The Impact of Rate Regulation on the Performance of the Canadian Property/Casualty Insurance Industry

This study examines the relationship between regulatory intervention in private Canadian auto insurance markets and the size of the involuntary market, insured losses and industry wide loss ratios. Fundamentally, the Canadian experience is significantly different from the U.S. experience. The presence of prior-approval regulation does not impact the size of involuntary markets in Canada. Only two regulatory interventions impacted the size of the involuntary market. The introduction of grid pricing which mandated maximum premiums that could be charged to insureds lead to a large increase in the size of the involuntary market in Alberta. Similarly provinces that enacted rate reduction orders also saw a statistically significant increase in the size of involuntary market.