2022 was a wild year in the world of personal finance products – mortgages saw sky-high interest rates, credit cards saw new transaction fees, and investments saw extreme volatility on the market.
But let’s not forget about one essential but not-so-talked-about product: insurance. Taking a look at industry trends within this past year, here’s what we think will happen in the insurance world of 2023.
Key takeaways on 2023 insurance predictions
- With the cost of living on the rise, insurance premiums will also see an impact. One main reason for this is the increased cost of making a claim – if insurers now need to payout more for repairs and replacements, it'll also cost you more to purchase a policy.
- A recession means less consumer spending. Therefore, fewer big-ticket items – such as cars and homes – will be purchased during this time. And of course, this also means a decrease in demand for the insurance industry.
- We expect increased awareness when it comes to online insurance shopping. Consumers are looking to save money during these unprecedented financial times, and one of the best ways to lower your premium is to shop around and compare insurance quotes.
1. Insurance premiums won’t be immune to the effects of inflation
From grocery bills to gas prices, the cost of living only seems to be getting more and more expensive. We all know inflation is on the rise, but how will it impact your monthly insurance bill in 2023?
Inflation and your auto insurance
According to October’s Consumer Price Index, passenger vehicle insurance premiums saw an average annual increase of 3.9% across Canada. And we don’t expect auto insurance to get any cheaper for most drivers next year – let’s take a look at some of the reasons why.
The inflated cost of auto repair claims – As the cost to repair your vehicle increases, so will the cost of your insurance. After all, insurance companies are first and foremost a business, so providers will do what they can to close the gap in losses. And since October's CPI revealed a 7.4% annual increase in the cost of passenger vehicle parts, maintenance, and repairs, it’s no surprise to see auto insurance premiums also follow with an increase.
Not only that, but supply chain issues and shortages for parts – such as plastics, sheet metal, and clear coats – have been causing delays in repair schedules. Matt Hands, Ratehub.ca’s Senior Director of Insurance, explains how this can impact your car insurance premium: “Three or four years ago, repairs would be done in a week or two. Now they’re probably taking three or four weeks – maybe even longer. That’s going to cost insurance companies more because they’re paying for rental cars longer which would contribute to the rising cost of claims.”
The higher valuation of replacing new vehicles – Insurers look at the make and model of your vehicle when calculating your car insurance quote, and because higher-valued cars cost more to repair and replace, it’s inevitable that you’ll be paying more to insure them. With technological advancements, newer cars are only getting more and more expensive – while backup cameras and blind spot warnings have become the norm, self-driving capabilities are no longer an impossible ask.
The rise in gas prices (due to inflation, once again) has also heightened the already-growing interest in green vehicles. And while insurance for these cars isn’t always more expensive, it can be. Morgan Roberts, RH Insurance’s Director of Sales explains the reasoning behind this, saying, “Electric vehicles can cost more to insure due to the cost to repair them. For example, they may require more specialized services to repair.”
Read more: How much does electric vehicle insurance cost?
To combat the ongoing effects of inflation, there have been talks of an auto insurance rate freeze in some areas of the country. ICBC (British Columbia’s public insurer) has requested another two-year rate freeze for basic auto insurance plans. The NDP government has also drafted a bill in support of freezing Alberta auto insurance rates for one year. But even if these policies do come into effect, rate freezes aren’t usually seen as a sustainable, long-term solution to inflation in the auto insurance industry.
Read more: How does inflation impact auto insurance in Canada?
Inflation and your home insurance
Home and mortgage insurance saw an inflation rate of 7.6% year-over-year in October’s Consumer Price Index. And just like auto insurance, we also expect home insurance rates to continue to rise across Canada next year – here’s why.
The inflated cost of home rebuilds – In Canada, home rebuilds are getting more and more expensive. October’s CPI revealed a whole 9.8% increase in the cost of maintenance and repairs. Aside from the fact that home rebuild materials have increased in price, this can also be attributed to the country’s ongoing labour shortage in the industry – all while demand for construction projects is on the rise.
Because home rebuilds now cost more, some owners may be underinsured when it comes to the replacement cost of their building. Matt explains, “Your insurer should double-check your policy when it’s time for renewal, but sometimes your coverage may not be changed. If you have guaranteed replacement coverage, however, then you should be fine.” This type of coverage ensures that your home rebuild is fully paid for, even if the cost exceeds the limit listed on your policy.
