You received your insurance renewal notice and to your surprise, your insurance premiums have increased. Yet nothing has changed in your situation, and you have not made any claims in the past year. How can this be explained?
Well, unfortunately, your premiums don’t just depend on your behaviour and habits. Here’s a brief overview of the current state of the insurance industry.
What is claims experience?
Since 2019, there has been a general increase in insurance premiums, and the trend will continue into 2021. Yet 2020 was a quiet year for insurance claims in Quebec. Claims experience (the ratio of claims to the insured population) was down by 20%. This is the largest decrease in the last 20 to 25 years.
On the one hand, Mother Nature has been very kind this year: no floods, no hail, no high winds… On the other hand, COVID 19 has promoted telecommuting, which has reduced the amount of traffic on the roads.
So what? If everything is calm, why have your insurance premiums increased?
To understand the phenomenon, we must first look beyond Quebec and observe the global situation.
Reinsurance: the insurance of insurers
Quebec enjoyed a lull in claims. However, the situation was different for the rest of Canada and North America. Droughts hit Western Canada. The west coast of the U.S. has been plagued by severe forest fires. And what’s happening elsewhere in the world may also explain why your insurance premiums have gone up.
Why is that? Because reinsurers often operate on a global basis. Reinsurance is insurance for insurers. When an insurance company insures a risk, it makes an agreement with a reinsurer, who will absorb part of that risk. The reinsurer then imposes minimum premiums, which take into account the global situation. For this reason, Quebec will be affected by the decisions of the reinsurer, even in a quiet year.
How do you deal with deficits and maintain a cash reserve?
The government requires insurers to maintain a cash reserve in order to pay out claims. However, over the last 10 years, the insurance industry in Quebec has experienced 8 years of deficit.
Companies must still meet their obligation to the government and maintain their reserve amount. In this case, they have to raise prices to maintain this level of liquidity. It’s a balance they have to maintain.
This increase ends up appearing in your personal budget.
We can see that insurance does not work in a vacuum, but rather like a big tank. In this tank are the premiums and the money held in reserve. This is also where the claim refunds come from, and this is where the mandatory cash reserve must remain. When the reservoir is fuller, everyone benefits, and when it’s empty, everyone loses.
Understand a situation to better accept it
We hope this summary sheds light on some of the reasons why your insurance premiums have increased. In any case, you can always contact your Malouin Assurance broker. It’s their job to make sure you get answers to all your questions.