You haven’t had any tickets or collisions, made no changes to your home or auto, and had zero claims. So why did your insurance rates go up this year?

To understand the answer to this question, you must first understand how insurance works.

How insurance works:

Insurance is available to help you (and your family and friends and neighbours) pay for damage that may occur to your property or car, or to pay others on your behalf if you are responsible for injuring someone or damaging their property or car. To help pay for claims (also known as “losses”), the insurance company collects payments (often called “premiums”) from each of its customers and puts the money into one large pool. The pool is then used to pay for home and auto damages of all its customers unfortunate enough to experience an unexpected event during the year. Your insurance policy is an annual contract, so the pool operates in one-year cycles.

Insurance companies need to manage the pool to ensure there is enough money available to cover claims. They may need to increase payments across all customers if they anticipate an increasing number of claims, or a large claim situation in the future – such as a severe weather event hitting a number of homes in a community at one time. These kinds of circumstances apply across the industry.

So now that you know your payments are used to cover claims costs for all customers with your insurance company (and their payments are used to help you when you need it most), you may be asking yourself –

Why are insurance claims costs on the rise?

Unfortunately, both insurance claims frequencies and payouts have been on the rise across the country, and insurance companies have had to increase rates to cover these rising costs. The following factors all contribute to the increasing rates:

1. Severe weather events are becoming more common. With flooding, windstorms, forest fires and other extreme weather events occurring more often we are seeing larger and more costly claims from natural events.
2. More frequent and more severe collisions happening on our roads. A review of Allstate Canada claims data shows a trend to an increased frequency of road collisions and an increase in collisions involving our most vulnerable road users – pedestrians and cyclists. A contributing factor is likely an increase in drivers driving with distractions.
3. Modern features cost more. New features now available in modern cars and homes are making them stronger, safer, more luxurious and even more eco-friendly, but these enhanced features can drive up repair and replacement costs.
4. Inflation. The cost of almost everything is on the rise thanks to inflation, including skilled trades, building materials and personal belongings. This makes paying claims for losses more expensive.
5. Canadian cities are growing. Canada’s population has doubled in size since the 1960s, growing from 18 million in 1961 to over 36 million today. When neighbourhoods grow, risks change. Demands on municipal infrastructures increase, more cars on the road lead to increased potential for collisions and damage to your vehicle.
6. Our cities are showing their age. As the country grows older, so does municipal infrastructure that was created decades ago. Outdated water lines are struggling to keep up with the higher demand for water, which makes sewer backups more frequent.

What can be done about it?

While the above factors may seem mostly out of your control, there are things you can do to help lower your rates, such as avoiding traffic violations, bundling coverage (putting both home and auto together with one insurance provider) and increasing your deductibles. For more information on how insurance rates are calculated, and tips to help you save, please refer to our articles on Demystifying Home Insurance Rates and Demystifying Auto Insurance Rates.

We also encourage you to have a conversation with your insurance agent about options.