The Price of Over-Regulation: Assessing the Impact of Rate Controls on Auto Insurance Market Flexibility in Canada

The Price of Over-Regulation: Assessing the Impact of Rate Controls on Auto Insurance Market Flexibility in Canada

• Automobile insurance regulation must walk a fine line: ensure actuarially accurate pricing while also ensuring that insurers are not overburdened with unnecessary barriers that could prevent them from setting appropriate prices given market conditions.

• By examining the varying levels of regulation across the provinces, the author shows that stricter price controls – such as those in Alberta, Ontario, and the Atlantic provinces – significantly restrict insurers’ ability to adjust premiums in response to changing risks. This limitation could compromise their financial resilience in the long run, especially as market conditions become increasingly volatile. This is particularly concerning as Canada faces an increased frequency of extreme weather events, which have had direct impacts on the auto insurance sector and heighten the urgency for insurers to be agile in their pricing strategies. Without that, it could force insurers to limit coverage or withdraw from markets, worsening other market inefficiencies.

• From a policy perspective, this study highlights the importance of ensuring rate regulation regimes do not necessarily hinder market flexibility. While some policymakers view rate regulation regimes as a means of consumer protection, market conduct concerns are best dealt with elsewhere. Rigid rate regimes often prevent insurers from setting appropriate prices, which could ultimately create challenges as insurers are in greater need of agility in light of growing risks.

1. Introduction

Automobile insurance is an essential component of modern road safety, ensuring that drivers are protected in case of accidents, theft, and other risks. However, as with most financial products, the pricing of automobile insurance premiums is a complex issue, influenced by a multitude of interplaying factors ranging from individual risk profiles to larger macroeconomic conditions and shocks. One of the most important elements in this complex pricing process is the set of regulations that apply to auto insurance rates. Unlike many other industries, including other lines of property and casualty (P&C) insurance, auto insurance is mandatory by law. This compulsory nature is where one gets the idea for pricing regulation. Rate regulation is intended to ensure the best combination of stable premiums and a competitive market. The goal is to make sure that insurers adhere to predictable and understandable pricing models and schedules over time while allowing for a competitive environment.

There are theoretical reasons behind this type of rate regulation (I present a simple theoretical model that explains the foundations for this approach in Appendix A). The idea stems from what is often referred to as the “first-best” scenario: in short, a social planner would remove any economic friction and uncertainty and would set insurance rates well in advance, making sure they remain constant. In such a scenario, consumers could plan ahead with confidence and commitment, and social welfare would, therefore, be maximized. In this certain and frictionless world, any type of price volatility would lead to socially suboptimal outcomes and should be tamed.

In practice, however, it is important to acknowledge that frictions, uncertainty, and unforecastable shocks play a fundamental role in the real world (e.g., the COVID-19 pandemic, the tariff war between Canada and the United States, etc.) The automobile insurance market examined here is no exception, and it often deviates from the first-best scenario and, therefore, from the socially optimal allocation.

Financial frictions and sudden and unexpected macroeconomic shocks make it difficult for there to be a long-term commitment from both insurers and consumers. A simple example of this is the current tariff war. The resulting unexpected inflation in car parts and repair costs will make it hard for insurers to stick to their previous rates. At the same time, general inflation and economic uncertainty might make consumers more willing to re-discuss their previous contracts.

Further, insurers are subject to stringent capital reserve requirements (set up to make them financially resilient). Not meeting these requirements can lead to a downgrade in credit rating and, in the worst scenario, can lead to insolvency. These requirements act as strict participation constraints (i.e., minimum conditions that firms must meet to remain viable market participants) and have become increasingly more important and binding in recent years as weather-related extreme events and major economic shocks have become more and more frequent. The argument for regulation is, then, to close this gap with the first-best scenario.

However, it is not easy to do so, and automobile insurance regulation is looking to walk a fine line: ensure pricing is reasonable for the consumer, while allowing insurers to respond to economic conditions.

A well-regulated insurance environment must encourage healthy competition to guarantee benefits and choice for consumers, while maintaining solvency among insurers. To achieve these goals, several regulatory models are employed around the world, each with its own set of advantages and challenges. The existing systems can be classified into four regulatory archetypes: Prior Approval, File and Use, Use and File, and Open Competition.

