Insurance Company Buyout
Have you heard the news about Dominion of Canada Insurance? Dominion was sold to Travelers Companies Inc for a pretty hefty sum just a few weeks ago. This continues a trend in the insurance industry of consolidation, as big insurance companies like Intact get bigger by buying smaller ones like Axa and Jevco.
Presumably this improves the insurance industry, as these bigger companies are able to benefit from economies of scale, but what does it mean for you? If you have a policy with Dominion (or before that Axa or Jevco), what happens next? What if the next insurance company to be bought is your own?
The Purchase Process
The first thing you need to understand about any kind of transaction in the insurance world, is that regulation is everywhere. From auto insurance and home insurance, to more specialized products like commercial insurance or even aquatic or atv insurance, litigation and government intervention is everywhere.
And that doesn’t change when acquisitions are made. The government, or more specifically, the Financial Services Commission of Ontario (FSCO), gets involved as soon as they learn of a potential acquisition. There are already rules in place governing the specifics of how acquisitions are allowed to be done in Ontario, so FSCO instead focuses on ensuring that existing policyholders of the purchased company are protected. That means they won’t allow mass terminations or changes to policy limits, and most importantly, won’t change the rates you are paying.
So if you have a Dominion of Canada auto policy, don’t sweat it, your coverage isn’t gone, FSCO won’t let that happen.
What Happens Now
Now that the purchase has gone through, you should expect to hear from your new company about the purchase, with assurances that you will not be effected. If the new company decides to continue using your old company’s brand, you may not see a change in the logo, or colours that are being used.
However, it is rare that a company makes a purchase in insurance and maintains the old brand. Often there will be a new set of colours, logos and slogans, to reflect the new company’s focus and values. You may also notice the format of communication changing – there may be more emails, or letters and policy documents are structured differently. This is all par for the course, but that doesn’t mean you shouldn’t pay attention. Watch how the new company is trying to speak to you, because it is a precursor of things to come.
In the long term, the whole game changes. The purchasing company can apply for changes in rates, wordings and coverages, which will have a drastic effect on your insurance.
This is part of the value of an Insurance Broker, as they will monitor the situation and be able to notice if your policy is changing unfavorably, which is a distinct possibility.
Generally speaking, most purchases of companies are made because the buyer thinks they can get more out of the for-sale company then the for-sale company’s current management. The buyer typically tries to get this extra “value” out of the business by making changes and applying their knowledge of the industry, and by combining operations to gain economies of scale or scope (a phenomenon known as “synergy”).
This can mean sweeping changes to the focus of the purchased company, as the new managers change it’s strategy. A company could change from one known for home insurance to an entity entirely focused on commercial liability products. This is great if you want commercial liability insurance, but bad news for the people currently subscribed to home policies.
This is why we recommend paying attention to correspondence between you and your insurance company currently, as well as any news stories about what the new company intends to do. It can give you valuable insight into what their plans are, and if you can sense the winds starting to turn against you, you can get out right away, and potentially save yourself alot of time, money, and effort.