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Top Five Motives Auto Insurance Premiums Have Increased In Canada

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Whether you’re in Vancouver or Halifax, the increasing cost of auto insurance has likely hit your radar in recent years. This isn’t just a Canadian issue; our neighbors to the south are grappling with the same problem. To understand why, it’s crucial to delve into the key factors driving these hikes.

Car Thefts

The rampant car theft problem in Canada is hitting our wallets hard. According to the latest data from the Insurance Bureau of Canada (IBC), the cost of insurance claims for stolen cars in Canada skyrocketed to a staggering $1 billion in 2023. This issue is particularly severe in Ontario, where car theft claims expenses surged by 524% between 2018 and 2023, crossing the $1 billion mark for the first time in history.

Considering these figures, car theft claims in Canada amounted to $556 million annually between 2018 and 2021.

Claims expenses affect dividends because insurers cost dividends depending, in part, on the level of threat linked to a car. Cars with increased threats of theft will naturally be more costly to insure. The Insurance Bureau of Canada calculates that only car theft adds about $130 to the average yearly dividend in Ontario.

Lingering Inflation And Supply Chain Problems

While total inflation in Canada has been reducing in 2024, the story is different regarding the expenses directly affecting car insurance assertions.

At the peak of Canada’s inflation problems, the Consumer Price Index, which measures the average modification over time in the costs reimbursed by clients for their goods and services, increased to 8.1 percent in 2022.

Hence, based on Statistics Canada information, insurers observed auto insurance assertions expenses much higher than the inflation rate. For instance, in the last three years, the costs for new passenger cars rose by 12.1 percent, whereas the expenses for car parts and replacement rose by 18 percent.

Suppliers of car parts, collision repair hubs, and dealers are experiencing supply chain difficulties and technician depletion. While the case has been enhanced, inflationary pressures continue contributing to the expense of physical harm claims and the time needed to fix a destroyed car. Insurers must set dividends on forward-seeking grounds, considering the anticipated cost of protecting future auto insurance claims.

Legal Expenses

Personal auto insurance systems in Canadian provinces function under full or restricted tort laws. These laws allow a person wounded in an accident to sue the driver who is at fault. Insurers must record the expected expenses for these lawsuits when negotiating insurance premiums.

In many cases, individuals involved in a collision may need to hire a lawyer, which should be the exception, not the norm. Unfortunately, aggressive marketing by personal injury lawyers often encourages frivolous claims, driving up costs for everyone. As a result, legal fees can far exceed the amount awarded in a cash settlement for pain and suffering, further inflating insurance premiums.

Regulatory Intervention

Regional authorities specify the content of auto insurance policies, how claims are taken care of, and how complaints are handled. Administrative and regulatory intervention in the auto insurance system can severely affect clients. For instance, in Alberta, some administrative rate interventions that started in 2016 generated expense pressures in the system and made the market unenticing for most insurers. In 2023, some insurance firms in Canada forfeited funds, and one was out of the market. Most insurers have decreased the number of policies they market, making the requirements more strict.

Sophistication Of Newer Vehicles

Insurance dividends can also be influenced by new vehicle technology. More developed car technology can make fixing more costly and elevate claims expenses. Insurance companies may increase rates to satisfy the higher vehicle repair costs after collisions.

While new vehicles come with significant safety devices such as collision preparation systems or blind spot monitoring, this technology demands expensive sensors. When destroyed in an accident, a bumper with these sensors is more costly to fix than a typical bumper without these in-built protection devices.

What Can Be Done To Reduce Your Dividends

While the expense of auto insurance has increased, you can take these steps to reduce your dividend. For instance, you can elevate your deductible, which is the sum you accept to reimburse towards the expense of repairs if you make a claim, or take advantage of insurers’ secured driving schemes like usage-based insurance. Bundling policies, such as having car and home insurance with the same firm, can result in premium savings. Look around for the best rate before making a purchase.