Death of a Mutual, and the Drift Away From 'Neighbours Helping Neighbours'

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Demutualization, Insurance, Canada


In the 1990s and 2000s, four major Canadian life insurance companies demutualized, ending their status as mutuals to become publicly traded corporations. Economical Mutual Insurance has spent much of the last decade laying the groundwork to be the first property and casual insurer in Canada to do the same. The stated purpose of this process has been to improve the competitive edge of these companies in economic and regulatory conditions that have changed since they were founded – although more direct financial interests certainly provided some impetus.

In May, Economical received final policy-holder approval to sell off ownership of the company via an initial public offering (IPO). All that remains to finalize the demutualization is approval from Finance Minister Chrystia Freeland. There is little doubt this approval will be received; the process has been overseen by the federal government, the regulator and the courts. Although demutualization will be a financial bonanza for a handful of policy holders, the sell-off is unfortunate. The loss of Economical’s mutual status will cause a further drift from the company’s values, to the detriment of broader Canadian society.

Economical was founded on the principle of “neighbour helping neighbour.” Mutuals brought communities together, at a time when many Canadians could not access insurance. Mutual members made regular premium payments and, importantly, also agreed to cover shortfalls if the premiums were inadequate to cover payouts. Joining a mutual originally meant protecting oneself from catastrophe in return for taking on the small risk of being called upon to provide additional funds when others faced extraordinary adversity.

Today, mutual members are no longer liable if the company faces insolvency. Regulations require all insurers to participate in organizations that backstop customer claims. Most mutual insurers in Canada continue to be owned by all policy-holders, a structure that ensures the company always prioritizes customers’ interests. Economical is an exception, having implemented a unique dual class structure whereby some policy-holders (almost 900) are members, while the rest (over 60,000) are not.