The Distribution of Property/Liability Insurance in Canada: Costs and Market Structure

Studies in the U.S. show that insurers that operate as exclusive writers have lower expense ratios than agency writers. In addition, exclusive and commodity writers dominate personal lines of insurance and agency writers dominate commercial lines. In contrast, Canadian agency writers dominate both personal and commercial lines. Furthermore, in Canada, a firm’s distribution method does not affect its relative expenses. We conjecture that the higher fixed costs faced by exclusive and commodity writers in Canada counterbalance the lower variable costs faced by these firms. The lack of dominance in personal lines by Canadian exclusive writers is a rational response to the smaller market size in Canada and the higher level of government intervention.