How Do Demerit Points Affect Insurance Rates?

Insurance Rating Systems are Independent of the Ministry of Transportation Demerit Point System. The Insurance System Will Categorize Different Types of Traffic Charges Depending on Severity of the Violation. Depending Upon the Severity of the Violation, Surcharges to Insurance Rates May Apply.
A Helpful Guide to Understanding How Traffic Ticket Convictions Affect Automobile Insurance Rating

Police Officer Issuing Traffic Ticket to Woman In Red Sports Car How traffic tickets affect automobile insurance rates is often misunderstood due to misunderstanding of how the rating system works in general.  Accordingly, to understand how traffic tickets affect automobile insurance rates first requires understanding of how the basic rating system works regardless of traffic ticket concerns.

Formulaic Processes

Rates are calculated in a rather complex formulaic process based on a myriad of factors rather than simply as an arbitrary figure.  Essentially, an insurance broker, insurance agent, or insurance underwriter, works through a number of variables to determine various categories and rankings which are then used to find the corresponding rate, for each section of coverage, such as liability, collision, etc.  The total of each section of coverage within the insurance policy then becomes the total overall premium.  Of course, in these modern days, these calculations are performed by computer; however, in years past, merely a generation or two, automobile insurance rates were regularly calculated by hand.  In some circumstances, such as with commercial vehicles, the calculations may still be done by hand.

Rating Classification Basics
Purpose of Vehicle

Typically, before the driving record of a person is applied within an automobile insurance rating system, the classification categories for both the driver and the vehicle are first determined.

For many insurance companies, a classification of '01' is used for a driver, male or female, over twenty-five (25) years of age, who drives for personal use, meaning without commuting to a workplace or driving for business.  With many insurance companies, a person, again over twenty-five (25) years of age, who commutes a short distance to work, falls within the '02' classification.  Depending on the insurer, there can be more than a dozen driver classifications.  For commercial automobile insurance, the possible categories are based on the use of the vehicle rather than the driver specifics; and accordingly, the classification could be classification '43' for a delivery van or classification '47' for a logging truck.

Nature of Vehicle

For vehicle categorizations, meaning the character of the vehicle rather than the use of the vehicle, the classifications generally have three digits, each between one and five.  The first digit relates to the liability risk factors involving how frequently and how severely the vehicle is involved in a third party liability case.  The second digit relates to the risk factors involving statutory accident benefits coverage and how frequently and how severely the vehicle is involved in this circumstance.  The third digit relates to the risk factors involving damage to vehicle itself and how frequently and how severely the vehicle incurs damage claims.  Understanding these factors, one might imagine that a family mini-van would pose a lower risk of liability, accident benefits, and damage, than would a small high powered sports car.  Accordingly, a family minivan may be classified as '02/03/10' while a the sports car may be classified as '04/05/30' which represents, statistically, a higher risk in all three concerns.

Driving Record

The above rating basics are, as yet, without direct regard to the experience of drivers as intended vehicle operators.  However, once the vehicle classifications for both the use or purpose of the vehicle is known as well as the nature of the vehicle itself, factors relevant to the drivers are categorized.  Generally, the higher the number reflecting a driving record, the more experienced, and accident free, a driver is and thus the lower insurance premiums will be.  Traditionally, the driving record scale ranged from zero to six; however, some insurers now use an extended range.  Regardless, the traditional expression 'six-star' driver remains common and is in reference to a driver that has climbed to the top of the driving record scale provided by the respective insurer.  The driving record scale, metaphorically, can be perceived as a ladder where a driver climbs a rung every year that the driver is licensed, insured, and remains accident free.  A driver with an at-fault accident that occurred three years prior to the most recent insurance renewal will be referred to as a 'three-star' driver.  A driver with an at-fault accident that occurred four years prior to the most recent insurance renewal will be referred to as a 'four-star' driver.  And so forth.

Contrary to common urban myth belief, an insurance driving record is without any direct affect by demerit points as may be assigned by the Ministry of Transportation due to a traffic ticket conviction.  The driving record may be affects by traffic ticket convictions; however, the demerit points are irrelevant.

Underwriting Acceptance Guidelines

Insurance companies will have rules, being underwriting guidelines, governing the characteristics of acceptability for insurance.  Only those persons meeting the underwriting criteria of a particular insurance company will be offered insurance coverage.  Additionally, similar to the formality of the rating methods, the underwriting criteria is formal rather than arbitrary.  Furthermore, insurance companies may receive large fines for failing to follow the underwriting criteria whereas each insurer is required to file the underwriting criteria along with the rating tables with the Financial Services Commission of Ontario as the regulator of insurance companies, among other things.

Conviction Surcharges

After all of the above, so long as a driving record meets the underwriting guidelines of the insurance company being applied to, otherwise the driver is disqualified from obtaining insurance with that insurance company and therefore everything else is moot, review of traffic ticket convictions for the purpose of calculating surcharges, if any, occurs.  Again, most of this happens electronically by computer; however, in the past, these calculations were made manually by an insurance agent, insurance broker, or underwriter, while reviewing the insurance company rating manual (book).

Generally, as each insurer may have variations, a single minor traffic ticket conviction, such as a speeding ticket of less than fifteen (15) km over the limit, results in zero surcharge.  Two minors may result in a ten (10%) percent, or more, surcharge.  A single major conviction, such as speeding between thirty (30) km and forty-nine (49) km over the limit may result in a fifteen (15%) percent to twenty-five (25%) percent surcharge.  Serious convictions, such as a careless driving conviction present as a fifty (50%) percent surcharge; however, a careless driving charge will likely appear even higher.  The reason a careless driving conviction may appear as more than a fifty (50%) percent surcharge is that the presence of a careless driving conviction is usually enough to disqualify a driver from insurance companies within the regular marketplace.  Accordingly, the driver with a careless driving conviction incurs the affects of purchasing insurance from a high-risk insurer plus the application of a fifty (50%) percent surcharge to the high-risk rates.  The net result may be a a doubling, or more, in the insurance premiums the driver paid to a regular market insurer prior to the careless driving conviction.  If an accident occurred in connection to the careless driving conviction, the net result to insurance premiums may even go beyond tripling and even further for novice drivers or drivers with a multitude of convictions.

Traffic ticket convictions remain on the record used by insurance companies for three years and may affect insurance rates during this time.  After the conviction falls off the record, insurers are forbidden from reviewing or considering such 'older' convictions.

Summary Comment

Insurance rating systems are very complex and while there are general concepts, some of which are identified above, every insurer and every person will have unique characteristics.  Accordingly, the above is provided for general information purposes only.  For a better, proper, and qualified, understanding of how insurance rating systems work, especially how you fit into the rating system of your own specific insurance company, contact your insurance agent or insurance broker.

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