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4 market forces that affect your car insurance rate

Jan. 30, 2023
5 mins
cars downtown in traffic

When you’re behind the wheel of a vehicle, there are many things you can control: the number of distractions you allow, the amount of rest you have before and during your journey, even the podcasts you listen to. What you can’t control (as much as you might like to) are the broader market forces impacting your car insurance rate.

Beyond the fact that there are more vehicles on the roads since the onset of the COVID-19 pandemic (which can drive up claims costs for insurance companies and, subsequently, drivers’ premiums), there are other factors influencing what you pay for car insurance — things like inflation, supply chain snafus, and the health of the stock market.

This is all the more reason to compare car insurance rates and ensure you’re doing your part in maintaining an affordable premium.

1. Inflation

In March 2022, we spoke to industry experts who said that auto insurance rates weren’t yet being impacted by inflation. By September, however, the landscape had started to change.

Insurance Business Canada, for example, found that while inflation wasn’t yet a nationwide concern in the car insurance sector, it was responsible for large rate spikes in provinces with singular public insurance providers, like Saskatchewan and Manitoba.

Recent data from Statistics Canada show that inflated costs for consumers may have reached their highest point. For context, June last year saw an 8.1% increase over the previous year at the same time. By December, the most recent reporting period, that number was down to 6.3%. However, consumer costs remain high, and some drivers may just be starting to see inflation’s impact on the car insurance market reflected in their premium.

2. Cost and shortage of car parts

Another cost to insurance providers is the prolonged issues facing the manufacturing sector. Manufacturers were sounding major alarms about parts shortages as early as the first few months of 2021, but that trend shows no real sign of letting up. These shortages (and increased costs to acquire parts as they become more technologically advanced) have meant that consumers must bear some of the cost through their premiums.

For example, in 2010, the average repair cost per visit to a service centre was reported to be $287. Contrast that with JD Power’s most recent numbers, released in September of 2022, and that amount had jumped to $394. So, if you’re in an accident, your vehicle’s repair is going to cost more than it did five years ago. More expensive parts mean more expensive claims, which insurance providers have to recoup. That bump in expense can trickle down from your insurance provider and be tacked onto your premium over time.

3. Supply chain delays

Supply chain delays are having an outsized effect on the rental car market. A Statistics Canada report released in May of 2022 found that rental car costs in British Columbia had spiked more than 30% year-over-year after having stayed fairly stagnant during the previous decade. With rental car costs being higher, and it taking longer to repair vehicles, insurance companies are having to pay out more for rental cars when one is needed. Not only that, they’re having to cover the cost of a rental for longer than they used to, since repair times are lengthier.

These additional costs can also be attributed to a lack of availability of new rental car stock as the tourism market continues to fluctuate while navigating the ongoing pandemic. In other words, a lack of new car availability to bolster rental fleets, a used car market that hasn’t fully evened out, and a lack of car parts to restore vehicles to their former glory have meant that insurance companies are footing a bigger bill than in past years.

4. Insurance companies’ investment returns

One way that insurance companies make money is by investing their revenue. But the market has been increasingly volatile due to a combination of ongoing pandemic-related economic uncertainty and inflation. For example, Canada Life points to “high interest rates, high energy prices, and modest growth” as key global concerns for investors.

The Insurance Bureau of Canada calls insurance companies “among the most careful investors in Canada” and estimates that 75% of those investments go toward government bonds, which tend to have more stability. Still, the most careful investment portfolio doesn’t shield insurance companies from the risks of the market. When those returns are less than ideal, that cost is then passed on to the consumer.

How can I control my car insurance rate?

While so much of what goes on in the market is outside of your control, the good news is: you still have ways to lower your car insurance rate.

Driving safely, maintaining a clean driving record with few insurance claims, and comparing auto insurance rates before your policy renews are some of the best ways to control your premium.

How different insurance companies weight the factors that influence your premium will vary, but shopping around helps you find the best rate for your individual circumstances and needs.

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John Loeppky

John Loeppky is a disabled freelance writer and editor who currently lives on Treaty 6 territory in Saskatoon, Saskatchewan. His work has been published by the likes of CBC, FiveThirtyEight, Teen Vogue, Insider, and a host of others. His goal in life is to have an entertaining obituary to read.

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