{"id":269655,"date":"2021-08-05T10:31:12","date_gmt":"2021-08-05T14:31:12","guid":{"rendered":"https:\/\/policyoptions.irpp.org\/issues\/death-of-a-mutual-and-the-drift-away-from-neighbours-helping-neighbours\/"},"modified":"2025-10-07T23:38:17","modified_gmt":"2025-10-08T03:38:17","slug":"death-of-a-mutual-and-the-drift-away-from-neighbours-helping-neighbours","status":"publish","type":"issues","link":"https:\/\/policyoptions.irpp.org\/fr\/2021\/08\/death-of-a-mutual-and-the-drift-away-from-neighbours-helping-neighbours\/","title":{"rendered":"Death of a mutual, and the drift away from \u201cneighbours helping neighbours\u201d"},"content":{"rendered":"

In the 1990s and 2000s, four major Canadian life insurance companies demutualized<\/a>, 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 \u2013 although more direct financial interests certainly provided some impetus.<\/p>\n

In May, Economical received final policy-holder approval<\/a> 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\u2019s mutual status will cause a further drift from the company\u2019s values, to the detriment of broader Canadian society.<\/p>\n

Economical was founded on the principle of \u201cneighbour helping neighbour.\u201d 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.<\/p>\n

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\u2019 interests. Economical is an exception, having implemented a unique dual class<\/a> structure whereby some policy-holders (almost 900) are members, while the rest (over 60,000) are not.<\/p>\n

Economical\u2019s board set out their arguments in favour of demutualization in a 2019 information circular<\/a> to members. Among those reasons was the substantial financial returns current members would receive. The company\u2019s dual structure means that each member stands to collect an estimated payout<\/a> of between $300,000 and $430,000 from demutualization.<\/p>\n

Following a negotiation mandated by legislation and overseen by the courts, other policy-holders have been allotted around $2,000. This windfall gave members a strong incentive to accept the board\u2019s plan. However, focusing on the financial benefits for current members provides only a partial accounting for the costs and benefits for the company, its values and Canadian society. The board\u2019s other justifications for demutualization suggest the company is cashing out accumulated value that does not entirely belong to current members and selling out founding values that matter beyond the company itself.<\/p>\n

For example, the board argues that demutualization will better position the company to acquire other businesses, including smaller insurance companies. Yet the reverse is also the case. Demutualization will expose Economical to acquisition by other companies with different values, as was the fate of Mutual Life of Canada<\/a> shortly after it demutualized. It claims a publicly traded company will have a greater ability to attract and retain employees. Yet this argument ignores cutting-edge research on the risks of linking employee motivation to stock-based compensation while underestimating the intrinsic motivation of working with a values-based company.<\/p>\n

Economical was started in 1871. Today, the financial value of the company is estimated at between $1.4 and $1.9 billion<\/a>. In a traditional for-profit corporation, the market capitalization of the company\u2019s shares serves as both a comprehensive measure of company value and a tacit indication that this value belongs to current shareholders. The value of Economical, however, is harder to measure and apportion.<\/p>\n

The transformation of Economical into a company that puts shareholders before policy-holders, and financial value before shared values, involves a loss that is not compensable or is, at best, a form of expropriation.<\/p>\n

Demutualization is not simply a legal sale of ownership from customers to a new class of shareholders. Mutuals traditionally operated based on an indivisible reserve<\/a>, a permanent source of capital that cannot be distributed to members. Mutual profits are directed at growing the membership, serving their insurance needs and supporting the company\u2019s purposes. In this case, participants in any mutual IPO will be receiving accumulated value that was built up over the last 150 years by members who not only bought insurance but agreed to shoulder a shared risk and become participants in a collective enterprise dedicated to a principle of mutual care.<\/p>\n

Demutualization reorients incentives and removes certain legal constraints. It may be beneficial, or even critical for some companies. The fundamental question then becomes: How should payouts be divided? The payments to nonmember policy-holders and the $100-million foundation that will be created from the demutualization proceeds reflects the board\u2019s recognition that the value of a mutual insurer does not belong to present-day members alone.<\/p>\n

Unfortunately, the payout structure was negotiated by representatives for existing policy-holders. It is not surprising that the current policy-holder members signed off on this windfall deal. But there is no principled argument that they were entitled to it. Indeed, in line with the company\u2019s founding values, a deal allocating most of the funding \u2013 on the order of $1 billion \u2013 to advancing the company\u2019s legacy would be much more appropriate.<\/p>\n

The approach taken to Economical\u2019s demutualization has implications beyond one company. Other mutuals may follow its example. Co-operatives and credit unions have a similar structure and may also explore demutualization, raising questions about the interaction between private interests and social values, and the role of public authorities in mediating them. When Mountain Equipment Co-op, facing financial insolvency, was sold last year to a private equity firm, the furore from its members<\/a> vividly illustrated that a company’s value may not be fully reflected in its finances.<\/p>\n

At the height of the pandemic, we saw calls for a \u201cgreat reset<\/a>,\u201d a reordering of our economic priorities to put care, resilience and mutual aid before profits. It is sad to see movement in the opposite direction just as the pandemic is lifting. The approach of provincial and federal governments to demutualization \u2013 and the transformation of ownership more broadly \u2013 is to focus on procedural fairness, predictable process and accurate accounting. They give virtually no consideration to the substantive social values at stake.<\/p>\n

There are alternatives. For future demutualization, the regulator could require organizations to make a case that the change will benefit broader Canadian society or at least align with companies\u2019 long-term values. Government could require demutualizing firms to transfer the returns from the selloff to a charitable organization that shares the company\u2019s purposes, with remuneration to current members limited to compensation for the cost of the process.<\/p>\n

As a matter of pure economics, Economical’s demutualization may represent a sensible transformation of the company’s governance structure. As a matter of social values, it demonstrates acquiescence from Canadian policy-makers about whether the demutualization is worth it, on these or any other terms.<\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"featured_media":279649,"template":"","meta":{"_acf_changed":false,"content-type":"","ep_exclude_from_search":false,"apple_news_api_created_at":"2025-10-08T03:38:19Z","apple_news_api_id":"df4c7f52-7709-4cd5-a677-5d740d568df6","apple_news_api_modified_at":"2025-10-08T03:38:20Z","apple_news_api_revision":"AAAAAAAAAAD\/\/\/\/\/\/\/\/\/\/w==","apple_news_api_share_url":"https:\/\/apple.news\/A30x_UncJTNWmd110DVaN9g","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"","apple_news_slug":"","apple_news_sections":[],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false},"categories":[9359,9357,9372],"tags":[8649],"article-status":[],"irpp-category":[4339,4251],"section":[],"irpp-tag":[],"class_list":["post-269655","issues","type-issues","status-publish","has-post-thumbnail","hentry","category-loi-droits","category-politiques-sociales","category-recent-stories-fr","tag-consumer-protection-fr","irpp-category-loi-et-justice","irpp-category-politique-sociale"],"acf":[],"apple_news_notices":[],"yoast_head":"\nDeath of a mutual, and the drift away from \u201cneighbours helping neighbours\u201d<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/policyoptions.irpp.org\/fr\/2021\/08\/death-of-a-mutual-and-the-drift-away-from-neighbours-helping-neighbours\/\" \/>\n<meta property=\"og:locale\" content=\"fr_FR\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Death of a mutual, and the drift away from \u201cneighbours helping neighbours\u201d\" \/>\n<meta property=\"og:description\" content=\"In the 1990s and 2000s, four major Canadian life insurance companies demutualized, ending their status as mutuals to become publicly traded corporations. 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