This car is orange. Do your clients know it won’t necessarily cost any extra to insure it?

Driving in the passing lane of the highway, your client sees in her rearview mirror an antenna pull up behind her. A horn blares. She pulls into the right lane, and an orange Lamborghini Aventador moves ahead, leaving her behind in its vapour trail.

“That guy must be paying a fortune in insurance premiums,” your client says to herself, trying to feel better about owning a battered, two-door 1998 Honda Civic.

Your client wouldn’t be alone in drawing that kind of mistaken conclusion, according to the latest poll from Rates.ca. In fact, even if she correctly assumed the Lamborghini driver had more licence demerit points than she did, she’d still be perpetuating a myth about how car insurance rates are calculated that isn’t necessarily true.

The findings in the latest Rates.ca survey speak to the fact that underwriting criteria for setting auto insurance rates remain a mystery to many Canadian drivers and brokers alike. The P&C insurance industry as a whole still has its work cut out for it in explaining the “black box” of how auto insurance rates are determined, the results suggest.

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For example, Canadians got a failing grade (2.6 out of 7) when asked whether they thought seven auto insurance statements were true or false, according to a new survey of 1,513 Canadians conducted by Leger Marketing from Aug. 7-10, 2020.

Among the seven statements, Canadians were asked whether the following were true or false:

• The colour of a vehicle can affect the cost of an insurance premium (38% of Canadians incorrectly think it does, while 23% did not know).
• An expensive or high-end vehicle costs more to insure than a less expensive one. (79% of Canadians think an expensive or high-end car costs more to insure than an economically-priced vehicle, although this is not necessarily the case. Insurers consider many factors when determining a customer’s premium, including how easy it is to steal the vehicle and how expensive it is to repair. Based on the theft factor alone, the 1998 Honda Civic cited above — which once appeared on a list of Canada’s Top 10 Most Stolen vehicles — may actually cost more to insure than the Lamborghini.)
• Insurance companies base their auto insurance premiums on the number of demerit points a driver may have. (Although 68% of the respondents think insurance companies base their premiums on the number of demerit points they have, they do not. Only 10% answered that one correctly. Demerit points are used by provincial governments to determine whether or not a driver’s licence should be revoked, but they do not affect premiums directly. That said, the number and severity of tickets will certainly affect insurance rates.)

The survey also paints an interesting picture of consumer awareness regarding both comprehensive auto coverage and the premium discounts available for reduced driving due to pandemic lockdowns.

The survey results make it clear that by “comprehensive,” consumers think that means everything is covered — including damage caused by a collision. In fact, as Rates.ca notes, it’s an optional type of coverage added to a policy that pays for damages or losses resulting from specific perils such as theft, vandalism, fire, hail, and objects that fall on your vehicle (like a tree branch) or that fly off the road (like a stone off the back of a truck).

But when asked if the following statement was true or false, “comprehensive auto insurance coverage means my vehicle is covered for everything,” 42% of Canadians said it was true, 34% said it was false, and 24% did not know.

Likewise, a misfire on communications with drivers appears to have happened during COVID-19. Many Canadian auto insurers offered premium discounts for reduced driving after the World Health Organization declared the novel coronavirus to be a global pandemic Mar. 11, 2020. In the survey, Canadians were asked whether the following statement was true or false: “If you are not driving at all because of the COVID-19 pandemic, you can temporarily suspend your car insurance coverage.”

“Although you can temporarily suspend your auto insurance coverage if you are not driving at all because of the COVID-19 pandemic, just 39% got it right, 25% were incorrect, and 36% said they did not know,” Rates.ca observed of the survey results.

Overall, no one participating in the survey got all of the answers correct; the average score was 2.6 out of 7. A total of 9% of Canadians who participated in the survey got all seven questions wrong.

Feature image courtesy of iStock.ca/kenmo