How The Right Insurance Can Help With Escalating Prices

You probably don’t need us to tell you about inflation in Canada in 2022. You’ve seen its effects in the grocery store, you’ve seen its effects at the gas pump, and you’ve seen its effects on your utility bills. The fact is, thanks to numerous factors both globally and locally, Canada’s rate of inflation soared to a massive 8.1% in June 2022. That’s a 39-year peak.

Yikes.

The automobile industry is no exception. When factoring in maintenance, gasoline, insurance, and other ongoing expenses, the annual cost of owning a car in 2022 is higher than ever. A big part of this is the simple fact that the purchase price of vehicles has risen disproportionately. According to Autotrader, the average price of a new vehicle in Canada in August 2022 was $56,078 – an increase of 18.3% from August 2021. Even worse, the price of used vehicles in the same period shot up by 28.6%, selling at an average of $37,768.

That’s a heck of a lot more than 8.1%.

What are the reasons for these dizzying figures? Supply chain issues, particularly regarding the microchips that are essential for the multiple systems within a modern vehicle. Without these microchips, new vehicles cannot be produced and thus supply levels cannot match all the demand. Prices of new vehicles, therefore, rise to match scarcity while the excess demand gets transferred over to the used vehicle market, supercharging prices there too.

Good news for sellers indeed, but for buyers, not at all!

A knock-on consequence of this scarcity is affecting the insurance industry. Naturally, a vehicle that is purchased for a higher price is going to require a higher premium to cover it. But the effects go beyond that. For example, if your vehicle is involved in a serious accident, then sourcing replacement parts in a time of scarcity becomes a far more challenging issue. With the majority of parts earmarked for new vehicles, finding OEM replacements can be like hunting gold dust. Primary insurers are adjusting their policies accordingly, with many of them preferring to write off vehicles rather than simply pay for grossly-inflated replacements.

So, let’s do a stock check. Picture this: you bought a brand-new car last year for $45,000. You drive off the lot (immediate depreciation of 10%), drive safely and responsibly for 12 months (another 10% of depreciation), then out of the blue you get sideswiped by a truck. The accident is not your fault, and the damage doesn’t appear to be that bad. However, the insurance claims adjuster disagrees. After consulting with the manufacturer regarding replacements, the adjuster decides it’ll be more cost-effective for them to simply declare the car a total write-off and pay you out at the value of the vehicle at the moment right before impact.

Sounds good? Well, consider that your $45,000 car has depreciated in value by 20%, and in the meantime, a brand-new equivalent vehicle is now 18.3% more expensive. You receive $36,000, but to replace the car like-for-like, you’ll need $53,235.

That’s a differential of $17,235, and you did nothing wrong!

And let’s not forget, this is the absolute best-case scenario, not factoring in things like how much you might still owe on the wrecked vehicle or even how you’d manage to source a brand new like-for-like replacement without having to wait for a year or more due to the shortage…

In an ever-more-expensive world, it seems that sometimes primary insurance just isn’t enough. That’s when Optiom’s supplemental insurance plans step in. Our policies are tailored to replace written-off vehicles at current market prices, among many other benefits. It’s just one way to help put a pin in inflation.

Right now is the perfect time to turbocharge your car insurance!

Request a no-obligation quote, or quickly find a broker near you.

Right now is the perfect time to turbocharge your car insurance!

Request a no-obligation quote, or quickly find a broker near you.

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