How labour shortages in construction could impact insurers’ profitability

If the insurance industry was hoping for premium impacts from rising construction costs to lighten any time soon, it shouldn’t hold its breath.  

In fact, the situation is expected to worsen. And one Canadian research organization is flagging it as a problem, saying that should rebuild costs become too extreme, insurers could eventually exit the market. 

Job vacancies for skilled trades in the residential construction sector have grown at an average rate of 11% per year. That number is expected to increase to 13% per year between 2026 and 2045, according to a new report by The Conference Board of Canada. 

But residential construction sector labour shortages are contributing to the rising cost of housing and increasing insurance claims costs. And that’s something insurers have been sounding the alarm on for years. 

Labour shortages in the construction sector “have a significant impact on insurers’ ability to help Canadians recover in a timely manner after a natural catastrophe,” Maximilien Roy, Insurance Bureau of Canada’s (IBC) vice president of strategy, said in a recent commentary on the CBOC report.  

Skilled labour shortages in construction can impact insurance premiums in two ways: by raising construction costs, and lengthening timelines for rebuilds and renovations.  

When a home is rebuilt after a catastrophe, longer repair timelines mean more expensive claims, and that eventually translates into higher premiums.  

Overlapping pressures are intensifying these shortages, such as the rising frequency and severity of natural catastrophes, elevated housing demand, and strained labour supply due to “demographic challenges,” CBOC finds in its report.  

By 2045, the shortage of skilled trades could reach 32,000 people, which would likely cause prices in the sector to increase by 2.3% and add $7.9 billion to the annual cost of residential renovations and repairs. 

Could we see insurers withdraw from specific markets if labour shortages don’t improve? CBOC is flagging it as a possibility.  

“When rebuild costs and living expenses become extreme, insurance carriers may fully exit specific markets and regions, leaving fewer firms that provide this service in the region,” the report reads.  

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This would lead the insurers who remain in the market to take on more risk. Not to mention, consumers would have fewer companies to choose from.  

“Higher market concentration can hinder competition, reducing consumer choice and, in turn, affecting the quality of services and raising prices,” the report adds. “In the end, an issue over which insurers have little control over may lead to worse outcomes for households.” 

The solution 

IBC emphasizes the need to better protect communities across the country, especially as Canada continues to grow, and houses are built to meet the needs of consumers. 

“At the same time [as the construction labour shortage] we are seeing governments across Canada rush to tackle the ongoing housing crisis and, too often, planning decisions are being made that place new housing in areas at high risk for flooding, fire or hail,” Roy says. 

IBC outlines key priorities for better protecting communities across the country, amid this confluence of issues. 

The first is to stop putting people in harm’s way.  

“This involves improving how and where we build. For example, ensure new homes are not built in high-risk areas and adopt building code standards that account for the increasing risks of severe weather,” according to IBC’s Three-Point Resilience Plan to Better Protect Canada from Natural Disasters.

The second is to invest in resilience and help communities mitigate their risks.  

“For example, develop hazard maps and ensure public infrastructure is built resiliently,” IBC says. 

And the third is to close insurance protection gaps resulting from our changing climate.  

“To address and close these gaps, Canada must leverage public-private partnerships and prioritize regulatory frameworks that encourage risk-based pricing. Canada must avoid the kinds of harmful home insurance pricing restrictions that have devastated other property insurance markets, such as the one in California.” 

Alyssa DiSabatino

Alyssa Di Sabatino has been a reporter for Canadian Underwriter since 2021, covering industry trends, market developments, and emerging risks.