PACICC seeking alternative to liquidation

CANADA’s p&c policyholder protection provider is planning to explore alternative resolution options that would avoid liquidation, which it has most commonly used when intervening in insurer insolvencies.

Property and Casualty Insurance Compensation Corp. CEO Alister Campbell said that since the 2008 global financial crisis, policymakers in Canada have given priority to better resolution planning to mitigate market disruptions caused by failed financial institutions.

“Our work will specifically address recommendations in this area made by the Financial Stability Board and the International Association of Insurance Supervisors and we will examine any gaps that exist between PACICC’s current capabilities and the recommended best practices for p&c insurance resolution authorities,” he said at PACICC’s annual meeting in Toronto.

He said PACICC has a number of potential priority options in 2021, to be determined by the board. Its central concern will be “to ensure that we are ready to manage the potential default of one or more larger institutions that fail due to a fundamental estimating of risk in the context of a major natural catastrophe event and that a solution is found to properly manage and fund resolution in such a scenario,” Mr. Campbell said.

As reported earlier this month in Thompson’s (April 8 weekly edition), PACICC is currently reviewing its coverage and benefits. It will consult with industry stakeholders over the summer and present a final benefit and coverage recommendation to its board in the fall.

“If those changes are improved by the board and endorsed by regulators we would be in a position to implement this by 2020,” Mr. Campbell said.

Grant Kelly, PACICC’s chief economist and VP of financial analysis and regulatory affairs, said the industry’s core message to consumers in the wake of insurer insolvency will have to change if the industry is to use  alternative resolution methods other than liquidation.

Mr. Kelly has examined various resolution tools such as portfolio transfers, runoffs and  restructuring for a forthcoming report that is part of PACICC’s ‘Why Insurers Fail’ research series. The paper’s key question is whether other resolution tools would produce better outcomes for industry and consumers.

Mr. Kelly said the message to consumers now is that in the case of an insolvency, policyholders should stop paying premiums and find new coverage — the opposite of banks’ and life insurers’ messages.

“When a bank or life insurer gets in trouble, the number one message to consumers is keep paying, keep putting your money in, don’t go to the bank and take all your money out, this will work out and we are going to look after you,” he said.

“Our message to consumers for the last 30-plus years has been ‘(don’t) pay premiums and you have 45 days to get new insurance.’”

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