How Inflation Impacts Your Insurance

March 13, 2023

The insurance industry is not immune to inflation but it's also no stranger to dealing with inflationary pressures.

Canada's 31-year high inflation rate of 6.7% in March has many people worried about inflation and its effects. Inflationary pressures in the insurance industry are even higher than the broader economy. According to Insurance Business Canada, Homeowners’ replacement costs are running at 13% higher than pre-COVID. And on the automobile side, new vehicle prices are up over 7%, used vehicles are up 34%, and rentals are up 24%.

Commercial Insurance has been in what's known as a "hard market" - defined by reduced insurer capacity and higher premiums - for years. The fear with these inflationary pressures is that they will prolong and exacerbate this cycle.

How will this affect business insurance premiums?

Commercial Property is highly exposed to increasing costs due to inflation. Property insurance has suffered from a combination of inflated repair and rebuild costs, as well as construction workers shortages; workers in the construction industry have been fighting for higher pay to meet the inflationary pressures on their living expenses, even initiating job action. The Carpenters' District Council of Ontario began a province-wide strike on Monday after 75 per cent of its members voted to reject a contract proposalSupply chain issues related to essential building materials has influenced prices to skyrocket. According to Statistics Canada the cost of construction for residential buildings in the first quarter of 2022 has increased 25 per cent compared to the same time last year. For non-residential buildings, the year-over-year increase in costs has been 13 per cent in Q1 2022.

Insurers are experiencing some poor underwriting results from elevated property loss costs. You should prepare for a potential increase in premium expenses and other coverage restrictions. Be sure to reevaluate your polices for underinsurance concerns.

What should business owners due to minimize the risk of inflation?

Inflation has the potential to heighten your premium costs, influence coverage restrictions and promote underinsurance concerns. You can minimize these complications by implementing the following steps:

1. Start Early

Schedule in advance with your trusted insurance broker to strategize for the upcoming renewal process. They can help you understand current inflation trends and how they affect your policy. Starting early will also provide you time to prepare for potential policy changes. While inflation remains volatile, you may also want to schedule quarterly broker meetings to adjust coverages to current market conditions.

2. Review Coverage Terms & Conditions

Your broker should assist with reviewing your current coverage terms and conditions, especially any exclusions. Verify your policy limits and potential sub limits are adequate to cover a loss. Should any underinsurance issues be identified, you can ensure proper protection by updating coverages and purchasing policy endorsements.

3. Reassess Property Valuations

Verify your commercial property insurance coverage reflects correct property valuations. Confirm your current policy will cover recovery expenses after a loss in light of current property repair and rebuilding cost inflations. Outdated valuations could leave you underinsured if expenses exceed your existing coverage limits.

4. Ensure Adequate Risk Management Practices

Risk management measures can save your organization from unnecessary exposures. Your risk advisor can verify you have effective risk management measures in place to prevent potential claims. Your broker can also help you qualify for premium discounts or prevent increases with risk mitigation documentation for underwriters.

We're here to help

As the economy continues to suffer from historic inflation, you’re not in this alone. We’re here to help you not only understand how inflation affects your insurance but also suggest risk management strategies to lessen your policy’s impact. To learn more about how the commercial insurance market is adjusting to current inflation trends, connect with one of our brokers to review your policy.

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