How home insurance premiums are trending

Canadian home insurance policyholders should brace for price increases this year following a nearly 8% year-over-year increase since the beginning of the year, according to internal data from rate comparison site My Choice Financial.

Canada’s home insurance landscape is poised for a significant shift, paralleling challenges and trends observed in the auto insurance sector, MyChoice said in a press release Tuesday.

The high inflation witnessed in 2023 is a precursor to the anticipated developments this year. Even though inflation is expected to return to the 2% target in 2025, high claims costs, soaring repair and replacement expenses and increased climate-related disasters have set the stage for an “inevitable price recalibration,” MyChoice said in the release.

Overall, price increases in Canada were up 7.66% from January 2023 to January 2024, MyChoice data showed. Saskatchewan and Manitoba saw the highest home insurance year-over-year increase of 12.16% and 11.31%, respectively, while Prince Edward Island and New Brunswick saw the lowest increases at 0.88% and 2.39%, respectively.

“The ripple effects of home insurance price increases will be felt unevenly across Canada, with certain provinces bracing for more substantial impacts,” MyChoice said.

These results were in line with what tech vendor Applied Systems reported last year. Canadian home insurance premiums saw a 7.5% average rate increase year-over-year, according to the 2023 Q3 Applied Rating Index released last October.

What’s causing these increases?

MyChoice said that while replacement costs are traditionally seen as a primary driver, those costs alone do not dictate the trajectory of premiums across provinces. For example, Manitoba’s anticipated 11.31% home insurance inflation rate starkly contrasts with a 1.52% decrease in replacement costs. Similarly, Saskatchewan’s 12.16% insurance rate increase compares to a modest 1.35% rise in replacement costs.

As well, the undeniable influence of climate change on the frequency and severity of natural disasters in Canada serves as a critical backdrop for the projected increases in home insurance rates, MyChoice said. Losses have been increasing over the years, and severe weather in 2023 caused more than $3.1 billion in insured damage across the country.

“Each year, the insurance industry grapples with the growing challenge of covering losses from wildfires, floods and other climate-related events, necessitating a recalibration of rates to keep pace with this escalating risk,” MyChoice said.

In the U.S., carriers may also continue to struggle to generate underwriting gains depending on catastrophe loss experience, and results will vary considerably, Fitch Ratings said in a report last month. Insured Cat losses for 2023 remained substantial despite a lack of major hurricane losses in the U.S.

“The lack of a major singular loss event leads to a higher proportion of losses retained by primary insurers versus reinsurers, resulting in significant segment losses for a number of regional and mutual insurers.”

Home insurance carriers and providers are also facing continuing challenges in projecting loss costs and insuring to value amid higher inflation and economic uncertainty, Fitch said. Providers reported an underwriting loss for the sixth time in seven years in 2023, as NatCat loss claims exceeded historical norms.

“The property/casualty industry is anticipated to post deterioration in homeowners’ statutory underwriting performance for the year, with a segment [combined ratio] projected at 109% in 2023 versus 104.4% in 2022,” Fitch said. Industry direct loss ratio also rose by five points year-over-year to 82% after the first nine months of 2023.

“Full-year 2023 statutory homeowners’ combined ratios by company will be available in the spring, but significant increases in direct loss ratios at [2023 9M] indicate significant deterioration in homeowners results for the largest mutual insurers in the segment…”

Feature image by iStock.com/Jinda Noipho