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Insurance rate increases are a many-faced beast

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If you're frustrated by the seemingly never-ending rise in insurance rates, know that you're not alone, and it frustrates the professionals as well.

John Homer, co-owner of Causeway General Insurance, noted that many of his customers are coming into his offices frustrated and asking very similar questions."You'll come in, you'll sit down right there and say, 'You know what, my rates went up $30 a month on my home and auto. Why?' Homer said.

“And the typical answer is 'Well, that's just the industry. It's the way it is.' Most of the brokers in the industry don't understand -and I'm not targeting any other broker in town, just in general. I know because the customers are walking through the door and most brokers, we're finding, don't know how to answer the questions.”

But Homer says when people are paying potentially thousands of dollars a year for a product and service, “I don't know” just doesn't cut it as an answer.

The truth of the matter is that insurance rates are a complicated beast, but Homer says rising rates are tied to a few key things to understand about insurance companies, the economy and the increasingly more complex -and expensive- lives we live.

“The way insurance works, and specifically automobile insurance, it's regulated by FSCO {Financial Services Commission of Ontario],” he explained.

“So the way it works is in certain areas companies will get hit, maybe in Northwestern Ontario they just get decimated with claims. They look at that and say, 'we didn't make any money.' If they're not making money, they can't pay you. If they can't pay you, they don't have a business.”

In order to make up for the money the company has spent out in claims, they apply for rate increases to cover the costs. Because insurance in Ontario is broken up into different territories across the province, when a company announces a rate increase, that rate can be broken up in different ways across the territories they serve.

“They're going to take a certain amount of rate and they say, 'we're taking 10 percent in Ontario,'” Homer said.

“Well, it might be one percent here because maybe our claims are good. Or maybe it's eight percent here and in Thunder Bay they had less claims, so they're going to take three percent there.”

This also explains the differences in rates between rural and urban areas. Southern Ontario has higher population densities, so they statistically have higher incident rates, so more claims, and higher rates.

“If you're paying $1,000 for your pickup truck right now, if you moved to Southern Ontario with the same truck, the same driving record, everything else, you're probably paying fifteen to eighteen hundred there,” Homer said.

“As you should. In 10 minutes they'll see more vehicles than me and you will see in a month. I can go to Thunder Bay and see 10 vehicles in four hours on the whole drive there, right? Well, you pull out of a parking lot in Toronto and you've just passed more vehicles already than I've seen all the way to Thunder Bay.”

Insurance is a game of statistics, and the numbers are everything, said Homer.

“That's why young drivers pay way more, as they should, they're inexperienced,” he said.

“Most of them are good kids but they get into more accidents, typically. If you look at statistics, women pay less than us men do in all categories and in actuality, the statistics say women actually get into more accidents than men, but when they do they're less severe.”

The numbers seem to be the deciding factor then, no matter your age, gender or preferred cruising speed, but why are older vehicles still expensive to insure?

“What consumers don't realize is when you get hurt in an automobile accident and you spend three weeks in the hospital and you're with any company, OHIP actually sends a bill to them, and those are the costs that are a fortune,” Homer explained.

“I had a claim in 2019, it was about a $500,000 claim at the end of the day. So it's nothing for them to hand you check for $20-grand and say, 'here, write off your pickup truck or your car.'”

Another factor in why rates continue to increase lies in the nature of insurance companies themselves. Many of them are multi-national businesses who offer insurance to different countries and lifestyles, but just like with the differences between Fort Frances and Toronto, what happens elsewhere in their coverage impacts their bottom lines as badly, if not worse.

“On the property side, [rates] go up because of weather,” Homer said.

“It's not just what happens right here where we insure our houses. Intact is the biggest [insurance] company in North America, they insure all over North America. When you get like the California wildfires, well, these companies are getting decimated there and it's all about statistics.”

Homer said that the total cost of insurance claims in the Fort McMurray wildfires approached $3.9-billion in payouts, and the 2013 Calgary floods cost companies $1.9-billion, numbers which could scale up dramatically when set against the backdrop of California. Once more, companies are spending money and thus need to increase the rate at which they are bringing in more money.

One additional factor Homer said people need to consider is the lifestyle to which we are becoming more and more accustomed to living, even here in Northwestern Ontario.

“Consumer convenience is driving up the price of insurance,” he explained.

“We as consumers, we want fancier vehicles. When you were younger, everybody drove a 15 year old vehicle around, probably ran liability only because that's all we could afford. Now the younger generations are driving their parent's brand new vehicles. And then they hit a telephone pole or they get into an accident. Insurance company just had a $50,000 claim instead of a $5,000 claim.”

Part of the cost lies in just how much technology is going into our vehicles and homes where there used to be much less, or even none at all.

“They used to have a pickup truck and it had a backup camera on it,” Homer said.

“Now vehicles have backup cameras, side cameras, front cameras, sensors and that all costs money. Like on the back of a pickup truck, they've got to replace the tailgate after there's been a rear end. Well, that camera alone is $800-900, so not only over and above the tailgate and the bumper and the sensors in the bumper and everything else. I know of a Mitsubishi, it's $2,700 for the windshield because it has rain sensors in it. It automatically comes on when it starts to rain, you don't have to turn it on yourself.”

“Vehicles are much safer than they ever were, but safety comes at a cost,” he added.

Homer also noted that as more and more people finish basements and move bathrooms and appliances like washing machines to upper levels of a house, leaks that otherwise would have cost homeowners a few thousand dollars can suddenly multiply by ten times, to say nothing of the dangers of buying into an insurance plan that doesn't cover everything, or as much, as you need it to.

There's no real solution to the rise in insurance costs, save for time and the economy. Insurance works in cycles, and Homer explained that we're currently in a hard market, where claims are high and rates must therefore be higher, and as certain items become too costly for companies to insure, they'll reduce or remove coverage.

“What happens when you get into these hard markets, there's nothing we can do about it,” Homer said.

“Almost all the companies take a large increase. It really hurts consumers and don't forget, I own a brokerage but I also buy insurance. I have business insurance and I have a personal policy myself. I don't want my rates going up 20 percent, but there's not much you can do when you hit these hard markets. And they last about a year to two years and then it starts to soften.”

“Insurance brokerages are changing, the industry is changing and the reason why things are going up is because the world is changing," Homer added. "Things are more expensive and there is inflation and there's no way around it.”

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