Saturday, November 23, 2013

(No.251) demutualization of the Economical Insurance Co. -- for the few by the few.

"Still more about the proposed demutualization of the 
   Economical Mutual Insurance Company: 
   benefits for the few arranged by the few"

by Alastair Rickard

The demutualization of the Economical Mutual Insurance Co. of Waterloo, Ontario was announced in Dec. of 2010. It was proposed by the company's board and senior management on behalf of the 943 "voting policyholders" of the company (out of the many thousands) who seek to receive the 'equity' on a demutualization. It still awaits federal approval.

As a federally regulated property and casualty insurance company Economical's proposal must await the development and implementation of a regime governing P & C company demutualizations. The wait continues as the federal government decides how to resolve fundamentally important issues in order to produce a regime that will govern such actions in future.

In the national media most of Canada's financial services paparazzi have been too busy carrying water for the Bay and Wall Streets crowd post-2008 to comment on or even take much note of the issues raised and the regime necessitated by the proposed demutualization of Economical. What is involved, if Ottawa were to permit the sort of demutualization of Economical desired by the company, would amount to the exclusion from sharing in the company's equity of most of Economical's policyholders in favour of a relatively tiny group of "voting policyholders".

This group's members seek to divide among themselves and benefit richly from not only  policyholder equity accumulated since 1871 but also from the fact that policies carrying 'company ownership' status (1.1+ million Economical Insurance policies do not) have long been restricted de facto to very limited numbers. Such special 'ownership' status carried by this class of policy was largely unknown to customers  (and even to some of the company's own brokers -- as I have been told).

Because of the paucity of attention to this matter in the financial media, including the role that must be played by the federal Dept. of Finance and its minister in developing a regime to govern P & C demutualization, I have devoted a number of columns to the subject [see, via the links beside all RickardsRead columns, column nos. 159, 166, 179, 206, 208, 209, 213, 241 & 245].

I have also given space to other views including uncensored expressions of dislike of the attention I have paid to the proposed treatment of Economical policyholders sought by the 943 "voting policyholders" of the company as they seek to distribute -- among themselves only -- the equity of the company ($1.5 billion at the end of 2012).

I was not surprised that a member of the '943 group' -- a retired company executive and voting policyholder -- growing increasingly impatient with the delay and uncertainty involved with the arrival of his million dollars -- characterized me as a "crackpot" and "blatant liar" "who has crawled out from under your rock" (his email is reprinted in its entirety in column No. 245).

More recently I received an email from yet another Economical Insurance "voting policyholder" who, while rather more polite in her email, also offered comments which I reproduce in their entirety:

" Just wondering what your take was when the life insurance companies demutualized. Knowing some of the policyholders they received about $1,000,000. You were part of these companies from what I gather from your bio.

"I am not an insurance broker nor an executive with Economical Mutual. I have been a mutual policyholder with them since 1962 with my home and auto and later my cottage and boat. My property policy renewed every THREE years. The premium was locked in each three year period. My premium amount was more than the other insureds who jumped from company to company. Substantially more at times. I have also been claims free during that time.

"You seem to be attacking the executive of Economical Mutual with a vengeance and I am wondering why. I can understand your questioning but your attitude is spiteful."

While I do not intend to rehearse all the points made in previous RickardsRead columns on the proposed demutualization of the company, there are a couple of things to be said prompted by this correspondent's comments.

(1) I was indeed an officer and a par policyholder of the Mutual Life Assurance Company of Canada (also of Waterloo, Ontario) when its board and top management planned and initiated its demutualization. I thought then, as I still do, that this was an ill-advised and unnecessary action for a superior company founded as a mutual in 1870. I refused to speak in support of demutualization  in or out of the company. However, to imply that Mutual Life's demutualization produced million dollar payments to numerous of its participating policyholder owners (i.e., what all Economical's "voting policyholders" seek for themselves only) is not merely an apples and oranges comparison, it is apples and stove bolts.

