Federal-Provincial Jurisdiction

Study guide: Exam 6C

Federal-Provincial Jurisdiction over insurance is the constitutional division that makes Canadian insurance regulation two-headed: Parliament regulates the institution (incorporation, solvency, capital) under its power over banking, trade and commerce and federal works, while the provinces regulate the contract and the market under "property and civil rights in the province" (Constitution Act, 1867, s. 92(13)).

\text{Federal: the insurer}

\text{Provincial: the policy}

• The line was drawn by a series of early cases holding that the business of insurance within a province is a provincial matter — Parliament may charter and supervise an insurer, but it may not dictate the terms on which the policy is sold in Ontario.
• Consequences that recur on the exam: a federally incorporated insurer still needs a licence in every province; rate regulation is provincial and therefore inconsistent across the country; auto reform happens province by province; and there is no national insurance regulator.
• Some lines are effectively federal by another route — marine insurance falls under federal navigation and shipping power, and federal works and undertakings bring their own wrinkles — but P&C insurance as studied on 6C follows the split above.
• The Canadian Council of Insurance Regulators exists precisely because the division makes voluntary harmonisation the only available substitute for a single regulator.
• Compare the United States, where insurance is regulated almost entirely at the state level under the McCarran-Ferguson Act with no federal solvency regulator at all — Canada's federal prudential layer via OSFI is the structural difference from the 6U syllabus.

Which Level of Government Can Do This? For each proposal, say whether the federal or provincial government has the authority.

1. Ban the use of postal code in auto rating.

2. Raise the minimum capital an insurer must hold.

3. Require insurers to offer overland flood coverage in every home policy.

4. Create a national flood insurance backstop funded by the federal treasury.

Answer

1. Provincial. Territory is a rating variable, and risk classification in the contract is provincial — which is why the debate over postal code has played out in Ontario and not in Ottawa.
2. Federal, for federally regulated insurers, through the MCT guideline; provincial for provincially incorporated ones, which typically adopt the same guideline.
3. Provincial. Mandating a coverage term is regulating the contract.
4. Federal. Spending its own money is within federal power even where regulating the contract is not — which is exactly how DFAA and the proposed national flood program are structured.

Item 4 is the pattern worth remembering: Ottawa's practical lever over insurance markets it cannot regulate is the spending power.