Canadians place their trust in insurance companies as protection for troubled times, but many often wonder what would happen if their insurer went bankrupt. Unfortunately, many still remember when the U.S.-based AIG went under in 2008. Still, consumers can rest assured that policyholders with Canadian insurance companies have the protection of an industry-funded safety net known as Assuris. Let’s see what protective mechanisms are in place to support the life insurance consumers in Canada.
Insurance Bankruptcy Protection in Canada
There are two ways that insurance holder interests, especially those with life and disability coverage, are protected from insurance company bankruptcies in Canada.
Besides the regulations provided by the Office of the Superintendent of Financial Institutions (OFSI), policyholders facing the improbable bankruptcy of an insurer can expect compensation for Assuris.
Here is how these two work:
Office of the Superintendant of Financial Institutions (OSFI)
OSFI oversees several industries in the financial sector, including banks, loan companies, trusts, and insurance companies. It does this through a framework that helps enforce the laws that apply to these companies and ensures they manage their risk properly.
However, people shouldn’t confuse OSFI with the Canadian Deposit Insurance Corporation. OSFI does not compensate for lost money, but they assess and review financial wealth, ensuring that insurers follow the demands of the Insurance Companies Act. Under the act, all Canadian registered insurers must maintain adequate assets and capital to meet their liabilities. In addition, OSFI changed the legal requirements for a 120% target total ratio to 150%.
How can you get help?
Assuris, an independent non-profit organization, covers the insurance benefits in the unlikely instance that an insurance company fails. Moreover, since the Ministry of Finance and regulators require every life insurance company to join Assuris, consumers can rest assured that they have the necessary protection.
Depending on the amounts and type of policy, Assuris will cover between 85 to 100 percent of the policy services. Assuris encompasses all insurance policies, including death benefits, health expenses, disability insurance, cash value, critical illness, and monthly incomes.
Examples of the protective cover Assuris provides are:
Either $200,000 of the death benefit or 85% of the total amount, whichever of the two amounts is higher. In addition, health expenses get up to $60,000 full cover, monthly disability payments up to $2,000, and up to $60,000 for the cash value of an insurance policy.
Has Assuris Ever Paid Out?
When the Union of Canada Life Insurance went under in 2012, it had 22,000 policyholders. Assuris offered complete protection to 99% of them, and 1% received at least 95% of their benefits. After that, UL Mutual (now known as UV Insurance) bought the Union of Canada.
Canadian policyholders also received full protection from Assuris when three firms went bankrupt in the 1990s. These firms were Confederation Life, Sovereign Life, and Les Coopérants.
In the case of Confederation Life, all its policyholders sustained no losses from their initial benefits, while 96% of Sovereign Life members got all their benefits, and the other 4% got 90%. Assuris provided full protection for Les Coopérants policyholders.
As a result, Assuris has protected more than 3 million Canadian policyholders despite not having any government backing.
Insurance Company Mergers and Buyouts
Smaller insurance companies often get acquired by bigger ones or merge with others. Often insurers also rebrand, changing their names. In mergers and buyouts, the company’s policies transfer to the new owner after the change, and you should get a notification.
Best Ways to Protect Yourself as a Policyholder
Remember the importance of doing your due diligence when looking for an insurance company. Insurers don’t necessarily need to be the biggest or oldest companies, but make sure they are a household name, have a good track record over the years of operation, are regulated federally, and are Assuris members.
Furthermore, the more significant and prominent Canadian insurance companies have a good track record and superb asset and risk management history. Many of these also get credit and financial rating grades, indicating how healthy their financials are. However, don’t look down on smaller companies, which often have better pricing and more customized solutions to meet specific needs.
Finally, you can also consider splitting your financial risk by taking out two policies from separate insurance companies. However, expect to pay more fees, and you may miss volume discounts.
Conclusion:
In conclusion, Canada has several laws and organizations helping to regulate the insurance industry. Despite prior incidents of insurance company failures, Assuris has provided policyholders with their benefits. However, if you still feel unsure, speak with one of our experienced life insurance advisers about the best ways to protect yourself and your money.
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