Insurance Regulation and the Composition of Insurance Markets

Abstract

The Canadian property/casualty insurance industry is subject to significant regulation which varies considerably by province. This article examines whether these differences in regulation, as well as demographic factors and economic conditions, impact the number and characteristics of auto insurers that choose to operate within each province. Using five Poisson regression models, we model the number of auto insurers (total and by distribution technology and ownership) as a function of provincial characteristics. While provinces with smaller markets — whether because of population or government-run auto insurance — have fewer insurers, we find that regulation has the greatest impact on the number of direct writers in a province. Market cycle conditions also affect the number of insurers, with the number of insurers increasing as the market softens. Because the majority of auto insurers in Canada also sell commercial insurance, we conjecture that intervention in auto insurance markets may have unintended consequences on other insurance markets.

Keywords: Insurance regulation, insurance markets, property/casualty insurance

JEL Classification: G22