Inflation: what it is & how it’s impacting your insurance premiums

Inflation. It’s probably something you’re familiar with and, if not, it’s something you’ve definitely heard before. Inflation is the thing that’s causing your grocery bill to go up, housing prices to increase, and otherwise pack a bigger punch to your wallet than you’d like.

Canada is seeing an all-time high in its inflation rates. A lot of Canadians are in debt and as interest rates increase, there will be more pressure put upon them. Unfortunately, inflation also has its impacts on other costs – like your insurance.

In this blog post, Panda7 will detail what inflation is, how it affects your insurance, and how to mitigate its impacts so as to reduce the weight on your shoulders by just a little.

What is inflation?

Inflation is the measure of how purchasing power is declining over time, or the rate of rising prices for goods and services within an economy. As of 2022, Canada’s current Inflation Rate is 6.86% (although it peaked at 8.1% from an earlier headline) - which is a significant hike when compared to the long-term average of 3.14%. Everyone in the country is starting to feel the heat of inflation, and it’s impacting a wide range of different things: our food costs, clothing costs, labour and services, and more. That’s inflation – but what’s it got to do with your insurance premiums?

How is inflation impacting insurance?

Canadian consumers and businesses alike are feeling pressure from all sides. This is the unfortunate reality of inflation. It’s forcing many of us to focus on necessities over luxury items, and with the holiday season approaching, it’s looking like a lot of families won’t have as big a Christmas as they might be used to. Another expense that’s been taking a hit is our insurance premiums.

Unfortunately, inflation has boosted the cost of everything, which includes insurance premiums. This means that even though your coverage has stayed the same, the cost of your insurance has gone up. This may even leave you underinsured, as material costs have risen, labour costs have risen, but ultimately your replacement cost coverage hasn’t changed. We’ll get into that a bit.

Inflation, COVID-19, and replacement cost ramifications:

Insurance companies will generally increase the replacement cost limit on any properties you own upon renewal time to keep in pace with inflation. This is partly why you might see an unexpected rise in your insurance premiums upon your renewal date. Unfortunately, the pandemic caused complexities where the insurance increases were not kept in pace with inflation. As it translated, this meant that the replacement cost, from an insurance POV, was less than what it would actually take to replace your property fully if it was ever destroyed entirely.

Note that replacement cost is not the same as market value, and moreover is different than a regular construction project.

Inflation could be leaving a huge gap in your insurance coverage. As housing material costs have gone up, and construction costs, it’s important to ensure that your replacement cost coverage accurately reflects the actual amount it would take to fully replace or repair your home as it stands. This could save you from significant financial hardship.

There are endorsements available to protect against inflation, and these can help to fill gaps in your coverage. It’s important to always discuss your insurance coverage with a broker and review regularly to ensure that you are adequately protected – and to prevent co-insurance penalties.

What are co-insurance clause penalties?

Many insurance policies will contain what is called a co-insurance clause, which grants you a reduced rate in exchange of a penalty where if you do not accurately insure your home for the percentage specified in the co-insurance clause, and a claim is made, you’ll have to become a “co-insurer” and share in the loss by having the payment you receive significantly reduced.

How to protect against insurance rate rises by inflation

Inflation is inevitable, but there are ways to combat the rise in our insurance rates because of inflation’s impact on our premiums. Panda7 wants you to get the best possible rates without having to sacrifice any critical coverage or risk a co-insurance penalty. Here are some of our tips:

• Get a professional appraisal done. This ensures that you have an accurate estimate of the total replacement cost of all your assets, and you won’t risk a co-insurance penalty.
• Discuss with your insurance broker about the appraisal process, ask about your coverage limits, and let them walk you through any potential insurance gaps.
• Do a risk management analysis of your assets. The way you drive, how you live at home, and more. Minimizing risk exposures can ensure you remain a low-risk client for your insurance company.
• Update your policy to ensure all values listed are accurate and you are effectively insured.
• Ask about eligible discounts. Different insurance companies will offer different discounts – it doesn’t hurt to ask around.
• Bundle multiple policies through a single provider. I.e., if you have two different providers for tenant and auto insurance, try to get them through just one provider to get a discount.
• Raise your deductible. Deductibles are your percentage of your allotted risk. By raising that amount, you qualify for lower insurance premiums.
• Start the conversation about policy and coverage updates in advance of your renewal date and work with your broker to receive their guidance on the best ways to save.
• Work with a Panda7 broker to help you shop around for the best rates! We have access to top providers in Quebec and throughout Canada and can get you affordable rates.

Inflation is a tricky beast, and since we can’t necessarily “opt out,” we have to adapt. If you are concerned about inflation impacts on your insurance premiums, don’t hesitate to get in touch with Panda7 today.