Auto Insurance

Are Vancouver’s luxury cars responsible for B.C.'s high insurance costs?

By: Jessica Mach on January 30, 2018

British Columbia’s main auto insurance provider is hemorrhaging money.

Why? The answer might just lie in luxury cars.

On Sunday, the Insurance Corporation of British Columbia (ICBC) announced that it lost a staggering $935 million between April and December last year. The company blamed an increase in large loss claims, accidents in general, and older claims that had initially seemed minor but grew to become more complex and thus, more expensive.

ICBC also blamed its premium rates, saying they were too low to cover the cost of claims payouts — even though B.C. may soon overtake Ontario as the province with the highest auto insurance premiums in the country.

A closer look reveals that B.C’s high volume of luxury cars might also be behind ICBC’s losses. 2,000 cars that cost $150,000 or more are registered in Metro Vancouver, the company said. That’s not a huge number per se. In 2016, the ICBC was providing insurance to 1,790,000 cars in the Lower Mainland, which includes, but is not limited to, Metro Vancouver. 2,000 cars that cost over $150,000 would only make up 0.1% of that total.

But that figure hides just how many luxury cars there are in the city. Many luxury cars cost less than $150,000. And most luxury cars are way more expensive to repair than your average family sedan.

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Citing ICBC figures, a CTV report from last August showed that the fender of a Toyota Corolla cost $160 to repair, while a Ferrari fender cost $6,000. That’s more than 37 times the cost.

To make matters worse, ICBC does not charge luxury car drivers substantially higher premiums. CTV found that ICBC charged an average driver $1,751 to insure a Honda Civic valued at $16,000. Meanwhile, a 2015 Ferrari 458 valued at a staggering $699,999 would only cost $7,003 to insure — that’s only four times higher than the Civic premium, even though the Ferrari is 40 times more valuable.

That means middle class drivers may be subsidizing the repair costs of luxury car drivers.

Of course, insurers don’t come up with premium rates simply based on the car’s value. They take several factors into account: how much repairs would cost, the driver’s location and driving history, the car’s age, and the historical tendency of the model to get into accidents.

This last one is key. Since luxury cars — especially ones on the higher end of the price spectrum — tend to cost more, they also tend to be rarer. If there are only 10 Ferrari 458s cruising around Metro Vancouver, and only one of them has ever been involved in an accident, the accident rate for that model will be much lower than say, a popular Honda Civic.

Given ICBC’s huge losses in its past fiscal year, however, it’s clear that this model for determining premium rates is not working.

Bruce Chan of the Consumer Association of Canada agrees. “If you’ve got a half-million dollar car you should be paying premiums that support the repairs for that vehicle,” he told CTV.