Inflation Easing Does Not Equal Lower Auto Rates

As of February of 2023, in Canada, the current annual inflation rate is 5.2% with a TEForecast of 4.1% for March of 2023. This is a pretty significant decrease from 2022’s highs, where June saw a spike of 8.1%. Rates came down to 7-6% for the later months of 2022, before falling into the high 5’s for the beginning of 2023. Now, inflation is projected to fall below 5%.

Paying for car insurance is a responsibility, and many factors affect the cost of that car insurance. Car insurance premiums have been steadily on the rise, and that is in part due to high inflation rates. But, as inflation starts to cool, many insured are wondering: will easing inflation rates result in lower car insurance premiums?

Car insurance rates may still be high as a lagging effect of high inflation, but plenty of other factors will be affecting your rates in addition to inflation. Even with easing inflation, car insurance rates may not significantly decrease as we’d hope they might. In this article, we’ll dig in further to the topic of inflation and its affects on your car insurance bill.

What factors affect insurance rates – other than inflation?

One of the most common questions any insurance brokerage gets asked is, “why are my insurance rates going up?” Excalibur has covered external global factors causing insurance rates country-wide to increase, particularly factors affecting the insurance sphere and creating a phenomena known as a hard market. A “hard market” occurs when fluctuating market trends cause market instability and insurance carriers experience consistently higher claim payouts (due to natural weather disasters, instances of theft, fraud, and higher replacement costs for expensive property.)

Inflation is 100% a factor that can impact insurance rates, but because it isn’t the only factor, it alone won’t cause auto insurance rates to decrease. Inflation is just one factor in a huge list of variables that contribute to your car insurance costs.

For example, the following factors can impact your car insurance rates –

• Frequency of natural disasters. Natural disasters in increasing frequency and severity are causing more property losses across the country. This means more insured losses, and more claims payouts. Insurance companies raise rates to combat the overall spike.
• Higher replacement costs. As car tech becomes increasingly complex, so does the cost to manufacture it – and therefore replace it. Unfortunately, this just means any car damaged in an accident will cost more to repair and therefore insurance coverage must be higher – thus costing the insured more.
• Insurance fraud. Even if you yourself aren’t committing acts of insurance fraud, an increase in insurance fraud globally may cause insurance companies to pay out more for fraudulent or exaggerated claims and therefore need to raise premiums to combat higher payouts.
• Riskier driving. In 2020, when COVID hit, we saw less drivers on the road and less accidents overall, and particularly less fatal accidents. The fatality rate in Canada for driving accidents was 0.77 in 2018, and went down to 0.68 in 2020. However, as we start to drive again, unfortunately accident rates have began to increase again – and perhaps even moreso, as it seems some of us have forgotten to drive during the extended period of closures. More risky driving equals more accidents equals more claim payouts equals – you guessed it – higher rates. In Ontario, some of the biggest causes of risky or poor driving has been due to drunk driving or distracted driving. Drunk driving constitutes 22% of the total fatalities in Ontario and distracted driving constitutes 17% of the total fatalities.

As you can see, much more than inflation contributes to our insurance costs – and this isn’t even considering individual demographics, like age, gender, driving record, insurance history, and so on. With so much playing into our total costs, it makes sense as to why lower inflation rates may not have a colossal impact on our insurance rates overall.

Will there be potential insurance rate decreases in the future?

Car insurance rates are considered “reactionary.” High inflation rates came over the last two years as a result of significant labour and parts shortages, which inevitably also caused higher costs for paying insurance claims on insurance-related expenses. With rates easing, we could start to see some rate decreases, but it could take quite a bit of time for that to happen.

In short: likely there will be premium decreases, but not for some time. It takes a while for the market to “settle,” and perhaps even longer for insurers to lower their guard and file for rate decreases.

How do you keep your car insurance rates low?

Managing your insurance costs is a tricky science, and one best done in the company of an experienced insurance broker. You may not be able to control inflation, but you can do any of the following to potentially qualify for lower car insurance rates –

• Go paperless. Some insurance companies many offer you a discount incentive to receive your policy documents virtually rather than physically.
• Look for discounts or ask your representative. Every carrier offers different options.
• Consider enrolling in a defensive driving course to sharpen your skills and even qualify for an educated-driver discount.
• Keep a clean record and avoid risky driving situations. A cleaner record boasts better for your costs than if you have been involved in multiple at-fault accidents or received multiple moving violations in the last 3-5 years.
• If shopping around for a vehicle, research vehicles with higher safety ratings and low theft likelihood for lower rates.
• Shop around with the help of an Excalibur Insurance Defender.

Ultimately, shopping around is one of the best ways to get lower insurance. With the help of a broker, you can find top carriers who will give you the best bang for your buck.

Key takeaways – inflation decreases, insurance impacts, & more

TLDR; inflation decreases may result in lower car insurance bills, but not for some time. Concurrently, there may not be significant decreases for certain insured at all, due to the huge number of various factors that come together to help price car insurance. Inflation is one of those factors but, at the same time, it is just one. A lot of other factors will play a significant role as well.

Keeping car insurance bills in check is what we do best here at Excalibur Insurance. Give us a call to discuss lower car insurance rates or get a free quote and see your options.