Why do we have the perfect storm for increasing auto insurance costs?
Why do we have the perfect storm for increasing auto insurance costs?
The information provided in the blog is based on our research and presented for educational/entertainment purposes.
After seeing a reduction in auto insurance costs in Ontario for the last two years, insurance companies are ready to increase their auto insurance rates again. Accelerating inflation combined with the reopening of businesses and lifting lockdown restrictions will negatively impact insurance costs.
Changes in insurance premiums post-pandemic
Changes in insurance premiums post-pandemic
In 2020, the industry average for a reduction in auto insurance premiums was 7.1% according to the Financial Services Regulatory Authority of Ontario (FSRA). Many insurance companies either sent customers rebate checks, freeze increases in premiums at renewal, changed their policies, or reduced premiums to help customers reduce their monthly costs during the Covid-19 crisis.
Post-pandemic, as Our old driving habits are beginning to return as we continue to strive for a “new normal”, we are likely to see an increase in auto insurance premiums.
An insurance premium is calculated based on your personal demographics and driving history but external factors such as claim costs are also taken into consideration when calculating your insurance premium. As more people hit the road for their commute or leisure trips, chances of collision are expected to increase leading to an increase in claims filed. When the insurance companies have to pay out more claims, they tend to transfer the cost to customers by increasing their insurance rates.
Effect of inflation on the auto insurance premium
Effect of inflation on the auto insurance premium
The inflation rate hit 8.1% in June, this year. Global supply chain issues and labour shortages in the auto repair industry caused due to inflation may contribute to an increase in insurance premiums.
High demand and low supply of semiconductor chips have increased the repair and replacement costs of cars. There has been an increase in the cost of spare parts by 5.5%. If you are involved in a collision, you can expect to pay more for repairs as it is difficult to find the spare parts for the car. Also, due to a shortage of labour and spare parts, it takes longer for auto shops to complete the repair. As a result, your car needs to be repaired for an extended period of time, and you have to use a rental car during that time. Let’s say your insurance covers the full cost of your rental car or reimburses you for some portion of it. Your insurance rates will go up as a result of all of these costs adding up to the claim costs. As mentioned before claim costs are also taken into consideration when determining your insurance premium, due to inflation, the rise in claim cost would also increase auto insurance rates.
However, you will not see the rise in insurance costs right away. The rates charged by insurance companies cannot be changed in the mid-policy. You will see the change at the time of renewal. This will give you an opportunity to shop around and compare rates from different insurance providers before renewing your policy. You may contact Primeservice brokers to shop around for the best insurance rates and get professional advice.
By Sam Jazayeri
