Promoting Competition in Property & Casualty Insurance

Reducing switching costs for Canadian insurance consumers.

This executive summary lays out highlights from the report Promoting Competition in Property & Casualty Insurance, written by Max Bell School Master of Public Policy students as part of the 2021 Policy Lab.

Access the summary and presentation below, and read their full report here.

Property and casualty (P&C) insurance in Canada includes a diverse set of mandatory and optional products that are delivered via both public and private insurance providers. Some are regulated at the provincial and territorial level, while others fall within federal jurisdiction. Car insurance is regulated provincially and territorially and makes up the largest component of Canada’s P&C insurance market. As a mandatory product, car insurance impacts the pocketbooks of most adult Canadians. Despite efforts by regulators, drivers continue to complain of high premiums, particularly in Ontario and British Columbia. Competitive markets need informed consumers who can easily switch between products if they choose to, but in many cases, this is not happening. Survey data on car insurance indicates that about 11% of Canadians switched their providers in the last 12 months, and in Ontario it was only 8%.

Reducing the barriers to switching (monetary and non-monetary) for consumers is key to ensuring that insurance costs do not exceed what consumers are willing to pay, and increases overall competition in the sector. Given the biggest private market for auto insurance in Canada is in Ontario, this report focuses on addressing switching costs in Ontario's auto insurance market and, where possible, draws broader insights to improve the level of competition in Canada’s P&C insurance markets. In this report, anything that constrains or limits switching between providers is considered a “switching cost” or “switching barrier.” Switching costs or barriers in Canada include price bundling, lack of digital offerings, locked-in effects, lack of economic trust and the culture around switching. This report identifies three overarching barriers limiting consumer switching:

  1. Lack of product differentiation in auto insurance
  2. Limited consumer understanding of the differences between products
  3. Gaps in regulatory oversight of switching costs and barriers.

To reduce these switching costs and barriers, the Competition Bureau Canada should work alongside provincial and territorial regulators to increase product differentiation, enhance consumer understanding and ease of comparison between insurance products, and improve regulatory oversight of consumer experience.

As an independent agency promoting competition and innovation, the Competition Bureau is uniquely placed to promote harmonization and ensure that best practices are shared between provincial and territorial P&C insurance regulators. The following policy options draw on global best practices from the United Kingdom (UK), Ireland, and Australia as well as domestic lessons from open banking and Alberta’s auto insurance sector. Reducing the costs of switching for consumers is key to ensuring that consumer interests are protected, and that Canadians prosper by accessing equitably structured markets. Minimizing switching costs for consumers also fosters greater competition among firms giving new producers the ability to capture greater market share and constrain the power of established actors.

Increase product differentiation

Policy option 1: Review regulations to encourage more differentiation in auto insurance products across companies

The high amount of P&C insurance coverage that is regulated (mandatory coverage) means that providers have very little room to differentiate between the products that they offer, limiting competition. The adjustment or removal of mandatory elements in the basic auto insurance policy, such as duplicative medical coverage, could allow for more flexibility in pricing and coverage for consumers. The Competition Bureau should convene provincial and territorial regulators to discuss where potential duplication of coverage may exist, and whether some aspects of mandatory coverage could be adjusted. At the provincial and territorial level, regulators would need to ensure that sufficient consultations and assessments of the potential impacts were undertaken such that any revisions to the regulations do not negatively impact specific groups over others.

Policy option 2: Encourage usage-based insurance policies

A usage-based insurance program is a method of monitoring and gathering data from vehicles including location, driving behavior, and driver activity based on telematics technology. “Pay-as-you-go” and “Pay-how-you-drive” are two types of usage-based programs available in Canada. Each offers drivers the opportunity to pay less for auto insurance due to more accurate pricing decisions. The provincial and territorial governments should foster innovation by addressing regulatory barriers to usage-based insurance policies. The Competition Bureau should work with regulators and policymakers to examine the barriers that are limiting insurance providers from launching usage-based insurance products, factors that make consumers reluctant to enroll in these programs, and mechanisms to sufficiently protect against price discrimination and ensure consumer control over data.

