I've been helping clients involved in car crashes for 30 years now, which means I've seen 30 years of changes with auto insurance, usually with a negative impact for the motoring public and my clients. This blog isn't about what happens to a person when they are in a crash. Instead, it offers a caution about what might happen to your damaged or destroyed automobile after a crash.
In its effort to contain insurance premium costs, the Ontario government has developed a habit of reducing standard coverage — giving the illusion of cheaper premiums — and replacing what was once standard, with optional coverages that you can purchase for an additional premium. I can look to my own observation and experience with the past changes to now predict this will cause problems for people following a collision.
Understanding the Risks of Opting Out of Direct Compensation Property Damage Coverage
In today's economic climate there is constant pressure to look for ways to trim our household budget, saving a few dollars wherever we can. One area where people might be tempted to cut costs is auto insurance. If you don't expect to be in an accident, you also don't expect to need your insurance coverage.
Recently, I had the chance to review an auto insurance renewal package sent by one of the primary Ontario auto insurers to its client. It included an option to opt out of Direct Compensation Property Damage (DCPD) coverage. While this might seem like a great opportunity to save money, it's crucial to understand the potential risks involved.
What is Direct Compensation Property Damage (DCPD) Coverage?
DCPD coverage ensures that if your vehicle is damaged in a collision where you are not at fault, your insurance company will compensate you for the loss. This includes repair costs, the value of the vehicle, loss of use, replacement, and any damage to the vehicle's contents. Without this coverage, you would not be reimbursed for any of these losses, even if the accident was not your fault.
If your $40,000 vehicle is totalled, through the fault of another driver, you would receive nothing to replace that expensive vehicle if you don't have this coverage.
The Temptation To Opt Out
In the specific case I reviewed, opting out of DCPD would save that household $1,004.00 annually, reducing the total auto premium from $6,406.21 to $5,402.21. While this might seem like a significant annual saving, the potential financial consequences of not having DCPD coverage far outweigh the benefits.
The warning on the OPCF 49 form from the Financial Services Regulatory Authority of Ontario (FSRAO) makes it clear: by opting out, you agree that you cannot claim DCPD and Collision or Upset Coverage. This means you will not be compensated for any loss or damage to your vehicle, regardless of who is at fault.
The Broader Context
The new auto insurance rules outlined in the 2024 budget by Ontario Finance Minister Peter Bethlenfalvy aim to provide drivers with more flexibility in choosing their coverage. The Ford government has stated that medical, rehabilitation, and attendant care benefits will remain mandatory, but all other parts of the insurance will be optional.
The government suggests that this change is intended to give drivers the opportunity to lower their premiums by selecting only the coverage they need.
However, this flexibility comes with risks. As Ontario NDP Leader Marit Stiles pointed out, the people who choose to have less auto insurance coverage may do so for the wrong reasons, potentially exposing themselves to significant financial risks.
Insurance expert Daniel Ivans explained that DCPD coverage ensures you have coverage for damage to your automobile or the property it's carrying when another motorist is responsible. Without this coverage, you are left to bear the full financial burden of any damage to your vehicle.
Lessons from the Past
I have already seen the disastrous impact caused when standard medical, rehabilitation, and attendant care coverage was reduced by the government, but with the ability to buy back optional, increased coverage. Most people never purchase the optional coverage, so effectively, their coverage has simply been reduced.
I have met so many people, personally, who did not have enough coverage and didn't even know that they could or should have purchased the increased optional coverage. I fear that the same will happen with DCPD coverage.
In the pursuit of a lower premium, many folks will come to rue the day they failed to secure appropriate direct compensation property coverage.
Making an Informed Decision
Before making any decisions about your auto insurance coverage, it's essential to fully understand what you are giving up in exchange for a lower premium. The potential savings might seem attractive, but the financial risks can be substantial.
If you lease or finance your vehicle, you should also consult with your lease or financing company before opting out of DCPD coverage, as you may be personally responsible for any loss or damage to the vehicle.
Opting out of DCPD coverage is not a decision to be taken lightly. While it might offer a lower rate, it also means taking on the financial responsibility of repairing or replacing your vehicle if you are in an accident. The government's framing of this option as a favour to the people of Ontario is misleading, as it does not fully explain the risks involved.
It's crucial for drivers to make informed decisions and understand the potential consequences of opting out of essential coverage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.