Too Rigid to React? Insurance Rate Rules Hurt Both Insurers and Consumers

June 26, 2025 – Canadian auto insurance rate regulations, intended to protect consumers, are reducing necessary insurer agility – risking long-term competitiveness in the market, according to a new report from the C.D. Howe Institute.

In “The Price of Over-Regulation: Assessing the Impact of Rate Controls on Auto Insurance Market Flexibility in Canada,” Gherardo Caracciolo finds that provinces with stricter rate approval systems are slower to adjust premiums when costs jump from issues such as inflation, severe weather, or supply chain disruptions.

The C.D. Howe Institute Fellow-in-Residence compares pure “File and Use” system provinces – like British Columbia, Manitoba, and Saskatchewan – with those that combine “Prior Approval” and “File and Use” rules, such as Alberta, Ontario, and the Atlantic provinces. His analysis suggests that in jurisdictions where it takes longer to get rate changes approved, insurers are slower to react to shifts in risk, which only delay higher premiums and lead to reduced coverage options.

Using a model that compares provinces with different regulatory frameworks, he shows that insurers in more tightly regulated markets change their rates by about 2.1 percentage points less than expected in response to losses compared with those in more flexible systems.

Caracciolo analyzes data from both public and private insurers, along with Statistics Canada figures, to understand how regulation affects pricing. He finds that in provinces with tighter rules, the gap between what insurers collect in premiums and what they pay out in claims is widening.

“Regulation plays an important role in ensuring insurance is set appropriately,” Caracciolo said. “But if the rules don’t allow insurers to adapt when conditions change, some may scale back or exit the market entirely – reducing competition and limiting consumer choice.”

Without more flexible rules, insurers may be forced to retreat from certain segments because they can’t cover growing risks. That means fewer options for consumers and less competition, leading to higher prices.

Caracciolo recommends that provinces – especially those more exposed to climate risk – consider moving toward simpler rate-setting models, like “File and Use” or “Use and File,” while re-focusing concerns over consumer protection to market conduct regulation.

“Price controls typically do the opposite of what they are meant to do, and we see that with auto insurance rate regulation too,” Caracciolo said. “If insurers can’t adapt, they may leave the market, and that means fewer choices and higher prices for the consumers these rules were meant to help.”

Read the Full Report

For more information, contact: Gherardo Caracciolo, Fellow-in-Residence, C.D. Howe Institute; Percy Sherwood, Associate Editor and Communications Officer, C.D. Howe Institute, 416-407-4798, psherwood@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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