Research

We document abrupt increases in the the markups of the automobile insurance industry of Ontario, Canada, specifically for private passenger vehicles, from 2001 to 2021. We adjust the standard differentiated-product pricing model for the case of no outside good, as auto insurance is a legal requirement in Ontario. Then within the context of our model, we test and reject the hypothesis that the markup increases after Ontario Regulation 34/10 in 2010 are simply a result of increased market concentration. Our estimates suggest Ontario consumers have paid an additional $16.6 billion in markups for auto insurance from 2011 to 2021, and another $5.7 billion in markups during 2020 and 2021 associated with COVID-19. For a consumer with an auto insurance policy from 2011 to 2021 this represents an additional $2958 paid in premiums. We also provide reduce form estimates that complement our structural findings.