We develop a theoretical model and test its predictions using granular search, choice,

and pricing data from the UK motor insurance market around the introduction of price

walking regulation. Before the policy, insurers attracted new customers with low prices

while raising prices for existing customers. After regulation, introductory discounts to

likely inactive customers fell, but insurers responded by proliferating products and segmenting the market more finely. Inactive customers therefore still pay a substantial

price penalty relative to active searchers, through different mechanisms. Our findings

illustrate how firms can redesign products in ways that blunt even well-designed regulation.