Why Are Auto Insurance Rates Increasing in Ontario?

Nobody gets excited about an insurance renewal, especially when the number at the bottom is higher than it was last year. If your Ontario auto insurance premium has increased despite having no accidents, tickets or claims, it is reasonable to ask why.

There are several factors involved, but one of the biggest is surprisingly simple. Everything that your auto insurance policy pays for has become more expensive.

Insurance Isn't Immune to Inflation

Inflation is the increase in the cost of goods and services over time. We see it at the grocery store, the gas pump, restaurants and just about everywhere else. Insurance companies experience those same rising costs when they pay claims.

Consider what can be involved after a collision. There may be replacement parts, autobody labour, mechanical repairs, towing, storage, rental vehicles, medical expenses and rehabilitation. If the vehicle cannot be repaired, the insurer may have to replace it altogether.

All of those things cost more than they used to.

Statistics Canada reported that the cost index for passenger vehicle parts, maintenance and repairs increased 22.3% between December 2019 and December 2024. Vehicle prices also rose significantly during this period.

The basic economics aren't particularly complicated. Insurance pays for things. When those things become more expensive, the insurance that pays for them eventually becomes more expensive too.

A Bumper Isn't Just a Bumper Anymore

Modern vehicles are incredibly sophisticated. That's great when you're driving them. It's not always so great when you're repairing them.

A parking lot bump that once meant replacing and painting a bumper might now involve cameras, parking sensors, radar equipment and other technology. After repairs, some of those systems may also need to be calibrated and tested.

Ontario's insurance regulator, the Financial Services Regulatory Authority of Ontario, identifies increasingly sophisticated vehicle technology as one of the factors contributing to higher repair costs.

The result is that an accident doesn't necessarily have to be more severe to be more expensive. Even relatively minor damage can produce a surprisingly large repair bill.

More Expensive Vehicles Mean More Expensive Claims

The value of the vehicle itself matters too.

When a vehicle is stolen or damaged beyond repair, the insurer may have to pay to replace it. As vehicle values increase, so does the potential size of those claims.

Statistics Canada's analysis of auto insurance costs found that increasing claim severity, meaning the average cost of a claim, has been an important contributor to rising insurance costs.

Consider a simple example.

An insurer has 1,000 claims averaging $8,000 each. That's $8 million in claims.

A few years later, the insurer has the same 1,000 claims, but they now average $10,000 each. That's $10 million.

There weren't any additional claims. The same number of accidents simply became 25% more expensive to settle.

Eventually, those costs have to be reflected in insurance rates.

Auto Theft Hasn't Helped

Ontario has also experienced significant auto theft losses in recent years.

Statistics Canada reported that automobile theft claim costs across Canada exceeded $1.5 billion in 2023, compared with $489 million in 2019. Ontario was particularly affected. Theft has since declined from its peak, which is encouraging, but those losses have still contributed to the cost pressures facing the insurance industry.

The vehicle you drive can therefore make a meaningful difference. A vehicle that is frequently stolen, expensive to repair or expensive to replace may cost more to insure than another vehicle, even when the person behind the wheel is exactly the same.

But I Thought Inflation Was Coming Down?

This is where inflation can be a little misleading.

When you hear that inflation is falling, it usually doesn't mean prices are falling. It means prices are increasing more slowly.

Imagine something costs $100 and inflation is 8%. Its new price is $108.

The following year, inflation falls all the way to 3%. Great news, right?

Mostly. The $108 item doesn't go back to $103. It increases another 3% to $111.24.

Inflation has fallen dramatically, but the actual price is still higher.

The same principle applies to insurance claims. Several years of increases in parts, labour, vehicles, towing, rentals and other expenses don't suddenly disappear when the inflation rate cools. The higher prices are already built into the cost of repairing and replacing vehicles.

But I Haven't Had a Claim

This is probably the most common question we hear.

Your own driving history absolutely matters. Being claims free, maintaining a clean driving record and qualifying for discounts can all have an important impact on your premium.

But insurance also works by pooling risk across a large group of policyholders.

Your premium isn't based only on what happened to you last year. Insurers also have to consider what they expect future claims to cost. That includes the cost of repairs, vehicle replacements, accident benefits, theft losses and many other factors.

That's why a good driver can still experience a renewal increase without having done anything differently.

Ontario auto insurers also cannot simply increase rates whenever they choose. Proposed rate changes must be filed with and approved by FSRA.

Where Your Insurance Broker Comes In

A renewal increase doesn't necessarily mean you have to accept the first number you see.

An independent insurance broker can review your coverage, check available discounts, discuss deductible options and determine whether it makes sense to compare your policy with other insurance companies.

Sometimes your current insurer is still the best option. Sometimes another insurer may offer a better combination of price and coverage. And sometimes there are simple changes that can help reduce your premium without sacrificing the protection that matters.

Unfortunately, we can't convince repair shops to charge 2019 prices, make new vehicles inexpensive again or turn a modern bumper back into a simple piece of plastic.

What we can do is help make sure you're properly covered, understand what you're paying for and continue to get competitive value for your insurance.