Inflation and Theft Are Putting Pressure on Canadian Auto Insurance Profitability

DBRS Morningstar published a commentary analyzing the impact of rising inflation and theft on the profitability of auto insurance in the Canadian market.

Key highlights include the following:

-- Following years of favourable conditions with positive ratings implications, the profitability of Canadian auto insurers is under pressure amid rising theft and repair costs.
-- Insurers may not be able to raise premiums enough to offset higher claims, with Alberta regulators freezing auto insurance rates for the remainder of 2023.
-- While conditions are arguably worse in the U.S. and UK auto insurance markets, international diversification, as well as exposure to commercial lines, offers risk management benefits to Canadian P&C insurers.

“Canadian auto insurers are facing rising claims pressure from increased theft, as well as the higher costs to repair and replace vehicles.” wrote Patrick Douville, VP, Insurance at DBRS Morningstar. He added, “While the Canadian P&C industry remain financially strong, DBRS Morningstar expects conditions to be less supportive for credit ratings going forward compared to recent years, especially for insurers focused on traditional home and auto personal lines and with lower exposure to the better performing commercial lines. Canadian auto insurers are likely to be constrained by regulators on how much they can increase premiums for the remainder of 2023, despite the concerns over rising claims.”