This paper starts by presenting these four archetypical regulatory frameworks, highlighting the strengths and weaknesses of their designs. I will then, after a brief overview of how regulatory systems around the world work,¹While the focus is on the auto industry, the archetypes presented here apply more generally to the entire P&C insurance industry. focus on the Canadian market. I will show how different provinces opt to adopt different combinations of the above-mentioned regulatory systems. Finally, through a structural and quantitative analysis, I address the central question: do stricter regulatory regimes hinder insurers’ ability to appropriately respond to economic shocks, and is there a cost to these stricter regulatory regimes?

My results show that in Canada, insurers operating in provinces with stricter rate regulation tend to be less responsive to increases in claims and losses. This reduced flexibility is particularly concerning given the rising frequency and severity of major economic shocks and extreme weather events, which directly affect auto insurance claims and losses. Economic shocks such as inflation and supply chain disruptions (e.g., the ones caused by tariffs) have increased the cost of vehicle repairs and replacement parts, driving up claim costs.²McGillivray, Marisa. 2025. Impacts of Rising Costs and Claims on Personal Automobile Insurance Profitability and Consumers in Canada. Statistics Canada, Analysis in Brief, April 2. https://www150.statcan.gc.ca/n1/pub/11-621-m/11-621-m2025003-eng.htm. Meanwhile, extreme weather events, such as floods, hailstorms, and severe winter conditions, have caused significant spikes in auto insurance claims across the country.³For example, in 2024, severe weather events across the country resulted in over $8 billion in insured losses and approximately 250,000 insurance claims, many of which are related to vehicle damage from flooding, hail, and icy roads. See: de Pruis, Rob. 2025. “Protecting Your Tomorrow: Canada’s Insurers Rise to the Challenge When Disaster Strikes.” Insurance Bureau of Canada. March 31. https://www.ibc.ca/news-insights/in-focus/protecting-your-tomorrow-canada-s-insurers-rise-to-the-challenge-when-disaster-strikes; Recamara, Josh. 2025. “Auto Insurance Sector Under Pressure: Statistics Canada.” Insurance Business Canada. April 3. https://www.insurancebusinessmag.com/ca/news/auto-motor/auto-insurance-sector-under-pressure-statistics-canada-530845.aspx. If insurers cannot adjust premiums promptly in response to these shocks due to regulatory constraints, they may face financial strain, potentially leading to market exits. This would reduce competition and increase market friction, ultimately harming consumer welfare. My findings suggest that Canadian regulatory regimes should evolve toward more flexible pricing frameworks that allow insurers to better manage risk in a dynamic environment.

2. The Four Regulatory Archetypes: Theory and Global Practice

Globally, automobile insurance markets are regulated using different models, each with the aim of balancing insurer flexibility with stability in consumer pricing. As noted above, these models are generally categorized into four distinct frameworks: Prior Approval, File and Use, Use and File, and Open Competition. The first two (Prior Approval and File and Use) are by far the most common approaches, including in Canada. Each of these four models offers a different approach to how insurance rates are set, how much control insurers have over their pricing decisions and the degree of regulatory oversight they are subject to. The following subsections will briefly present them (Table 1 summarizes each, while Box 1 contains a short discussion on other models used in practice).

2.1 Prior Approval System

The Prior Approval system requires insurers to submit their rate proposals to regulatory authorities for approval before they can implement any rate changes. Under this model, insurers, before making any change, must justify their proposed adjustments with supporting data and detailed actuarial analysis. The regulatory authority reviews the proposal to determine whether the rate change is warranted based on factors such as risk, market conditions, and economic forecasts. Only once the proposal is approved can the insurer apply the new rates.

The Prior Approval system is intended to provide greater protection to consumers by ensuring that rate changes are thoroughly checked, verified, and justified.

However, the Prior Approval approach has limitations. Most notably (and intuitively), the approval process can be slow, in many markets taking several months, which limits insurers’ ability to react and adjust rates quickly in response to rapidly changing market conditions. Additionally, the bureaucratic nature of the process can lead to inefficiencies, with insurers needing to submit multiple revisions to satisfy the regulatory body’s requirements. This delay can become problematic in situations where there are significant shifts in risk or economic conditions, leaving insurers unable to adjust their rates in a timely manner and, therefore, risking financial instability. In fact, in the automobile insurance market, recent reports have noted that delays in premium adjustments, especially in response to rising claims costs and inflation, can lead insurers to reduce their market participation or withdraw certain products,⁴Contant, Jason. 2024. “Why Canada’s Auto Line Isn’t Stable – or Profitable.” Canadian Underwriter. July 23. https://canadianunderwriter.ca/news/claims/why-canadas-auto-line-isnt-stable-or-profitable/. ultimately reducing consumer choice, competition, and welfare.

