Home insurance: Premium increases explained
Did your home insurance premiums go up a little more than they normally do? You’re not imagining it, but there is an explanation.
This is a trend that has been noted across a number of insurance companies, both for home and auto insurance. Yet again, the higher-than-usual rate of inflation is to blame. Another important factor is the increase in claims, driven by the many major weather events that have occurred in recent years.
The inevitable inflation
Just like everywhere else, insurance companies have to adjust their premium rates in line with the cost of living. It’s an unavoidable calculation. But when inflation swings from 3% to closer to 6%, that can make a big impact. Insurance companies need to stay on top of these fluctuations, because it affects their ability to cover damages in the event of claims.
One of the main elements, when it comes to home insurance, is the cost of reconstruction in case of damages. From January 2022 to January 2023, that cost increased by 4.8% in Canada. There are many different factors contributing to the increase in prices.
More expensive materials
During the COVID pandemic, the cost of renovation and construction materials increased sharply. There was a jump of 5.6% just in 2021. Fortunately, we saw prices decrease in 2022 and though it wasn’t enough to return to pre-COVID costs, it was still a nice reprieve.
The pandemic also taught us about the vulnerability of the supply chain. There were many inventory shortages, and this scarcity had a direct impact on the cost of materials.
A labour shortage
The labour shortage hasn’t spared any sector, but it has been particularly hard on the construction industry. Many experts believe that it won’t be resolved for several more years, mainly due to a wave of retirements. In this context of a shortage, it’s no surprise that salaries have gone up.
Just in 2022, there was a 9.94% salary increase for construction workers in Canada. That’s almost two times higher than in other economic sectors.
The cost of refurnishing
In most cases, claims involve not only the home, but the furnishings as well. The cost of home furnishings has soared, but electronic appliances in particular have seen the biggest hike.
The global demand for devices like computers and TVs has never stopped growing. Added to this is the difficulty of sourcing certain computer components, for which the cost has skyrocketed.
More frequent and more intense climate events
At the risk of being repetitive, climate change has had a real impact on the cost of insurance. Extreme weather events happen more often and cause more damage than they used to. Storms, tornadoes, floods, wildfires, droughts… we’ve seen a pretty impressive cocktail of weather over the past few years.
These climate phenomena cause an increase in the number of incidents, and therefore in the number of claims. 2022 was a particularly difficult year. It was the third-worst year in the history of the country for insured damages, totalling 3.1 billion dollars. We can’t predict the future, but it’s reasonable to believe, based on the past few years, that we will continue to experience more climate events and have to find ways of adapting to them.