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
OCTOBER 2010 A Business Information Group Publication #40069240
MBA Class of 2011 By David Gambrill
Line in the Sand By Rick Hynes
Affinity and Partnership By Randy Carroll
fold Spine
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Client: Campaign:
RSA 300 Years
www.rsabroker.ca
Job no: HM001643_Canadian UW_GFC Publication:
Canadian Underwriter
On sale date:
October
Issue:
October
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17th September 276x425
1764
2007
2009
2009
We insure the home of Captain James Cook, prior to the first of his legendary voyages
When a major food bank is threatened with closure, our support helps keep it open
We’re on the scene of the Halifax fire
We provide a speedy response in the wake of the Vaughan tornado
Hot Mash check list
Hot Mash approval
1710 The Sun Fire Office is established
1844
1959
1961
1996
2007
2008
2010
We cover Down House, where Charles Darwin wrote On the Origin of Species
The Sun Insurance Office merges with The Alliance Assurance Company to form Sun Alliance Insurance Limited
The Western Assurance Company is acquired and later amalgamated with Royal Insurance Company of Canada
Sun Alliance Group merges with Royal Insurance Holdings, to become Royal & Sun Alliance Insurance Group plc
Canadian Northern Shield becomes part of Royal & Sun Alliance Canada
Royal & Sun Alliance becomes RSA Insurance Group plc
The RSA Group is 300 years old
from the epic to the everyday, WE’VE BEEN UNDERWRITING PROGRESS SINCE 1710.
Our business began life in 1710 with the establishment of the Sun Fire Office. And this year, as we celebrate our 300th anniversary, we are believed to be among the world’s oldest insurers. The principle that drove us to succeed in the embers of the Great Fire of London is the same one that drives us today: an unshakable belief that insurance should enable progress. From the epic to the everyday, we continue to help the world’s people and businesses move forward. To learn more, visit www.rsabroker.ca
HM001643_Canadian UW_GFC.indd 1
06/09/2010 16:53
fold Spine
SFW
Client: Campaign:
RSA 300 Years
www.rsabroker.ca
Job no: HM001643_Canadian UW_GFC Publication:
Canadian Underwriter
On sale date:
October
Issue:
October
Copy date: Size:
17th September 276x425
1764
2007
2009
2009
We insure the home of Captain James Cook, prior to the first of his legendary voyages
When a major food bank is threatened with closure, our support helps keep it open
We’re on the scene of the Halifax fire
We provide a speedy response in the wake of the Vaughan tornado
Hot Mash check list
Hot Mash approval
1710 The Sun Fire Office is established
1844
1959
1961
1996
2007
2008
2010
We cover Down House, where Charles Darwin wrote On the Origin of Species
The Sun Insurance Office merges with The Alliance Assurance Company to form Sun Alliance Insurance Limited
The Western Assurance Company is acquired and later amalgamated with Royal Insurance Company of Canada
Sun Alliance Group merges with Royal Insurance Holdings, to become Royal & Sun Alliance Insurance Group plc
Canadian Northern Shield becomes part of Royal & Sun Alliance Canada
Royal & Sun Alliance becomes RSA Insurance Group plc
The RSA Group is 300 years old
from the epic to the everyday, WE’VE BEEN UNDERWRITING PROGRESS SINCE 1710.
Our business began life in 1710 with the establishment of the Sun Fire Office. And this year, as we celebrate our 300th anniversary, we are believed to be among the world’s oldest insurers. The principle that drove us to succeed in the embers of the Great Fire of London is the same one that drives us today: an unshakable belief that insurance should enable progress. From the epic to the everyday, we continue to help the world’s people and businesses move forward. To learn more, visit www.rsabroker.ca
HM001643_Canadian UW_GFC.indd 1
06/09/2010 16:53
CRAWFORD INTRODUCES CRAWFORD CMS PROPERTY ADVANTAGE
Crawford & Company (Canada) Inc. is pleased to introduce Crawford CMS Property ADVANTAGE to the Canadian marketplace. Using tablet and wireless technology, Crawford CMS Property ADVANTAGE allows Crawford’s property adjusters to complete their site visit and subsequent report at the claim scene itself. This innovative new system can deliver exceptional client and policyholder satisfaction through a reduced shelf life, reduced claims costs and an increase in consistency and efficiency. The ADVANTAGE system also gives Crawford a truly mobile workforce. Our property adjusters spend less time on paperwork and more time where they belong – in the field, assessing claims and assisting customers. The efficiencies, the satisfaction results and the time savings Crawford’s property adjusters will achieve with ADVANTAGE will go a long way in enhancing the customer experience. For more information on the Crawford CMS Property ADVANTAGE system, contact us at info@crawco.ca or by phone at 800.522.1380
www.crawfordandcompany.ca
Crawford & Company (Canada) Inc. is an equal opportunity employer
CdnUnderwriterCrawford-ADVANTAGE1 1
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VOL. 77, NO.10, OCTOBER 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca FEATURES
16
COVER STORY
MBA Class of 2011 Four years or more in the making, brokers now have access to Laurentian University’s Online MBA program courtesy of their training, designations and experience in the field. Brokers are hailing the longawaited online MBA program as a huge step in preparing brokers to manage — and perpetuate — their brokerages.
Line in the Sand Risk managers should be asking their commercial brokers: ‘Who are you working for?’ BY RICK HYNES
24 44
BY DAVID GAMBRILL
Broker Profitability A recent survey suggests the most obvious path to growth for a brokerage these days is by way of mergers and acquisitions.
72
Canada will soon have a new regulatory regime for crediting unregistered reinsurance.
discussed public-private partnerships (P3s), oil risks and the plaintiff bar’s creative use of D&O limits.
BY ROBERT McDOWELL AND KOKER CHRISTENSEN
BY VANESSA MARIGA
Fuel Oil Spills
40 Canada Briefing
82 2010 NICC
Insurers, homeowners, regulators and technicians must work together to achieve a comprehensive solution for fuel oil releases. BY VITO L. De SIMINI AND
A.M. Best describes a tale of two business lines, one seeing rate improvement (homeowners lines) and the other crashing into the curb (auto lines).
MARC R. RAYMOND
BY VANESSA MARIGA
It’s ‘decision time’ for Canada’s property and casualty industry, and NICC sessions focused on auto reform, overland flood cover, insurance fraud and insurance scores.
BY MIKE BERRIS
56 Here to Stay Insurers have invested too heavily in portals to abandon them now, so the focus should be on making them as brokerfriendly as possible. BY GLEN PILLER
66 International Insurance Navigating international insurance placements takes expertise, know-how and a strong partnership with a global carrier. BY GREG KNOWLES
36 New Regime
BY DAVID GAMBRILL AND VANESSA MARIGA
20 Affinity for the Law? When Ontario fine-tuned its Unfair or Deceptive Acts or Practices regulation, insurers reacted strangely by adjusting their affiliation models. BY RANDY CARROLL
32 Political Movement
62 Business Interruption
88 Improved Communications
Surveys show businesses are still not prepared for the consequences of a major disaster.
Insurers now have the technology to communicate with consumers in the way they choose to receive their information.
BY RICHARD KINCHLEA
70 Corporate Responsibility Engaged employees are the key to corporate responsibility — and profitability.
BY SHANNON MAJOR
94 Safer Homes
The Insurance Brokers Association of Nova Scotia (IBANS) BY ADRIAN HALL credits broker participation in 78 RIMS Canada Conference influencing the province on Held in Edmonton in 2010, the auto cap and other issues. BY KEN MYERS the RIMS Canada Conference
The Institute for Catastrophic Loss Reduction is working with Habitat for Humanity to build safer, affordable homes in London, Ontario. BY GREG OULAHEN
October 2010 Canadian Underwriter
3
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VOL. 77, NO.10, OCTOBER 2010
PROFILE
14 Extra! Extra! Peter Burns, president-elect of the Insurance Brokers Association of Ontario, tells how founding a community newspaper paved his way to running an expanding local brokerage. BY DAVID GAMBRILL
SPECIAL FOCUS
8
Editorial
10 Marketplace 98 Moves & Views 100 Gallery
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796
Art Director Gerald Heydens Art Consultation Pylon.ca
Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793
Production Manager Gary White (416) 510-6760
Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800
Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549
Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788
Circulation Manager Mary Garufi mgarufi@bizinfogroup.ca (416) 442-5600 ext 3545
Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122
Print Production Manager Phyllis Wright
Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
President Bruce Creighton Vice President Alex Papanou
Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd., a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. Business Information Group is located at 12 Concorde Place Suite 800, North York, ON, M3C 4J2. Phone: (416) 442-5600. Canadian Underwriter, USPS 022-494. US office publication: 2424 Niagara Falls Blvd., Niagara Falls, NY 14304-0357. Periodicals Postage Paid at Niagara Falls, NY, USA. US postmaster: Send address corrections to Canadian Underwriter, Po Box 1118, Niagara Falls, NY 14304. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. Š Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 12 Concorde Place., Suite 800, North York, ON, M3C 4J2 Subscription Rates: 2010 Canada 1 Year $49.95 plus applicable taxes 2 Years $73.95 plus applicable taxes
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4
Canadian Underwriter October 2010
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10/8/10 3:49 PM
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EDITORIAL
Reinventing the Insurance of Wheels
In our heart of hearts, most people in the industry must know these Ontario reforms aren’t going to work for long. David Gambrill, Editor david@canadianunderwriter.ca
8
Canadian Underwriter October 2010
It is with a heavy heart that I commit this idea to paper, because we are all well aware of how much time, effort, dedication and consultation went into the most recent round of Ontario auto reforms. The government consulted stakeholders; took its time to get it right; balanced the needs and interests of all parties; implemented cost containment measures to help insurers get a handle on their claims costs; tried to explain clearly to policyholders what was going on; designed carefully-scripted messages that would help take some of the heat off insurance brokers in explaining the new product. For all of this, the government and the regulator should be applauded. But in our heart of hearts, most people in the industry must know these reforms aren’t going to work for long. That much seemed clear in a 15-minute presentation by trial lawyer John McLeish, senior partner at McLeish Orlando LLP, at the National Insurance Conference of Canada in Montreal in September. Simplifying his argument greatly, McLeish noted that “sprains,” as defined in the new Minor Injury Guideline (MIG), include torn ligaments and tendons. Since these injuries fall under the definition of a “minor injury” in the MIG, benefits payments for such injuries on the no-fault accident benefits side are capped at $3,500. McLeish argued these very same injuries would be considered “serious” on the tort
side. A construction worker with a torn anterior cruciate (ACL) or a rotator cuff (shoulder) injury, for example, could lose “hundreds of thousands” of dollars of lost income as a result of such an injury. This would meet the legal threshold of a “serious and permanent” injury under tort, McLeish argued. Upon hearing this, you could almost sense the industry saying to itself: “Here we go again.” These reforms are barely one month old, and already the hybrid no-fault/tort system in Ontario rears its ugly head. Contain insurers’ claims costs in accident benefits, and out these savings go in the form of tort (court) awards. Contain tort costs, and accident benefits costs run wild. The problem here is the business model: Ontario’s hybrid system of no-fault accident benefits and tort simply doesn’t work. There are too many avenues for money to flow out of the private insurer’s coffers. If there was ever a time to re-invent the wheel, this would be the time. Granted, the Insurance Bureau of Canada left no stone unturned when it approached the latest round of reforms. Nevertheless, its counsel, Randy Bundus, who moderated the very same NICC panel at which McLeish made his comments, clearly struck a chord with the audience when he asked the panelists: If you could design whatever auto reform system you wanted, what would it be? The insurance industry should be preparing its answer to this exact question in antic-
ipation of the next (inevitable) round of reforms. Bundus’ question prompted an interesting round of discussion about other private passenger auto insurance models — full tort, full no-fault, the Quebec model (insurers pay for the physical damage to the car; the government pays for health care), as well as the suitability of other private passenger auto insurance schemes in Alberta, New Brunswick, Nova Scotia or Newfoundland. Some have even wondered whether Ontario might go the way of the public auto model as seen in B.C., Saskatchewan and Manitoba. This discussion is healthy and essential for the future of the Ontario auto product, which accounts for a quarter of the country’s property and casualty premiums. The industry should conduct this debate right now. Why now? Because if some kind of consensus can be reached within the industry within the next two years, the new model — whatever it may be — will have the benefit of being a credible, well-researched, popular, thoroughly vetted, and perhaps even policyholder-sanctioned alternative that could replace the current hybrid system as early as the next round of reforms. It might be a social faux pas to suggest more effort is required when everyone is battle-fatigued from the most recent round of reforms. But the efforts made now to come up with a truly alternative model could have enormous payoff well down the road.
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Claims YOUNG, NEW DRIVERS HAVE A 41% HIGHER RATE OF CLAIMS Young and new drivers have a 41% higher rate of claims, according to Aviva Canada’s insurance claims data. Aviva data also show young and new drivers who received certified driver education are involved in 26% fewer accidents in the three years following the training. “This is perhaps even more significant, considering the average claim cost for a young or new driver is $8,661,” an Aviva release says. “That’s 44% higher than a driver with more experience.” Breaking it down by province, Aviva noted Alberta’s young/new drivers have the highest claim frequency in the country — 93% higher than experienced drivers. Nova Scotia follows with a 90% higher claim frequency and New Brunswick an 83% higher claim frequency. On the other hand, Newfoundland young/new drivers had a 35% higher claim frequency than experienced drivers. In Quebec, this figure was 37%, and in Ontario it was 39%. The days of the week also showed some interesting patterns, Aviva observed. Sunday saw the fewest occurrences. As the week progressed, instances steadily increased to a peak on Friday, when an accident involving a young/new driver is 52% more likely to occur.
10 Canadian Underwriter October 2010
HURRICANE EARL HITS HALIFAX The south and west ends of Halifax bore the brunt of Hurricane Earl’s 130 km-h winds on Sept. 4 Hurricane Earl was a Category 1 storm when the eye made landfall near Shelburne, Nova Scotia. The storm was downgraded to a tropical storm as it swept through, downing trees. Fallen trees knocked down power lines, causing power outages that affected about 220,000 customers, the Halifax Metro reports. All power has now been restored, the paper reports. Halifax Regional Municipality (HRM) further notes: “due to the recent power outages, there had been sewer overflows into several lakes and other water bodies in our region. The public is advised not to swim in the harbour, lakes and other watercourses for three days.” It is too early yet to determine insured damages.
A GOLF CART IS AN ‘AUTOMOBILE’: MANITOBA COURT Young and new drivers have a 41% higher rate of claims, according to Aviva Canada’s insurance claims data. Aviva data also show young and new drivers who received certified driver education are involved in 26% fewer accidents in the three years following the training. “This is perhaps even more significant, considering the average claim cost for a young or new driver is $8,661,” an Aviva release
says. “That’s 44% higher than a driver with more experience.” Breaking it down by province, Aviva noted Alberta’s young/new drivers have the highest claim frequency in the country — 93% higher than experienced drivers.
Canadian Market ALBERTA-INCORPORATED INSURERS ALMOST DOUBLE CONSOLIDATED NET INCOME Alberta-incorporated property and casualty insurers nearly doubled their consolidated net income from $18.3 million in 2009 H1 to $31.9 million in 2010 H1. The figures reflect results reported by: Alberta Motor Insurance Company; Canadian Farm Insurance Company; Fortress Insurance Company; Mennonite Mutual Insurance Company; Millennium Insurance Company; Peace Hills Insurance Company; and Trans Globe Insurance Company. Peace Hills Insurance Company showed the greatest year-over-year turnaround. The insurer reported a net loss of $503,000 in 2009 H1. That figure surged to a profit of $6.9 million in 2010 H1. Underwriting income also improved for this group of insurers. In 2009 H1, the group reported a consolidated underwriting income of $9.35 million. That figure grew to $14.5 million in 2010 H1.
CANADIAN P&C INSURERS DOUBLE THEIR 2010 Q2 INCOME Canadian federally regulated property and casualty (P&C) insurers more than doubled their Q2 net income in 2010 compared to the same period of 2009. However, the same cannot be said for their foreign counterparts, according to the Office of the Superintendent of Financial Institutions (OSFI). Canadian property and casualty insurers reported profits of $1.4 billion to OSFI in 2010 Q2, up significantly from 2009 Q2's net income of $642 million. Foreign property and casualty insurers saw their net income decline from $430 million in 2009 Q2 to $117 million in 2010 Q2. Although Canadian property and casualty reported strong gains in underwriting income quarter-over-quarter ($49 million in 2009 Q2 to $486 million in 2010 Q2), foreign insurers saw their underwriting profits turn to losses ($76 million profit in 2009 Q2 and a loss of $250 million in 2010 Q2).
HUB ACQUIRES SINCLAIR COCKBURN FINANCIAL GROUP Hub International Limited (Hub) has acquired the shares of Sinclair Cockburn Financial Group (SCFG), a Toronto, Ontario-based insurance and financial services firm with approximately $11 million in annual revenues. Under the terms of the ac-
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quisition, Hub has acquired the property and casualty, personal insurance and group/life insurance operations of SCFG, but not SCFG's mortgage and mutual fund business. Jim Aston, Kelly Sinclair and Jim Grieve, SCFG's three majority shareholders, will all join Hub as part of this transaction. Grieve, president of Sinclair Cockburn Financial Group, will become part of Hub Ontario's leadership team, reporting to Neil Morrison, president and CEO of HKMB Hub International Limited.
• policy offerings • billing/payment • claims In the interaction category, consumers indicated they were hearing less from their insurers than they
would like. For example, in 2010, 57% of policyholders indicated they were notified in advance of premium changes, compared with 63% in 2009.
Only 28% of policyholders indicated their insurance provider discussed coverage and discount options with them in 2010, compared with 43% in 2009.
Cunningham Lindsey offers expert claims handling for the most complex and specialized losses. To access our team of experts, write to us at corpservices@cl-na.com for a copy of our new Specialty Services Directory.
CANADIANS’ APPROVAL OF HOME INSURERS SLIPS Canadian consumers aren't as pleased with their home insurers as last year, citing a combination of premium increases and less frequent communication with their insurers, reports J.D. Power and Associates. Overall satisfaction with home insurance providers in 2010 averaged 735 on a 1,000-point scale, down two points from 2009, reports J.D. Power. "The decrease is primarily driven by a decline in satisfaction with the policy offerings factor, down 17 points from 2009," a release says. In its 2010 Canadian Home Insurance Customer Satisfaction Study, J.D. Power measures home insurance policyholder satisfaction with five factors: • interaction • price/premium
www.cunninghamlindsey.com
October 2010 Canadian Underwriter
11
IBAC
9/4/10
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Every night, millions of Canadians can sleep easy.