2.2 File and Use Model

Contrary to the Prior Approval model, the File and Use model is a more flexible regulatory framework and is particularly prevalent in markets where the regulatory environment favours swift responses to market conditions. Under this system, insurers are required to file their proposed rates with the regulatory authority, but they do not need prior approval to implement them. Once a rate is filed, insurers are free to apply it immediately, though regulatory bodies retain the authority to review it, require further documentation, and take corrective actions if necessary.

This flexibility allows insurers to respond quickly to emerging risks and shifting conditions, such as changes in accident frequency, evolving road and weather patterns, or cost pressures linked to economic factors and shocks such as tariffs. Events like wildfires, flooding, or hailstorms can suddenly and sharply increase claims in certain regions,⁵Smith, John. 2024. “How Do Extreme Weather Events Impact Car Insurance Rates?” VandenBout Law Blog. November 22. https://www.vandenboutlaw.com/how-do-extreme-weather-events-impact-car-insurance-rates/. while supply chain disruptions can drive up repair costs. The File and Use system enables insurers to reflect these factors in their pricing without waiting for lengthy regulatory approval. It also promotes more direct competition, encouraging innovation and potentially more competitive rates.

While the flexibility offered by the File and Use system allows insurers to respond more swiftly to market conditions, the counterpoint would be that it also limits the time regulators can take to ensure price changes are appropriate. In markets where there isn't sufficient competition, this could lead to potential abuses. However, in Canada, by the commonly used Herfindahl-Hirschman Index, the P&C insurance industry, including auto insurance, falls in the competitive marketplace range (Campbell 2024). Regardless, regulators have a range of existing tools, regulations, and guidelines aimed at protecting consumers. The Canadian Council of Insurance Regulators, for instance, has issued a fair treatment of consumers guideline that all insurers are expected to follow.

2.3 Use and File

The Use and File System is a further step in the direction of price flexibility. Under this framework, insurers are allowed to immediately apply rate changes without needing prior approval from the regulatory authority. Under this system, insurers have the flexibility to adjust rates and implement them in the market first. Only afterwards, within a pre-established time frame, must they file the rates with regulators and provide any necessary justification or documentation to explain the changes. Once filed, regulators review the rates to ensure they are not excessive, unfair, or discriminatory. This language is used in US states, with each of these three elements strictly defined. If the rates are found to be problematic, the regulatory authority can require insurers to adjust them post-implementation. This system is efficient in terms of allowing insurers to respond quickly to market dynamics while still maintaining oversight to prevent pricing practices that could harm consumers.

It is worth underlining that the Use and File System differs from the File and Use System primarily in the timing of rate application and filing. In File and Use, insurers are required to file their rates before applying them to the market. In contrast, the Use and File System is even more flexible, as it allows insurers to implement rates first and then file them afterward for regulatory review. Both systems remove the need for prior approval, allowing insurers to adjust rates with more agility, but the difference lies in the order in which rates are applied and submitted.

2.4 Open Competition System

The Open Competition system is the least restrictive of all regulatory models. In fact, it does not entail any type of price regulation or price control. Under this framework, insurers are free to set their rates based on market forces – essentially allowing competition to determine the pricing. Insurers are not required to file their rates with regulatory authorities or seek approval before making adjustments. The thinking behind this system is that the competitive nature of the market will drive insurers to set fair prices, as consumers will have the ability to shop around for the best rates.

Proponents of the Open Competition system argue that it promotes innovation, as insurers are encouraged to create new products and offer competitive pricing to attract customers. The system also allows consumers a high degree of choice, as multiple insurers compete for business in a free market. Additionally, with sufficient competition, prices may remain relatively low, as insurers have an incentive to keep their rates competitive, acting as price takers.

Of course, the lack of regulation in the Open Competition model can lead to risks in terms of unsustainable premiums depending on levels of competition (and on levels of market conduct regulation)⁶For example, see the UK’s Financial Conduct Authority. within the market.⁷Without rates oversight, it is possible in an uncompetitive market that insurers may engage in predatory pricing – offering unsustainable low rates to attract customers, only to later raise premiums once they have gained market share (a lack of commitment plays the biggest role in reducing consumers’ welfare) (Aizawa 2024). We note that the abuse of dominant market positions in Canada is monitored and forbidden under the Competition Act (https://competition-bureau.canada.ca/en/how-we-foster-competition/education-and-outreach/abuse-dominance-enforcement-guidelines).

