The hope shouldn’t be to return to the new normal, but rather to move forward to something better. Fewer cars on the road mean less congestion, less pollution, and maybe people seeking more active and healthier forms of transportation. If we’re working from home more, we drive less. Does that mean fewer accidents? A less harried commute? The time we always wanted for our personal aspirations, be it more time with family, exercise, or fulfilling dreams, is now available to us.
What about our finances? Ratehub.ca compiled industry insiders’ predictions on what it might look like for the insurance market.
General insurance predictions for 2021
Car insurance during COVID-19 saw companies waive fees for bounced cheques, offer payment deferrals, and eventually offer discounts and reductions on premiums for people driving less.
In the last few years, the average car insurance rates in Ontario have increased by around 5-10% per year. Car insurance fraud and expensive claims (due to valuable technologies like cameras and safety systems), are at the centre of the increases. BC will introduce no-fault insurance in May. They promise it will reduce the cost to insure a car in that province (Canada’s costliest province for car insurance). We have reason to believe it to be true, BC didn’t raise rates at all in 2020. However, Alberta car insurance is still debating a full no-fault system, while their prices keep going up.
However, with fewer cars on the roads, and fewer accidents, might the average rate go down? Or will car insurance companies say they gave us money back this year and keep the steady pricing increase for years to come?
Some drivers saw the open roads as veritable hot wheel tracks and opted to test the limits of their cars with burnouts, doughnuts, and barrel rolls. The police, however, chose to keep the streets for commuting and transportation, not for loop-de-loops, much to the dismay of the opportunistic drivers and their costly tickets and license suspensions. Their possibility of getting cheap insurance has now been stunted. Will these newly minted stunt drivers be the cause of our shared rate increases? More insurance claims generally leads to costlier insurance for all.
On the property insurance side we are starting to see the impact of quarantine life. At home, we spent more time cooking for ourselves and installing backyard fire pits which led to more fires. Unfortunately, climate change didn’t get the quarantine memo and is still wreaking havoc on our houses with increasing floods, wildfires, and golf ball sized hail.
If you live in a condo, beware of rising rates. Following an increase in claims (climate) and resulting payouts, many insurers are retracting coverage altogether or increasing costs by as much as 300 per cent. Unfortunately, a building could lose its insurability and ask unit owners to assume responsibility of the damage and repair bills.
To reduce your risk, always review your condo bylaws and speak with your insurance provider about it. Use your insurance broker as a resource to help you understand whether you have the proper coverage in place. Ask them about insurance to cover the rising cost of deductibles. Always compare condo insurance quotes online to find the best rate.
Also, remember: home insurance is not a maintenance plan. Assess your property and consider any upgrades that help minimize claims. Speak with building management about mitigating risk – hire inspectors to uncover possible failures. Organize education for unit owners about safety measures like fire prevention and flood management. Speak with the local government about risk reduction strategies. Support the advancement of a more elaborate Canadian Disaster Relief fund to better help individuals suffering from natural disasters.
Finally, before buying into a condo or strata, ask to see the insurance documents. Check on its operating fund, the self-insurance fund, and the contingency fund, which helps cover the cost of the repairs. If they’re not up to snuff, weigh your risks.
As a result of COVID and the increase in possibility of death, many people bought life insurance in 2020. Therefore, many life insurance companies had a great year financially. In the latter half of the year, I definitely saw an increase in advertisements. The best time to buy life insurance is when you’re young, but you don’t really need life insurance until you have a partner who relies on you financially for debt repayments, mortgage payments, bills, and kids (even if they’re in your future). I suspect we’ll see even more advertising dollars from life insurers spent in 2021, so, inform yourself before making any rash decisions.
We wanted to know what others in the industry had to say, so we asked some of our insurance broker partners for their best predictions on car, condo, tenant and house insurance as we look towards 2021.
Car insurance predictions for 2021
Greg Raymond, CEO of InsuranceHero.ca, says, “Rates were on the rise before the pandemic hit; however, most insurance companies postponed any future scheduled rate increases. [They also] provided premium rebates to consumers, and some have even temporarily lowered rates. There are fewer drivers on the road, which means fewer claims, but this trend will get reversed as soon as the world starts to re-open, and the economy recovers.
Other experts said it was difficult to tell what would happen. After refunds, capping or removing premium increases, we don’t know how the pandemic will ultimately influence the real world. While we don’t yet know the full repercussions of COVID-19 on auto insurance, Finance Minister Rod Phillips believes the pressure is on the industry to provide relief for struggling Canadians. Furthermore, the NDP wants the Ontario government to give a 50% reduction in premiums for all Ontarians for 3 months.
Sean Graham, President of Begin Insurance, feels 2021 will likely see rate reductions in auto insurance. “Many [Canadians} are working from home. Unfortunately, some are unemployed, young people are not in school, and lockdowns keep most [people] at home. The downward impact on car accidents has been dramatic and should continue into 2021. Some insurers like Aviva and CAA have already reduced rates by 10%, and others should follow suit.”