   I would have few complaints about the treatment of policyholders if the yet to be announced regime for P & C insurance company demutualization requires the sort of equitable treatment formula received by Mutual Life's par policyholders.

Of course the reality was that one could not fill a suburban closet with Mutual Life par policyholders who received a million dollars on demutualization. In fact the company's equity on demutualization was divided not among a tiny fraction of its policyholders but among its hundreds of thousands of life insurance policyholders because virtually all of the company's policies were designated as participating, even universal life policies. Hence when demutualization did occur they were eligible to share in the distribution of equity to par policyholder owners.

(2) I am not now and have never been a policyholder of Economical Mutual Insurance. I have no interest in "attacking the executive of Economical Mutual". I care not one jot or tittle about them except to the extent that they are involved with proposed treatment that is unfair to all the policyholders of Economical while grossly favouring the corporal's guard of "voting policyholders" who happen, only because of an historical curiosity and a fairly well kept secret in the modern era, to be lining up for a big payday.

I have opposed and continue to criticise what amounts to fundamental inequity and unfairness, an unjustified enrichment of the few at the expense of the many, a proposed process of financial aggrandizement engineered by the few for the benefit of the few.

(3) Followers of RickardsRead -- as indeed those who subscribed in years past to my Canadian Journal of Life Insurance -- are of course free to characterize my "attitude", one which this correspondent thinks is "very spiteful". I note however that criticism and the pointing out of pertinent facts does not constitute a definition of "spite", even if it appears to involve a dialogue with the deaf.

To do so does not demonstrate malice toward the 943 insiders who seek million dollar payments from Economical's demutualization based on a proposal to Ottawa that obviously represents a consensus of Economical's board and senior management seemingly reached on the basis of discussion in an echo chamber.

Being on a corporate board of directors is no prophylactic against the allure of a bad idea. As the 2008 Wall Street-induced financial crisis demonstrated yet again (as if another illustration was needed) there is an almost limitless capacity to be found among many leaders in the financial services business to believe (or at least to profess belief) in the most risible nonsense -- if it suits them.

(4) I am indeed negative about the Economical Insurance proposal for demutualization. I am negative in defence of a particular set of values in contrast with the diorama of self-serving platitudes which appeared on the pages of of Economical's 2012 annual report. It is plain as a pikestaff that the demutualization proposal from the company, in terms of its logic, coherence and fairness, is as insubstantial as the smile of the Cheshire Cat in Alice's Adventures In Wonderland.


There are things about Economical Mutual's 140 years in the Canadian P & C insurance business to admire. The demutualization proposal is not among them.

It is now almost three years since the announcement of the proposed demutualization was made. Economical's "voting policyholders" are still waiting, apparently with increasing impatience and worry, for Ottawa to bring forth a regime to be followed by any eligible P & C company wishing to demutualize.

Were I among this group I would not be optimistic that federal Minister of Finance Jim Flaherty would allow me and the others in this tiny financial fraternity to walk away from a demutualization of Economical with all the financial candy in the basket. Nor is there any political reason or practical incentive for the Minister to hasten action even these several years on. The only people who seem anxious for federal action are to be found in the '943 group'.

I predict that the board of directors and top management of Economical will discover, when the federal government eventually responds to the issues Economical put in play in Dec. 2010, that there is a limit to how high one can climb when tied to a bad idea.

If they think they will actually get from the federal authorities provision for the sort of financial preference Economical has requested for them then they belong alongside the Cheshire Cat in Alice's Wonderland.


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Thursday, November 7, 2013

(No.250) The magnificent Joseph Belth

"The magnificent Joseph Belth: 
a model for insurance critics"

by Alastair Rickard

I had given some thought to the subject I might choose for this the 250th column I have posted to A decision made by a friend, American writer and critic Joseph Belth, provided me with my topic.

In the Nov. 2013 issue of his monthly newsletter the INSURANCE FORUM (Vol.40, No.11) Joe announced that next month's December issue would be the last after 40 years.

