Favourable conditions continue to prevail for commercial insurance clients in Canada, who faced only a 2.90 per cent average increase in premium renewals in the third quarter of 2025, down sharply from 5.52 per cent in the third quarter of 2024, according to the Applied Systems Commercial Index.
“Canada’s commercial insurance market has shifted significantly from the hardmarket conditions of 2020 to 2022,” says Stephen Decoteau, vice-president of Actuarial Services & Corporate Underwriting, Commercial Lines Direct at Desjardins General insurance Group in Lévis, Quebec.
“After several years of sharp increases driven by economic uncertainty, loss trends, and pandemic-related disruptions, pricing has stabilized across most sectors,” he adds.
This moderation reflects stronger competition, improved underwriting performance, healthier investment income, and a return to more predictable operating conditions following the pandemic. Furthermore, renewal outcomes have become more favourable, with rate movements now far smaller than in prior years, Decoteau elaborates.
“From our perspective, much of the recent downward pressure on commercial insurance rates is being driven by competitive dynamics rather than a true shift in underlying risk,” says Jeannine Branion, vice-president of Commercial & Farm insurance at Co-operators in Guelph, Ont.
“Many insurers are actively trying to grow their commercial portfolios as a way to diversify revenue, and this push for growth is leading carriers to compete more aggressively on price. As a result, even though the broader risk environment remains challenging, competitive pressures are causing rates to ease in several segments,” she explains.
Another factor that accounts for declining commercial insurance rates includes insurers pursuing commercial growth to diversify revenue streams, with some insurers willingly absorbing short-term profitability pressure to gain market share, says Branion.
Rate moderation varies by sector
There is always variance in rating by line of business and by industry segment, often by individual risk.
– Lisa Leo, Aviva Canada
According to Applied Systems, which provides cloud-based software, and agency and brokerage management systems to Canada’s insurance industry, the five most commonly placed commercial lines categories all experienced reduced average renewal rate increases between the second and third quarters of 2025.
The average premium renewal rate for business and professional services declined from 3.00 per cent in the second quarter to 2.72 per cent in the third quarter. For construction, erection and installation services, the premium renewal rate average change declined from 3.56 per cent to 2.81 per cent over that same period.
The renewal rate change average was particularly pronounced in the hospitality sector, down to 2.33 per cent in the third quarter, compared to 4.53 per cent in the second quarter. Real estate property saw its renewal rate average change drop to 2.41 per cent in the third quarter, compared to 3.38 per cent a quarter earlier. And the retail services premium renewal rate change averaged 3.90 per cent, down from 4.62 per cent in the second quarter.
“There is always variance in rating by line of business and by industry segment, often by individual risk,” says Lisa Leo, chief technical underwriter for Commercial Insurance at Aviva Canada in Markham, Ont, who notes that whenever market cycles shift, conditions for each industry segment respond in a unique way.
“To use industry-specific examples, we saw a decline in rates for construction because of increased competition, while in hospitality, there has been an increased appetite for mid-market accounts, but this segment is still sensitive to inflation. In real estate, we’re seeing strong competition for well-managed property, and in retail, portfolio actions vary by subsegment and risk profiles,” she elaborates.
However, rates are not, nor should they be, the only factor when setting renewal terms, says Leo.
“Improved profitability and lower inflation have been tempering rate increases. Capacity has also increased as domestic and overseas insurers increased their interest in the Canadian commercial market. And the reinsurance market is becoming more favourable, which is allowing insurers to apply more flexible terms to their policies,” she elaborates.
“Rather than broad-based hikes, insurers are adjusting their rates more strategically, where it is justified by experience, exposure shifts, or profitability needs,” says Jeannine Branion. “This segmentation allows insurers to remain competitive while still protecting portfolio performance.”
Increases are now more targeted, and more reflective of individual account or segment performance, she adds.
Soft market conditions
Some insurers seem willing to sacrifice margin briefly to meet growth targets, but that is not sustainable.
