Auto insurance rates have been steadily increasing across Canada and affecting drivers nationwide. Even if you have a clean driving record, you may still notice your premiums going up, which can be frustrating and confusing.
The rising cost of insurance is often compared to a domino effect—when one factor changes, it triggers a chain reaction throughout the industry. Economic conditions, increasing claims costs, vehicle repair expenses, and even climate-related risks are all contributing to this shift in the insurance landscape. As insurers adjust their rates to keep up with these evolving challenges, drivers are feeling the financial impact.
So, what exactly is causing this surge in premiums, and more importantly, what steps can you take to help lower your insurance costs? Let’s break it down and explore ways to manage your expenses while still maintaining the coverage you need.
First, how does insurance work?
Car insurance is mandatory in all provinces, so trying to find an affordable rate is important. When you buy insurance, the premium you pay is combined with others into a shared pool. This risk pool helps insurers manage large claims from events like floods or wildfires, ensuring financial stability. A portion of the pooled funds covers claims for policyholders who experience covered losses during the year.
"Basically, insurance comes down to the premiums of the many pay for the claims of the few," says Matt Dillon, Executive Vice President of National Operations at Surex. "When the number or value of claims rise, insurance companies need to raise their pricing accordingly so that they don't lose money."
So, What’s Behind Rising Car Insurance Rates?
Car insurance rates in Canada are rising because the amount of claims are going up. There are several reasons for this, which we will break down below.
Auto Thefts
The sharp rise in auto theft across Canada has become a major concern, significantly impacting the insurance industry. With more vehicles being stolen than ever before—often involving sophisticated theft techniques—insurance companies were facing a large increase in claims payouts. As these losses add up, insurers had little choice but to raise premiums to offset the financial impact.
Auto theft claims across Canada averaged $556 million per year between 2018 and 2021, according to the Insurance Bureau of Canada (IBC). In Ontario alone, auto theft claims costs increased by over 500% between 2018 and 2023. While auto theft may be starting to decline, its impact remains significant, driving a sharp increase in insurance payouts.
Increased Repair and Replacement Costs
Modern vehicles are more expensive to repair due to advanced technology, sensors, and supply chain disruptions. The cost of replacement parts has also risen, making claims more expensive for insurers.
Inflation and Economic Factors
Inflation raises the cost of labour, parts, and vehicle prices, which in turn increases insurance premiums. Higher wages for workers, along with more expensive vehicle parts and materials, drive up the cost of claims for insurers.
Additionally, as vehicle prices rise, the cost of replacing or repairing cars after accidents increases, making it more expensive for insurers to cover damages. As a result, these increased costs are passed on to consumers through higher insurance rates.
Higher Claims Frequency and Severity
More accidents, costly repairs, and medical claims contribute to rising insurance payouts. Severe weather events, like floods and hailstorms, have also increased claims, further driving up premiums.
Insurance Fraud
Fraudulent claims, staged accidents, and organized crime rings engaging in auto theft contribute to rising costs for insurers, which ultimately get passed on to consumers.
