Finance department receives mixed feedback on P&C demutualization

A summary of submissions to the federal government on demutualization shows some important differences in viewpoints on how mutual property and casualty insurers should be allowed to become share companies.

The Department of Finance received more than 80 submissions from a range of groups, including mutual companies, brokers, policyholders, employees and industry associations. In its 2011 budget, the federal government announced plans for a framework to guide the demutualization process for property and casualty insurers, which require changes to the Insurance Companies Act. In June 2011, Ottawa requested submissions from interested parties.

The finance department listed four guiding objectives: providing equitable treatment to policyholders; maintaining soundness; fostering competition; and establishing an orderly, transparent process. While industry respondents generally agreed with the principles, the approach of individual parties diverged on key issues.

One area of contention was dual policyholders, or the rights of mutual policyholders versus all policyholders to vote and receive benefits. Some respondents favoured only mutual policyholders receiving these rights, while others argued they should be extended to all policyholders.

In terms of apportionment, there was a split among submissions favouring a set formula for allocating benefits versus a more discretionary approach that would take into account the individual circumstances of a company.

The Department of Finance also raised the topic of the impact of demutualization. While some respondents submitted that it would increase competition and provide equity for growing companies, others argued it could lead to consolidation, reduced access to services and weakened ties to the rural communities in which most mutual companies are based.

Aside from the demutualization process itself, the government also solicited views on governance and the number of mutual policyholders needed to truly represent a mutual structure. “This question solicited a range of views, principally from the mutual companies,” noted the finance department summary, released in late April.

“Some companies were of the view that a small mutual policyholder base did not impact the effective governance of their company. Other companies indicated that relatively few policyholders participate at annual meetings, and recommended that steps be taken to increase awareness of governance rights.”

Canada’s largest mutual insurer, Economical Mutual Insurance Company, announced in December 2010 plans to demutualize and is currently “awaiting the Department of Finance’s regulations that are needed for us to proceed,” notes a progress report released by the company May 4.

Economical’s CEO, Karen Gavan, appeared before the House of Commons Standing Committee on Finance May 1 to explain the facts and benefits of demutualization. In the company’s submissions to government, Economical has argued the rights and benefits of demutualization should extend only to mutual policyholders.