While the terms ‘mandatory’ and ‘compulsory’ may sound like the same thing, there is a slight difference when it comes to insurance requirements.
Mandatory insurance refers to a requirement to have specific insurance in place to satisfy a regulator, but that insurance can be purchased in the open market from a number of sources or insurance carriers. Requirements may include minimum policy limits, deductibles, or requirements stipulating a minimum financial strength rating for the insurer.
Professional groups in Ontario such as nurses and insurance brokers have mandatory insurance requirements for professional liability.
An advantage to mandatory insurance is that the insurance marketplace fills the need and competition can make pricing more favourable. A disadvantage is that higher risk individuals may face difficulties obtaining coverage.
By contrast, compulsory insurance refers to the requirement to purchase specific insurance from a specific carrier. For example, lawyers in Ontario purchase their professional liability insurance from an insurer set up by the law society that all lawyers must purchase in order to practice law in the province.