Canadian Underwriter June 2017

C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A

JUN E 2 0 1 7 PM#40063170

Gathering Intelligence

BY GREG MECKBACH

Manufacturing Towers

BY JIMAAN SANE & RHEA TURCHINETZ

Bad Buzz

BY MICHAEL BLINICK & SEAN VALENTINE

Preparing Canada for the next 150 years.

At Intact Insurance, we’re honouring Canada’s 150th anniversary by protecting the communities we serve. The future of this country is something that matters to us all. With the University of Waterloo, we’ve proudly launched the Intact Centre on Climate Adaptation™ to develop solutions that help us adapt to climate change challenges.

To learn more about the initiatives we support, visit intact.ca/Canada150 Red Square Brackets Design, Intact Centre on Climate Adaptation, and Intact Insurance Design are trademarks of Intact Financial Corporation used under license. ©2017 Intact Insurance Company. All Rights Reserved.

CANADIAN UNDERWRITER

VOL. 84, NO. 6, JUNE 2017 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY NEWCOM BUSINESS MEDIA INC.

www.canadianunderwriter.ca

COVER STORY

Machine Learning

26

The rapid increase in computing power has allowed industry players in property and casualty insurance to begin using machine learning and artificial intelligence for a variety of applications. But industry watchers see current applications as just a start.

BY GREG MECKBACH

FEATURES

13

33

P&C Outlook

Manufacturing & Cyber

Canada’s property and casualty insurance industry is undergoing a transformation.

What will the industry look like in 10 years, and how should insurers best prepare?

Manufacturing has lagged other sectors in buying cyber insurance, revealing vulnerabilities that are just now being fully appreciated and could prove costly.

BY FRANK ATTAIE

BY JIMAAN SANE & RHEA TURCHINETZ

17

40

21 Digital Spend

36 Bill of Lading

Mapping potential digital investments to strategic objectives can help an insurer prioritize its investments and set a solid foundation for both current and future developments.

While everyone looks first to a bill of lading when there is any cargo claim, insurers are advised to investigate all written and oral aspects discussed by the various contracting parties.

BY GLYNDA GILL

BY SHUBHAM GUPTA

24 Road-Building Machines

45 RIMS Conference

Changes to Ontario’s definition of road-building machines means some will no longer be included in package, inland marine or other coverage forms, and will need to be insured under an auto policy.

BY DANIEL STRIGBERGER & KEN PARSONS

Contingent Liability

Recreational Marijuana

An Alberta ruling could have an impact on insurers facing claims for pre-existing deficiencies or long-standing building code infractions.

With the legalization of recreational marijuana, could a social host have exposure if something unexpected happens after an event?

BY SANDRA WEBER & COLIN FLYNN

BY MICHAEL BLINICK & SEAN VALENTINE

Technology continues to transform the risk landscape at top speed, sometimes in surprising ways. Risk professionals must keep pace to ensure that they remain current and are equipped to best protect their organizations.

BY ANGELA STELMAKOWICH

June 2017 Canadian Underwriter

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(416) 510-6793 Twitter: @CU_Harmeet @InsuranceMedia Gary White the industry, providing marketers with aTwitter: range of specialized (416) 510-6800 astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca hsingh@canadianunderwriter.ca -6793 Twitter: @InsuranceMedia Editor (416) 510-6800 (416) 442-5600 ext.

3652 ve marketing communications opportunities. the industry, marketers with a rangeService of specialized (416) 510-6760 (416) 510-6793 Twitter:providing @InsuranceMedia Associate Editor Subscriptions/Customer National (416) 510-6800 communications ckbach Art Director and highly effective marketing opportunities.

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3652 Claims ext. 3545 (416) 442-5600 Publisher Subscriptions/Customer Servicemarketing ian@canadianunderwriter.ca (416) 510-6793 Gail Page and highly effective communications opportunities.

Michael Wells (416) 442-5600 ext. 3652 Claims gpage@bizinfogroup.ca mgarufi@bizinfogroup.ca Associate Publisher (416) 510-6793 Subscriptions/Customer Service Twitter: (416)@InsuranceMedia 510-6800 uino Manual Gail Page Account Manager Manual gpage@bizinfogroup.ca Associate Editor Publisher (416) 510-5187 Paul Aquino Gail Page (416) 510-6800 Manual InsuranceMarketer.com (416) 442-5600 ext.

3545 Art Director nadianunderwriter.ca michael@canadianunderwriter.ca gpage@bizinfogroup.ca Print Production Manager Associate Publisher InsuranceMarketer.com Associate Editor (416) 510-5187 Greg Meckbach uino Michael Wells paul@canadianunderwriter.ca gpage@bizinfogroup.ca InsuranceMarketer.com Gerald Heydens InsuranceCanuk gmeckbach@canadianunderwriter.ca (416) 510-5187 Paul Aquino Circulation Manager Greg Meckbach Art Director 510-5122 Phyllis Wright nadianunderwriter.ca (416) Twitter: @InsuranceCanuk (416) 510-5187 Circulation Manager (416) 510-6796 michael@canadianunderwriter.ca -6788 Production Manager paul@canadianunderwriter.ca Print Production Manager Mary Garufi gmeckbach@canadianunderwriter.ca Gerald Heydens InsuranceCanukINSURANCE Circulation Manager (416) 510-6788 Mary the insurance industry’s social network Online Editor KarenGarufi Samuels Twitter: @InsuranceCanuk mgarufi@bizinfogroup.ca Twitter: @CU_Greg Circulation Manager (416) 510-5122 National Account Manager -6788 Phyllis Wright Manager President Mary Garufi industry’s social network the insurance (416) 510-5190 Art Consultation Jason Contant mgarufi@bizinfogroup.ca National (416) 510-6788 Claims (416) 442-5600 ext.

3545 (416) 510-6796 Account Manager Mary Garufi industry’s social network DIRECTORY the insurance jcontant@canadianunderwriter.ca Wells mgarufi@bizinfogroup.ca Sascha HassManager Claims (416) 442-5600 ext.

3545 Creighton Circulation Elliot Ford Manual Bruce Manager insBlogs Michael Wells mgarufi@bizinfogroup.ca (416) 442-5600, Ext. 6893 Account Manager InsuranceMarketer.com Manual canadianunderwriter.ca (416)Production 442-5600 ext.

3545 President Account Manager Mary Garufi Print Manager Online Editor Wells InsuranceMarketer.com michael@canadianunderwriter.ca INSURANCE eford@canadianunderwriter.ca (416) 442-5600 ext.

3545 Production Manager Print Production Manager Account gs mary@newcom.ca -5122 Michael Wells Phyllis Wright HarmeetManager Singh Elliot Ford Bruce Creighton insBlogs canadianunderwriter.ca Vice President DIRECTORY Print Production Manager (416) 510-5122 (416) 614-5831 Michael Wells Gary White instouch.com Phyllis Wright (416) 510-5117 NCE michael@canadianunderwriter.ca hsingh@canadianunderwriter.ca Print Production Manager instouch.com mike@canadianunderwriter.ca -5122 Manager Phyllis Wright President eford@canadianunderwriter.ca (416) 510-6760 INSURANCE Print ProductionAlex Manager Papanou (416) 510-5122 Twitter: @CU_Harmeet Account Manager TORY (416) 510-5122 Phyllis Wright President Insurance Blogs hosted

by Canadian Underwriter rd Phyllis Wright Vice President Bruce Creighton insBlogs insBlogs DIRECTORY Ontario Manager (416) 510-5117 (416) 442-5600 ext. 3652 President Elliot Ford Service Bruce Creighton Account Manager insBlogs Subscriptions/Customer Ontario INSURANCE nadianunderwriter.ca Property & Casualty Insurance Newswire Account Manager PresidentInsuranceAlex Papanou rd Property & Gail Casualty Newswire Bruce Creighton INSURANCE eford@canadianunderwriter.ca Christine Hirst Vice Page President DIRECTORY -5117

instouch.com

insBlogs Ontario

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Ontario insBlogs

the insurance industry’s social network

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Associate Publisher Elliot Ford gs nadianunderwriter.ca (416) 510-5117 insBlogs Paul AquinoAlex Papanou eford@canadianunderwriter.ca

Insurance Blogs hosted by Canadian Underwriter

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by Canadian Underwriter Vice President urance Newswire paul@canadianunderwriter.ca (416) 510-5117 Papanou & Casualty InsuranceAlex Newswire Property Property & Casualty Insurance Newswire Alex Papanou Newswire Twitter: @InsuranceCanukProperty & Casualty Insurance Manager InsuranceCirculation Blogs hosted by Canadian Underwriter Connect with Canadian Underwriter with Canadian Underwriter twitter.com/CdnUnderwriter (416) 510-6788 facebook.com/CanadianUnderwriter Mary Garufi Connect with Canadian Underwriter insBlogs.com Insurance Blogs hosted by Canadian Underwriter insBlogs.com Insurance Blogs hosted by Canadian Underwriter mgarufi@bizinfogroup.ca with Canadian Underwriter tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter Account Manager Insurance Blogs hosted by Canadian Underwriter Connect with Canadian Underwriter twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter (416) 442-5600 ext. 3545 Canadian Underwriter Michael linkd.in/CanadianUnderwriter WellsUnderwriter Insurance Blogs hosted by Canadian instouch.com/group/CanadianUnderwriter tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter InsuranceMediaGroup.com .ca michael@canadianunderwriter.ca twitter.com/CdnUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter facebook.com/CanadianUnderwriter Print Production Manager .ca MediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter InsuranceMediaGroup.com (416) 510-5122 Phyllis Wright InsuranceMediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter

insBlogs.com Insurance Blogs hosted by Canadian Underwriter

Insurance Blogs hosted by Canadian Underwriter

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Canadian Underwriter June 2017

ISSN Print: 0008-5251 ISSN Digital: 1923-3426

ISSN Print: 0008-5251 ISSN Digital: 1923-3426

10 Easy Does It Alice Keung, chief transformation officer for Economical Insurance, worked in a variety of industries before joining insurance. Regardless of sector, though, Keung believes adopting an “outside-in” perspective that takes into account customers’ views is key. Luckily, technology can serve as an excellent enabler to help make things more simple, efficient and responsive.

BY ANGELA STELMAKOWICH

SPECIAL FOCUS

7 Editorial 8 Marketplace 48 Moves & Views 50 Gallery

Photo: Peter Tym

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BrovadaOne forms part of our vision to deliver a connected, cohesive insurance landscape where innovative technology and deep industry knowledge come together, so that you can realize significant operational efficiencies.

For more information please contact: software.solutions@willistowerswatson.com

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EDITORIAL

Embracing the Bogeyman So much technology; so many possibilities.

Increasingly for the property and casualty insurance industry, however, it feels as though a greater ease is developing around technology and technological advances.

No longer is technology seen in p&c insurance as the stereotypical (and likely inaccurate) 20-something bogeyman intent on disrupting — destroying, if necessary — any trace of how things were once done. The bugaboo seems to have given way to a friendlier visitor of late.

An element of “what lurks under the bed” remains, of course, particularly among the steadfastly resistant. But that may be a good thing.

Technology is here and has been for some time; change is occurring and will continue.

Industry players are meeting that change with feelings ranging from trepidation to excitement; interest to relief — the last for those thankful that forces from beyond are providing the push necessary to vacate long-held approaches and try something new.

The next phase turns on response. Just because the p&c industry came late to the party does not mean it must leave without favours in hand.

The push for change seems to be happening in step with a few realizations: maybe — just maybe — not every search engine, every start-up, every disruptor wants to take over the insurance game.

Dealing with ever-rising customer demands, claims

and the regulatory process may be something better left to those with experience and skin in the game.

Likely, the better play — something that is quickly morphing into a win-win for both those inside and outside the industry — is to partner on technology, ideas and new approaches and leave the insurance to those in the actual business of insurance.

That hardly means industry players can afford to be complacent. In fact, insurers, reinsurers, brokers, anyone in the business, really, should always think that someone is looking to eat their lunch.

Again, success will turn on response. Staying put is not the answer, but neither is sudden movement driven by panic.

Measured assertiveness — backed by a hard look at one’s business, customer demands, technology options and partners who can deliver and provide fresh perspectives — may be the best way to go.

With the explosion of fintech and insurtech efforts around the world, change represents an opportunity for the p&c industry right now.

Failing to embrace the inevitable evolution in a timely manner will, no doubt, see that window close tight.

Seizing the opportunities demands that p&c players have a plan and accept that flexibility and agility are essential going forward.

In May, the Toronto Financial Services Alliance suggested governments must develop and articulate a clear

fintech strategy, elements of which include identifying specific priority areas and aligning public sector support to incentivize innovation.

Looking at distribution of fintech start-ups by financial services offerings in the Toronto area, the alliance noted the largest percentage (26%) relates to banking (payments); insurance accounts for 6%.

Matteo Carbone, founder and director of the Milanbased Connected Insurance Observatory, said during a recent visit to Toronto that an insurer’s safest bet for survival as insurtech enters its second wave is to make customer choice a focal point.

Carbone sees an increased openness to partnering. “There are many start-ups that are starting to provide the kind of tools to improve the effectiveness of informational channels, not to disrupt them.”

Stephen Applebaum, senior advisor for StoneRidge Advisors, recently wrote that while some insurtech solutions are now being used, “many more of them are still conceptual and speculative and adoption may be anticipated in the future.” Their eventual adoption, Applebaum predicted, “will, ultimately, transform the ways in which insurance products are created, priced, packaged, marketed, sold, distributed and serviced.”

The p&c industry must change, employ technology and partner to be ready. Being prepared and informed will help transform that bogeyman into a friendly ghost.

Measured assertiveness — backed by a hard look at one’s business, customer demands, technology options and partners who can deliver and provide fresh perspectives — may be the best way to go.

Angela Stelmakowich Editor Canadian Underwriter angela@canadianunderwriter.ca

June 2017 Canadian Underwriter

7

MARKETPLACE

Technology WANNACRY RANSOMWARE ATTACK ARGUABLY THE FIRST-EVER CYBER CAT The global WannaCry ransomware attack is “arguably the first-ever cyber catastrophe,” says Tom Harvey, an RMS cyber risk management expert.

