Why Have Canadian Home Insurance Rates Increased in 2022

Why Have Canadian Home Insurance Rates Increased in 2022?

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Between increased inflation and several other factors, 2022 saw increasing Canadian home insurance rates.

According to reporting by RatesDotCa, we Canadian homeowners have seen our home insurance rates increase by an average of 5% through 2022. Last year, for homeowners in Ontario, their home insurance cost about $1,342. This year? The 5% increase meant an increase of almost $70 more – $1,409 for the same coverage in 2022.

There are a variety of reasons for the increases in homeowners’ insurance coverage this year. They include renovations and rebuilds, of course. But there are also the impacts of climate change and, not surprisingly, inflation.

How inflation impacts your home insurance rates

Simply put, you can’t talk about any household expenses, from food to gas to insurance, without addressing the impacts of inflation. Let’s review how we calculate the inflation rate. Our government uses what is referred to as a monthly consumer price index (CPI). This index is a record of any changes in prices from a fixed collection of goods and services. Everything in the collection is categorized – food, clothing, transportation, shelter, furniture, and recreation. Each group gets weighed accordingly, and that determines the overall rate of inflation for our country.

Of course, Canadians aren’t alone in feeling the pinch of inflation. Many of the world’s economies have experienced the same rapid climb right alongside us. Inflation hit a high of 8.1% in June of 2022. Fortunately, it came down gradually over the months that followed. Despite the slight drop since earlier this past summer, Statistics Canada (StatsCan) reported that Canadians experienced the fastest increase in the annual cost in almost four decades. And, by and large, it’s consumers that shoulder that burden. We feel it every day, paying more for the things we need to live – groceries, gasoline, housing, and more. That includes the increased cost of building materials.

Home improvements – higher home insurance rates

With so many of us staying at home for the years of the pandemic, we demanded that our houses accommodate the activities in our lives – work, school, recreation, and more. As a result, we all booked contractors to modify and recreate our homes to better meet our increased demands. Consequently, the costs of home construction and renovation had a big impact on the cost of our home insurance.

And as the cost of building materials went up, so did the costs to make changes to our homes and, ultimately, the cost of insuring them. Early in the summer of 2022, the CPI recorded an increase in home and mortgage insurance by an average of 4.9%. Expenses that directly impact insurance premiums increased dramatically. For instance, the cost of home replacement increased by 10%. Property maintenance and repairs increased by 7.2%. Rental properties, protected by policies when a home is suddenly uninhabitable due to an insured peril, also went up by 4.3%.

Home renovations

When you renovate your home, it increases the cost required to rebuild in the event of a claim, which drives up your premiums. In 2021, according to StatsCan, we Canadians applied for almost 213,000 residential alteration and improvements permits. Maybe you finished a basement. Someone else built a beautiful addition. Any upgrade increases the replacement cost of your house. As a result, your premiums increase along with your potential replacement costs.

Rebuilding your home

Over the past few years, we’ve experienced changes in Canadian consumer purchasing behaviour and various unexpected pandemic-induced supply chain issues. This combination of factors created a surge in material costs, primarily lumber, which ultimately increased the cost of home insurance coverage.

Rebuilds with insurance money are typically more expensive than those incurred through private contractors. Insurers require more rapid timelines for rebuilding to get homeowners safely back home. Keep in mind that the insurer will likely also cover associated costs for a homeowner forced from their home for the duration of the rebuild.

In addition to factors like where you live and the age of your home, the inflationary costs of materials will also impact what you pay for your insurance premiums.

Impacts of climate change

Many Canadians, including British Columbians, have seen or experienced first-hand the effects of climate change in the form of extreme weather. These catastrophic experiences have resulted in millions of dollars in losses and insured damages.  It also means an increase in insurance premiums. There have been several devastating weather events in Canada. One frightening example included the extreme flooding in BC last fall, with costs estimated at more than $450 million in insured losses.

Whether it’s flooding, wildfires, hail, tornadoes, or the hurricane that battered Newfoundland this past fall, we can expect extreme weather events to only continue. As they result in more and more insured losses, leading to the inevitability that home insurance rates will only increase.

Can you do anything about the increases?

Unfortunately, it’s impossible to predict increases in home insurance premiums and how much they might be. Given the different factors that influence how much insurance costs, increases can vary depending on where you live.

So, you can’t control increasing home insurance rates. But there are ways you can try to minimize some of the costs:

  • Higher deductibles: If you choose a higher deductible – what you’re responsible for paying if you make a claim for an insurable incident – you can often reduce the premiums you pay.
  • Discounts: Insurers may offer discounts. These savings can help reduce what you pay in premiums. Some examples of possible discounts –fire alarms correctly installed, security systems, and reductions if you are free of any claims.
  • Soft credit checks: If you have good credit, a soft credit check by the insurance company can possibly lower your premium. The check is simply an inquiry and doesn’t influence your credit score.
  • Bundling: To save money, consider grouping insurance purchases – home and auto, for example – with the same provider, if possible.
  • Membership or employment discounts: Sometimes, businesses or professional organizations can offer group insurance rates for employees and members (i.e. alumni of a university, union members).

TIP: Ask your broker about any possible discounts or ways you might lower your premium. Always review your homeowner’s policy every year and check for any changes and inform your broker if you upgrade your home.

Do you have other questions about your home insurance? Talk to us!