The Economical Demutualization: What About the Rest of Us?

Marc-Andé Pigeon

Do investors in a mutual have the right to cash in on a windfall created by previous generations?

The members of Economical – the Waterloo, ON-based property and casualty insurance company – gave the green light to the company’s demutualization in a vote on March 20, 2019. The business press says the move will be a “windfall” and “lottery” win for 878 owners, who could each pocket as much as $430,000 on an “investment” consisting of a three-year insurance policy (see here, here and here for background).

From a co-operative and mutualist perspective, it is tempting to see this process as a form of massive inter-generational wealth transfer. Why should a small band of owners benefit from accumulated wealth in a company that was started more than a 100 years ago by a group of hardscrabble farmers who put in countless volunteer hours making it into something?

In some provinces, like Quebec, this understanding is baked into co-operative and credit union legislation, which explicitly captures the idea that the accumulated net wealth in a co-op/credit union belongs to the broader movement or society, not the individuals who happen to own the co-operative at a point in time. This and other demutualization considerations are discussed at length in this Centre report.


It Could Have Been Worse

Still, the Economical wealth transfer could have been much worse. When Economical first proposed to demutualize, those 878 policyholders stood to pocket $1 million or more. Then the federal government put in place rules that forced Economical’s 878 mutual owners and their board of directors to consider not just the interests of non-voting insurance policyholders but also the legacy of previous generations of policyholders.

The result? Economical’s demutualization plan promises to set up a $100 million charitable foundation – the Economical Insurance Heritage Foundation– that recognizes the “contributions that Economical’s subsidiaries and ineligible and former policyholders have made to the value of Economical.” This is a peculiar and interesting outcome – taking an essentially democratic institution and moving much of its accumulated value into a largely unaccountable philanthropic organization. But there is another big issue here: if by setting up the charity, Economical is explicitly recognizing the value of the people who came before, how can they justify a demutualization process that benefits so few people today? And what is the underlying policy rationale for letting this happen?


Cold, Hard Business Decision

It’s simply a cold hard business decision says Economical, an argument that Ottawa policymakers seem to have accepted. The insurance industry is consolidating and the only way Economical can stay competitive is to go big (by acquiring another insurance company) or go home (wind-up). They need to be able to issue shares that trade on open markets to fund acquisitions or grow the business. In a mutual, owners hold home or auto policies, not shares. When those policies expire or lapse, so does the ownership interest. Not very good for raising million dollars or for shopping a company around as a takeover target.

But of course, this configuration was by design. Many of the people who set up mutuals and co-ops believed it was important to build these companies so they would grow organically, slowly, and remain firmly under democratic control: one policyholder, one vote, responsive to the local needs of members or policyholders. For many early co-op and mutual activists, experience dictated that growing too fast threatened the very foundation of the co-op and could, as a result, put all their hard work, the legitimacy and the co-op / mutual brand at risk.

Economical’s 200+ page informational circular exposes the tension between this understanding of the mutual’s historical legacy and the desire for Economical’s 878 owners to claim their windfall. Early in the circular, Economical looks at five alternatives to demutualization. In each case, it emphasizes that it rejected the alternative because it did not provide a “mechanism by which the value of Economical Mutual could be distributed to its policyholders in a manner similar to the demutualization process.” In short, none of the other options delivered on the promised windfall.


A Precedent

Whatever the merits of the Economical demutualization, it sets an important precedent. By requiring Economical to set aside a portion of the sale to a foundation, the government has required future mutual or co-operative demutualizations to take into account the legacy of the past and the promise of the future. Maybe this precedent and the understanding of the inter-generational nature of mutual and co-ops is the real payoff from the Economical’s demutualization.


Marc-André Pigeon, Director and a Strategic Research Fellow,
Canadian Centre for the Study of Co-operatives

“Windfall” cover image credit

74 thoughts on “The Economical Demutualization: What About the Rest of Us?

  1. Thank you for sharing superb informations. Your website is so cool. I am impressed by the details that you have on this blog. It reveals how nicely you perceive this subject. Bookmarked this website page, will come back for more articles. You, my pal, ROCK! I found just the info I already searched everywhere and simply couldn’t come across. What an ideal web-site.