From coast to beautiful coast, the majority of Canadians depend on their Insurance Broker to advise them on their insurance needs; and they sleep well because of it. None of this would be possible without Insurance Brokers being able to work in the full knowledge that we can depend on the services of Canada’s highest calibre of insurance carriers to follow through with the coverage our customers need, the value they seek and the attention they deserve. The Insurance Brokers Association of Canada and our members are proud to count so many of the country’s renowned and trustworthy insurance companies as our friends and business partners. We value our shared commitment to the customer, and it is with heartfelt thanks that Brokers right across Canada pay tribute to the insurers we unhesitatingly recommend to clients, secure in the knowledge of your professionalism, cooperation and efficiency. Thanks to such partnerships, millions of Canadians can sleep easy, knowing that they, their families and all they possess, remain fully protected. Your Best Insurance is an Insurance Broker
IBAC
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Because they know they can rely on us. And we rely on you. 2010 Full Partners
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Participants
Lloyd’s Underwriters
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PROFILE
News Flash! Peter Burns to Become IBAO President David Gambrill Editor
Peter Burns, president-elect of the Insurance Brokers Association of Ontario, traces the connections between community newspapers and insurance brokers — and it starts with communication. During the insurance industry’s debate about recruitment and succession planning, some have said the insurance industry should consider poaching talent from industries with transferable skills. Like the community newspaper business, for example. The connection between insurance and community newspapers may elude many, but for Peter Burns, president-elect of the Insurance Brokers Association of Ontario (IBAO) and founder of the Tillsonburg Independent, the connection couldn’t be more obvious. Insurance is “a people business, and I was coming from a people business in the newspapers,” Burns says. “So the peo-
14 Canadian Underwriter October 2010
ple side of it really enticed me.” As a community newspaper founder, Burns was involved with the paper and in the community in many different ways. To help get the paper up and running, he sold lifetime subscriptions for $100 in the streets. He did writing, he produced the paper, he drove it to the printing press in Brantford and, for a time anyway, he even delivered the paper. Successful insurance brokers, he noted, have the same high degree of involvement in their communities. “You look around at successful communities and what happens in them?” Burns says. “Insurance brokers always play a large part in that community. It could be through sponsorships, or by means of the presence of financial leaders in the community. When you look at the boards of the local hospitals, or the minor hockey associations or the golf course or the school councils, I guarantee you will find brokers in every successful community in Ontario.” Backing up a little, Burns came to the media by way of finance, which in itself isn’t an obvious career trajectory. Burns was born and raised in Toronto and went to the University of Waterloo, where he worked on a degree in Economics and Geography. He graduated with a Bachelor degree in Envi-
ronmental Studies. At University he met his wife-to-be, Lynne. Burns went on to work for four years in branch management at the Bank of Montreal in London, Ontario, between 1979 and 1983. Along with a business partner, Lynne’s father, a former president of both the Ontario Community Newspaper Association and the Canadian Community Newspaper Association, owned six or seven community newspapers in the Tillsonburg area of southwestern Ontario. The pa-
Insurance is a people business and I was coming from a people business in the newspapers. So the people side of it really enticed me. pers covered areas such as Ingersoll, Port Colborne and Paris, to name a few. “[Lynne’s father’s business] partner decided they wanted to slow down a little,” Burns says. “So the partner’s son and myself both started the same day working with them in 1983, and that’s when we moved back to Tillsonburg. Largely, I was very much in favour of [the move] because the community is a fabulous place to live and it’s a pretty place to
bring up a family.” Burns acted as vice president of finance in the family-owned newspaper business because of his financial background. A few years later, the family sold its interest in the papers to a larger company. [Now it is owned by Sun Media.] One year after that sale, the new owner said the company no longer wanted the family in the business anymore. “So within two weeks, we had a new newspaper on the street called the Tillsonburg Independent that we started from scratch,” Burns recalls. “That was one of the greatest experiences starting a business like that from scratch. For seed money, we sold lifetime subscriptions. And honest to goodness, we had people running up to us on the street and giving us cheques for $100 for a lifetime subscription. It was fun, it was a lot of fun.” Still, at some point Burns realized the newspaper would not grow large enough to suit his preference. At that time, he started to see if another kind of business opportunity would keep him in Tillsonburg. “So I was contemplating where I wanted my life to go at that point and was actually having lunch with a friend of mine that I met, an older gentleman in Tillsonburg,” Burns recalls. “I was explaining that we’ve got
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these babies and I want to bring them up in Tillsonburg, and I’m looking for something. And he said, ‘Well, have you ever thought about my business?’ And I said, ‘No.’ And within a week, I owned half an insurance brokerage. I bought half of his brokerage, and then he retired two years later.” The learning curve was definitely steep. Within a year of buying the brokerage, Anderson & Banner Ltd., Burns had obtained his Level 2 broker license. The business acumen he acquired through owning and founding newspapers helped him with aspects of his education that gave other licensees trouble. “For me, in the level 2 licensing, the easy part of it was the management side,” he says. “Usually with brokers, it’s the other way around. The hard part for me was the insurance knowledge.” When he bought into the brokerage, Burns worked with two other people. Now, after four different mutations through mergers and acquisitions, the brokerage (now called Burns Meyer Associates) has 13 employees and does a business volume of $100 million. The operation is split about 60-40 between commercial and farm insurance lines and personal lines. Burns became involved with the Oxford County Insurance Brokers Association, an IBAO af-
filiate, in the 1990s. He did a four-year term as president of the Oxford association. During this time, two territory directors, Dan Danyluk (now executive director at the Insurance Brokers Association of Canada) and Randy Carroll (now executive director at IBAO), asked Burns to consider moving up the ranks. But the timing wasn’t right in terms of raising his family. Later, after his children reached a certain age, Burns made the leap with the support of his wife, Lynne. Needless to say, given that his entire professional and personal life have revolved around the importance of family, Burns says
succession planning is a key issue for him as incoming president of the IBAO. “Obviously succession planning is important to me,” he says. “Succession planning is one of my key goals, something I would like to see us work hard on.” Planning and preparation for the 2012 Bank Act review is another given. Burns said this review will be held against the backdrop of the financial crisis of 2008-09, which revealed to regulators in other jurisdictions the perils of banks having their fingers in too many financial pies — including insurance. And of course, there is On-
tario’s auto reform, which allows consumers to a certain extent to customize their insurance product by making certain benefits and coverage optional. For Burns, implementing the new reform package represents a golden opportunity for brokers. “This takes this product, which was very much going towards being a commodity that could be bought with a click of a finger, without advice, back into an advice-based product,” he says. “That is our bailiwick. That’s what we do. Every one of us is a communicator.” Spoken like a true newspaper man.
October 2010 Canadian Underwriter
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Drawing a Line in the Sand
Rick Hynes
President and CEO, Willis Canada Inc.
Who do you really work for? That’s a question all insurance buyers should ask of their brokers. Most insurance buyers assume their broker works for them. They hire a broker to get them the best coverage at the best price; when a claim is filed, they expect their broker to be their advocate and fight for them to achieve the best outcome with the insurance carrier. That’s the expectation. But the reality could be different. How a broker gets paid may show where its loyalties lie. Brokers are typically paid a commission based on a percentage of the premiums the client pays to the insurance carrier. That compensation works best when it’s upfront and completely transparent to the client. The problem is, thousands of brokers — and if you are a risk manager, yours may be one of them — also accept year-end bonuses from insurance companies that are contingent on premium volume and profitability. These backdoor payments, known as contingent commissions, are paid on the broker’s entire book of business with the carrier. If premium volume for the year has gone up, a special bonus is often paid. If profitability is higher — that is, the level of claim payouts is lower — the broker can also be rewarded.
16 Canadian Underwriter October 2010
Who, indeed, is the broker working for when it accepts contingent commissions? Given the potential conflicts, it might not be the client alone.
SERVING ONE MASTER Brokers should only serve one master. It’s either the carrier or the client.They shouldn’t work for both. You wouldn’t hire a law firm if your attorney had a financial stake in the other side of a case. Willis has long opposed contingents because we believe they are at odds with the fundamental obligation that retail brokers have to advocate for their clients when they have a claim, and to secure for clients the product with the best terms, conditions and price. For us, it’s clients before contingents every time. When a broker accepts a contingent commission from a carrier, it has a certain incentive to place its client’s business with that carrier, rather than consider the full range of options for the client. If the broker takes a profitability contingent, it may not pursue a client’s claim with the same vigor and tenacity that it should. And if a pending claim happens to get bogged down until the next year, it only serves to help the calculation for this year’s profitability bonus.
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Opinion/Analysis
Insurance buyers should be asking their brokers: For whom do you really work — insurance carriers or buyers?
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The conflicts of interest should be obvious. Those conflicts were widely exposed in 2004 with an investigation by state attorneys general and insurance regulators in the United States that resulted in a ban on contingents for the four largest brokers in 2005.The situation is different in Canada, where contingent commissions are an accepted practice in the insurance industry. Just because that’s the way business has been done doesn’t make it right.
U.S. BAN ON CONTINGENT COMMISSIONS The ban in the United States imposed on the four brokers still left thousands of other brokers free to take contingents. It also created an unlevel playing field. Brokers who accept contingents could offer lower up-front commissions, knowing they could make it up on the back end with bonus payments from carriers that probably wouldn’t be noticed or questioned. Even before the ban,Willis put a stake in the ground by voluntarily refusing to accept
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contingent commissions in its retail brokerage business — the only broker to do so. A rule change announced earlier this year has allowed the big brokers to once again accept contingents. As a result, contingents have made a comeback in the United States Willis, for one, will remain steadfast in its opposition to contingents. We have planted our flag firmly on the side of our clients. And that means not taking incentives from insurance companies that would put us in direct conflict with our clients’ best interests. Other brokers are less than clear on this point. Marsh said it would refuse contingents, but a closer examination shows that prohibition applying to only a small portion of its brokerage business. Aon, for its part, said it would resume accepting commissions “where appropriate and legally permissible.” The fourth-largest broker, Gallagher, came out early and said it was going back to its old ways and would accept contingents after Illinois regulators gave it the green light last year.
These positions fly in the face of what clients say they want from their brokers. In a recent poll of commercial insurance buyers, more than 70% said contingent commissions represent a conflict of interest. Our stance against contingents has helped us retain clients and win new
ones who share our view and want their broker to operate in a contingent-free zone. Some brokers argue that simply telling clients about the contingents they take eliminates the conflict. But no amount of disclosure will change this fact: when brokers accept contingents, they are given an incentive to work in the interests of the carrier. Others are quick to point out that clients can “opt out” if they don’t want
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their broker to accept contingents. But it’s not that simple. Since contingents are paid annually on a broker’s entire book of business, the cost to the individual buyer can’t be known until months after the insurance is purchased. Even then, the accounting
is so opaque that the true cost can’t be determined without an extensive forensic examination of the books.
BACKGROUND A topic of debate since 2004, contingents have been around for a long time before that. They started when insurance was predominantly a local business: carriers sold policies through their own locally based salaried employees
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— the first insurance agents. Over time, a new business model emerged in which agents took appointments from multiple insurers — the so-called independent agents. This system worked well for insurance companies because it allowed them to trim their salaried sales force and shutter local offices. But it led to a new problem: how to encourage these independents to sell policies with equal gusto as their captive or salaried agents. That led to the rise of new forms of incentive compensation, including contingent commissions. As carriers relied increasingly on independent distribution, they widened the incentive programs to include producers of all kinds — including brokers who were supposed to be working for the insurance buyer. This is where agents and brokers differ. Whereas brokers should act purely on behalf of their clients, agents are legally bound to represent the carrier. Willis has some businesses in which it acts as an agent for the insurer for spe-
cific products and programs.These relationships are fully disclosed to the insureds and are separate from our core retail brokerage business. When Willis acquired Hilb Rogal & Hobbs in 2008, we inherited HRH’s contingent program with the understanding that we would phase it out over three years. Rather than take these incentives for 36 months and protect HRH’s legacy contingent arrangements, we moved quickly to convert to upfront commissions.As a result, we took another big broker out of the contingent game. Contingent commissions are a hard habit to break for brokers. They won’t fade away by themselves, and a regulatory fix is unlikely. So it falls on insurance buyers to vote with their wallets and ask their brokers to refuse these bonuses. The answer to the contingent commission problem lies in information and education. It’s our hope that armed with greater awareness, insurance buyers will be able to ask the ultimate question of their brokers: For whom do you really work, us or the insurance company?
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Partnership
Taking Opinion/Analysis
Randy Carroll
CEO, Insurance Brokers Association of Ontario
out of Affilation
A basic fine-tuning of the Unfair or Deceptive Acts or Practices regulation was intended to clarify the lay of the land for brokers and consumers. So why did it lead instead to insurance companies revamping their affinity models? I am somewhat surprised by the direction some insurers have taken here in Ontario related to the new auto reform changes. Over the past few weeks, I have heard from member brokers and insurers alike and, for the most part, the conversation revolves around the Unfair Deceptive Acts and Practices (UDAP), specifically the affiliated company guidelines contained within the regulation. The section causing the greatest concern requires notice to be given to the consumer if a better rate is available with an affiliated company for which they would qualify in accordance to filed rates and rules. The best example of this would be an insurer family that offers a standard and substandard rate — i.e. Economical and Perth, or Pembridge and Pafco. In years gone by, this model was the
20 Canadian Underwriter October 2010
“gem” of the industry. It operated in such a way that the workflow was made easy for the broker. More importantly, the policy renewal was handled with the best interests of the consumer in mind. So how did it work? If I was a policy holder who had a not-so-stellar driving record, I would qualify in accordance to filed rates and rules for the sub-standard affiliated company and not the standard company. My policy would be written accordingly.The beauty of this is that, in the past, if my driving habits improved, and if I found myself now qualifying for the standard company’s rates according to their filed rates and rules, I would be automatically offered the better of the two rates and given an option to change companies. Brilliant, and my understanding is that the UDAP has now mandated this arrangement to be the norm. Unfortunately, in recent years, the “automatic transfer” feature disappeared. Insurers reverted back to onerous workflows that did nothing for the consumer and resulted in increased cost for the brokers representing them. Just after the UDAP guidelines were released, I can recall having a discussion with a number of brokers. Some believed the lost efficiencies might be re-introduced.To me it made sense: the previous model was proven, it worked and it would allow insurers to be compliant with the new regula-
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tions without having to invent something new. But what we see happening today is nowhere near what I described above. Instead of providing efficiencies that would drive cost down and prioritize the consumers’ interests, insurers are non-renewing consumers that would qualify for the standard affiliated company.This forces brokers to re-write the business manually with that same affiliated company. As a business owner and broker, I am forced once again to question my brokerage’s relationship with the insurer and ponder the definition of “partner.” As a consumer, I can rest easy knowing my broker is there for me regardless of the insurer’s actions. I will be taken care of and afforded the rates I deserve. As a regulator, I would be asking myself, ‘Why?’ Was the intent of the regulation not clear? Does it need to be re-written? If so, what does it need to look like to accomplish what it was intended to do? Now let’s look at companies that operate an affiliated company model, whereby both of the affiliated companies write what would be considered standard business. Our members are telling us insurers are deciding to withdraw one of the affiliated companies’ contracts, or entirely removing binding authority, instead of working with the regulator (through the filing process) and their brokers (through the renewal process) to be compliant. One insurer has decided simply to withdraw one of its affiliated companies from the market in order to maintain a consistent approach with all of its brokers. Another has decided to change its multi-company model to a single-company offering, reflecting their previous model. In order to best understand these actions, I went back to look at the section of UDAP that applies to affiliated companies. Did I miss something? • Does it say that as an insurer you had to decide to dissolve an affiliated company model? No. • Does it say an insurer has to move a
22 Canadian Underwriter October 2010
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policyholder from one affiliated company to another if they now qualified? No. • Does it say the consumer has to be offered a quote for an affiliated company if the consumer did not qualify for that company in accordance to the company’s filed rates and rules? No. • Does it say insurers have to manage this process on their own, and the broker is not expected to participate? No. • Does it say the consumer has to accept
The UDAP says if an insurer operates an affiliated company model, and the insurer’s broker has access to both of the affiliated companies, the consumer must be advised if a lower rate was available through the other affiliated company in accordance to their filed rules and rates. the lower-priced offer and change insurers? No. The UDAP says that if an insurer operates an affiliated company model, and the insurer’s broker has access to both of the affiliated companies, the consumer must be advised if a lower rate was available through the other affiliated company in accordance to their filed rates and rules. So why as a result of this change are we seeing insurers withdrawing from the marketplace, resulting in thousands of consumers facing non-renewals? For one thing, think of the strain it puts on the frontline broker and the brokerage staff. As a broker, once again, I am now forced to go to market on behalf of my consumer. I must now add a layer of conversation in an effort to explain the insurer’s action, as well as why I initially recommended the specified insurer as the insurer of choice. Did anyone think of what this does for my credibility as a broker? This conversation will not be an easy one. Hopefully I
will get a chance to have it, since my customer has now been given a reason to look elsewhere. Again, I question the definition of partner. So what should have happened? Simply, insurers should have offered to work with the brokers and give the brokers an opportunity to assist the insurers with their system issues, if they existed, in order for them to be compliant. Each broker to whom I have spoken is willing to assist the insurer with the “offer” requirement until system issues were resolved. When you think about it, what broker does not do this now? Brokers shop renewals and make alternative offers on a regular basis. It is a pivotal part of their business operations. When I look at what has happened, it makes no sense why this has happened the way it has. So what’s missing? Why are insurers deciding to abandon their multi-company brands instead of filing their way out of the mess they are in? Yes, for a company, it may be as simple as that — filing. If I am insured with company A, and company B has a lower price but I do not qualify, then there is no requirement for an offer to be made. Would I agree that some insurers might consider themselves as victims of a ruling that was not intended for them and way they do business? At first, my answer was yes. But when I started to hear of at least one insurer blaming either FSCO or IBAO for their affiliated company demise, it really made me think: Why did insurers abandon years of work and not continue to work towards maintaining their affiliated offering? What was happening behind the scenes of which we were not aware and that caused them to walk away? Why were some not willing to work with their brokers to make sure that the consumer was made aware of the choices that were available to them? Next time your company representative is in your office, ask them why they choose not to file their way out, in order to maintain a viable affiliated company model. If you get an answer that makes sense, please share it with me.
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A Big Catch Mike Berris
Founding Partner, Principal, Berris Mangan Chartered Accountants, and Berris Mangan Consulting Inc.
In our 20 years working with insurance brokerages throughout Canada, we have often been asked the question: “How do I improve my operating results?� The question usually arises after seeing a competitor buy a new boat, or upon hearing the news that a daughter has been accepted to Columbia University in New York without a scholarship. One simple answer is to sell more insurance. We all know that this is easier said than done. Thus, brokers might benefit from a report providing them with industry benchmarks from which to compare their performance.We wanted to generate academic-style research, not simply create a promotional tool. Our objective was to identify the strategies used by top brokers that resulted in improved profitability.
24 Canadian Underwriter October 2010
METHODOLOGY After more than a year of work, the Berris Mangan Insurance Consulting team recently completed the fourth edition of the 2010 Property & Casualty Insurance Brokerage Industry Report. The report surveyed brokerages throughout the country. Participants provided their internal operating results as well as completed a written survey. In total, 285 brokerages provided details of their income and expenses. Total income ranged from $25,000 to more than $9 million on an individual branch basis. Operating profit margins also varied greatly from a 500% loss to a profit margin of 76%.
OVERALL RESULTS As a starting point, let’s look at the average operating results from our fourth edition (Please see Table 1 on Page 28). The average brokerage office earned an operating profit before income taxes and amortization of 30.6%. We felt it was important to attempt to understand how industry profitability affects the behavior of industry participants.What trends are emerging based on how profit is being allocated amongst industry
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participants? One might say outcomes affect behavior, which in turn affects future outcomes.This is the basis for all industry cycles. Here are some of our observations: • higher prices paid for brokerages are requiring better management discipline in order to get an adequate return on one’s investment; • books of business are being consolidated, creating more market clout. This increases revenue and underwriting capacity. Such a dynamic gives larger brokers a competitive advantage; and • the insurance industry is a classic mature industry: market growth is only slightly higher than the rate of inflation. Market participants can only achieve meaningful growth through acquisitions and price competition. We have seen this in action, with a five-year soft market and an unprecedented number of acquisitions.
Higher prices paid for brokerages are requiring better management discipline in order to get an adequate return on one’s investment. TRENDS IN THE INDUSTRY We all understand the distribution of property and casualty insurance is consolidating through mergers and acquisitions. As this happens, other industry players will react to these changes. We are seeing the following trends emerge: • direct writers are actively testing new methods such as affinity programs and narrowly directed marketing programs; • agency arrangements such as those offered by State Farm and Cooperators will grow. They are offering young entrepreneurial brokers the ability to participate in the industry without significant capital; • larger brokerages are generating income from life insurance and financial products. • insurance companies are continuing to fund acquisitions and shareholder buyouts, but with retention and growth
26 Canadian Underwriter October 2010
conditions attached; • large U.S. brokerages are looking to move into Canada in search of greener pastures; • highly skilled underwriters and brokerage employees will enter the market by starting niche brokerages; and • managing general agencies are thriving: they are filling capacity and underwriting needs the domestic market cannot or will not service.
