Inflation in Canada – what it means for your auto insurance

From grocery bills to gas prices, the impact of inflation has been hitting Canadians across the country hard. February 2022 marked a multi-decade high as the government reported a consumer price increase of 5.7% in comparison to last year. So what does this mean for your auto insurance rate?

How inflation rates are calculated in Canada

To understand the impact of inflation on your car insurance premium, you’ll first need to understand how inflation is really measured. In Canada, the government uses the Consumer Price Index (CPI) to track the pricing changes of a fixed basket of goods and services over time. This basket includes different categories, such as food, shelter, clothing, and transportation, to give an overall indication of the country’s inflation rate. 

Under the transportation category, the CPI tracks the pricing changes for several goods and services, including vehicles, public transit, gas, parking fees, and auto insurance. Every month, Statistics Canada releases the data for the previous month – this article uses the data from the February 2022 Transportation Consumer Price Index, updated in March of this year. 

Have auto insurance rates increased due to inflation?

So have auto insurance rates increased due to inflation? According to the Consumer Price Index, insurance premiums for passenger vehicles in February have actually decreased by a full 6.5% when compared to the previous year. But this number is representative of Canada as a whole – let’s take a closer look at the data for the private insurance provinces in the table below. 

 

Alberta and Nova Scotia were the only private insurance provinces that saw inflated car premiums when comparing February 2022 to February 2021, while all others saw slightly cheaper premiums – but nowhere near Canada’s overall decrease of 6.5%. 

That’s because this number was largely skewed by rate deductions in two public insurance provinces: Saskatchewan (-24.2%) and British Columbia (-26.8%). In these provinces, private car insurance providers don’t compete for customers; instead, auto coverage is offered by one sole provider (SGI or ICBC). And the substantial rate decrease for British Columbians was a direct result of ICBC’s introduction of Enhanced Care coverage – as of May 2021, drivers were promised an average decrease of 20% on their BC car insurance premiums.

So although auto insurance rates in Canada decreased in price by 6.5% year over year as of February, you probably faced a different outcome depending on where you live. 

Will inflation impact car insurance in the future?

Yes, it’s only a matter of time before insurance rates in Canada increase as a result of inflation. Aside from your individualized factors, such as your age and driving history, car insurers also look at overall costs within the auto industry to calculate a policy’s premium. A rise in the cost of vehicle parts and vehicles themselves leads to a more expensive bill when a claim is made – and insurers need to make this money back somewhere. 

According to the Consumer Price Index, the price to purchase or lease a vehicle; the price to rent a car; and the price of vehicle parts, maintenance, and repairs have all been inflated within the past year. The table below outlines the percentage increase of these expenses from February 2021 to February 2022 within Canada. 

 

So although there wasn’t an overall price increase reported for car insurance in February, the increase in other auto-related expenses will cause insurance premiums to inflate. If your new car is totalled in an accident, your insurer will now need to spend more to cover the replacement cost of the vehicle. And if your windshield repair is taking longer than expected due to supply chain issues, the bill will not only be higher for your provider, but you may also make a claim to cover the (highly inflated) cost of a rental car (provided you have loss of use coverage). 

As car insurance companies continue to face more and more expensive claims from customers due to these external factors, you can expect to see higher policy premiums in the future. 

Keep in mind, however, that inflation might not be the only reason your rate could increase. The impact of COVID-19 on the insurance industry is another factor that may lead to a higher insurance bill – if you received a discount at the start of the pandemic due to reduced driving, you’ll probably be paying more once you begin commuting again. 

When will you see car insurance rates increase?

The good news is that insurers aren’t able to increase your rates to adjust for inflation mid-policy. When you purchase your car insurance, the premium is set for the entire term which in most cases, is one whole year. 

However, this does mean you could potentially face a rate increase due to inflation when your car policy is up for renewal. To protect yourself from inflation, it’s important to shop around and compare car insurance quotes from multiple providers instead of automatically renewing your coverage with your current insurer. While your current provider might have been hit with numerous expensive claims throughout the year, causing a rate increase for all its policyholders, there could be other viable insurers that haven’t been hit nearly as hard and looking for your business. 

READ: The hidden costs of your car insurance renewal

The bottom line

According to the Insurance Bureau of Canada, “Reforming auto insurance and providing consumers with choice is one way governments can help keep the cost of auto insurance affordable as the cost of everything else increases.” 

So as prices continue to increase, be sure to compare all your options and save on car insurance with us – by taking five minutes out of your day, you could save hundreds of dollars throughout the year. 

Also read

How to combat inflation in Canada

How stolen vehicle trends can impact your auto insurance

The average cost of car insurance in Canada by age