Insurance market deregulation: Pricing

Insurance is one of those industries that tend to be heavily constrained by regulation in most jurisdictions. Certain classes such as CTP and Workers Compensation tend to have more than others. The four key areas that are impacted by regulations include:

  • Product coverage
  • Premium setting
  • Distribution
  • Licensing requirements

Insurance market deregulation can result in a lot of benefits to the market as a whole. Although as with any major change there are going to be negative effects as well. I’ve listed a few of these below from the view points of the consumer and the insurer.


Consumer Insurer
Advantages –   More product choices

–   Risk based pricing

–   Increased access to insurance

–   Lower premium due to less legal requirements for Insurer


–   Ability to compete on product offering

–   Differentiate risks

–   More avenues of distribution

–   Lower requirements – reducing capital/compliance costs

Disadvantages –   Products harder to compare

–   Less cross subsidization

–   Insurers may pass on distribution costs

–   Higher insolvency risk

–   Cost of product development

–   Cost of pricing and technology

–   Cost of distribution

–   Increased competition


The common regulated pricing structures include:

–          Reference Premium Rates

–          Elastic caps and floors

–          Restrictions on rating variables

–          Fixed loading structure

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