IBAC asks feds to take a cautious approach to demutualization

Canadian brokers have asked the federal government to take a cautious approach to demutualization.
In a submission to the federal government, the Insurance Brokers Association of Canada (IBAC) has asked the Department of Finance to keep in mind the important role of property and casualty mutual insurers in the Canadian marketplace when considering new regulations that would allow mutual property and casualty insurers to demutualize.
In particular, IBAC notes property and casualty mutuals serve as “a bulwark against financial fragility” in the industry, raising the average minimum capital test score for the industry as whole.
IBAC’s submission notes many mutual insurers face the same problem as that of other institutions relying on public participation; that is, the public’s decreasing participation in the governance and development of public institutions.
The declining participation may be for one of two reasons cited in literature about the topic, IBAC’s submission notes.
First, organizations may not be providing enough communication to executives, managers and members about the nature of their relationship to the mutual. This would be a simple communication issue.
Second, some have argued mutuals lose their focus and cease to deliver desired services to their members. IBAC believes this is not true in the context of Canadian P&C mutuals, which the association notes have provided a strong capital base and service to rural areas.
The focus, IBAC says, should therefore be on communicating the value of mutuals.
“If the regulations surrounding demutualisation are made too lax those charged with the governance of a mutual insurer may be tempted to view demutualisation as a quick fix to what in fact is a communications problem and not one of organizational form,” the IBAC submission reads.
“We would, therefore, encourage the Minister to place demutualisation within the broader social and economic context-seriously consider the role mutual insurers play as financial infrastructure in smaller communities and the model they provide for democratic and voluntary organization of citizens in the furtherance of realizing their collective needs independent of direct state support.”