The extortion scheme created chaos in 150 countries and could wreak even greater havoc as more malicious variations appear. Hackers apparently demanded payment from victims in Bitcoin to regain access to their encrypted computers Calling the attack unprecedented, but not unexpected, it shows “the systemic nature of the risk, with a single vulnerability resulting in hundreds of thousands of infected machines,” Harvey says.

RMS modelling scenarios show this kind of hacking campaign is just one of many types of extreme, but plausible cyber catastrophes, he says.

While still too early to determine costs to the insurance industry, 74% of cyber policies on the market offer cyber extortion, a loss that is still evolving, Harvey reports.

Firms with cyber policies will likely have triggered coverage for incident response, data and software loss, and regulatory response costs.

“And that’s before business interruption is counted.”

SLOWER DRIVER RESPONSE WITH AUTOMATED SYSTEMS Drivers using automateddriver support systems responded worse than those 8

Canadian Underwriter June 2017

manually driving in terms of reaction time, lane departure duration and “maximum steering wheel angle to an induced lane departure event,” notes a new study out of Clemson University.

Drivers’ response to a safety-critical event during automated driving while engaging in a non-driving task was quantified. In all, 48 participants drove in a simulator with two levels of automated driving (driving with no automation/driving with adaptive cruise control and lane-keeping systems engaged) and two levels of a non-driving task (watching a movie or no non-driving task).

“In automated condition, drivers had longer reaction time and worse lateral control during the safety critical event,” notes a statement describing the study. “These results also found that nondriving tasks further impaired driver responses to a safetycritical event in the automated system condition.”

UBER ANNOUNCES TORONTO RESEARCH HUB FOR SELF-DRIVING TECHNOLOGY Toronto will be the first international research hub of Uber’s Advanced Technologies Group.

Raquel Urtasun, an associate professor at the University of Toronto “and one of the world’s leading researchers in the fields of machine perception and artificial intelligence,” has also been welcomed to Uber.

Urtasun’s work focuses on developing the software that allows self-driving cars to

recognize objects so they can navigate the world safely.

She will lead a new branch of the company’s Advanced Technologies Group, the first outside of the United States.

Regulation NEW PROPOSED OIL TANKER MORATORIUM RULES IN BRITISH COLUMBIA Ottawa has tabled draft requirements prohibiting oil tankers from carrying more than 12,500 metric tonnes of crude oil or “persistent oils” from stopping, loading or unloading contents at ports or marine installations in northern British Columbia.

Bill C-48, the Oil Tanker Moratorium Act, applies to crude oil and related products, including partially upgraded bitumen, synthetic crude oil, petroleum pitch, slack wax and bunker C fuel oil, notes a backgrounder from Transport Canada.

The proposed moratorium area extends from the Canada/United States border in the north, down to the point on British Columbia’s mainland adjacent to the northern tip of Vancouver Island, and includes Haida Gwaii. Proposed “penalties will be commensurate with the scale of violation and could reach up to $5 million,” Transport Canada notes.

Vessels carrying less than 12,500 metric tonnes of crude or persistent oil will be allowed in the area to ensure northern communities get critical shipments of heating oils and other products.

ALIGN HOME POLICIES TO PROTECT INNOCENT CO-INSUREDS: IBC Insurance Bureau of Canada’s Board of Directors recommends members operating in Ontario and the Atlantic provinces voluntarily align their home insurance policies with other jurisdictions with regard to protecting “innocent co-insureds.”

Current legislation in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec requires the insurer to pay for the losses of an innocent co-insured’s property caused by the deliberate action of another person insured on the policy.

The amount paid out in these circumstances is determined by the innocent co-insured’s proportional interest in the damaged property. Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador do not have similar legislative protections.

Canadian Market INTACT TO ACQUIRE ONEBEACON INSURANCE GROUP FOR US$1.7 BILLION Intact Financial Corporation (IFC) reports it intends to acquire OneBeacon Insurance Group, Ltd., a specialty insurer in the United States, for US$1.7 billion.

IFC recently declared the company has entered into a definitive agreement and plan

MARKETPLACE

of merger pursuant to which it has agreed to acquire the specialty insurer, “creating a leading North American specialty lines insurer with over $2 billion in specialty lines premiums.” The deal is expected to close in Q4.

OneBeacon shareholders will receive US$18.10 cash per common share. This represents an aggregate cash consideration of about US$1.7 billion, or $2.3 billion.

IFC intends to finance the acquisition and related transaction expenses using $700 million of equity financing, about $700 million of excess capital and approximately $1 billion of financing comprised of bankterm loans, medium-term notes and preferred shares.

that it will enter the surety market in Canada by purchasing the surety underwriting business of Fenchurch General Insurance Company.

Starting June 1, businesses across Canada will have access to an “extensive selection of contract and commercial bonding solutions,” notes NFC. The deal includes United Surety Limited, which will be re-branded as Northbridge Surety Limited, and Capital Administration Services Inc. The transaction is set to be completed May 31.

CLAIMSPRO PARENT SCM BUYING U.S. MULTI-LINE ADJUSTING FIRM

Persistent recent heavy rainfall affecting several Canadian provinces prompted rising rivers, streams and lakes in early May, with financial losses expected to reach well into the millions in U.S. dollars, Impact Forecasting reports.

The worst flooding occurred in British Columbia, Quebec, Ontario and the Maritimes, notes an alert from Impact Forecasting, Aon Benfield’s Cat model development team. The floods were exacerbated by weeks of heavy rainfall combining with snowmelt to cause rivers to swell throughout the country.

For central and eastern Canada, several low-pressure systems brought rainfall to parts of Ontario, Quebec and the Maritimes from May 1 to 6, following a wet April.

Edmonton-based SCM Insurance Services Inc. has announced it is acquiring St. Louis-based adjusting firm Nixon & Company Inc. Nixon & Company provides claims adjusting in property, liability, auto, catastrophic loss, inland marine, mould investigation and construction defect, among others.

The firm “provides a new platform from which SCM will continue to build out its service offerings both domestically and into the Lloyd’s of London marketplace.”

NORTHBRIDGE FINANCIAL PURCHASES SURETY UNDERWRITING BUSINESS Northbridge Financial Corporation (NFC) reports

Claims BRITISH COLUMBIA, ONTARIO, QUEBEC AND MARITIMES HAMMERED BY RAIN

INDUSTRY SHOULD LOOK AHEAD TO BIGGER LOSSES THAN FORT MCMURRAY The insurance industry should start thinking about what “could have been” if the Fort McMurray wildfire had been an even larger loss, Barbara Bellissimo, chair of the Institute for Catastrophic Loss Reduction (ICLR), noted at ICLR’s annual meeting Bellissimo reported Fort McMurray saw a loss of 10% of the city of 90,000. “The Canadian insurance industry must really ask the question: What would it have had to deal with if one-quarter, one-half, three-quarters or all of the city was lost?

Fort McMurray had the capacity to be a much, much larger loss than it was and it should have the industry thinking a lot more about what could have been,” she said.

94% OF RESPONDENTS UNAWARE OF FLOOD RISK Surveyed homeowners in Canada lack awareness of flood risk and the protection options available to them to reduce that risk, suggests a study from the Interdisciplinary Centre on Climate Change and Partners for Action research network.

In all, 2,300 homeowners living in communities that the federal government’s Flood Damage Reduction Program has designated as flood-risk areas were surveyed.

Of those, 94% are unaware of their risk and Canada’s policy shift on flood management that will place more

responsibility on homeowners.

Canadians pay $600 million out of pocket for flood damage every year, says report co-author Jason Thistlethwaite. “With disaster assistance costs expected to double over the next five years, homeowners can’t afford to remain in the dark about their options and responsibilities.”

Risk SIMULTANEOUS CYBER ATTACKS LIKELY IN 2017: AIG STUDY Nine in 10 surveyed global cyber security and risk experts say cyber risk is systemic and simultaneous attacks on multiple companies are likely in 2017, suggests a new study from American International Group, Inc (AIG).

The survey found that industries most likely to face a systemic attack include financial services (19%), power/energy (15%), telecommunications/utilities (14%), healthcare (13%) and information technology (12%).

More than half of the 70 cyber security, technology and insurance respondents report that a “simultaneous attack on five to 10 companies is highly likely in the next year.”

In excess of a third of respondents estimate the likelihood of a simultaneous attack on as many as 50 companies at greater than 50%, while 20% predict a “better than even” chance that as many as 100 firms will be attacked.

June 2017 Canadian Underwriter

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PROFILE

Easy Does It Angela Stelmakowich Editor

Alice Keung, Economical Insurance’s chief transformation officer, says a key lesson learned from working in various sectors is the need to focus on the customer perspective.

Sometimes, simple is best.

That may be particularly the case when talking about something like insurance — property and casualty or otherwise — which can be a complicated matter.

Alice Keung, senior vice president and chief transformation officer for Economical Insurance, can relate. “For me, insurance is a complicated business and adding to that mix is really regulation,” suggests Keung, who has held a number of senior roles, including with eHealth Ontario, the National Bank of Canada and Air Canada, before joining Economical Insurance in late 2015.

Making things simple is not only being welcomed by customers, it is increasingly expected and regarded as a marker of good service.

The idea is to “always 10 Canadian Underwriter June 2017

require an outside-in perspective,” Keung says. “It’s about making it easy, it’s about making it simple and it’s about making it accessible.”

Couple simplicity and accessibility with increasing customer demands and technology finds itself an enabler to help bring the p&c insurance industry more in line with advances witnessed outside the business. “The driver of change is really not the technology at all; the driver of the change is the customer. They’re the ones who are actually disrupting, not the technology,” she says.

GAINING INSIGHT Progress is clearly being made on the technology front, but much more needs to be done to best serve customers and create agile insurance players going forward. “I am surprised somehow that there is not a heavier technology footprint (in insurance), that when it comes to systems, everyone is still kind of working with their own systems as opposed to looking at interoperability from a customer perspective, to make it as easy as possible for them to interact and to get the best information and advice from us,” Keung says.

As part of her role as chief transformation officer, the idea is to “move beyond technology to leverage data so that we can make not only

the transaction part be easy, but the whole experience actually be meaningful from (customers’) perspectives.”

Notes Keung: “Whether we like it or not, we have to turn to technology to leverage that. It could be about making it faster, it could be about making it always available, it could also mean that it could help you as a business — whether you’re a broker or a carrier — to take costs out of your business and, therefore, pass on that benefit to the customer.”

A key trend for the industry is going to be taking advantage of data and distilling insight from that, Keung expects. “One of the trends is really about analytics and to get to know the customer, what the customer expectations are and what their needs are.”

These insights can help insurance providers do many things, including designing different products and services. For her company, “it’s never about just getting the right product; it’s about having the foundation, whether it’s a capability or whether it’s an infrastructure, that we can scale very quickly and have the agility to execute.”

Keung expects another key trend will be on the digital side. “We are talking about an always-on and alwaysconnected society now,” she says. “The more they

are connected with different devices, the more they are able to do other things in real time. How will you as an organization be able to do that and to leverage that?”

This, of course, hinges on having both the right technology and plenty of data. But could data — and customer

“The driver of change is really not the technology at all; the driver of the change is actually the customer.” understanding of its value — prove a stumbling block?

Keung does not think so.

“More and more, you see (customers) willing to share the data with you provided that you somehow reward them.” Immediate payback, though, is just the first layer.

It is about recognizing preferences so offerings can be tailored to suit specific needs and wants, Keung says. “Insurance needs to get to that point,” she contends.

“If we continue to argue amongst ourselves or with our partners to say who owns the data, eventually the customer is going to tell us what they want, because they want us to use that data to do a better job in serving them.”

Keung expects that will

Photo: Peter Tym

PROFILE

become easier as the information base widens and is complemented by openly available information like that on social media.

“If you could use that for the purpose of serving them better, for the purpose of actually doing the best job in tailoring a solution for them, I think they will welcome it,” she says of customers.

It is an approach being used by the insurer’s direct arm, Sonnet, to leverage third-party data and integrate as much disparate information as possible to simplify the process, make recommendations in real time and improve the overall experi-

ence. “Our objective is to be a multi-channel organization.

And the reason for that is because we think we need to make sure that we serve the entire market.”

TECHNOLOGY JOURNEYS Individual organizations in Canada’s p&c insurance run the gamut with regard to where they are on their technology journeys. “Not everything is about crash and burn and unplug it. It’s really about finding the technology so that they could actually talk to each other. It will save you time, it will certainly save you money. I would say that most carriers have to

add as one of their major strategies either to replace or revamp their core system, but to layer it on with other technologies that intersect, have niche functionalities that fit very well,” Keung says.

“We all need to look inside and say where are all those multiple touchpoints that we really could streamline and make it much easier, both for ourselves to support it, and for the customers?” she says.

But it is not solely about individual goals; it needs also to be about industry objectives. “Integration is a big deal because we still do work with our ecosystem of partners, whether it’s BMS

(broker management system) vendors, whether it’s quoting vendors, whether it’s third parties, everybody is using different standards,” Keung says.

“I think the industry, as a whole, should be just like other industries that have got together and agreed on standards so that it will make it easier, not just for one carrier or for one technology, but for everybody,” she adds.

Keung also sees ecosystems expanding. “You could partner with a Google; you could partner with, like in our case, cloud services, to make sure that it is always on and on in an efficient way. I think that ecosystem is going to expand and not all brokers need to have their own systems,” she suggests.

“Our investment in the policy-admin system for the broker channel is exactly for that,” says Keung. “The easier, the less work, the less wait for them means they can actually focus on doing their jobs, which is to interact with the customer,” she notes.

“More and more, the customer is looking for a seamless experience. I think the industry needs to figure out how we can simplify it so it makes it easier for brokers to do their jobs and also for the consumer to not look at it (buying insurance) as such a painful thing,” says Keung.

The question is:“How do we collectively change that?”

June 2017 Canadian Underwriter

11

To some, it’s a flag.

To us, it’s a badge of honour.

Canada was only 4 years old when Economical made its debut. It’s a privilege to have grown along with our country through 15 decades of incredible change and achievement.

We salute our great nation in its 150th year, and the generations of Canadians who continue to make it a place we’re proud to call home.

Get ready for the future, with us. economical.com

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Economical Insurance includes the following companies: Economical Mutual Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company, Petline Insurance Company. ©2017 Economical Insurance. All rights reserved. All Economical intellectual property, including but not limited to Economical® and related trademarks, names and logos are the property of Economical Mutual Insurance Company and/or its subsidiaries and/or affiliates and are registered and/or used in Canada.

