Why Insurance Rates Have Gone Up Recently

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Insurance Broker, Filip Ambroziak has noticed many large increase in auto and home insurance premiums this year. He says there is a reason for it. He shares his 3 main reasons why insurance rates have gone up. Filip Ambroziak is one of Mississauga's top rated insurance brokers. Ambroziak has been nominated as a top 10 insurance broker for all of Canada in 2018. He holds both his RIBO and LLQP.

Right now, we are in a time where interest rates are extremely low. This may be great for the homeowners who can save on their mortgage payments, but for cash heavy businesses such as insurance companies, it is not.

As an insurance broker, one of the most common questions Filip Ambroziak receives is “why have auto/home insurance rates gone up so much?”. This is a fair question especially that a majority of clients asking are great drivers with great records.

So why have insurance rates gone up and seem to go up every year?

The answer to this question will be based on client experiences, insurance companies and other insurance professionals which Filip works with on a daily basis. Filip will also only be talking about the general insurance landscape. Individual client rate increases could be a combination of personal rating factors and an increase in the base rates.

1. Fraud

This is something the public already knows. Sadly, it will continue being the reason for insurance increases for the foreseeable future.

There are two types of fraud: soft fraud and hard fraud.

Soft fraud are more of an exaggeration of what actually happened. Lets say a home burned down, and as the client is listing their personal items to the insurance company, it is mentioned that the client had a 55″ flat screen TV when in reality, it was a 43″ TV. The claim still occurred but the client exaggerated the damages.

Hard fraud is 100% false in nature. An example would be a group of people plan a situation where a vehicle rear-ends them and they all claim accident benefits.

Both types of fraud are one of the main reasons insurance has been increasing every year. In the Greater Toronto Areas, there are fraud rings who defraud the insurance companies regularly. Until fraud is put to a stop, insurance rates will continue to increase.

2. Low Interest Rates

Right now, we are in a time where interest rates are extremely low. This may be great for the homeowners who can save on their mortgage payments, but for cash heavy businesses such as insurance companies, it is not.

Insurance companies have two primary ways they make money: underwriting profits and interest.

An underwriting profit occurs when the insurance companies pay out less in claims then they received as premium. If a company pays out more in claims than they received in premiums, it is known as an underwriting loss. The last several years, most insurance companies have been operating at an underwriting loss.

The second way an insurance company makes money is through interest collected. Generally, the companies invest their money into safe investments that generate safe returns. Due to the extremely low interest rates, insurance companies were not able to offset their underwriting losses with good investment returns.

3. Claims Frequency + Repair Costs

Claim frequency and claim costs have been on the rise in Ontario, not just fraudulent claims. Since the GTA is welcoming a large amount of new residents every year, this puts more cars on our roads. With higher density comes more claims.

If a customer has a small fender bender on a 2016+ vehicle, the cost to repair that vehicle has become pricey. These new vehicles are equipped with expensive safety features, sensors, cameras and other fancy technology which in many cases requires special tools to repair. In one case, a small windshield claim costs upwards of $1,600 due to the display technology in the windshield. This was a Honda Accord.

This also applies to home policies. Labor, materials and new by-laws make rebuilding homes much more expensive than a decade ago. With all the recent storms and natural disasters, it makes sense that insurance companies are increasing their rates.

Filip Ambroziak's Prediction:

2018-2020 have been the perfect storm for a major increase in insurance rates. With low interest rates, high claim frequency and repair cost and fraud, insurance premiums have no where to go but up.

Filip predicts that there will be multiple increases in 2021 and for the next few years after that. The GTA is currently a very attractive place to move to and immigration is not slowing down post COVID.

Another note to keep in mind is that the insurance industry in Canada is currently in a “Hard Market”. Insurance companies not only are increasing their rates, but tightening their underwriting rules. Ambroziak predicts that we will be in a hard market for another 12-18 months.

If you are ever looking for an insurance quote in Ontario, feel free to reach out to Filip Ambroziak at (416) 803-2113 or at https://www.filipambroziakinsurance.com/.

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Filip Ambroziak
Filip Ambroziak
+1 (416) 803-2113
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since: 11/2014
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