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© Copyright 2002
Rogers Media. The following article first appeared in the February 2002 edition
of BENEFITS CANADA magazine.
Editorial
Market effect
Why do Canada's insurance companies want to eat
one another?
 Because they are hungry. It is what companies do
when they have an opportunity to grow by acquisition. Such is the case with Sun
Life Financial's plan to buy Clarica Life Insurance Co. Presumably the same will
apply if, as is anticipated, Canada Life finds itself the apple of some other
eye.
A government-imposed moratorium on bids for
both those companies ended Jan. 1. Sun Life's announcement in December was about
as surprising as the season's first snowfall.
Still, the concern among benefits and pension plan
sponsors about consolidation in Canada's insurance industry has been ratcheted
up by the news. We heard that clearly from benefitscanada.com readers
participating in this month's online poll (see "Epoll,"). Fifty-five per cent
believe consolidation will be bad for Canada's group insurance market.
The thinking among many opposed to consolidation goes
like this. Pre-consolidation, Canada's insurance industry was in a state of
natural balance. Market forces supported just the right number of providers. To
remove one or two players from that stage is to act in contravention of the free
market.
Fewer choices, they fear, means poorer choices. But while
there may be some negative impact on benefits and pension plan sponsors, one
cannot argue that consolidation in Canada's insurance industry runs contrary to
free-market economics because these deals are themselves a result of free-market
forces.
If you believe in the market, then you must have faith
that Canada's insurance industry will attract new players if that's what clients
need. A genuine market demand won't go unfulfilled for long.
Of course that takes time. But the alternative would
leave Canada's insurance industry behind the same eight ball as the banks.
Finance Minister Paul Martin (yes I'm picking on him again) made a mess of the
proposed bank mergers. He so politicized that process that it is now all but
impossible for the banks to grow their businesses in the manner they see most
fit. No deal is possible until after a federal election. By then our banks will
be too far behind their global competitors.
It would be a shame to see this country's insurance
companies suffer the same ill fortune.
Our 25th anniversary celebrations continue this month
with the first edition of "The Next 25 Years". Throughout this year we'll be
running essays by senior industry executives on the future of the benefits and
pension industry in Canada. Tom MacMillan, president and chief executive officer
of CIBC Mellon in Toronto, examines the future of the custody business for us in
this issue.
Kevin Press -
kpress@rmpublishing.com
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