He also notes the importance of notifying your insurer if you make any changes to your property: “If you do a renovation, they’ll also need to do a reassessment. Or if you’re adding things that weren't insured before – such as a pool in your backyard – then you’ll need to have that covered.” And of course, this is another factor that can contribute to the rising cost of your home insurance.
Trends in climate change resulting in increased claims – Over the last few years, severe weather conditions have caused an increased number of claims. In 2021, for instance, the Insurance Bureau of Canada cited $2.1 billion of insured losses due to severe weather. Insurers need to make this back somewhere, so climate change is one of many factors that can potentially contribute to a rate hike.
Home insurance companies may also weigh the risk across Canada – while you could be living in a relatively flood-prone area, it’s possible you’ll still see your premium go up due to all the losses insurers have faced. Matt also notes that flood-plain areas can change over time, so your property can be assessed as a higher risk than it was before, causing your home insurance quotes to go up.
Read more: How does inflation impact home insurance in Canada?
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2. Consumers will hold off on spending (and hold off on insurance)
It’s no surprise that with higher prices, comes less demand – and the same can be said for insurance products in 2023. From an industry perspective, P&C insurance companies can expect limited growth due to the current economic state of the country.
According to the Fall 2022 Economic Statement, Canada is entering a mild recession in the first quarter of 2023. A recession means less consumer spending – and less consumer spending on big-ticket items means there will also be less of a need to insure them.
The auto insurance industry during a recession
Cars can be seen as a luxury during a recession. While owning a vehicle definitely provides convenience, it also comes with many added costs – gas, maintenance, and auto insurance, just to name a few. Those living in urban areas may choose to hold off on such a large purchase in a time of financial uncertainty.
And let’s not forget about the vehicle chip shortage in Canada – even for drivers who want to purchase a new car, it might not be possible in the near term. Matt explains the negative impact this will continue to have on the industry side, stating, “This impacts brokerages more than it does the consumer. There are fewer people in the market shopping around because they’re waiting to get vehicles.” As car ownership declines, so will the need for an insurance policy.
The home insurance industry during a recession
A recent survey revealed that 19% of Canadians have either postponed or deprioritized home-buying since the start of 2022 due to cost of living pressures and high-interest rates. And while the Bank of Canada’s December announcement revealed another 50-basis point increase on the key overnight rate – which brings us to a full 4% increase in just 2022 alone – holding off on home ownership doesn’t seem like such a bad idea right now. To put it into perspective, the Bank of Canada interest rate hike in December was the seventh consecutive one in a row since March 2, 2022.
The Bank of Canada interest rate could potentially stop increasing next year, but the housing market won’t bounce back right away. And it goes without saying that this has a direct impact on the home insurance market. If there aren’t any new homeowners, there won’t be any new policyholders.
Insurers may also see a decline in interest for tenant insurance – but for a different reason. Canadians still need to rent during this time, but tight budgets can often lead to the prioritization of certain bills over others. Matt shares his perspective on this using the example of streaming services: “We may see people forego tenant insurance even more now during a recession. A monthly Netflix subscription, for example, can cost roughly the same amount of money as a tenant insurance policy. While people see use in their Netflix account every day, people only see use in their tenant insurance once something actually happens.”
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3. More people will become aware of online insurance shopping
Online shopping isn't anything new – but we expect the awareness around comparing insurance quotes online to grow in 2023. While fewer purchases of homes and cars will be made during a recessionary period, this is also the time when Canadians will be looking to cut existing costs. Online platforms – such as Ratehub.ca, of course – are here to help you find the best insurance rates for your needs.
Matt highlights the importance of comparison shopping for insurance: “There are a number of ways consumers can save on their insurance policies, such as bundling, loyalty discounts, clean records, and quality credit scores, but first and foremost, we always stress the importance of shopping the market to Canadians.
Matt further explains, “No two insurance companies will rate you the same – they may all look at similar pricing factors, but weigh them differently in their rating calculations. Insurance companies are always looking to balance their book of business against inherent risks associated with their customer base. Some insurers will be more willing to offer favourable insurance rates to you than others based on this ongoing risk-balancing exercise. So take some time to compare quotes from multiple insurers to ensure you’re getting the best price for your situation.”
The bottom line
Taking a look at trends from 2022, we predict the insurance industry in 2023 will look somewhat similar – from the inflation of premiums to the decline in new policyholders, insurance won't be immune to Canada's economic uncertainty.
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