PROFITABILITY ANALYSIS Our research divided and analyzed the sample group into various categories, including the size of the brokerage, the province in which it operates and profitability.We were particularly interested in analyzing characteristics influencing profitability. As a starting point, we looked at brokerages earning more or less than the sample average. (Please see Table 2 on Page 30.) On first glance, 126 (44%) of the respondents had results greater than the average profitability of 30.6%. More importantly, these brokerages earned profits of 41.1%. This is a 26.6% better return on sales than the 159 brokerages performing below average. These differences appear dramatic, but
it is important to separate management issues from market or structural issues. Brokerages generally have a number of fixed and semi-variable expenses that are incurred regardless of commission volume. For example, a brokerage open 9 a.m. to 6 p.m., Monday to Saturday probably needs 4.5 full-time equivalent employees. In other words, it comes down to volume. In most Canadian towns, a brokerage office will have difficulty making a profit with commission income under $350,000. We see how this drives consolidation: larger, multi-branch brokers can often bring efficiencies to bear, thus reducing costs or increasing income. In analyzing characteristics affecting profitability, we need to understand what enhances or diminishes profitability. Successful strategies exist in every market. Some of our major observations include: • expense management has an obvious effect on profitability, but a significant difference to profitability did not appear between brokerages of similar size. • automobile and personal lines commission mix is closely correlated; it is
Agency arrangements such as those offered by State Farm and Cooperators will grow. They are offering young entrepreneurial brokers the ability to participate in the industry, without significant capital. dependent on certain local economic statistics. Commercial sales tend to drive profits for brokerages with commission income of more than $800,000. • brokerages at the top end of the profitability range tend to look the same, in that they have centralized renewal systems, established programs and a dedicated management group. On average, brokers with more than 10 offices earned more than 40% of their operating income through sales; and • an office with sales in the $1-million range tended to be the most effective in
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terms of labour costs. This volume allows for a better segregation of duties and allocation of work. Both the above-average and below-average performers had an average number of full-time equivalent employees of slightly fewer than nine people. But the below-average performers produced $85,004 of revenue per employee, compared to $134,586 of revenue per employee for the above-average performers. This tells us that productivity is the largest contributor to profit. Our report has more specifics on different aspects of employee productivity. For example: • the top 25% of brokers track profitability by department and measure
Table 1
Average Operating Results Total Sample Size: 285 2009 Sample $ % Income Auto $336,534 35.9% Personal Lines $312,848 33.4% Commercial Lines $207,555 22.1% Contingent Profit $34,099 3.6% Other $46,283 4.9% Total Income $937,319 100.0% Total Personnel $454,109 48.4% Total Premise $64,883 6.9% Total Data Processing $11,708 1.2% Total Marketing $28,055 3.0% Total Administration $91,808 9.8% Total Expenses $650,563 69.4% Operating Income $286,756 30.6%
28 Canadian Underwriter October 2010
employee productivity; • advertising and promotion does not appear to correlate directly with overall profitability and sales growth. Highprofit brokers concentrate marketing on large-client entertainment; • 86% of above-average brokerages hold employees responsible and tie wage increase into performance goals. Only 18% of below-average brokerages do this; • brokerage offices with more than $1 million in sales earn 67% of all available profits; • small brokerage sales are not keeping pace with cost increases; • 89% of all above-average brokerages employ commissioned producers, paying an average of 45% on new business and 35% on renewal; • wages for above-average brokerages are $6,000 higher than they are for the below-average group; and • the most profitable brokerages don’t share overall results with employees. Instead, they focus on department and individual production and processing goals.
It is important to understand what compels brokerages to make changes to improve their business model. The answer is simple. Necessity drives change. That is, people or organizations will not change unless they are forced to. THE FUTURE It is important to understand what compels brokerages to make changes to improve their business model.The answer is simple. Necessity drives change. That is, people or organizations will not change unless they are forced to. Some factors influencing change in the delivery of insurance include (but are not limited to) the following: • many mid-tier brokerage owners will be retiring in the next five years. In order to finance the transfer, new owners
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driver of profitability. Larger brokerages and insurance companies will find new ways to develop employee skills through internal and external training. Organizations such as IC3 and Sikkens International have developed excellent training and staff development programs. Never underestimate the ability to survive and thrive in any market conditions. There are changes coming in the industry, but there won’t be anything happening that the brokerage industry cannot handle.
will have to introduce better systems; and • brokerages will need more flexible markets. This will increase the demand for managing general agent markets until brokers are able to develop underwriting facilities beyond the traditional Lloyd’s brokerage model. Going beyond the traditional brokerage model will require more volume and continue to encourage consolidation. The quality and engagement of personnel is the single most important
Table 2
Average Results Comparison by Profitability Level Sample Size: 285 159 126 Profits <30.6% Profits >30.6% Average of Sample Average of Sample $
%
$
%
Income Auto
$299,640 40.1%
$383,090
32.5%
Personal Lines
$251,980 33.7%
$389,658
33.1%
Commercial Lines
$130,900 17.5%
$304,287
25.8%
Contingent Profit
$23,549
3.2%
$47,413
4.0%
Other
$40,988
5.5%
$52,965
4.5%
Total Income
$747,057
100%
$1,177,413
100%
Total Personnel
$431,912 57.8%
$482,120
40.9%
Total Premise
$61,902
8.3%
$68,646
5.8%
Total Data Processing
$12,352
1.7%
$10,895
0.9%
Total Marketing
$29,748
4.0%
$25,920
2.2%
Total Administration
$80,630
10.8%
$105,914
9.0%
Total Expenses
$616,544
82.5%
$693,495
58.9%
Operating Income
$130,513
17.5%
$483,918
41.1%
30 Canadian Underwriter October 2010
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Update from Nova Scotia Ken Myers
President, Insurance Brokers Association of Nova Scotia (IBANS)
The Insurance Brokers Association of Nova Scotia (IBANS) has participated in a number of community events and hot-button issues in 2010, including changes to the province’s auto cap. The year 2010 has been an active year in the life of the Insurance Brokers Association of Nova Scotia (IBANS). The following is a brief overview of the issues on which our broker association has been working.
AUTO INSURANCE As in Ontario, auto insurance issues were very much in the news in 2010. The government introduced changes to our minor injury cap, resulting in an increase in the province’s minor
32 Canadian Underwriter October 2010
injury limit from $2,500 to $7,500. Changes included amendments to definitions — for example, amending the definition of “minor injury” to mean strains, sprains and whiplash-associated disorders, mirroring the definition used in Alberta — as well as the introduction of an indexing feature. These changes were consistent with some of the suggestions IBANS put forward. It will take time to determine what impact the definitional changes and the cap limit have on the product. Based on feedback from IBANS broker members, as well as discussions with the province’s minister of finance, auto insurance has been a non-issue for the public both leading up to and since the changes took effect. A full review of the automobile insurance product in Nova Scotia is planned, with a report to be tabled by the end of the current fiscal year in April 2011. IBANS, along with other industry
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Based on feedback from IBANS broker members, as well as discussions with the province’s minister of finance, auto insurance has been a non-issue for the public both leading up to and since the minor injury cap changes took effect.
stakeholders, will be part of the com- and consumers. The continued support of members in this role is most defimittee that has input on the report. nitely a critical component. Becoming active can be as simple as attending an POLITICAL ACTION In my time working with both IBANS event for your provincial or federal repand our national federation, the Insur- resentative. For many insurance brokers, ance Brokers Association of Canada this role does not come naturally. Being (IBAC), it has become clear our govern- a friend to all is what we do for a living. ment leaders both in Halifax and Ottawa However, in the political spectrum, suplisten to and are very interested in our porting our elected officials and those opinion. The benefit of a larger voice is seeking elected office is a role in which not something any one of us could we as brokers must continue to engage. achieve alone. This statement is just as true in Nova Scotia as it is in Ontario. INSURANCE INDUSTRY In Nova Scotia, we are fortunate to ACHIEVEMENTS have an open and active role with our IBANS and its members participated in regulators and political leaders. Speak- a socio-economic study commissioned ing personally, I am fortunate to have by Nova Scotia Business Inc. and the had numerous meetings in recent Greater Halifax Partnership, published in March 2010.The intent was to study the current and future impact of Nova Scotia’s insurance sector. Being a report Becoming active can be as partner, IBANS secured the participasimple as attending an event tion of its members, resulting in a valufor your provincial or federal able document detailing everything from average weekly earnings to fiverepresentative. For many inyear employment trending to taxes gensurance brokers, this role erated by our sector in Nova Scotia. does not come naturally. We were very pleased by the willingness of our members to participate. We are months with our superintendent of excited about the final product and the insurance, our premier, minister of fi- powerful information it gives us in pronance, as well as a number of Members moting the benefits of our industry to of Parliament and Senators both in Ot- stakeholders. April of 2010 saw the third annual tawa and at their constituency offices. Stephen MacNeil, the leader of the Insurance Brokers Month in Nova ScoLiberal Party of Nova Scotia, is attending tia. This event included a proclamation our October 2010 board meeting. This by Premier Darrell Dexter, a graduation means all three of our province’s party and awards banquet, as well as our MLA leaders and our superintendent of insur- dinner. The hosting of these events in ance, Doug Murphy, have attended an April gives us the chance to publicize IBANS board meeting over the past year. our achievements and remind our We plan to enhance this role as polit- elected officials of the valuable service ical advocate on behalf of our members brokers provide Nova Scotians. During
34 Canadian Underwriter October 2010
Broker Month, IBANS held its third annual Insurance Awards Dinner, at which six awards were presented to individuals or organizations that exemplified top-class performance.
REGIONAL COLLABORATION IBANS has long enjoyed an excellent relationship with our sister association in Atlantic Canada, and in particular New Brunswick. This past year, we had three meetings with the president and executive director of the Insurance Brokers Association of New Brunswick (IBANB) to discuss a number of regional issues and to update one another on what is happening in our respective provinces. At one of those meetings, the Insurance Brokers Association of PEI and the Insurance Brokers Association of Newfoundland also participated. Continuation of these meetings will ensure that strong relationship is maintained.
Apology and Correction Canadian Underwriter incorrectly and inadvertently identified Insurance Brokers Association of Canada (IBAC) president Fraser Lyle as ‘Lyle Fraser’ in the deck of its September 2010 profile of Lyle, as well as in the Table of Contents page. (‘Bridging the Gap,’ Canadian Underwriter, September 2010.) These errors were embarrassing to commit, and Canadian Underwriter extends its most sincere and humble apologies to Fraser Lyle for making them.
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Crediting Unlicensed Reinsurance
Part II of a two-part series
Robert McDowell Financial Institutions and Services Group, Fasken Martineau Dumoulin LLP.
Koker Christensen Financial Institutions and Services Group, Fasken Martineau Dumoulin LLP.
This is the second part of a two-part series summarizing recent regulatory developments relating to reinsurance. The first part, published in the September 2010 edition, analyzed Guideline B-3–Sound Reinsurance Practices and Procedures. The second part, below, considers the Draft Guidance for Reinsurance Security Agreements, which establishes a new regime for obtaining a capital/asset credit in connection with unregistered reinsurance. Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), released a Draft Guidance for Reinsurance Security Agreements in August 2010. The document establishes the new regime for obtaining a capital/ asset credit in connection with unregistered reinsurance. The current regime requires federally regulated insurers to enter into reinsurance trust agreements to be eligible for a capital/asset credit in respect of unregistered reinsurance. OSFI’s new approach will require cedants to enter into a reinsurance security agreement, ensure that a collateral agent in Canada is holding the collateral and ensure that the cedant has a valid first-ranking security interest in the collateral. Also, cedants will have to provide a legal opinion addressed to the cedant and OSFI regarding the security interest.
36 Canadian Underwriter October 2010
With respect to newly entered arrangements, OSFI expects insurance companies to follow the draft guidance beginning Jan.1, 2011. OSFI expects existing arrangements to have been replaced by reinsurance security agreements by Jan. 1, 2012. OSFI is accepting comments on the draft guidance until Oct. 1, 2010. OSFI will permit a capital/asset credit for reinsurance security agreements in situations in which the following criteria are met: • assets of an unregistered reinsurer are pledged to the cedant to secure the payment of the potential liabilities of the reinsurer under a reinsurance agreement pursuant to a reinsurance security agreement made under provincial law; • pledged assets are held in Canada by a collateral agent (which must be a Canadian financial institution that is not affiliated with the unregistered reinsurer); • all documents are binding on the parties and legally enforceable in all relevant jurisdictions; • the necessary steps have been taken to create and maintain a valid first-ranking security interest in the collateral in the cedant’s favour by the unregistered reinsurer; • the cedant has the right to liquidate or take possession of the collateral in a timely manner in the event of the default of the reinsurer; • if the pledged assets are financial assets to
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which securities transfer legislation applies, the collateral agent obtains control of these assets on behalf of the cedant; • the cedant provides OSFI with a legal opinion addressed to the cedant and OSFI; • the credit quality of the reinsurer and the value of the collateral must not have a material positive correlation (e.g., securities issued by the reinsurer or a related entity are ineligible); and • the cedant must have clear and robust procedures for the timely liquidation of collateral.
OSFI’s new approach will require cedants to enter into a reinsurance security agreement, ensure that a collateral agent in Canada is holding the collateral and ensure that the cedant has a valid first-ranking security interest in the collateral. Cedants will also have to provide a legal opinion addressed to the cedant and OSFI regarding the security interest. OSFI’S EXPECTATIONS The draft guidance says cedant companies are expected to approve assets pledged or withdrawn. In addition, the guidance lists certain provisions that OSFI expects will be addressed in a reinsurance security agreement. The draft guidance also sets out matters to be addressed in the legal opinion addressed to the cedant and OSFI. For example, the opinion is required to be provided by a lawyer with expertise in personal property security legislation in the province where the assets are held. If the chief agent is the cedant’s legal counsel, the cedant should seek a legal opinion from outside legal counsel. If a ceding company provides an opinion from in-house counsel, OSFI expects the opinion will state it is provided by counsel in his or her professional capacity as a lawyer and not in any other capacity. OSFI will continue to require ceding companies to obtain approval of the removal of pledged assets to obtain an asset credit for assets that are not listed in Schedule A or for any transaction involving foreign currency assets. As is currently the case, reinsurers will be permitted to withdraw assets provided that, prior to or simultaneously with such withdrawal, the withdrawn asset is replaced with assets listed in Schedule A of at least equal market value. The draft guidance also states OSFI will require monthly reporting regarding the market value of assets subject to each reinsurance security agreement.
38 Canadian Underwriter October 2010
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MBA Class of 2011
Breaking new ground, effective September 2011, brokersâ&#x20AC;&#x2122; training programs, designations and experience will provide brokers access to an online MBA program offered by Laurentian University. DAVID GAMBRILL
40 Canadian Underwriter October 2010
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“Ladies
and gentlemen, insurance brokers and their families, please welcome the Class of September 2011. This is indeed a commencement address in its most literal sense. For the first time ever, brokers will have their professional training and experience give them access to Laurentian University’s online Masters of Business Administration (MBA) and Honours Bachelor of Commerce (HBCom) programs. [Wait for applause.] “You know, addresses such as this one usually commemorate students for completing their academic requirements and then commencing to use this acquired knowledge in their daily lives. But this is a different kind of commencement address.This address signals the beginning of an academic program that has been at least four years in the making. It signals a long effort by Canadian insurance brokers across the country to deliver valuable, business-oriented education. By all accounts in broker circles, this Master’s program is described to be accessible, affordable, flexible and marketable. It is designed to help bettereducated brokers gain an edge in their quest to perpetuate their brokerages, be they in commercial or personal lines. This is the story of how brokers gained tailor-made access to Laurentian University’s online MBA and HBCom programs. [Cue music: ‘Pomp and Circumstance.’]
October 2010 Canadian Underwriter
41
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MBA Class of 2011 MBA PROGRAM FOR BROKERS Starting in January 2011, applications will be accepted for brokers to enroll in Laurentian University’s online MBA and HBCom courses. The deadline for applications will be March 2011, and the inaugural program will begin in September 2011. Laurentian University administers the program and has control over who qualifies for the online MBA and HBCom programs. Anyone can apply for the programs, not just brokers. The real coup for brokers is that, for the first time, Laurentian University is recognizing brokers’ professional experience and training designations to qualify brokers for entry into the online MBA program. Brokers wishing to enroll in the MBA program must be members in good standing with their provincial broker associations. They must have successfully completed a university degree or, alternatively, have a Canadian Accredited Insurance Broker (CAIB) or a Canadian Professional Insurance Broker (CPIB) designation with at least a 75% academic standing. One additional wrinkle is that work experience may count towards qualification. For example, up to 25% of the online class might be accepted under the ‘mature student’ category. This would apply to managerial-level brokers who have completed their CAIB or CPIB training, but who may not have the prerequisite university degree. (Usually the percentage of students admitted under the mature student category is 10%.) Expanding the mature student category effectively gives weight to the professional experience of brokers who have 10 or more years of experience in the field. [Note they must still fulfill the CAIB/CPIB requirement.] It should be noted that for the past five years, chartered accountants have had a similar kind of arrangement with the university as brokers do now, in terms of having their professional courses recognized by the university. For brokers, having the CAIB/CPIB designations recognized for qualification into the MBA program represents a feather in the cap for the Insurance 44 Canadian Underwriter October 2010
Brokers Association of Canada (IBAC), which offers the designations. “It speaks tremendously to the quality, content and structure of the courses of the CAIB and CPIB program that a recognized Canadian university has looked at them and said, ‘Right, these are worth ‘x’ number of credits to a graduate level degree and to an undergraduate level degree,’” said John Penny, one of many IBAC committee members who have worked tirelessly to bring about the MBA program. “That speaks volumes.That’s unique.” Laurentian’s 60-credit online MBA program is approved by the Ontario Council on Graduate Studies (OCGS). It offers courses in management science, accounting, finance, organizational behaviour, marketing, operations and strategy. In addition, it provides for advanced electives for students with an undergraduate degree in business.
It speaks tremendously to the quality, content and structure of the courses of the CAIB and CPIB program that a recognized Canadian university has looked at them and said, “Right, these are worth ‘x’ number of credits to a graduate level degree and to an undergraduate level degree.”
Each course in the program counts for six credits, so there are 10 courses in all to complete the degree. Professional designations such as CAIB/CPIB and a previous university degree may qualify applicants for advance credits, up to a maximum of 30 advance credits. A thesis option is also available. All courses are delivered over a 13week period. The courses will require learners to complete online group projects and to participate in weekly online discussions with their colleagues and course instructors. Most of the discussions will be ‘asynchronous.’ In other words, learners log on at different intervals in the day to post and respond to messages. Students have a maximum of seven years to complete the online program, although most will likely be able to finish the MBA in approximately three or four years. This timeline could even be shaved down to one-and-a-half or two years, depending on whether or not the student qualifies for advance credits. Each course is anticipated to cost somewhere in the ballpark of $2,000. Depending on how many advance credits a broker enrolled in the program might receive, the total cost of the online MBA program could cost anywhere in the range of between $10,000 and $17,000. “That is quite affordable when you think about what an MBA would [typically] cost,” says Sandra Parker, IBAC’s manager of professional development. “This is actually a really good cost.” In contrast, tuition fees for other professional schools such as law schools in Canada can run up to more than $10,000 in a single year. Parker says IBAC is committed to providing scholarship funds to help brokers overcome any financial barriers to taking the program. As mentioned above, IBAC’s crowning achievement is gaining entry to the online MBA program through its professional designations. But Laurentian sweetened the pot by offering young brokers its HBCom program as well. HBCom does not have the special entrance arrangement for brokers as the MBA program does. To gain entry into
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MBA Class of 2011 the online HBCom program, which is likened to a university undergraduate program, a broker would need a college degree. (This would be opposed to a university degree, required for the MBA program.).The HBCom program would take about two to three years to complete. “Laurentian thought:‘If you don’t have the 10 years of experience, for example, and you want to get involved, and you want to get some credits that you could use towards the MBA, you could take some of the HBCom courses online,” said Rod Hancock, CEO of McFarlan Rowlands Insurance. Hancock worked on the online MBA file during his days as an executive member of the Insurance Brokers Association of Ontario (IBAO). To which Parker adds: “The nice thing about HBCom is that you don’t have to make a commitment to the HBCom upfront.You can take the HBCom courses without ever having to decide that you want to go through the [complete] HBCom [program].”