– Jeannine Branion, Co-operators
Leo believes the commercial insurance industry is currently settling into a soft market, but says it is difficult to predict how long this cycle will last. “Overall, we know property soft cycles are typically shorter than casualty cycles given their short-tail nature. Long-tail casualty claims generally prolong the market cycle,” she adds.
The commercial branch of the industry appears to be going through a temporary softening rather than a full market cycle shift, says Branion.
“Some insurers seem willing to sacrifice margin briefly to meet growth targets, but that is not sustainable,” she explains. “The underlying pressures — catastrophe losses, inflation, economic uncertainty — continue to strain profitability. As these fundamentals reassert themselves, we expect insurers to pivot back toward maintaining adequate margins, limiting how long this softer pricing environment can persist.”
Other macro economic factors are also influencing conditions in Canada, including geopolitical tensions, says Cecilia Omole, manager of commercial policy for the Insurance Bureau of Canada (IBC) in Toronto.
“We just need to look at what's happening in the United States. There are trade tensions. Canada is trying to pivot away from a perceived overreliance on our U.S. partners because the new Administration has changed their perspective on how they want to deal with Canada and other global allies,” says Omole.
Layered on top of that is sluggish growth in Canada’s economy. Many business sectors are still trying to recover from the pandemic, even years later, she notes.
For example, some areas like tourism, and hospitality, including some small businesses that shut down over the course of the pandemic, have not come back. Others are still struggling to recover because they had to take on Covid loans offered by government and are still trying to pay that back amidst declines in consumer demand, because the cost of living has increased, says Omole.
“Canada's growth right now is a little bit slow, so it could be a while before the pendulum swings, and we bounce back to where we were. But those sectors will likely feel some of the pressure for a while,” she adds.
Branion notes that the COVID-19 pandemic initially created significant caution among insurers, and this contributed to higher rates driven by uncertainty and elevated inflation. However, as inflation has since slowed and instability has eased, pricing has stabilized at new, elevated levels.
“Today’s moderating rate environment reflects more stability, but the pandemic years permanently reset the baseline — insurers have raised premiums to reflect the higher longterm costs and risks we’re seeing,” she explains.
Longer term stability forecast
Overall, the commercial market has entered a more stable and predictable period for Canadian businesses following several years of rapid change.
– Stephen Decoteau, Desjardins General insurance
The current environment has broader implications for both insurers and clients, with competition among carriers intensifying, profitability remaining stable, and organizations continuing to refine underwriting approaches to differentiate risks more precisely, says Stephen Decoteau.
“Overall, the commercial market has entered a more stable and predictable period for Canadian businesses following several years of rapid change,” he adds.
Branion expects to see a stronger focus on balancing competitiveness with long-term sustainability, “particularly given that the softening is likely temporary.”
Omole says that the commercial market is showing increased capacity post-pandemic, creating favourable conditions for pricing for both the reinsurer and the insurer. Generally speaking, lower rates, more competition and more capacity in the marketplace is good for consumers and commercial insurance clients specifically, because they will be able to get better rates.
“For instance, as of 2025 there were roughly 200 plus property and casualty insurers actively competing across Canada. And for this reason, insurance consumers were able to benefit from a wide array of choices. So that was a different pivot, and definitely something helpful for the clients,” she elaborates.
A competitive market also helps to promote innovation, says Omole. “Insurers will have to look at their product offerings and think more critically and innovatively about maybe creative solutions [and] different product offerings for their clients to get that book of business.”
Mary Kelly, a professor of finance and chair in insurance at the Lazaridis School of Business and Economics at Wilfrid Laurier University in Waterloo, Ont., says commercial property is generally fairly insulated from catastrophic losses, compared to personal property.
Furthermore, as commercial properties generally have a lower loss frequency, they are seen as a safe way for many insurers to diversify. “[So] it's not as hard a leap for smaller and mid-sized insurers to try and grow that market. And so, I think one thing we're seeing is an increased appetite on the behalf of insurance companies to want to write this business,” says Kelly.
