What’s impacting home insurance prices in Ontario?

Are your insurance rates climbing? You’re not alone. According to StatCan’s Consumer Price Index, homeowners’ insurance has increased 9% from April 2023 to April 2024.

The Insurance Bureau of Canada has utilized data compiled by StatCan and identified several of the main drivers that are impacting the cost of home insurance in Canada. Let’s break down some of those factors. 

It’s no secret that housing is becoming increasingly less affordable in Canada, and part of the reason for this is rising home replacement costs (or the cost to rebuild an entire house from scratch.) In addition, the cost to repair and maintain a home, or costs related to a property’s structural integrity, have gone up. It’s estimated that replacement costs have increased by 23% since January 2019 and maintenance/repair costs have increased by 18%.

But the biggest contributor? A massive increase of 61% in residential building construction costs since January 2019, reflective of the high cost of labour overhead, equipment, etc. This is because of multiple factors, including but not limited to COVID-19-induced material shortages, high demand, inflation, and talent scarcity.  

All the changes described above have resulted in higher home insurance costs, as insurers must pay out more to rebuild lost or destroyed properties. Insurers are therefore raising their rates across the board to ensure they consistently have enough of a payout pool to continue covering claims. This comes back to one of the core principles of insurance: the premiums of the many pay for the losses of the few.”

To break it down even more, a policyholder’s insurance premiums are used for several things, the main of which being to go towards a larger “sum” of money to later help pay claims. It’s a common misconception that the majority of premium is used for profit or operating costs; the larger sum of premiums are typically used to strengthen an insurance company’s payout pool. This ensures that even in the event of a catastrophic loss, their insureds are covered. So, when payouts become more expensive, insurers raise rates to offset present and future losses. 

Another reason for rising home insurance rates is the increase in frequency of natural disasters, both in the province of Ontario and throughout Canada. 2023 was the second year in a row where Canada experienced over $3 billion in insured damages due to severe weather and natural catastrophes. This is predicted to increase in the next few years, given that the five worst years for insured losses in Canada all happened within the last eight years.

This creates the same effect as the rising rebuild costs. Claims cost more, so insurance companies have no other choice but to raise rates across the board to ensure that, no matter the weather, they can afford to pay out claims. If worse comes to worst, they have reinsurance (insurance companies who insure other insurance companies) which can help them pay claims for catastrophic losses, but as reinsurance is required to step in more and more due to a high frequency and severity of losses, their rates end up rising as well. 

One of the most frustrating things about external influences raising home insurance costs is that it impacts everyone, regardless of the number of claims made. Those in “high-risk” communities are likely to see the largest increases, even if they themselves have not filed a claim.

Understanding why insurance prices are rising doesn’t make it easier on individuals whose rates are being indirectly affected. It can be extremely frustrating to see a rise in your rates, despite being as “good” a policyholder as you can be. Work with a broker to find more affordable solutions for your home insurance; they’ll be able to find you a great deal, even given the current climate.  

Insurance has always been needed, since way back when Babylon merchants would create “insurance policies” to reimburse the families of sailors who had died carrying out dangerous expeditions. It’s a stable industry, holding strong even against market volatility – but what does the future hold, given potential unexpected losses due to changing climate, tech evolution, and more?

Because so many external influences are changing the way we need to look at insurance, it’s become more imperative for consumers to find affordable options. If flood risk continues to increase, it’s possible that the government will need to step in to offer more public insurance programs to support individuals and families in vulnerable communities. Such programs are already underway, with $31.7 million invested to create a national flood insurance program. This program includes offering reinsurance for insurance companies to ensure there’s enough funds allocated to pay claims for large-scale losses due to extreme events like flooding.

It’s possible that, as other issues worsen, like wildfire and drought, other programs could be initiated to support communities that are most at-risk. It’s not certain when these programs will become a reality, but the work is already underway.  

Given the current climate and the state of rising home insurance premiums, it’s more critical than ever that homeowners are working with independent insurance brokers to find the best price for their home insurance. Here at Mitch, we work with dozens of top-rated carriers in Canada and can help you find a great solution for your insurance coverage!

Give us a call today and request a free, no-obligation home insurance quote.