Registering and insuring your vehicle using your parent's address in a neighbouring city might seem like a clever way to save money on your auto insurance rates.
Doing so can save hundreds of dollars. Using an online quoting system, I found that a 30 year old man, driving a 10 year old Toyota with no tickets or accidents would pay $1,998 if he lived in North York. Change the address to one in Barrie and the rate drops to $1,489. That's a $500 difference.
While fibbing on an address may seem harmless enough, it's a practice known as rate evasion, and it's considered a form of insurance fraud.
With rate evasion, people claim to live in another city or that their car is garaged there, in order to pay lower insurance rates. If you say you live in Barrie but actually live in Toronto, you're posing a risk in Toronto but you're not paying for that risk. Toronto residents whose vehicles are registered in the right location end up covering some of your share of the costs by paying higher auto insurance rates.
Rate evasion occurs in regions with high auto insurance rates. It's difficult to detect in the GTA since vehicle plates do not reveal where your car is registered. In some urban areas in the U.S. it is a little more obvious. In certain areas of New Jersey, especially northern, urban areas, and the southern part of the state bordering Pennsylvania, it's not uncommon to see plenty of cars with out-of-state license plates regularly parked in people's driveways and on residential streets. Recently I was involved in a minor collision and the other driver provided me with his driver's licence, vehicle registration and insurance card. Each document had a different address. It made me just a little suspicious.
Auto insurance is a pooling system where everyone pays premiums and the pool of funds are used by an insurer to pay claims to those who have accidents. Everyone is rated based on their risk profile which includes where you live. To certain extent there is always going to be some form of cross-subsidization based on the rules an insurer follows. For example, an insurer cannot determine premiums based on whether the policyholder has access to collateral benefits from a workplace (e.g., supplementary health benefits). Those with access to collateral benefits are going to claim less than those without yet they may be rated the same, all things being equal.
When consumers try to beat the system by registering their vehicle at a false address, they are being cross-subsidized by other policyholders. The difference is they are operating outside of the rules and the law. Therefore, it's fraud. Still, high premiums in the GTA will continue to tempt some drivers.