Size will help support presence, flexibility and efficiency: Economical Insurance’s Tom Reikman
April 17, 2015 by Angela Stelmakowich, Editor
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Economical Insurance’s intention to demutualize comes down to the belief that the insurer must be big enough and flexible enough to maintain its presence in Canada’s changing property and casualty space, senior vice president and chief operating officer Tom Reikman suggested during a presentation Thursday.
Looking at the landscape, perhaps 10 years from now, “you’re going to have either niche players, some very small regional players, or you’re going to have big, big companies,” Reikman told attendees of the “Up Close and Personal” sessions at the CIP Society Symposium in downtown Toronto.
“If you don’t have that scale, if you’re not sitting in that position as a big company, it’s going to limit your ability to be highly efficient. It’s also going to limit your opportunities and ability to be able to continue to invest in your infrastructure and your human capital,” he explained.
Mutual companies are limited, Reikman told attendees. “If we wanted to go get another acquisition or undertake any key initiatives around inorganic growth, we really couldn’t do them now,” he said, pointing out that the company “can’t go and form partnerships with anyone and we can’t go out and actually access any form of outside capital.”
And being able to invest will help with efforts to become more effective and efficient in terms of delivering product, Reikman emphasized.
Economical Insurance is currently the eighth largest p&c insurer in Canada, he said. About 15 years ago, the top 10 p&c companies accounted for approximately 10% of the total market, a decade ago, that percentage grew to 33% and it currently stands at 68.5%, he said.
“I think you’re going to continue to see that. And we’re still fragmented relative to a lot of other countries,” Reikman (pictured right) told attendees.
Within the next five to 10 years, Economical Insurance will need to be in that top 5 range – certainly, it will need significant share – “or it’s going to be very difficult for us to continue to compete effectively against the bigger players,” he said.
Pointing to the top two p&c companies in Canada, “if you’re one-quarter of their size, it’s very different than if you’re one-half of their size,” Reikman explained.
“I think that’s going to be the challenge moving forward: How do you maintain that market presence and, at the same time, keep evolving yourself,” he said.
In light of all the considerable time, effort and resources necessary to ready the company for demutualization, why did Economical Insurance opt for big rather than going niche? “We’re a commodity player,” Reikman said simply.
Related: Draft P&C demutualization rules aim to treat non-mutual policyholders fairly: Economical
Noting that it has one of the broadest offerings in the industry – and has a presence in almost every single province – it was decided the company would need scope. “I think there’s other markets that have clearly taken that same approach and said, ‘If we’re going to be a key player, a dominant player, we have to have that size and abilities.’”
Ottawa recently issued draft demutualization regulations and requested stakeholder feedback. The draft regulations are now back in the hands of the federal government to assess that feedback.
The proposed regulations are the “first hurdle in a 400-metre hurdle race,” Reikman quipped. Many more processes still need to be completed.
In the interim, though, it is necessary to “keep the business going,” he said.
“Demutualization is really going to allow us to go out and be able to obtain and have access to that capital,” said Reikman. Citing infrastructure, for example, “the companies that can’t maintain their systems and really keep them up to speed, really meet the needs of the end consumer just as much as the broker or their own underwriting teams,” are expected to struggle.
Economical Insurance recently committed more than $100 million towards system changes. “We needed to have a brand new system that was much more customer-friendly and much more underwriting claims user-friendly,” he said.
“You have a choice: you can try to continue to build your old legacy systems and spend lots of money there, or we made the commitment to say we’re going to leapfrog and put in this entirely new system,” Reikman told attendees.
More coverage of the CIP Society Symposium:
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