2.5 In Practice: Hybrid Systems

In practice, many insurance markets implement variants of the four archetypical regulatory systems, with File and Use by far the most common baseline approach. This use of a hybrid approach tries to strike the best possible balance between predictability for consumers and price flexibility based on market conditions for insurers. For instance, a very popular hybrid system is a mix of File and Use and Prior Approval systems. Within this framework, while insurers are allowed to implement some rate changes quickly (and then have them reviewed later), some other changes (oftentimes the biggest ones) may need Prior Approval, as they often involve significant adjustments for consumers. Alternatively, some markets that operate under Open Competition might still impose filing requirements for particular changes (de facto a mix between Open Competition and Use and File) to ensure that insurers’ rates align with broader regulatory guidelines or to prevent discriminatory practices.

In most of these hybrid systems, insurers are given some flexibility in how they set rates, but regulators ensure that they remain within acceptable limits, adjusting the level of oversight based on the type of insurance or specific market conditions.

3. Automobile Insurance Regulation in Canada

Unlike the United States, Canada has never had a similar anti-trust law like the McCarran-Ferguson Act, nor has it experienced a push for national regulation in the manner of Europe’s Third Insurance Directives (see Box 1 for more).⁸As consumer protection and market conduct issues related to insurance fall under provincial, not federal, jurisdiction. Consequently, active price regulation in Canada is a relatively recent and heterogeneous development and, until 2003, was limited to Ontario. Nowadays, it is the responsibility of the provinces, and there is no national harmonization. Because, for a long time, Canada’s automobile insurance industry operated de facto under an Open Competition model, the effects of regulation – and the necessary data to perform the analysis – are largely still uncharted. This paper will help fill the gap.

Since insurance regulation is determined at the provincial level, there is a diverse set of frameworks across the country that reflect the distinct economic, social, and regulatory needs of the regions.

All Canadian automobile insurance regimes can be described as being based primarily upon liability-based or no-fault-based rules and can be characterized as being publicly or privately provided. Alberta, the Atlantic provinces, and Ontario have purely private provision (subject to provincial regulations and the tensions this can have with the insurance sector), whereas British Columbia, Manitoba, and Saskatchewan have public monopoly provision (apart from Manitoba, which is fully public, the others are really “hybrid” systems⁹In BC, ICBC holds roughly 85–90 percent of the optional auto insurance market. See: Kent, Nigel. 2011. “A Commentary on the Auto Insurance System in BC.” Clark Wilson LLP. November 8. https://www.cwilson.com/commentary-on-auto-insurance-system-in-bc/?utm. This illustrates how the BC market is publicly dominated, with a limited private presence even in the optional coverage. insofar as private companies can provide insurance beyond the basic mandated package).¹⁰Wallcraft, Stephanie. 2024. “Public vs Private Car Insurance: How Car Insurance Differs Across Canada.” Driving.ca. January 6. https://driving.ca/features/shopping-advice/public-private-car-insurance-across-canada. Quebec is an outlier as it has publicly provided insurance for bodily injuries and privately provided insurance for property damages. Given its particular nature and, therefore, the incomparability of its data, I leave Quebec out of this analysis.¹¹Devlin, Rose Anne. 2019. “A Comparison of Automobile Insurance Regimes in Canada.” Assurances et Gestion Des Risques 86(1-2): 55–96. https://www.revueassurances.ca/wp-content/uploads/2021/02/03_AGR_Vol_86_1-2_Art03_Devlin_Pro_web.pdf. It is worth noting that there is no evidence that this paper is aware of that Quebec, which essentially lacks rate regulation for private vehicle damage, exhibits indications of unfair treatment towards consumers. In fact, insurers are required to adhere to the Canadian Council of Insurance Regulators (CCIR) guidelines on the fair treatment of consumers.

Nowadays, all the provinces’ insurance rate regulation systems can be described as a combination of the regulatory frameworks presented earlier. The two systems that appear most prevalent (in pure or combined forms) are the File and Use and the Prior Approval systems.

3.1 Ontario, Alberta, and the Atlantic Provinces: Modified File and Use Systems

Ontario, Alberta, and the Atlantic provinces have all adopted particular mixes between the File and Use and the Prior Approval regulatory models.¹²For a detailed breakdown of the regulatory models in each province, see Appendix B. Insurers are allowed to implement some of their rates immediately after filing them with the relevant regulatory authorities, provided they meet regulatory standards; in general, most provinces allow a range of up to 5 percent.¹³It should be noted that this threshold is rarely reconsidered and adjusted. This reduces the model’s benefits. However, prior approval is still required for larger rate increases or other big changes. This means that if an insurer seeks to implement a significant increase in premiums (often defined as a certain percentage increase) or a substantial alteration to the structure of its rates, it must receive explicit approval from the regulatory body before the rates can take effect. As previously explained, the rationale behind this mixed approach is to allow for some flexibility in rate setting while ensuring that regulators have the authority to intervene if they believe prices have been set inappropriately.

