KPMG - Regulatory Oversight

Question 1

Describe the continuum of rate regulation approaches. (3)

Answer 1

ACTIVE (government mandated, prior approval)
MODERATE (file & use, use & file, flex rating)
COMPETITIVE (file only, open competition)

Question 2

Describe the GOVERNMENT MANDATED rate regulation approach.

Answer 2

The government sets rates, rate changes and risk classification.

Question 3

Describe the PRIOR APPROVAL rate regulation approach.

Answer 3

The government approves rates, rate changes and risk classifications before their use.

Question 4

Describe the FILE & USE rate regulation approach.

Answer 4

The insurer files the rates, rate changes and risk classifications. The regulators have a set period of time to approve the above, otherwise rates can be used.

Question 5

Describe the USE & FILE rate regulation approach.

Answer 5

The insurer uses the rates, rate changes and risk classifications and files them with the regulators. The regulators can retroactively change rates within a certain period of time.

Question 6

Describe the FLEX RATING rate regulation approach.

Answer 6

The insurer uses rates, rate changes, and risk classifications provided that the rate changes are WITHIN a certain range.

Question 7

Describe the FILE ONLY rate regulation approach.

Answer 7

The insurer files rates, rate changes and risk classifications but NO review or approval is required from the regulators.

Question 8

Describe the OPEN COMPETITION rate regulation approach.

Answer 8

This approach does not require and filing of rates, rate changes, or risk classifications.

Question 9

Identify the main regulatory concerns for auto insurance.

Answer 9

Availability and affordability.

Question 10

Do rate regulation mechanisms vary by province?

Answer 10

Yes.

Question 11

Which provinces/territories use 1 approach for all required vehicles? (3)

Answer 11

NS (prior approval)
PEI (file & use)
YK, NV, NWT (open competition)

Question 12

Identify external considerations affecting Rate Regulation. (3)

Answer 12

• market cycle
• economic conditions
• politics

Question 13

Identify an example of the GOVERNMENT MANDATED rate regulation approach.

Answer 13

Alberta Grid

Question 14

Identify an example of the PRIOR APPROVAL rate regulation approach.

Answer 14

Ontario major filings

Question 15

Identify an example of the FILE & USE rate regulation approach.

Answer 15

PEI

Question 16

Identify an example of the USE & FILE rate regulation approach.

Answer 16

Quebec

Question 17

Identify an example of the FLEX RATING rate regulation approach.

Answer 17

Not used in Canada

Question 18

Identify an example of the OPEN COMPETITION rate regulation approach.

Answer 18

Nunavut, Yukon

Question 19

Two benefits to policyholders of switching from Prior Approval to Use & File. (1 of 2)

Answer 19

• less rate volatility (faster rate updates, lower price swings)
• lower rates due to lower filing costs

Question 20

Two benefits to policyholders of switching from Prior Approval to Use and File. (2 of 2)

Answer 20

• if more insurers are operating -> more competition & innovation -> good for consumers
• regulators can then focus on solvency which protects policyholders rather than worrying about the rate approval

Question 21

Which regulatory approach is faster? File & Use or Prior Approval

Answer 21

File & Use is probably faster due to the set period of time for approval, BUT can’t be used for all LoBs in all provinces.

Question 22

Which regulatory approach is faster? Open Competition vs Prior Approval

Answer 22

Open Competition is faster to market, BUT valid only in NU, YK

Question 23

Which regulatory approach is faster? File & Use vs Use & File

Answer 23

Use & File since there is no waiting period before use, BUT only valid in Quebec