Insurance Rates: Are There Reasons to be Optimistic?
| Read time: 2 min
There seems to be a glimmer of positive news when it comes to condo insurance in Canada. We are anticipating that insurance rates will slowly begin to stabilize this year after years of large rate increases.
Experts are reporting that all things being equal and of course with no major unforeseen catastrophic events, rates in the Canadian insurance sector should see some flattening and stabilization, especially where properties are newer, well maintained and have a good history.
While insurance premiums will likely not come down and return to where they were several year ago, they should not continue to climb at the rate we’ve seen previously.
Why the previous rate increases?
Historically there has been a period of prolonged depressed rates and low deductibles across many sectors, not just the condominium insurance sector. This eventually caught up to insurance companies in a negative way resulting in years of losses as claim amounts overpowered the premiums. It’s hard to pinpoint which sector was responsible for the claims, but over the last couple years in response to these challenging times, both premiums and deductibles have risen substantially, especially .
Water damage is one of the of the bigger claims, and often it affects much more than just the individual unit. For example, in a multi-story condo, the water damage may penetrate to floors below, and even cause structural damage that needs to be repaired. Previous premiums were just not sufficient to cover these claims.
The Difference between Premiums and Rates
While often used interchangeably, the term premium is a function of the rate times the replacement cost, and is ultimately the amount that the customer will pay each year for the policy. An insurance providers rate may actually remain flat from last year, while the premium can still go up due to higher costs of replacement, driven by higher construction labour and material costs.
What does the future hold?
Unfortunately, like many things, the higher rates are likely here to stay. The industry has learned its lesson and as with the rising replacement costs, this is likely a ‘new normal’ that will be required for long term sustainability.
by Chris Esau, CFO & Controller