3.2 Public Insurance Models: British Columbia, Manitoba, Saskatchewan, and the File and
Use System

British Columbia, Manitoba, and Saskatchewan all operate under a File and Use system for regulating automobile insurance rates.¹⁴For a detailed breakdown of the regulatory models in each province, see Appendix B. Insurers are allowed to implement their rates immediately after filing them with the relevant regulatory authority, provided that those rates meet certain regulatory standards. Regulatory authorities review these filings and intervene if the rates are found to be excessive or inadequate, in theory ensuring that rates align with the province’s regulations.

4. Assessing the “Cost of Regulation”

After describing the regulatory systems and their differences, I now address the central question of this study: do stricter rate regulation regimes hinder insurers’ ability to adopt necessary rate changes in response to economic shocks and market conditions, potentially affecting their solvency, adaptability to changing risks, and efficiency in serving customers?

To tackle this issue in depth, I have constructed a structural pricing model (presented in Appendix C) that builds on two of the most used and influential models in the literature on insurance pricing (Hiebert 1976; Hizawa and Ko 2023). Through this model, I derive a statistic that shows how the premiums’ rate of change primarily depends on the change in insurers’ losses.¹⁵Download PDF for full citation. A virtue of this approach is that by looking at the change in premiums from a change in losses, it becomes possible to disentangle the effects of regulation from the effects of competition.¹⁶Details can be found in Appendix C, Focus: Identifying the Sole Effect of Regulation. Download full PDF. The critical parameter is the adjustment parameter, ϕ. In fact, ϕshows the fraction of the change in losses that directly translates into a change in rates. Following a shock that affects losses because levels of competition do not change significantly from period to period,¹⁷In Canada, while Intact Financial Group has the largest market share by a significant margin, as discussed earlier, the industry’s Herfindahl-Hirschmann Index, a measure of market concentration, remains comfortably in the range of a competitive marketplace (Campbell 2024). ϕcaptures only the unintended consequences of price regulation. In the presence of rate regulation, insurers might not be able to adjust their rates as much as they would need, and ϕreflects exactly how much insurers’ ability to adjust their rates in response to changing market conditions is affected. A lower value of ϕcorresponds to a more significant regulatory burden, as it means that it is harder for insurers to quickly adjust their premiums in response to economic shocks.

These are not just hypotheticals. Empirically and historically, there is evidence of this. Hiebert (1974) shows how, in the US, stricter rate regulation regimes decrease the speed of the rates’ adjustment process, advocating for the adoption of more flexible regimes. More recently, Born and Klimaszewski-Blettner (2023) provide empirical evidence that heavy regulatory frameworks, which affect pricing decisions, unintentionally push insurers outside the market, impeding their willingness to provide coverage against natural disasters.

4.1 Data and Methodology

This analysis draws on a combination of private insurance data from the General Insurance Statistical Agency (GISA) (covering Alberta, the Atlantic provinces, and Ontario) and public insurance data from Saskatchewan, British Columbia, and Manitoba, with additional cross-validation using Statistics Canada data.¹⁸See Appendix D for more details on data sources including issues of comparability. Download full PDF. Provinces are then categorized into two groups: “File and Use” (British Columbia, Manitoba, and Saskatchewan), where insurers have more flexibility in rate adjustments, and “hybrid” provinces (Alberta, Ontario, and the Atlantic provinces), which have stricter regulatory oversight. As explained, the hypothesis tested in this study is that the coefficient ϕ is smaller in the more regulated hybrid provinces.

This suggests that insurers are not responding to economic shocks or changes in claims experienced as much as they would like to due to more significant regulatory barriers. By comparing the price adjustment behaviours of insurers across these two groups, I aim to gain a clearer understanding of how varying levels of regulatory intensity impact insurers’ ability to adapt their pricing strategies in response to evolving market conditions.

4.2 Quantitative Results

The results of the analysis (reported in Appendix E, Table E1) suggest that the regulatory intensity across Canadian provinces has a significant and relevant impact on insurers’ ability to adjust their premiums. On average, provinces with more stringent rate regulations (i.e., Alberta, Ontario, and the Atlantic provinces) face increased challenges in adjusting their premiums, with adjustments around 2.1 percent smaller than in less regulated provinces.¹⁹I performed different robustness checks around time periods and empirical techniques but found no significant differences in the results.

