How inflation and tariffs may change auto insurance in Canada

Canada’s auto insurance landscape is at a critical juncture. Persistent inflation, ongoing trade frictions and other economic headwinds are pushing personal auto carriers to rethink business models.

These changes mean the industry must reimagine how it prices risk, manages claims and delivers value.

Cost pressures

Inflation permeates every facet of the value chain. Its effects stretch from the moment a claim is initiated to long-term capital planning, and include:

• Soaring repair costs – More than 70% of vehicle parts used in Canada are imported and global shipping disruptions and materials shortages have hiked prices. A recent StatsCan report shows the vehicle parts, maintenance and repair segment of the Consumer Price Index rose more than 22% between December 2019 and December 2024. Advanced technologies like sensors used in newer vehicles add to repair bills.
• Wage inflation – Skilled labour shortages extend repair timelines and increase both labour and car rental costs for policyholders.
• Valuation vortex – Higher prices for both new and used vehicles sharply increase total loss payouts. This is particularly challenging for insurers with large books of newer-model-year or leased vehicles.
• Escalating injury claims – Social inflation and rising healthcare expenses are driving up bodily injury claims, particularly in Ontario and Alberta, where litigation is more common. Legal sources in Ontario report a notable increase in both the frequency and severity of claims, leading to higher payouts for pain and suffering, and medical rehabilitation.

These inflationary pressures are compressing underwriting margins. Despite regulatory approvals for rate increases, many carriers find themselves underpriced relative to actual and evolving cost bases.

Threat to profitability

Global trade policy is becoming a significant source of underwriting volatility for Canadian auto insurers. Concerns include:

• Tariff impacts – Ongoing trade tensions inflate costs for manufacturers of both original equipment and aftermarket parts. To combat rising claims costs, some Canadian insurers are exploring partnerships with domestic parts suppliers or international suppliers outside tariff-affected regions.
• Repair delays – Global events can backlog delivery of specialized auto parts, extending repair times. Reports from major collision networks cite delays of weeks or even months for specific imported components. This increases rental car coverage costs for insurers.
• Other issues – The effect of tariffs on claims costs highlights the need for more dynamic risk assessments. Insurers are increasingly looking to integrate geopolitical risk data into their actuarial models, a practice that was once rare in personal lines.

Converging trade-related issues can inflate loss costs, which can be destabilizing if not addressed.

Structural constraints

In provinces with stringent oversight, such as Ontario, rate approval processes can create long lags between real-world cost increases and pricing adjustments. Regulators are also demanding more detailed justifications for rate adjustments, deeper analyses of consumer equity, and stricter adherence to actuarial principles.

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This can challenge insurers that must respond swiftly to economic pressures while navigating constraints from public rate oversight. For example, Ontario’s regulator recently scrutinized rate filings based on the insurers’ analysis of cost factors, forcing insurers to provide more granular data on inflation’s impact on specific claim types.

For its part, a FSRA representative says ”it’s rare for a filing to extend beyond 45 business days, but it can happen when FSRA is waiting for the insurer to answer questions or submit additional information to inform the filing decision. Low-complexity filings are usually approved within two weeks and higher complexity filings with multiple changes may extend to 45 business days.

“One hundred percent of FSRA filings met our service standards in the last quarter. FSRA’s service standards for rate filings vary depending on the complexity of the filings, up to 45 business days for higher-complexity filings.” 

Strategic redesign

For Canadian auto insurers, these circumstances mean tactical cost-cutting measures aren’t adequate. Their business models must be rethought to cope with volatility and cost pressures. Changes to consider include:

• Strategic repricing – Carriers must go beyond adjusting for inflation and re-evaluate core pricing assumptions. Some insurers are leveraging granular data analytics and predictive modelling to refine regional pricing based on localized inflation and supply chain pressures.
• Portfolio realignment – Leading auto insurers are actively reassessing their exposure to high-cost segments. Some are more cautiously underwriting vehicles with historically high repair or theft rates, including those requiring imported parts. And insurers are adjusting premiums and limiting coverage in certain high-risk segments.
• Claims discipline – Insurers are intensifying focus on repair protocols, optimizing vendor management and implementing stricter loss cost governance. Adoption of AI-powered claims processing – including investments in claims automation platforms – is streamlining workflows, improving fraud detection and optimizing vendor relationships to control repair costs.
• Elevated underwriting – The role of underwriters is evolving from simply executing rates to becoming strategic portfolio managers. Several major Canadian insurers are up-skilling teams to work closely with actuarial and claims departments, using real-time data to make better decisions about risk selection and pricing.
• Proactive capital allocation – Capital efficiency is now paramount, so insurers must make selective investments. Technologies that enhance operational efficiency and predictive modelling must be prioritized. Investments are increasingly directed toward data platforms and AI tools that improve insight into cost trends and market shifts.

Insurers who cling to outdated models and rely solely on reactive cost management will find themselves increasingly vulnerable to margin erosion, regulatory pressures and lost market share.

Jaimin Das is insurance consulting leader at Accenture – Canada. This article is excerpted from one that appeared in the August September print edition of Canadian Underwriter.

Editor’s Note: This article has been updated to revise the author’s statement about FSRA’s rate approval times being six to 12 weeks. The comments from FSRA clarify the timelines. CU regrets any confusion the original version may have caused.