Q&A with an industry expert: Why are insurance rates going up?

Originally Published by Economical Insurance, with additional information added as reference.

These days, it seems like everything is getting more expensive. From food to housing to insurance rates, prices are on the rise. Along with the frustration that comes with spending more of your hard-earned money, you might be wondering why your insurance premiums are going up and whether you’re the only one dealing with higher rates.

Transparency is more important now than ever, so Sebastien Vachon, Regional VP, Quebec at Definity is sharing his insurance expertise to shed some light on why car and home insurance rates have gone up, what you can expect to see in the coming years, and some ways you might be able to save on insurance.

Q. Why have car and home insurance premiums gone up?

A. When it comes to car insurance rates, there are a few key factors affecting the entire insurance industry:

• Inflation. Today’s higher prices on parts, new and used vehicles, rentals, and labour make it more expensive for insurers to pay out damage-related claims.
• Rising claims frequency. More people are on the road, so the number of insurance claims has increased. More claims and higher repair and replacement costs mean higher insurance rates.
• Distracted Driving remains a prominent cause of accidents.
• Rising rates of car theft. The pandemic in 2020 led to significant supply chain disruptions, so there was a lower supply of new and used vehicles available to purchase. This led to drastically inflated prices for all vehicles. As a result, car theft has become significantly more frequent and remains elevated today.

Home insurance rates have also gone up thanks to a couple of main factors:

• Inflation. The cost of materials, labour, and homes has increased significantly in the last few years, which means the cost of home repairs after damage-related claims has also risen.
• The heightened frequency and severity of natural disasters. A growing number of severe weather events means insurers are seeing a rise in costly home insurance claims. Once in a century storms are happening now once every few years. Hurricane Dorian, Hurricane Fiona, and the severe rain storms in July of 2023 are just a few in recent memory.

Insurance claims from severe weather have more than quadrupled across Canada since 2008. The new normal for insured catastrophic damages in Canada has reached $2 billion annually. Hurricane Fiona is estimated to have caused $800 million in insured damage in 2022;  the flood and rainstorm event that hit Nova Scotia in July of 2023 is estimated to have caused over $170 million in insured damage. Add the Tantallon wildfires from 2023, and that's another $165 million in damage without adding in usual claims such as car accidents or sudden home damage. Source IBC.

Q. When did insurance rates start to increase?

A. Prices have been going up for a while, but at a slower rate than they are now. COVID-19 had a massive effect on the global economy, causing inflation to skyrocket and prices to rise drastically. At the same time, claims frequency increased, creating the perfect storm for rising insurance rates.

Most insurers had a delayed response to these trends since rate increases only occur when insurance policies renew each year. Many customers are now seeing the effects of rising rates.

Q. I’m a long-time, claims-free customer. Shouldn’t my insurance premiums be going down?

A. Unfortunately, everyone’s rates are rising — even claims-free customers with perfect driving records. If you’re a great customer, you can rest assured that you’re still paying less than a customer with a poor driving history or multiple insurance claims. So, it pays off to continue driving safely and safeguarding your home against risks!

Q. Are car and home insurance premiums rising at the same rate?

A. No. Car insurance is seeing rates increase much more quickly than home insurance. The factors affecting car insurance rates have been more sudden and drastic, leading to more pronounced rate increases in recent years.

In comparison, home insurance rates have already been moderately elevated for several years.

Q. Are specific vehicles and locations affected more by rising car insurance rates?

A. Yes. Certain makes, models, and years of vehicles are more likely to be stolen now than they were even just a few years ago, so some drivers may experience premium increases to compensate for the increased risk that comes with driving a more commonly stolen vehicle.

Car theft is also becoming much more common in Ontario and Quebec, so drivers in these provinces (especially in larger urban centres) are likely to see more rapid rate increases than drivers in other regions.

Q. Are specific properties and locations affected more by rising home insurance rates?

A. Yes. A big part of property insurance is coverage for weather-related damage, so if the risk for wildfires, hurricanes, tornadoes, flood, and other severe weather events has increased in your area, you’re likely to experience a rate increase.

Q. Can we expect insurance rates to level off at any point?

A. We’re seeing signs that inflation is levelling off, new vehicle supply is improving, and car prices have started to stabilize. This shows that market conditions are levelling off, which will hopefully affect the insurance industry in a positive way, too.

Q. How can I be proactive and save on insurance?

A. There are a few ways you can save on insurance, even while rates are rising. If you drive a commonly stolen vehicle, consider installing an aftermarket anti-theft device in your car, like an anti-theft vehicle tracking system or a steering wheel lock or. Depending on your location and insurer, these devices may help you qualify for a discount on your car insurance.

Increasing your deductibles could also help you save on your car and home insurance premiums. Before committing to a higher deductible on one or both of your insurance policies, make sure you first consider whether you’d be able to pay the higher out-of-pocket fee if you need to make a claim.

You can also opt for usage-based insurance if it’s offered by your insurer. Usage-based insurance tracks your driving patterns through an app or device plugged into your vehicle and measures speed, acceleration, hard braking, hard cornering, and the times of day you tend to drive. If you’re a safe driver, you could qualify for a discount on your insurance premium.

There are countless ways to save on car insurance and home insurance, so talk to us to see what discounts and options are available to you.

Originally posted on Economical.ca