All other intellectual property is the property of their respective owners.

In Transformation Canada’s property and casualty insurance industry is undergoing a true transformation, driven in large part by staggering advances in technology and ever-increasing demands. What will the industry look like in 10 years? And what do organizations need to do to ensure they gain a competitive advantage?

Frank Attaie

Associate Vice President, Financial Services Sector, IBM Canada

Canada’s property and casualty insurance industry, as elsewhere, is at a tipping point. Traditional, more conservative approaches have worked until now, but pressures faced through maturing markets, increased risk and technologically sophisticated customers are creating a need for demand-driven innovation.

To succeed, insurers will have to consider using new technologies to work faster, more efficiently and, above all, smarter.

Technology used to be considered by insurers as a means to an end — a tool to cope with changes in markets and in regulations, although insurers are increasingly using technology to transform their business models — something that is no longer optional to remain competitive.

Moreover, technology is not only providing the opportunity to extend insurance companies’ reach beyond the industry’s traditional boundaries, but it is also allowing new entrants to compete against existing companies in the industry. The rapid growth of fintech is bringing new entrants into the marketplace who may not have the same restrictions as traditional insurers.

MOVING FORWARD With customer empowerment increasing and expectations rising, today’s status quo, low speed-tomarket and product innovation is becoming an issue. Customer loyalty is at an all-time low — it now lies in the best solution with the best price.

Data from several IBM surveys reveals helpful insights into how insurers must act to be ready for these changes. Over the next 10 years, it is believed two technological trends, in particular, will have a high impact on the future of business across industries: the rise of cognitive computing and the increasing potential for decentralization of systems and decision-making.

Decentralized systems Decentralized systems enable low-level components to utilize local information to achieve global goals without the direction of a central organizing influence. Devices use sensors and actuators to provide the potential for total autonomy, while the security of transactions is enabling the use of electronic ledger technologies such as blockchain.

The devices required for these kinds of decen-

June 2017 Canadian Underwriter

13

tralized systems are increasingly being used, with an anticipated growth to 25 billion in 2020 and more than 100 billion in 2050, notes the 2014 report from IBM Institute for Business Value (IBV), Device democracy: Saving the future of the Internet of Things.

If systems are decentralized, however, the questions will be where will the centre of control sit, and how fragmented will the networks be? For example, limitations imposed by privacy concerns, regulations or liability could hamper strong device autonomy and drive centralization of control.

When privacy becomes a concern from decentralized systems, there can be accusations of discrimination and critical miscommunication. Accusations of discrimination — or red-lining — could occur if there is a perception that services are either directly or selectively being denied through increasing prices for people based on the racial or ethnic composition of the areas in which they live.

Another possible issue is founded on possible miscommunication resulting from conditional coverage. For example, if some teenaged drivers have conditions under their insurance, or if a thermostat fails and the water heater malfunctions as a result, local brokers may start taking on the role of “cognitive troubleshooters” for insurers.

Technologies like cognitive computing and machine learning enable companies to handle unstructured data across wide subject domains, giving them the opportunity to remake business processes and vastly improve decision-making. These technologies could reach maturity by 2025.

A 2016 IBV insurance survey, Insurance 2025: Reducing risk in an uncertain future, found that 79% of polled insurance company leaders believe technology

Cognitive computing Cognitive computing refers to nextgeneration information systems designed to accelerate, enhance and take advantage of human expertise. These systems can use machine learning to understand and perpetually improve decision-making using large amounts of data — both structured and unstructured. Structured data is data currently being used, such as customer insights and buying patterns.

Unstructured data — or “dark data” — is where the opportunity lies.

SINTEF reported in 2013 that 90% of the world’s data had been created in the last two years alone. What kind of information lies in the 88% of dark data that could transform how the insurance industry looks in the next decade?

LEAVING PAPER BEHIND

14 Canadian Underwriter June 2017

will have a major impact on their organizations, and 71% say they have begun to use cognitive technologies. When combined with artificial intelligence, cognitive systems can enable insurers to assess the risk to a high degree.

In tandem with embracing cognitive technology, leaders in the industry are also moving away from the antiquated, paper-based model of doing business and are starting to digitize the customer experience on mobile platforms. As the insurance market becomes digital, customers are becoming more digitally savvy and are expecting more from their insurers.

The ability to digitize is seen as a key differentiating factor in the Canadian insurance industry’s ability to change its trajectory to being a leader, as opposed to a fast-follower.

Embracing innovation through technology is becoming a “must-do” for industry leaders. To progress in succeeding over the next decade of a demand-driven

transformation, insurance companies should consider the following moves: 1. Increase flexibility: Taking out expenses and building in flexibility by moving core systems to a hybrid cloud that is available “as-a-service” will enable experimentation and entry into new markets at low costs on secure platforms. As products move to as-a-service models, legacy systems should be turned into components to help sustain cost competitiveness.

2. Develop partner ecosystems: Organizations in the insurance industry will need to collaborate in order to have the best data about consumers and their associated risks. The goal is to cultivate partnerships and membership in ecosystems within the insurance industry.

3. Improve predictive capabilities: Insurance companies will need to improve their speed of change by bringing together technology, business capability and product investment. They should use analytics, pattern recognition and data to chart progress, as well as understand customer behaviour and risk parameters.

4. Embrace innovation: Leading innovators build an organization with a corporate culture and design processes that encourage innovation. Corporate structures can be made more flexible by streamlining internal innovation processes, with centralized funding and investment models.

LOOKING TO THE FUTURE Embracing innovation will build skill with component technologies of whichever future scenario wins, providing the capabilities necessary to prosper in changing conditions. And building agile development and business service composition skills will keep an organization nimble enough to capitalize on market changes.

As technology evolves, C-suite executives, such as those in the insurance industry, will need to look to the future to maintain their organization’s competitive advantage. By using that approach, they can continue to transform their businesses even as their industry is restructuring all around them.

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2017-05-23 9:28 AM

Getting Realistic Sandra Weber

Partner, McLennan Ross LLP

Colin Flynn

Associate, McLennan Ross LLP McLennan Ross LLP is a member of The ARC Group of Canada, a network of independent insurance law firms across Canada.

A recent ruling by Alberta’s Court of Appeal, finding insurers are not guarantors of construction, could have an impact on insurers facing large claims for pre-existing deficiencies or long-standing building code infractions revealed by inspections after damage from an insured peril. Does the reasoning mean insurers in Alberta no longer need to pay for deficiencies never realistically contemplated as being part of the insured risk?

In December 2016, Alberta’s Court of Appeal issued its decision in Roth v. Economical Mutual Insurance Company. What are the potential broader implications of the ruling, including how has it changed

the jurisprudence in Alberta regarding bylaw extension coverage?

The matter involved a body shop, a portion of which was a 1950s, wood-frame building. Heavy rainfall resulted in water damage to the building and subsequent inspection by the Medicine Hat Planning and Building Services Department determined the building was structurally unsound.

The insurer paid roughly $22,800 to cover the estimated costs related to the water damage.

The plaintiff responded by suing its insurer for the cost to replace the entire building — a figure closer to $500,000.

THE POLICY Except as otherwise provided, the policy insured “against all risks of direct physical loss or damage to the property insured.” There were standard exclusions for direct loss arising from such things as bylaw enforcement, latent defects and faulty workmanship, but in addition, the policy contained an extension for contingent liability from enforcement of building bylaws.

At trial, although the structural problems preexisted the insurance policy and were not caused by the insured peril (that is, water damage from

June 2017 Canadian Underwriter

17

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a storm sewer overflow), coverage was, nonetheless, found on the basis that the insured peril resulted in a municipality enforcing its bylaws.

COURT OF APPEAL DECISION On appeal, Alberta’s Court of Appeal reversed the trial decision, stating that “the enforcement of the minimum requirements of any bylaw, regulation, ordinance or law” was not a separate stand-alone insured peril. Further, the court noted the following: … it is not enough that the damage was discovered by an inspection undertaken because of the insured peril. Rather, coverage exists where damage has been caused by a “peril insured against” and that damage requires remedial work or replacement to the standard mandated by the minimum requirements of any applicable bylaw, regulation, ordinance or law in force at the time of the loss.

To illustrate the absurdity of finding coverage when damage is discovered merely as a result of an inspection after an insured peril, the court used the example of an employee moving furniture. If a hole was made in a wall while moving furniture, and through that hole one could see that a building was not structurally sound, the insured would be entitled to a new building that was structurally sound and compliant with all building codes.

The appeal court noted that such a result was contrary to the reasonable expectations of the parties, being “a recovery which could neither be sensibly sought nor anticipated at the time of the contract.”

The court stated that such an approach would force insurance companies to determine compliance with any bylaws before insuring any building, as they would be responsible for remedying deficiencies should any be discovered following an unrelated loss.

This was further noted to be practically impossible and would, in effect, turn insurers into guarantors of construction and building code violations.

The court emphasized the structural unsoundness of the wood building was

not caused by the insured peril; it was simply discovered during an inspection undertaken after damage by the peril.

Further, it was not something either party would have reasonably expected would have been covered by the policy. In the result, it was excluded from coverage.

BROADER IMPLICATIONS Prior jurisprudence Prior to the court’s decision in Roth, the law in Alberta was scant in regard to the issue of bylaw extension coverage. The most recent Alberta authority before Roth was 954470 Alberta Ltd. (Centre South) v.

Sovereign General Insurance Co., a 2016 ruling

by Alberta’s Court of Queen’s Bench.

In Sovereign, it was held that the increased cost of repairing a roof due to non-compliance with the minimum requirements of a local building code was as a result of the insured peril. It was held that the cost increase was necessary and arose from the enforcement of the minimum requirements of the building code and, therefore, that the insurer had to indemnify the plaintiff in bringing the roof up to code.

The facts in Sovereign were somewhat similar to those in Roth. The plaintiff owned a multi-tenant shopping centre.

The facts, as summarized in Sovereign, are that a tenant was renovating, during which a contractor caused a water leak that damaged two portions of the roof, including seven roof joists.

The damaged joists were repaired and the plaintiff was satisfied with the repair work. However, a safety codes officer employed by the city determined that the plaintiff was required to add additional joists or beams to bring the roof into compliance with the current building code.

The plaintiff claimed that it was entitled to indemnification from its insurer for costs associated with installing the supplementary roof joists, a cost of almost $527,500.

At trial, Justice D.J. Manderscheid stated that the issue of whether or not the increased cost of repairing the roof was a result of the insured peril was a question of causation, directed by the language of the policy as it evidences the true intent of the parties at the time of entry into the contract. The policy language examined in Sovereign was almost identical to that in Roth.

Despite stating explicitly that policy interpretation was the heart of the issue, the trial decision did not, in fact, focus on the policy language, or the parties’ reasonable expectations, in finding that causation was established. Justice Manderscheid stated that, but for the insured peril, the city would not have directed the plaintiff to upgrade the roof, and as such, there was an unbroken chain of causation. As a result, he ordered that the insurer was liable for the cost to bring the roof up to code.

Sovereign appealed Roth has already had an impact in Alberta.

On March 3, 2017, in a ruling by Alberta’s Court of Appeal, Sovereign General Insurance was successful on its appeal of Justice Manderscheid’s decision.

On appeal, the court noted that the trial judge did not have the benefit of the decision when he decided Sovereign.

June 2017 Canadian Underwriter

19

The court concluded that “the non-compliant roof may have been discovered as a result of the damage caused by the insured peril, but the damage was not caused by that peril.”

As such, there was no coverage for the additional roof joists.

The court emphasized the structural unsoundness of the wood building was not caused by the insured peril; it was simply discovered during an inspection undertaken after damage by the peril.

In the result, it was excluded from coverage.

insBlogs

Much-needed clarity With Roth, Alberta’s Court of Appeal brought much-needed clarity and structure to the interpretation of bylaw extension coverage in insurance contracts.

The law in Canada is comprised of a patchwork of decisions that go either way, with coverage being extended in some instances and, at other times, not. was narrowed by the finding that damThis is also the case with decisions in the age must result from the insured peril United States, and all of this despite word- itself, and not simply be discovered or ings that are very similar across policies. found as a result of the happening of the The court in Roth stated that extending insured peril. This narrow, though sencoverage to the plaintiff was an absurd sible, approach to causation was based result given the circumstances, and one on the parties’ reasonable expectations, Blogs that hosted

by Canadian Underwriter that was well outside the Insurance expectations is that only damage directly caused of the parties. The concept of causation by an insured peril would be covered.

insBlogs

It is now clear that had this same approach been applied in Sovereign at the trial level, the result would have been different, given that the parties would not likely have expected non-compliant construction issues to be covered when only discovered following the happening of an insured peril.

Impact for insurers Roth has the potential to have a significant impact for insurers facing very large claims for pre-existing deficiencies or long-standing building code infractions that only happen to be discovered after damage is caused by an insured peril. If the reasoning in Roth is applied, no longer will insurers have to pay for those deficiencies that were never realistically contemplated by the parties as being part of the insured risk.

While Roth has already had an impact in Alberta, it remains to be seen whether or not it will be applied across the country.

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By Glenn McGillivray — May 11

By Peter Hohman — March 17

Agreement, not form, decides coverage

ATVs, automobiles and jurisdictions (Oh My!)

By Daniel Strigberger — May 11

By Daniel Strigberger — March 6

When is a road-building machine not a road-building machine? Ontario brokers need to know.

Alberta is already preparing for wildfire season. Why?

By Peter Morris — May 2

By Glenn McGillivray — March 3

Looking into the crystal ball

Fintechs as a potential disruptor or enabler for the insurance industry

Flood apparently trumps fire

Say “Happy Valentine’s Day” the smart way

Coffee cup coverage case causes concern

Digitization: “Get a horse!”

By Christian Bieck — March 28

By Glenn McGillivray — March 27

By Daniel Strigberger — March 23

20 Canadian Underwriter June 2017

By Peter Morris — February 13

By Daniel Strigberger — February 2

By Steve Kaukinen — February 1

Charting

Digital Strategy

Glynda Gill

Digital Strategy Director, Guidewire

Determining where a company should put its digital dollars can be a challenge. Ultimately, mapping potential digital investments to strategic objectives can help an insurer prioritize investments and set a solid foundation for current and future developments.

