Look for the federal government to have its proposed regulations for the demutualization of property and casualty insurers developed by mid-2013, an industry CEO predicted.
The appearance of the proposed regulations, already in the works for almost two years, could be pushed to later in 2013, added Philip Cook, CEO of Omega Insurance Holdings Inc., at the Insurance Institute of Canada’s 2013 PROEDGE: Annual Industry Trends Breakfast.
Whenever the proposed regulations are introduced, the key question is whether smaller mutual insurers will take advantage of the opportunity to demutualize, Cook said.
“I’m interested in watching the smaller mutuals,” Cook said. “Once the demutualization gun goes off, I think you will see … a lot of small mutuals turning into cash mutuals.”
The issue of demutualization is of interest to brokers because Canadian-owned insurance companies represent 47% of the Canadian insurance market, or about $4.6 billion in premium in 2009. There are 106 mutual insurers operating in Canada, basically a third of the about 316 property and casualty (P&C) insurers competing on the Canadian market.
Demutualization could potentially open up the ownership of mutual insurance companies, making them the targets of mergers or acquisitions. This could lead to the demutualized companies being directed by owners who are not policyholders in the communities in which the mutuals are based.
In turn, this could potentially erode the amount of choice brokers can offer to their clients. Currently, mutuals do 70% of their business through Canada’s broker channel, notes Norman Lafreniere, president of the Canadian Association of Mutual Insurance Companies (CAMIC).
Under the mutual structure, policyholders have a stake in the direction of the company.
Four P&C mutual insurance companies have a “dual policyholder” structure, in which only a certain percentage of policyholders have voting rights, while the remaining 102 have a structure in which all policyholders are entitled to vote at the annual meeting of their company.
Economical’s mutual policyholders voted in 2010 to pursue a strategy to demutualize. But currently Canada has no regulations that would allow P&C insurers to demutualize. Finance minister Jim Flaherty has committed to working out a regulatory framework for a P&C demutualization to occur.
Lafreniere observed that mutual insurers, large or small, would not necessarily demutualize even if the regulations allowed it, partly because of their historical roots in small Canadian communities.
Also, he pointed out, the proposed regulatory framework would apply only to federally licensed mutual insurance companies. But a significant number of mutuals fall under provincial licensing rules, which do not have regulations for the demutualization of P&C insurance companies.