A LESSON IN PERPETUATION Students are often called upon to defend the application of their studies in the so-called ‘real world.’ For brokers, the push for an online MBA program came from IBAC’s strategic plan, as well as executive-level discussions among IBAC committee members working on broker perpetuation. “If we remember where this came from, it was the gestation of an idea from a perpetuation strategies workforce,” says IBAC’s immediate past president Justin MacGregor. “And one of the things we talk about around the executive table is: Where are the new brokers going to come from? Where are the new start-up brokerages going to come from? And if you’ve got small, regional brokers that don’t necessarily have a clear succession plan, who are going to be the people that are going to step up to buy those brokerages and continue them in the future?” Hancock adds the MBA program will be “a huge benefit to brokers,” especially in terms of perpetuating their brokerages. “That’s a big issue for brokers,” he said. “We’ve had succession planning events all over the place. And one of the 46 Canadian Underwriter October 2010
best ways to plan for succession is to do [the MBA program] because it gives you enhanced capacity to run your business better. What you are going to learn there is really not about insurance, but it’s about operating your business. And as brokerages get larger and larger, which they are doing, you need more of a skill set to be able to handle problems you’re going to face, whether that’s in
We’ve had succession planning events all over the place. And one of the best ways to plan for succession is to do [the MBA program] because it gives you enhanced capacity to run your business better. What you are going to learn there is really not about insurance, but it’s about operating your business.
HR, finance, accounting or just operating a place that has 150 people.” Perhaps not surprisingly, large commercial brokerages are particularly supportive of the online MBA program. “Younger guys, maybe with 16 years of experience, might be able to climb the ladder more quickly with an MBA,” observes Brian Wilcox, past president of the Toronto Insurance Conference [TIC],
a commercial brokers association. “The MBA would open more doors to move up within the organization.” The program would also help smaller, perhaps family-owned brokerages as well, MacGregor says. “If we’re going to look at our younger employees and our younger brokers in the community, they are going to need financing, they are going to need to be able to raise funds, to maybe make a partial acquisition or enter into an agreement over a number of years to acquire a brokerage from an existing owner.There are different sources of finance for that, whether it’s the banks or insurance companies. If we’re realistic, the professional moneymen are going to be a lot more comfortable supporting and lending money to brokers who have got these sorts of degree programs behind them. They will say: ‘They’ve got an MBA. They can clearly show they have the professional business skills to be able to put together the business plan and follow it through successfully,’ rather than ‘They are just successful insurance salespeople.’”
FULL SUITE OF EDUCATION The MBA program now rounds out a full suite of IBAC education courses for brokers. IBAC’s CAIB and CPIB courses are designed to give brokers specific technical training in insurance. IBAC also offers brokers professional development training in the so-called ‘soft skills,’ including building relationships with consumers and effective sales techniques. Examples include the Professional Selling for Insurance Brokers program and the Elite Force-Best Practices Producer Academy. But up until now, there hasn’t been a program teaching general skills in running and managing a business. “Running a business has its huge challenges,” says Penney. “Having now allied with Laurentian to produce this MBA provides the business skills that we were lacking. I think that’s a tremendous asset for this profession. It’s one that’s unique because not every profession has this full complement, this full suite of products.” How big a demand exists for learning how to run a business? “Certainly the
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MBA Class of 2011
If we’re realistic, the professional moneymen are going to be a lot more comfortable supporting and lending money to brokers who have got these sorts of degree programs behind them. They will say: ‘They’ve got an MBA. They can clearly show they have the professional business skills to be able to put together the business plan and follow it through successfully.’ interest level is something that we’ve been monitoring and have been kind of interested in ourselves for a number of years, because the IBABC originally pursued an MBA option as well,” says Insurance Brokers Association of B.C. (IBABC) executive director Chuck Byrne. “We considered it five or six years ago.There certainly was indication of interest then. I think it’s a growing segment — particularly when you consider the people who are most likely to benefit from it are the young and/ or senior people looking to move into ownership and management. Certainly, there’s a demographic shift in their favour. The best candidates are going to get the best opportunities. And clearly MBA programs like this are going to generate some very, very top candidates. This type of industry-specific MBA really does turns heads and it opens all kinds of opportunities for, say, junior partnerships and within some of the larger brokerage operations in B.C.” Parker points to a nation-wide study IBAC conducted in 2008 to gauge interest in the possibility of an online MBA program. “Two thousand and sixty-nine brokers replied to the cross-country survey we did,” she says. “Ninety-six per cent of the respondents felt this was a 48 Canadian Underwriter October 2010
worthwhile endeavor and that we should go forward with this, an overwhelmingly positive response.” The same survey provided some insight into how many potential candidates already had the prerequisite requirements for the MBA program. Sixty-two per cent of the survey respondents, for example, had 10 or more years of experience in the insurance brokerage business. Sixty per cent had a post-secondary education. Anecdotally at least, people have been asking IBAC executives about the program. MacGregor has been crisscrossing the country on IBAC business throughout his one-year term as IBAC president. “Lot’s of people have asked me: ‘What’s happening with the MBA? When is it going to be ready?’” Now that the launch is finally official, “we’re really looking forward to it,” he says. “My prediction is we’re going to be very pleasantly surprised by the take-up.”
ACCESSIBILITY AND FLEXIBILITY Flexibility and accessibility are two central features recommending the online MBA program. Geography is no object with online distance learning, an accepted part of contemporary education. The online MBA program is modeled after Laurentian University’s campus
program that has been offered for more than 20 years. However, the online MBA has no on-campus requirements. Brokers from across the country can take the courses from anywhere, since the courses are delivered online.There is no need to make a run on IKEA furniture and seek accommodations in Sudbury, Ontario, where Laurentian University is physically located. The online courses will often involve working on case studies. Interactions between students and faculty are ‘asynchronous,’ which the dictionary defines as: ‘Not occurring at the same time.’ In other words, students can log into a chat room or post messages on message boards at one point in the day, log off, and then can log in later to see if there has been a response. “One thing the brokers on the team [pursuing the MBA] were very concerned about when they looked at the post-secondary educational experience for brokers is that brokers can only find little bits of time to do education because of the way their schedules are,” says IBAC CEO Dan Danyluk. “And one of the unique things about [the MBA] discussion groups is that they are asynchronous, which basically means it’s online and you can do it anytime. If the best time for you is 2 am, because you
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MBA Class of 2011 have a little one at home who has kept you up, and you can’t fall back asleep and you want to go online and participate, you can do that.That’s pretty amazing to me.” One IBAC committee member working on the MBA file is considering becoming one its first students. Stephen Halsall, vice president of IBAC, said the program is attractive to him because it will allow him to learn without having to relocate or take significant time away from his brokerage. “I’ve always thought of taking the MBA,” said Halsall, a broker in Saint John, New Brunswick. “My biggest problem is that I’m running a small business and involved in the provincial and national associations.Whenever I looked at some of the programs the universities had to offer, I didn’t have the time to go away for weeks or months.You don’t have the time to go on a course for one year at a time like some employers can do to nurture their employees.This provides me with the opportunity to work towards my MBA on my time.” Time away is often anathema to a broker running a small or family business, says Penney. “Most of us cannot put our businesses on hold, because if we put our businesses on hold for a year or two years, it’s not going to be there,” he said. “It [the MBA program] had to have the characteristic that it can be
done simultaneously with normal dayto-day life — raising a family, running a business and doing those other activities that make up everybody’s lives.” The problem of taking time away from the business is also a factor in large, corporate commercial insurance operations. “In terms of the larger commercial brokerages, this is extremely exciting for them,” MacGregor says. “Larger brokers very often will recruit employees from different walks of life and straight from school. In many ways, ours is a career where you don’t go away to school to learn to become an insurance broker: it’s something you learn inside an insurance brokerage. Up until now, the only choice for commercial brokerages wanting to fast-track people into management positions or into leadership positions was probably very expensive courses. People would be taken out of their professional environment, out of their work environment, and have to go away for weeks or months at a time. There is nothing wrong with that, but this creates for them a very exciting and cost-effective alternative. Commercial brokerages can probably fast-track a lot more people with business skills than they’ve ever been able to before.” Commercial and personal lines brokers alike say the opportunity to take an MBA
may in fact provide an incentive for brokers to go back and complete unfinished CAIB and CPIB courses. “In order to enter the [MBA] program, brokers need their CAIB or CPIB and some people have left it with one course left, or they didn’t finish it because they had families or businesses or something else — they had no time,” observes Halsall. “But this will drive some of those people who want to take [the MBA] to finish that course to move on towards the future.” Danyluk said applications to the online MBA program are scheduled for January 2011 in part to allow brokers some time to brush up on their CAIB/CPIB training in preparation for the MBA. In the meantime, brokers are toasting the arrival of the MBA after many years of determined effort working with Laurentian. “It’s been four years, which shows you can’t create these things overnight,” says MacGregor. “It’s been through numerous pairs of eyes of IBAC committee chairs. John [Penney] has worked on it pretty solidly for the past two years. That’s allowed us to bring it to conclusion now. I think we now have a full and complete suite of both professional/technical training and also the business training that future brokers need. It’s really exciting.”
Most of us cannot put our businesses on hold, because if we put our businesses on hold for a year or two years, it’s not going to be there. The MBA program had to have the characteristic that it can be done simultaneously with normal day-to-day life — raising a family, running a business and doing those other activities that make up everybody’s lives.
50 Canadian Underwriter October 2010
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A Tale of
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2010 A.M. Best Market Briefing: Canada
Vanessa Mariga Associate Editor
As Canadian property and casualty insurers shore up their personal property lines in response to wind, water and hail claims, Ontario auto results continue to veer sharply toward the curb, with loss ratios now exceeding 140%. Canada’s property and casualty insurance industry has done a good job of keeping operating expenses under control, but Ontario auto continues to wreak havoc on the industry’s underwriting results, delegates attending A.M. Best’s ‘Market Briefing: Canada’ heard in Toronto on Sept. 8. Uncertainty and scepticism continue to plague the recent set of reforms implemented to reduce claims losses Ontario auto. But personal property, a line experiencing an increase in the severity and frequency of claims, has taken a step forward, as insurers have taken rate in an effort to reverse the upward creeping loss ratios. In the reinsurance sector, capital is easy come, easy go. While reinsurers continue to chug
52 Canadian Underwriter October 2010
along, generating positive results, some experts are questioning if reserve releases are in fact masking deterioration in the sector’s performance. This is a trend, experts warn, that cannot be sustained for much longer.
TWO LINES, TWO DIFFERENT EXPERIENCES Canadian property and casualty insurers have done a good job of keeping operational expenses in check, but are losing money on the claims side of the business, said Joseph Burtone, assistant vice president at A.M. Best. “Companies are doing a nice job to toe the line on expenses,” Burtone said. “It’s the other side of it, the net loss and LAE [loss-adjustment expense] ratio, that is driving the underwriting ratio up.” The underwriting expense ratio represents the percentage of an insurer’s net premiums written that went toward operating costs. Canada’s property and casualty industry — excluding Lloyd’s of London, the Caribbean and ICBC markets — has reported underwriting expense ratios that have hovered around 30% since 2006 (29.5% in 2006; 29.8% in 2007; 30.5% in 2008; and 30.2% in 2009).
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Loss ratios, on the other hand, remained around 54% between 2005 and 2007 and then jumped to 61% in 2008 and 60.5% in 2009. “There’s a reason for that [jump in loss ratios],” Burtone said. “The industry has been affected by more frequent and severe weather-related events. It seems to be that in the past couple of years, it’s not if, but when [a weather event will occur]. In the past, Canada seemed to be shielded
from weather-related events, but we’ve seen a real uptick in events.” In personal property lines, the increase in frequency and severity of claims is based specifically on wind, hail and water-related claims. But the industry appears to have recognized it needs to better mitigate these risks. Burtone noted that at year-end 2009, the loss ratio for this line was 75.9%; by the end of June 2010, it was 59.2%.
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54 Canadian Underwriter October 2010
“We’re finding pricing segmentation, we’re seeing inspections being done more frequently and more broker evaluations,” he said. “But, there are some concerns with aging infrastructure and this line is very competitively priced.” At the same time the industry appears to be getting a grip on the new reality in property lines, Ontario auto continues to veer out of control. In fact, Ontario’s personal auto is really driving the Canadian property and casualty market’s underwriting loss, Burtone asserted. Overall, the property and casualty industry appears to be stable, with positive — not robust — results. The property and casualty industry reported an underwriting loss of approximately $207.4 million in 2009, Burtone said. Combined ratios for the segment improved from 101.2% in 2008 to 100.9% in 2009. In auto personal accident, on the other hand, the net loss ratio of this line rose
It seems to be not if, but when a weather event will occur. In the past, Canada seemed to be shielded from weather-related events, but we’ve seen a real uptick in events. to 137.6% at year-end 2009 from 116.6% at year-end 2008. In the first half of 2010, the loss ratio continued its upward trend, reaching 141.3% by the end of June. Reforms were implemented on Sept. 1 to help stem the losses in auto personal accident. But Burtone said A.M. Best shares the industry’s concerns about the effectiveness of the reforms. “We realize why the reforms were put in place, we know what they’re supposed to do, but we have concerns about how they’re going to be priced, what are insurers going to do to make sure that reserving is accurate and what is the [level of] consumer confidence [in the reforms’ effectiveness]?”
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REMOVING THE MASK Reserve releases are masking deteriorating results in the U.S. and Bermuda reinsurance markets, said Greg Reisner, a senior financial analyst at A.M. Best.
The favourable loss reserve development is certainly aiding underwriting results. But this trend cannot continue. We are at a point where we are starting to question some companies’ reserve adequacy. He noted the trends emerging in the U.S. and Bermuda markets may also apply to the Canadian reinsurance market. The U.S. and Bermuda reinsurance industry reported a return on equity (ROE) of 16% in 2009, Reisner said. “If you strip out those reserve releases, you’re really looking at an ROE around 11%,” he said. “And if you strip out
reserve releases through the first half of 2010, we’re actually looking at an ROE around 6% for this sector.You can see that results are certainly deteriorating, but those releases have been masking that deterioration.” Net premium written (NPW) in the U.S. and Bermuda reinsurance market has been stale between 2006 and 2009. Reisner observed the industry reported $51.7 billion in net premiums written in 2006; that fell to $50.3 billion in 2009. The industry reported a “solid” combined operating ratio (COR) of 87% in 2006, with minimal favourable loss reserve development. But loss reserve development picked up in 2007, 2008, and 2009, Reisner said. By the end of June 2010, the industry reported 6.6 percentage points of favourable loss reserve development, far exceeding analysts’ expectations, he said. The favourable loss reserve development “is certainly aiding underwriting results, as well as the return on equity
(ROE) components,” Reisner said. “But this trend cannot continue. We are at the point where we are starting to question some companies’ reserve adequacy.” Despite deteriorating performance in the reinsurance industry, Reisner said he continues to anticipate positive results at year-end 2010. “The thing that continues to amaze me in this business is how quickly capital can be generated, and how quickly it can be depleted,” he said. He pointed to shareholder equity to illustrate his point. Between 2006 and 2007, shareholder equity increased from roughly $70.9 billion to almost $80 billion. “But in 2008, when we had the financial crisis and some catastrophic events, we saw all of that capital generated in 2007 deplete and then some,” he said. Nevertheless, by the end of 2009, shareholder equity not only reached the high watermark set in 2007, but surpassed it — to $88.4 billion. “It’s impressive,” Reisner said.
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Welcoming a World of Portals
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Insurance company portals have existed for more than a decade now. Yet some in the industry complain that portals force cumbersome “solutions” on brokers, making their workflow inefficient. They have to log in with different signons, complete detailed forms and navigate their way around various transaction procedures specific to each carrier they represent. This, some broker groups say, is far from an ideal solution. We agree. However, is the problem the portal concept itself, or is it the way portals were
56 Canadian Underwriter October 2010
first created and implemented by insurance companies? It’s an important question because the solution that many brokers say they prefer — technology that allows all transactions to be “once-anddone” in their broker management system (BMS) — simply does not exist today.
RE-INVENTING PORTALS Portals will be around for the foreseeable future and insurance companies will be looking to enhance their online presence. In a study released in April 2010, leading research firm Novarica stated: “Portal projects are one of the top priorities for property and casualty insurers for 2010. Portals are a relatively mature technology and are used by most p&c insurers as one of their primary channels for communication with their distributors.” Novarica also found two-thirds of North American insurers ranked expanding and augmenting their portals among their Top 3 IT priority projects for 2011.
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interchange (EDI) between carrier systems and multiple BMS was thought to be an ideal solution. However, data translation problems meant many transactions could not be completed in an automated manner. In many instances, portals were created to solve this problem. Earliest examples of portals addressed these transactional issues. But carriers may have “lost the forest for the trees.” Initial portal solutions often forced brokers to adopt a workflow that was foreign to them: multiple passwords and sign-ons, confusing forms, limited transactions (i.e. personal lines inquiry only), ineffective search functions and disjointed content and collaboration tools.
THE NEW FACE OF PORTALS
Portals require a significant revamping. Innovative carriers are looking at unique models that make brokers’ jobs easier and serve customers better. This new wave of technology mandates a re-thinking of how portals work, who their designated audience is and the functions requiring delivery. That doesn’t mean portals should look like they have in the past or continue to look like they do today. Portals require a significant revamping. Innovative carriers are looking at unique models that make brokers’ jobs easier and serve customers better. This new wave of technology mandates a rethinking of how portals work, who their designated audience is and what kinds of functions can be best delivered at the point of sale. Some people may forget the reason most insurance company portals were created in the first place. They were originally intended to allow for more online transactions and functionality. Before portals took hold, electronic data
58 Canadian Underwriter October 2010
Fast-forward to today and you can see progressive carriers are actively addressing these issues. The good news is that modern portals are significantly more user friendly to navigate.They pre-populate fields so that navigation is easier. They allow a response screen to focus on where updates are needed. They highlight only the changes that are needed and provide automated help. They produce real-time results. Modern, connected portals allow for real-time BMS upload and extensive interface and collaboration between brokers and carriers. How far this can extend depends on the lines of business, since the requirements for personal lines and commercial lines are quite different. It also depends on the types of transactions. Quoting, new business submissions and inquiry are not the same as policy endorsements or policy changes. Transactions can range from the simplest (an auto insurance billing inquiry, for example) to the more complex (a policy change for a personal property client). Inquiry into billing, claims and policies is common for both brokers and consumers. Forward thinking carriers are providing both these groups with access to review all policyholder information.Technologies exist to access this information in a variety of fash-
Fast-forward to today and you can see progressive carriers are actively addressing these issues. The good news is that modern portals are significantly more user-friendly to navigate. They pre-populate fields so that navigation is easier. They allow a response screen to focus on where updates are needed. ions, including from a BMS or directly from Web applications. For several carriers, components are shared between consumer and broker portals, so that information is consistent and similar in appearance. Now let’s say a homeowner wants modification to coverage and expects the policy change to be made immediately and the impact on billing determined on the spot. Here, the “onceand-done” concept of handling the complete transaction in the BMS falls down. A number of different technology requirements are necessary to complete this transaction, such as real-time display of changes, a protected policy that cannot be accessed while the edit
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A BMS-only solution lacks protection on policies of record. It cannot always guarantee that the capture and transfer of data is accurate and complete. In addition, a broker system would require program business logic for each carrier and a means to update its code each time a carrier makes an underwriting and product change.
is in progress, audit capabilities and a formal authorization process. This is where portals really come into play.The more complex the transaction, the more insurance companies require agile portal technology that allows them to integrate with other systems and deliver data to the decision-making process. These actions are most easily handled through a carrier portal connected to third-party data so that changes can be underwritten in realtime. Portals give carriers strategic solutions, provide flexibility and offer a broad range of functionality — especially when contrasted with short-term tactics such as moving data from one system to another. A BMS-only solution lacks protection on policies of record and cannot always guarantee the capture and transfer of data is accurate and complete. In addition, a broker system would require program business logic for each carrier and a means to update its code each time a carrier makes an underwriting and product change. There is no such practical solution today. For commercial lines, the story gets even more complicated.Technology solutions vary by size of commercial account and inherent complexity. Smaller packaged lines share similarities with personal lines, while mid-sized and large commercial accounts are difficult to categorize due to the unique nature of each account. The differentiation in commercial lines is driving new trends in carrier portals, emphasizing the need to adapt new technology and business processes.
