THE IBC’S “MAN IN BLACK”

“Throughout the time I have worked either in the public or private sectors, my involvement has been focused on public policy and the regulatory environment,” says George Cooke, newly appointed chair of the Insurance Bureau of Canada (IBC). Indeed, he notes, the motivation for taking on the position of chair at the IBC had much to do with the “lobby component” of the job. “Very clearly, the lobby side of it is what I’m interested in.”

Although the agenda of priorities before the IBC on the lobbying front is extensive, Cooke faces perhaps an even more formidable challenge during his period of office – the amalgamation of the IBC and the Insurance Information Centre of Canada (IICC) which officially takes place from July of this year. “When I accepted the position [as chair of the IBC], it was then not clear on how the organizations were to be restructured, or whether they’d even be merged. Although, I have to say that I fully support the board decision for the merger.”

Bringing together the various operations falling under the IICC and IBC, and realizing the synergistic benefits of doing so, will not be an overnight exercise, Cooke acknowledges. The first step will begin with a three-month review of the various operations, with the objective of finalizing the merger by around July of next year (see below for further details on the IBC/IICC merger).

Regulatory experience

In addition to the various public sector roles he has held – including general manager of the Ontario Automobile Insurance Board, a policy advisor to Liberal minister Bob Nixon under the Ontario provincial government, and positions with Ontario Hydro and the Ontario Energy Board – Cooke’s specific involvement in public policy issues influencing the insurance industry dates back to the early 1990s. It was his involvement as chairman of an IBC steering committee established to bring about reform to Ontario’s past auto insurance legislation, under Bill-164, which won him respect as a notable lobbyist. “I guess if there is something unique about my background, it’s my government experience.”

And, as the regulatory reform battle wages ahead on several fronts, namely the latest push by the industry to introduce cost-control measures to Ontario’s Bill-59 which replaced the province’s previous auto insurance legislation, Cooke believes his “unique background” places him in good stead in understanding how the “other side” thinks. He is also cautious about using the term “lobbyist”, noting that the term is often construed in a negative manner. “It’s really about introducing fresh thinking, new ideas to public policy. You might say that the IBC is largely about lobbying on the public policy front, but it’s what I call ‘non partisan lobbying’ in that it’s not self-serving.”

Top priorities

What would be the top five regulatory issues facing the IBC and the insurance industry in coming years? Cooke smiles when responding, “there’s a lot of lobbying to be done”. Seriously, he adds, the next two to three years will see increased focus on five areas, with no particular importance of sequence.

Healthcare system. Auto insurers have paid huge sums of money over the years to healthcare providers and the provincial governments, he notes. The dramatic rise over a few short years in personally injury claims in many provinces, but particularly Ontario, has signaled the need for legislative reform. With governments from the federal to provincial levels currently engaged in policy review, the insurance industry as a major private sector player on the healthcare landscape has to step forward to the table, Cooke charges. The IBC formed a healthcare committee nearly a year ago, he adds, and proposals within Ontario have been made. It is critical, however, for the IBC to ensure that the industry’s voice is not lost in the political shuffle.

Product reform. Ontario’s Bill-59 is evidence of a nearly successful succession of legislative reform, Cooke says. Unfortunately, many of the initiatives which had been discussed and agreed to by the provincial legislator in the bill’s creation did not materialize. Subsequently, auto insurers in Ontario have been cut deeply, primarily as a result of spiraling personal injury treatment costs. Advancements have been with the regulator to introduce cost-control measures, but the matter is far from resolved. Furthermore, Cooke points out, the need for product reform exists not only in Ontario, but several other provinces, and achieving regulatory harmonization is going to be one of the biggest challenges in this regard.

Tax burden. “We’ve been whining about unfair tax treatment for years, but there are signs that we [the IBC] are making progress,” Cooke states. Once again, lack of harmonization across the provinces in the type and the rate at which taxes are applied against the industry has been troublesome, and in many cases has resulted in loss of investment. Transactional-based taxes, namely premium and capital taxes, which often overlap and create a “cascading” increase in the overall tax cost is the biggest issue on the table, he adds. In response, the IBC has created a tax steering committee which is looking to address reform measures at both the federal and provincial levels.

