The Canadian insurance industry is undergoing significant regulatory changes in 2025, reflecting a broader effort to enhance consumer protection, financial stability, and market transparency. From interest rate adjustments and crypto-asset oversight to AI governance and climate risk reporting, these regulatory updates are reshaping how insurers operate.

In this article, we’ll break down the most critical regulatory developments that insurers in Canada need to be aware of and how they may impact the industry.

1. The New Cap on Interest Rates: Implications for Insurers Offering Credit-Linked Products

One of the most impactful regulatory changes in 2025 is the reduction of Canada’s criminal interest rate, which governs the maximum allowable interest that can be charged on loans.

What Changed?

Effective January 1, 2025, amendments to the Criminal Code of Canada have lowered the criminal interest rate from an effective annual rate of 60% (or ~48% APR) to 35% APR. This means that any credit-related product—whether from banks, alternative lenders, or insurance providers—must comply with the new cap. Notably:

• The criminal interest rate threshold now applies to both advertising and offering loans above the limit.
• Exceptions exist for large commercial loans over CA$500,000, which remain exempt from this restriction.

How This Affects Insurers

For insurers that offer credit-linked insurance products, such as payment protection insurance or premium financing arrangements, this change could impact pricing models and profitability. Insurers must review and potentially adjust their lending and underwriting policies to ensure compliance.

2. OSFI’s Stricter Rules on Crypto-Asset Exposures for Insurers

As cryptocurrencies and digital assets become more prevalent, the Office of the Superintendent of Financial Institutions (OSFI) has introduced new guidelines for federally regulated insurers (FRIs) and financial institutions handling crypto-assets.

Key Updates in 2025

• OSFI has categorized crypto-assets into different risk classes.
• Insurers must now meet specific capital and liquidity requirements if they hold crypto-assets as part of their investment portfolios.
• These guidelines align with global frameworks from the Basel Committee on Banking Supervision (BCBS).

Why This Matters

Canadian insurers looking to invest in or offer crypto-linked insurance products (such as digital asset protection policies) must now enhance their risk management frameworks and ensure compliance with OSFI’s strict reporting requirements.

3. Climate Risk Management: Extended Deadlines for Emissions Reporting

The growing impact of climate change is driving regulatory changes across the financial sector. OSFI’s climate risk management framework, first introduced in 2023, is now being refined with extended compliance deadlines for insurers.

What’s New?

• The requirement to disclose Scope 3 greenhouse gas emissions (emissions linked to investments) has been pushed to fiscal year 2028.
• The deadline for reporting Scope 3 emissions for off-balance sheet assets has been extended to 2029.

Why It’s Important for Insurers

With increasing frequency of climate-related catastrophes, insurers must prepare for:

• Higher catastrophe claims (floods, wildfires, extreme weather).
• Adjustments in risk assessment models.
• Greater scrutiny from investors and policyholders regarding sustainable investment practices.

4. AI Regulation in the Insurance Sector: Increased Scrutiny on Automated Decision-Making

Artificial intelligence (AI) is revolutionizing underwriting and claims processing, but regulators are increasing oversight to protect consumers from algorithmic biases and ensure transparency.

Key Regulatory Changes

• New governance requirements for AI-driven decision-making in underwriting.
• Guidelines to ensure fair and explainable AI models in insurance pricing.
• Regulatory push towards “human-in-the-loop” models, requiring human review of AI-based decisions in high-impact cases.

Why Insurers Need to Act

Failure to comply with AI governance regulations could result in legal challenges, reputational damage, and regulatory penalties. Insurers must audit their AI models, document decision-making processes, and introduce bias-detection mechanisms.

5. The Competitive Landscape: Navigating Regulatory Uncertainty in 2025

Despite increasing regulatory scrutiny, the Canadian property and casualty (P&C) insurance market remains highly competitive, with a surge in capacity and pressure on market share growth.

Current Market Trends

• Insurers are adjusting underwriting strategies to account for new financial risks.
• New product innovations (e.g., parametric insurance, cyber-risk coverage) are gaining traction.
• Flexible program structures are becoming a key focus for insurers looking to remain competitive.

6. Potential Political Shifts and Deregulation Under a New Government

With a potential Conservative government on the horizon, deregulation could play a role in shaping the insurance sector in the coming years.

Possible Impacts

• Relaxation of financial disclosure obligations.
• Changes in class action risk for insurers.
• Shift in climate risk regulations, depending on political priorities.

While deregulation could reduce compliance burdens, insurers should remain cautious about reputation risks, environmental liability, and cybersecurity threats.

How Insurers Can Stay Ahead

The Canadian insurance industry in 2025 is at a crossroads, facing new regulatory challenges while also encountering significant growth opportunities. Navigating these changes successfully requires a proactive approach to compliance, technology adoption, and risk management.

Key Takeaways for Insurers:

1. Adapt to the New Interest Rate Cap
   • Insurers offering credit-linked products must adjust their pricing and lending strategies to comply with the 35% APR cap.
   • Reviewing loan underwriting practices and aligning with the new regulations is crucial.
2. Prepare for OSFI’s Crypto Regulations
   • If engaging with crypto-assets, insurers need robust risk assessment frameworks to comply with new capital and liquidity requirements.
   • AI-driven risk monitoring tools may help navigate evolving crypto market risks.
3. Enhance Climate Risk Management Strategies
   • Despite the extended deadlines for Scope 3 emissions reporting, insurers should proactively integrate sustainability goals into their risk models.
   • Adjusting pricing models for catastrophe insurance will be crucial as climate risks continue to grow.
4. Ensure AI Compliance and Ethical Governance
   • As AI-powered underwriting and claims processing become the norm, insurers must develop transparent AI models that meet regulatory scrutiny.
   • Implementing human oversight in AI-driven decisions will be key to avoiding legal and reputational risks.
5. Strengthen Market Position Amid Regulatory Uncertainty
   • With the potential for deregulation under a new government, insurers should prepare for both opportunities and risks.
   • A shift in climate and financial policies may impact long-term investment and underwriting strategies.
6. Innovate and Stay Competitive
   • The Canadian insurance sector remains highly competitive, with demand for cyber insurance, parametric insurance, and embedded policies rising.
   • Insurers that invest in digital transformation, automation, and AI-driven risk assessments will be better positioned to scale efficiently.

Final Thoughts: Building a Resilient Insurance Industry

Regulatory shifts in 2025 demand adaptation and strategic foresight. Insurers that proactively enhance their compliance programs, adopt emerging technologies, and innovate risk assessment models will thrive in this evolving environment.

By staying ahead of these regulatory developments, insurers can not only ensure compliance but also strengthen consumer trust, improve operational efficiency, and unlock new revenue opportunities in an increasingly complex market.