When it comes to car insurance, it is hard to miss the following phrase in the media today — “car insurance rate approval.” No doubt you’ve heard about this, but what does it mean, exactly, and what’s car insurance rate approval all about? And, more importantly, how does it impact your auto insurance?

Automobile insurance rates are rising up again in  Ontario province. The average rate increase for the second quarter of 2009 was 5.86 percent, according to the Financial Services Commission of Ontario (for full details of the rate increases by car insurance company, click here).

Does it mean that you will see an increase of 5.86 percent to your policy this year if you live in Ontario? The answer is possibly yes — or probably not. You may see more or you may see less of an increase; that depends upon the car insurance company you are with as well as a number of other factors, which we will review in a moment.

First, know that each car insurance company must have their proposed rate increase approved by the Financial Services Commission of Ontario (FSCO), which is a provincial regulatory body. Before FSCO approves a rate increase, the car insurance company must show evidence that the rate increase is warranted. A car insurance company does this by proving its claims experience within particular cities (or within certain types of business) is much higher than the premiums being charged.

FSCO then reviews the rate increase that the car insurance company is applying for. The approval may happen or not, plus FSCO may require that the proposal be modified. If modifications are needed, the car insurance company will work with their actuaries to create a new rate proposal, then reapply and the approval process starts again.

When you hear in the news that we can expect to see a 5.86 percent increase to your car insurance rate, what you should remember is that this applies to the average increase for the companies that applied for an increase, not your personal rate directly. Not all car insurance companies made an application for a rate increase in the second quarter of 2009. Of the companies that were approved for a rate increase, remember the average was 5.86 percent. For your particular driving profile, you may find that your rate is higher or lower.

Also keep in mind that you have some control over your car insurance costs. You can reduce your premium by keeping a clean driving record, increasing your deductibles, changing some of your driving habits (e.g. taking public transit to work) and making sure that you are receiving all discounts available to you. But as you can see from the rate-approval process, rates can vary greatly from insurance company to insurance company; so the most effective thing that you can do to ensure you are paying the lowest rate is to shop around.

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