DBRS Morningstar has released a new report showing a 69 per cent jump in the average price of a new vehicle in Canada since June 2019 and evidence that Canada is a hot spot for auto theft. These pressures and others are resulting in lower profit margins on Canadian auto insurance. Even considering weather-related losses, the property and casualty (P&C) industry would otherwise be a strong performer, they say.

Entitled Inflation and Theft Are Putting Pressure on Canadian Auto Insurance Profitability, the commentary from DBRS Morningstar says the credit rating environment, which had been supportive for upgrades, is likely to stabilize.

They say the national average price of a new vehicle in Canada has risen 21 per cent year-over-year and 69 per cent over figures published in June 2019. “It remains to be seen to what extent insurance premiums can keep up with the higher average value of the fleet of vehicles driven by Canadians,” they write, adding data which suggests that premium inflation has not been keeping up with parts, maintenance and repair costs since early 2021.

More, they say “Canada is facing record levels of auto theft, with the number of vehicles stolen in 2022 increasing by 48.3 per cent year-over-year in Ontario and 50 per cent in Quebec,” they write. “The export of stolen vehicles appears to be mainly a Canadian phenomenon despite similar vehicle technology in the U.S., pointing to Canadian export infrastructure and controls as the systemic weak points.” 

Auto theft insurance claims reportedly rose to more than $1-billion in Canada for the first time in 2022 – approximately five per cent of the $22-billion in private passenger auto insurance net premiums written by the industry, they state. 

The report also discusses “notoriously political” regulatory constraints against increasing premiums in certain provinces. It discusses Canada’s position relative to international counterparts – the U.S. and the U.K. market have reportedly enjoyed even worse performance, which in part lead Intact Financial Corporation to exit the UK personal auto market at the end of the first quarter in 2023. (Beyond this example, no other companies were called out by name in the report.)

“Canadian auto insurers are facing rising claims pressure from increased theft, as well as the higher costs to repair and replace vehicles. After highly profitable years for auto insurance during the pandemic shutdown period, governments and consumers are pushing back against the premium increases needed to address rising claims,” they write. “This has resulted in lower profit margins on Canadian auto insurance which are likely to remain under pressure in the medium term, as seen in other markets.”