He will continue sharing his insights and comments on his new blog: and, as I write this, has already posted a number of items.

While putting out the FORUM Joe also had a distinguished teaching career and is professor of insurance (emer.) in the Kelley School of Business at Indiana University. In the penultimate issue of his INSURANCE FORUM he wrote abut the reasons he started his monthly newsletter "for the unfettered exchange of ideas about insurance", what he tried to accomplish and why he is ending its publication.

Followers of will be aware of the high regard I have long had for Joe Belth as a man of principle, a writer of talent and the person I have long regarded as the best and most knowledgeable critic of the modern American life insurance business.

I began following Joe's views in the INSURANCE FORUM years ago and he became a model for me of informed and thoughtful commentary on the life insurance business and a major influence on my thinking in starting the Canadian Journal of Life Insurance. It was for me a spare time activity from my job as an insurance company junior executive and my attempt to contribute to the Canadian life insurance industry's mental health.

I first met Joe when I introduced myself ca 1981 when he came to Toronto as an invited witness before the Ontario Legislature's Select Committee on Company Law which was looking into the life insurance business. We have stayed in touch ever since.

I have been pleased to receive invitations to write something for the INSURANCE FORUM and I was honoured to have my name included by Joe on the list of "significant contributors" in his November 2013 issue.

When I learned of the coming end of the INSURANCE FORUM I sent Joe the following email:

"I just received your latest issue and read -- with mixed feelings -- of your intention to wind up the INSURANCE FORUM.

"I say mixed feelings because, as one who tried his hand for some years putting out as a spare time avocation a 'special interest' periodical -- especially one, like the FORUM, accepting no advertising -- I have some notion of the time and effort you have put into the INSURANCE FORUM for the past 40 years.

"For those decades you have produced a truly impressive editorial product, one providing important context for those interested in critical thought and genuine substance. As I have said to you previously, you have been an inspiration and a model for me through the years and for many others with a thoughtful interest in the life insurance business.

"I cannot find the words to express adequately how magnificent your achievement and contributions have been during the past four decades. You have every reason to be proud of your record.

"I think you will discover, as I have during the past few years, that a blog is a good way to go these days. Congratulations and best regards."

In writing and publishing the INSURANCE FORUM Joe Belth set a high bar for knowledge and thoughtfulness in offering comments and criticisms of the life insurance business in its various aspects, a standard too rarely approached over the years in Canada as well as the U.S. by various self-styled consumer critics of and 'experts' on the life insurance business in and out of the financial media.

Joe gave speeches and wrote widely apart from the INSURANCE FORUM. With his book "Life Insurance: a consumer's handbook" (1985 -- and still available via Amazon) he established the gold standard for accuracy and usefulness in consumer guides to life insurance. It remains so today in my opinion. Beside it many of the so-called consumer guides to life insurance are shallow, unrealistic, frequently inaccurate, of limited practical value to the consumer and too often dangerously misleading.

I will close with just a few excerpts from Joe Belth's Nov. 2013 piece on "why I started the Inurance Forum and why I am ending it":

" My sole objective [in founding the Forum] was to create a vehicle allowing me to communicate with individuals and organizations in the insurance business without censorship."

"Although I never built a large circulation, there is no doubt that many readers were important decision makers ...."

"I am 84 years old. Aside from some minor medical problems, I am fortunate to have been blessed with good health. Yet in recent years I have noticed some loss of the stamina needed to keep up with the demanding requirements of a monthly newsletter."

"A major factor in my decision to end publication is my desire to write a memoir about The Insurance Forum. ... By ending the newsletter I hope to complete the book soon."

"Another major factor in my decision is my strong reluctance to turn the newsletter over to someone else. I have seen periodicals become unrecognizable after they are taken over by new management. I want The Insurance Forum to be remembered in its original form as my personal 40-year project."

It will be. Well done Joe.


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and use the links

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as they are posted to go to