For property and casualty insurers, having a solid digital strategy in play is a necessity these days.

Consider findings in the McKinsey & Company report, Making Digital Strategy a Reality in Insurance, released last fall. Reviewed p&c carriers in the United States that are employing a digital strategy are growing at a compound annual growth rate of 6.2% — almost two times faster than their

non-digital counterparts — while delivering significantly better profitability, the report found.

For insurance companies looking to go digital, how digital investments are prioritized is not always crystal clear. The goal of determining how best to spend an insurer’s digital dollars and organize related decisions, though, could be advanced by looking at a number of factors.

Based on research and discussions with Guidewire’s 300-plus global customers, those factors include solution focus areas like core operations (internally focused systems) versus digital experiences for external stakeholders like policyholders and brokers, or business focus areas like optimizing for current markets and value proposition versus looking to introduce a broadened value proposition.

Excelling on all of these fronts will most likely prove an indicator of insurer success on the digital front. There are a number of factors to consider, but also how they relate to one another.

But where to start? Arguably, the best place to begin is with the insurer’s highest priority busi-

June 2017 Canadian Underwriter

21

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ness objective, which may include any of the following: • increasing revenue in current markets; • lowering operating costs; and • entering a new market.

Whatever the business objective, it should be the underlying driver for the digital strategy.

A LITTLE GUIDANCE Consider the following scenarios, depending on the specific objective of the organization in question.

1

Increase revenue in current markets A typical way to achieve this objective is through better sales closure rates and customer retention resulting from increased digital engagement.

This may involve employing an “outsidein” approach focused on digital experiences first, which would include studying the behaviours of the target customer and/or target agent/broker community (depending on the insurer’s distribution focus) to create compelling journeys that increase engagement, conversion and overall net promoter score.

A word of caution here: Confirm that the organization’s core systems are capable of supporting these journeys. Often, legacy core systems constrain digital engagement initiatives, meaning that modernizing core systems becomes a prerequisite to achieving digital engagement objectives.

Attempts to “bolt on” digital engagement solutions on top of legacy core systems may satisfy short-term objectives, but the duplication (of such things as rating rules, product definitions, underwriting rules and third-party integrations) often required in these cases will result in higher maintenance costs, longer time to market for changes and, ultimately, higher total cost of ownership.

2 Lower operating costs

This objective would typically include initiatives, such as the following: • automating low-value manual steps to optimize policy and billing operations; • improving claim intake and adjudication processes to decrease claim process-

ing time, thus lowering costs and potential indemnity; and • providing self-service portals to reduce service call volume and lower overall servicing costs (slightly different than creating compelling journeys because the focus is on self-service enablement versus overall digital engagement).

The idea behind an “inside-out” approach is to determine the most costly internal operations and leverage digital technology and modern core systems to optimize operations and lower costs.

However, with all the buzz about customer-first thinking, this approach sometimes gets a bad rap.

That said, it is still a viable approach for those insurers that feel their muchhigher-than-average operating costs are crippling their ability to consider any other strategic initiatives.

Attempts to “bolt on” digital engagement solutions on top of legacy core systems may satisfy short-term objectives, but the duplication often required in these cases will result in higher maintenance costs, longer time to market for changes and, ultimately, higher total cost of ownership.

3

Broaden value proposition To expand into new markets or broaden the value proposition for an insurer’s current customer base, the focus typically revolves around leveraging data and analytics to determine the elements of a successful new business, and then putting in place the core systems and processes that are necessary to operate the new business.

Achieving this will likely involve two possible approaches: “innovate-out” or “disrupt-in.” The innovate-out approach

means extending the solutions that support the insurer’s current value proposition to handle the new business or market opportunity.

This might include, for example, adding integrations to telematics devices and updating rating in the current policy system and policyholder portals to support usage-based auto products. This strategy can work depending on the flexibility of an organization’s current solutions.

The disrupt-in approach means starting with a “greenfield” approach to the new opportunity, unencumbered by current solutions or processes.

This might include, as one example, standing up a new greenfield solution stack to address a new market segment such as direct-to-consumer small business insurance.

IMPORTANT DISTINCTION “Disrupt-in” versus “disrupt” is an important distinction. It is critical to consider how this new greenfield solution could eventually extend to the company’s current business to avoid having multiple siloed solutions in future.

As with the earlier caution around quick-fix digital engagement solutions, implementing a greenfield solution for a new business line or product also demands considering the long-term implications of such a move.

Initial implementations should be constrained to just the new target offering to maximize speed to market, but the chosen solution set should also be extendable and scalable enough to support the rest of the business if it proves successful for the first use case.

Ultimately, an insurer’s long-term target must be to have a single platform that satisfies all digital experience and core operations aspects of its digital strategy.

In doing so, the company will be wellpositioned to adapt and succeed as new products, markets, distribution channels or alliances emerge.

But zeroing in on the right initial digital investments makes all the difference, and will provide a solid foundation to ensure continued success both now and into the future.

June 2017 Canadian Underwriter

23

Road Block?

Ontario brokers and insurers need to know about upcoming changes to the definition of road-building machines. Certain machines will no longer be included in package, inland marine or other coverage forms, meaning they must now be registered/licensed and insured under an Ontario auto policy. Should an injury occur involving a machine that is not so insured, losses could exceed limits.

Daniel Strigberger

Partner, Samis+Company

Ken Parsons Consultant, Everest Canada

As people gather July 1, 2017 to celebrate Canada’s 150th birthday, thousands of “road-building machine” (RBM) vehicles in Ontario may be required to be registered and insured for the first time as motorized vehicles rather than as roadbuilding or contractors equipment. This will, undoubtedly, have an impact on insurers’ bottom lines and open the door to more loss transfer disputes.

Ontario’s Highway Traffic Act (HTA) governs the province’s public roads and the vehicles/drivers that use them. Among other things, the HTA regulates vehicle and driver licensing and prescribes various rules of the road.

For insurance purposes, the HTA operates in conjunction with Ontario’s Insurance Act and the Compulsory Automobile Insurance Act (CAIA) to ensure that all required vehicles operating on public roads are insured.

Section 2 of the CAIA requires every “motor vehicle” driven on a “highway” to be insured under an automobile policy; Section 1 adopts the HTA definitions of “motor vehicle” and “highway.”

While Section 1 of the HTA currently defines highway to include a public road intended for or used by the public for the passage of vehicles,

24 Canadian Underwriter June 2017

motor vehicle is defined as follows: “motor vehicle” includes an automobile, a motorcycle, a motor-assisted bicycle unless otherwise indicated in this Act, and any other vehicle propelled or driven otherwise than by muscular power, but does not include a street car or other motor vehicle running only upon rails, a power-assisted bicycle, a motorized snow vehicle, a traction engine, a farm tractor, a self-propelled implement of husbandry or a road-building machine.

Compare that to the current Ontario HTA definition of RBM: “road-building machine” means a self-propelled vehicle of a design commonly used in the construction or maintenance of highways, including but not limited to (a) asphalt spreaders, concrete-paving or finishing machines, motor graders, rollers, tractor-dozers and motor scrapers; (b) tracked and wheeled tractors of all kinds while equipped with mowers, post-hole diggers, compactors, weed-spraying equipment, snow blowers and snow plows, front-end loaders, backhoes or rock drills; and (c) power shovels on tracks and drag lines

on tracks, but not including a commercial motor vehicle.

This means that any of the RBMs previously defined are not motor vehicles under Ontario’s HTA. Accordingly, under the CAIA, they are not currently required to be insured under an auto policy.

However, effective July 1, 2017, the HTA definition of RBM is being replaced with the following definition: “road-building machine” means a self-propelled vehicle of a design commonly used in the construction or maintenance of highways that (a) belongs to a class of vehicle prescribed in the regulations; (b) has the features or equipment prescribed in the regulations; or (c) is being used as prescribed in the regulations.

The regulation that will prescribe vehicles as RBMs is aptly called Ontario Regulation 398/16, Road-Building Machines. The regulation significantly narrows the definition of RBM, meaning many vehicles that currently fall within the definition will no longer be considered as such and will now be deemed to be commercial motor vehicles.

RBMs that will be left behind after July 1 include mobile equipment (such as mobile cranes that do not meet previous requirements), stone slingers and any vehicle that is built on truck chassis, such as excavators, street sweepers (except low-moving street sweepers), hydrovacs, sewer cleaners, paint trucks, vacuum trucks, water trucks and others.

The former RBMs will now need to be registered/licensed and insured under an Ontario auto policy.

INSURANCE IMPLICATIONS Brokers and insurers should be aware of — and prepared for — the impact that the change in definition of road construction equipment will have on their auto and package customers from the perspectives of both exposure and loss potential.

Some units may no longer be considered road-building or contractors equipment, but could possibly be deemed to

be motor vehicles as defined under the HTA. If such a unit is considered to be at fault and the vehicle weight is in excess of 4,500 kilograms, the principle of loss transfer could potentially come into play.

In such an event, it is possible that insurers could face large claim payouts, even after income replacement, if longterm care and other statutory accident benefits limits (the Statutory Accident Benefits Schedule) are considered.

In some cases, if the personal injury claims exceed the primary auto underlying limits, additional indemnification could fall to the limits provided under an umbrella policy, if one is available.

Ontario automobile losses in the past 10 years involving serious personal injuries have seen increasingly large claim payouts. This fact alone should prompt contractors, brokers and insurers to review the exposure.

Other considerations that should be taken into account given the change in definition include the following: • the vehicle must be registered as a motor vehicle; • all operators must be properly licensed; • there must exist a valid commercial vehicle operator’s registration; • the vehicle is no longer eligible for taxexempt coloured gas; • Drive Clean testing is required annually for heavy units more than seven years old, or as otherwise required by Drive Clean regulations; and • limitations on allowable hours of service exist.

LOSS TRANSFER EXPOSURE Since insurers of former RBMs could now be exposed to loss transfer, relevant sections of Ontario’s Insurance Act may come into play. For example, Section 275 allows the insurer responsible for paying a claimant accident benefits (first-party insurer) to pursue and receive loss transfer indemnification against the insurers of a prescribed class of vehicle involved in the accident that triggered the payment of the benefits (second-party insurer).

Regulation 664 of the Insurance Act, for its part, prescribes that an insurer of a

“heavy commercial vehicle” involved in the accident triggering the payment of benefits could be a “second-party insurer,” unless the insurer paying the benefits is not paying them under a policy that also insures heavy commercial vehicles (HCVs).

For example, in an accident between a car and an HCV, the insurer paying benefits under the automobile policy could be entitled to loss transfer indemnification from the insurer of the HCV. As per Ontario Regulation 668, Fault Determination Rules, the amount of indemnification is determined based on the respective degree of fault of each insurer’s insured. The regulation defines “commercial vehicle” to include “a vehicle designed specifically for construction or maintenance purposes.” A “heavy” commercial vehicle is defined in Ontario Regulation 660, Automobile Insurance, as one that weighs more than 4,500 kilograms.

Under the current scheme, there may not be any loss transfer available in accidents involving heavy RBMs because there may be no requirement to be insured. In other words, there may not currently be considered second-party insurers from which a loss transfer indemnification claim could be made.

However, under the new scheme, former RBMs may now be insured and their insurers may become “second-party insurers” subject to loss transfer.

With the amendment of the definition to road-building equipment under the HTA, it is important that contractors, brokers and insurers recognize the impact to their respective operations. Insurers, in particular, could find themselves with a hidden, but significant, auto exposure as these units are legislated to come off package, inland marine or other coverage forms and be written on an approved Ontario auto policy.

The road ahead becomes that much more challenging in terms of sound business practices and a prudent underwriting approach.

The views and opinions expressed in the article are those of the individual authors and do not reflect the views of their organizations and/or affiliates.

June 2017 Canadian Underwriter

25

COVER STORY

Gathering Intelligence

Gathering Intelligence

The rapid increase in computing power has allowed industry players in property and casualty insurance to begin using machine learning and artificial intelligence for a variety of applications. But industry watchers see those applications as just a start, reporting that more advanced uses of emerging information technologies are being explored and positing that these new applications could soon be on their way.

BY GREG MECKBACH

26 Canadian Underwriter June 2017

COVER STORY

Gathering Intelligence

C

omputer programs are nowhere close to replacing humans in providing financial services functions, especially with regard to dispensing advice to clients. Still, basic forms of artificial intelligence (AI) and machine learning are already up and running and, in fact, may be more common in Canada’s property and casualty insurance space than some might think.

AI “deals with using advanced technology to mimic human cognition and activities,” Mark Breading, a partner with Strategy Meets Action (SMA), notes in the April 2017 paper, AI/Machine Learning in Insurance: A Force to be Reckoned With. “These activities may include identifying patterns, deriving insights, learning from experience, making decisions, and taking actions either autonomously or in collaboration with humans,” Breading writes.

Machine learning, for its part, “is a branch of artificial intelligence that focuses on getting computers to act without being explicitly programmed,” SAS Institute Inc. reports in Statistics and Machine Learning at Scale: New Technologies Apply Machine Learning to Big Data. Central to machine learning is “the idea that with each iteration, the algorithm will learn from the data,” the paper explains.

Some in Canada’s p&c industry are already employing basic forms of machine learning — and the number of insurers dipping their toes into the pool will, no doubt, continue to grow.

With the marked increase in computer processing speed in just the past few years, some Canadian insurance providers say they are using machine learning for, among other applications, generating quotes, determining rates and even deciding which properties to inspect.

Those applications, too, are expected to grow. With regional pockets like the United Kingdom and Silicon Valley already delving deeper into the uses of AI and machine learning, risk management and fraud detection are likely two areas of interest to financial services and insurance players in Canada and elsewhere.

What follows, though, is expected to be so much more.

June 2017 Canadian Underwriter 27

COVER STORY

Gathering Intelligence ADVANCING LEARNING “Insurers have implemented early forms of AI for decades,” Breading writes in the SMA paper, reporting that “case-based reasoning and rules engines” have been used in underwriting and claims since the 1980s.

London-based Craig Beattie, senior analyst with the insurance practice of Celent, part of Marsh & McLennan Companies Inc., observes that “for an insurer of any size, I would be surprised if they managed to use, across all their applications, no machine learning.”

Jeffrey Baer, manager of advanced analytics at Economical Insurance, says that people “interact with machine learning every day.” Examples include everything from receiving content in news feeds on Facebook to getting recommendations for content to watch on Netflix and email servers that flag messages as spam, Baer points out.

