Why is auto insurance regulated by provincial governments?

The purpose of insurance is to help cover the costs of unpredictable losses. Every year, Canadian insurers pay more than $20 billion for home, auto and commercial claims. The federal government monitors insurance companies to ensure they can cover costs if a disaster were to strike.

This is done through the Office of the Superintendent of Financial Institutions (OSFI). OSFI administers the Minimum Capital Test, which requires companies to have a certain amount of money or capital on hand for every insurance policy they sell. Like a casino that must cover every chip played on its floor, an insurance company must prove that it can cover every potential claim on its books.

Auto benefits vary across Canada

Auto insurance is mandatory in Canada and closely regulated, particularly in provinces where car insurance is sold by private companies. Every province and territory has its own insurance legislation.

Setting auto rates

Depending on the province, regulators may oversee how insurance companies assess risk, determine prices and handle claims. In provinces without government auto insurance, provincial agencies regulate auto insurance prices.

Provinces and territories determine which factors insurers can and cannot use when setting auto insurance rates. A driver’s age and gender may be considered in certain provinces but not in others. Not only do regulators decide which factors may be used, but also how. Insurers must have their rating rules (systems for classifying risk) approved by regulators and must also receive government approval any time they want to change their rates.

Government regulators approve auto insurance rates

In British Columbia and Manitoba, automobile insurance is provided through government owned corporations. In Saskatchewan, the government insurer provides compulsory auto insurance and private companies are permitted to offer additional extension coverage. In Quebec, the government administers insurance covering minimum limits for bodily injury while property damage coverage is provided by private insurers.

Because each province has its own rules, auto insurance differs from one province to the next. Provincial governments play a major role in determining not only the level of benefits injured motorists may receive through insurance claims, but also what benefits they may purchase outside of the insurance contract. Some provinces allow people to sue for pain and suffering and for economic loss above and beyond their insurance benefits but set limits on these payments. The government also oversees the wording used in auto insurance policies to ensure that standard terminology is used throughout the industry.