What is a surcharge on car insurance?

If this is your first time getting car insurance, you may have never heard of a car insurance surcharge. So, what is it? And how does it affect your car insurance? Let's break it down.

Understanding car insurance surcharges

Unlike your base car insurance premium, which is calculated based on things like your driving history, age, and the type of car you drive, surcharges are penalties added when you’ve been in high-risk situations. Insurance companies typically apply it when you've shown some risky behaviour behind the wheel. Things that can trigger a surcharge include:

• Causing an accident (or multiple)
• Getting a ticket for speeding or other traffic violations
• Driving Under the Influence (DUI) convictions
• Driving without insurance
• Having your driver's licence suspended

Insurers see these events as red flags, suggesting you might be more likely to file claims or cost them money down the road.

Your insurance company might also add a surcharge to your insurance premium if you miss a car insurance payment or let your coverage lapse. These surcharges are basically a way to offset the extra risk or cost of insuring someone with a less-than-perfect driving record. Keep in mind, though, that what counts as a surchargeable offence can vary depending on your insurance company.

How do insurance surcharges work?

If your car insurance company pays out more in claims than it collects from your premiums, it’s taking a financial hit on your policy. That’s where surcharges come in—they’re a quick way for insurance companies to recover some of the costs of insuring higher-risk drivers.

Some insurers use automated systems to assess risk and decide whether to add a surcharge and how much it should be. Others take a more personalized approach, with underwriters reviewing driver profiles on a case-by-case basis.

How much impact will a surcharge have on my insurance premium?

The surcharge varies based on your insurance company and what caused it. For instance, if you're at fault in an accident that totals someone else’s car, the surcharge will likely be higher than it would be for a small fender-bender.

How are surcharges calculated?

Insurance companies use different methods to calculate surcharges, so the specifics can vary between providers. The amount you’re charged often depends on a couple of key factors:

Severity of incident

A small fender bender might lead to a lower surcharge, while a major accident involving significant damage or injuries could mean a much higher one.

Driving record

If your record was clean before the incident, your surcharge might be lower. But if you have repeat offences or multiple claims, the penalty can add up quickly.

How long will a surcharge stay on my auto insurance?

An insurance surcharge is temporary, typically lasting for a few years, depending on the insurer and the reason it was applied. During this time, insurers see you as a higher-risk driver, which is why your rates go up.

It’s also possible to add more than one surcharge to your policy. For example, if you’re involved in additional at-fault accidents or get hit with a surcharge for something like a late payment or a lapse in coverage, those extra charges can stack up.

What can I do to prevent a car insurance surcharge?

The best approach is to avoid surcharges in the first place. Here are a few tips:

• Drive defensively
• Keep a safe following distance from other vehicles
• Stick to the speed limit
• Add accident forgiveness to your insurance policy

Also, make sure to pay your premiums on time and avoid letting your coverage lapse. These small steps can go a long way in keeping surcharges off your policy.

What to do if you receive an insurance surcharge

Once a surcharge is added to your premium, there’s not much you can do to lower it directly. But you might be able to bring down your overall rate by qualifying for auto insurance discounts.

The important thing is to maintain a clean driving record going forward. Staying incident-free can help rebuild your insurer’s trust and lower the chances of future surcharges.

Also, if a surcharge causes your premiums to skyrocket, it’s a good idea to shop around for a new insurance provider. Since companies handle surcharges and pricing differently, you might find a more budget-friendly option with another insurer.

Car insurance surcharge on vehicle theft in Canada

Because some vehicles are more likely to be stolen, insurance companies have begun adding a $500+ surcharge to the premiums for those models. This helps offset the rising claims costs linked to vehicle theft.

And speaking of the rising claims cost. The Insurance Bureau of Canada recently shared a list of the top 10 cities with the highest auto theft claim costs—and the numbers are eye-opening. For Ontario, they compared data from 2018 to 2023, and the increase is staggering. In Toronto alone, claim payouts jumped from $56.2 million in 2018 to an incredible $371.8 million in 2023—a 561% increase. While the rise might not shock many, it does cement Toronto’s place as the most expensive city in Canada for auto theft.

Other cities surrounding Toronto have seen major increases as well. Brampton is up 719% and Mississauga is up 533%.

That’s why some insurance companies in Ontario are now adding a surcharge of $500 or more to auto insurance policies for high-target cars. Fortunately, insurers are zeroing in on certain vehicles with a spike in theft claims. Instead of raising rates for everyone, they’re keeping this surcharge focused on the specific models being targeted. According to Insurance Business Mag, here's what some providers are doing:

How to avoid a car insurance surcharge for vehicle theft

With auto theft on the rise in Canada, insurance companies are stepping in, with many now charging a surcharge for drivers of the most commonly stolen vehicles. The good news is that some insurers will remove the surcharge if you install an anti-theft device in your car. Here’s how to prevent a car insurance surcharge resulting from vehicle theft:

Steering wheel locks

A steering wheel lock, often called "the club," is a simple tool that makes it nearly impossible for thieves to drive off with your car. The basic version is a metal rod that locks onto the steering wheel, stopping it from moving. There’s also a type that connects the steering wheel to the brake pedal, keeping the car completely immobile. Depending on your insurance company, having one may prevent a surcharge.

After-market engine immobilizers

An after-market engine immobilizer is a device designed to prevent your car from starting without the correct key or fob. It works by interrupting the flow of electricity to critical systems, like the ignition or fuel pump, making it nearly impossible for thieves to hotwire your car.

Ignition cut-off systems

An ignition cut-off system is a security feature that stops your car’s engine from starting unless a specific switch, key, or code is used. It works by interrupting the electrical connection to the ignition, making it impossible for thieves to start the car, even if they manage to access it. Some ignition cut-off systems are manual, requiring you to flip a hidden switch, while others are automatic or remote-controlled.

Tag system

The Tag system, a Canadian innovation in vehicle recovery, uses a wireless tracking device installed by a trained technician throughout your car. Unlike standard GPS trackers, Tag’s advanced technology can’t be tampered with. Even if a thief cuts the vehicle’s internal wires or snaps its cellular antenna, Tag’s electronic identification helps locate and recover your car. The system also deters theft—many thieves are less likely to target a vehicle with the Tag logo etched on its windows.

Many insurance companies partner with Tag, offering free installation (a $400 value) for policyholders with high-risk vehicles. In fact, some insurers will only remove a $500 surcharge if the Tag system is installed.

Learn more with BrokerLink

If you still have questions about car insurance surcharges, reach out to BrokerLink today. We are insurance experts and can help answer any questions you have about car insurance, including what is a surcharge on car insurance.

You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

Get an auto insurance quote 1-866-724-2372

FAQs: Surcharges in car insurance

What does your auto insurance plan need to include?

Your auto insurance plan must include mandatory coverage for your province or territory, which varies depending on where you live. It may include some variation of third-party liability coverage, accident benefits coverage, uninsured motorist coverage, and direct compensation-property damage coverage.

If you have any questions, contact one of our local branches.