From fuelling your car to feeding your family, no one is immune to the increases in the cost of living seen recently. Everything seems to be getting more expensive! With a potential recession on the horizon, Canadians are feeling the effects of rising inflation. But will it impact your monthly insurance bill in the new year? Let’s take a look at the home and auto insurance predictions for 2024, as well as other living expenses.
Not surprisingly, 2023 marked an interesting year for Canadians across the country. As another inflation-fighting year wraps up, the Bank of Canada’s quest to restore price stability is expected to begin drawing to a close in 2024. The central bank’s hefty rate hikes are allowing it to hold its key interest rate steady at five percent over the last few months. Higher borrowing costs caused a pullback in business investment and consumer spending, making way for lower inflation. Bankers are battling to bring Canada’s 3.8% inflation rate down to their 2% target for the coming year.
For workers, a weaker economy translates to fewer job opportunities available and potentially slower wage growth in the new year. The unemployment rate has crept up to 5.8 percent in November, and will likely continue rising in 2024. Desjardins Financial Group is forecasting the unemployment rate will peak at 7.0 percent in the third quarter of 2024.
Cost of living – Grocery prices
Everyone is talking about the cost of living these days, particularly at the grocery stores. The researchers behind Canada’s Food Price Report 2024 insist that some relief is coming. The report forecasts that overall food prices will increase, but by less than last year. Food prices will likely rise by 2.5% to 4.5% (in comparison to 5%-7% in 2023). The average family of four will spend around $16,297.20 on food in 2024, an increase of up to $701.79 from last year. Andrea Rankin, Research Associate at the Agri-Food Analytics Lab at Dalhousie University, says the report “offers some good news.” “Canadians can anticipate possibly calmer food prices through the coming year,” she says. Restoring price stability will be welcome news for Canadians, particularly lower-income households who have been the hardest hit by climbing grocery bills and rents.
Home and Auto Insurance Outlook for 2024
Thanks to economic instability due to inflation and geopolitical conflict, Canadian P&C insurers are predicting that 2024 can look much like 2023, in terms of lingering hard-market conditions. Banks will strive to bring Canada’s inflation rate down to their 2% target in 2024. Insurers, conversely, are seeing 30% inflation rates on auto pricing, replacement parts, and building supplies. [This] is driving increasing claim costs, says Heather Masterson, President and CEO of Travellers Canada. Let’s take a look at home and car insurance predictions, and how they may be affected come the new year:
1. Home insurance forecast
2023 marked an interesting year for homeowners across the country. Headlines in the news weren’t just limited to the most recent mortgage rate announcement. Home insurance coverages and costs also garnered much attention. In their yearly report, ratehub.ca’s insurance experts made three home insurance predictions for 2024:
- Home insurance is not expected to get any cheaper for most Canadians in 2024. This insurance prediction is based on various market factors, such as high claims costs, high repair and replacement costs, climate change, and natural disaster incidents.
- More homeowners may be finding it difficult to obtain proper coverage against overland flooding. While the Canadian government does have plans for a National Flood Program, it isn’t expected to launch until the spring of 2025.
- Mortgage renewals: According to Louis Gagnon, President and CEO of Intact Insurance, “I would say in this year, not many people have renewed their mortgages at 7%,” Gagnon observed. “They’re still paying 2% or 2.5% on their [fixed rate] mortgage. [The change] is coming in 2024, 2025, and 2026.” Variable-rate mortgage holders were the first to feel the pinch of rate hikes. But as time passes, that squeeze is slowly spreading to other homeowners, as well. More Canadians are expected to renew their mortgages in 2024 at higher interest rates, forcing them to cut back on expenses elsewhere.
According to researchers at the Bank of Canada, about 45 percent of mortgages that were taken out before the central bank started raising rates have seen an increase in their payments by the end of November.
Researchers postulate nearly all remaining mortgage holders in this group will renew by the end of 2026, likely meaning higher payments for them, as well. This wave of mortgage renewals is expected to have a chilling effect on the economy. Forecasts suggest economic growth will be weak in 2024 before picking up again toward the end of the year. Desjardins is projecting a mild recession in the first half of the year, while other forecasters expect the economy to keep its head slightly above water.
