Letter to the Editor: IFRS debate: Canadian industry has been leading a sheltered existenceBy La rédaction | February 25 2014 09:00AM
Dear Editor,Some time ago I heard the cliché “Hubris is terminal.”
I think that many in leadership positions in this country’s life insurance industry are suffering from a severe case of it.
My opinion is based on the recent inflamed rhetoric and smug claims by many of those leaders quoted in your recent extensive (and well-done) reporting on the upcoming changes to accounting standards to our industry (January 2014).
Declaring the Canadian Industry to be “a lap ahead”; implying that products with long-term guarantees – unique to the Canadian marketplace are a good thing; that our industry is “solid”; “Our practices are good…” and that “Canada’s insurers are in great health…are well-regulated…” are examples of such hubris.
This hubris is exposed by the application of IFRS standards – standards that are agreed upon by the rest of the globe save that of the United States (always the outlier it seems) – that show the Canadian insurance industry to be far less “solid” than the rest of the developed world – a world that has been using these standards for quite some time.
Canada’s insurance industry has been leading a sheltered existence for quite some time compared to other countries and under the current less stringent standards the companies have continued to sell highly lucrative, long-term guaranteed products that the rest of the world has long-since abandoned.
The high reserve/ high risk nature of these products is exposed by the application of IFRS, with the looming application of those standards to Canadian insurers balance sheets exposing their weakness compared to the rest of the world. And, like shrieking harridans, the leaders of our industry are now invoking highly impolite language: “nonsensical”, “inappropriate”, ”ridiculous complexity”, “blind pursuit” and “…we fall into this trap” to rebuke the efforts of the IFRS implementers – the IASB – to make our industry as financially transparent and accountable – and therefore as safe – as the rest of the developed world.
Insurance at its very core is about the “transfer of a risk of a loss from one entity to another” (I quote straight from Wikipedia). Canadians by the millions have agreed to transfer their risk of loss to the insurers under the assumption that and promise by those insurers that they are able to cover those losses regardless of what the circumstances are at the time of claim.
IFRS were developed to address huge shortcomings in the global insurance industry. And those standards when applied to the Canadian industry are revealing that those assumptions and promises may in fact be incorrect. Our industry has been overpromising and thus may under-deliver to our clients as a result. Because of our industry’s sheltered existence up until now, severe, wrenching change to our products and in many cases our careers will have to occur lest we become lepers in the eyes of the world’s investment community.
Because, you see, they do consider IFRS to be sensical and appropriate and to be a worthwhile, eyes-wide-open pursuit, one that in the long run makes our clients safer from risk. Indeed in the long-run they will make the Canadian industry stronger and able to truly and honestly boast that it is in good health and well-regulated.
Hubris almost by definition is a shortsighted attitude – seeing neither far enough into the future nor into the past.
And the Canadian Insurance industry does, indeed have a past.
Two words trigger memories for many:
For those to whom it does not – and apparently that would include many in this industry’s leadership – I would urge them to look it up. It was a company that when it was forced into liquidation in 1994 – just 20 years ago – was – if memory serves – the largest group insurer and third largest life insurer in the country. I daresay that at the time the Canadian insurance industry was not seen as being “a lap ahead” of the rest of the world.And by not embracing the rigors and changes that IFRS will compel the industry to adopt it will be seen as at least one, and perhaps several, laps behind the rest of the world.
Slate Insurance Inc.
Red Deer, Alberta
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