Commenting on predictive modelling in general, “most medium and large insurance carriers in Canada are using predictive modelling in rating and risk selection, and many are also starting to apply predictive modelling in marketing, underwriting, claims handling, et cetera,” he reports.

“Many of these predictive modelling applications rely on traditional statistical techniques like regression, although machine learning does appear to be growing in popularity,” Baer says.

In the past, “someone had to tell a computer exactly what to do and given a set of inputs, you could predict what the outputs would be,” Beattie explains.

“Machine learning allows a computer to understand something from experience, so it adapts to a set of data or a set of inputs,” he notes.

“In traditional predictive analytics, every question will need to be defined and tested independently,” notes JeanFrancois Lessard, chief data officer for Intact Financial Corporation (IFC).

“In machine learning, this manual trial-and-error process disappears. With the increase of computing power, the machine tests millions of combinations 28 Canadian Underwriter June 2017

and comes up only with those that are meaningful, those that have real predictive value. And naturally, the larger the data sets, the more meaningful interaction can be found,” Lessard reports.

“In traditional predictive analytics, every question will need to be defined and tested independently. In machine learning, this manual trial-and-error process disappears,” says Jean-Francois Lessard of Intact Financial Corporation.

LEARNING FROM EXPERIENCE Machine learning is “an advanced form of AI in which machines can ingest massive amounts of information, detect patterns and analyze outcomes in an iterative manner that continually improves the accuracy of the results,” Breading writes. “The machine is, thus, learning from experience in an automated fashion rather than relying on human intervention or reprogramming.”

At some point, though, human intervention is needed, Baer makes clear.

“Most of our machine-learning applications at Economical are what we would call ‘supervised learning,’ which

means that we are trying to determine the relationship between various inputs and a defined output, and that output is known as the response,” he says.

“It requires careful and thoughtful preparation of data by highly skilled humans to feed this data into the machinelearning algorithm. Once the algorithm has identified relationships in the data, we then need to validate that the algorithm has done its job well, and that we can confidently use its predictions to make business decisions,” Baer adds.

Breading has a somewhat different take. “Up until relatively recently, all AI systems had to rely on extracting and codifying expertise from human subject matter experts,” he writes.

“Now, machine-learning capabilities enable AI systems to learn on their own via analysis of massive amounts of data and automated iterations to improve results. The science of machine learning has advanced at the same time that computing power has increased significantly, enabling big data analytics and very frequent iterations,” Breading points out in the paper.

Foteini Agrafioti would likely agree.

“I think it is because of the advances in computational power that we are able to even speak about AI today,” says Agrafioti, head of RBC research at the Royal Bank of Canada.

“With the availability of more and more data, as well as with the evolution in computational power, it became possible to finally do simulations that would traditionally have taken a very, very long time,” she points out. “Some things that would have taken us a week to simulate a couple of years ago, we can do that within a couple of minutes today,” Agrafioti reports. “We can fix our algorithms very quickly and that is how deep learning came to be.”

Machine learning is “really taking all those data points to inform logic that your systems and platforms can use,” says Sam Natur, president and chief executive officer of Bullfrog Insurance Ltd., an Ontario-based brokerage that sells commercial coverage over the Internet.

COVER STORY

Gathering Intelligence MAKING A BUSINESS CASE Machine learning can be used for “anything from better user experience to the actual planning and development of products and services,” suggests Beattie.

Baer notes that his company has “used machine learning in a variety of applications, generally focused on improving our customer experience and ensuring that we are operating efficiently.”

Citing as an example, the insurer’s direct writer, Sonnet, it uses data — some of which is provided by the customer — to offer coverage that is “really tailored and customized” to meet the needs of the client, he reports.

To be effective, machine learning requires “business knowledge and context,” Baer emphasizes. “Machine learning requires high-quality data to be effective,” he notes. “Otherwise, it’s what we call GIGO — garbage in, garbage out — and that is never going to work well.”

IFC, for example, is using machine learning to rate its automobile product. “With telematics, we collect 20 data points every second the car is driven,” Lessard reports. Noting that “this is generating terabytes of data every year,” the data gleaned from telematics gives the insurer “insight into individual driving patterns,” he points out.

“Couple that with our policy and claims transactional database, it had a significant lift on our rating formula,” Lessard says. “The data is 30% more powerful than what had previously been our most predictive variable.”

Martha Schrader, vice president of business intelligence and analytics for Northbridge Financial Corporation, reports the insurer is “actively exploring opportunities to use machine learning.”

The long-term goal “is to apply machine learning and create a differentiated customer experience,” Schrader says.

In financial services, Agrafioti notes that fraud detection and risk modelling are “two of the more immediate applications” of machine learning. In risk analysis and fraud detection, sector providers “would traditionally employ some

statistical models, usually regression models, which have been around for a long time,” she notes.

Fraud-detection algorithms “learn that uniqueness automatically and adjust to that, so if you do something out of the ordinary, we run something called outlier detection,” she says.

Beattie points out that “most fraud solutions have some sort of machine learning or at least adaptive computing in there as well.”

Machine-learning algorithms “perform very well especially when you have very large amounts of data... where there is a lot of variation,” Agrafioti says, adding, however, that the technology has its limits today.

FOSTERING HUMAN INTERACTION

In financial services, any time someone swipes a card, “we are using machine learning to determine whether that is a fraudulent transaction or not,” says Foteini Agrafioti of the Royal Bank of Canada. Fraud-detection algorithms “learn that uniqueness automatically and adjust to that, so if you do something out of the ordinary, we run something called outlier detection.”

Any time someone swipes a card, “we are using machine learning to determine whether that is a fraudulent transaction or not,” Agrafioti says. “We have an algorithm in the background learning a particular user as they go because transactions are very specific to clients and a certain pattern of behaviour can be unique to one person,” she explains.

An area “that has drawn a lot of attention from people in this industry is financial advisors — in particular chatbots for financial advisors,” Agrafioti says. “It’s not something where we feel the technology is there today that we can have AI replace a human in interacting with a client and offering the same quality of service that a human would, but that’s of interest,” she suggests.

That said, Agrafioti is quick to add there are “a lot of interesting advantages should we ever be able to interact to have meaningful communications between humans and machines.”

Baer says each algorithm has its own strengths and weaknesses. “We consider the type of problem we are being asked to solve and select an algorithm that is best suited to the use case,” he notes.

Consider how machine learning can be employed to decide which insured properties should be inspected, Bear says.

“We took a business problem, which is essentially the idea that we have a limited budget to be able to perform property inspections, and we said, ‘This is a great application of machine learning, because we have a lot of historical data that tells us which properties we benefit from inspecting the most and that our property owners benefit from when we provide them with recommendations to improve the conditions of the property,’’ he reports.

“As a result, we are able to take that June 2017 Canadian Underwriter 29

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COVER STORY

Gathering Intelligence

Consider how machine learning can be employed to decide which insured properties should be inspected. “We are able to take that data and focus our inspections by using machine learning to identify the properties that would benefit most from that inspection,” says Jeffrey Baer of Economical Insurance. data and focus our inspections by using machine learning to identify the properties that would benefit most from that inspection,” says Baer.

Beattie cautions, however, that machine learning can sometimes be “a problem both for the insurer and for the regulator” if a computer program adapts to a set of data or input.

“Over here in Europe, you can’t use gender to drive the price of insurance and what an insurer found when they were using the machine-learning algorithm is that it started to use the height of an individual in order to determine the price,” he relays. “Of course, the average height of a female versus a male is quite different, so there was some interest in that from both lawyers and the regulator in terms of, ‘You are actually using a proxy for gender in order to determine the price,’” he reports.

Although it was not the intent of the insurer to use height as a proxy for gender, “it appeared to be what the machine-learning algorithm was doing,” Beattie says.

“So there is a challenge here, I think, both for the regulator and for the insurers and for chief data officers who are trying to communicate what these algorithms are trying to do. Is somebody watching what these machines are doing in order to make the decision about whether it is appropriate or not?” he asks.

SHARING NATURAL LANGUAGE Beattie reports that some applications of AI include optical character recognition, autonomous driving and naturallanguage processing.

Ontario-based Mitchell & Whale Insurance Brokers Ltd. is one brokerage that is currently using natural-language processing, via a chatbot that provides quotes, accepts claims, sets up calls and deals with change requests, among other services.

Natural-language processing “is just the ability to interpret words for their intent, so understanding auto to mean car or vehicle and things like that... without having to fully program out all of those,” says Mitchell & Whale president Adam Little. “The machine learning part of it would be progressively picking up answers. So you can do it a couple of different ways — either by watching the answers that are being given and then correcting it, or you can have it watch a human and then it will start to pick up the patterns,” Little notes.

The brokerage is also beta testing an application that would read incoming email, he reports. Noting that “there is a changing trend in demographic,” Little suggests “most Millennials don’t want to talk to people at all.”

Natur cites how responses can be made more attractive to certain segments by simulating texting. “One usage of AI

is emulating the experience of texting with a friend in the context of a claims submission. I have seen some of our competitors doing that already. During the entire claims submission, it feels as if you are texting back and forth with a human and you are not,” he reports.

Beyond providing service in line with how a particular customer chooses is offering that information with a view to helping prevent or mitigate damage and losses.

In the United States, for example, Natur says that some companies are using machine learning to alert property owners that there is a hailstorm approaching. Customers are warned either by email, text message or phone, depending on their preferred method of communications, he reports.

Citing the “venture capital interest in insurance technology” in many cities in the world — including Singapore, London, New York and San Francisco — Beattie’s advice to Canadian insurance providers is to “try and keep a finger on the pulse of what is happening in the various insurtech hubs around the world.”

What is happening elsewhere, coupled with developments unfolding at home, may provide the kind of lessons learned that will allow insurance providers to identify how best to employ AI and machine learning not just today, but in the future.

June 2017 Canadian Underwriter 31

Get the job.

Done.

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FOUND MY JOB AT

Manufacturing Protection Cyber risks should be on the radar of every type of business.

Manufacturing has lagged other sectors in buying insurance, revealing vulnerabilities that have not, until recently, been fully appreciated, but could lead to enormous costs. Considering all vulnerabilities is essential to building towers of coverage that provide meaningful protection.

Jimaan Sane

Cyber Underwriter, Beazley

Rhea Turchinetz

Cyber Underwriter, Beazley Canada

The onward march of cyber risk gives Canadian businesses — including manufacturers — much to be concerned about. But they should find some comfort in the way in which insurers are confronting the problem.

The first reaction of most business people to a new risk is a very human one: it will not happen to them. Then, as the evidence proliferates that it may well happen to them, forward-looking executives will search for ways to protect their companies. Over time, the initial camp grows smaller and smaller and, eventually, disappears.

With regard to cyber risk, large service businesses such as retailers, financial institutions and healthcare providers — organizations that hold significant volumes of personally identifiable customer information — are a long way through this journey. A dwindling band of naysayers has successfully ignored a succession of massive data breaches, starting in the United States with Target, Home Depot, Anthem and J.P. Morgan, and more recently including Ashley Madison and Bell Canada in Canada.

The naysayers have also ignored the deep vulnerabilities in the software on which modern business relies, most recently demonstrated by the havoc created by the WannaCry malware attack. Millions of lines of code in typical office software programs provide almost innumerable access points for hackers.

Evidence for the wisdom of appropriate insurance accordingly continues to mount.

Other businesses are at a much earlier stage in the journey. Manufacturers, in particular, have not until recently appreciated the scale of their vulnerability to cyber attacks.

But the risks are real and diverse and some of the world’s largest companies are now seeking to build towers of coverage sufficiently tall to provide meaningful protection.

One of the drivers of demand is the fact that the distinction between manufacturing and service businesses has been narrowing for decades, a process accelerated by the growth of web-based services. This convergence of manufacturing and digital services was neatly encapsulated in Gen-

June 2017 Canadian Underwriter

33

eral Electric’s decision earlier this decade to reposition itself as the “digital industrial” company, a process the company’s chief digital officer Bill Ruh has described as “a journey to a world where physical operations intersect with physical science, data and advanced analytics.”

The benefits of this in terms of manufacturing efficiencies and enhanced customer services are undeniable. But it also significantly increases cyber risk.

Some manufacturers now rely more on fees for support services than on payments for the physical goods they produce. If these services are in any way web-enabled, they — and the customers who use them — can be vulnerable to a data breach.

But manufacturers face other risks, too.

Until now, most insurers have been focused on providing coverage for thirdparty exposures stemming from the loss or theft of personally identifiable information (usually relating to customers.)

Well-designed products exist that enable a company hit by a data breach to marshal all the services it needs to handle the breach effectively and maintain customer confidence. These services typically include forensic analysis to pinpoint what data was lost; legal advice to identify who needs to be notified in compliance with applicable regulations; and customer notification and creditmonitoring services.

All of this may forestall customer lawsuits, but that cannot be guaranteed, so third-party liability coverage is an important part of the package.

Manufacturers, however, additionally confront a slew of first-party exposures that go well beyond the coverage normally provided by data breach insurance policies.

For a manufacturer, the most significant first-party exposures are likely to include the following: 1. Physical damage/bodily injury. An alarming foretaste of the risks manufacturers face occurred in Germany in late 2014. The German Federal Office for Information Security did not release full information relating to the attack, but reported that it caused “massive 34 Canadian Underwriter June 2017

damage” at a steel mill following the “uncontrolled shutdown” of a blast furnace. The hackers first accessed the mill’s office software through phishing emails. From there, they were able to penetrate the mill’s production management and control systems, shutting down security protocols regulating the blast furnace.

This was believed to be an instance of what is known as an advanced persistent threat (APT) in which a single

The primary layer in such a tower will typically be US$100 million and be provided by one of a handful of insurers that have developed a specialism in insuring these complex risks. entity is targeted and a concerted effort made to secure long-term access to the entity’s internal network. Such attacks are unlikely to be within the repertoire of individual hackers and are more likely to be carried out by criminal gangs and, sometimes, state actors.

2. Business interruption from a direct cyber attack. The potential business interruption costs of a cyber attack on a large manufacturer, if a major production centre were to be immobilized for a long period of time, are enormous. On a small scale, the WannaCry attacks briefly brought European car plants owned by France’s Renault and its Japanese partner Nissan to a halt.

