Could November 4 mark a turning point for Canada’s economy? Certainly, the federal government said many of the right things that day when it released its latest budget – a budget that came with the promise of delivering “a clear plan to build Canada into the strongest economy in the G7…shifting our economy from reliance to resilience.”
In support of that promise, the government committed to tackling an issue of serious concern to Canada’s financial sector: regulatory burden. Specifically, the government said it would reduce red tape and the regulatory burden on financial institutions in order to unlock more private capital in Canada.
This is great news and an excellent start. Canada’s P&C insurers applaud the direction and urge the government to carry through on the specifics behind this commitment. In fact, we hope the government will go even further and embed economic growth into regulators’ mandates, as other countries have done.
Doing so would significantly improve Canada’s economic fortunes on the global stage.
Unfortunately, Canada has very much been going in the other direction in recent years. Our fragmented and increasingly complex regulatory system is acting as a drag on innovation, investment and growth. Financial institutions are constrained in the product offerings they can deliver to customers, costs are passed on to consumers and Canada becomes a less attractive place to invest.
Two recent reports – from IBC and the C.D. Howe Institute – illustrate the problem and point toward the solution the federal government has promised to deliver.
Compliance costs skyrocket
Regulatory compliance costs across Canada’s property and casualty (P&C) insurance sector surged by 81% since 2022, according to a new Regulatory Compliance Cost Survey by Insurance Bureau of Canada (IBC). That’s nearly 13 times the rate of inflation, and six times greater than the industry’s own revenue growth.
The survey reflects input from 24 member companies, covering 61% of the Canadian market, and looks at calendar years 2022 to 2024. Regulatory compliance costs include internal labour, external services (such as consultants and legal expertise) and other costs, including assessment fees.
Key findings include:
In 2024, the total regulatory compliance costs for Canada’s P&C insurance sector reached $753 million, up from $416 million in 2022, an 81% increase over two years.
Internal labour accounted for nearly three-quarters of total costs, including a 26% increase in the number of full-time employees required to comply with growing regulatory pressures.
P&C insurers continue to spend significant time on regulatory requirements at both the provincial and federal levels. The largest share (40%) of compliance time is spent with respect to compliance requirements of the federal solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI); with the remainder spent on provincial market conduct regulator compliance requirements. This proportion has remained relatively stable from 2022 through 2024.
More than half of survey respondents expect compliance costs to rise again in 2025.
A system out of sync
In addition to eclipsing the rate of inflation and premium growth, the 81% surge in compliance costs is out of sync with what is happening in other jurisdictions. European Union insurers spent 6.5% of their operating costs on compliance in 2017 (the most recent year available).1 Comparatively, Canadian insurers spent 17% in 2024, based on this year’s compliance survey. In the United States, inflation-adjusted compliance costs rose just 1% annually from 2002 to 2014,2 whereas Canada’s P&C insurance industry saw a 15% increase from 2022 to 2023, and a 48% jump from 2023 to 2024.
Perhaps not surprisingly, this growth in P&C insurance compliance staffing mirrors a trend across Canada’s regulatory landscape. Many of the country’s 44 financial regulators have significantly expanded their size and scope, with some doubling or tripling their head count over the past two decades. As regulators broaden their mandates, including oversight of non-financial risks and strategic business activities, insurers are forced to scale their internal teams just to keep pace.
The volume of regulatory activity further illustrates the strain. As of the end of Q3 2025, the P&C insurance industry was subject to 38 active or forthcoming government or regulator consultations and initiatives. IBC has already made 48 submissions this year on behalf of the industry – surpassing the total for the same period in 2024. These consultations are on a wide array of subjects concerning how insurance is distributed, managed and overseen, often with duplication across multiple jurisdictions.
The federal government’s budget specifically addressed this problem, pushing for more predictability, transparency and coordination between regulators. This is good news: the current approach to engagement reflects a system that is not only growing in cost, but also in complexity and intensity.
C.D. Howe and the wider picture
IBC’s findings mirror the results of a new study from C.D. Howe Institute called “Pruning the Rulebook: Canada’s Financial Regulatory Scorecard, Year Two,” expanding the picture to the financial sector as a whole, and the wider economic implications of regulatory burden.
