PACICC ponders future in Newfoundland

The industry’s guaranty fund is considering its future role in Newfoundland, members heard at the recent annual general meeting of the Property & Casualty Insurance Compensation Corporation (PACICC).

Newfoundland recently proposed that insurers cover 100% of unearned premiums in the event of an insurer insolvency, while PACICC currently refunds 70% up to a cap of $1,000. Insurance superintendent Winston Morris has said the government wants to require insurers in the province to belong to an association that provides 100% coverage, explains PACICC CEO Alex Kennedy. “The government can’t, in our view, compel PACICC to be that association.”

Kennedy says a recent study by PACICC shows upping the coverage to 100% would up costs across lines of insurance by 45%. In light of the recent cabinet shuffle resulting in a new minister being responsible for insurance in Newfoundland, Kennedy hopes PACICC will “have more luck” with the new regime.

Amongst the issues last year was the failure of Markham General Insurance Co., which led PACICC to consider “whether there is a right of action that should be pursued against the directors and officers [of the insurer] or anyone else”. Already $3.6 million in claims have been paid, but the total tally could be between $8-$15 million for members. PACICC struggled with MGIC’s failure to pay out unearned premiums on cancelled policies, which had been done in some cases and not others. “It’s not surprising consumers were upset,” Kennedy comments. PACICC has paid out $800,000 in such compensation so far.

In the case of the failure of U.S.-based Reliance, he says the process is well underway to find a buyer for the Canadian branch, which was not itself insolvent. An offer to buy has been accepted and definitive agreements were hoped to be signed by the end of February.

Last year’s failure of Canadian Millers’ Mutual has led to $2.8 million in claims payouts, and $700,000 in unearned premium claims, with $2.6 million on reserve.

PACICC members decided at the meeting to give the corporation greater leeway to prevent disaster before it strikes, by participating in “innovative solutions” to avoid insurer insolvency. One example would be involvement in selling a company’s book of business rather than winding up the business altogether.

PACICC chair Stu Kistruck, CEO of Pilot Insurance, says that PACICC is also considering a call by the federal insurance regulator to install an independent board. The Office of the Superintendent of Financial Institutions (OSFI) says it will only share information with an independent board. Kistruck expects PACICC to compile a white paper on the issue.