LANE: MPI will suffer a big loss? [Boss Insurance]

Lane: Mpi Will Suffer A Big Loss?

Two recent orders from the Public Utilities Board (PUB) have caused Manitoba Public Insurance (MPI) — Manitoba’s monopoly public auto insurer — to be placed under a form of direct government control.

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The minister responsible for MPI, Kelvin Goertzen, has ordered an external organizational review of MPI, which began immediately and is due to be completed by December 31. In addition, a member of the PC government has been appointed to join the MPI board of directors. The political risks for a government in the run up to an election are high, especially when a big monopoly like the MPI is under pressure.

The PUB, PC government and opposition parties should have had significant concerns about MPI’s major project, Project Nova, long before now.

Project Nova is a program that could negatively impact both MPI’s finances and its policyholders. Initially, a new MPI President and CEO, Benjamin Graham, initiated a major project to replace MPI’s CARS (claims) and AOL (Autopac on-line) programs.

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The project was originally expected to cost $85.4 million, with an add-on of up to $21.4 million if needed. The expenses first had to be carried over to MPI’s balance sheet. Future savings from the project were expected to be more than sufficient to cover a full amortization of the deferrals expensed.

When Project Nova was just getting started, Benjamin Graham, who had been hired two years prior, left MPI in 2020 for Manitoba Blue Cross. Eric Herbelin, Graham’s replacement, continued and expanded the Nova project. Two years later, the latest estimate of the project’s total costs skyrocketed from $85.4 million to $116.8 million to a new range of between $257 million and $296 million. The much higher cost estimate suggests that future savings or additional revenue would not cover the projected costs as originally planned.

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After Graham’s departure, the project expanded and MPI now has approximately 400 new associates associated with the project, 144 of whom are considered consultants. Additionally, Project Nova funded the services of PWC and McKinsey, outside consulting firms.

The initial “green light” for the Nova project came in part because the project was to reduce MPI’s broker commissions, with a more direct link between MPI and auto owners. But, the terms of a new agreement “negotiated” by a government-appointed arbitrator and the Insurance Brokers Association at the end of November 2020 were different from those previously expected by MPI.

MPI signed a renewed contract with the Insurance Brokers Association of Manitoba — it provides its 300 brokerage agencies with commissions and fees on direct transactions between MPI and motorists. This forced agreement, in effect since April 2021, compensates brokers even when MPI customers bypass them directly in MPI’s developing online system (although commissions to brokers from direct motorist-MPI transactions are less).

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Not surprisingly, with a government monopoly on auto insurance, MPI’s history is marked by politics.

The government has defined the coverages and benefits offered. The government controls MPI’s investments and the composition of its board of directors.

Whether the PC or the NDP is in power, the MPI negotiates with the brokers “with their hands tied behind their backs”. Unless MPI further reduces overall broker commissions and finds other cost savings, MPI will suffer a significant loss from Project Nova.

Perhaps the government should bail out MPI by preventing MPI’s “profits” from non-essential operations from going to the government. And isn’t it time to return MPI’s driver licensing functions to the government, where they belong?

— Graham Lane, a retired CPA/CA, has had a career spanning more than 40 years as an executive in private and public operations, including a successful stint 35 years ago implementing a major reorganization in as interim President and CEO of MPI.