If you've noticed your premiums for home insurance steadily on the rise in the last few years, you're likely not alone. While it's hard to pin down insurers into admitting premiums are rising across the board, experts in the field of property and casualty (P&C) insurance biz say premiums are generally increasing for everyone.
For the average homeowner, struggling to pay down debt, saving for retirement and their kids' education, a premium hike can be galling, especially when you have never made a claim.
If you're like me -- on a bad day -- it's infuriating.
But let's face it, grabbing the pitchfork from the garage to form an angry mob won't reduce your premiums. If anything, roving mobs will raise rates.
Instead, maybe trying to get inside the head of the insurance companies, and look at the world through their risk-averse goggles, might help pacify the angry beast.
And what you will find is it's hard out there for an indemnitor these days.
"Over the last few years there has been a lot of pressure on claims cost for insurers," says Serge Corbeil of the Insurance Bureau of Canada (IBC), which represents P&C insurers.
Low interest rates are great for borrowers, but they're bad news for insurance companies that rely on government bonds as safe places to put their premiums to meet future obligations. Add to that increased volatility in the stock markets, and it's progressively more difficult to make an investment buck insurers can count on from one year to the next.
To boot, costs have been going up for insurers because the price to replace a home has been on the rise, says Mike Bellhouse, a senior account executive with Ruban Insurance Brokers in Winnipeg.
It's like inflation, only often higher.
"The insurance company is going to be paying what it costs to rebuild or repair your home," says the former underwriter. "The increase in cost will be based on the construction price index put out by Statistics Canada," Bellhouse says.
And Winnipeg is leading the nation for residential properties. From February of last year to February of this year, construction prices jumped by 5.5 per cent compared to the national average of 2.2 per cent.
Compounding problems for insurers -- and we, the insured -- is claims have gone up over the last few years, says Doug Rogers, an account executive with Ranger Insurance, a brokerage firm in Winnipeg.
"The insurance companies are telling us brokers that the cost of claims has skyrocketed in Canada," he says. "The incidence of major events has increased dramatically."
Claims for residential properties have been between $4 billion and $5 billion annually since 2008. That's about double the claims more than 10 years ago, according to ICB statistics.
Still, insurers have remained profitable over the last few years. TD Insurance, for example, has been a lucrative arm for the big bank. One of the largest direct insurers in Canada (meaning it doesn't use brokerages to sell its product line), its revenues net of claims in 2012 were $1.113 billion for all insurance, which is down from the previous year's $1.167 billion. In its annual report, it stated the property and casualty arm of the insurance division faces challenges associated with higher costs because of unpredictable weather conditions.
If you're looking for a scapegoat, bad weather seems to be public enemy No. 1. ICB states extreme weather conditions are on the increase, claiming major weather events that used to occur every 40 years now happen on average every six years.
"Last year was the fourth year in a row that insurers had to pay about $1 billion for weather-related claims, so there seems to be a trend that we no longer can ignore," Corbeil says. "It used to be just one year there'd be a bad one for claims, but when you have four years in a row with high claims payments, insurers will identify a trend and eventually, they have to adjust the premiums to match the new reality."
Even hurricanes, tornadoes, typhoons and forest fires outside of Canada are taking a toll on insurers here at home and, in turn, on the humble homeowner because the cost of insurance for insurers is on the rise, too.
"Insurers buy themselves what's called reinsurance and the premium cost for that is going up because of all the weather events that have been happening around the world," he says. "It goes up if the payments globally for reinsurers are going up and up -- not for one company in a particular country but every company everywhere."
Many of the world's largest reinsurers -- including Swiss Re and Munich Re -- point to climate change as the reason. Swiss Re states weather-related insurance-industry losses were about $3 billion in the U.S. in 1980, Insurance Networking News reported last year. But over the past decade, those losses have averaged about $20 billion a year. The costs are getting so out of hand, major reinsurers have been lobbying in Washington for lawmakers to pass climate-change regulation, the article stated.
Munich Re even devotes a substantial portion of its website to climate change's impact on insurance liability.
Be it climate change, low interest rates or inflation, one thing is certain, Bellhouse says. Insurers are tightening up how they assess risk. They're asking more questions and drilling down more deeply than in previous years to assess their liabilities.
"They're moving to make it very scientific and actuarial-based, going by postal code to pinpoint the risk characteristics of homes in that neighbourhood, whether it's fire, sewer backup, water damage and break-ins," Bellhouse says.
This new reality is a gag-inducing pill for homeowners to choke back when faced with yearly rising premiums, but we can take steps to stem the hikes, says Tony Hayes, with property insurer RSA.
"My take on the subject is it highlights the importance of the independent broker," says Hayes.
Brokers can help homeowners do comparison shopping to find insurance at a suitable price with appropriate coverage, he adds.
"Some brokers could have access to upward of 20 different insurance companies."
The insurance business is competitive, and consumers do have a lot of choice, Rogers says.
Some homeowners switch from insurer to insurer annually to pay the lowest premium.
"Getting the lowest price is the Winnipeg way, but building that strong relationship with your insurance carrier shouldn't be overlooked, especially when you need a favour."
Still, loyalty has its limits, and there's no harm in doing comparison, keeping in mind that the broader view of bad weather, inflation and low interest rates isn't pretty.
"Unfortunately, insurance firms are in the business to make money," Rogers says. "People may not like hearing it, but these companies need to be financially sound and have money in the bank or they can't pay claims."