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

Canadian mutual property & casualty insurance firms who demutualize would not be involved in allocating benefits among mutual and non-mutual policyholders, if draft regulations published last month are implemented, a spokesperson for Economical Insurance suggests. However, there is a question as to whether those regulations “will embody the orderly and transparent process hoped for to ensure the fair and equitable treatment of all policyholders,” according to an article published by a major law firm.

Canada currently has regulations allowing for the demutualization of life insurance firms but not for property & casualty insurers.

Draft regulations for demutualization of P&C firms were published Feb. 28 in the Canada Gazette for a 30-day comment period. In its budget document for 2014-15, the ruling Conservatives had promised to “develop and consult on a proposed P&C demutualization framework that would ensure the fair and equitable treatment of policyholders and establish an orderly and transparent process for demutualizing.”

Two sets of draft regulations were published Feb. 28: one for insurers with only mutual policyholders and another for insurers with both mutual and non-mutual policyholders.

Those rules “don’t specify if the regular policyholder will get anywhere near what the mutual policyholder will get, ” warned the Canadian Association of Mutual Insurance Companies (CAMIC) in a press release Tuesday.

“The question of how demutualization benefits are allocated (among mutual and non-mutual policyholders) is negotiated by court-appointed committees of eligible mutual policyholders and eligible non-mutual policyholders,” wrote Doug Maybee, Economical’s manager of public and media relations, in a statement Tuesday commenting on CAMIC’s press release. “The company is not involved in allocation.”

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

CAMIC “represents the bulk of the industry,” wrote Carol Lyons, a partner with McMillan LLP and Jonathan Rajzman, a student-at-law, in an article posted to McMillan’s website. CAMIC has warned that “demutualization may actually penalize many policyholders, and could result in a retreat of insurers from rural Canada,” Lyons and Rajzman added.

Economical Insurance had requested that Canada’s finance ministry “develop regulations to facilitate demutualization,” the federal government stated Feb. 28 in a regulatory impact analysis statement, published in the Canada Gazette with its proposed p&c demutualization regulations.

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

“With the greater access to capital that demutualization can bring, Economical could make the significant investments it needs to compete on an equal footing with other P&C companies that do not face the same constraints on financial flexibility imposed by the mutual structure,” Maybee wrote. “Our industry is changing rapidly and those who do not keep pace will be left behind.”

Economical is one of seven mutual Canadian p&c insurers regulated by the federal government. The others are Wawanesa Mutual, Gore Mutual, Portage La Prairie Mutual, North Waterloo Farmers Mutual, Saskatchewan Mutual and The Kings Mutual.

“No other mutual insurance company is required to follow our lead,” Maybee noted.

The draft regulation, Maybee added, “aims to ensure fair and equitable treatment of all policyholders, both mutual and non-mutual.”

Related: Supreme Court dismisses application to appeal Ontario class action lawsuit from former insurance policyholder-owners over demutualization

However, CAMIC is recommending that Economical policyholders ask either their broker or Economical Insurance whether they are mutual policyholders.

“The question remains whether or not the Draft Regulations will embody the orderly and transparent process hoped for to ensure the fair and equitable treatment of all policyholders,” Lyons and Rajzman, wrote in McMillan’s insurance bulletin. “The Draft Regulations delegate much of the burden to boards and the courts to ensure a fair and transparent process.”

Policyholders who do have concerns “are free to submit comments to the Department of Finance on the draft Regulations,” Maybee wrote. “They can also seek to participate in the policyholder committee process by applying to the court at the appropriate time.”