Lobbyist seeks higher CompCorp coverage

(March 2, 2005) In the federal budget tabled February 23, the government increased Canada Deposit Insurance Corporation (CDIC) coverage to $100,000 per depositor at member institutions, up from $60,000.

This revision is great news for anyone with $100,000 sitting in their bank account or in GICs, but the budget did not increase protection to insurance policies, which often represent a much larger asset for a given individual. What CDIC is to banking, CompCorp is to the insurance industry, protecting policyholders in the event of insurance company failure.

“There certainly isn’t that much public awareness of CompCorp insurance, other than what an insurance sales representative would talk about, because they don’t have that kind of money to advertise [like the CDIC],” says David Newman, president of Canadian Federation of Independent Deposit Brokers.

Currently, death benefits are guaranteed up to $200,000; health benefits $60,000; and monthly income benefits $2,000. Policies in excess of these amounts are protected for 85% of their value, with these above amounts as a minimum.

Savings benefits, both cash value and accumulated value, are fully covered by CompCorp up to $60,000.

Newman was one of the leading voices calling for the increased CDIC coverage, saying inflation had eroded the value of $60,000. Now he is working to piece together an alliance of independent insurance agents to pressure the industry to improve its own protection fund.

“I would suspect we will get a favourable response, seeing that the insurance companies don’t want to be lagging behind the banks,” says Newman. “They matched it before with basic coverage of $60,000, so I would say that would go up to match the $100,000.”

Newman appears to have found a willing ally in the Independent Financial Brokers (IFB), whose president he plans to meet.

“IFB would be supportive of increasing the maximum and/or any alternative guarantee proposed by CompCorp that met or exceeded these requirements,” says David Barber, president of IFB. “Insofar as CompCorp has matched the CDIC Corp. $60,000 maximum in the past, it would be only logical and prudent that they would give serious consideration to adjusting this amount to meet the new $100,000 maximum proposed [yet to be ratified] in the budget.”

Newman says it would make sense for coverage levels at both the CDIC and CompCorp to be indexed to inflation.

“Part of the proposition to the government for CDIC also included a variety of suggestions,” he says. “One was a three-year review of the particular coverage — there’s no review process presently employed.”

But Barber is not sure this proposal will fly.

“I am not certain that automatic indexing without parameters or other considerations is the right option without first studying the impact this will have on the cost of providing the protection,” he says.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com