60 Canadian Underwriter October 2010
In commercial lines, we are seeing enhanced collaboration between broker and carrier, a greater incorporation of third-party analytics software and data and real-time interaction to better match risks with pricing. All these trends
Carriers are offering technology platforms that provide “near direct” broker-branded consumer sales and servicing. This allows customers to receive online quotes and service while maintaining a relationship with their brokers. rely on portal technology, integrating with many other systems in order to deliver as much data as necessary.
NEXT-GENERATION PORTALS Insurance companies recognizing brokers as the key strategic channel against the direct model are extending their online presence in new and exciting ways. Given the increasing focus on younger, tech-savvy consumers who expect instant and complete insurance transactions, carriers are offering technology platforms that provide “near direct,” broker-branded consumer sales and servicing. This allows customers to receive online quotes and service while maintaining the relationship with their brokers — the best of both worlds. We are already seeing examples of this in the U.S. marketplace.
To meet and anticipate customer demands, strategic-thinking carriers will be arming brokers with the capability to connect their processes and systems (BMS and others) seamlessly to call, click and connect with their customers. Brokers will also be better prepared for integrating social and business networking media and mobile channels into their sales and marketing. It is a lofty goal for brokers to have all transactions done completely in their BMS. However, insurance companies and brokers have different needs. Just as a BMS is an integral part of running a brokerage operation, so too are portals a necessary element for insurers to gather the data they need to improve their decision-making and transaction processing. Both solutions are needed to serve end customers effectively. In fact, the noise and energy around fighting portals is a false dichotomy. The real goal is ensuring brokers have the same kinds of technology and customer service capabilities that direct writers and agents currently have. Right now, direct writers can meet many customer service needs — such as quoting, policy submission and policy change — quickly and transparently. Few independent brokers can. Insurance companies should be asking what kinds of technology and business process investments are required to allow them to catch up as quickly as possible? This is where the heart of the discussion should take place.
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State of Readiness Surveys show many Canadian businesses are still not completely prepared for the consequences of a major disaster, suggesting the need for and value of Richard Kinchlea basic planning solutions. Director of Operations, Canadian Center for Emergency Preparedness
Katrina. 9/11. SARS. These are disasters of such great magnitude, they need only a word or symbol to remind us of the fear, loss and cost of these events. Other events of a slightly less psyche-scarring magnitude occur on a regular basis — earthquakes, oil spills, hurricanes and pan-regional flooding. Millions, indeed billions, of dollars are lost each year to major disasters. Death and injury, property damage, lost business, rescue and recovery all contribute to their cost. These are catastrophic events. But mentally at least, it’s easy to dismiss their potential: These will never happen.
62 Canadian Underwriter October 2010
Well, they have happened. According to an Angus Reid survey commissioned by American Express, more than two-in-five small business owners in Canada (41%) have previously experienced a significant disruption to their business. Of these, nearly half (46%) were affected for more than 30 days. Eighty per cent were affected for five or more days. As intelligent beings, professionals, business owners and operators, homeowners and the like, we prepare for disasters and disruptions by creating emergency plans, business continuity plans and crisis plans. We protect ourselves and our investments. Or do we? It seems we do not. Canadian Manufacturers and Exporters conducted a survey of its membership in May 2009. The results show “87% per cent of the companies participating in the survey indicate their businesses do not have a continuity plan in place to deal with an emergency situation like a pandemic, while 90% are not sure what steps to take to safeguard their operations, including their supply chain.” If we extend these statistics to small businesses within the Canadian economy, 87% equates to just over 1 million businesses without a continuity plan in place. Here, ‘small businesses’ are
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considered to have fewer than 100 employees and have a Canada Revenue Agency payroll deductions account (this definition does not include family businesses, contractors and sole proprietors). Despite the efforts of many emergency managers, disaster recovery specialists, business continuity directors, first responders, insurance professionals and their respective organizations, business continuity plans are not being created. Businesses are not protected. Communities are not resilient. The Center for Preparedness — formerly the Canadian Centre for Emergency Preparedness — has developed a methodology and a service to help reverse this statistic. B-ReadyNow is a Web site dedicated to the small business owner or operator. Its main purpose is to help create a basic contingency plan while at the same time addressing the three main challenges of small business operation: lack of time, lack of money or a lack of resources. B-ReadyNow’s ‘Plan Builder’ allows the user to complete a contingency plan in a few short hours by simplifying the process into six basic steps: knowing the risks, knowing the potential effects of an exposure, developing risk mitigation strategies, completing a plan, coming up with ways to secure communications in the event of an emergency and reviewing and exercising the plan.
Know the risks Every organization faces operational risks. Some of these risks are acceptable, many are not.This first step guides users to list the greatest risks to their operations, be they closures (due to fire, flood or ice storm), disruptions (by power outage, strike or G20 summits) or losses (related to data, equipment or supply chain). This stage serves as a reminder that some of the effects of a business interruption may not be direct. Know the impact Risk is not just about a single event. It escalates, with potentially broader effects on a business. An organization must therefore be able to answer these 64 Canadian Underwriter October 2010
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vital questions: What are the key products or services offered by the business? What are the critical inputs required to produce these key elements? If these critical elements are disrupted, how long can they remain ‘down’ before serious damage is done to the operation?
Develop strategies You now know the threats, the risks, the critical inputs and their priorities. The boss is saying: “If you bring me a problem, bring me a solution!” What to do? At this stage of the process, strategies begin to form. Can I afford to lose data? If the answer is no, I might install a
Business continuity plans are not being created. Businesses are not protected. Communities are not resilient. back-up and recovery service.What happens if my only delivery vehicle becomes inoperable? I might develop an effective plan to rent or borrow a vehicle or hire a service. Could the power go out? It might be a good idea to practice manual processes such as issuing written receipts, carbon-copy order sheets, cash floats and accounting ledgers.
Complete the plan This is the document that brings it all together, providing an overview of the problems, the strategies to combat the issues and steps to carry out the strategies. Strategies fall into two categories: mitigation and response. Mitigation strategies become the to-do list to enhance resiliency. Response strategies reduce the effects of a catastrophe should one occur. Secure communications tactics Communications media frequently fail in an emergency. How will you communicate with employees, clients and suppliers when these media go down? Every company should have contact lists, which are critical for operating during a disruption. An operation should also develop and practice alternative channels
of communication such as phone, fax, e-mail, cell and Web to ensure that communications are maintained.
Review and exercise Because businesses are always changing, a regular review of the plan and its components is necessary. Has the operation changed? Do new policies or regulations require a different response or render a strategy obsolete? To keep up with the plan, all employees need to be aware of and practice — i.e. ‘exercise’ — their roles and responsibilities during a disruption. These roles and responsibilities might include the evacuation of a building, treatment of a ‘white powder’ envelope or simply ensuring data can be recovered from a backup. It is far better to learn lessons during an exercise than to fail during an emergency. With B-ReadyNow (launched on Oct. 4, 2010), the small business owner will now have a viable means of developing effective mitigation and response plans that are basic, simple and action-oriented. Although it is not as comprehensive a plan as most consultants, crisis professionals and executive firms would create, this customized contingency plan might be the first — and only — plan the vast majority of businesses buy into. American Express-Commissioned Survey Conducted by Angus Reid (504 respondents) Observations: 1) More than two in five small business owners in Canada (41%) have previously experienced a significant disruption to their business. Of these, nearly half (46%) were affected for more than 30 days, and 80% were affected for five or more days. 2) Question: “Which of the following would best describe your efforts to ensure the continuity of your business in the event of a disruption?” Answers: a) It is not on the radar — 18% b) It is lower on the to-do list — 62% c) It is a priority — 20%
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A World of Opportunity Navigating international insurance placements takes expertise, know-how and a strong partnership with a global carrier.
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66 Canadian Underwriter October 2010
care in that country? If a Canadian firm sells a product to a resident of Boston, Massachusetts over the Internet and there is a network breach, which jurisdiction’s privacy laws apply? What has to happen before a commercial policy is bound in India and Japan? (Read on to find out the answers).
RECOGNIZING INTERNATIONAL EXPOSURES Brokers have many ways to recognize whether or not clients — especially smaller to midsized customers — have international exposures. It’s not always obvious. For example, “operations” might be interpreted to mean a one-person sales office, a physical presence designed to meet domestic regulatory requirements (such as the “Buy America” legislation, for example) or even online sales to other countries. In particular, brokers should ask the following questions: • Does the client sell any products over the Internet? • Does the client travel outside Canada on business, including trade fairs or exhibitions? • Does the client have any overseas facilities, licensing, subcontracting or joint ventures? • Is one or more of the client’s key customers a foreign firm?
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Greg Knowles
Fuelled by free trade agreements, burgeoning growth in emerging countries and an ever-increasing demand for natural resources, Canadian businesses are reaching out to key markets around the world.Total exports for Canada now account for roughly 45% of our Gross Domestic Product (GDP).The pattern of trade is diversifying away from North America to key regions in Europe, Asia and South America. Less than 20% of Canadian goods and services exports were destined for non-U.S. markets in 2002. This share had increased to nearly 30% by 2009, according to the Department of Foreign Affairs and International Trade. In light of these statistics, are brokers meeting the needs of intrepid exporters in identifying risks, discussing solutions and providing comprehensive protection? The answer is increasingly yes, but there is always room for improvement. Brokers enter a confusing new world of international exposures when they seek to provide global coverage solutions for their clients. Knowledge, expertise and experience are the critical factors in choosing the right market. For example, if an employee of a Canadian branch office in Thailand was infected with an endemic disease, would he have to seek health
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• Does the client rely on parts or supplies from a foreign company (for example, does the client have a foreign firm as a key customer)? • Does the client bid on contracts for projects outside Canada? • Does the client have any operations or payroll outside Canada? • Is there an ocean cargo policy in place? A positive answer to any of these questions reveals an opportunity to address your client’s global exposures and provide protection. Finding the right coverage solutions is another challenge altogether.
AVOIDING PITFALLS Brokers should avoid several pitfalls. One is trying to patch together a policy or series of policies with complex endorsements. The insurance carrier should be able to offer worldwide coverage in a comprehensive package policy. This should also be a portfolio policy, so that one or all of the different coverage sections might be added to create a policy that fits each customer’s needs, whether that client be a small business embarking on its first foreign sales trip or a multinational company with thousands of employees. Another challenge is to make sure your client does not unknowingly purchase duplicate liability limits or even two distinct insurance programs. A properly designed insurance solution should be coordinated by a local Canadian underwriter, yet offer cross-border and international insurance coverage in any of the regions in which the client operates. In some cases, insurance carriers may leave it up to their foreign branches to determine the details of a client’s global coverage. Check to see the involvement and input of local underwriters in coordinating insurance protection. They will often understand your client’s needs the best. A word of caution should be mentioned about non-admitted coverage in the United States. Although clearly a need exists for non-admitted carriers with strong financial ratings, there are several advantages to placing U.S. admitted coverage with a knowledgeable, international insurer. These advantages
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include compliance with local laws and regulations, state-by-state licensing requirements, premium and losses paid with local currency, knowledge of legal/judicial environments in each state and favorable local tax laws.
TRULY INTERNATIONAL INSURANCE Brokers should actively seek key elements in a truly international insurance package policy. First, a DIC/DIL (difference in conditions/difference in limits) provision should be included to cover the gaps created through local coverage requirements. For example, Mexican property insurance policies frequently have a “co-pay” clause, which means
claimants must pay a percentage of the total loss over and above the deductible.A global master policy should take this local co-pay into account, with coverage granted under the DIC/DIL clause. A global insurance solution should allow claims to be brought and settled anywhere in the world. It should also provide a policy in each of the countries in the language and customs of that country, supported by an English language master policy. And, as a matter of expertise, risk control services should be provided on a worldwide basis. Brokers should look for some of the above “must-haves” in a quality global insurance policy. Some insurance companies are offering additional extensions of coverage. One is coverage for endemic disease and excess repatriation expense under voluntary workers compensation coverage. That means if employees are injured or sick, they can be sent to their country of origin for med-
ical treatment. So, the answer to the question about the employee in Thailand would depend on whether this coverage is in place through a global insurance solution. Some carriers include this as part of their international coverage. Other potential policy upgrades include enhanced casualty wordings, broadened property coverage and industry-specific wordings for segments such as oil and gas, wineries and food processors, to name a few. The experience of the insurance carrier is one intangible factor in choosing the right market for international clients. Does it provide coverage in 130 countries around the world? Do any gaps in coverage exist due to local policy language and nuance? Would these gaps be addressed by a master global insurance policy? Does such a master policy understand the differences in legal environments, laws and regulations of the 50 U.S. states? These are good questions to ask of any market. Take the example of a Canadian firm selling a product online to a Boston resident and experiencing a privacy/security issue. The matter would be subject to the regulations of the state of Massachusetts, which happens to have some of the strictest data privacy laws in North America. In Japan and India, premium payments must be made to the local carrier before a commercial policy is in force; this is in contrast to North America, where clients often have 60 days to pay after the policy is bound. Having this kind of knowledge and working with a trusted carrier can provide important peace of mind for the broker and the client. Despite the global financial crisis, which put a dent in worldwide trade in 2009 and into 2010, the long-term trend is for Canadian exports to both increase and diversify. Even with the economic downturn, Canadian companies still exported more than $436 billion of goods and services to countries around the world last year. The question for brokers is thus: how many clients are part of this growing international market? And where will you look to find the right coverage for them?
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THE TORNADO LEFT AN AFTERMATH.
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For twelve minutes of August 20th, 2009 the close-knit community of Vaughan was under siege.
WE LEFT AN IMPRESSION.
Mark and his son Simon were about to sit down to dinner when Mark looked outside and saw a huge funnel cloud in the park behind his house. Seconds later, debris began falling from the sky. Drilling rain, lightning and vicious winds whipped around their home. An F2-strength tornado, packing wind gusts of 180 kilometres per hour was ripping roofs off homes, flipping cars and downing fences, power lines and trees with truly shocking speed and violence. Fearing for their lives, Mark instinctively grabbed his son and took shelter in the basement. Several kilometres away, Peter, an RSA Adjuster, was finishing work when he heard news of the unfolding devastation on the radio. He ran to the RSA Mobile Claims Response vehicle and drove towards the battered community.
Peterâ&#x20AC;&#x2122;s timing was perfect and his thinking fast. He came across a convoy of Emergency Services vehicles en route to Vaughan and gained access to the area behind the rescue cordon, worst affected by the storm. The streets were almost in total darkness. People like Mark and Simon had only just had time to survey their wrecked home when Peter arrived on the scene to reassure them that everything would be taken care of. His presence there meant that the rebuilding of their lives could begin immediately. Damage was assessed, calls made and the claims process started. In those dark, frightening hours after the tornado, Peter provided them with hope, confidence and the certainty that they were not alone. A little help that left a long-lasting impression. From the epic to the everyday, we continue to help the worldâ&#x20AC;&#x2122;s people and businesses move forward. To learn more, visit www.rsabroker.ca
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Responsibility and
Engagement Research shows that keeping employees engaged is a big part of helping a corporation become more responsible â&#x20AC;&#x201D; and profitable. Adrian Hall
Director of Corporate Communications & Personal Specialty Insurance, RSA
Countless studies point to the impact employee engagement has on a companyâ&#x20AC;&#x2122;s bottom line, and in this economic climate more companies are paying attention. Companies with engaged employees can increase operating income by 19%, according to the findings of a 2009 survey by Towers Perrin (now Towers Watson). In contrast, companies with the lowest level of employee engagement saw operating income decrease by 33%. The same survey found a direct link between employee engagement and customer satisfaction: the higher the engagement score, the higher the customer satisfaction score. In a separate study, Wyatt Watson (now Towers Watson) found that a significant improvement in employee engagement increases revenue by up to $95 million for S&P 500 companies.The bottom line is that employee engagement is important.
70 Canadian Underwriter October 2010
Sounds good, but how do you boost employee engagement? There are numerous drivers, including health and well-being programs, flexible working options, stability, a diverse workforce, open and honest communications and corporate responsibility (CR). CR is a cornerstone in conducting everyday business. Done correctly, it offers a competitive advantage by helping companies identify and serve new markets for insurance products and cut operating costs by driving environmental improvements. For example, over the past year, RSA Canada employees made a number of simple changes to their daily work habits that had big environmental impacts.We saved over 3 million sheets of paper and almost 400 trees by printing doublesided. When employees chose to use their own cups, we kept 6,810 water bottles out of landfills. These initiatives were employee-led. Recently, RSA celebrated its 300th birthday with an 11-week employee campaign encouraging people to volunteer, fundraise and donate items to charities of their choice. The result? Employees across the country donated more than $241,000, 5,200 hours and 56,000 items. These employee-driven activities prove small changes can have a big impact, aligning the actions of employees with the companyâ&#x20AC;&#x2122;s CR commitment.
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Insurers, homeowners, regulators and technicians need to work together to achieve a comprehensive solution to fuel oil releases. Vito L. De Simini President, Spectius Underwriting Solutions Ltd.
Prevention of fuel oil releases is important to insurers, homeowners and regulators for different reasons. For property insurance carriers, the focus is on loss prevention and reduction in claims. For homeowners, the focus is on conservation of the environment, retention of property value and undisrupted enjoyment of the home. Regulators are concerned about minimizing and eliminating releases that are health safety hazards and significantly affect the environment.
THE COMPLETE FUEL OIL SYSTEM
Marc R. Raymond
Vice President, Business Development, Spectius Underwriting Solutions Ltd.
Although the fuel oil storage tank has been the focus of traditional loss prevention initiatives, it is but one segment of the fuel distribution system. Releases are also attributable to other components. It is therefore important to examine the entire fuel distribution system including fuel lines, filters, valves, connections, etc., which account for 29% of all fuel oil releases.
72 Canadian Underwriter October 2010
Variations on the metallic tank — such as fibreglass and double-wall or double-bottom tanks — are now commonplace. Nevertheless, most Canadian homeowners are unable or unwilling to accept a higher cost for such tanks, whereas most European governments have banned the use of single-wall steel tanks since the early 1970s. Approximately 1.1-million Canadian homes use oil for heating or domestic hot water use. Most failures are a result of corrosion from the inside of the tank rather than the outside. A corrosive sludge develops at the inside bottom by the accumulation and condensation of atmospheric moisture. With the exception of the “belly” of the tank, upper interior surfaces of the tanks are often in reasonably good condition. The corrosive effects of micro-organisms, in addition to their detection and remediation, have been extensively studied during the 20th century. Micro-organisms do not introduce a new corrosion mechanism. Rather, they influence and accelerate the chemical and electrochemical corrosion kinetics that results in Microbial Influenced Corrosion (MIC); this can result in penetration of single-wall steel oil storage tanks in as few as eight months.
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Also, the government has mandated the petroleum industry to reduce the sulphur content in fuel oil. It is a welldocumented fact that ultra-low sulphur fuels (ULSF) can lose natural antioxidants that help prevent the fuel from forming gums and sludges; ULSF can also be more corrosive than conventional fuels, thus introducing yet another element to the interior environment of a tank. Studies in the United States have proven that single-wall steel tanks do not have a ‘service life.’ The American Petroleum Institute (API) completed a study comparing types of failures and ages of components. Tanks were split up into three groups: a) 1-15 years old, b) 16 to 30 years old and c) 30+ years of age. The most likely tank to fail on the basis of age alone was a tank from Group A. The technical basis for this counter-intuitive result is that there are far more important parameters to consider than age alone, such MIC, water/ condensation and installation deficiencies, when predicting tank failures.
ULTRASONIC TESTING The only non-destructive, conclusive method of determining when a residential single-wall steel tank has failed is by way of ultrasonic testing. Ultrasonic testing has been proven effective in the United States for more than 20 years; it is part of the Environmental Protection Agency (EPA)’s requirement as a viable, non-destructive testing method of single-wall steel tanks. A tank is deemed to have failed when corrosion has deteriorated the metal to the point that the tank’s integrity has been compromised and is no longer safely capable of holding its content. Ultrasonic testing of a tank begins with determining the tank metal thickness (gauge) by testing the top of the tank, an area unlikely to be affected by corrosion. As a result of the manufacturing process, the actual thickness of the metal can vary within the range of a gauge; as such, the top measurement is taken and used as a baseline for comparative purposes. Additional readings are taken along the belly of the tank, the
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area most prone to deterioration and where moisture and sludge collect. The belly readings are compared against the test gauge reading to determine if corrosion is present and, if so, to what extent. A full review of the installation, fuel lines and other relevant site data, including ambient conditions, are obtained. An assessment of the condition is provided in an objective manner. A corrective action report is provided for non-compliant installations, including estimated cost for each item, as an aid to both homeowners and underwriters.
