For the better part of four decades, Canada has quietly tolerated a problem that economists have long insisted would one day assert itself with force: poor productivity.
Now, that long-dormant concern has fully arrived, and nowhere are the consequences more apparent than in a sector that prides itself on foresight - insurance.
A new Fraser Institute study, released with the kind of statistical bluntness that leaves little room for euphemism, reveals that between 1981 and 2024, Canada’s labour productivity rose by a modest 61%. In the same period, the United States, its closest trading partner and chief economic comparator, recorded a far more robust 127%.
For years, the gap was regarded as manageable, even tolerable. Today, however, it has widened into something more troubling: a structural divergence that is now shaping the competitiveness of Canadian insurance carriers, brokers, and MGAs in ways both subtle and profound.
The drift began unobtrusively around the turn of the millennium, but the real slippage has occurred in the past decade. From 2017 to 2024, Canadian business-sector productivity actually declined by 0.6%. In the United States, it grew by more than 10% - a figure that borders on remarkable given the economic tumult of recent years.
One might be forgiven for assuming that the pandemic played some compensatory role. Alas, Canada’s brief spike in 2020 was a statistical artifact brought about by the temporary disappearance of low-productivity retail jobs. In other words, not genuine progress – merely the illusion of it.
For the insurance sector, which relies on a delicate balance of data sophistication, operational efficiency and cost discipline, this divergence is more than academic. It touches every aspect of the industry’s functioning.
The Fraser Institute’s research leaves no doubt about the chief culprit: technology - or more precisely, Canada’s declining investment in it.
Information and communications technology (ICT), the invisible scaffolding upon which modern insurance now rests, has been chronically underfunded in Canada for over 20 years. Software investment, in particular, lags sharply behind the US. Firms south of the border have poured capital into digital infrastructure: automated claims systems, advanced underwriting models, cloud-based analytics, and omnichannel customer platforms. Canadian firms, by contrast, have often edged forward cautiously, their progress slowed by legacy systems and thinner investment horizons.
This cumulative hesitation has left the country exposed. In an industry where seconds shaved from a claims process can determine entire cost structures, Canadian insurers are increasingly outpaced by American rivals whose operating models are reinforced by deeper digital foundations.
The practical implications for the industry are stark.
American carriers, armed with larger datasets and more ambitious modelling capabilities, have gained a decisive advantage in segmentation, pricing, and risk selection.
While automated triage, fraud detection powered by machine learning, and real-time assessments have become standard practice in the United States, Canadian adoption remains uneven and, in some cases, tentative.
Digital-first brokerages and insurtech pioneers – many of them American – can expand into Canada with a fluency Canadian firms struggle to match.
The global battle for data scientists, actuarial technologists, and AI engineers is tilting toward markets where cutting-edge tools are readily available. Canada, with its slower digitisation, risks becoming a training ground for talent that promptly departs.
All of this reinforces a simple but uncomfortable truth: productivity matters because it determines whether a country’s insurance firms can compete internationally, innovate meaningfully, and maintain margins in the face of rising claims severity and climate-driven catastrophe losses.
Prime Minister Mark Carney’s first budget acknowledges the problem with rare clarity. Ottawa now speaks openly of a “productivity crisis” and has pledged $110 billion over five years to stimulate innovation, with particular emphasis on AI, quantum technologies and electric vehicles.
But here, too, the Fraser Institute sounds a note of caution. Globerman warns that heavy-handed industrial policy – the government “picking winners” – risks misallocating capital that markets might otherwise deploy more efficiently. The evidence, the study suggests, points instead to the need for a more competitive tax and investment environment, particularly around corporate and capital-gains taxation.
Yet there is opportunity amid the gloom. Artificial intelligence, a general-purpose technology with the potential to transform underwriting, claims, and distribution, offers Canada a chance to close the gap if it acts with urgency.
Canada remains, somewhat surprisingly, a world leader in AI research. Combine this with abundant clean energy and a receptive immigration system, and the country possesses several ingredients for a renaissance, should insurers embrace the moment.
To capitalise, the industry will need to accelerate adoption dramatically: modernising policy administration, embedding machine-learning models into underwriting workflows, automating the routine seams of the claims journey, and building robust digital architecture capable of supporting sustained growth.
Canada’s insurance industry is not unfamiliar with risk. It is built, after all, on the expectation that those who prepare early fare better than those who leave matters to chance.
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The country’s productivity crisis offers no such luxury. It threatens competitiveness, profitability, and the very capacity to innovate. Yet, as the Fraser Institute’s report makes clear, the path forward is neither obscure nor unattainable: invest, modernise, compete – and do so with urgency.
Canada has fallen behind. Whether it remains there is now a question for its business leaders to answer.
