Did you recently open instructions out of your home insurance carrier and were shocked to find your rates increased? Most.
Over yesteryear year, property insurance prices increased in every province, according to a report from software firm Applied Systems. The report analyzed a lot more than 1.3 billion quotes and found that premiums for personal property insurance rose by typically 5.8%.
Premiums rose fastest in Alberta and British Columbia, at 12.1% and 11.2%. The report also shows that the cost of home insurance continues to be rising since at least 2021.
It's tough to say how that means dollar amounts. The home insurance market is unregulated, making data on premiums hard to find. According to a 2021 survey from J.D. Power, the average policyholder in Quebec pays $960 a year; in Western Canada, it's $1,200; and in the Atlantic and Ontario regions, homeowners pay $1,284.
So what gives? How come property insurance rates rising so quickly? We looked into the main reasons.
Capped pricing on auto insurance rates is a factor
Premiums are tightly regulated in Canada's largest auto insurance markets, for example Ontario and Alberta. It means insurers need to get permission in the provincial government to improve rates past the regular rate of inflation (which generally fluctuates between someone to 3%).
Auto insurance providers – many of which offer home insurance as a product – claim that payouts for accidents are rising to unsustainable levels due to a quantity of factors (chief among them increased insurance fraud and the fact cars are more expensive to repair) which government regulation is preventing them from hiking rates to pay.
Home insurance, on the other hand, is really a completely unregulated market, so insurers who offer it may raise rates around they want.
Pete Karageorgos, director of consumer and industry relations for that Insurance Bureau of Canada, states that it's bad business for insurance companies to raise prices on a single product to make in the difference for losses in another. But other industry insiders say that is what's happening.
With “really hard regulation on the auto insurance side- companies desire to make a higher margin on home [insurance] than in the past,” says SurexDirect.com's chief operating officer Matthew Alston.
Home insurance has been “underpriced”
A decade ago, home insurers could afford to be more generous with customers, Alston says, because large claims were few in number.
“A large amount of the wording in the policies were a little too generous on replacement costs, some companies were just replacing the whole house for new shingles,” he states.
Now, with changing weather patterns, it just takes one hailstorm in a downtown place to wipe out a year's price of profit, says Alston.
The climate of history is no longer a reliable indicator of the future, which results in the following point.
Climate change is affecting insurance costs worldwide
In 2021, insurance companies across Canada paid more than $1.9-billion to homeowners and property owners as a result of global warming, according to the IBC.
Up until the mid-2000s, insurance providers in Canada could expect to pay out $400-million a year in claims because of tornados.
But now, a single event can trigger claims that size, such as last year's tornadoes in the Ottawa and Gatineau region, which Karageorgos says caused about $410-million worth in damage. “That number increases as time goes on” and more claims are filed, he adds.
Insurance companies need insurance, too. It's what's called reinsurance, and it's offered by mega-insurers. The danger presented by insurance providers gets pooled together on the global scale. Meaning, natural catastrophes that occur in other areas of Canada – even in other parts of the world – push premiums up for all policyholders because insurers are paying more.
What are you able to do about this?
Insurers are answering increasing claims costs by introducing raise your deductible and lowering the limits on benefits.
Reversing climate change is certainly out of most people's control, but you will find things you can do to reduce your home insurance costs.
- Bundle property insurance with your auto insurance policy.
- Increase your deductible.
- Avoid making claims for small things.
- Assess your risk for events like flooding and do something to weatherproof your home.
- If you are able to handle dealing with a hazard yourself, you can buy a less expensive insurance plan.
- Before your insurance plan renews for another year, talk to an agent, who can assist you to compare the marketplace and may guide you towards a much better deal.