  2. I not to mention my pals were reading the nice pointers on the website then unexpectedly I got a horrible feeling I never thanked the web site owner for those strategies. My people had been for that reason glad to study them and already have definitely been taking pleasure in those things. Appreciate your getting really kind and then for deciding upon certain marvelous ideas most people are really desirous to be aware of. My honest regret for not expressing gratitude to earlier.

  3. Hello there! Do you know if they make any plugins to help with Search Engine Optimization? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains. If you know of any please share. Thank you!

  4. Wonderful items from you, man. I’ve remember your stuff prior to and you’re just too fantastic. I actually like what you’ve acquired here, really like what you’re stating and the best way during which you are saying it. You are making it enjoyable and you still care for to stay it sensible. I can’t wait to read much more from you. This is actually a tremendous web site.

  5. I’m truly enjoying the design and layout of your site. It’s a very easy on the eyes which makes it much more enjoyable for me to come here and visit more often. Did you hire out a developer to create your theme? Superb work!

  6. That is the proper weblog for anybody who wants to seek out out about this topic. You notice a lot its nearly exhausting to argue with you (not that I really would need…HaHa). You undoubtedly put a brand new spin on a topic thats been written about for years. Nice stuff, just great!

  7. My husband and i have been quite fortunate Edward could finish off his inquiry using the precious recommendations he made through your blog. It’s not at all simplistic just to always be giving freely facts that many a number of people might have been trying to sell. And we also grasp we have got the writer to thank because of that. Most of the explanations you’ve made, the easy site navigation, the relationships your site help engender – it is all superb, and it’s facilitating our son and the family do think that article is exciting, and that is pretty essential. Thanks for everything!

  8. Hello there! I know this is somewhat off topic but I was wondering if you knew where I could locate a captcha plugin for my comment form? I’m using the same blog platform as yours and I’m having difficulty finding one? Thanks a lot!

  9. hey there and thank you for your info – I’ve certainly picked up anything new from right here. I did however expertise several technical points using this website, since I experienced to reload the site a lot of times previous to I could get it to load correctly. I had been wondering if your web host is OK? Not that I am complaining, but sluggish loading instances times will sometimes affect your placement in google and can damage your high-quality score if advertising and marketing with Adwords. Well I’m adding this RSS to my e-mail and can look out for a lot more of your respective interesting content. Make sure you update this again very soon..

  10. Just want to say your article is as astonishing. The clarity in your post is just excellent and i could assume you are an expert on this subject. Fine with your permission allow me to grab your feed to keep up to date with forthcoming post. Thanks a million and please keep up the enjoyable work.

  11. Along with almost everything that appears to be building inside this specific subject material, all your opinions tend to be very refreshing. Having said that, I appologize, but I do not subscribe to your whole plan, all be it radical none the less. It would seem to us that your commentary are actually not entirely rationalized and in simple fact you are generally your self not thoroughly confident of your point. In any case I did take pleasure in examining it.

  12. Thank you for the sensible critique. Me & my neighbor were just preparing to do a little research about this. We got a grab a book from our area library but I think I learned more clear from this post. I am very glad to see such fantastic information being shared freely out there.

  13. Have you ever considered about adding a little bit more than just your articles? I mean, what you say is important and all. Nevertheless imagine if you added some great images or videos to give your posts more, “pop”! Your content is excellent but with images and video clips, this blog could certainly be one of the very best in its field. Superb blog!

  14. Wonderful work! This is the type of information that should be shared around the web. Shame on the search engines for not positioning this post higher! Come on over and visit my site . Thanks =)

  15. I’d have to test with you here. Which is not something I normally do! I take pleasure in reading a put up that may make people think. Also, thanks for permitting me to remark!

  16. I wish to show appreciation to this writer for bailing me out of this particular challenge. Because of surfing around through the world-wide-web and coming across recommendations which were not powerful, I assumed my life was done. Living minus the answers to the problems you’ve fixed through the short article is a critical case, as well as the kind that would have in a negative way affected my career if I hadn’t come across your blog. Your own mastery and kindness in handling every item was very helpful. I am not sure what I would’ve done if I hadn’t discovered such a stuff like this. I’m able to now look ahead to my future. Thanks a lot so much for this impressive and results-oriented guide. I will not think twice to endorse your site to anyone who would like guidelines about this problem.

  17. I am really enjoying the theme/design of your web site. Do you ever run into any web browser compatibility issues? A number of my blog visitors have complained about my website not operating correctly in Explorer but looks great in Safari. Do you have any solutions to help fix this issue?