A more targeted attack on an individual manufacturer could, if successful, have far greater repercussions.

A particular concern is attacks against supervisory control and data acquisition (SCADA) systems, which have been widely reported to be on the rise. One of the most dramatic such attacks crippled a Ukrainian power company in 2015, plunging more than 80,000 homes into darkness at Christmas. As with the German steel mill attack, the original access to the system is thought to have been achieved via a phishing email.

3. A cyber attack that disrupts a company’s supply chain. A growing concern is production stoppages deriving not from an attack on a manufacturer itself, but on its suppliers. Of course, a well-designed supply chain will have a measure of redundancy built in, but this always comes at a cost and a major attack to a tier-one supplier (or more than one) could well cause production stoppages.

So much for demand, what of supply? How much coverage can manufacturers obtain and how well-tailored is it to their individual risk profiles?

PROTECTIVE TOWER The insurance industry has not yet seen a US$1 billion cyber tower, but a number of companies have been able to purchase coverage for well in excess of US$500 million and the billion-dollar limit may well be exceeded in the next 18 months. The primary layer in such a tower will typically be US$100 million and be provided by one of a handful of insurers that have developed a specialism in insuring these complex risks.

There are some important differences

in underwriting philosophy among the carriers active in this market. Some require adherence to quite restrictive security and operational protocols before they will underwrite a risk; others aim to be more flexible.

The rationale for a more flexible approach is that at this end of the market, the level of security sophistication tends to be high. Coverage — and premiums — should recognize the security precautions in place, but insurers should not adopt an “our way or the highway” underwriting approach.

As with many risks, the match between what the client desires and what an insurer is willing to provide is not always perfect. For example, contingent business interruption (CBI) risk, however it is triggered, has always been challenging to underwrite as supply chains can be long and complex and ripple effects hard to quantify. But some measure of CBI protection for cyber risks is now obtainable.

WELL-ESTABLISHED Cyber risk is sometimes categorized, wrongly, as an emerging risk. The reality is that elements of the risk have been insurable perils since at least 2003, when California became the first state in the U.S. to require notification of security breaches.

Indeed, it was the proliferation of similar regulations (47 states now have them) that first spurred the purchase of data breach insurance south of the border, well in advance of other countries.

This means that insurers have excellent data, at least for this form of cyber risk.

But cyber is unquestionably a fast evolving risk, as the recent epidemic of ransomware attacks has shown. Extortion through ransomware, which Beazley has seen quadruple in 2016, has so far targeted relatively small sums in Bitcoin, generally no higher than $20,000.

There is, however, no reason why far larger demands might not be made if the cyber criminals are confident that

What do you need to succeed as a broker?

they can inflict very high financial costs — and, possibly, very high reputational costs as well — on the victim of the attack.

While news headlines about cyber attacks are alarming, for once, the press may not be exaggerating the risk. Billions of dollars are being spent annually by cyber security companies to sell their wares, but Edward Snowden may have come closer to the truth last year when he was quoted in the Financial Times as saying: “We are living through a crisis in computer security the likes of which we’ve never seen. We have more systems that are more connected with more vulnerabilities than have existed in the past.”

Many Canadian manufacturers — in common with manufacturers around the world — have built their business models on the promise and the potential of these interconnected systems.

Now they need to look to the vulnerabilities.

At the Insurance Institute we offer brokers many different ways to increase their knowledge and skills, such as: CIP program Gain essential skills and knowledge required to serve your clients better.

And if you already have your CAIB, you can apply it towards earning your CIP. new! CE OnDemand Try our new online courses and learn about the industry’s hot new topics while meeting the CE requirements of your license.

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35

ontract of C

Carriage

Shubham Gupta

Loss Adjuster, Charles Taylor Adjusting

A bill of lading is the first document that everyone looks for whenever there is any cargo claim. That said, insurers are advised not to rely solely on such documents. Appropriate investigation of all aspects discussed by the various contracting parties, whether written or oral, is also critically important.

Damage to cargo while in transit can cause disputes between shippers and carriers, with significant losses often having to be picked up by insurers. When claims occur, the “bill of lading�

(BL) is routinely relied on as evidence of the contract of carriage.

However, are these bills the only documents on which to rely when settling a claim, especially when a good portion are not properly prepared

36 Canadian Underwriter June 2017

and are not, in fact, a contract of carriage in entirety?

The BL is the first and foremost document that everyone looks for when it comes to a claims scenario in any cargo claim, be it first-party (direct damage claimed by a cargo owner) or thirdparty (motor truck cargo legal liability) But what is so special (and not so special) about the BL? And how valuable, if at all, is it in helping to settle a cargo claim, especially a legal liability one?

Bills of lading have been used since forever by everybody associated with the shipping industry. Even then, past experience has shown that in the majority of cases, the BL is not properly prepared.

Sometimes the document does not reflect the relevant terms and conditions agreed to by the parties; sometimes it is not prepared abiding with the relevant provincial regulations or not completed fully, and most times, it will not be signed by both the parties (the shipper and the carrier).

On occasion, there is more than one such BL issued for the same shipment, with none of them signed by both the parties.

In such a case, which BL is to be given more

The Ontario court ruled the real contract was the oral contract, entered into by the representatives of the parties, and that the bills of lading were nothing more than receipts showing the quantities of goods transported in each case.

importance? The one prepared by the shipper, the one prepared/issued by the freight forwarder or the one issued by the carrier? Or should all be given equal weight? This will depend on many factors.

What is important to remember is that there is more to BLs than what meets the eye. These BLs, handled improperly, could be rendered of no more value than a mere receipt recording the shipment details.

THE BASICS Bill of lading A BL is a mercantile document recording the event of carriage. It usually serves the following three purposes: • acts as a receipt for the cargo by the carrier, acknowledging the cargo and its condition; • is the best document evidencing the terms of carriage; and • is a title document for ownership of goods in a negotiable (made “to the order of”) BL. However, the bill of lading is not necessarily the contract of carriage in its entirety. Rather, it is usually only the best evidence of the terms of contract.

Contract of carriage The contract could encompass a variety of documentation, starting from the emails exchanged between the carrier and the shipper, to the oral agreements and/or discussions that have taken place

between the two contracting parties.

The contract could be much more than the BL. Even if it is signed by both the shipper and the carrier, there could be more to the contract of carriage than just the signed BL. Why issue a BL? Then what is the point of issuing a bill of lading to start with? Issuance is most important in provinces where the uniform conditions of carriage — such as common valuation and maximum liability clauses for shipments originating in Canada — are not deemed to become part of every contract of carriage, as a matter of law.

(British Columbia, Saskatchewan and Prince Edward Island are the only provinces whose statutory language does not deem the prescribed conditions to be part of the contract, but, instead, require that a BL be issued in prescribed form, and the prescribed form establishes the conditions.)

Basically, if a BL has not been issued in these provinces, a carrier’s chance of limiting liability (say, to $2 per pound or $4.41 per kilogram) is not very good.

A BL must be issued in these provinces if the carrier wants to limit its liability, and the BL must be issued respecting the guidelines prescribed in the respective provincial regulations.

Notwithstanding this, there is more than what is appearing on the BL, so it

is advisable to look beyond the boundaries of the document.

CASE LAW The 1969 ruling by Ontario’s then High Court of Justice in Fleet Express Lines Ltd. v.

Continental Can Co. of Canada Ltd., is an excellent illustration. The defendant was a tin can manufacturer that contracted with a third-party carrier (plaintiff) to ship tin plates from its Toronto plant to its plant in Burnaby, British Columbia.

The defendant would usually use rail freight to transfer the tin sheets between the two locations, each of which had private railway siding. However, as a result of an impending railway strike and the urgency of a large order, the defendant hired the plaintiff.

The plaintiff quoted the freight rate at $4 per hundredthweight (cwt), equal to 100 pounds in North America, while the price by rail freight was $1.19 per cwt.

The rail strike did occur and the cans were not delivered in time, costing the defendant the order and also significant storage costs until the cans were sold.

Having ceased to transport by road a few years back, even abandoning the required licences to travel by road between Toronto and Vancouver, the plaintiff, in fact, always shipped piggyback via railway between the two points.

The plaintiff sued for the agreed price of $4 per cwt, and the defendant counterclaimed for loss relating to the follow-

June 2017 Canadian Underwriter

37

Recent Insurance Press Releases featured on insPRESS.ca 30 Forensic Engineering strengthens fire and electrical investigations group with the appointment of Joshua Campbell

Economical publishes 2016 public accountability statement

May 30 — by -30- Forensic Engineering

Sharp Mobile wins IBAA hackathon

Campbellford Memorial Hospital reaches target for new portable x-ray machine thanks to $10,000 donation from Economical Insurance in association with Newman, Oliver & McCarten Insurance Brokers Ltd. May 30 — by Economical Insurance

Chirag Patel of North York wins 2017 Mercedes Benz CLA in select sweepstakes May 29 — by Economical Insurance

Kernaghan Adjusters strengthens its presence in the Ontario market with new Barrie branch!

May 29 — by Kernaghan Adjusters

Do you have clients struggling with financial issues?

May 29 — by APRIL Canada

Save the date! Thursday June 1 — The ARC Group Canada presents: 2017 annual seminar & cocktail event May 29 — by The ARC Group Canada | Le Groupe ARC Canada

Mike Alwyn named senior vice president of specialty services for Vericlaim Canada May 26 — by Sedgwick

Origin and Cause: marine fire – free webinar May 25 — by Origin and Cause

Gillian Van Kempen takes on the role of president of Best Buy Insurance May 25 — by Best Buy Insurance

CSIO launches version 2 of its eDocs availability chart May 24 — by CSIO (Centre for Study of Insurance Operations)

30 Forensic Engineering strengthens remediation group with the appointment of Chris Ciasnochas May 24 — by -30- Forensic Engineering

May 18 — by Economical Insurance May 18 — by Sharp Mobile Technology

The Impact of dash camera technology on fleet safety May 17 — by The Guarantee Company of North America

30 Forensic Engineering transportation safety group to host a pedestrian safety and risk management workshop May 16 — by -30- Forensic Engineering

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The Kings Mutual Insurance Company (KMIC) launches their online quoting solution providing their broker partners and consumers with real time quoting by implementing Mutual Concept Computer Group Inc.’s online quoting solution May 16 — by Mutual Concept Computer Group Inc.

30 Forensic Engineering construction services – claims, risk and advisory May 15 — by -30- Forensic Engineering

30 Forensic Engineering strengthens civil/structural group with the appointment of Karen Lin May 11 — by -30- Forensic Engineering

Canada’s King International Advisory Group leading seminar at Council of International Investigators (CII) regional meeting May 10 — by King International Advisory Group

Origin and Cause Edmonton office is growing May 10 — by Origin and Cause

La Garantie remet 10000 $ au fonds “secours pour les inondations printanières” de la Croix-Rouge canadienne May 10 — by The Guarantee Company of North America

First General Property Restoration Specialists hiring a large loss operations manager

The Guarantee supports the Canadian Red Cross spring floods appeal with a $10,000 donation

May 23 — by First General Property Restoration Specialists

May 10 — by The Guarantee Company of North America

First General Property Restoration Specialists hiring a regional manager for western Canada and NWT

CAFO reaching out to flood victims

May 23 — by First General Property Restoration Specialists

Crawford & Company (Canada) Inc. assisting with claims after severe flooding hits Quebec

Understanding the difference between computer fraud, funds transfer fraud & fraudulently induced transfer coverage within a crime policy

May 18 — by Crawford & Company (Canada) Inc.

May 9 — by The Guarantee Company of North America

May 10 — by CAFO

To Read the Full Story for Each Press Release visit insPRESS.ca

INSPRESS COLUMN AD JUNE 2017.indd 1

2017-06-05 9:37 AM

ing: difference between normal freight costs and $4 per cwt claimed by the plaintiff; interest on money invested in stock that was immobilized for some nine months; and the cost of storage of materials.

The plaintiff relied on what was Ontario Regulation 503, made pursuant to the then Public Commercial Vehicles Act, which noted the following: “No carrier is bound to transport the goods by any particular public commercial vehicle or in time for any particular market or otherwise than with due dispatch, unless by agreement specifically endorsed on the bill of lading and signed by the parties thereto.”

In addition, the plaintiff relied on the parol evidence rule (prevents a party to a written contract from presenting extrinsic evidence that discloses an ambiguity and clarifies it or adds to the written terms of the contract that appears to be whole).

The plaintiff maintained that the defendant should be denied the right to invoke

parol evidence, namely, evidence of the two telephone conversations, which would have the effect of adding to, varying or contradicting a written contract.

The case was ruled in favour of the defendant, even though none of the oral conversations became part of the BL. The Ontario court ruled the real contract was the oral contract, entered into by the representatives of the parties, and that the bills of lading were nothing more than receipts showing the quantities of goods transported in each case for the purpose of the records of both the plaintiff and the defendant.

TAKE-AWAYS So what does this mean for cargo legal liability insurers?

1. Think beyond the four walls of the bill of lading. Exceptions to the parol evidence rule may be considered in cases where it could be proven that the contract does not fulfill the intent of the contracting parties.

2. Do not rely solely on the terms and conditions appearing in the BL. Adopt a broader perspective and look for the intent of the contracting parties.

3. Make sure to investigate each and every aspect discussed between the two contracting parties, written or oral.

It is the intent of the contract that needs to be considered, not just the written contract.

It is necessary that from day one the insured has complete confidence in its dealings with its customers and that the insured provides its liability insurers with each and every detail discussed with its customer.

It might be beneficial for the insurers to have a face value, in the form of an independent adjuster who could meet the insured in person and establish a relationship of trust, do hand-holding wherever necessary and act as an unbiased controller liaising with the insured, its customer, other involved parties and last, but not least, the insurers.

Recent Insurance Press Releases featured on insPRESS.ca WINMAR® International Inc. announces new opening in Estevan, Saskatchewan May 8 — by WINMAR® International Inc.

