The Big Picture: Why Insurance Rates Increase

From the small, family insurance brokerages serving rural Canada to the large multinational insurance carriers with head offices in Toronto and around the world: the insurance industry is massive—it has global reach.

So, what does this massive industry reach have to do with you, your insurance policy, and insurance rates increasing?

To put it simply, we are all connected. A single, large catastrophic event can cause ripple effects to you the consumer on a different continent.

Though there are many factors that can play a role in rising insurance rates, this article should help you peek behind the curtain of property and casualty insurance to see what can play a part in rate increases.

For the policyholder there are two different categories of reason that come into play. We will start with some factors outside of your control, then introduce factors within your control, in other words, the possibility to receive discounts on your property and casualty insurance.

Understanding Rising Costs

The following is by no means a complete list of factors affecting insurance rates, but it represents many common reasons as to why insurance rates increase for Canadian policyholders.

Development in your neighbourhood — insurance companies look beyond a single home to understand the full risk to your property. A new mixed-use development or subdivision can alter the dynamics of a neighbourhood and affect the municipal infrastructure.

Extreme weather activity — it is no secret, devastating weather events like rain, hailstorms, tornados, and overland flooding are impacting Canadians. The damage to homes and businesses numbers in the billions of dollars. Insurance rates increase to more accurately reflect the cost of protecting policyholders.

Green building — using green or eco-friendly building materials costs more than typical building materials. Subsequently, the replacement cost is greater and will be reflected in your rates.

Hard Market — a hard insurance market means insurance companies are increasing artificially low premiums to reflect the actual cost of claims. There is a high demand from consumers for coverage but there may be a reduced supply of capacity from insurers.

Municipal infrastructure — aging sewage and water lines servicing Canadian cities like Vancouver, Edmonton, Regina, and Winnipeg have a difficult time managing the exponential increase in everyday use from density and modern demand. This causes more water damage, sewer back-up, and flooding so insurers increase rates to match the risk.

New home — a modern home costs more to build which means the replacement cost coverage is more expensive.

Reinsurance – Just as a consumer purchases insurance to transfer risk, so does an insurance company transfer risk by purchasing reinsurance protection. When there are increased global events causing losses to global writers of reinsurance, like cyclones, hurricanes, flooding, forest fires and earthquakes (all of which may not be happening in Canada to any large extent), it may affect your insurance company’s ability to purchase reinsurance. The costs to purchase reinsurance will thereby increase the consumer’s rates as well.

Discounts

There are a number of factors within your control when it comes to property and casualty insurance. The following may be options for you to explore earning an insurance rate discount. Note, there will be a maximum combined discount, usually 50%.

Alarms — ensuring you have up to date fire, burglary, and carbon monoxide alarms can benefit your insurance rates. A monitored alarm system with a third-party company may also benefit you.

Claims free — if you do not make a claim, your insurance company may offer a discount for being claims free for three years or five years. Note, if you do proceed with a claim, you will no longer receive the discount until you reach the set amount of time again.

Increased deductible — when you choose to increase the deductible for your insurance coverages (the amount you pay when submitting a claim) you are in effect self-insuring a larger portion of the risk. An insurance company will often offer a discount for increasing the deductible because you have agreed to retain more of the loss.

Loyalty — staying with the same insurance company for years may earn you a loyalty discount. The added benefit is your insurance company may provide you with the benefit of any doubt (or gray area) in a claims scenario

Mature — celebrating a certain birthday could mean earning another discount on your property and casualty insurance. Inquire with your broker if you are age 50 and older.

Mortgage free — if you are living mortgage free you may receive additional discounts to your insurance

New home — on the flip side of new homes costing more to replace, you can often earn a discount on a new home because it is built to the most recent bylaw and safety standards.

Remember to ask your insurance broker to see if you qualify to receive a discount from your insurance provider.