That study found that the share of total labour costs allocated to regulatory compliance across the broader financial sector increased from 16% in 2019, to 19% in 2023, to 22% in 2024.
In addition to finding that the share of labour costs dedicated to regulatory compliance is rapidly rising, it warns that Canada’s financial regulators continue to prioritize stability and protection at the expense of innovation, competition and economic dynamism. This is out of step with their counterparts in the United Kingdom, Australia and the United States.
C.D. Howe conducted a textual analysis comparing the language of Canadian regulators’ mandates with that of their peers. It found the language of Canadian regulators is dominated by terms such as “stability,” “solvency” and “obligation,” while those for the United Kingdom and Australia favour terms such as “competition,” “growth” and “cost.”
Why does this matter? As C.D. Howe argues, the linguistic gap reflects a structural difference in regulatory philosophies. The authors note: “A financial regulatory environment that does not explicitly encourage competition, innovation, and capital formation may reinforce these trends by raising barriers to entry, increasing compliance costs for smaller firms, and discouraging capital market participation, particularly from high-potential startups and emerging sectors.”
The study also states: “This regulatory gap is particularly concerning given Canada’s persistent struggles with weak productivity growth, poor investment, sluggish economic expansion, and relatively low levels of innovation adoption.”
The harsh irony is that the effort to protect consumers can end up having the opposite effect.
Canada versus the world: Falling behind
While regulatory costs in Canada’s insurance sector are rising sharply, other jurisdictions are moving in the opposite direction. The European Union, the United Kingdom, Australia and South Korea have all announced reforms aimed at reducing regulatory burden and modernizing oversight frameworks. These efforts are designed to unlock productivity, improve affordability and create space for innovation – all essential ingredients for sustainable economic growth.
There is a connection between regulatory burden and economic success. Recent data from Statistics Canada shows that increasing the amount of regulation on Canadian businesses has a measurable drag on the country’s economic performance. Between 2006 and 2021, the number of federal regulatory requirements increased 2.1% annually, resulting in a 37% cumulative increase. This regulatory expansion is estimated to have reduced Canada’s gross domestic product by 1.7% and slowed employment growth by 1.3% within Canada’s business sector. These are tangible impacts that hurt all Canadians.
Meanwhile, Canada’s global competitiveness is far from impressive: According to the World Economic Forum, Canada ranks 38th on burden of government regulation and 54th in internal labour mobility (1st is best on both measures).
The path forward
IBC does not oppose regulation; there is no question that regulation is essential to maintaining market integrity and protecting consumers.
But the current system is out of balance.
IBC advocates for a smarter, more modern approach to regulation – one that maintains strong consumer protections while enabling innovation and growth. Recommendations to move Canada’s insurance regulatory regime in this direction include:
Refocusing regulators’ mandates to promote competition and innovation
The promotion of harmonization between federal and provincial regulators, to reduce overlap and redundancy
Updating capital rules to allow for greater flexibility, including investment options – such as in Canadian infrastructure – for Canadian insurers
Beyond this, CD Howe recommends three steps for decision-makers wanting to launch a new regulation-making process. These steps would help ensure the value and purpose of any such initiative:
Thoroughly identify the problem being addressed
Conduct a comprehensive cost-benefit analysis to weigh the implications of potential regulations
Clearly articulate the objectives to ensure predictability and consistency
Canada’s financial regulatory regime stands at a crossroads. The evidence is clear: Costs are rising, complexity is growing, and our competitiveness is slipping. Smarter regulation offers a path forward – one that fosters innovation, improves affordability and strengthens economic resilience.
But progress demands leadership, collaboration and a willingness to rethink how we regulate in a rapidly changing world. Other countries are already modernizing their frameworks. Canada must act now or risk falling behind. The recent federal budget signaled that our current government is on the right track. We look forward to seeing its promises come to fruition.
1 European Commission: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, CEPS and ICF, Study on the costs of compliance for the financial sector – Final report, Publications Office, 2020.
2 Trebbi F, Zhang MB, Simkovic M. (2023). The Cost of Regulatory Compliance in the United States. CESifo Working Paper, No. 10589, Center for Economic Studies and ifo Institute (CESifo), Munich.
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