  18. GTA 5 Money Author & Deal Online can make or car the Money as much as you impoverishment for your Noble
    Motorcar 5 declare and we’re not leaving to billing you
    any concentrated penny.

  19. I think this is among the most vital information for me. And i’m glad reading your article. But should remark on few general things, The web site style is wonderful, the articles is really great : D. Good job, cheers

  20. My spouse and I stumbled over here coming from a different web page and thought I might check things out. I like what I see so now i am following you. Look forward to looking over your web page yet again.

  21. Superb blog! Do you have any tips and hints for aspiring writers? I’m planning to start my own blog soon but I’m a little lost on everything. Would you recommend starting with a free platform like WordPress or go for a paid option? There are so many choices out there that I’m completely confused .. Any recommendations? Thank you!

  22. Greetings I am so thrilled I found your webpage, I really found you by mistake, while I was searching on Google for something
    else, Anyhow I am here now and would just like to say many
    thanks for a marvelous post and a all round thrilling blog (I also love the theme/design), I
    don’t have time to browse it all at the minute but I have book-marked it and also included your
    RSS feeds, so when I have time I will be back to read a lot more,
    Please do keep up the fantastic job.

  23. An impressive share! I’ve just forwarded this onto a coworker who has been doing a little homework on this.
    And he in fact ordered me dinner because I stumbled upon it for him…
    lol. So allow me to reword this…. Thanks for the meal!!

    But yeah, thanks for spending some time to talk about this subject here on your web site.

  24. I like the helpful information you supply on your articles. I’ll bookmark your weblog and test once more here frequently. I am relatively certain I will be told many new stuff right here! Good luck for the next!

  25. Very nice post. I just stumbled upon your blog and wished to say that I have truly enjoyed
    surfing around your blog posts. After all I will
    be subscribing to your feed and I hope you write again very soon!

  26. An impressive share! I’ve just forwarded this onto a friend who has been doing a
    little research on this. And he actually ordered me lunch simply because I found it for him…
    lol. So allow me to reword this…. Thanks for the meal!!
    But yeah, thanx for spending the time to discuss this matter
    here on your internet site.

  27. I am really enjoying the theme/design of your blog.
    Do you ever run into any browser compatibility problems?
    A small number of my blog visitors have complained about my site not operating correctly in Explorer
    but looks great in Firefox. Do you have any ideas to help fix this

  28. Howdy! I realize this is kind of off-topic but I had to ask.
    Does operating a well-established website like yours
    take a large amount of work? I am completely new to running a blog however I do write in my journal
    on a daily basis. I’d like to start a blog so I
    can share my own experience and thoughts online. Please let me know if you have any suggestions or tips for
    new aspiring blog owners. Thankyou!

  29. This design is spectacular! You most certainly know how to keep
    a reader amused. Between your wit and your videos, I was almost
    moved to start my own blog (well, almost…HaHa!) Excellent job.

    I really loved what you had to say, and more
    than that, how you presented it. Too cool!

  30. Unquestionably believe that that you stated. Your favourite reason appeared to
    be on the internet the simplest factor to keep in mind of.
    I say to you, I certainly get irked while other folks think about worries that they just don’t understand about.
    You controlled to hit the nail upon the highest and also outlined out the whole thing without having side-effects , other people can take a signal.
    Will likely be back to get more. Thanks

  31. hello there and thank you for your info – I’ve definitely picked up
    something new from right here. I did however expertise a
    few technical points using this web site, since I
    experienced to reload the website many times previous
    to I could get it to load properly. I had been wondering if your
    web host is OK? Not that I’m complaining, but sluggish loading instances
    times will often affect your placement in google and could damage your
    high quality score if ads and marketing with Adwords.
    Anyway I am adding this RSS to my e-mail and could look out for a lot more of your respective interesting content.
    Make sure you update this again very soon.

  32. You could certainly see your expertise within the article you write.
    The sector hopes for more passionate writers such as you who are
    not afraid to say how they believe. All the time follow your heart.

  33. Yesterday, while I was at work, my cousin stole my iphone and tested
    to see if it can survive a 25 foot drop, just so she can be a youtube sensation. My iPad is now broken and she has 83 views.
    I know this is totally off topic but I had to share it
    with someone!

Leave a Reply

Your email address will not be published. Required fields are marked *