How has inflation affected home insurance in Canada?

In March of 2022, Canadians saw a multi-decade high inflation rate of 6.7%. While it’s no surprise that the price of housing continues to skyrocket, the price to insure a house has also increased – let’s take a look at how inflation has impacted the home insurance industry in Canada. 

How inflation rates are calculated in Canada

In Canada, the government keeps track of inflation using the Consumer Price Index (CPI), a record of pricing changes for a fixed basket of goods and services throughout time. This basket is separated into different categories – such as shelter, food, clothing, and transportation – and then weighed accordingly to give an indication of the country's overall inflation rate. 

Under the shelter category of the Consumer Price Index, the pricing changes of several property-related expenses, including homeowner’s insurance, are recorded over time. As Statistics Canada reports these numbers every month for the previous month, this article uses data from the Shelter Consumer Price Index for March 2022 (released in April 2022). 

The inflation of home insurance rates in Canada

According to March’s Consumer Price Index, the cost of home and mortgage insurance rates have increased by 8.6% when compared to the previous year. Other shelter-related expenses that have a direct impact on the pricing of home insurance have also increased. The cost to replace a home shot up by 12.9% while the cost for home maintenance and repairs increased by 1.9%. 

 

While you may have enough coverage on your policy to pay for the kitchen repair and rental accommodations after a house fire, the unexpected inflation rate of these expenses comes at the expense of your insurer. And when claims become more expensive for providers to pay out, home insurance rates start to increase. That’s because insurance companies need to make this money back to remain profitable in the long run.

Home insurance inflation by province

While home insurance in Canada went up by 8.6% overall, this number is a representation of the country as a whole. You probably saw a different outcome, depending on where you live – the table below outlines the provincial price changes for home insurance from March 2021 to March 2022. 

 

Many provinces saw a home insurance inflation rate far off from Canada’s average of 8.6%. While Newfoundland and Labrador saw the lowest increase of 4.6%, British Columbia saw the highest increase of 12.2%. Location plays a big role when insurers calculate a home’s premium, so the substantial rate increase shouldn’t be a big surprise to BC homeowners due to the aftermath of last year’s severe weather events. 

Inflation and your home replacement cost value

The impact of inflation on your home insurance isn’t just limited to a rate hike – you could also be underinsured due to the rising cost of replacing a home. As a result of various factors, such as a limited supply of building materials, pandemic-related supply chain issues, and worker shortages, the Consumer Price Index reported a 12.9% price increase for home replacements as of March 2022. 

The cost to replace your home may potentially be higher than the original value it was quoted for when you purchased the coverage. So it’s a good idea to consult your insurance broker on adjusting your home replacement limit to cover this gap. Although doing so could increase your premium, you wouldn’t want to pay the thousands of dollars out-of-pocket in the event your house is damaged while underinsured.

Home insurance endorsements to combat inflation 

Some providers also offer special policy riders that act as protection from inflation, so be sure to ask your insurer about the available options. For instance, guaranteed replacement cost coverage can ensure you’re paid out the entirety of your home’s replacement value, even if the claim exceeds the limit on your policy. And having a single limit of insurance endorsement means you can move unused coverage from one section of your policy to another. So if your policy’s home replacement limit isn't enough to cover the impact of inflation, you can add any extra contents insurance coverage to the payout too. 

If your insurer offers one, an inflation guard is another viable option to help protect yourself financially during this time. Aviva offers a built-in inflation guard clause in most of their home and cottage insurance policies, protecting customers against inflated home rebuilds within the first six months of the coverage term. 

Replacement cost vs. actual cash value

Keep in mind that there’s a difference between replacement cost and actual cash value payouts. If your policy pays out the actual cash value of claims, you’ll be receiving the depreciated value of your building or its contents, instead of the money needed to purchase a new replacement. In this case, insurers consider the age of your property which can leave you with a much smaller compensation for a home rebuild than expected. Most policies tend to pay out the replacement cost value by default for coverage on the dwelling building, but it also doesn’t hurt to double-check.

Will home insurance rates continue to increase?

While causes such as supply chain issues and labour shortages continue to make repair and replacements more expensive for home insurance companies, you can expect policy premiums to continue to rise. Also, keep in mind that this isn’t the only factor contributing to the inflation of home insurance – climate change is another big one. Even if you don’t live in an area that has been impacted extensively, home insurers can still raise prices across the country to make up the difference. 

READ: Climate change and its effect on your home insurance

How to lower your home insurance rate

The good news, however, is that the pricing increases for home insurance won’t be the same across all providers. While one company may face a large number of expensive claims during this time, causing a substantial rate hike for its customers, there may still be others that don't experience the impact of inflation as hard. That’s why it’s important to shop around, compare home insurance quotes, and look for the best rate possible when your policy is up for renewal.  

A few other ways you combat the inflation of your home insurance rate include:

• Bundling your home and auto insurance
• Consenting to a soft credit check
• Installing a monitored alarm system 
• Keeping a clean home insurance claims history 

READ: How to save on home insurance in Canada

The bottom line

While there’s no say as to when inflation rates in Canada will go back to normal, now is the time to take the necessary measures in reducing your expenses. In under five minutes, you can compare home insurance quotes (and car insurance quotes) with us, and select the provider that suits all your coverage needs for the cheapest price possible. 

Also read

Inflation in Canada – what it means for your auto insurance

How to combat inflation in Canada

The impact of COVID-19 on Canadian insurance shopping behaviour