june 1, 1999

Loss of employment insurance and accident & sickness insurance

When the federal Insurance Companies Act was revised in 1997, a new class of insurance - for loss of employment - was added to those already listed in the Schedule to the Act. This class is defined to mean "insurance against the involuntary loss of employment by a person where the loss of employment benefit is limited to all or part of the debt of the person." This kind of insurance can be written by both life and P&C insurers.

There has been considerable discussion with the Canadian Council of Insurance Regulators (CCIR) about this class. The regulators wanted PACICC and its life counterpart, CompCorp, to provide coverage for loss of employment insurance and to restructure their coverages to establish the principle that each insurer would be required to be a member of only one compensation plan. (A few composite insurers do not fit this model and may have to be members of both PACICC and CompCorp.)

Following discussion with the CCIR and CompCorp, the PACICC Board of Directors amended the schedule to PACICC's Memorandum of Operation. This schedule lists the kinds of insurance policies that are deemed to be excluded from coverage by PACICC. The effect of the amendments is to add a new definition of loss of employment insurance and to substitute a new definition for the existing definition of accident and sickness insurance.

Loss of employment insurance is now defined in PACICC's Memorandum of Operation as "insurance against the involuntary loss of employment by a person when the loss of employment benefit is limited to all or part of the debt of the person, when written by an organization which is authorized to write (i) life insurance or (ii) loss of employment insurance and accident and sickness insurance only."

Accident and sickness insurance is now defined to mean "insurance coming within the class of personal accident insurance and sickness insurance, when written by an organization which is authorized to write (i) only accident and sickness insurance or (ii) life insurance."

The result is that PACICC will cover loss of employment insurance written by insurers which are otherwise required to be members of PACICC. CompCorp will cover loss of employment insurance written by insurers which are otherwise required to belong to CompCorp. An insurer wanting to write only loss of employment insurance will have to join CompCorp.

The amended definition of accident and sickness insurance in the schedule to PACICC's Memorandum of Operation will have the same result. Effectively, it means that PACICC will cover accident and sickness insurance written by a company not licensed to write life insurance. If the company is licensed to write accident and sickness insurance, along with some P&C lines, PACICC will also cover the accident and sickness insurance; if the company is licensed to write accident and sickness insurance only, CompCorp will respond.

Insurers currently licensed for accident and sickness insurance are required to be members of CompCorp, and it will be necessary for such insurers to remain members of CompCorp until the necessary changes to the provincial and territorial regulations have been made. As CompCorp is in the process of refunding to its members their share of amounts received from liquidations, some P&C Insurers are likely to benefit from retaining their membership in CompCorp until that time. In future, however, the accident and sickness coverage for P&C companies will come from PACICC not CompCorp. It is understood that the various provinces and territories will update their respective regulations to reflect the coverages offered by PACICC and CompCorp and members will be advised as the regulations are enacted.

The changes to PACICC's Memorandum of Operation were approved by its board of directors in November 1998, and CompCorp's board of directors have made appropriate changes to both its By-law and Memorandum of Operation and these have also been approved. The changes came into effect, for both PACICC and CompCorp, on June 1, 1999; so the changes will apply to PACICC members which are ordered to be wound up after that date. For PACICC purposes, the required consent of each provincial and territorial regulator has been obtained.