Soaring residential building costs impacting insurance rates

Ontario Construction News staff writer

Rising construction costs and severe weather events are driving up home insurance premiums in Canada, with residential building expenses increasing 66 per cent over the past five years. These pressures, combined with a shortage of skilled labour and mounting losses from natural disasters, are reshaping the home insurance landscape.

Statistics Canada’s latest data, released in the October Consumer Price Index (CPI), shows residential building construction costs have outpaced general inflation, rising 66% since 2019. Home replacement costs—the price to rebuild a home—are up 24%.

In Alberta, a province particularly affected by severe weather, costs are rising faster than the national average. Residential building costs in Alberta have surged 73%, while home replacement costs are up 29%.

The increase in construction and replacement costs is contributing to a significant rise in home insurance premiums. “The cost to rebuild a home is steadily increasing, putting upward pressure on home insurance premiums,” said Liam McGuinty, IBC vice-president of strategy. “This is compounded by skilled-labour shortages and more frequent natural disasters.”

In addition to higher construction and replacement costs, Canada has experienced a 115% increase in personal property damage claims and a 485% rise in the cost of repairs and replacements since 2019. In 2023, insured damage from natural disasters topped $3.5 billion, and by 2024, insured losses have already surpassed $7.8 billion, marking the costliest year for insured losses in Canadian history.

The labour shortage in construction is also compounding these issues. According to BuildForce Canada’s March 2024 report, between 25,000 and 28,000 construction workers are expected to retire annually until 2033. During that same period, the industry will need to add 88,400 workers to meet demand.

IBC is calling for urgent government action, including investments in resilient infrastructure and updated building codes to better protect homes. Craig Stewart, IBC vice-president of climate change and federal issues, said, “If governments fail to act, pressures on home insurance premiums will continue to rise. We need to build more resilient communities to mitigate natural catastrophe risks.”

Construction professionals are advised to stay informed about the growing impacts of severe weather and potential regulatory changes to better manage costs and meet housing demands. Rising insurance premiums and construction costs are expected to have long-term effects on project planning and budgeting.