The federal government’s delay in crafting regulations for the demutualization of property and casualty (P&C) needs to come to an end soon, brokers dealing with Economical say.
“I don’t see how anybody could answer that it’s good that they’re stalling demutualization, because it’s not helping Economical move forward,” said Steven Wagler of Josslin Insurance Brokers Limited. “The company needs to have an outcome, either positive or negative.
“I would sooner have [the federal government] come back and say, ‘We won’t let you do it this time,’ and then get on with it. Or, say: ‘Yes, you can, and these are the rules.’ At least then, we will move forward. It will bring stability to us either way. Instability does not help us in our business.”
Economical, a mutual insurance company that ranks among Canada’s Top 10 insurers, announced in 2010 that it planned to demutualize.
One major stumbling block is that Canada does not have any regulations for the demutualization of a P&C insurance company. And the federal government’s Department of Finance has announced that it will not allow any P&C insurers to demutualize until the regulations are in place.
The federal government opened and closed public consultations on the issue in the middle of 2011. Since then, no regulations have been forthcoming. Brokers have publicly questioned the value of P&C insurers demutualizing.
But some local brokers operating in Economical’s home region in Kitchener-Waterloo simply want closure on the issue, one way or another. (continued)#pb#
In a recent update on the demutualization regulations, Economical described the delay as “frustrating” in an online post on February 22.
The company has a dual-track plan for demutualization. One possibility is an initial public offering (IPO), in which mutual policies are converted into shares. A second is a “sponsored” demutualization, which would involve the acquisition of some or all of the company.
In the meantime, Economical said in its online post, it has “used the time since our demutualization announcement to improve our operating and financial performance, which we expect will add significantly to the value of the company when it takes the final steps towards demutualization.”
Brokers say this plan has in fact contributed to “instability.”
For example, the company announced in October 2012 a “business transformation program” that called for a reduction of 145 positions at 14 Economical offices across the country.
As reported at the time by Insurance Business, the company said the goal of the program “is to improve our processes to make it easy, simple and fast for brokers to do business with us, and thereby improve our service levels and turnaround times. We are also creating a broker-centric underwriting delivery model that is able to not only respond to, but to anticipate broker and market needs quickly, efficiently and effectively.”
But the layoffs associated with the program unsettled brokers’ relationships with the insurer, a broker from Kitchener, Ontario reported. He did not want his name used because his brokerage deals with the insurer on a regular basis.
“They will be stronger financially, they just won’t have any employees left,” the broker said. “There’s not a great deal of comfort in the way they are going about streamlining.”
