The following article was produced in partnership with the Property and Casualty Insurance Compensation Corporation.
Karen Surca, of Insurance Business, sat down with Alister Campbell, president and CEO of the Property and Casualty Insurance Compensation Corporation, to discuss insurer insolvencies.
There is always a calm before the storm. The Canadian insurance industry has enjoyed a peaceful lull from a gloomy insolvency forecast for quite some time. However, this enviable bankruptcy hiatus does not mean that the industry is safe from stormy weather ahead.
After all, as Alister Campbell, president, and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), pointed out, “bad things happen” and this is the driving motivation behind having insurance in the first place for policyholders.
As part of the infrastructure of the Canadian insurance industry, PACICC has been in existence since 1989 and is the industry-funded, non-profit resolution authority for Canada’s Property and Casualty (P&C) insurance industry. The fund’s number one job is to protect policyholders in the event of a Canadian insurance company becoming insolvent, as well as to maintain industry-wide confidence among its members.
“We are an industry-managed fund to protect policyholders in the rare bankruptcy of an insurance company,” Campbell explained. “We look after the wreckage after such an event and have looked after 13 of them in our history.”
Despite the seemingly high number of insolvencies to date, Campbell is quick to point out that there has not been an incident of insolvency in close to 20 years.
“It used to happen quite a lot and now it happens almost not at all,” Campbell stated.
“The insurance industry is better managed, better capitalized, and better regulated with better actuarial accounting rigor than in the olden days,” he added.
“We know, though, that someday something bad will happen and our industry will need to respond to protect policyholders.”
Campbell highlighted that there is a general desire by those in the insurance industry to be managed effectively, to help protect players with a solid financial footing from being negatively affected by “some poorly managed competitor who messes up.”
“We exist to ensure that there is still a consequence in the system among Canadian consumers and businesses,” he said.
“We make sure that the policyholders are protected in that we don’t look after the other creditors, shareholders, or other investors; we only focus on the policyholders,” he added.
Campbell explained that the role of PACICC can be divided into different core areas.
“PACICC has a three-part mission: to protect the policyholder, manage the cost of the insolvency and help maintain confidence in the system,” he said.
To maintain confidence, PACICC has routinely offered forums and webinars for its members with an emphasis on best practices. In addition, PACICC carries out a regular survey to evaluate its members’ enterprise risk management frameworks and determine what changes have been made.
To help pay for the inevitable, PACICC turns to the industry to help when times are good. As Campbell pointed out, having a little money in the bank helps to cover some of the costs for the next big failure.
“When we need money, we assess the rest of the industry to pay for the claims of a failed company,” Campbell said.
“We exist as a partnership between the public sector and the private sector. It is a mandatory thing for every insurance company to be a member of a fund and about 95% of the industry are members of PACICC,” Campbell pointed out.
“You pay a small bill once a year to fund our administration ‒ if we need money to address an insolvency, we can assess the industry up to a billion dollars a year for as many years as we need,” he added.
As part of its effort to educate and inform its members, PACICC has carefully monitored the underlying risks that might lead to a potential insurance company bankruptcy.
Although failures were viewed in the past as more isolated events, the increase in catastrophic weather or environmental events has left insurance companies more at risk of a quick tumble.
“Climate change is increasing insolvency risk for Canadian insurers. The regulators and our board have been focusing a lot on being properly structured and organized to manage the insolvency of a bigger company that happens to get knocked into insolvency by a natural catastrophe,” Campbell said.
To help fulfill its overall mandate, PACICC has formed a prestigious board of directors over the years that represent both the Canadian insurance industry as well as independent directors from outside the insurance space.
“Our new board has 15 members, eight of them are representing the insurance industry itself and the other seven are independent directors who do not work for an insurance company,” Campbell noted.
With the recent announcement of four new board members, all with distinguished backgrounds and equally impressive credentials, PACICC is focused on pursuing its directive to protect insureds in case of catastrophic loss while continuously working to uphold its core objectives.
“When we are looking to refresh our board, we are looking to get talented industry leaders and then a useful mix of independent directors who bring other skills to the table that could be important in a worst-case scenario,” he summarized.
“We are thrilled to add Silvy Wright, the CEO of Northbridge, and until recently chair of the Insurance Bureau of Canada. She is a fantastic industry leader and very engaged in public policy on behalf of the industry,” Campbell enthused.
“Lisa Guglietti is the head of property and casualty insurance for Co-operators and Lisa is also an actuary, which is a tremendously useful skill set to add to the board,” Campbell said.
“Anne-Marie Beaudoin was with a regulator for the insurance sector and is a lawyer,” he added.
“Tim Hodgson is the former president of Goldman Sachs, Canada, and then went on to the Bank of Canada to work with Mark Carney. Tim is also chair of Hydro One.”
With a renewed board, distinct direction, and the funds to help in the event of another industry insolvency, PACICC is more than prepared to meet head-on the challenges of the Canadian insurance sector.
“We would much prefer that the phone didn’t ring. Bankruptcies are a mess, and they are expensive for the industry,” Campbell reflected. “They are unpleasant for policyholders and stressful for the whole system.”
“However, our board is accountable for ensuring that we are properly prepared for the worst-case scenarios because that is what insurance is all about,” Campbell concluded.
