It’s getting tougher out there for Canadian brokerages – and the numbers prove it.
A report from Smythe LLP reveals a steady squeeze on profitability across the country’s P&C distribution sector, as operating costs rise faster than revenues. Operating profit margins for small and mid-sized brokerages declined by nearly two percentage points in 2024, the firm found, as technology investments, wage inflation, and softer contingent income weighed on results.
“Brokers continue to face increasing competition for skilled staff, particularly in commercial lines and senior account management roles,” the report stated. Compensation costs now account for over 58 per cent of total operating expenses, up from 55 per cent just two years earlier.
Recruitment experts confirm that the fight for qualified talent – and the need to retain it – is a growing factor in brokerage cost structures.
“I think we're seeing it widespread across the economy and insurance specifically,” Cal Jungwirth, regional director at Robert Half told Insurance News.
What was seen this year is a very cautious approach from the majority of industries, due to the unsettled environment and the unsettled economy, he said. A lot of that trend is coming from the US and a big part of it can be attributed to the threat of tariffs, so organizations have been very cautious when putting in any sort of cost into their business, Jungwirth noted.
“That’s due to them not having good clarity on what's around the corner. So as a result, they're also holding lines on salaries the best they can,” he said.
The problem, as he said, is that the cost of living has skyrocketed.
“It keeps going up. So you've got candidates in the marketplace looking to expand their buying power, i.e., looking to increase their salaries. But then, conversely, you've got organizations trying to keep their costs as low as possible. So those trends are fighting each other,” he added.
That same tension, he said, is being felt throughout the insurance sector, where rising costs and wage expectations are forcing employers to get creative.
With traditional salary growth constrained, Jungwirth noted that many firms are leaning more heavily on total compensation strategies.
“We use the phrase total compensation,” he said. “When individuals, whether it's current employees or prospective employees, are considering an opportunity or looking at their existing compensation package, that salary number is always going to be the first thing that they look at. And it's still going to be largely the most important thing,” he said.
But he added there are other things that an employer could bring to the table. It could be dollar-related in terms of RRSP matching, it could be pension plans, it could be a beefier health and benefits package.
It could be flexible health and benefit packages, he added.
“Everybody's in a different situation individually – some people are single, some people have families – so packages that allow you to choose your basket of goods is very attractive to candidates overall,” he said.
Beyond staffing, the Smythe report identified technology investment as a key pressure point. Spending on customer relationship management systems, data analytics, and digital infrastructure has increased sharply, with a near-term drag on margins.
While brokers broadly see these upgrades as critical to future competitiveness, many are feeling the pinch now. “It’s the paradox of modernization,” said one brokerage principal who participated in the study. “You have to spend to stay relevant, but those systems don’t pay for themselves overnight.”
Smythe’s benchmarking shows that organic revenue growth slowed to an average of 6.8 per cent in 2024, down from 9.1 per cent the prior year. Combined with higher expense ratios, that’s squeezing profitability even as premium volumes remain healthy.
For underwriters and carriers, this tightening margin environment signals a more cautious distribution landscape. Brokerages dependent on contingent income are feeling the strain most acutely, while those with strong retention and cost discipline are holding up better.
Jungwirth noted that retention is emerging as the single most important determinant of stability.
“It’s retention first, because if you don't have strong retention policies, then you find yourself hiring,” he said.
According to Jungwirth, the caution extends in both directions. Companies are holding back on new hires and salary increases amid uncertainty, while employees – wary of economic volatility – have been slower to seek new opportunities, creating an unusually quiet job market on both sides.
“So where I'm going with this (and what I think will happen) is that eventually there's going to be job churn. People will start to make a move, start looking to take that next step. Conversely, hopefully organizations start to see some increased growth in 2026,” he said.
All of a sudden, as he put it, there will be a little bit more hiring and little bit more candidate activity.
That doesn’t mean that the companies will have it any easier.
“It'll be a candidate's market. If the employers are fighting for the best talent, as they always do, they then need to be cognizant of supply and demand. And that's where you must have the best offer to put in front of people,” he said.
Despite tightening margins, Smythe’s analysis found that brokerages emphasizing cost control, digital efficiency, and employee engagement are better equipped to weather the cycle. Profitability may be down, but fundamentals remain intact.
Jungwirth emphasized that retention and transparency are key in such times.
“I would really encourage all organizations – if the economy does pick up steam in 2026 – to put your arms around your top performers,” he said.
He added that leaders should be proactive in staying connected with their top performers through open and transparent conversations about engagement and career goals. While turnover can’t be eliminated entirely, he said, employers can influence it – and the best way to do that is by maintaining honest, ongoing dialogue.
Jungwirth also cautioned that overly aggressive return-to-office mandates could backfire – particularly if the job market tightens.
“That's the other push and pull we're seeing in the marketplace right now,” he said. “Organizations are encouraging, whether it's an increased return to office or a full RTO, and they're doing it for a variety of reasons, which may in fact be good for the business. But you will lose people because people now value flexibility and the option to be somewhat hybrid.
“And it's pretty regular for us to get a call from somebody whose employer has just announced that they're going back to the office five days a week, and that individual is now initiating a new job search. So absolutely, there is risk with RTO.”
Looking ahead, he said, that risk will only intensify if hiring picks up. “Absolutely, because people have more options,” he said. “Now that said, the more organizations that return to the office fully, there'll be fewer organizations that offer that, which will then make that even more of a differentiator for those organizations that still offer that work-from-home flexibility.”
