A report from the C.D. Howe Institute said strict controls on auto insurance pricing in several provinces left insurers unable to keep pace with rising costs and emerging risks.
The study, The Price of Over-Regulation: Assessing the Impact of Rate Controls on Auto Insurance Market Flexibility in Canada, singled out Alberta, Ontario and Atlantic Canada for having rigid rate-setting systems that slowed insurers’ ability to respond to shifts in claims costs. It found insurers in these provinces adjusted premiums about two per cent less in response to cost increases than those in more flexible markets.
The report warned that delays in premium adjustments could lead companies to scale back their market presence or drop certain products, reducing competition and consumer choice.
C.D. Howe outlined four models of rate regulation: prior approval, file and use, use and file, and open competition, most often used in combination across Canada. It recommended moving toward more flexible approaches to allow pricing to better reflect real-time risk.
The Insurance Bureau of Canada supported the push, arguing that competition offered the best consumer protection. The report pointed to Quebec, where private vehicle damage rates faced minimal regulation and insurers still adhered to national fair treatment guidelines.
Internationally, regulators in Europe, the UK, Australia and South Korea had eased direct control over rates to encourage innovation and investment. Canada, the report said, was moving in the opposite direction, with costly regulatory frameworks that ultimately fed through to consumers.
It linked the trend toward tighter controls to the early 2000s, when premiums rose sharply in some regions. Industry groups argued then, as they do now, that reforms targeting claims costs, not price caps, were the more effective solution.
C.D. Howe said modernizing Canada’s approach could help restore competition, attract investment and keep pace with global shifts, noting that protecting consumers and enabling market flexibility could work in tandem.