By bringing together various stakeholders — such as the homeowner, the fuel oil industry, insurance industry, inspection industry and government — to use and share technology in a unified, collective approach, we will mitigate the problem of fuel oil releases. Individually, the fuel oil industry, government regulators, the insurance industry and the inspection industry involved in this issue have not been effective in developing a unified strategy to reduce fuel oil releases. The CAN/CSA B139 standard mandates inspection of the fuel distribution system, including the tank, as part of the annual service of the heating system. Other than a visual observation, technicians have had no means to test the tank; because of the subjective nature of a visual inspection, some may have been reluctant to approve or reject a tank for continued use.
Some of the insurers’ recent approaches to the fuel oil release situation have consisted in either limiting or excluding coverage by endorsement. Others have relied on the age and/or location of the tank to establish underwriting guidelines. Still others have resorted to having insureds and/or brokers fill out questionnaires as a method of risk assessment. However, statistics show the response rate to questionnaires is less than 30%. Also, they are seldom properly completed due to lack of knowledge or ability to identify components and/or assessing deficiencies. Therefore, the information submitted is often incomplete and erroneous, which could lead an underwriter to draw inaccurate conclusions. Some insurance companies have mandated tank replacement based on exterior tank appearance, age or visual inspections, without adequately validating their reasons for replacement. For example, the age of tank as the sole determining criteria is unfounded: field experience shows tanks less than four years old failing ultrasonic tests. Until now, the insurance or pre-purchase inspection industry has been relying on visual observations to determine the condition of tanks. This approach has validity in determining compliance with the CAN/CSA B-139 requirements, but it cannot provide an assessment of the integrity of the tank. Moreover, visual observations are subject to varying interpretations; releases have continued to escalate despite the increased reliance on visual inspections.
REVERSING THE TREND Past segmented approaches by various stakeholders have not been effective in reducing releases. A new approach is necessary. By bringing together various stakeholders — such as the homeowner, the fuel oil industry, insurance industry, inspection industry and government regulators — to use and share technology in a unified collective approach, we will mitigate the problem of fuel oil releases. The first line of defence in preventing pollution-related losses lies with educat-
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ing the homeowner about the need for systematic preventative maintenance of the fuel distribution system. Secondly, ultrasonic testing and code compliance inspections should be required to identify failures and deficiencies and corrective actions undertaken to ensure compliance with CAN/CSA B-139. The risk management process must continually re-evaluate changes in time or conditions. Thirdly, the oil industry is well-positioned to offer ultrasonic testing to the homeowner as part of the annual service of the heating system, providing this was a requirement of the insurance industry and or government regulators. The technical committee of the Canadian Oil Heat Association (COHA) recently reached a consensus on the validity of ultrasonic testing and ideas freely exchanged on how to best implement a strategy. An authority having jurisdiction such as the Technical Standards and Safety Authority (TSSA) in Ontario should consider including ultrasonic testing as part of the required compre-
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hensive inspection program scheduled to take place in 2012. Individually, government agencies such as territorial housing authorities, Department of Indian Affairs, Supply and Services Canada and Environment Canada have been considering ultrasonic testing. One of the government housing corporations specifically has embarked on a program to test all oil tanks on their properties; plans are currently underway to make ultrasonic testing available to the general public in 2011.
A single Web-based portal where inspections, including ultrasound readings, are collected and accessed by insurance companies, technicians, inspection companies, and government agencies has recently been developed. This portal is the tool by which technicians update information on a particular installation once repairs, modifications or replacements are completed so that the records kept up to date. An insurance company wishing to underwrite a risk that uses fuel oil can access the latest information and underwrite it based on most recent and most accurate data. Spills from domestic fuel oil storage systems have been a significant problem in Canada. A systematic and cooperative approach demonstrates the best potential for identifying problematic systems and addressing them before catastrophic failure occurs. This methodology has been proven effective in the United States, to the point at which it is no longer acceptable to allow corrosion factors to progress to the point that a release occurs.
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2010 RIMS Canada Conference (Edmonton)
Vanessa Mariga Associate Editor
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How Risk Can Set You
e e r
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Innovation, ingenuity and new approaches to risk took centre stage at the RIMS Canada Conference held in Edmonton, Alberta. The 2010 edition of the RIMS Canada Conference promised a focus on ingenuity and innovation. Held in Edmonton, Alberta, conference speakers discussed a new attitude towards risk that emphasizes opportunity over fear (as outlined by plenary speaker Salman Rushdie); new ways to transfer risk (such as private-public partnerships); and new perspectives on existing risks (such as the Alberta oil sands risk). In addition, the defence bar noted the creative way in which the plaintiff bar is using D&O limits to further settlement negotiations.
RISK WITHOUT FEAR There is no such thing as 100% security, only degrees of insecurity, Salman Rushdie, a controversial and renowned author, told delegates during his keynote address at the 2010 RIMS Canada Conference in Edmonton. "Once a person accepts that fact, they are free," he said. Rushdie's novels have earned him top literary prizes around the world, but drew the ire of the
78 Canadian Underwriter October 2010
Iranian government in the late 1980s under Ayatollah Khomeini. Publication of Rushdie's 1988 novel, The Satanic Verses, caused Khomeini to issue a ‘fatwa' — a death edict — against the British author. Rushdie went on to spend the next nine years under the protection of the British secret service, earning the same degree of security normally reserved for heads of state or the monarchy. During this time, Rushdie said he learned to accept that even with the strictest security — and by extension, the most diligent risk management plan — no one is ever free of risk. Despite having the most robust plan, strategy and training in place, “nobody is ever going to come to you and give you a free pass,” he said. “Once you realize that day will never come, then it becomes a difference of what you are prepared to live with and what you're not prepared to live with.” Acceptance of this fact allows individuals to go on to achieve great things, or “open the universe a little bit more,” he continued. “If you want to open the universe a little bit more, you cannot do that sitting safely in the middle of a room.You have to go out to the borders and push out.”
THE POWER OF P3s Municipal and provincial governments are increasingly using public-private partnerships (P3s) as risk transfer mechanisms to build infrastructure, says RIMS Canada Conference panelist Chris Baisley of Deloitte Touche in Calgary, Alberta.
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Baisley said P3 projects are much more predictable and not as volatile as traditional projects.They allow the government to retain much less risk, while reducing the total cost of construction. P3s differ from traditional delivery of infrastructure in that the different components of the project are bundled together into one contract. In contrast, in traditional projects, a tender is put out and the government hires contractors independently of one another. “P3s require a consortium of designers, constructors, financiers and operators already in place for the bidding process,” Baisley said. “Procurement can take as long as a year, and the stakes are quite high for bidders.” The “high pursuit cost” for bidders is based on the fact that in P3s, a bid must: • include a complete design of the project; • show a 30-year operating plan; • show the financing is in place for the construction; and • have all contracts in place for the construction of the project. P3s have a fixed opening date, with no delays for weather, funding or scheduling. The project also has a fixed cost, mitigating against cost overruns and scope creep. Most importantly, the government does not pay for the project until it is completed, which protects against delays. “As a result, delivery tends to be much faster, sometimes years earlier than traditional projects,” Baisley said. “For example, in Alberta a P3 project delivered 18 schools in 1.5 years — a task that would have taken double or triple that time period with traditional contracts.”
OIL RISK: THE ENVIRONMENTAL FOOTPRINT The Alberta oil sands operations have a domestic environmental footprint, but the alternative of getting oil from other countries carries greater environmental and political risks, according to David Percy, the chair in energy law practice at the University of Alberta's Law School. In his seminar, ‘Thinking About the Oil Sands: Economic Boon or Environmental Disaster?' Percy suggested tech-
80 Canadian Underwriter October 2010
nological advances in the production of bitumen (the heaviest, thickest form of petroleum) in Alberta's oil sands would reduce the environmental impact of fuel processing. But the government needs to get more aggressive to provide incentives for those types of technological advances, he added. Comparing the environmental impact on a ‘well-to-wheels’ basis, he noted the actual production of upgraded bitumen in Alberta's oil sands is slightly worse than in Nigerian crude operations. “But we have to remember that crude oil from the Middle East or Africa is transported by sea,” he said. “And that creates a vast amount of green
There is no such thing as 100% security, only degrees of insecurity. Once a person accepts that fact, they are free. If you want to open the universe a little bit more, you cannot do that sitting safely in the middle of a room. house gas emissions from the tankers.” Also, Saudi Arabian crude is getting heavier, forcing deeper drilling. And countries like Venezuela, Mexico or Nigeria have politically charged environments and weak environmental policy track records. The Alberta oil sands industry is in its infancy, Percy said.There were only two operating projects in 2002, although many more players exist today. “I think many players will produce a variety of technical advances very quickly — i.e. there will be competition to spur those advances. But I also think the province has to get much more active and provide incentives for the right kind of advances.” The oil sands have recently been the target of an international, aggressive marketing campaign aimed at comparing the risk in Alberta to that of the BP oil spill. In response, the “mantra of ‘oil sands are really not as bad as you think’ is basically what we have at the moment,
and it's not very effective [at swaying public opinion]," Percy said. “Green oil sands stand alongside clean coal and error-free deepwater drilling in the public's mind at the moment. What we need is to do better in the oil sands than in light crude [production]. If we are to sell it to the public, we have to show why it is better and has less of an environmental impact. We have to have policy to get us there.”
THE SKY IS THE D&O LIMIT Plaintiff counsel in security class action suits are increasingly using the defendant’s level of D&O insurance as a settlement negotiation point before obtaining leave by court, said Jay A.R. Cassidy, a senior vice president at Marsh in Toronto. Cassidy was a panel member during the 2010 RIMS Canada Conference session ‘Recent Trends in D&O Liability’ in Edmonton on Sept. 28. Two recent class action suits in the Ontario courts, Timminco and Orsu Metals, have had a big impact on Canadian class action trends, he said. In both cases, plaintiff counsel sought at a very early stage — after the claim had been filed, but before leave by court had been granted — the production of the defendant’s D&O policy. “Now I can tell you that [the plaintiff bar] doesn’t really care what the definition of ‘wrongful act’ or ‘insured’ is,” Cassidy said. “They want one number and one number only — the limits.” The court allowed the motion in both cases, despite the fact that counsel did not yet have standing as the plaintiff counsel. “This was the ‘Wow’ for the insurance industry,” Cassidy said. “Without getting too far offside, if you wave a steak in front of a lion, they’re probably going to eat it. So if you have a document that says the company has $100 million — and that’s not technically the company’s money, but the insurer’s money — plaintiffs are going to jump at it. “It will amaze you the number of times, over and over again, the level of D&O insurance becomes the settlement negotiation point.”
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Decision 2010 National Insurance Conference of Canada (Montreal)
David Gambrill Editor
Vanessa Mariga Associate Editor
Time Canada’s P&C insurance industry has decisions to make regarding overland flood coverage, underwriting accuracy in an era of low investment yields, insurance fraud, pandemic planning, auto reforms and predictive modeling.
It’s decision time, National Insurance Conference of Canada (NICC) chair Joel Baker told more than 330 delegates attending the NICC in Montreal in September 2009. Baker opened the conference talking about a wide variety of decisions facing Canada’s property and casualty industry. As the conference drew to a close, the number of decisions multiplied far beyond the few that Baker mentioned in his speech. Should Canadian property and casualty insurers buck the status quo and start to offer coverage for overland flood? Are insurers pricing the product correctly now that investment margins
82 Canadian Underwriter October 2010
are razor-thin? How best can the industry overcome the choices of consumers wishing to cheat the system? What kind of models would put a stop to Ontario’s seemingly never-ending cycle of auto insurance reform? How should companies prepare for a pandemic? Should insurers be using credit scoring, insurance scoring or none of the above? All of these questions took centre stage at the NICC.
OVERLAND FLOOD INSURANCE Canada's property and casualty insurance industry is conducting research into the possibility of offering overland flood insurance as part of a homeowner's policy. Panelists at the NICC noted an important distinction between what consumers and insurers define as “flood.” Whereas insurance policies cover basement flooding related to sewer backup, they do not cover damage caused to homes arising from overland flood. Paul Kovacs, CEO of the Institute for Catastrophic Loss Reduction (ICLR), moderated a panel on water damage, ‘Water and Brimstone.’ He said an ICLR study of 2,000 homeowners across the country a few years ago indicates Canadians are clearly confused about whether flood is covered under their homeowners’ policies. “Seventy per cent believed they had [over-
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land] flood insurance,” he said. “They [insurers] don't sell any.” Now that water is about five times more likely than fire to cause damage to a home, it is important for insurers to be on the same page as their customers on the issue of flooding, the panelists said. “When we think about the challenges today, and you put yourselves in the shoes of the consumer...the most frustrating and least understood peril is water,” said panelist Kathy Bardswick, president and CEO of The Co-Operators. “I want to suggest that we are very intently focused on flood, as we should be, but we need to keep in perspective that ‘flood’ is really our term.We understand what that means. But the consumer sees ‘flood’ as sewer backup and water damage…and what it does to their homes. That is an important issue that we need to start thinking about.” The big question for insurers when it comes to overland flood coverage is how to deal with ‘adverse selection.’ Essentially, how will insurers cover the water risks of homeowners fairly, without shouldering a competitive disadvantage by agreeing to insure high-risk homeowners living in areas plagued by water damage incidents? A joint study by Swiss Re and the ICLR, soon to be released, suggests the problem might be addressed by way of “bundling.” That is, water coverage would be bundled into the homeowner's policy along with coverage for fire, theft and other perils. “The bundling effect is really the more appropriate way to go,” noted panelist Sharon Ludlow, president and CEO of Swiss Re Canada. “We came to the conclusion that in the United Kingdom, which is the jurisdiction that had the most ideal model, that is something we could use here in Canada.” Another consideration would be to have a type of ‘facility association’ or risk-pool approach for extremely high water damage risks, along the lines of what is offered in auto insurance. Extensive and consistent flood mapping across the country would be a prerequisite for being able to offer coverage for overland flood, Ludlow said.
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INVESTMENT: THE RAZOR’S EDGE Extremely low investment yields, a product of the financial crisis, means the Canadian property and casualty industry has very little margin for error on the underwriting side, Canada's solvency regulator told delegates at NICC. “The investment yields are just so miniscule today that any misstep on the underwriting side is going to have implications much greater than what we saw years ago,” Bruce Thompson, director of the Office of the Superintendent of Financial Institutions (OSFI), said in the first NICC presentation on Sept. 20.
The investment yields are just so miniscule today that any misstep on the underwriting side is going to have implications much greater than what we saw years ago. Thompson noted investment yields for capital yields hovered around 4.1% for the six years leading up to the financial crisis in 2008-09. Now they currently sit at about 1.8%. “One doesn't have to be a rocket scientist to see what that implies,”Thompson said, adding it will therefore be much more difficult to use investment income as a means to bail out poor underwriting results. Underwriting profitability is already “stressed,” Thompson said. He noted the industry as a whole posted an underwriting profit of just 1% in the first half of 2010, despite optimistic statements that the global recession is turning for the better. “That is a long, long way from underwriting gains that we saw a couple of years ago,” he said.
CHEATERS NEVER PROSPER Research on cheating indicates a lot of people cheating a little bit is much more likely — and costly to society — than a few people who cheat a lot. This research is especially germane to the topic of insurance fraud, as noted at the NICC by Insurance Bureau of Canada president and CEO Don Forgeron.
If insurers are willing to change their approach and remind policyholders about their moral obligations before the purchase, that could help staunch the flow of insurance fraud, suggested Dan Ariely, a keynote speaker at the NICC. “Is the cheating around us really driven by bad apples, people who are inclined to cheat a lot?” Ariely asked in his keynote speech. “Or is it driven by lots of people cheating a little?” Ariely said research studies suggest about 10% of people in any given sample size cheat. He conducted his own research in which people wrote a test.The test subjects were asked to solve as many puzzles as they could in five minutes. After five minutes, they were asked to stop writing the test, shred their test results and throw them away.Then they were asked to report the number of puzzles they completed. Unbeknownst to the research subjects, the researchers knew exactly how many puzzles their subjects had actually finished. “What happens?” Ariely asked, assuming the researchers paid $150 to each person who cheated on the test. “Lots of people cheated just slightly. Of 20,000 people tested, 10 people cheated a lot and made about $150 per person. But of the 20,000 people, about 1,000 cheated a little and they stole $30,000 from us. So if you look in comparison, the big cheaters are a tiny drop in the bucket compared to those who cheated a little.” To change behaviours, insurers would be wise to remind policyholders of their moral obligations at some point early in the purchasing process, Ariely said. For example, insurance policyholders might be asked prior to the insurance purchase if they would be willing to sign a document committing them to contribute money to the creation of an antiinsurance fraud task force. [This was not Ariely's example, but analogous to it.] By committing to do this in advance of the purchase, Ariely suggested, those agreeing to do this would in fact not cheat as a result. “If you remind them about their own morality, there's a chance they will cheat less.”
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PANDEMIC PROCRASTINATION The insurance industry is not prepared for a pandemic and does not know what to expect, Bob Krywiak, executive general adjuster at Crawford Global Technical Services, told delegates at NICC. During the session, ‘Managing Through a Pandemic,’ Krywiak asked delegates to raise their hand if they have handled a pandemic claim. No one did. Kirsty Dunn, Member of Parliament for Etobicoke North, also spoke during the session. She asked delegates to raise their hand if their organization had a pandemic plan. A vast majority of the crowd did. However, when Dunn asked how many of those plans had been reviewed since the H1N1 pandemic of 2009, fewer hands were raised. None were raised when she asked how many had actually conducted drills to test their pandemic plan in the wake of H1N1. “You need to drill those plans and get educated about what we've learned that's new from H1N1,” she said, adding it is no longer acceptable to simply have a business continuity plan in place. “Any action or inaction on the part of the employer [during a pandemic] can and will be questioned,” Krywiak said. “There is a distinct likelihood that decisions will be reviewed after the pandemic and accountability will be imposed in hindsight.”
AUTO REFORM: PLAY IT AGAIN, SAM Ontario is entering into yet another optimistic phase of its seemingly perpetual auto insurance reform cycle, but many within the insurance industry appear to want to break out of this cycle and build an altogether new model for auto insurance in the province. “You get initial optimism,” said defence lawyer Lee Samis, principal of Samis & Company, speaking as part of a panel discussion about the Ontario auto reforms. “Then you start to get a little bit antsy about how the thing rolls out. And then you start to see the other stakeholders play their cards.There are nerves about that because they came up with things we hadn't thought about. And then we get hit hard with some court decisions and arbitration
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decisions that are the pathway to abuses. Then we get cost pressure. Then we go back to government and say, ‘Let's do this again.’ Then we start all over again. “Expect to see the same thing again,” Samis warned, referring to Ontario's new reforms implemented on Sept. 1, 2010. Samis further observed the industry appears to be ready to step off the merry-go-round. He said he personally conducted an informal online survey of people within the insurance industry about the current Statutory Accident Benefits System (SABS). He said more than 100 people in the claims industry responded to his poll. In his survey, no one thought the SABS system in On-
In a study of 2,000 homeowners across Canada a few years ago, 70% believed they had overland flood insurance. Insurers don’t sell any. Now that water is five times more likely than fire to cause damage to a home, it is important for insurers to be on the same page as their customers on the issue of flooding. tario is “right” as of this moment. More strikingly, 30% of the poll respondents said they thought the whole system should be “scrapped” and future reforms should start from scratch. Fortyfive per cent of respondents thought the SABS system required “significant change” in order to work. There was a great deal of discussion at the NICC as to whether Ontario would benefit from a full-tort system, a full no-fault system, or even a Quebec-style model in which auto insurers pay only for physical damages, while the government is responsible for payment of health care provision. Still others asked whether Ontario would benefit from models in Alberta, Nova Scotia, New Brunswick or Newfoundland.