While this percentage difference may seem modest at first glance, it assumes greater importance when considering the broader context. Over the past few years, Canada’s automobile insurance sector has been struggling with big economic shocks driven by a combination of supply chain disruptions, inflation, and severe weather events.²⁰Recamara, Josh. 2025. “Auto insurance sector under pressure: Statistics Canada.” Insurance Business Canada. April 3. https://www.insurancebusinessmag.com/ca/news/auto-motor/auto-insurance-sector-under-pressure-statistics-canada-530845.aspx. As a result, the need to quickly react and adjust insurance rates in response to these shocks becomes paramount for insurer survival. In provinces with stricter regulations, insurers’ ability to adjust prices in a timely and appropriate manner is more constrained, and these restrictions might very well create a mismatch between premium levels and actual risk exposure.

The findings are further validated by a visual analysis of the data. Comparing the growth rate of the ratio between losses and premiums reveals a different trend between the more and the less regulated provinces (Figure 2 vs Figure 3, respectively). While the loss to premiums ratio of the less regulated provinces has remained somewhat constant (Figure 3) and does not exhibit any trend, the loss to premiums ratio of the more regulated ones is upward-sloping (Figure 2), indicating a greater change in losses than a change in premiums. This positive trend points to the strain on insurers posited in the analysis. At some point, if this trend continues, insurers might be forced to consider whether to continue in certain market segments. Stricter regulatory frameworks could, in the long run, contribute to greater market inefficiencies than the ones they help to solve.

5. Conclusion and Policy Discussion

This study complements previous C.D. Howe Institute papers highlighting the necessity of reforming the Canadian auto insurance system (Marshall 2022; Campbell 2024). Here, the focus shifts to auto insurance market regulation and focuses on how different regulatory environments and approaches shape auto insurance pricing behaviour in Canada. Rate regulation is a rather new phenomenon in the country. Hence, studies in this field are crucial to understanding what has and has not worked and how to improve the current policy and regulatory frameworks. By examining the varying levels of regulation across the provinces, I have shown that stricter price controls – such as those in Alberta, Ontario, and the Atlantic provinces – significantly restrict insurers’ ability to adjust premiums in response to changing risks. This limitation could compromise their financial resilience in the long run, especially as market conditions become increasingly volatile. This is particularly concerning as Canada faces an increased frequency of extreme weather events, which have had direct impacts on the auto insurance sector and heighten the urgency for insurers to be agile in their pricing strategies. Without that, it could force insurers to limit coverage or withdraw from markets, worsening other market inefficiencies and diminishing consumers’ ability to purchase insurance to protect themselves.

From a policy perspective, this study highlights the importance of striking the right balance between consumer affordability for a mandated product, and the need to ensure insurer solvency and market dynamism. While the first goal might be more popular and might seem more pressing from a political perspective, the results indicate that neglecting the latter paradoxically leads to harmful consequences for the former. It begs the question of whether regulation focused on market conduct instead of price setting is better at achieving desired consumer protection.

The findings should also be combined with the fact that regulating rates is expensive to administer. These costs are ultimately passed down to consumers – either through inevitable price adjustments or through decreased competition.

Focusing on market flexibility does not mean abandoning consumer protection. There may be complementary ways to preserve consumer safeguards while moving toward more competitive and responsive regulatory frameworks. For example, encouraging the development and accessibility of reliable, independent price comparison tools can help reduce consumer information search costs. Such tools improve transparency, empower consumers to make informed choices, and promote market discipline on prices, supporting consumers without relying on rigid rate controls.

Short of that, policymakers need to improve their assessments and estimates of the evolution of risks across regions and market segments in setting their regulatory strategy. Certainly, in areas that are more vulnerable to extreme weather events and other sudden and quickly emerging risks, regulators should adopt flexible regulatory frameworks, such as pure File and Use or Use and File systems. This will maintain regulatory oversight while enabling insurers to respond immediately, making it easier for a competitive environment to thrive – ultimately, a primary driver of achieving robust consumer protection.

The author extends gratitude to Jordan Brennan, Alister Campbell, Charles DeLand, Jeremy Kronick, David Longworth, Karin Ots, Mark Zelmer, and several anonymous referees for valuable comments and suggestions. The author retains responsibility for any errors and the views expressed.

Appendices

View PDF for Appendices.

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