Structure, Principles and Effectiveness of Insurance Regulation in the 21st Century: Insights from Canada

The 2007–2009 financial crisis resulted in failures of many large financial institutions and among the G8 countries, only Canada did not have to provide financial support to distressed financial institutions. We first examine the existing Canadian regulatory architecture in relationship to underlying principles arising from the public theory of regulation. Elements of the Canadian regulatory framework that contributed to the success of the insurance industry in weathering the crisis include the presence of a federal regulator who monitors system-wide issues also ensures consistent solvency standards; investment guidelines that encourage prudent risk-taking; and a holistic approach to insurer monitoring. A comparison of the Canadian experience with that of other jurisdictions highlights the importance of a holistic risk management approach to firm viability, especially in light of the inherent risks arising from complex group structures. A lesson from the crisis is the need for effective ex ante and ex post cross-border and holistic supervision as most distressed institutions belonged to large complex groups operating in multiple regulatory jurisdictions.