Drivers and Outlook for Canadian Insurance Spending

The insurance industry plays an important role in Canada’s economy. But developments in the economy are also key to driving consumer demand for life, auto, property and health insurance.

Employment is a notable contributor to inflation‑adjusted insurance spending, particularly for insurance related to transportation (mostly auto). Employment growth also contributes to swings in real spending on life and health insurance, albeit less so than for transportation, but explains virtually none of the evolution in real property insurance spending.

However, the influence of the economy and labour market on inflation‑adjusted insurance spending has waned over time. Instead, consumer purchases of insurance are increasingly concentrated among the most affluent households. Aging demographics and estate planning play a central role in this shift, particularly for life insurance. The tendency for better‑off families to own more expensive and numerous motor vehicles and homes, as well as their greater ability to purchase private health insurance, has further exacerbated the concentration of insurance sales among more affluent households.

Rising premiums continue to reflect economic conditions, as elevated overall inflation feeds into rising operating and claims costs. But other factors are also pushing premiums higher. For transportation‑related insurance, the post‑pandemic rise in auto theft played an important role. Early indications suggest this trend may have stabilized or gone into reverse but still remains above historic levels. And then there are property insurance premiums, the cost of which has increased at twice the pace of overall inflation since 2019. Sky‑high residential construction costs are part of the story, exacerbated by the rising cost of imports and US tariffs. Another major contributor is severe weather, particularly flooding, which has been steadily adding to the cost of insured property losses over time.

Looking ahead, there is good reason to believe that insurance spending will continue to rise in Canada in the coming years. Part of this will likely reflect rising premiums, particularly for property insurance, due to a sustained advance in underlying cost drivers and generalized inflation. However, our relatively robust outlook for the Canadian economy suggests that inflation‑adjusted insurance spending should gain ground as well, pushed ahead by employment gains and a rebound in population growth. That said, much will depend on the evolution of US trade policy. Demand for life insurance should also remain solid, as an aging population and rising economic inequality emphasize the need for estate planning in Canada.