Home insurance predictions for 2021
Working from home has its perks, but not for the insurance industry. “With more people at home, there is greater exposure for liability and fire. Climate change keeps producing severe weather events, including water and wind catastrophes,” says Sean Graham of Begin Insurance.
Greg Raymond from Insurance Hero echoes Graham’s sentiments, and adds that it, “may have a small impact [on rates] but that trend should get reversed once people get back to work.”
The truth is home insurance has been underpriced for a long time. If claims keep rising, without the political intervention to limit rate increases, expect rates to climb further.
We can’t stress enough – read your policy and understand your risks. For instance, flood insurance isn’t as comprehensive as you think. A typical home insurance policy covers you for a burst pipe (if your heating is on). It likely does not cover you for a sewer backup, snowmelt, or rising bodies of water entering into your home. You can protect yourself with a sewer backup valve, waterproofing your home, and diverting water away with upgraded eavestroughs. But even with the mechanical upgrades, you might want to think about adding water protection endorsements to your policy for these risks, especially if you live near water. Don’t expect your insurer to pay, if you’re not correctly insured.
Life insurance predictions for 2021
According to Deloitte, life insurance premiums could decline by 6–8% and growth is projected to be at 3% for 2021.
I called up Mike Rogers, my life insurance broker to get his opinion. He’s been in the industry for over 40 years and still loves it. It’s why I love his advice.
“Term insurance products are at historically low rates right now, so we’re starting to see longer terms (30–40 years) instead of shorter terms (10–20 years). However, with permanent insurance, like universal or whole life, the premiums won’t come down.“
Here’s why: Life insurers set up reserve funds to afford the claim payouts. “Typically, the insurance industry is locked into conservative investments (like bonds) which guarantee returns forever, so they can keep collecting above mortality (by law). Interest rates right now are incredibly low. Permanent life insurance rates only come down if they can make more money on their long term investments. If the government keeps printing money, maybe it forces inflation. Inflation forces interest rates to rise which could reduce permanent life insurance premiums as interest rates do improve.“
I like Mike’s advice on choosing between term and permanent: “The best plan for life insurance is term, that is until you can build the assets your loved ones can inherit. It’s the bridge between when you have nothing to when you do.” In other words, buy term to cover the indebted years with mortgage payments, replacing income streams, and paying for your children’s education. Once you have those taken care of, ask yourself if you still need life insurance.
Mike goes on to other life insurance products and where the interest is going. “Critical illness is where we may see more growth in life insurance to get through the last years of life, knock a few items off your bucket list. Living benefits is a big deal among young people. Especially when they understand there’s a 5x chance you could get a serious disease or get a critical illness before 65.“
Will shopping habits change for insurance after the pandemic?
On a personal note, I know friends that have waited over 2 hours on the phone to get their COVID car insurance discount. Access to money has been another struggle with lineups at banks. In fact, one bank currently has no open branches, and their phone wait time is between 1-2 hours, and those lines are open 24 hours a day. To no one’s surprise, I have shifted more of my shopping online – groceries, alcohol, clothing, and home decor, just to name a few. But, what about insurance? Is the industry even set up to service the rise in digital demand in the commerce space?
Greg Raymond of Insurance Hero says, “consumers that previously didn’t shop for anything online were now forced to because of the pandemic. These new digital consumers won’t be going back to their old ways of doing business. Many brokers and insurance providers will need to adapt.”
Sean Graham of Begin Insurance believes Canadians will “seek out new methods for interactions with all of their professional services.” He calls out real estate, mortgages, banking, accounting, lawyers, and insurance, to name a few. He believes we’ll have fewer face to face interactions, and digitally servicing a client will be a requirement. He says we’ll see a rapid transformation in these industries, and businesses will need to learn to adapt to new consumer demands. “New companies, platforms, and ways of doing business will certainly emerge as the wave of the future.”
On life insurance
Mike Rogers of New Venture Insurance Agency says, “The hand over from face to face to going online took about 4 months when the pandemic hit. The insurance companies issued 6 months of work in 4 weeks. It’s not quite as easy they think, you’re literally learning as you go. Now, the industry is pushing video chats between brokers and clients. The average age of a life insurance broker is 60. Young people don’t want to buy life insurance from someone that won’t be around to handle their claim. No one is training new agents. It’s a big problem.” Or an opportunity for young people to get into life insurance.
Insurance products and the changing economy
Shopping habits may change, but If you’re looking to Airbnb your home, only a select few providers offer insurance. Driving for Uber? Whether delivering passengers or food, you need to understand your coverage, and again, few providers will protect you. The economy is changing, the insurance industry needs to adapt. If car insurance rates rise, we may see a rapid adoption to usage based insurance.
The bottom line
We can only speculate if rates will go up or down, but 2021 is sure to be a hopeful, yet potentially volatile year. As more data from climate-related disasters come in, and more sophisticated models arise, many believe home insurance premiums will spike. All the brokers we asked did agree on one thing – shopping for a life, home or car insurance quote online will be the new normal, or rather, the move forward.
- How insurance companies are responding to COVID
- Do you really need life insurance?
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