Amalgamation a key challenge facing mutuals in the future

Considering and/or executing a successful amalgamation is a key challenge facing mutual insurance companies going forward, according to seminar speakers at the Ontario Mutual Insurers Association meeting held in Toronto on Mar. 31.
Six panelists represented Townsend Farmers’ Mutual Fire Insurance Company, Tradition Mutual Insurance Company and Trillium Mutual Insurance Company at a panel discussion entitled Sharing Mutual Perspectives.
Panelists fielded questions from the moderator and the floor, discussing factors that might play a role in the potential amalgamation of any of the province’s 45 different mutual insurers.
A key driver in any possible successful amalgamation must be answering the question “What’s in it for current policyholders?” said Neil Shay, manager at Townsend (which, unlike the other two companies on the panel, had not executed a merger). “Economies of scale, I suspect, would be a trigger in talks,” he said.
Alec Harmer, manager at Traditional Mutual, suggested amalgamations might help smaller mutual insurance companies pick up some more people with key skills.
“If you are smaller than $5 million, that certainly does play a huge role, because things are just way too complicated,” Harmer said. “You need specialized people and I think that is discovered with the smaller companies [amalgamating].”
But the advantage of skills pick-up may evaporate for somewhat larger mutuals – for example, companies that do between $7 million and $10 million in business and a staff of about 15 people, Harmer said.
Joe Dietrich, president of Trillium Mutual, said: “I think spread of risk should be as important as geography” in deciding whether to amalgamate with another mutual insurer.
Also, both companies should be in a strong financial position when contemplating an amalgamation. “Don’t wait until one of the two parties is weak,” Dietrich said.
But one important factor is not to be interpreted as leaving the community through an amalgamation, said Shay. He noted part of the value proposition of a mutual insurance company is its longstanding relationship with the local community.
“If our current customers thought were leaving them, that might screw up the loyalty we have with our customers, and so you would have to be very careful,” he said.