Draft federal demutualization regulations show need for vigilance, relationships at provincial level: OMIA

Ontario mutuals should take note of the new draft federal regulations on demutualization even though, as currently published, they do not apply to provincially chartered mutuals, John Taylor, president and CEO of the Ontario Mutual Insurance Association (OMIA), suggested last week.

The recent federal announcement has moved the issue of demutualization to centre stage, Taylor told attendees of OMIA’s annual general meeting in downtown Toronto. “OMIA recognizes the importance of being vigilant and proactive at the provincial level. It’s the federal regulations, no doubt, that may form the blueprint for any future provincial demutualization initiatives,” he said.

That is just one more reason for Ontario mutuals to get to know and maintain contact with elected government representatives. “Ultimately, there is no absolute protection against demutualization. In my opinion, the best defence is for all of us to become leaders in maintaining our mutual culture and values,” Taylor emphasized.

Related: Draft P&C demutualization rules aim to treat non-mutual policyholders fairly: Economical

The proposed federal regulations do not reflect “some of the provisions our mutual sector has asked for,” he pointed out. However, if passed as is, they would prevent sponsored demutualization and “act to reduce, but not eliminate, the financial incentive for individual policyholders to support demutualization.”

Taylor (pictured right) encouraged Ontario mutuals to be active and informed. “We are mutuals because we believe in the concept of grassroots involvement in financial services. We are mutuals and we will remain mutuals because we want to be mutuals, not because we have to be mutuals,” he said.

Still on the regulatory front, Taylor told attendees that the solvency review and examination process by the Financial Services Commission of Ontario (FSCO) is under way. “The timeline on this is out of our hands, but our goal is to be ready with the necessary ingredients between the mutuals. Most of this work has been done in draft form,” he reported.

Related: Draft regulations for demutualization of p&c companies released

“Maintaining our provincial solvency supervision may be the single most important initiative since our current system of solvency monitoring was put in place,” Taylor said. As such, mutuals must keep up their profiles with elected representatives to help them understand mutuals’ unique role, he continued.

One regulatory initiative – although, not voluntary – that looks to be paying off in terms of refining strategic direction is the Ontario government-mandated 15% rate reduction in personal auto premiums.

It may not have been OMIA’s decision to cut rates – the Ontario government gave insurers in the province from August 2013 to August 2015 to decrease rates by an average 15% – but the strategic approach the association took to achieve that goal (already realized) has helped refine target segments, Taylor said.

Related: Non-mutual policyholders warned to ‘pay close attention’ to proposed p&c demutualization rules: mutual insurers’ association

The requirement was approached not simply as a mandated rate reduction or a regulatory order, he explained. “We really tried to take them with a strategic attempt to attract and retain the target segments that we had identified as core demographic mutual policyholders,” he said.

“The rate reductions also were taken in an attempt to really realign our aims to make them more competitive for those markets that we wish to retain and attract,” Taylor continued.

Looking longer term, the hope with the rate reductions that have been taken “is that while we will have seen a backing off on the absolute premium, we will see policy counts increasing over time on that profitable business and should, in turn, see an overall volume increase.”