How car insurance works in Canada

Car insurance is mandatory in all provinces and territories.There are serious consequences for driving without insurance. These include having your license suspended, your car impounded, and fines. In Ontario, the fines range from $5,000 up to $50,000; in Alberta, they range from $2,875 up to $20,000.Plus, your insurance premiums will increase (the larger the fine, the more significant the increase).So why aren’t other forms of insurance, like life and home insurance, not legally required? Car accidents take a toll on society. Without mandatory insurance, victims likely wouldn’t be able to access crucial support. Having a clear system for resolving disputes also ensures the courts don’t get tied up, too.

Regulation at the federal and provincial levels

Insurance is regulated at both the federal and provincial levels.The vast majority of the property and casualty insurance industry is federally regulated. The Insurance Companies Act governs all federally incorporated or registered insurance companies in Canada.The Financial Consumer Agency of Canada (FCAC) is responsible for administering sections of the Act that deal with consumers’ rights and monitoring insurance companies’ compliance with the law.The Office of the Superintendent of Financial Institutions (OSFI) regulates the solvency and financial soundness of property and casualty insurance companies.Then, each province and territory have their own Superintendents of Insurance. These bodies regulate the products offered by insurers and their conduct in the marketplace (underwriting, rating, and marketing practices, as well as their handling of claims). The Financial Services Regulatory Authority of Ontario (FSRA) regulates the car insurance industry in Ontario. The Alberta equivalent is the Alberta Automobile Insurance Rate Board (AIRB).Private vs. public car insurance marketsCanada has a patchwork of insurance markets. The provinces get to decide what delivery system they want, which is why some have private insurance markets (where you buy insurance directly from a company of your choice), and others have public insurance funded by taxpayers.In the public system, insurance is dispensed by a Crown corporation (B.C., Saskatchewan, and Manitoba). Enrolment is automatic when you register a vehicle.Quebec’s system can be described as quasi-public. Here, the public insurer only regulates insurance for bodily injuries, while physical damage and liability are provided by private insurers.Provinces with private auto insurance systems (Ontario, Alberta, all the territories and Atlantic provinces) have laws preventing drivers with less than stellar driving and insurance records from being refused insurance coverage. This is called an all-comers rule.The all-comers rule aims to stamp out business practices that dissuade troubled drivers from getting a quote.That said, if you have poor driving and insurance histories, your insurer might bring you on as a customer — but your premium will be much higher than the average driver’s.The differences between provinces don’t stop there.

Tort vs no-fault insurance

Tort insurance was once the dominant claims resolution methodology in Canada.A tort is a legal concept for civil wrongs that inflict pain and damage to another person due to negligence.

Under a tort auto insurance system, some insurance accident benefits are included in a standard policy, but they’re limited in comparison to the benefits in no-fault systems. If you’re injured by someone else’s actions, you must sue to cover your expenses.

No fault coverage means you get comprehensive benefits regardless of who’s at fault for causing the accident. In exchange, your right to sue for pain and suffering is limited.

Ontario, Nova Scotia, New Brunswick, Quebec, P.E.I., and B.C. operate under a no-fault system.

To this day in Saskatchewan, you can decide whether you want a tort or no-fault accident benefits package.

Alberta doesn’t fit into either the no-fault or tort category, either. It is a primarily tort-based system with some facets of a no-fault one. In 2022, the province introduced direct compensation for property damage (DCPD), which means your insurance company will pay for repairs to your vehicle if you’re not at fault for a collision (no need to get lawyers involved). This type of coverage is usually only found in provinces with no-fault frameworks.

On the other hand, you can sue the at-fault party for damages in Alberta (a hallmark feature of the tort approach).

Geography and auto insurance

To get even more granular, insurance premiums are dictated by geographical boundaries.

Most insurance companies use postal codes to determine the boundaries. However, the province can get involved and set restrictions on rating territories.