Last month, Canada’s Department of Finance released proposed regulations regarding demutualization of property and casualty insurance companies.
These changes would allow government-regulated P&C insurers to “convert to stock companies owned by their shareholders,” according to a Canadian Association of Mutual Insurance Companies (CAMIC) media statement.
CAMIC warned that Canadians should “pay close attention” to proposed demutualization, asserting that only a small group of mutual policyholders would gain financial benefit from it, whereas “the regular policyholder” would not.
"Like other mutual insurance companies, Economical has grown significantly over the last 140+ years with the contribution of all its policyholders," Normand Lafrenière, president of CAMIC, said. "You don't take that value and just give it to a small group that represents less than one per cent of all current policyholders. That would be very unfair to say the least".
Economical, on the other hand, feels that demutualization is necessary for the firm to remain competitive in the P&C market.
With the greater access to capital that demutualization can bring, Economical could make the significant investments it needs to compete on an equal footing with other P&C companies that do not face the same constraints on financial flexibility imposed by the mutual structure,” said Doug Maybee, manager, public and media relations. “Our industry is changing rapidly and those who do not keep pace will be left behind.”
Moreover, Maybee points out that the drafted regulations specify that mutual and non-mutual policyholders direct how the benefits are allocated, with court-appointed committees facilitating the negotiations. “The company is not involved in allocation,” he said.
Economical also insists that all policyholders are protected by the framework drafted by the Department of Finance, which took into considerations the concerns raised by CAMIC and the public.
Finally, the Waterloo-based P&C company puts forth that the regulations ensure organizations can elect to demutualize if desired, but will be safeguarded if it’s not advantageous to stakeholders.
“No other mutual insurance company is required to follow our lead and the draft regulations include significant protections for companies that choose not to; CAMIC’s members, many of whom are Economical’s competitors, represent a relatively small segment of the P&C insurance industry and are free to remain mutual companies if they believe that is in their best interests,” said Maybee.