Enhance consumer understanding and ease of comparison between insurance products

Policy option 3: Promote or develop comparison tools

Comparison tools allow consumers to easily compare companies and products. They can improve shopping around and reduce the amount of time spent comparing quotes. The Competition Bureau should examine the comparison tools used across Canada and provide regulators feedback on how to improve and ease the consumer experience of comparison. In addition, the Competition Bureau should explore the availability of rating and comparison tools for other forms of P&C insurance, particularly home insurance which is purchased by most Canadians and not regulated.

Policy option 4: Introduce mechanisms to increase shopping around at renewal, including prompts and longer renewal periods

Renewal is an opportune time for consumers to consider whether they have the right product and best price by looking at the other products their providers offer, or at other companies’ offerings. As a first step, the Competition Bureau should engage with regulators in the UK and Ireland to see how their efforts to use prompts and longer renewal periods have impacted competition in their P&C insurance industries as well as consumer shopping around. This research should support a broader study by the Bureau of more active ways to encourage shopping around, beyond comparison tools, and may benefit from undertaking a randomized control trial, similar to the UK.

Policy option 5: Improve consumer access to their own insurance data, and data mobility

Insurance companies require a significant amount of data from consumers to provide an accurate price estimate. This makes obtaining a comparative quote quite challenging for consumers. The Competition Bureau should promote efforts to increase consumer access to their own data, and data mobility. Building off lessons from the country’s open banking practices regarding data mobility, the Competition Bureau could investigate ways to apply these practices in the P&C insurance industry. The Competition Bureau should also explore international efforts to improve consumer data access and consider piloting a voluntary program which improves consumers' access to their own data.

Policy option 6: Require companies simplify contracts and use plain language contracts or templates

When signing up for P&C insurance or when shopping around, Canadian consumers have a difficult time gaining a full understanding of their current or potential new contracts. When consumers are unable to fully understand their insurance policies, they have a difficult time making informed decisions or meaningfully comparing offers between providers. This is further complicated by insurers’ practice of policy bundling. The Competition Bureau should recommend plain language to be used in all P&C insurance contracts, especially in auto insurance which is a required product.

Policy option 7: Improve oversight of advertising practices, and ensure that consumers are not being misled

Currently, advertising in the Canadian auto insurance market promotes the misconception that there is greater product differentiation between insurance providers than actually exists. In Ontario, given the extent that regulation keeps auto insurance products similar, insurance companies have been pushed to create the illusion of greater differentiation through advertising tactics. These efforts sometimes result in misleading and potentially false advertising, and lead to greater confusion among consumers. Advertising also often pushes consumers to bundle their policies, which increases “locked-in” effects for consumers and reduces consumer understanding of each component of the bundle. The Competition Bureau should build comprehensive recommendations that ensure advertising around mandatory insurance products is clear, simplified, and does not mislead consumers by implying product differentiation that does not exist.

Improve regulatory oversight of consumer experience and ease of switching

Policy option 8: Encourage provincial and territorial regulators to regularly collect data on switching

Regular monitoring and data collection can help regulators better understand the consumer experience, and whether a market is sufficiently competitive. Building on the data collection experiences in Alberta, the UK, and Ireland, provincial and territorial regulators should collect annual data on: (1) whether consumers obtained a comparative quote and challenges related to obtaining a comparative quote, (2) whether consumers have switched insurance companies in the last two years and reasons for switching, and (3) whether consumers saved if they switched. The Competition Bureau could begin by examining which jurisdictions are collecting all or some of this data annually, and how it is being used to inform policymaking. Then, the Bureau could convene discussions amongst regulators on how to improve monitoring and data collection related to consumer shopping around and switching, based on these national examples and international best practices.

Policy option 9: Ensure consumer perspectives are monitored and addressed

Beyond data collection, consumer perspectives should be regularly consulted and meaningfully addressed. The Competition Bureau should explore the various ways that provincial and territorial regulators are incorporating consumer perspectives in regular review processes in auto insurance, such as revisions to rates. Examinations should focus on the challenges and benefits of each approach to ensure that consumers are adequately represented and able to inform these processes.

Download the full version of this report here.

This Policy Lab was presented by our MPPs on July 15, 2021. Watch the video below:

About the authors

Adele Brawley

MPP Class of 2021

Dorothy Kwok

MPP Class of 2021

Jonathan Lesarge

MPP Class of 2021

Emily Nickerson

MPP Class of 2021



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