There are a lot of factors that go into determining your car insurance rate. From where you live and the car model you drive, to your age and driving record, each piece of information helps insurance providers gauge the risk you pose as a customer. And while more expensive vehicles can yield higher rates, the price you pay at the dealership, referred to as the manufacturer’s suggested retail price (MSRP), doesn’t necessarily have an impact on your rate the way it used to in the past.
MSRP no longer used for setting car insurance premiums
Prior to 1995, insurance providers used the MSRP along with some very basic information about the vehicle as a key factor in determining a portion of your car insurance premium. Vehicles with similar MSRPs would be classified into a common rate group, which would then result in similar insurance premiums. However, the Vehicle Information Centre of Canada (VICC) later determined that using the MSRP alone was an inaccurate measure for setting insurance premiums, as it failed in the following areas:
- The MSRP did not serve as a good indicator of potential future repair costs.
- Accounting for safety features, such as anti-lock brakes, airbags, and theft deterrent systems, which can lower the likelihood of claims and associated costs.
- The claim frequency, or severity of potential claims, could not be predicted based on vehicle price alone.
- Vehicles with similar MSRPs did not necessarily depreciate at the same rate.
Because of these concerns, VICC developed a new rating system in 1994: the Canadian Loss Experience Automobile Rating (CLEAR), which changed the way insurance premiums are calculated across Canada.
The CLEAR system for setting car insurance rates
Today, insurance companies use CLEAR to determine the insurance premium for your vehicle. The CLEAR method allows car insurance companies to predict future claims more accurately. And this in turn rewards vehicle owners for buying vehicles that experience fewer claims and smaller losses.
All insurance companies in Canada use CLEAR. It considers key vehicle information, rather than just the vehicle's purchase cost, to determine insurance premiums. Some of the key factors affecting the insurance premium of a given vehicle under the CLEAR rating method system are:
- Actual claims experience, including collision, comprehensive, direct compensation for property damage (DCPD), and accident benefits
- The amount a potential claim is likely to cost the insurance company
- Probability of theft
- Safety features, such as anti-lock brakes, airbags, and theft deterrent systems
Ultimately, this rating method allows those who choose low-risk vehicle models to save on car insurance. You can also guarantee a lower rate by comparing premiums from company to company in Canada.
