Why more insurance reciprocals could form in Canada

Don’t be surprised if more reciprocals and self-insured pools emerge, a past president of the RIMS Canada Council suggests.

“In some cases, pools and reciprocals will become popular if this market stays hard,” said Tina Gardiner, a Canadian member of Risk and Insurance Management Society (RIMS) Inc.’s board of directors.

A reciprocal is a form of insurance whereby the group members, on payment of a fee, insure each other against certain risks, reports the Canadian Council of Insurance Regulators.

A case in point is Ontario Municipal Insurance (OMEX), a not-for-profit insurer that functions as a reciprocal. Like many reciprocals, OMEX issues insurance policies, charges premiums and transfers risk to reinsurers and pay claims.

“They work well, particularly in a hard market, so we might see a rise in pools and reciprocals again,” said Gardiner, commenting in general and not on any particular organization.

Gardiner suggested there is a possibility that Canada could see more pools forming or companies in one industry get together and form a mutual or self insure. Some could be similar in concept to Oil Insurance Limited of Hamilton, Bermuda. OIL was formed by 16 major energy companies in 1972 after two incidents in the late 1960s resulted in a withdrawal of coverage by some markets.

Gardiner served last year as RIMS Canada Council chair. By day she is manager of insurance and risk management for the Regional Municipality of York, the upper tier of municipal government immediately north of Toronto. She was asked in an interview how commercial clients could reduce their premiums in the current market.

The North American P&C market will raise prices throughout 2020, Jim Auden, Chicago-based managing director of North American Insurance at Fitch Ratings, told Canadian Underwriter earlier.

How long price increases continue depends on whether insurers’ financial results improve, he said in an interview this past November.

Fitch defines hard market as one in which insurance rates are at levels that correspond with a return on capital that meets or exceeds the cost of capital.