Regulator turns eye towards how insurers use data to set rates

Expect regulators in Ontario to intensify their scrutiny over how insurance providers use data to align with consumer-focussed outcomes outlined in the province’s Unfair or Deceptive Acts or Practices rule, a packed audience at a regulatory convention heard Monday.

“The rate approvals for auto insurance rates have to be just and reasonable,” said Jordan Solway, executive vice president of the property and casualty insurance sector at the Financial Services Regulatory Authority of Ontario (FSRA). He spoke at the 2026 FSRA Exchange held in Toronto.

“What does that mean? We’ve determined that based on fairness outcomes to the consumer…We have a very principles-based [unfair or deceptive acts or practices] UDAP rule that we turned from a regulation during COVID, and we’ve used it a couple times. We haven’t used it as expansively, and that’s going to change.”

Solway pointed out insurance providers have a number of metrics they use to determine profitability, including combined ratios, expense ratios, and acquisition costs.

“Those are all legitimate levers that you have to be monitoring to make sure the business is profitable,” he said. “There is not as much of a focus on mining the data to ensure you’re also showing the consumer outcomes.

“So part of our obligation as a regulator is to work with the sector to help them understand the data sets they need to be identifying and [that] they need to be reporting to their board.”

The UDAP rules define instances of unfair insurance conduct. They include unfair discrimination in rates or coverage, misleading policy information, unreasonable claims delays or claims-handling, or tying one insurance product to another.

Layered on top of UDAP is the Canadian Council of Insurance Regulators’ Guidance, which came into effect in 2018. Key principles in those guidelines include putting the consumer’s interests at the centre of business practices, and clear disclosure.

For many years, brokers have discussed what they call ‘The Black Box’ of underwriting, in which it is increasingly difficult to explain to consumers how insurers are using proprietary data models to calculate insurance rates.

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Meanwhile, companies are now exploring how to use AI for underwriting and to determine insurance rates. FSRA made it clear at the Exchange that regulators intend to use principles-based regulation to ensure outcomes are fair to consumers.

“[Insurance providers] have incredible data sets across P&C,” Solway said. “We — I mean both the regulator and the insurance companies — [must] make sure the data validates the outcomes. So, it’s not just telling me [it does], it’s actually showing me. And that’s the way they should be running those businesses, to demonstrate compliance.”

The P&C industry has been slow to adapt to principles-based regulation (PBR), which is based on ensuring fair outcomes for consumers, Solway reported.

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That approach to regulation, introduced with the launch of FSRA in 2019, takes a risk-based approach to ensuring consumer-centric business outcomes. For example, companies furthest away from achieving fair outcomes for consumers are the highest-risk, therefore drawing more attention from the regulator.

P&C insurance industry lawyers have argued the PBR approach lacks clarity, compared to just having rules for industry players to follow. The increased ambiguity linked to producing outcomes can lead to more work. That can create the need for additional resources, which is draining for smaller companies, industry critics have argued.