FIRST Canada is offering support to the people and businesses impacted by the Quebec floods May 8 — by FIRST Insurance Funding of Canada

Bermuda captive insurance experts head to Canada May 8 — by Bermuda Business Development Agency

Plan. Prepare. Be aware. It’s Emergency Preparedness Week May 5 — by -30- Forensic Engineering

Register today for WICC Ontario’s 2017 Golf Tournament May 5 — by WICC Ontario

Envista Forensics announces expansion of global equipment restoration practice with acquisition of AREPA May 4 — by Envista Forensics

Vericlaim expands with new Montreal office May 4 — by Sedgwick

MKA Canada, Inc. announces new drone services May 4 — by MKA Canada

Ontario budget announcement pushes insurance brokerages to go digital May 3 — by Sharp Mobile Technology

SCM expands into the United States with the acquisition of Nixon & Company, Inc. May 3 — by SCM Insurance Services

Visit CAFO at the IBAA Convention in Alberta, May 7-10 May 2 — by CAFO

Join Kadey Schultz and her family at the 6th Annual Music Heals Fundraiser – May 24, 2017 May 2 — by Holland Bloorview Kids Rehabilitation Hospital

Renewable energy group at 30 Forensic Engineering offers pre-loss inspection and risk management services May 2 — by -30- Forensic Engineering

To Read the Full Story for Each Press Release visit insPRESS.ca June 2017 Canadian Underwriter

39

Social Impact Michael Blinick

Partner, McCague Borlack LLP

Sean Valentine

Associate Lawyer, McCague Borlack LLP

All hosts know there are several elements that need to be properly planned when hosting a social function: the company, the food, the music and, of course, the refreshments.

With the anticipated legalization of recreational marijuana in Canada, however, could a social host face exposure if marijuana is provided and something unexpected happens?

Canadian jurisprudence has consistently held that special relationships exist whereby commercial organizations and establishments that serve alcohol or other impairing products owe their patrons a duty to ensure that no foreseeable

40 Canadian Underwriter June 2017

harm occurs while on or after leaving the premises. These duties include the following: • to ensure the establishment does not over-serve patrons to the point of intoxication; • to ensure sufficient protections are taken to ensure the patron does not suffer damage while on or after leaving the property; and • to ensure that the intoxicated patron does not inflict damage on another person, including damages caused from driving.

This same duty, however, does not attach to social hosts without the existence of some form of a special relationship. Situations where a special relationship could be found to exist include, but are not limited to, the following: • hosting where adults are supervising minors who become impaired; • where the host encourages or knowingly approves of the potentially negligent actions by an impaired guest; and • where the host provided guests with unsupervised access to impairing substances or products and then failed to monitor their actions.

With the legalization of recreational marijuana set to occur in Canada during the summer of

2018 and access to the drug likely increasing, it is only a matter of time before the courts will have to determine whether or not a social host can be held liable for foreseeable harm occurring as a result of his or her guest’s marijuana consumption.

While the determination of liability is always fact-specific, it is anticipated the courts will likely look to cases pertaining to social hosting and alcohol consumption to assist with their analyses.

cifically, a social host may be vulnerable to a liability claim when the foreseeability of harm is present and other aspects of the relationship between the injured person and the host creates a special link or proximity.

The cases where duties could exist routinely involve paternalistic relationships of supervision and control or situations, where hosts have taken certain actions that directly impact the guests at their function.

A SOCIAL HOST’S POTENTIAL LIABILITY In the 2006 seminal case of Childs v.

Desormeaux, the Supreme Court of Canada examined whether or not a social host owed a duty of care to a person who sustained an injury as a result of the actions of an attendee at a social function.

In this case, an attendee at a house party drove following consumption of a high volume of alcohol and got into an accident that left the plaintiff paralyzed. An action was commenced as against the driver of the vehicle who caused the accident and the hosts of the party.

Worth noting is the injured party was not in attendance at the social function.

The evidence was consistent that the hosts did not provide alcohol to the attendees and did not monitor consumption by the attendees.

While the hosts knew that the driver had been drinking, they did not know how much he consumed and were found to have used reasonable efforts to ensure that he was able to drive before he left the party.

This primarily consisted of speaking with the driver before he got into his vehicle to satisfy the hosts that the driver was not intoxicated and was able to safely drive from the party.

The court held that, as a general rule, a social host does not owe a duty of care to a person injured by a guest at a house party who has consumed alcohol as there was not a sufficient proximity in the relationship to give rise to a duty of care.

Despite the finding, cases since have held that a duty of care could exist. More spe-

The specific factual matrix will, ultimately, be determinative of whether or not a special link between the parties existed at that time.

In these instances, the courts — including the 2008 ruling by Ontario’s Superior Court of Justice in Hamilton v. Kember and the recent decision by the same court in Wardak v. Froom — have routinely taken the position that a trial

on the merits is required to determine whether or not the social host encouraged or contributed to the intoxication of his or her guest prior to the incident in question and that liability could arise if such facts were to be found at trial.

REMEDIES AVAILABLE TO HOSTS Given the general nature of the high court’s analysis in Childs, it is reasonable to expect the rule in Hamilton and Wardak would apply to the consumption of marijuana going forward as well.

While many of the cases in Ontario that examine a social host’s actions involve a motor vehicle accident after a guest has consumed alcohol, it is quite apparent that similar circumstances can — and will — likely arise relating to the consumption of marijuana at a social gathering.

It is anticipated that this risk could become more prevalent as access increases and police training and detection methods increase to the point where intoxication by marijuana is easily identified.

While criminal prosecution for a host is unlikely, civil liability is certainly possible. While social hosts may be covered by their home insurance policies, a closer inspection of the specific policy wording should be reviewed to ensure that there are no exceptions or restrictions that could result in a lack of insurance coverage.

It may also be wise to ensure that the third-party liability coverage under the home insurance is sufficient to meet potential liabilities.

While a social host will generally not be found solely liable for an incident that arose out of a guest’s consumption of marijuana at his or her event, should the court deem that the host knew or ought to have known of the guest’s impairment and/or encouraged it, a social host may be found partially liable for the actions of guests and the ensuing consequences. The specific factual matrix will, ultimately, be determinative of whether or not a special link between the parties existed at that time.

June 2017 Canadian Underwriter

41

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APPOINTMENT

Bob Bousfield

BA, FCIP, CRM Assistant Vice President, Property Insurance Toronto.

How insurers decide to manage this additional risk could, ultimately, be a determinative factor when consumers are considering different insurance providers and products for their home insurance needs.

CONCLUSION There can be little doubt that the legalization of recreational marijuana will result in increased access and consumption by many in the general public. With this, it is reasonable to anticipate an increase in the presence of marijuana at social events in much the same manner that a case of beer, bottles of wine or bottles of spirits are provided to guests.

Assuming this occurs, it can be expected that this will result in an increase in the number of incidents and accidents relating to the consumption of marijuana and a corresponding increase in the allegations that a host’s actions caused

or contributed to the incident or accident.

Ultimately, what is important to realize is that a social host may face liability.

This will, no doubt, have consequences for insurers who may now need to defend more possible claims alleging a breach of a social host’s duty of care.

Insurers should be aware of this potential liability exposure and manage risk accordingly. This may materialize in the form of additional questions regarding the general hosting habits of applicants for insurance before an insurer agrees to underwrite this risk, potentially higher rates for homeowners or additional exclusions being written into the homeowner’s policy.

How insurers decide to manage this additional risk could, ultimately, be a determinative factor when consumers are considering different insurance providers and products for their home insurance needs.

Insurance brokers should also be sure that they understand the coverages potentially available to their clients when recommending certain insurance policies.

Failure to properly warn clients of the limitations in the coverage purchased, and to identify the different coverages available, could result in a finding that the broker was negligent in arranging insurance for its client and, ultimately, responsible for the loss suffered.

Jeff Somerville, President of Strategic Underwriting Managers Inc. (SUM) is pleased to announce that Bob Bousfield BA, FCIP, CRM has joined the Company as Assistant Vice President, Property Insurance, Toronto.

Prior to joining SUM, Bob was the property product line leader for a Canadian specialty carrier. Bob has more than 40 years underwriting experience in Commercial Property underwriting, with particular expertise in underwriting non-standard business.

Bob will lead our property practice from Toronto.

SUM Insurance is an independent and 100% Canadian Managing General Agent. Serving Canada coast to coast with offices in Toronto and Montreal, SUM Insurance works collaboratively with first class insurers and reinsurers to design, underwrite and deliver commercial insurance products to its customers insurance brokers. For information about SUM please see www.suminsurance.ca

June 2017 Canadian Underwriter

43

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2017 RIMS Annual Conference & Exhibition Philadelphia

Keeping

Pace

Risk professionals are no strangers to change. But as technology continues to transform the risk landscape at top speed — sometimes in surprising ways — professionals will need to keep pace to remain current.

Angela Stelmakowich Editor

The RIMS Annual Conference & Exhibition, held in Philadelphia April 23 to 26, offered a host of sessions from which to choose. Front and centre, though, was talk of technology risks.

BETTER UNDERSTANDING OF DISRUPTIVE TECHNOLOGIES NEEDED Risk managers need to take the lead in organizational efforts to address complex challenges and opportunities in an environment that increasingly features rapidly advancing disruptive technology risks, a report from Marsh and RIMS has found.

“We believe risk management professionals should be leading the way as companies adapt to technology innovation, with the understanding that those who fail to do so will be relegated to a supporting role,” cautions the report, released at the 2017 RIMS Annual Conference & Exhibition.

Despite the importance, there seems to be a lack of awareness among risk professionals regarding existing and emerging technologies (such as telematics, sensors, the Internet of Things (IoT), smart buildings and robotics) and their risks.

Findings are based on 700-plus responses to an online survey and a series of focus groups with leading risk executives earlier this year.

Just shy of a quarter of respondents say their organizations do not currently use or plan to use any of 13 common disruptive technologies cited. This seems at odds with some estimates that 90% of firms will be using IoT within a few years.

In addition, six in 10 respondents note they do not conduct risk assessments around disruptive technologies despite their potential impact on the business strategy, model and risk profile of the company.

“Companies cannot afford to be surprised when technology fails or goes awry. Risk executives need to fortify their strategic role by understanding how technologies impact business models and the direction of entire industries,” authors argue.

“Organizations cannot fully realize the rewards of using today’s innovative technology if the risks are not fully understood and managed,” says Brian Elowe, report co-author and United States client executive leader for Marsh.

“Risk professionals are advised to proactively educate themselves about disruptive technologies, including what is already in use at their organizations, what technologies may be on the horizon, and the respective risks and rewards of using such technology,” advises Carol Fox, report co-author and RIMS vice president of strategic initiatives.

STAFF REPORTING CAN HELP STEM TERRORISM, VIOLENCE The value of staff monitoring and reporting to identify behaviours that may seem linked to the risk of terrorism and workplace violence should not be underestimated, Harry Rhulen, chief executive officer of Firestorm, said as part of an educational session at 2017 RIMS.

June 2017 Canadian Underwriter

45

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“The ability to identify those people (possible threats) and the things that they are going to do are in the hands of all of us,” Rhulen said during Terrorism Measures You Can Take: Lessons from Nice, Paris and Mumbai. “The eyes and the ears of your employees — if they’re well-trained, if they understand what the issues are — are a far more useful tool that we’ll get more data and intelligence from than you might from almost anything else.”

Although a hurdle has been that no one wants to get involved and report possible cues, he said, “what everybody needs to understand is if we’re going to combat terrorism and if we’re going to combat workplace violence, it’s going to need to be on a basis where we err on the side of caution, not on the side of privacy.”

Whatever steps organizations can take to be better prepared, informed and trained are worthwhile since terrorism or like attacks are changing rapidly, he pointed out. Consider, for example, the growing use of vehicles as weapons to cause mass casualties. It is essential to keep “your plans, your training, your education, your thought processes broad enough to understand that bad people are going to find new ways to do things.”

With autonomous vehicles, for example, Rhulen’s view is they are “going to change this issue of vehicular attacks significantly. So understanding how you control the movement of vehicles on your property, around your building, all those kind of things” is imperative.

He advises companies to ensure there is insurance coverage in place to cover terrorism, active shooter and mass casualtytype events; understand any exclusions; train people on behaviours of concern and put in place anonymous reporting; do threat assessments; and make sure that everybody is involved by carrying out test exercises.

PEOPLE RISK AN UNDERRATED PART OF CYBER SECURITY The human element is routinely overshadowed by technology in organizational efforts to bolster cyber security and combat associated costs, Anthony Dagostino, global head of cyber risk for

Willis Towers Watson (WTW), told Canadian Underwriter in advance of 2017 RIMS. “Companies tend to place a heavy emphasis on investing in technology to improve cyber defences, which is crucial, however, often at the expense of human risk,” said Dagostino, part of a private panel discussion during the conference.

Recent WTW claims data shows that employee negligence or malicious acts account for 66% of cyber breaches, while only 18% were directly driven by an external threat and cyber extortion accounted for just 2%. “Our data further shows approximately 90% of all cyber claims are the result of some type of human error or behaviour,” he said.

“This creates a compelling argument for organizations to take a more strategic approach to how they allocate their capital across the three main buckets: technology, people and risk transfer,” Dagostino reported. “Companies need to understand, quantify and provide sufficient capital for their greatest exposures.”

What hurdles must be cleared? “It really starts with an enterprise-wide approach to combating cyber risk, which includes employee training, an effective talent and rewards strategy, and an efficiently designed information technology and information security program,” he said.

FRUSTRATION COMMON TO BI CLAIMS CAN BE LESSENED Quantifying business interruption (BI) losses is a big challenge, reported by six in 10 RIMS members participating in a recent survey, but a well-conceived approach can help clear hurdles.

“By taking control of their data, establishing a team and developing plausible BI figures before losses occur, risk managers can do much to lessen the confusion and frustration common to these claims process,” notes the RIMS Business Interruption Survey 2017, issued at 2017 RIMS. Reflecting input from 372 RIMS members, findings show 58% of respondents who have been through a BI claim say “difficulty quantifying loss” was the biggest challenge they faced; 68% note feeling their maximum indemnity period is adequate; and 35% cite their organiza-

tions have 12 months as the length of the maximum indemnity period.

In all, just 17% of polled risk mangers report they were “extremely confident” their BI values and limits are adequate.

On the other end of the scale, 11% characterize themselves as having no confidence.

“The low rate of confidence in BI values indicates the need for organizations to do more analysis before BI limits and values are determined,” the survey notes.

Add to that that the overall exposure data for both property damage and BI is important in establishing the correct perception of risk. “Experience dictates that the clearer you are in relation to your exposures, and the more information you provide to your insurers, the smoother the claims process is likely to be,” the report adds.

