• Canadian driving rates were cut in half during the early months of the COVID-19 pandemic but are now just 10% shy of pre-pandemic levels.
• Auto insurance providers have been cutting prices since the start of the pandemic, but narrowing profit margins mean they cannot maintain those lower rates.
• Intact Financial expects car insurance prices to rise once Canadians start driving as much as they did before the current global health crisis struck.

Lots of things will be better whenever the post-COVID world finally arrives, except that your car insurance bill will probably get bigger.

Canadian insurers have been reducing their auto premiums throughout the COVID-19 pandemic. Part of the reason is that people have been driving less amid ongoing lockdowns and stay-at-home orders, meaning insurers could afford to charge less due to a drastic reduction in claims.

That is no longer the case, according to one of Canada’s top insurance executives. During a recent Q&A with National Bank Financial, Intact Financial Corp. CEO Charles Brindamour said driving rates fell by as much as 50% during the first lockdowns in March and April of 2020. Despite restrictions on movement still being in place, driving rates are now only about 10% below pre-pandemic levels.

“Our view is that when driving returns to normal, we will see correction [in premiums] take place again,” Brindamour said, adding it was primarily the lower driving rates that have allowed insurers to offer relief measures to policyholders across the country.

As driving rates tick back up, it will force insurers to increase the price of their insurance policies to remain profitable. The industry was already operating on razor-thin profit margins before the pandemic, having started 2020 with a sector-wide combined ratio of over 100% for auto, Brindamour said.

The combined ratio is determined by adding an insurance company’s incurred losses and expenses and dividing that result by the revenue the company receives in premium payments. When the ratio equals 100% or more, that means an insurance company is paying out more money in claims than it is receiving in total premiums.

Brindamour said Intact expects to operate its personal auto line with a combined ratio in the mid-90% range as long as driving remains below historical averages.

– With files from Thompson’s World Insurance News. Used with permission.