Regulation

Solvency oversight is primarily handled by the Office of the Superintendent of Financial Institutions (OSFI), which regulates all federally incorporated insurers. Some smaller insurers are incorporated only at the provincial level, and their financial health is monitored by the relevant provincial regulator.

A key tool for assessing insurers’ financial strength is the Minimum Capital Test (MCT), which measures whether insurers have enough money set aside to cover potential losses.

Market conduct regulation governs how insurers interact with consumers and is overseen at the provincial level. Each province and territory has its own insurance regulator. These bodies oversee things like the fair treatment customers (home, auto and business policyholders), licensing, and the approval of policy wordings for certain lines of insurance. Insurers are required to complete an Annual Statement on Market Conduct every year.

This decentralized system requires national insurers to navigate 13 separate regimes, leading to duplication and administrative inefficiencies.

Provincial and territorial regulators belong to an association called the Canadian Council of Insurance Regulators, and IBC engages with this group to share the industry’s perspective on new and revised market conduct expectations, and how best to harmonize across multiple jurisdictions. The FTC (Fair Treatment of Customers) Guidance has been in effect since 2018.

Canada has some of the strictest frameworks for pricing auto insurance compared to its international peers.

Every province has its own rate regulation regime, with some more onerous and restrictive than others. The complexity and stringent nature of these systems add costs and, in the most extreme and interventionist cases, can force insurers to charge rates that do not cover their costs, leading to losses on auto insurance products. This can cause insurers to reduce their presence or stop doing business in a province altogether, which lessens competition in the marketplace and choice for consumers.

Insurance is a heavily taxed product, raising the cost for consumers. Examples include sales tax, insurance premium tax and heath care levies. Some of these taxes are paid directly by policyholders and others are paid by insurers – but they all contribute to  the cost of insurance for consumers.

There is no consistency from province to province, so the patchwork approach to taxation also creates complexity and inefficiency.

Insurance companies must be licensed federally, provincially or both. In addition, insurance professionals (e.g., adjusters, brokers, agents) must be licensed provincially, and each province has its own unique licensing regime.

Like taxation, the lack of harmonization across provinces creates complexity and inefficiency. It also hinders labour mobility. This is most problematic during natural disasters, when insurers need to bring in professionals from elsewhere to handle the higher number and influx of claims – the disjointed licensing requirements become an impediment to serving victims quickly and efficiently.

Add innovation to regulator mandates: Currently, regulation rightly places strong emphasis on ensuring insurers remain financially sound and treat consumers fairly – both foundational responsibilities that must be preserved. At the same time, mandates should also evolve to include promoting innovation and growth in the market – as has been done in other countries. This expanded, and more balanced, outlook would help ensure that rules encourage better products, improved service, and greater long‑term value for consumer.

Conduct cost-benefit analyses: New rules can add costs without improving service or consumer protection. When a new regulation is being considered, regulators should conduct cost-benefit analyses before and after implementation – and scrap measures that fail to achieve their intended purpose. These analyses should be made publicly available to support transparency and foster industry buy-in.

Coordinate across jurisdictions: There is no reason to have 13 different solutions for the same issue. The current patchwork creates inefficiencies and unnecessary costs. Before proceeding with new regulations, regulators should collaborate, agree on the problem, and create a harmonized solution.

Fix licensing barriers for claims adjusters: Current licensing requirements prevent claims adjusters from working across provincial borders. During major natural disasters, this slows claims processing and delays recovery for families and businesses. The solution is straightforward and urgent: provinces should agree to a framework that enables an adjuster licensed in one province, to readily work in other jurisdictions . This enables professionals to go where they are most needed and will ensure faster, more effective disaster response.

Introduce flexible capital requirements: The rules on how much capital insurers must keep locked away are inflexible – often lagging significantly behind changing economic conditions. Yet the optimal use of that capital heavily depends on what’s happening in the economy. Making capital rules more flexible would allow insurers to access temporary relief during tough times and invest more strategically to help fuel growth during good times.

Expand insurer investment options: Current rules make it harder for insurers to invest in things like infrastructure, green projects, and other long-term assets. Updating these rules – for example, by lowering the extra capital charges on such investments – would free up funds for projects that strengthen Canada’s economy and resilience.

Eliminate sales tax on insurance: Some provinces layer a sales tax on top of the Insurance Premium Tax (IPT) – a tax on a tax – which can increase insurance bills by as much as 20%. This is punitive on insurance buyers and can force policyholders, particularly small businesses, to buy inadequate amounts of insurance to save money. Sales tax on insurance should be eliminated.

Maintain stable, low insurance tax policy: Governments should not treat insurance as a revenue tool at the expense of consumers. Commit to keeping insurance taxes low and predictable, with no hidden or ad hoc hikes that make coverage unnecessarily expensive.

Eliminate onerous rate approval rules: It can take months for rate changes to be approved, which may lead insurers to withdraw from markets, reducing competition. Regulators should move away from these restrictive prior approval frameworks to more flexible systems where insurers can begin using new rates before they file them. This will allow regulators to maintain oversight, but without delaying necessary price adjustments.

Keep politics out of pricing: Political interference should not decide what auto insurance costs. Provincial governments should commit to never imposing artificial controls such as rate freezes or caps and, instead, allow actuarial science and healthy market competition to drive rates.

Harmonize pricing rules across provinces: Insurers currently navigate a patchwork of different pricing regulatory regimes across multiple provinces. This is inefficient. A coordinated approach to auto insurance rate regulation would save resources and, ultimately, money for consumers.