What's impacting home insurance costs in Canada?

IBC cites certain drivers that continue to affect prices

What's impacting home insurance costs in Canada?


By Terry Gangcuangco

The Insurance Bureau of Canada (IBC), based on data compiled by Statistics Canada and the IBC, has pointed to the drivers that continue to impact home insurance costs in the country.

“The data reveals that a series of contributing factors – namely, the growing cost of rebuilding and repairing damaged property and the increasing frequency and severity of natural catastrophes – are driving up the cost of home insurance,” IBC policy development manager Cecilia Omole said.

“Home replacement costs (costs to rebuild an entire house from the ground up) have increased 23% since January 2019. Homeowners’ maintenance and repair costs (costs related to maintaining the structural integrity of a home) have increased by 18%. Both have exceeded the rate of core inflation over that same period.

“Perhaps most significantly, residential building construction costs (a contractor's price reflecting the value of all materials, labour, equipment, overhead, and profit to construct a new building) have soared by 61% since January 2019, a staggering increase with ripple effects that go well beyond home insurance.”

Omole cited the above as among the ongoing contributors to the rise in insurance costs even as overall inflation pressures are said to be easing.

In addition, natural catastrophes that are becoming more severe and frequent – both locally and globally – continue to have an impact as well.

Omole noted: “In 2023, for the second year in a row, Canada exceeded $3 billion in insured damage from natural catastrophes and severe weather events. Nationally, insured damage from severe weather events reached over $3.4 billion in 2023. Adjusted for inflation, five of the worst years for insured losses in Canadian history have occurred within the last eight years (2016, 2020, 2021, 2022, and 2023).

“The bulk of natural catastrophe-related claims and insured losses (approximately 60%) resulted from home insurance claims. Prior to 2016, which was an exceptionally challenging year for wildfires in Western Canada, the average annual losses for personal property due to natural catastrophes were $990 million, and the annual average number of claims was around 57,000.

“Those figures were shattered between 2017 and 2023, as annual average personal property losses due to natural catastrophes were approximately $1.55 billion and 89,000 claims. That represents a 56% increase in annual average losses.”

She went on to highlight that even severe weather events outside Canada “add another layer of cost pressures” to local insurance.

“Insurers across the country use global reinsurers (insurance providers for insurers) to help limit their exposure to financial risk from major events,” Omole explained. “However, due to escalating losses from catastrophic events worldwide, some reinsurers have changed the way they distribute the risks they take on.

“It appears that many have reduced capacity and increased the cost of reinsurance in those regions where catastrophic risk is highest including California, Florida, and, unfortunately, some regions of Canada. As a result, rising reinsurance costs have compounded the inflationary pressures in Canada.”

Meanwhile, according to Statistics Canada figures, there remains significant demand for trades helpers and labourers who assist at construction sites.

“This is important, especially when it comes to the added costs associated with the amount of time needed to complete home repairs and rebuilds when insurable losses occur,” Omole asserted. “Unfortunately, the situation may only worsen.

“According to a March 2024 report by BuildForce Canada, between 25,000 and 28,000 workers in the construction industry are expected to retire every year until 2033. Construction demands over the same period will require the labour force to expand by 88,400 workers. BuildForce Canada expects the industry will likely fall short of demand by 85,500 workers over the next decade.”

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