Does your budget seem to be under strain? The inflation rate in Canada is more than a mere statistic and is hitting every Canadian's wallet, directly impacting your daily expenses. From the grocery store to the gas pump, to financial services, Canada's inflation is shaping our daily lives and causing us to look more closely at our spending. It is no surprise that Home and Car Insurance in Canada is one of our largest expenditures each year which begs the question, how does inflation impact Insurance premiums? We will tell you how your premiums are impacted and what you should do about it.
The answer is simple, Higher Claims Costs! Insurance companies pay claims out of a pot of money, along with their expenses, and hope to make an underwriting profit at the end. Their profit is usually between 2% - 10%. With the rising costs of claims, the margins diminish and it is time to raise their premiums, which get passed on to the consumer. But why are claims costs rising due to inflation?
The increasing cost of vehicle parts and labour play a significant role. As technology advances, repairing or replacing vehicle parts becomes more expensive, with inflation further compounding the issue. If you have had to replace a windshield, bumper, or side mirror lately you will understand that these items are now loaded with technology such as Radar, Lidar, motion sensors, cameras and computers. Most newer vehicles today have more technology in them than the Apollo missions that went to the moon. Furthermore, skilled workers who are needed to service these new car technologies demand higher wages due to rising living costs, adding to the overall expenses. Now imagine these items costing 15% - 30% more due to inflation and we haven’t even gotten to the supply chain yet.
Speaking of which, let's not forget about the supply chain issues. They play a crucial role in understanding the full impact of inflation on insurance premiums. Have you struggled to find new tires, a new catalytic converter, or anything else for your car lately? Often the parts are coming from China or other countries from overseas. The demand is high and so are the transportation costs to bring them here. Combine that with staffing issues at the distribution ports, the cost of oil internationally, trade disputes, a war in Ukraine and not to mention COVID-19! Ugh, you get the picture. Supply chain issues aren’t going away anytime soon and all these complications impact the costs of claims on a global scale.
With auto insurance claims costing more due to inflation and supply chain issues, this also leads to extended wait times for your car to be repaired after a collision. What used to take days can now stretch into weeks or even months. Sometimes it’s just waiting for a car part to come in. Additionally, insurance companies may be understaffed due to the layoffs during the pandemic, resulting in delays in processing claims. Now they have to hire adjusters back because people are driving again and claims have increased. Some adjusters have moved on to other fields. All of this adds up to a higher demand for rental cars while your primary vehicle is being fixed. If you are lucky to get a good rental car, you’ll want your insurance policy to cover the cost.
This is done by adding OPCF 20 Loss of Use coverage to your policy. Most of you should have this coverage. In earlier days you would want to have $900 or $1500 in coverage to cover the cost of a rental vehicle for a week or two. You should now consider $2000 or $2500 in coverage because you might need a rental for a month while your car is getting fixed and you don’t want to pay for it out of pocket. So, whether you are having issues with the wait time, rental car coverage or even hearing a response from your insurance adjuster, you’ll want to have an Insurance Broker who is on your side to help you navigate all of this.
Let’s talk about Home Insurance for a moment and the cost of lumber. To better understand the impact, let’s have a look at this lumber prices historical chart by data from Macrotrends. The current cost of 1000 board feet of lumber in Canada, as of July 17, 2023, is $584. Now, compare that to a high of $1670.50 in 2023 and you might think we are headed in the right direction. Well, we ARE heading in the right direction! However, when you compare that to $264 in March 2020 as Covid was just starting up, the cost has more than doubled in the last three years. These numbers speak for themselves. So the cost to build, or rebuild, homes is increasing dramatically. Add in severe weather events and the potential impact of Climate Change, and it becomes clear why home insurance rates have been rising as well. Again, this all boils down to rising claims costs due to inflation and other factors.
We can hear you saying it now, this all sounds really, really, bad. So, what can you do about this? Well, here are a few things that you are in control of. You can mitigate your risk of having a claim and keep your premiums low. Drive safely, and consider a car that doesn’t have expensive parts imported from overseas. That's not just good for lowering insurance costs but also for general maintenance. And remember, a good broker who can find you extra discounts and compare prices from a variety of insurance companies is a great asset. Insurance premiums may be rising due to the inflation rate in Canada, but that doesn’t mean you have to pay them! Find the right price and coverage for you today by contacting us at Begin Insurance.
Looking for more insights? Explore our other informative blogs on insurance topics to enhance your knowledge and make informed decisions.
Posted Jul 4, 2019