Recent announcements at the political and insurer level have sparked a number of questions about demutualization and its potential impact on policyholders. The only Mutual Insurance company currently considering demutualization is the Economical Mutual Insurance Company and their policy holders are therefor the only people currently affected by this legislation. While demutualization regulations have now been enacted the process is not complete. There is still a multi-step process before determining what if any benefits the various policy holders would receive. Below is some basic information along with web site links and phone numbers for you to inform yourself on how demutualization may affect you.
What is a Mutual Policy?
Economical's mutual policyholders are the owners of the Company, as determined by law. Mutual policies have had limited appeal to customers over the years. Until 2008, mutual policyholders were required to sign a promissory Premium Note that exposed them to financial risk that non-mutual policyholders did not face. Mutual policies were only offered for homeowners' fire coverage on a principal residence, to customers who were claims-free for five years, and who were prepared to make a three-year policy commitment and sign the promissory note. The cost of a mutual policy was also higher than it would be for comparable coverage under a non-mutual policy.
What is Demutualization?
The process that federally regulated mutual property and casualty (P&C) companies go through to convert into share companies. Until recently, there were no federal regulations that allowed the process of demutualization for P&C insurers to occur.
What’s Happened So Far?
The Department of Finance has released two regulations into the Insurance Companies Act: http://www.gazette.gc.ca/rp-pr/p2/2015/2015-07-01/pdf/g2-14913.pdf beginning on page 382.
1. A set of rules addressing P&C companies comprised of only mutual policyholders (“Single Structure Conversions”).
2. A set of rules addressing P&C companies with both mutual and non-mutual policyholder structures (“Dual Structure Conversion”). Economical falls into this category.
Why Would An Insurer Demutualize?
Mutual insurers may have their own reasons for changing their corporate structure. For example, one mutual has stated that an advantage of demutualization is that it provides the company new access to capital by issuing shares in the public and private markets.
Impact to Policyholders:
As part of the process, ALL policyholders of mutual insurers may benefit from the demutualization process. Since Economical has both mutual and non-mutual policy holders it is important to note that each category may be allotted the benefits of demutualization differently. For clarification, an Eligible policy holder is a person who holds a mutual policy of the demutualizing company on the date the board decides to proceed with demutualization (“eligible mutual policyholder”), or a person who holds a non-mutual policy of the demutualizing company (not its subsidiaries) and has done so for the 12-month period ending on the date the board decides to proceed with demutualization (“eligible non-mutual policyholder”). It’s important to stress that at this time, it’s speculative to comment on what (if any) these benefits would be. For additional information you may also go to Economical’s demutualization website (www.getthefacts.economicalinsurance.com) or you can contact Economical at firstname.lastname@example.org, 1-866-302-6046 (toll-free) or 1-514-982-8708 (local/international).
Role of an Insurance Broker:
While a Mutual Policy would ultimately be arranged through an Insurance Broker the marketing of such a product for investment purposes or any advice pertaining to the financial considerations of such a purchase falls outside the licensing and professional boundaries of an insurance broker. Our role is to ensure that our clients’ assets are protected from an insurance risk perspective. We are not financial advisors and do not sell or provide advise on financial investments . Clients should seek out and consult with trained financial advisors in order to develop a strategy for dealing with potential financial implications.