What Ontario drivers might save by dropping DCPD coverage

Ontario brokers are questioning the value of the Ontario government’s forthcoming new law allowing drivers to drop out of direct compensation property damage (DCPD) coverage for their cars.

DCPD coverage is currently mandatory and protects policyholders in the event of a collision in which another driver is at fault. By opting out of DCPD coverage, drivers will not be able to seek damages in the event of a not-at-fault collision, leaving them on the hook to pay for all repair and associated costs.

Opting out of DCPD would likely bring down auto insurance premium prices on individual policies around 5% to 10%, insurance aggregator LowestRates.ca predicted this week.

How much is that?

As ThinkInsure, an independent insurance broker, notes on its website: “The average cost of car insurance is $1,655 per year in the province (Ontario). Most pay in the range of $1,300 to $2,000 annually. They are higher or lower depending on your location, the type of vehicle you drive, your driving history, and many other considerations.”

Doing the math, for consumers dropping out of DCPD, that would mean annual auto premium savings of anywhere $130 to $200.

Meanwhile, even for old clunker cars that supposedly aren’t worth the cost of repairing, the value of these cars is in the thousands. Kelley’s Blue Book shows a 1999 Volkswagon Cabrio is valued at $1,794, a 1999 Honda CR-V is worth $4,161, and a 2007 Hyundai Accent is valued at $4,102.

Related: What Ontario’s DCPD change means for insureds, brokers

Insured drivers must sign an OPCF 49 form to opt out of DCPD coverage. It states: “Not being compensated means you will not be reimbursed for any loss or damage to the described automobile including:

repair costs;
the value of the vehicle;
the loss of use of the vehicle;
a replacement for the vehicle; or
loss or damage to any of the vehicle’s contents.

“Opting to pay for any damages out of pocket is the worst deal you can make,” Steven Harris, LowestRates.ca expert and licensed insurance broker, commented this week. “The risk is too great.

“Even someone who really needs the savings and needs that car to get to work won’t benefit from opting out of DCPD. In the event of even a minor accident, the repair costs would quickly surpass any potential savings on the insurance policy.”

Under the heading, “Making Auto Insurance More Affordable,” Ontario’s 2023 budget announced the government’s ongoing commitment to require insurers to make it optional for drivers to purchase not-at-fault property damage coverage. “This change was made to give drivers more options and will come into effect on Jan. 1, 2024,” the budget document says.

The government says opting out of DCPD could potentially lower a driver’s auto insurance premiums.

But brokers say the new law would lead to repair and replacement bills that far outweigh the projected premium savings.

“Consumers want more choice??” insurance brokerage executive John Baizana posted on LinkledIn eight months ago, around the time the initiative was first announced. “No, they want lower auto insurance premiums.

“In all my years in the insurance industry, I have never had a client say, ‘I wish I had no insurance coverage for my car when someone else hits my car.’”

Feature image courtesy of iStock.com/CHRISsadowski