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Are my car insurance rates higher based on where I live? Is it based on the number of accidents in my postal code? It doesn’t make sense that we have to pay if a terrible driver from somewhere else gets in a crash here. – Jerry, Brampton, Ont.

If you dent somebody’s hood far from your ‘hood, your neighbours’ rates take the hit.

“It is based on your address, where the car is garaged – not where the claim occurred,” said Pete Karageorgos, director of consumer and industry relations with the Insurance Bureau of Canada (IBC).

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So if your neighbour in Brampton got in a crash at King and Yonge Streets in Toronto, it counts as a claim for your neighbourhood – not in Toronto.

The number and cost of overall claims – including thefts and crashes – by people living in your area is one of the things insurance companies are allowed to look at when they set your rates.

“Territory is considered for auto insurance in Ontario as well as most every other province, including [British Columbia] and Manitoba,” Karageorgos said. “It’s used as a way to group people because premiums are determined by claims.”

The Ontario Liberals and New Democrats promised to stop this insurance industry practice in the provincial election campaign.

“The [Progressive Conservatives] have been pretty quiet in the whole insurance issue,” said Anne Marie Thomas, senior manager of partner relationships for rate-comparison site Insurancehotline.com. “The NDP also said they will lower insurance rates by 15 per cent.”

In a platform scrapped after Doug Ford became party leader, the Ontario Progressive Conservatives had promised an end to “geographic discrimination” while not allowing insurance companies to raise rates in other parts of the province.

So why is it an issue? Because your rates could, potentially, be close to $1,000 a year higher than someone who lives a kilometre or two away. For instance, according to numbers released by Kanetix last fall, Brampton is the most expensive city for insurance in Ontario. There’s an average $2,268 annual premium for a 35-year-old driver of a 2014 Honda with a clean driving record.

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But next door in Georgetown, that rate is $1,151.

And, while the average rate for Toronto overall was $1,743, there were 22 Toronto neighbourhoods where it was over $2,000 a year.

The average rate province-wide for that Honda driver? It’s $1,316 a year, Kanetix said.

Why insurance companies go postal

Ontario allows insurance companies to have up to 54 territories – Toronto can have up to ten – and each insurance company decides where those are, Karageorgos said.

The province approves rates and annual increases based on each company’s claims costs.

“Each company can look at the province and slice it up differently,” Karageorgos said. “That’s why it’s important to shop around.”

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But eliminating what the NDP has called “postal-code discrimination” might have a cost to people living in cheaper areas.

“If you think about it, insurance companies aren’t going to do things at a loss – so if rates go down somewhere, they’re going to up somewhere else,” Thomas said. “The majority of the money [insurance companies] make is from investments and not underwriting – for every dollar they take in, some companies are paying out as much as $1.30 in claims.”

The Ontario Trial Lawyers Association (OTLA) said insurance companies are making record profits in Ontario – about $1.5-billion in 2016 alone.

The association issued a report last month stating that Ontario consumers have been overpaying by about $143 per policy every year.

“Insurers are not required to be transparent and clear in their auto profit reporting,” OTLA president Ronald Bohm said in an e-mail. “[They] have been crying poor and getting [the] government to allow them to cut benefits to those seriously injured in accidents.”

The IBC disagrees with the report, and spokesman Steve Kee said it had “serious errors.”

Ontario’s average rates, now about $1,500 per year, make it the second-most expensive province for insurance in Canada, IBC said. The most expensive? That’s B.C., where the average is nearly $1,700 a year, including basic and optional coverage, IBC said.

Both the OTLA and IBC say lowering Ontario insurance rates requires overhauling the whole system.

“The problem has been created over the years because each government comes in and cherry picks what they’re going to fix,” IBC’s Karageorgos said.

Have a driving question? Send it to globedrive@globeandmail.com. Canada’s a big place, so let us know where you are so we can find the answer for your city and province.

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