Inflation: what it is and how it affects your insurance premiums

Canada is experiencing unprecedented inflation. Many Canadians are in debt, and as interest rates rise, they will face increasing pressure. Unfortunately, inflation also impacts other costs, such as your insurance.

In this blog post, Panda7 will detail what inflation is, how it affects your insurance, and how to mitigate its impacts to reduce the weight on your shoulders by just a little.

What is inflation?

What is the impact of inflation on insurance?

Consumers and businesses in Canada are facing pressures from all sides. This is the unfortunate reality of inflation. It's forcing many of us to focus on necessities rather than luxuries, and as the holiday season approaches, it looks like many families won't be having as festive a Christmas as they usually do. Another expense that has been affected is our insurance premiums.

Unfortunately, inflation has driven up the cost of everything, including insurance premiums. This means that even if your coverage has remained the same, the cost of your insurance has increased. This could even leave you underinsured, because the cost of materials has risen, labor costs have increased, but ultimately, your replacement cost coverage hasn't changed. We'll talk about this a little.

Inflation, COVID-19 and impact on replacement costs:

Insurance companies typically increase the replacement cost limit for your property at renewal time to keep pace with inflation. This is partly why you might see an unexpected increase in your insurance premiums at your renewal date. Unfortunately, the pandemic has created further complications, as insurance increases haven't kept up with inflation. This has meant that the replacement cost under your policy is lower than what it would actually cost to replace your entire property if it were completely destroyed.

Note that the replacement cost is not the same as the market value, and it is also different from an ordinary construction project.

Inflation could leave a huge gap in your insurance coverage. Given the rising costs of building and construction materials, it's important to ensure your replacement cost coverage accurately reflects the true cost of fully replacing or repairing your home. This could save you significant financial hardship.

There are endorsements available to protect you against inflation, and these can help fill gaps in your coverage. It's important to always discuss your insurance coverage with a broker and review it regularly to ensure you're adequately protected and to avoid coinsurance penalties.

What are co-insurance clause penalties?

Many insurance policies will contain what is called a co-insurance clause, which grants you a reduced rate in exchange for a penalty where if you do not insure your home exactly for the percentage specified in the co-insurance clause, and a claim is made, you will have to become a "co-insurer" and share the loss by significantly reducing the payment you receive.

How to protect yourself against rising insurance rates due to inflation

Inflation is inevitable, but there are ways to combat rising insurance rates due to its impact on premiums. Panda7 wants you to get the best possible rates without sacrificing critical coverage or risking a co-insurance penalty. Here are a few tips:

• Get a professional appraisal done. This ensures you have an accurate estimate of the total replacement cost of all your assets, and you won't risk a co-insurance penalty.
• Discuss the assessment process with your insurance broker, ask questions about your coverage limits, and let them explain any potential gaps in the insurance.
• Conduct a risk management analysis of your assets. Consider how you drive, how you live at home, and more. By minimizing risk, you can remain a low-risk client for your insurance company.
• Update your policy to ensure that all the values shown are correct and that you are indeed insured.
• Find out about eligible discounts. Different insurance companies will offer different discounts – there's no harm in asking questions.
• Consolidate multiple policies through a single provider. For example, if you have two different providers for tenant and auto insurance, try switching them to a single provider to get a discount.
• Increase your deductible. Deductibles represent your percentage of the allocated risk. By increasing this amount, you may qualify for lower insurance premiums.
• Start the conversation about policy and coverage updates before your renewal date and work with your broker to get their advice on the best ways to save.
• Work with a Panda7 broker to help you shop around for the best rates! We have access to the best providers in Quebec and across Canada and can offer you affordable rates.

Inflation is a tricky beast, and since we can't necessarily retreat, we must adapt. If you're concerned about how inflation is affecting your insurance premiums, don't hesitate to contact Panda7 today.