I pointed out at some length how Economical Mutual has been operated "as a burlesque of a genuine mutual insurance company" and that the federal Minister of Finance had launched a much needed public consultation. I won't repeat here my lengthy column on the subject.
I have reason to believe that Minister of Finance Jim Flaherty and the Department of Finance have received considerable input on the subject of how the demutualization of Economical Mutual should be prescribed by Ottawa and what the rules ought to be for any future demutualization of federally regulated P & C mutual insurance companies.
RickardsRead.com has received a variety of interesting comments on the subject including copies of some submissions to Ottawa. I will present in this column just a few excerpts from several some communications received here.
A former Canadian regulator wrote to say that "your piece on Economical Mutual brought to mind ... [a] visit to [State Farm Insurance's] corporate HQ in Bloomington IL, a chain of humungous fortifications surrounded by cornfields in the tornado alley half way between Chicago and St.Louis. State Farm is enormous by any measure -- 37 on the 2011 Fortune 500 list by revenues, over $63 billion, between Microsoft and Boeing.
"Why do I mention this?" he asked. "Since it was founded in 1922 State Farm has had exactly five chairmen and CEOs (none of this split governance nonsense). These were the founder and his lawyer and their descendants, from father to son. Sounds like a family business, no? But guess what -- State Farm is a mutual company, owned by its policy owners according to their bumph, just like Economical Mutual."
An American journalist and insurance industry critic emailed that he thought the RickardsRead column was an "excellent, albeit shocking article about Economical Mutual. One thing you did not mention is the possibility that a significant number of the relatively few par policyholders are corporate insiders." I think he is correct about this in the case of Economical Mutual.
Another American with longtime executive experience in the insurance business shared his view that "there is little or no justification for a current set of policyowners (owners of the company) appropriating for themselves surplus that was developed over decades and even centuries. As is the case in dividend calculations they should receive in stock their fair share of the value they constitute. ...
He concluded that "whatever the approach, the conflict of interest in giving the entire company to the current generation is so great that contemplating such an action is, to use your good word, risible. Nevertheless, so pliable are some regulators, and so grabby are some managements, that in all too many cases the conflicts are overlooked and the current generation laughs all the way to the bank."
From a Canadian insurance agent came this comment: "You have done it again! You put the mysterious language of Canadian insurance into the vernacular. An excellent article that I trust will be taken seriously by decision makers in Ottawa. On the basis of this article alone Finance Minister Flaherty should invite you to the best restaurant in Ottawa! I'm sure he would find the price of the meal well worth his time and taxpayers' $'s. Thank you for your excellent commentary."
I will return to the subject of Economical Mutual Insurance and its demutualization in a future column.
by Alastair Rickard
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