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The effect of cannabis legalization on Canadians' car insurance

(Photo by Roberto Machado Noa/LightRocket via Getty Images)

Even now that recreational cannabis for adults is legal, discussion around how it will affect our everyday lives continues. One area that is running with a wait-and-see approach to cannabis regulation is the insurance industry, specifically the auto insurance industry.

Cannabis, like alcohol, can impair driving. Penalties similar to those awarded in alcohol-related incidents will follow suit with cannabis misuse. As for insurance rates, though, insurance providers will need time to collect and analyze collision data before making any decision to raise premiums.

“Once insurance providers analyze the data available to them, in most cases, they will need to apply with provincial regulators before they can raise rates,” says Matt Hands, senior business unit manager for insurance at Ratehub.ca. “This means it will take months or even years before Canadians will see the full impact of recreational cannabis legalization on what we pay for car insurance.”

Now just weeks into cannabis legalization in Canada, reports on cannabis related accidents and impairments have been scarcely reported, however, looking to data from the U.S. we can draw some insight.

According to new findings from the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI), collision claim rates increased six per cent in states that had legalized the recreational use of cannabis. Colorado (which was the first to legalize in January 2014), Washington (July 2014) and Oregon (October 2015) all saw more collisions compared to states such as Idaho, Utah, Wyoming and Montana, where cannabis has not yet been legalized recreationally. This data was measured each month between January 2012 and October 2017.

A second study from IIHS looks at police-reported crashes and “the combined state findings of a six per cent increase in collision claim rates included Colorado, Oregon, Washington and added in [to the report] was Nevada,” explains Russ Rader, SVP of communications at IIHS.  “We don’t have enough data to analyze Nevada separately yet because legalized sales didn’t begin there until 2017.”

Key to note here is that one report looked at U.S. collision claim rates while the other looked at police-reported crashes, the latter typically involving more serious crashes than those reported only to insurers, notes Rader. Drawing from police reports, “we found a 5.2 per cent increase in crash rates in Colorado, Oregon and Washington. Two sets of data but similar results.”

“The new IIHS-HLDI research on marijuana and crashes indicates that legalizing marijuana for all uses is having an impact on the safety of our roads,” said David Harkey, president of IIHS and HLDI, in a statement.

While we don’t have the same data yet here at home, Hands says Canadian drivers are likely to see more roadside tests conducted by the police, and that some insurers will start to ask whether drivers smoke cannabis when they apply for insurance products.

As for immediate penalties? Just like alcohol, those found guilty of impaired driving face severe penalties, which can include steep fines, having your driver’s license revoked or in some cases, jail time.

If convicted of impaired driving “an insurer might even drop you from your policy and potentially label you as uninsurable,” says Hands. “If convicted and you still want to continue driving, you would need to purchase a high-risk policy and the pricing of these policies are generally more than double what a non high-risk driver would pay.”

Speculating on insurance rates is difficult as it is up to individual companies. Trevor Foster, manager of policy at the Insurance Bureau of Canada provided Yahoo Finance Canada with the below tracking data of costs associated with insurance claims, tabulated from six provinces in 2017, prior to cannabis legalization. The total claim cost ranged from just over $500 per vehicle, as seen in Prince Edward Island, to a cost of $1,089 per vehicle in Ontario.

  Ontario Alberta New Brunswick Nova Scotia Newfoundland and Labrador Prince Edward Island
Average Total Claim Cost $11,026 $9,660 $6,565 $6,171 $6,541 $4,487
Average Total Claim Frequency per 100 Vehicles 9.87 10.62 11.48 11.74 13.37 11.85
Total Claim Cost per Vehicle $1,089 $1,025 $753 $724 $875 $532

(IBC with data from the General Insurance Statistical Agency)

Should the data suggest that post-legalization, drivers on the road are at a higher risk of being involved in an incident, insurance providers will likely adjust their rate offerings accordingly in order to limit their financial risk, explains Hands.

Let’s talk about cannabis use

A 2018 study funded by the Canadian Automobile Association (CAA) and carried out by McGill University looked at the impact cannabis had on drivers, specifically within the 18-year-old to 24-year-old demographic. The study was intended for recreational cannabis users defined as having used cannabis at least once within the past three months and not more than four times per week.

“We were interested in finding out to what extent and for how long is driving-related performance compromised after a usual [100-mg] dose of inhaled cannabis relative to no cannabis for recreational cannabis users aged 18 to 24,” says Dr. Isabelle Gélinas, who was in charge of the study.

Gélinas says the important takeaway from the study is “not to drive after inhaling or smoking cannabis and if you do, you should wait more than five hours before driving.”

Participants in the study were not asked about their overall cannabis consumption and if this would change following legalization. 

In August 2018, Statistics Canada released second quarter results of its National Cannabis Survey, which found that approximately 1.4 million Canadians reported being in a vehicle with a driver that had used cannabis and got behind the wheel within two hours of consuming. The data collected from the first and second quarters also revealed that one in seven (14 per cent) cannabis users with a driver’s license admitted to driving within two hours of consuming cannabis, and had done so within the past three months.

What does this mean for Canadians now? 

While the findings in the U.S. and recent studies indicate people are using cannabis, Matt Hands says Canadians shouldn’t expect insurance premiums to suddenly skyrocket overnight. Yet, withholding information from one’s insurance provider could result in a claim being denied or a driver’s policy being voided.

“For example, while it is now legal under federal law to grow up to four cannabis plants per household, some [home] insurance providers perceive this as a riskier activity, given you may need to change your lighting or moisture levels within your home, which could potentially cause property damage,” explains Hands. “As a consumer, it’s key to find out where your insurance provider stands on this issue.”

Insurance providers focus on assessing risk and if more crashes happen following legalization,  insurance providers are likely to raise premiums to compensate for the increased risk.

On December 18, new impaired driving penalties come into effect. Maximum penalties for most impaired driving offenses will increase to 10 years, up from five. Still, according to figures released in October 2018 from LowestRates.ca, an independent online resource that compares insurance rates, 91 per cent of Canadians do not know how legalization will affect their car insurance, and that the price has already increased in three markets: Ontario (increased by 3.57 per cent), Alberta (0.24 per cent) and Atlantic Canada (1.79 per cent), as measured in relation to the previous quarter.

To learn more about Canada’s Cannabis Act, which came into effect on October 17, 2018, head here.

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