SILENT CYBER GROWING LOUDER Silence is decidedly not golden when it comes to cyber risk, Scott Stransky, assistant vice president and principal scientist for AIR Worldwide, suggested to Canadian Underwriter before 2017 RIMS. Silent cyber occurs when the risk for a cyber event impacts a non-affirmative cyber policy (an affirmative cyber policy is written specifically for cyber, with limits and terms), said Stransky, who took part in a panel discussion at the conference.

Though not intended to cover cyber, the policy ends up being used because cyber is what caused the loss, he noted.

Consider, for example, a directors and officers policy being used after a director opted not to pay for installing software recommended by IT staff and the company then suffers a hack, he said.

Even “scarier” is silent, silent cyber, when the link between an event and damage is “very, very indirect,” he added.

“Silent cyber and what we call silent, silent cyber are very big deals and they lead us to believe that most insurance policies today contain some exposure to cyber risk,” Stransky argued. “If you have an insurance book of business and you don’t explicitly exclude cyber from your policies, you probably have cyber and you should probably start managing it properly,” he cautioned.

June 2017 Canadian Underwriter

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MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR’ ON THE HOME PAGE

1

Effective May 15, Nick Creatura [1a] took on the role of president and chief executive officer of CNA Canada. Creatura, who most recently served as executive vice president and chief financial officer of Royal & Sun Alliance Insurance Company of Canada, will report to David Brosnan, chief executive of CNA Hardy. He has held senior roles at Liberty Mutual Insurance, Chubb and PwC in Canada and the United States.

He replaces John Hennessy [1b], who will now work out of CNA Financial Corporation’s head office in Chicago.

2

Adrian Hall [2], former chief customer officer for RSA Insurance in Canada, has been named chief executive officer, Canada for Swiss Re Corporate Solutions. Based in Toronto, Hall is a 22-year veteran of RSA and has held positions in the Middle East, Latin America and the United Kingdom. In his new role, effective May 1, he will be reporting to Ivan Gonzalez, chief executive officer, North America for Swiss Re Corporate Solutions.

3

Four new brokerages have joined BrokerLink, companies of which are subsidiaries of Intact Financial Corporation. Familyowned Reddick & MacDonald

48 Canadian Underwriter June 2017

1a

1b

2

7

8a

8b

Ltd. is a full-service brokerage that operates in Ottawa and Stittsville, Ontario under the Hudson Insurance Limited brand; Banks Insurance Services Inc., serving southwestern Ontario, provides home, auto, commercial, marine and farm insurance; Calgary-based Godfrey-Morrow Insurance and Financial Services Ltd. is a full-service brokerage with 14,000-plus customers in Alberta; and Calgary-based McFarlane and Company Financial Group Limited offers personal and commercial insurance expertise. Terms of the transactions were not disclosed.

Paul Féron [4] is its new senior vice president, Manitoba and Ontario. Féron has worked for SCM Insurance Services for 17 years. He is also a director on the national executive of the Canadian Independent Adjusters’ Association and a former president of both the Ontario Insurance Adjusters Association and the Insurance Institute of Ontario.

roles in Toronto, Chicago, New York and Zurich. His last position was partner and head of financial services for CarProof Corporation. Also at Economical Insurance, Alice Keung, previously chief information officer, has taken on the role of chief transformation officer; Kelley Irwin, former vice president and chief information officer, corporate technology for Toronto Dominion Bank Group, is the new senior vice president and chief information officer; and Tom Reikman, former senior vice president and chief operations officer, is now chief distribution officer.

4

ClaimsPro, a subsidiary of SCM Insurance Services, reports that

5

Fabian Richenberger, former president of Northbridge Insurance, is Economical Insurance’s new executive vice president of commercial insurance.

Richenberger began his career in his native Switzerland and spent more than 15 years with Zurich Insurance in underwriting and executive

6

Craig Musico [6a], a partner with Sarnia, Ontario-based Callister

MOVES&&VIEWS VIEWS MOVES

of Calgary; Gordon Adams; Robert Cartwright, Jr.; Al Gorski; Leslie Lamb; John Phelps; Michael Phillipus; Frederick Savage; and Lori Seidenberg.

3

5

4

6a

9 positions have included general 8cadjuster, branch manager, vice president of operations and Lloyd’s DivisionGroup, leader.will Musico Insurance join the team of McFarlan Rowlands Insurance Brokers Macdonald Chisholm Inc. With the latter’s Trask of Insurance (MCT) acquisition the former — announced in early scheduled to be finalized January that it will Musico join propJuly 3 — Callister erty and casualty brokerage Insurance’s office will BrokerLink. of the become theThe 15thterms branch transaction not disof London, were Ontario-based closed, notes a statement McFarlan Rowlands from BrokerLink.

BrokerLink Insurance Brokers.

Paul companies, subsidiaries of Callister [6b] is set to retire Intact Financial Corp., July 3, while the rest of include 84staff offices company will serving join the clients in Atlantic Canada, McFarlan Rowlands team.

Alberta and Ontario. Dating back more years, Thisthan past 60 April, MCT has more than 110 Glen Frederick [7] insurancewas professionals in 18 posthumously offices.

Michael inducted into theBrien, Risk who has led MCT over last 12 Management Hallthe of Fame, years, joins BrokerLink a joint venture of RIMS,asthe head of its Atlanticsociety, operations. risk management

6

7

10

7

Carolyn Snow [7] will lead RIMS as president for the 2014 term, and American International which Inc. took Frederick, effect January Group who 1.

Snow, haswas been died in who 2013, anon the RIMS Board of Directors for “integral member of a senior seven years, is currently management team withindirector of risk management the Government of British for Humana Inc. She previously Columbia,” and “helped to served as RIMS’s treasurer, establish a benchmark for secretary and director of risk management programs externalCanadian affairs. The RIMS among provinces,” board reports. for 2014Among also includes RIMS his vice president Richard many contributions, he Roberts, Jr.;management treasurer Julie lent his risk Pemberton; corporate secreexpertise to the Vancouver tary Nowell Seaman, director Organizing Committee and of global risk management the International Olympic for Potash Corporation Committee in 2010 of and was Saskatchewan Gloria very active withInc.; the RIMS Brosius;Council.

Steve Pottle, director Canada of risk management services at YorkAltona, University; Jennifer ManitobaSantiago; Janet Stein, based Red Riverdirector of risk management Mutual recently and insurance at the University announced Jennifer Ewankiw

9

8

8

As of January 8, Toronto insurance broker Jones DesLauriers Insurance Management Inc. 6b (JDIMI) had acquired Whitley Insurance and Financial Services. Whitley Insurance has offices in Belleville, Ontario and the nearby communities of Trenton, Deseronto and Stirling. “The acquisition is expected to build a solid presence for JDIMI in Eastern Ontario and position the firm to better service their clients, 10 with strengthened commercial and insurance [8a] has personal been appointed to offerings in the region and a the new position of director new financial services diviof strategic initiatives, bringsion,” a statement from ing hernotes “extensive experience JDIMI. President and CEO in business, management Shawn DeSantis willmultiple lead the and strategy across teams from both companies. functions” to the post. As well, Loris Clarke hasisbeen Dana Oftedal[8] [8b] now named successor to Paul director of brand manageWhitley, president of Whitley ment, and Jenna Book [8c] is Insurance, who willresources. remain director of human during a transition period.

9 9

Brian Duperreault [9], a former chief Ken Rayner [9] has executive officer of joined Anderson both ACE Limited and Marsh McTague & Associates & McLennan Companies Inc., Ltd.been as itshired director of busihas

by American ness development, International Group Central Inc. Region. bringsand a wealth (AIG), as“Ken president chief of experience to our comexecutive officer of the New pany,City-based having held various York insurer, as senior management positions of May 14. Duperreault, with also insurers and other now a member of MGAs,” AIG’s

says Chuck McTague, president of Anderson McTague & Associates, a familyowned of MGA based in New Board Directors, replaces Brunswick.

In January, AnPeter Hancock, who in March derson McTague & Associates announced his resignation. announced it was expanding, adding an office in Toronto Christine Van to service the Daele brokers of Ontario [10] is and Manitoba. chairRayner’s of the appointment confirms the Ontario Mutual Insurance company’s “commitment Association (OMIA) for a to the Ontario/Manitoba marketone-year term, effective this place, and to the building past March 31. Van Daele,of a local assist who hassupport served team as an to OMIA brokers with their surplus director since 2009, is also lines and difficult place president and chieftoexecutive business,” McTague adds. officer of Westminster Mutual

10

Insurance Company, based in Belmont, Ontario.

The Guarantee Company of Andrew Agencies North America Ltd., a Virden, has announced that Tara Manitoba-based Wishart [10] became vice multi-line brokerage, presidentacquired of claimsWaggoner for the formally insurer’s Toronto on Insurance May 1.branch The three DecemberInsurance 2, 2013.locations Having Waggoner 21Winnipeg, years of experience in which will in The Guarantee’s claims be rebranded as Andrew department, Agencies, willWishart be the will be responsible for operations company’s first the in the city. of the Toronto Branch Claims.

The new locations increase She The to 19first thejoined number in GuaranAndrew tee in 1995 as an across adjuster Agencies’ network and has held roles of increasManitoba, Saskatchewan ing seniority the comand Alberta. with The current pany, including, most Waggoner staff will remain recently, claims manager for and will be complemented specialty lines.

Wishart with existing product is a member of from both Andrew the Surety specialists Associationnotes of Canada and Agencies, a statement the Canadian from WaggonerAssociation Insurance.of Women in Construction.

10 11

Follow @CdnUnderwriter on http://twitter.com/CdnUnderwriter

June 2017 Canadian Underwriter February 2014 Canadian Underwriter

49 57

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

Banff is always a great place to be, but none more so than when the Annual Convention of the Insurance Brokers Association of Alberta is in town. Held May 7-10 at the Banff Springs hotel, the conference brought together more than 500 brokers and other insurance professionals for a golf tournament and tradeshow, the President’s Gala dinner and an educational program featuring such subject-matter experts as BMO Financial Group chief economist Doug Porter, Google Canada marketing chief Fab Dolan, and Blair Feltmate of the Intact Centre on Climate Adaptation.

50 Canadian Underwriter June 2017

Page 51 Starlight Gala

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

Transitioning from daytime to evening wear was unnecessary for any horse racing fans who attended the 23rd Annual Starlight Insurance Gala on May 6, because the event’s Run for the Roses theme was inspired by the day’s other big event: the 143rd running of the Kentucky Derby. The evening’s festivities, which included raffles and a silent auction, were in aid of the Starlight Children’s Foundation Canada, a charity “dedicated to bringing laughter, joy and hope back into the lives of children with serious illnesses.” Local TV newscaster Anwar Knight hosted the fete at Toronto’s Royal York Hotel.

June 2017 Canadian Underwriter

51

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

Ribald humour and not-so-gentle ribbing were the order of the day at the 58th Quarter Century Club Luncheon and Roast of Tim Guernsey, RSA Canada’s VP of claims. Held annually to honour ­a claims industry veteran, the “May 24th roast” at Toronto’s distinguished Albany Club treated more than 170 guests to loads of laugh-out-loud jokes and jibes from master of ceremonies John Cherrie and roasters Dennis Schembri of Kernaghan Adjusters, Walter Aronovitch of AMR Barristers and Solicitors LLP, Murray Ritch of Ritch Williams Richards Lawyers, and Eric Grossman of Zarek Taylor Grossman Hanrahan LLP.

52 Canadian Underwriter June 2017

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

See all photos from this event at www.canadianunderwriter.ca/gallery

On May 30, Applied Systems hosted Ontario insurers, brokers and other industry members at its Toronto Executive Symposium at the ShangriLa Hotel. The theme: the increasingly connected world of insurance.

Several Applied executives shared their thoughts on how connected experiences are impacting consumer expectations and how brokers and insurers can provide competitive offerings that meet these changing customer demands.

Insurance brokers and other industry members gathered May 11th for food, drinks and networking at Friendship Night, just one the Insurance Brokers of Toronto Region’s buoyant annual get-togethers.

Exhibitors at the event’s tradeshow included the Insurance Institute, several big-name insurers, vendors as varied as Enterprise Rent-A-Car and Fortify Networks, and yours truly, Canadian Underwriter.

Canadian_Underwriter-June2017_2.pdf 1 06/06/2017 4:00:27 PM

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

How will marijuana legalization affect the insurance biz? That was the organizing question of the ARC Group Canada’s annual seminar and cocktail in Toronto. Speakers at the June 1st event, entitled “Smoke Hazards,” included Marlene Jesso of the Task Force on Cannabis Legalization and Regulation; Bruce Linton of pot producer Canopy Growth Corp.; Linda Papadopoulos, corporate risk-management VP at Pearson Dunn Insurance; and lawyer Michael Teitelbaum of Hughes Amys LLP.

See all photos from this event at www.canadianunderwriter.ca/gallery

Customers and business partners of HDI Global SE’s Canada Branch were on hand May 11 to celebrate the opening of the international insurer’s expanded office space on Toronto’s grand downtown boulevard, University Avenue.

54 Canadian Underwriter June 2017

Putting the pieces together.

Events and Seminars Calendar CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to advance your professional and career development.

CIP Society Seminars

CIP Society Events

Hamilton—Coffee & Conversation–Watercraft ...........................................June 28 Moncton—Wood Heat Awareness.............................................................. June 29 Hamilton—D&O…Get in the Know! .......................................................August 24 Kitchener—Assessing Commercial Risks............................................. September 6 Sudbury—Desktop Investigations Lunch & Learn .............................. September 6 Webinar—Life Leases .......................................................................... September 8 Ottawa—The Sharing Economy and the Internet of Things ............. September 12

Dartmouth—Golf Tournament ......................................................................July 11 Kelowna—Okanagan Boat Cruise .................................................................July 13 Edmonton—Annual Golf Fun Day .................................................................July 17 Moncton—Golf Tournament ....................................................................August 10 Hamilton—Volleyball Tournament.......................................................... August 30 Dartmouth—Charity Softball Tournament ....................................... September 15 Dartmouth—South Shore Soiree ........................................................... October 19

Looking for insight and research on the latest trends in the p&c industry?

Visit our free online library of Trends Papers at www.insuranceinstitute.ca/cipsociety/information-services.

Looking for information to advance your career? Visit: www.insuranceinstitute.ca/mycareer.

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