INSURANCE SCORES Canadian auto underwriters would benefit greatly from the use of consumer “insurance scores,” a more sophisticated form of a credit score, Chris Kiah told delegates at NICC. Kiah, president and CEO of Allstate Canada, was a panel member of the seminar ‘Lessons from U.S. Personal Lines Writers.’ “In spite of a mountain of evidence showing how insurance scoring is probably the single most effective predictor tool for future losses, there remains suspicion and resistance to its use on both sides of the border,” Kiah said. He cited two reasons for this: • people don't understand why it works; and • people equate insurance score with credit score. “I can tell you that insurance score is different from credit scoring, in that [insurance scoring] only includes the data from the credit score that have a high correlation with future loss cost.” Kiah did not specify what those factors were during his presentation. “One of the more popular recent questions is how credit-based insurance scores fared in the most recession during 2008-09,” he continued. He drew the NICC delegates' attention to a graph that showed a blue line representing the credit score of the U.S. population, and a pink line representing the U.S. population's insurance score. The vertical axis of the graph denoted the scores; the horizontal axis showed a series of years.The pink insurance score line appears relatively flat. The blue credit score line shows peaks and troughs over the years. “Going into the recession, the credit score goes up as more consumers have issues paying loans and meeting their obligations,” Kiah said. “On the other hand, the insurance score remains relatively stable in historical terms and throughout the recession. “Clearly this illustrates the differences between the two and the fact that the insurance score is very uncorrelated with credit score and that the insurance score is a highly stable variable.”
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Mediating the
Message Consumers are increasingly communicating using methods not used by brokers and insurance companies. Shannon Major Marketing and Communications Manager, Keal Technology
Our digital economy, especially for consumers, is high-contact, multi-touch and often intrusive. Consumers receive between 246 and 3,000 marketing messages a day, depending upon the source consulted.Thus, it’s important to know the different contact points and ways in which you have the greatest impact on your audience. How do you ensure you’re communicating in a way that meets the recipient’s expectations, breaks through the clutter and adds value?
MEANS OF COMMUNICATION Wikipedia defines “communication” as a process whereby information is enclosed in a package and is channeled and imparted by a sender to a receiver via some medium. The receiver then decodes the message and gives the sender a feedback. All forms of communication require a sender, a message and an intended recipient.
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However, the receiver need not be present or aware of the sender's intent to communicate at the time of communication in order for the act of communication to occur. Sounds complicated, but this is accurate. In a heavily regulated industry like insurance, quality communication is imperative and often complicated. Omitted, misinterpreted or misplaced communication may have dire consequences for all involved. For brokers, the challenge is significant.Various forms of communication come from all angles — staff, insureds, prospects, companies, vendors, competitors and so on. How to gather it, where to store it and what to do with it are important questions. The average broker focuses on three primary means of communication: telephone, mail and face-to-face. Email is an emerging contender. The industry as a whole is not typically an early adopter of new technology. How many years have we been trying to solve the broker-carrier communications issue when the technology has long been available to do so?
BROKEN TELEPHONE The scary fact is that consumers are communicating using means other than those used by the industry as a whole. For example, I recently re-
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ceived my post-reform Ontario automobile insurance renewal in the mail. This was the first piece of communication I received from my broker since my last renewal. The paper-rich information package was generally vague and certainly didn’t help advise me. [The language in the renewal notice was required by the provincial government, and was developed in consultation with
The average broker focuses on three primary means of communication: telephone, mail and face-to-face. Email is an emerging contender. reform stakeholders including insurers and brokers.] I opened the mail after the brokerage was closed, so I went online and Googled ‘Ontario auto reform.’The first and only seller of insurance listed on Page 1 of the search result was RBC. A few others appeared on Page 2 (State Farm and Intact, for example), but my instant- gratification Google habits hardly ever take me past Page 1. My broker’s Web site had no meaningful information either. Here was a perfect opportunity for my broker to have demonstrated value as a trusted advisor. Instead I lacked meaningful communication, which in turn sent me researching elsewhere. A simple worksheet, invitation to a Webinar, personalized email, newsletter or phone call would have met my expectations and fostered trust with my broker. According to a study commissioned by RSA Canada and posted on Canadian Underwriter’s Web site, “nearly 70% of Ontario drivers do not understand the impending auto insurance reforms or how the reforms will affect their auto insurance coverage.” Although this example is specific to Ontario, at claims time, brokers across Canada are likely to have heard: “I didn’t know I wasn’t covered.” Insurance is complicated and consumers need to look to their brokers for guidance. Cultivating a trusted relationship will help keep the business from going elsewhere.
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PICKING THE RIGHT METHOD You may be thinking: ‘We don’t have time to contact all policyholders.’ But I would argue, with the right technology, you could. Start by defining your communications objectives as they relate to your overall business strategy. To enhance retention rates, how often should policyholders hear from you and in what format? If you don’t know what format, all you need to do is ask them. Keal conducts an annual satisfaction survey in which we ask our clients where we are doing well and in which areas we might improve. Based on specific criteria, clients are contacted to discuss their survey answers. Honest feedback can sometimes be hard to hear. But in these conversations, trust is developed and learning happens on both sides. Over the past three years, satisfaction levels have increased significantly and spurred development projects as a result. Next, adjust your workflows and configure your broker management system (BMS) to support your communications strategy. Use the client file to indicate each policyholder’s preferred communication method; respond according to their liking. Purposefully gather and store the necessary demographic information and policy details to run reports that build meaningful campaigns. Send out reminders to clean fireplaces and woodstoves in the fall, Christmas scheduling reminder to high-end clients to cover potential new treasures or fire safety tips for Christmas trees. Use your BMS as your first tool for lead generation, run monoline lists and cross-sell umbrella policies for already-rounded accounts. But do so using the client’s preferred communication method.
INCREASING PRODUCTIVITY Our consulting team works with successful brokerages across Canada to increase productivity. Although specific needs vary, often the challenges are incredibly similar. Many realize they could be doing things more efficiently but don’t have the time or information to know where to start. Often there is a significant difference between what
management believes is happening at various levels within the brokerage and what really is. Internal communication strategies require planning and purpose, too. In a call-recorded environment, reviewing calls, coaching during calls and measuring productivity can bridge the gap between corporate policy and actual practice. Technology should be an enabler and Canadian consumers are tech savvy. According to Statistics Canada, 80% of Canadians aged older than 16 (21.7million people) used the Internet for personal reasons in 2009, up from 73% in 2007, when the survey was last conducted. According to Forrester Re-
How easily will clients and prospects find you online? What about the next generation of consumers? They don’t know a world without texting or social media. More than 62% of Canada’s online users are on Facebook, placing us among the most-frequent users in the world. search, almost eight out of every 10 Canadians use social media at least once a month. More than 62% of Canada’s online users are on Facebook, placing us among the most-frequent users in the world. How easily will clients and prospects find you online? What about the next generation of consumers? They don’t know a world without texting or social media. Between your employees and/or their children and friends, you could likely gather enough Generation Xs and Ys to conduct a focus group on their thoughts and expectations about insurance in general, as well as their preferred communication methods. You’ll probably discover they expect to do everything online without speaking directly to anyone, and likely after business hours. Finding a way to provide adequate guidance and coverage will
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gamer is 25-44 years old. Fifty-eight per cent are male, 42% female. A gamer’s annual income is between $35,000 and $75,000. Think of them not just as teenage boys, but rather prospects. Focus groups can be revealing. Last spring, we invited 27 brokers from eight provinces to join 14 Keal employees for three days to discuss future developments of our BMS, sigXP. The re-
HEAD OFFICE Paul Davis Systems Canada · Ken Robinson · 416-299-8890 ONTARIO PDS of Belleville Howard Carveth 613-392-3338 PDS of Brampton/ Guelph Paul Gresham 905-796-6100 PDS of Brantford/ Woodstock Peter Overgaauw 519-751-1900 PDS of Cornwall Brendan Shoniker 613-936-1818 PDS of Durham Region Dave Ronson 905-666-7744 PDS of Etobicoke Russ Toering 416-626-7371 PDS of Halton/ HamiltonWentworth Paul Suddes 905-333-9288 PDS Huron-Perth Alan Berdan 519-482-7371 PDS of Kingston Doug Smith 613-531-7962 PDS of KitchenerWaterloo Glenn Wilkinson 519-570-0438 PDS of London Richard Berardi 519-685-9595 PDS of Mississauga Erwin Pototschnik 905-270-3399 PDS of Muskoka Norm Miners 705-645-5745 PDS of Niagara/ Haldimand Ron Souter 905-984-8200
PDS of North Bay and Nipissing Bob Clarke 705-494-1000 PDS of Orillia Stephane de Caen 705-325-8003 PDS of Ottawa Rick Green 613-822-2734 PDS of Owen Sound Richard Lauzon 519-376-8022 PDS of Peterborough and Kawartha Lakes Clint Hoyle 705-799-7777 PDS of Renfrew County Dean Fuisz 613-732-2335 PDS of Sarnia/ Lambton Marco Fracalanza 519-336-2000 PDS of Sault Ste. Marie Dave Ferguson 705-949-9631 PDS of Simcoe County Stephane de Caen 705-458-8001 PDS of Sudbury Manitoulin Eddie Burritt 705-522-3312 PDS of Thunder Bay Grant Murdoch 807-344-7566 PDS of Timmins and the Claybelt Ron Beaudry 705-360-1124 PDS of Toronto Carmen Siciliano 905-856-5737
PDS of Windsor and Essex County Bruce Jaques 519-776-4567 PDS of York Region Stacey Wicks 905-856-5737
BRITISH COLUMBIA PDS of South Vancouver Art Unruh 604-501-9992
ALBERTA PDS of Calgary John Hill 403-293-2200 PDS of Edmonton Marcel Lefebvre 780-454-4047 PDS of Red Deer Greg Davey 403-342-4666
SASKATCHEWAN PDS of Saskatoon Ken Spetz 306-374-7000
MANITOBA PDS of Winnipeg Dale Dublin 204-586-1684
QUEBEC SPD Charlesbourg Frédéric Langlois 418-653-6666 SPD des Laurentides Sylvain Marchand 450-226-8484 SPD de L'Outaouais Roch Gauthier 819-772-4040 SPD de Laval Inc. Eric Melancon 450-434-5858 SPD Montréal (Est) Stéphane Giroux 514-644-9955
SPD-Mauricie Paul Béland 418-365-5786 PDS of Fredericton Wayne Brown 506-457-9074 PDS of Moncton Chris Shannon 506-382-8285 PDS of Northeast New Brunswick Daniel Albert 506-826-3688 PDS of Northwest New Brunswick Marc Morin 506-473-4555 PDS of Saint John Micheal Hunter 506-633-1108 PDS of PEI Randy Benjamin 902-436-5960 PDS of St. John’s Chris Winsor 709-747-2648 PDS of Western Newfoundland Robin Sullivan 709-686-0726 PDS of Halifax/ Dartmouth Nelson Higgins 902-481-0874 PDS of New Glasgow Jeremy Sutherland 902-695-3223 PDS of Cumberland/ Colchester John Stoker 902-597-2155 PDS of Cape Breton Terry Shannon 902-567-3377
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Responding to your needs
sults helped us validate and prioritize development projects based on user need, which greatly benefits our clients. This was also an opportunity for both sides to understand each other better. Critical enhancement requests from some brokers were useless for others. Peer-to-peer communication offered an opportunity to share best practices and a better understanding that one size doesn’t fit all across Canada. This is especially the case with online adoption. Integrating your Web site directly into your broker management system can not only provide prospects with real time quotes, but even 24/7 issuance
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require rethinking many existing communication strategies. This is where online videos, social media presence and interactive tools may help. For example, one broker, Staebler Insurance Brokers, has developed an online driving game to engage their Facebook visitors. This drives leads to their brokerage Web site. Online gaming is a $15-billion dollar market. The average
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Integrating your Web site directly onto your broker management system can not only provide prospects with real-time quotes, but even 24/7 issuance online. online. Web traffic can be tracked using Google Analytics, a free tool, to measure online advertising return on investment (ROI) based on page views or sales. Want to close the loop? Include voice recording or electronic signatures for completely paperless, straight-through processing. As consumer demands evolve, so too will online ‘self-serve’ service for insureds. Pushing data from the BMS to the broker’s secure Web site will allow consumers to access their information when they want it, and in their preferred format — and not just when the brokerage is open. The technology to do this exists now. Traditional ways to communicate will not vanish anytime soon. My Dad will always call or visit his broker. I, on the other hand, would prefer to leverage technology to research and communicate with service providers at my convenience. In today’s world, that could mean anytime or anywhere, from the convenience of my mobile device, and not just when their physical doors are open.
Consistent with Aviva Canadaâ&#x20AC;&#x2122;s commitment to the broker channel and delivering underwriting excellence, Maurice Tulloch, President and CEO, is pleased to announce the following appointments.
BROKER DISTRIBUTION Tom Reid: Senior Vice President, Broker Distribution, Western Canada Tom is responsible for the growth and performance of our business in Western Canada, including our personal, group, commercial and specialty business. He brings strong industry experience to Aviva, with a proven track record in both company and broker environments. Tom holds an MBA and a BASc in Chemical Engineering.
Joe Vachon: Executive Director, Broker Distribution, National Commercial & Ontario Joe joins Aviva to lead our Ontario GTA region, with an additional mandate to lead our commercial lines partnerships with national and corporate brokers. His 25 years of insurance industry experience from across North America will be a valuable addition to the Aviva team. Joe holds a BSc.
UNDERWRITING Steve Cohen: Senior Vice President, Personal Lines Underwriting and Pricing Steve is responsible for the overall strategy and profitability of our entire personal lines portfolio, ensuring our products are priced, designed and underwritten to meet the needs of brokers and policyholders. He joined Aviva in 2006 and has lead the implementation of significant pricing and underwriting programs, including the Ontario auto reform. Steve is a Fellow of the Canadian Institute of Actuaries and the Casualty Actuarial Society.
Mark Rouleau: Vice President, Underwriting, Western Canada Mark returns to Western Canada responsible for commercial and personal lines underwriting in the region. Mark has broad industry experience, lead our Calgary office from 2006 and for the past year has been responsible for our product management function in Toronto. Mark is a FCIP and holds a CRM.
Elan Satov: Vice President, Personal Lines Underwriting Elan is responsible for personal lines underwriting policy guidelines and system implementations. He has extensive knowledge of the insurance industry through his previous experience as a lead consultant and involvement in managing large business transformation programs. Elan has an MBA and is a member of the Professional Engineers of Ontario.
Aviva Canada Inc. is one of the leading Property and Casualty insurance groups in Canada, providing home, automobile, recreational vehicle, group and business insurance to more than three million customers. The group has more than 3,300 employees, 40 locations, 1,700 independent broker partners and is a wholly-owned subsidiary of UK-based Aviva plc, the worldâ&#x20AC;&#x2122;s six-largest insurance group. For more information visit avivacanada.com. Aviva and the Aviva logo are trademarks of Aviva plc and used under license.
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Habitat for Resilience The Institute for Catastrophic Loss Reduction has helped Habitat for Humanity in London, Ontario build safe and affordable housing based on recommended changes to Ontario’s Building Code.
Greg Oulahen
Research Coordinator, Institute for Catastrophic Loss Reduction (ICLR)
Habitat for Humanity has a long and respected history of working with families to build homes they could not otherwise afford. So it is with great excitement that the Institute for Catastrophic Loss Reduction (ICLR) has partnered with Habitat for Humanity in London, Ontario to make affordable housing more resilient to weather extremes. ICLR has teamed with Habitat for Humanity London on three homes currently being built in the city’s east end. The first home, called the CAW Hammer of Hope build, was constructed in the high-profile parking lot of the John Labatt Centre in downtown London during a week-long blitz build in August 2010. It was subsequently moved to its current, permanent location on the property of a former biker gang clubhouse. The two-bedroom bungalow will become home to a mother and daughter. Beside this home, a duplex is currently being built to house two other families. These homes are the most energy-efficient homes ever built by Habitat London. Due to a new partnership with ICLR, they are also now the most disaster-resilient. As reported in the August 2010 issue of Canadian Underwriter, ICLR has made three submissions to the current Ontario Building Code update process;
94 Canadian Underwriter October 2010
each of these changes to construction is showcased in the three new Habitat for Humanity London homes.
HABITAT FOR HUMANITY Habitat for Humanity’s homeownership program helps families in financially vulnerable situations build and buy quality affordable homes by reducing the barriers to homeownership. Habitat sells the homes to the homeowner with no down payment, an interest-free mortgage and monthly payments set at a maximum of 30% of their gross income. The program gives families access to affordable housing while allowing them to build equity to help themselves escape the cycle of poverty. Habitat keeps the costs of new homes down by using modest designs, donated materials, volunteer labour and reinvesting mortgage payments from other homeowners back into the program. Homeowners put in at least 500 hours of “sweat equity” into the construction of the home and participate in homeownership preparation sessions. More than 50,000 people have volunteered with Habitat for Humanity Canada — including professional tradespeople donating their time and expertise, as well as first-time homebuilders
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looking to contribute to their community while learning about residential construction. The Habitat for Humanity London affiliate was established in 1993. It has since built 24 homes. The organization will complete 10 housing projects in 2010, including local builds and renovations as well as two builds in Bolivia. This is the organization’s most ambitious year to date. Since ICLR is affiliated with the University of Western Ontario in London, working with Habitat London is a great opportunity for community partnership and a chance to advance the work of both organizations.
BUILDING TO A NEW CODE All new construction and renovations in Canada must satisfy the requirements of the building code used in each province. Building codes exists to ensure buildings are well constructed and safe for the occupants in everyday conditions as well as during more extreme conditions such as severe weather. Building codes are unique in different regions of the country due to local climate differences, local weather and local soil conditions. For instance, building codes are more demanding of earthquake-resilient construction measures in British Columbia and more demanding of wind resilience in Atlantic Canada. In Ontario, two primary hazards are water and wind damage. A stronger building code focusing on mitigating the effects of these hazards could reduce their human and economic costs. ICLR has therefore made three submissions to the Ontario Building Code update process in order to make the new code stronger. Each submission is based on the research findings of engineering professors at the University of Western Ontario and recommendations of experts within Canada’s property and casualty insurance industry. Submissions have been made to the Building Code update process; they are currently subject to a detailed review process and comments from other construction industry groups before they are accepted or rejected. ICLR’s recommended changes to the building code include:
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• hurricane straps on wall-roof connections in the garage; • nail spacing of 6” instead of 12” on roof sheathing; and • backwater valve on sanitary sewer lateral. ICLR’s first submission is that the roof trusses in a garage that is attached to the front or side of a house be connected to the wall studs using hurricane straps. In the Habitat London homes, this was taken a step further: hurricane straps connecting roof trusses to wall studs were installed throughout the entire home. Hurricane straps are designed to keep the roof connected to the walls in the event of wind loading and uplift on the roof. When windows or doors break, internal pressure in the house can change and dramatically increase the uplift on the roof. Keeping the roof securely down prevents rain from entering the house, which can greatly increase damage costs. Also, it prevents
Habitat’s mission to provide decent, affordable housing is well-matched with ICLR’s mission to create safe and resilient communities. debris from entering the wind field, which causes downwind damage. Much of the damage caused by the 2009 Vaughan tornadoes was due to roofs not being properly connected to the walls of the homes. The second building code submission is that nail spacing should be six inches instead of 12 inches on roof sheathing. Studies undertaken at the Insurance Research Lab for Better Homes at the University of Western Ontario indicate that decreasing the spacing of nails that fasten the roof sheathing from 12” to 6” would increase the uplift capacity of each roof panel by 100%.The code currently requires maximum spacing of 6” along panel edges and 12” along intermediate supports.This spacing schedule results in 33 nails per typical sheet of 4’x8’ roof panel. Decreasing spacing to 6” throughout the entire panel increases the number of nails used from 33 to 45
(only 12 nails), while doubling the uplift capacity of the sheathing. The third submission is the installation of a mainline, open-port backwater valve directly into the sanitary sewer lateral.The backwater valve serves to reduce the risk of sewer backup entering the home through the basement floor drain or other plumbing fixtures. Municipalities are increasingly adopting backwater valves as one tool in the basement flood reduction tool kit. ICLR believes the requirement of backwater valves on all new homes vulnerable to sewer backup will significantly reduce urban flood damages across Canada.