2. Auto insurance forecast
In 2023, Canadian auto insurance rates weren’t spared the effects of inflation. Unfortunately, auto insurance premiums are set to continue rising through 2024. Let’s delve into the reasons why Canadians will continue to see their monthly car insurance bill go up in the new year:
Auto theft is one of the many threats to your vehicle. According to a 2023 report from the Canadian Finance and Leasing Association, on average a car is stolen every six minutes in Canada. Équité Association reports that the insurance industry lost more than $1 billion in 2022 in vehicle theft claims. In the last year, Ontario and Quebec have both seen about a 50% increase in auto thefts. According to Matt Hands, VP of Insurance at Ratehub.ca, “Increases in comprehensive claims, such as auto theft, each year can negatively affect both insurance companies and drivers, making it overall difficult for consumers to have choices and options for the best rates.”
Some insurance companies have taken matters into their own hands, introducing incentives and penalties to combat the effects of stolen vehicles on the industry. Aviva Insurance, for instance, offers free installations for Tag – an anti-theft tracking system – to select customers in Ontario. Plus, the insurer introduced a rate reduction of 20% on comprehensive coverage for all vehicles equipped with the device.
Auto insurance fraud
Vehicle theft isn’t the only crime contributing to the rise in your premium. Auto insurance fraud is another ongoing issue. The negative impact it has been having on all of us is expected to continue. In an earlier report by the Financial Services Regulatory Authority of Ontario, over 40% of respondents from the province are worried they will fall victim to auto insurance fraud. While fraud can consist of many different acts, some of the more common examples include:
- Staged car accidents
- Inflated repair claims
- Insurance agent scams
According to government estimates, auto insurance fraud (including theft) costs Ontarians up to $1.6 billion yearly. These costs include:
- Fixing or replacing stolen vehicles
- Increases in health care and treatment costs
- Investigative and judicial costs that link to detecting and penalizing fraudsters and thieves
To learn more about how to protect your vehicle or ways auto theft is impacting car insurance, please click here.
High repair and replacement costs
The inflated costs of paying out a claim – specifically, for vehicle repairs and replacements – is also contributing to the increase in auto premiums. According to the Transportation Consumer Price Index for October, the cost of passenger vehicle parts, maintenance, and repairs increased 5.6% from 2022 to 2023. As insurers are the ones to pay out these claims, consumers can, once again, expect a reflection of this in their future auto insurance premiums.
Advancements in car technology also contribute to higher repair and replacement costs, leading to higher insurance premiums. Electric vehicle (EV) claims can get expensive quickly, as batteries and parts aren’t cheap. Plus, specialized training may be needed to perform the repairs, contributing to longer wait times.
Other factors driving the increase in wait times include:
- Supply chain disruptions
- New and used vehicle pricing
- Inflationary pressures
- Collision repair backlogs
- Shortage of vehicle inventory
Measures taken to help combat rises in premiums
Ontario has taken a different approach to lower car insurance premiums across the province. Starting January 2024, drivers will be able to add OPCF 49 to their policy, opting out of Direct Compensation for Property Damage (DCPD) – a key element of Ontario’s no-fault auto insurance system. While the idea behind this is that more choice can lead to lower premiums, many experts have warned against leveraging OPCF 49 as a means to save money. The form essentially waives all your rights to compensation for the physical damage of your vehicle, including instances where the accident was of no fault of your own.
Final thoughts on insurance predictions for 2024
Industry experts seem to agree when forecasting home and auto insurance predictions for 2024; there will be more of the same from 2023. From stolen vehicle trends and industry fraud to the increased costs of paying out a damage claim, it doesn’t look like Canadians will be seeing reductions in their premiums anytime soon. Ontario has put plans in place to help both ease the financial burden of car insurance and the implementation of a national flood plan for homeowners. Only time will tell as to whether these measures will actually bring relief. For help deciding on what types of coverage will best suit your needs in 2024, call isure today to speak with one of our knowledgeable representatives. Happy New Year!