Insurance premiums for Ontario drivers can vary significantly based on a number of factors, including the type of car someone drives, their personal driving record, and the additional add-ons they purchase under their policy. However, some people may not be aware that where they live in the province can also cause their premiums to go up or down, which many feel is discriminatory. 

This is what some Ontario MPPs are hoping to address by reintroducing Bill 12: Ending Automobile Insurance Discrimination in the Greater Toronto Area Act, 2022. This is the third time such a Bill has been presented for consideration in the province since 2018. While the Bill previously received a unanimous vote early in 2022, the legislature was dissolved before it could move forward. 

How Does a Postal Code Impact Auto Insurance Premiums?

According to a 2018 Globe and Mail article, the Ontario regulatory body the Financial Services Regulatory Authority of Ontario (FSRA) permits insurers to distinguish up to 54 territories within the province upon which to base pricing. However, the territories are set by the insurer themselves, and so they can vary from company to company. For this reason, the cost associated with a specific address can change based on the specific insurance company. 

According to FSRA, insurance companies use several factors to calculate the cost of an insurance premium, such as:

• The make, model, and year of the insured’s vehicle.
• The insured’s driving record, including the length of time they have been driving, whether they received training, any past accidents, as well as past speeding tickets or driving convictions.
• The insured’s age, marital status, and gender. Drivers under the age of 25 will generally be charged higher premiums.
• The number of kilometres the insured drives per year, and whether they regularly drive themselves to school and/or work. The more a person drives, the higher their premiums will be.
• Where the insured lives. Drivers who live in urban areas will generally pay more than those who live in rural areas, for example.

Earlier this year, CTV News published an article with a list of how insurance premiums in Ontario tend to break down by location. According to the article, where a person lives can have a very significant impact on their annual premiums, with the difference between the highest and lowest average premium in the province being over $1,000 each year. For example, the highest average annual premiums, as of January 2022, could be found in the following five cities:

• Vaughan
• Ajax
• Richmond Hill
• Brampton
• Mississauga

The average annual car insurance premium in these cities was $2,051.00. In contrast, the five cities with the lowest premiums in Ontario were: 

• Martintown
• Elizabethtown
• Cornwall
• Kingston
• Gananoque

The average premium among the five cheapest cities was $1,132.00, almost 50% less than the average of the five most expensive cities. While there can be legitimate reasons for distinguishing between drastically different regions of the province, the legislators who introduced Bill 12 feel that it is discriminatory to make such distinctions between neighbouring cities where the risks would remain relatively similar across the board. 

What Does Bill 12 Propose?

Bill 12 does not require insurers to stop calculating insurance premiums based on geography. It is accepted that the risk of a collision or of a vehicle theft may be significantly different if the driver lives in Mississauga versus the same driver living in a small town located hundreds of kilometres from a major city. However, Bill 12 would prevent insurers from distinguishing between different municipalities within the Greater Toronto Area for this purpose. The Greater Toronto Area, or the GTA, is defined in the Bill as encompassing all municipalities in the City of Toronto as well as Durham, York, Peel, and Halton Regions. 

Bill 12 would amend the provincial Insurance Act to add a section permitting FRSA to refuse an application from any insurance company which considers different areas within the GTA to be separate areas for the purposes of classifying risk, resulting in different rates for coverage from area to area within the GTA. 

Insurance Industry Pushes Back Against Discrimination Claims

Insurers and others in the industry have pushed back against the notion that insurance companies engage in discriminatory pricing based on geography. Instead, they claim the reasons for the price differences are valid and based on risk levels calculated using historical data for each location. According to one expert quoted in a 2018 article from Insurance Business Magazine, the perception of discrimination comes down to a lack of awareness among consumers:

[I]nsurers don’t decide upon premiums without reason. They don’t just impose rate hikes in postal code areas A B and C because they don’t like those areas – it’s nothing like that, and the industry needs to work hard to ensure policyholders in the province understand that.

Industry insiders say that prices are different based on specific geographies because of very real differences in the risks posed by each location. If one area has much higher traffic congestion than another, that area is likely to see a higher incidence of accidents, as well as an increase in accident severity. 

According to the director of insurance with a leading insurance comparison company, if insurers aren’t able to take these specific differences into account, it could result in increases in other areas where the risk is lower, to make up the difference:

They are going to have to spread the risk so it might mean that people who have been paying a lower rate in say London or Ottawa might see an increase to help offset the decreases in the other areas because insurance is all about balancing the risk.

If Bill 12 is passed, it could see a reduction in rates around the GTA, while rates in less populated or less congested areas could rise as a result.

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