DECENT, AFFORDABLE HOUSING Each of the three submissions made by ICLR to the Ontario building code update process is showcased in the three homes currently being built by Habitat for Humanity in London. In addition, hurricane straps were installed throughout the entire home rather than in just the garage. Steel-braided hoses were installed on all plumbing fixtures in order to reduce the risk of pipe-burst water damage. Based on insurance industry experience, steel-braided or armoured hoses are much more durable and less likely to crack or break than the standard rubber or plastic hoses. The total cost of the four construction improvements is less than a few hundred dollars per house. This includes all of the materials including hurricane straps, additional nails, backwater valve and plumbing hoses. Of course, the cost of the materials will decrease as the quantity purchased increases, making these improvements even more attractive on a larger scale. By combining our expertise, ICLR and Habitat for Humanity have applied engineering research findings and insurance industry experience to make much-needed housing in London meet construction standards that will significantly reduce disaster losses. Habitat’s mission to provide decent, affordable housing is well matched with ICLR’s mission to create safe and resilient communities. Exciting possibilities lie ahead for these two organizations to continue to work together.
INSURANCE MEDIA GROUP INSURANCE – we have it covered. Canadian Underwriter’s Insurance Media Group is committed to providing the most timely and relevant news, information and resources to insurance professionals from all segments of the industry, providing marketers with a range of specialized and highly effective marketing communications opportunties.
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UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
ACE Limited has acquired Rain and Hail Insurance Services Inc. for approximately $1.1 billion in cash, subject to regulatory and shareholder approvals. Headquartered in Johnston, Iowa, Rain and Hail is the second-largest crop insurance underwriter in the United States and Canada. ACE says the transaction is expected to be complete by the end of 2010. Prior to the acquisition, ACE owned approximately 20% of the outstanding common stock of Rain and Hail. Rain and Hail will continue to operate as a separate and distinct franchise with the company's ACE Westchester division and Insurance-North America operations. ACE anticipates a return on capital in excess of its 15% hurdle rate, or the minimum acceptable rate of return.
2
Gilbertson Davis Emerson LLP has recruited accident benefits and insurance defence counsel Joan Takahashi to its team of insurance lawyers. Takahashi previously practised with a large firm in Toronto and has nearly 20 years of insurance defence experience. She also spent more than 10 years working in the insurance industry in multi-line claims adjusting, as well as in super-
98 Canadian Underwriter October 2010
visory roles in casualty and property, personal and commercial lines.
3
Hub International Limited (Hub) has acquired the shares of Sinclair Cockburn Financial Group (SCFG), a Toronto, Ontario-based insurance and financial services firm with approximately $11 million in annual revenues. Under the terms of the acquisition, Hub acquired the property and casualty, personal insurance and group/life insurance operations of SCFG, but not SCFG’s mortgage and mutual fund business. Jim Aston, Kelly Sinclair and Jim Grieve, SCFG’s three majority shareholders, will all join Hub as part of this transaction. Grieve, president of SCFG, will become part of Hub Ontario’s leadership team, reporting to Neil Morrison, president and CEO of HKMB Hub International Limited. Established in Toronto in 1953, SCFG is a diversified insurance and financial services company with more than 15,000 customers operating throughout Canada. In addition to its Toronto headquarters, SCFG also operates out of Pickering, Ontario. SCFG received the Insurance Brokers Association of Ontario’s Brokerage of the Year Award of Excellence in 2009. The brokerage specializes in a
2 number of areas, most notably a professional liability unit focused on architects and engineers. Other practice areas include construction, surety and national programs (horticultural trades, dairies, non-profits and other retail programs).
4
Chesterfield Canada has brought its sabotage and terrorism product to the Canadian market. The product expands the scope of the terrorism peril, which is traditionally defined as an act of a foreign government or organization. Under Chesterfield’s product, the peril would also include the act of domestic individuals or groups with a grudge against a business or institution. There have been a number of high-profile incidents of property damage around the world in which terrorism insurance provided inadequate coverage, said Gary Hirst, Chesterfield Canada’s director of marketing. “In the hour of need, when you expect your
5 insurance policy to respond and it doesn’t, we want to offer clarity in the coverage our clients buy from us.”
5
The Insurance Institute of British Columbia has announced its 2010-2011 governing council. Mike Dakin [5] of ICBC will serve as president. Wes M. Chowen of Pat Anderson Insurance Group will serve as first vice president, academic division. Pierre Chavigny of Claimspro is the new second vice president, professional division. Jan Brownridge of Munich Reinsurance Company of Canada will be the council’s new secretary and treasurer.
6
A key rainmaker in the insurance industry, Robert Clements, died of cancer at the age of 77 on Sept. 4. Clements was co-founder and non-executive chairman of Integro, an insurance broker and risk management firm, and most recently founded and was a
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8 7a director of Bermuda-based Ironshore. At Integro, John (Jack) Byrne will succeed Clements as chairman of the board. Prior to co-founding Integro in 2005, Clements was chairman of Arch Capital Group Ltd., which he established in 1995 following a long career at Marsh & McLennan Companies Inc. At Marsh, he was president and member of the board of directors. He also was the founder of Marsh & McLennan’s private equity business, MMC Capital Inc. He served as MMC Capital's CEO until 1996. “Bob Clements had a legendary career, immense impact on the insurance industry and was a mentor to many of us in it,” Integro president and CEO Peter Garvey said in a statement. Clements, a graduate of Dartmouth College, is survived by Marilyn, his wife of 55 years, his four children and their spouses and 12 grandchildren. Byrne joined Travelers Insurance Company, early in his career and
7b subsequently burnished his reputation with the turnaround of a struggling GEICO, which he joined as CEO in 1976. A rags-toriches story, GEICO was subsequently sold to Warren Buffett. Byrne and Buffett then worked together at the Fireman’s Fund, the largest IPO of its time. Byrne continued to lead White Mountains Insurance Group, a financial services holding company, after the sale of its Fireman’s Fund division to Allianz of Germany in 1990.
7
Applied Systems Client Network (ASCnet), the users group for Applied Systems’ agency management technology, has elected Brian Bartosh [7a] to serve as its 2011 chair. Bartosh is the president of Top O’ Michigan Insurance, based in Alpena, Michigan. Maureen Boeing [7b], vice president at Landmark Insurance Agency in Cincinnati, has been elected ASCnet’s 2011 vice chair.
XN Financial has launched XN Special Risks, a virtual storefront providing Canadian insurance agents and brokers online access to a broad range of domestic and international specialty product lines. XN Special Risks’ online systems are designed to enable agents and brokers to submit insurance applications in a one-step, real-time process, thus expediting the paperless management of insurance programs. “Our virtual storefront creates a competitive advantage for brokers, as the rating, quoting, binding and issuance of insurance documents is facilitated by our simplified Webenabled applications,” said Dan Anber, president and CEO of XN Financial. XN Special Risks products are supported by Lloyd's of London and other domestic and international insurance carriers.
9
Compu-Quote announced the launch of a quoting module for individually rated commercial automobile (IRCA). The service is available via Compu-Quote’s AutoRater to brokers with rates for Aviva Canada, AXA Insurance, Intact Insurance and The Economical Insurance Group. The IRCA quoting application is a Web-based module,
embedded in AutoRater, designed to provide full underwriting and simultaneous, comparative quoting for multiple IRCA rate plans in a given province. It works in conjunction with the current CQ Commercial Quick Quote Module, but is enhanced to permit the gathering of additional IRCA specific underwriting and rating data. The application provides for quoting for additional classes, allow for expanded policy coverages and limits and offer expanded endorsements and policy forms.
10
Issurances Evolution Inc. has agreed to offer Ironshore Canada Ltd.'s specialty casualty risk to the Quebec market. This is in addition to offering Ironshore's financial and professional lines, environmental liability and specialty property and marine products to the Quebec market. “This agreement enables us to expand our product base beyond our current casualty focus and broaden our present underwriting appetite,” said Yves Daigneault, Evolution’s president. Mike Wills, Ironshore Canada’s president and CEO, said Evolution's local presence, service, innovation and expertise will strengthen Ironshore's relationships with Quebec brokers and clients.
October 2010 Canadian Underwriter
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The 2010 Canadian Association of Insurance Women (CAIW) AGM & Convention was hosted by the Nova Scotia Insurance Womenâ&#x20AC;&#x2122;s Association and held at the Halifax Marriott Harbourfront Hotel on June 9-13, 2010. The annual convention was an opportunity for CAIW members and guests to network and enhance expertise and knowledge of current industry issues and trends. About 150 people attended from across Canada. Key convention features included business meetings, networking sessions, CAIW board elections and an Education Day.
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Disaster Restoration Services
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Jeff Sutton Greg McCutcheon, President of SCM Risk Management Services Inc. is pleased to announce the appointment of Jeff Sutton to the position of National Director, iClarify. Reporting to the President of RMS, Jeff will oversee all aspects of the dayto-day operations of iClarify across Canada. He will be responsible for the consistent enhancement of iClarify services along with the overall promotion of new business. Jeff will also work in consort with the Senior Vice-President, Sales and Senior Vice-President, Operations for RMS in developing and communicating process changes and promoting RMS’ guiding principles and standards throughout Canada. Jeff has provided information services and solutions to the Canadian Property and Casualty, Financial Services and Private Corporation market since 2000. Jeff’s experience in providing integrated business solutions and professional services to insurance underwriting and claims departments position him firmly for success in this new role. Jeff is currently working towards his MBA designation. SCM Risk Management Services Inc. is Canada’s largest and leading edge provider of inspection, loss control, appraisal/valuation services, risk management and other specialized risk consulting solutions. They are part of SCM Insurance Services, the largest privately-owned provider of claims management, risk management and related services in Canada. www.scm-rms.ca
102 Canadian Underwriter October 2010
More than 20 exhibitors attended the Canadian Independent Adjusters’ Association (CIAA) Annual Conference held in Victoria, B.C. on Aug. 2629, 2010. The exhibitors were thrilled to be front-and-centre during the welcome reception and see more exhibit time at the following morning’s networking breakfast.
CAIW Ad 10-AB-CUW
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congratulations to CAIW Insurance Award winners. Essay Contest Award Sponsored by: Wawanesa Mutual Insurance Company Winner: Madeleine Gravel of Montreal Assoc of Ins Women Public Speaking Contest Award Sponsored by INTACT Insurance Winner: Michelle Cole-Kennedy of Toronto Ins Women’s Assoc COWAN Insurance Group Award Sponsored by Cowan Insurance Group Winner: Manitoba Association of Insurance Professionals Insurance Information Week Award Sponsored by Aviva Canada Inc. Winner: Nova Scotia Insurance Women’s Association Travelers Education Award sponsored by Travelers Insurance; Split into three Territories – winners as follows: Western: Edmonton Association of Insurance Women Central: Toronto Insurance Women's Association Eastern: Montreal Association of Insurance Women
All members of CAIW would like to say THANK YOU to all of the Sponsors, Donors and participants of our 2010 Convention held June 9th to the 13th, 2010 in Halifax, Nova Scotia; our event’s success is only possible through your sponsorship! THANK YOU Nova Scotia Insurance Women’s Assoc Stewart McKelvey Foster & Company Integrity Collision Network McInnes Cooper Avis Budget Group Aviva Canada Inc. Insurance Bureau of Canada Portage La Prairie Mutual Ins Company Toronto Insurance Women’s Assoc Wawanesa Mutual Insurance Co The Boiler Inspection & Insurance Co of Canada Cox & Palmer Desjardins Financial Security DLS Group Insurance Women’s Assoc of Western Manitoba London Ins Professionals Assoc Montreal Assoc of Insurance Women Munich Reinsurance Company of Canada Patterson Law ServiceMaster of Canada The Sovereign General Insurance Company Travelers Canada Winmar Property Restoration Specialists Alfred J. Bell & Grant Insurance Limited
Anderson Brown Company Insurance Autolot Collision Limited Better Service Insurance Ltd Bingham Robinson MacLennan Ehrhard Teed BW Armstrong Insurance Agency Limited BurkeCo Investigations Inc. Caldwell-Roach Agencies Limited Canavans Central Appraisal (1999) Limited CARSTAR Automotive Canada Inc. Chapman Auto Body Limited Charles Taylor Adjusting Chubb Insurance Company of Canada ClaimsPro, an SCM Company Crawford & Company (Canada) Inc. Davidson Insurance Ltd. The Dominion Eastern Office Supplies Limited Emino’s Autobody & Collision Center Inc. The Economical Insurance Group First General Services (Halifax) Ltd. Forensic Investigations Canada Inc. Fraser & Hoyt Insurance Limited The Guarantee Company of North America Greg Hatt’s Autobody & Collision Ltd. Groupe Urgence Sinistre G.U.S. Inc.
Halifax Shopping Centre Hatley Stores Independent Insurance Brokers Inc. Insurance Professionals of Calgary Kempton Appraisals (Bridgewater) Limited Keizer’s Auto Body Shop Limited K & K Insurance Group Inc., Canada Lombard Canada Ltd. Mahone Bay Trading Company Ltd. Manitoba Association of Insurance Professionals Marsh Adjustment Bureau Limited Merit Insurance Premium Financing Plant Hope Adjusters Ltd. Ritch Durnford Lawyers Royal & Sun Alliance Insurance Company of Canada Russell Insurance Group Limited Saunders Motor Company Limited Steve Lewis Auto Body Strum Environmental Services Limited Vaughne Assurance Ltd. Trisura Guarantee Insurance Company Wentzell Engineering Limited Yarmouth Insurance Services Zive Insurance Limited We sincerely apologize if we missed you in our “Thank You” for your generous support list.
The 2010-2011 CAIW Executive and Directors
w
We look forward to seeing you May 25th to the 29th, 2011 in Montreal, Quebec
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The 26th annual Canadian Independent Adjusters’ Association (CIAA) Annual Conference in Victoria, B.C. featured continuing education sessions on topics such as indemnity control for both property and casualty claims, water restoration and subrogating success. The conference concluded with the president’s banquet and ball, when Mary Charman, branch manager at Crawford & Company (Canada) Inc., became the association’s newest president.
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Gloria J Balls, CIP CAIW President 2010-2011 The Canadian Association of Insurance Women (CAIW) would like to announce the appointment of Gloria J Balls CIP as President for the 20I0-2011 term. Gloria is currently employed by May McConville Insurance Brokers in London Ontario as Supervisor, Personal Lines. She is a member of the Insurance Institute of Ontario and the Insurance Brokers Association of Ontario Gloria is a Past President of the London Insurance Professionals Association, and has been an active member of LIPA since 1979. In 2006 LIPA presented her with the Outstanding Service Award. She has served on the Board of Directors of CAIW since 2003 and on the Executive board since 2006. In her spare time, Gloria has, for several years been a volunteer on the Oncology Ward of the London Health Sciences Hospital, assisting cancer patients and their families. CAIW is made up of 10 chapters across Canada, and provides excellent opportunities for their members to better themselves both professionally and personally through networking and continuing education.
www.caiw-acfa.com October 2010 Canadian Underwriter
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The Insurance Brokers Association of Canada (IBAC) held its 2010 Annual General Meeting at the Fairmont Algonquin Hotel in St. Andrews, New Brunswick. Although high winds on the high seas postponed a scheduled whale watching tour on Sept. 17, there was still plenty of action at the conference, including the President’s Dinner and Entertainment on Sept. 18. IBAC welcomed its new president, Fraser Lyle, and recognized the dedicated work of several of its executive members.
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Canadian Underwriter October 2010
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Delegates of the 2010 National Insurance Conference of Canada (NICC), held in Montreal, Quebec, enjoyed the opportunity to share refreshment and conversation during the opening night of the conference and before enjoying the gala dinner. More than $14,000 was raised in lieu of speaker gift donations, in addition to a silent auction and raffle for WICC Quebec Chapter, the 2010 NICC charity of choice.
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CU Seminar ad Oct 2010
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Putting the pieces together.
Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
CIP Society Events and Seminars Vancouver - PROedge Seminar: Advanced Professional Liability . . . . . . . . . . .October 19
Hamilton - Leading Insurance Liability cases of 2009-2010 . . . . . . . . . . . . . .November 10
Toronto - Leading Liability Cases of 2009-2010 . . . . . . . . . . . . . . . . . . . . . . . .October 26
Vancouver - PROedge Seminar: Advanced Business Interruption . . . . . . . .November 16
Calgary - PROedge Seminar: Ethics and the Insurance Professional . . . . . . . .October 27
Toronto - At the Forefront with Fabian Richener . . . . . . . . . . . . . . . . . . . . . .November 23
Toronto - Palette to Palate - Wine Tasting Event . . . . . . . . . . . . . . . . . . . . . . . .October 28
Halifax - “How Can I Get Through to You?”with D. Glenn Foster . . . . . . . . .November 24
Ottawa - Finance for the Non-Finance Professional . . . . . . . . . . . . . . . . . . . . .October 28
Surrey - PROedge Seminar: Boiler and Machinery Insurance . . . . . . . . . . . . .December 2
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
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Index
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ADVERTISERS’ INDEX ACE INA Insurance A.M. Best A M Fredericks Underwriting Management Inc. Aviva Canada Inc.
9 23 111 33, 93
FirstOnSite Restoration FM Global
47
Great American Insurance Group
25
29
GroupOne Underwriters
Brovada Technologies Incorporated
89
Impact Auto Auctions
Canadian Litigation Councel
103, 105
79
The Guarantee Company of North America
Berkley Underwriting Managers Canada, Ltd. CAIW
18, 19
Insurance Brokers Association of Canada (IBAC)
5 73 12, 13
81
Insurance Institute of Canada
Canadian Underwriter magazine Insurance Media Group
97
Intact Insurance
CARSTAR Automotive Canada
35
iter8
49
Catlin Canada
38
Keal Technology
77
CG&B Group
71
McLarens Canada
39
Chartis
53
Paul Davis Systems (PDS)
92
Chesterfield Canada Inc.
61
Pencross Financial Corporation
31
Chubb Insurance
51
PolicyWorks
45
55
RIBO
CNA Canada Compu-Quote, Inc. Crawford & Company (Canada) Inc.
115 (IBC) 2 (IFC)
Risk Management Services – An SCM Company RSA – Royal & Sun Alliance Insurance Company of Canada
6, 7, 65, 85, 110 42, 42a (insert) , 43
54 102 1a, 1b, 21, 69
Creechurch International Underwriters Limited
91
ServiceMaster of Canada Limited
CULE Insurance
75
Swiss Reinsurance Company Canada
37
Cunningham Lindsey Canada
11
Totten Insurance Group
87
Custom Software Solutions, Inc.
27
The Ontario Broker magazine (IBAO)
Delphi Professional Underwriters
109
The Wawanesa Mutual Insurance Company
101
106 116 (OBC)
e2Value Inc.
57
WICC
Ecoinsurances c/o Chesterfield Group, Lloyds Brokers
67
WINMAR
95
The Economical Insurance Group
59
XL Insurance
17
Elliott Special Risks LP
83
XN Financial Services Inc.
76
Zurich Canada
63
Fortify Network Solutions
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Congratulations to our Change For Change Winners! WICC Ontario is pleased to announce RSA, DAS Canada and Worden Insurance & Financial Services Ltd. as the second quarter winners of our Change For Change industry challenge. The impressive fundraising efforts of these companies have significantly helped us reach our annual goal of $20,000 and takes us another step closer in our efforts to make cancer history. Thereâ&#x20AC;&#x2122;s still time to join the challenge. Visit our website www.wicc.ca for details on sign up and contest rules.
Thank you for joining WICCâ&#x20AC;&#x2122;s Fight Against Cancer.
Design compliments of Informco
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The fourth annual National Insurance Conference of Canada (NICC) featured speakers such as General Rick Hillier, former Canadian chief of defence staff; conference emcee Amanda Lang, senior business reporter for CBC News and cohost of The Lang and Oâ&#x20AC;&#x2122;Leary Exchange; Dan Ariely, behavioural economist and author; and OSFI senior director Gilbert Menard and OSFI director Bruce Thompson, to name a few. Speakers offered insights on current trends and the state of Canadaâ&#x20AC;&#x2122;s property and casualty industry.
114 Canadian Underwriter October 2010
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