Does the winter tire discount make actuarial sense?

Winter tires may reduce collision risk, but that doesn’t necessarily translate into a reduction in insured losses for every book of business — especially if the snow tires give motorists a false sense of security.

Canada’s fifth-largest insurer recently looked at its auto claims numbers in Nova Scotia, comparing vehicles with winter tires and those without. The results were the opposite of what the insurer anticipated, a recent ruling from the province’s insurance rate regulator suggests.

An analysis from The Co-operators General Insurance Company “showed, somewhat unexpectedly, that the vehicles equipped with snow tires (measured by those vehicles with the discount) have worse experience than those vehicles without the discount,” wrote Roberta J. Clarke, a member of the Nova Scotia Utility and Review Board, in a decision released Apr. 24. “Surprisingly, the experience suggests cars with snow tires should be surcharged.”

The NSURB decision authorized the Co-operators, among other things, to reduce its discount for motorists with winter tires from 5% to 2%.

The discount applies to vehicles with four snow tires (as certified by Transport Canada) and installed on or before Dec. 1, at least until Mar. 31.

For its part, when The Personal proposed a 5% winter driving discount, it told NSURB that proper winter tires improve control and stability in snowy conditions, and that “drivers who are safety-conscious enough to purchase and install winter tires are likely to be safer drivers overall, and that this would result in lower claims experience,” as the NSURB noted in an earlier ruling on a rate application from The Personal. (The Personal is one brand that Desjardins uses to write home and auto insurance.)

But winter tires are not the only factor affecting auto accident risk, warns Elliott Silverstein, director of government relations for CAA Insurance, commenting in general on winter tires as one means to improve safety. It is also important to adjust driving to the road and weather conditions, he said in an interview.

“Winter tires are not a licence to drive aggressively in the winter, and that may be part of the problem,” said Silverstein. “People who have winter tires may feel that they can drive a bit faster or have a little bit of a shorter braking time, but in reality the winter tires are designed to help you grip the conditions. There is a bit of a false sense of security in some cases, and that is why we really underscore that winter tires are really one of many mechanisms to have a safe vehicle in winter.”

The approach to winter tires varies from province to province. Winter tires are mandatory from Dec. 15 through Mar. 15 in Quebec, while Ontario insurance regulations have required carriers to give discounts for winter tires since 2016. The exact discount and criteria vary among insurers in Ontario. Manitoba Public Insurance offers an incentive program that lets motorists get low-interest loans (prime plus 2%) of up to $2,000 towards buying winter tires as well as towards some of the associated costs.

Some motorists may confuse all-season tires with proper winter tires, Silverstein suggests.

Tires marked M+S (which stands for mud and snow) are not the same thing as winter tires, Transport Canada warns. Proper winter tires have a pictograph of a peaked mountain with a snowflake; these are designed for use in severe snow conditions, advises Transport Canada. On the other hand, mud and snow tires may not always be suitable for severe snow conditions.

“A lot of studies have shown that proper winter tires are effective in winter conditions, but that is definitely contingent upon the behaviour of the driver behind the wheel,” said Silverstein.

It is also important to properly maintain the vehicle and ensure the snow is cleared from the vehicle exterior before driving, he added.

Feature image via iStock.com/aetb