CRISIS and REFORM

You’re damned if you do, and damned if you don’t,” says Igal Mayer, newly appointed chair of the board of the Insurance Bureau of Canada (IBC). The context to Mayer’s comment lies in the performance of the IBC and its staff over the past year in the face of the public and political pressures that bore down on the insurance industry in the wake of the most recent “hard market”. Mayer notes that the IBC took the brunt of attacks from regulators, politicians, media and consumers as auto insurance rates rose and standard market capacity became scarce. Every discussion having taken place over the last couple years between the industry and the provincial regulators and investigative bodies toward achieving auto insurance reform was facilitated through the IBC, he points out. “The folks here [at the IBC] rose to the challenge,” he adds.

“2000/1 was about survival. Insurers’ balance-sheets were extremely weak and we [the industry] reacted with massive price increases. Then we experienced intense political pressure as MPPs [members of provincial parliament] reacted to their constituents dissatisfaction with the [insurance] industry. Now, we’ve got stability with auto reforms that have allowed for lower premium rates, and capital is being restored in the industry. The ‘fire’ is out. Now is the time to think long-term,” states Mayer. While the IBC’s prime objective last year was managing the fallout of disruptive market conditions, the current “calm” has opened a window of opportunity to look ahead toward a future where the trauma associated with a cycle of “crisis and reform” can ideally be avoided, he notes.

In his role as chair of the IBC, Mayer says the focus over the coming year will be on two key paths: restoring consumer confidence and restoring balance. Part of achieving these connected objectives requires identifying “how the industry got itself into the mess that it did” and establishing appropriate means of identifying symptoms and creating a cure, he notes.

A significant component in achieving long-term market stability, and therefore consumer satisfaction, is building through cooperation with regulators a new legislative framework for insurance in Canada, Mayer observes. “These are the two big issues for me. I don’t think we [the industry as well as regulators and insurance buyers] want to keep going through the same [disruptive price] cycle. There is a huge level of commitment [by insurers] to try something new,” he adds.

REBUILDING CREDIBILITY

Restoring consumer confidence in the insurance industry will require several years of rebuilding credibility through what will have to be proactive and meaningful initiatives, Mayer observes. “This will not simply be about public relations, it will involve education and understanding.” Furthermore, insurers can play a positive public role by becoming engaged in loss mitigation programs and thereby making for better communities, he adds.

As such, the IBC launched a “rebuilding consumer confidence” project toward the end of last year, with a first year startup budget of $1.8 million. However, Mayer expects that this initiative will more than likely require ongoing funding of up to $5 million a year.

The IBC’s decisive action in response to the “fire storm” that swept across the North American insurance industry as a result of the Spitzer investigation into the payment of broker contingent commissions is an example of how effective an organization like the bureau can be in deflating a “negative fallout” situation, Mayer says. The IBC developed a commission “disclosure plan” in less than 30 days after the broker remuneration controversy broke, he notes, while actively working with the Canadian Council of Insurance Regulators (CCIR) to voluntarily provide industry information. “We didn’t feel that we had anything to hide. Although I don’t think it’s [concerns surrounding contingent commission practices] a closed issue, but we’ve accomplished more in 60 days than any other country.”

CYCLE BREAKOUT

“A lot of work has been done over the past year to identify how we got ourselves [the insurance industry] into this mess in terms of the cycle,” Mayer comments. The industry needs to identify new methods of determining the state of the marketplace so that appropriate action can be taken to avoid dramatic pricing adjustments and the wild swing in coverage availability, he points out. For instance, he notes, “how do we measure ‘cost’, how do we measure ‘availability’. Basically, we have to look at things differently to identify early warning signs.”

“Breaking the cycle” will also require regulative changes, Mayer observes, which means the industry has to work closely with the various provincial and federal regulators. “Now we need to engage regulators toward rebuilding the legislative framework [for insurance] in Canada. I have to say that I’m impressed with the positive reception [toward doing so] by the legislatures. They [regulators] are all committed to [achieving] a healthier balanced system.” The initial stage to this regulatory evolution will be to get agreement with regulators across the country to what would make a “balanced system”, he says. Regulatory harmonization would then be a natural follow-through once such a framework had been set, however, the latter is far from being a current priority, he adds. “Basically, we’re taking ‘baby steps’.”

FINE TUNING

Other prime issues on the IBC’s plate for the year ahead are ensuring adequate market availability and maintaining attention to the “day to day” aspects of the auto insurance reforms, Mayer says. Also on the bureau’s radar-screen is the prospect of a federal review of the financial services sectors, and what impact this may have on the insurance industry, he adds.

A significant cog in the process of rebuilding consumer and regulatory confidence in the insurance industry is market coverage and availability, Mayer states. “As an industry, we have to demonstrate that we have sufficient competition to ensure availability.” Efforts made by the IBC last year in working with insurers have subsequently removed many of the roadblocks that led to the coverage availability problems experienced during the hard market, he notes. While much has already been achieved through the IBC in overcoming an array of challenges that emerged during the hard market, getting the auto insurance product right remains a key factor as the industry moves ahead, Mayer says. “Auto reform will require continuous evaluation, and there is still work to be done.”

PROFESSIONAL ACHIEVEMENT

Mayer was appointed president of Aviva Canada Inc. in May of 2001, having joined the company in 1989. He is a chartered accountant, holding an Honors B.A. in commerce and economics from the University of Toronto. Last year Mayer also received an “Honorary Chartered Insurance Professional” designation from the Insurance Institute of Canada.