The Conservative government’s budget bill is facing pushback from the Tory-dominated Senate over concerns it will reshape Canada’s insurance industry and deliver a potential “jackpot” to a relatively small group of people.
Conservative Diane Bellemare, a career economist from Quebec, is urging her fellow senators to take a closer look at the implications of the bill’s changes to Canada’s insurance sector.
She warns a section allowing mutual property and casualty insurance companies to go public – or demutualize – creates an incentive for small numbers of people to profit from the value of a company that has been built up collectively over decades.
The bill’s largely overlooked provision was inspired by the plans of a single company: Economical Mutual Insurance. The future of its $1.6-billion surplus is riding on the outcome of the debate.
No mutual property and casualty insurance company has ever demutualized in Canada. But in 2010, Waterloo-based Economical announced it planned to be the first, forcing Ottawa to start working on new rules.
The company initially argued that only its 943 policyholders with voting rights should benefit from a sale or initial public offering, a move that would potentially see each of them receive more than $1-million in assets. In response to feedback from Finance Canada, it now plans to share the assets more broadly with its 800,000 policyholders, but is waiting for Ottawa to set rules on how much should be shared with the larger group.
The Canadian Association of Mutual Insurance Companies has told senators that allowing decades-worth of assets to be divided among current policyholders is “repugnant.” The association is among the critics warning the bill will lead to sweeping change across the insurance sector that could make home and auto insurance less accessible, particularly in rural Canada.
“Honourable senators, surely you agree with me that this issue warrants our attention,” Ms. Bellemare urged her colleagues on the floor of the Senate Tuesday evening, pointing out that many of the 943 voting policyholders have connections to the company.
“We should protect the surpluses accumulated by generations of Canadians,” she said. Conservative Senator Josée Verner also hinted this week that she is concerned with the section of the bill.
During a recent hearing by the Senate banking committee on the topic, Conservative Senator Ghislain Maltais appeared to scold Economical’s president and CEO, Karen Gavan, saying: “The problem is that you are interested in the jackpot.”
The concern from Conservative senators is not expected to stop the legislation from becoming law later this month. Ms. Bellemare said she still plans to vote for the budget bill.
Economical argues the insurance industry is consolidating quickly and that it needs to go public to keep pace with the major acquisitions taking place in the sector. It also argues that those 943 policyholders accepted policies that came with the risk that they could be called on to pay higher premiums at any time.
“Our biggest competitors are public companies and subsidiaries of large foreign conglomerates, and they have greater access to capital than we do,” said Economical’s John Bowey, who chairs the company’s demutualization committee, in a statement explaining the motivation for going public.
Untangling issues of potential ownership in a sector made up of co-operative-style businesses dating back to the 1800s has proven to be a challenge, leaving Economical to wait over three years for a decision from Ottawa.
The vice-chair of the Senate’s banking committee, Liberal Céline Hervieux-Payette, argues an issue so complex should not have been placed in a budget bill.
“It is totally ludicrous,” she said. “It’s not allowing any Canadians to participate in the debate over major issues, and this one is an important one.”