Those are some good questions guys! I will let you know first off that I am not trying to defend the insurance industry in any way. If it were an evil money-grabbing corporation that I worked for, I would quit because that doesn’t coincide with my values. I will be the first person to let you know if something the Insurance Industry is doing is unfair. I may work for insurance, but I am a policyholder just like you! I decided to post so that you guys can ask these pressing questions that you always wanted to know the answer to, and I promise I am giving the most honest answer I possibly can to each one. I have nothing to gain by defending the insurance industry on a GTA motorcycling forum . . . I’m just trying to do the community a service. I will address each of your questions below:
TWO BIKES AND ONE RIDER
First, I will address the question of two bikes and one rider. I can understand where you are coming from, and personally I wouldn’t mind doing the same thing myself if it were possible. It would be pretty nice to have two cars, such as a sporty two-seater convertible and a family sedan, and pay only half the premium. Likewise, it would be nice to have two bikes for whatever reason and pay half the premium.
You already explained the main reason yourself; it is quite likely that a person with two cars or two bikes would simply be trying to hide a second principle driver. You could try contacting your insurance company to see if they would allow you to be the one and only person insured to drive either of the two bikes, with all other people being excluded (meaning, anyone else riding your bikes would be dong so uninsured and illegally). I doubt that an insurance company would allow this though, because it isn’t a common practice. In order to allow you such a hefty discount on the liability and accident benefits portions, the insurance company would have to conduct an Actuarial Analysis and also file the change in rating methodology with the Financial Services Commission of Ontario for approval. To be completely honest with you, it just isn’t worth the headache as far as the insurance company is concerned. I agree with you that it isn’t totally fair, but this is the status quo.
With all that being said, if you were to insure two bikes, you could possibly get a multi-vehicle discount in the range of 10% to 20% on both bikes, depending on the insurance company’s rating rules.
EARLY CANCELLATION IN THE WINTER MONTHS
Next, I will explain the early cancellation in the Winter months. Although you pay insurance for a full year and are covered for a full year, the insurance company understands that the majority of your riding (and the exposure to the company) will take place in the months of April to September. You can consider the premium you pay is more like a 6-month policy that covers you during the riding months, with the added benefit that you are also covered in the Winter months just in case we get a random nice riding day in December (which has happened before). You are allowed to cancel the policy during the winter months, but by that time you have pretty much “used up” all of your six riding months, so most of the premium has already been earned by the company and you won’t receive much premium back. An insurance company earns a motorcycle policy according to a schedule similar to the one below (which is based on when the motorcycle accidents actually occur):
Jan - 0%
Feb – 0%
Mar – 5%
Apr – 10%
May – 10%
Jun – 20%
Jul – 20%
Aug – 20%
Sep – 10%
Oct – 5%
Nov – 0%
Dec – 0%
If you were allowed to cancel in October and get a full 50% of your premium back (rather than only 5%), then EVERYBODY would be doing this and the insurance companies wouldn’t be receiving enough premium in the riding months to cover losses in the riding months. It comes back to the equation I explained in my first post:
Premium(100%) = Incurred Losses (~65%) + Expenses (~28%) + Profit (~7%)
Suppose we allowed people to cancel as you said, then we would only be receiving 50% of the premiums. Since our losses and expenses remain constant, the only way we can balance the equation is by either doubling the premiums, or taking a corporate loss of 43%:
A.)2 * (0.5 * Premium) = Incurred Losses (~65%) + Expenses (~28%) + Profit (~7%)
B.)0.5 * Premium = Incurred Losses (~65%) + Expenses (~28%) +
LOSS (~43%)
Since insurance companies aren’t in the business of giving money away (because they would go bankrupt VERY quickly!), they would be forced to double premiums with the understanding that people would cancel in the winter months. Financially, you would be in the exact same position that you are right now, because paying double the premium for six months and cancelling is the same as paying the regular premium for 12 months:
$200 * 6 months = $100 * 12 Months = $1200
Really, you shouldn’t be complaining, because by using the existing method of paying over all 12 months, you are paying the same amount of money but have the added benefits of:
a.) being able to ride on a warm December afternoon, and
b.) not having to worry about cancelling and re-opening your policy every year
RECORD PROFITS 2005 - 2008
Next, I will address the record profits for 2005 to 2008. You are correct, the Property and Casualty Insurance Industry as a whole has had an excellent run for the last few years, but this is an exception to the norm. You may have noticed that the insurance rates have been decreasing over the same time period (not necessarily for motorcycles) and you can see the rate increases/decreases by company by visiting the Financial Services Commission of Ontario website:
http://www.fsco.gov.on.ca/english/in...es/default.asp
In general, the rates were declining in 2005 to 2006, and then slightly increasing (at maybe 0.5%) in 2007. Even though the rates are increasing a bit, it is still much lower than the rate of inflation which is around 3%.
It comes down to the fact that we just got lucky in these years. Insurance is very difficult to price because it is one of the only products that you sell BEFORE knowing the costs associated with the product. It just so happened that the weather has been favourable in the last few years and the accident frequency has been lower, thus causing profits to increase. The insurance industry tends to fluctuate in cycles where there are periods of good profit and periods of poor profit (or loss). The last few years we were in a period of good profit, but this year we are once again heading into a period of poor profit. If you were to look at the financial results at this time next year, you will be looking at a much different picture.
One other thing that needs to be mentioned: these huge profits that you see are NOT pure profit from policyholders! Most of the insurance company’s profit actually comes from investment income. Insurance companies frequently operate at an underwriting loss, but are able to be profitable because of wise investing of premium dollars.
I never said that insurance doesn’t make money . . . if it didn’t make money, then insurance would cease to exist. If you really want to complain about profits, I would look to the banks . . . they KNOW how much their products cost and they keep charging more and more . . . but I don’t want to bash banks in this thread either.
INSURANCE IN CANADA ISN’T REGULATED?!
Someone mentioned that insurance in Canada isn’t regulated, and that insurers can gouge and charge whatever they want. This is completely false! In fact, the Canadian insurance industry is HIGHLY regulated! We can hardly sneeze without explaining it to the Financial Services Commission of Ontario. Every time we want to increase rates, decrease rates, change underwriting criteria, blacklist a vehicle, etc. we must first ask permission from the Financial Services Commission of Ontario (or similar for another province) and it is completely up to them whether or not they accept our proposal.
Certain provincial governments have also made it illegal for us to rate based on Gender, Age, etc. (particularly in the maritimes). This doesn’t really affect our bottom line, but it does mean that in order for the profit equation to hold true, we would have to collect more premium from the good drivers to compensate for the bad drivers. If you are in a poor insurance category you will think this is GREAT, but if you are 55, married, with a clean record, you will be pretty ****** off.
YOU WORK FOR INSURANCE SO YOU GET REALLY CHEAP BIKE RATES, RIGHT?
Chintoe wanted to know what I drive and how much I pay for my bike insurance, and I have nothing to hide. I am 25, male, riding since I was 19, full M license, and riding a 1996 Honda VFR750F (sport touring). I am covered for $2M liability, have Comprehensive coverage with a $500 deductible, and opted out of Collision coverage. My policy is bundled with my car and life insurance (but not home), so I get multi-vehicle and multi-line discounts. I am paying roughly $850/yr for this coverage through State Farm. It’s a great rate!
So, do I work for State Farm? Would I get a discount if I were insured through my own company? Yes, I would receive about a 10% discount. . . a small employee “perk”, but still State Farm is much cheaper. I am not in my company’s target market, so I purchase my insurance elsewhere, which is no big deal.
I welcome any other questions you might have.
Cheers!
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