B.C. auto deregulation. “This is the best opportunity we’ve had in 30 years to bring about deregulative reform in British Columbia’s auto insurance market,” Cooke says. His comment refers to the recent political success of the Liberal Party in B.C.’s provincial election, and the new government’s stated intent to address deregulation of the auto insurance market, which for several decades has been legislatively protected and underwritten by the government-owned Insurance Corporation of British Columbia (ICBC). “As the president of an insurance company already operating a sizeable book of property coverage in the province, I admit to having a personal interest in deregulation in B.C. auto, and I know there are a lot of companies out there who share my interest – deregulation could see a significant increase in investment in the province.” That said, Cooke concedes that the industry politics in this regard are complicated, with many independent brokers not quite sharing the same degree of enthusiasm as private insurers over the prospect of market deregulation. However, Cooke emphasizes, the quest on hand is really to look at what is best for B.C.’s insurance consumers and not any specific interest group.

Privacy/regulatory body reform. “Sometimes, there almost seems like there is a kind of ‘one-upmanship’ happening between the various provincial regulators,” Cooke suggests. It is becoming increasingly apparent that the industry is facing a growing “regulatory burden” resulting from lack of regulatory harmonization across the provinces, he adds. The creation of the Canadian Council of Insurance Regulators (CCIR) was supposed to overcome many of the communicative obstacles that stood in the way of achieving harmonization, “but in many ways, it [the CCIR] seems to have exasperated the problem”.

On a provincial level, the industry is deeply concerned with the proposed merger between the Financial Services Commission of Ontario (FSCO) and the province’s Ontario Securities Commission (OSC), which will possibly leave the p&c insurance sector as a very small player on the new regulator’s game-field. “The FSCO/OSC merger does not make any sense, the p&c insurance industry does not fit into this structure. The question is, will any of this benefit the consumer – my response would be ‘no’. It will just cost money and time, and add to the ‘regulatory drag’.”

Another factor of concern, but on the higher federal regulative level, is the recent decision by the Office of the Superintendent of Financial Institutions (OSFI) requiring the industry to report on discounted unpaid claims. Many within the industry regard this as a surprising step with little benefit for the industry or the regulator, Cooke comments. “Why OSFI wants to take Canada away from the direction the international regulatory environment is moving toward, and make us an anomaly along with Australia is a big question mark.”

On the backburner

The potential exposure of “cyber risks” is something that everyone is trying to come to grips with, Cooke notes. At this point, the cyber risk issue is low on the regulatory radar screen, but at some indefinite, but likely point in the near future the insurance industry in Canada is going to have to deal with the problem of writing coverages as well as participating in the public policy debate that will emerge. The IBC is keeping a close watch on developments, he adds, and it is particularly important to note developments south of our border. “The outcome of court cases in the U.S. suggest that cyber risks are a part of personal property risks. The Canadian insurance industry will eventually have to address how it is going to handle these exposures as well as provide the type of coverages that clients will expect.”

IBC/IICC merger

“I’m enthused with the opportunity of taking on the chair [of the IBC] at this time,” Cooke says, referring to both the changes underway within the organization and the industry-sensitive public policy issues on the table.

The purpose of the merger between the IBC and IICC is more about streamlining governance than dealing with cost-efficiencies, he notes. “We [the IBC and affiliate organizations such as the IICC] undertook cost-cutting initiatives about a year ago, so I’m not really expecting to see any significant savings coming out of the merger. The real benefit lies in having a single senior board [of directors] with a focused policy approach – it will be a lot simpler with one board and one management team.”

Cooke emphasizes that the restructuring facing the IBC and IICC is not intended as a negative reflection on the management of either of the organizations. The IICC was given a mandate, and the institute’s management conducted its affairs properly within that structure, he explains. The fact on hand is that the IICC’s mandate has to be changed, with the objective of maintaining data integrity and ensuring that appropriate sources focused on getting that information out to the industry in a timely manner. “I hope to get away from activities within the IICC of ‘revenue enhancing services’ such as new product development, what we [as an industry] really want is skilled resources to deal with issues in a timely manner.”

Some of the organizations falling under the umbrella structure of the IICC may be merged directly into the IBC should it be felt that the data relationship between these bodies would be better served by doing so, Cooke says. This could mean that certain organizations will cease to exist as separate bodies, he adds. This, however, will depend on the outcome of a three-month review to be conducted throughout the IBC and IICC organizational structures following the official merger between the two umbrella bodies. Looking down the road, Cooke believes that the changes underway within the IBC/IICC will better position the industry’s “voice” to be able to react to the ever-evolving public policy environment. This is going to become increasingly important over the next five years as global marketplace initiatives within the financial services sectors has greater bearing on the Canadian p&c insurance industry, he predicts.