvage) alerts insurers

Standard Automobile Owners Policy (SPF 1) – Coverages & Conditions

  • Wordings regulated; statutory/mandatory conditions govern notice, termination, claims, information duties

Mandatory Coverages

1. Third-Party Liability
  • Pays compensatory damages for BI/PD caused by insured’s negligence
  • Insurer agrees to investigate, negotiate, settle, defend, pay costs, honour minimum limits Canada-wide
  • Insured must cooperate and reimburse insurer if misrepresentation caused exposure
2. Accident Benefits (No-Fault Section)
  • Income replacement, non-earner, caregiver, medical, rehabilitation, attendant care, funeral, death benefits
  • Eligible persons: named insured, spouse, dependants, listed drivers, any person in an accident with the insured vehicle
3. Uninsured Automobile
  • BI for insured injured/killed by uninsured or hit-and-run driver; PD to insured auto if the uninsured driver is identified
  • Alternative compensation sources
    1. Highway Victim Indemnity Funds
    2. Uninsured Motorist Coverage (statutory)
    3. Under-insured Motorist / Family Protection (OPCF 44)
4. Direct Compensation Property Damage (DCPD)
  • Insured collects from own insurer for at-fault share of property damage by another motorist (Ontario, NB, NS, PEI)
  • Streamlines recovery; faster payout

Optional Physical Damage Coverages

  1. All-Perils – broadest; combines collision & comprehensive + theft by household members
  2. Collision/ Upset – impact with object or rollover
  3. Comprehensive – every peril except collision/ upset (fire, theft, vandalism, hail, falling objects, etc.)
  4. Specified Perils – named perils only (e.g., fire, lightning, theft, windstorm, flood)
  • Deductibles reduce small claims; Ontario waives deductible for fire, lightning, theft
  • Additional Agreements
    • U.S. customs duties on parts
    • Damage to Temporary Substitute Automobile (TSA)
    • Transportation replacement after theft (e.g., 72-hour waiting period in Ontario)

Commercial & Special Risks

  • Ride-sharing: coverage by endorsement, separate commercial policy, or SPF 9 (Alberta Transport Network form)
  • Non-Owned Auto Liability – extends CGL or standalone; employers liable for employees’ negligence even if vehicle not owned by employer

Common Endorsements (Ontario numbers shown; analogous forms elsewhere)

  1. OPCF 16 / 17 – Suspension & Reinstatement (storage)
    • LIAB & collision suspended; AB, comprehensive, DCPD remain
  2. Automobile Value Changes
    • OPCF 19A Agreed Value (antiques/classics) – requires appraisal; pays agreed restoration cost
    • OPCF 19 (Manitoba commercial) – caps insurer’s liability below appraised value for customised vehicles
    • OPCF 43 Waiver of Depreciation – new vehicles; settlement on new-for-old basis within stated period
  3. OPCF 44 – Family Protection / Under-insured Motorist
  4. OPCF 20 – Loss of Use (rental car expenses after insured loss)
  5. OPCF 27 – Legal Liability for Damage to Non-Owned Automobiles (extends PD & liability while driving borrowed car)
  6. Ride-sharing Endorsement (e.g., Uber policy)
    • Personal policy valid when app off; TNC policy applies during:
    1. App on, no ride accepted
    2. En-route to passenger
    3. With passenger onboard
    • Conditions: contracted driver, max hours, licensing & experience standards

Ethical & Practical Considerations

  • Balancing affordability with adequate limits; encouraging clients to focus on protection, not just price
  • Advising on deductible trade-offs and loss-prevention discounts (multi-vehicle, anti-theft devices, participatory loss control)
  • Provincial moves to eliminate discriminatory rating factors (age, gender, marital status) underline need for fair underwriting

Key Definitions & Concepts (Quick Reference)

  • Statutory Conditions – legislated duties of insurer & insured
  • Driver’s Abstract – official 3-year licence record
  • CLEAR – Canadian Loss Experience Automobile Rating system
  • Temporary Substitute Automobile (TSA) – non-owned vehicle temporarily replacing the insured auto
  • Lienholder vs. Lessor – lienholder has financial claim; lessor is registered owner under lease
  • Facility Association – residual market pool for hard-to-insure drivers
  • Car-pooling (covered) vs. Ride-sharing/Car-sharing (usually excluded unless endorsed)