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
JA N U ARY 2 0 1 2 A Business Information Group Publication #40069240
Arm’s Length BY DAVID GAMBRILL
Giving Notice BY MICHAEL S. TEITELBAUM
Plumbing Problems BY FRED J. ABLENAS
One million reasons to celebrate It’s always exciting to start off a new year with good news. It’s even better when the news is great. Thanks to the overwhelming and passionate support of Brokers, organizations and thousands of Canadians, ideas from across Canada will soon benefit from the $1 million Aviva Community Fund.
Winners announcement – January 25, 2012 Visit www.AvivaCommunityFund.org or AvivaPartner.ca for complete details. Aviva – Partnering with you for community change.
“Whether the idea we’re supporting wins in the Aviva Community Fund or not, the momentum we’ve got to help drive community change is amazing. Our community is already a winner just by bringing people together to rally around this cause. Not only are we supporting our community, but the Aviva Community Fund also helps market our brokerage and gives me even more confidence recommending Aviva to customers.” George McCarter, President of Pearson Dunn Insurance Inc. Supporting St. Joseph’s Villa / Seniors In Motion (S.I.M.) Gym (Idea #10954) *Aviva and the Aviva logo are trademarks of Aviva plc and used under license by Aviva Canada Inc. and its subsidiary companies.
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VOL. 79, NO. 1, JANUARY 2012 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca
COVER STORY
Arm’s Length
32 FEATURE
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Giving Notice
Social Media Investigations
In the context of a commercial insurance policy, an Ontario court finds an insured is not the only party that can give notice of a claim.
Now that insurance companies and adjusters are using social media to investigate claims, do companies have formal policies that govern access to claimant social media information?
BY MICHAEL S. TEITELBAUM
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BY CRAIG HARRIS
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Cracks in the Plumbing Links have been drawn between flexible supply hose plumbing failures and the storage of everyday cleaning products. Who should warn about what? BY FRED J. ABLENAS
New-Look Law Firm Advanced technology and cost pressures have insurance companies and law firms coming up with new ways of doing claims business together.
SCM Insurance Services recently acquired two independent medical examiners (IMEs), triggering a high-level discussion within the claims community about how courts and arbitrators might view common corporate ownership between independent adjusting firms and IMEs. Many believe the arm’s length distance between the companies insulates the industry from any appearance of conflict.
12 Home Warranties
48 Sea Change, Part 2
Ontario property claims adjusters must use insurance restoration contractors registered with the province’s home warranty corporation.
Canadian Underwriter’s Vanessa Mariga reports from Churchill, Manitoba on the links between insurance, climate change and polar bears.
BY ROBERT CURRY
BY VANESSA MARIGA
24 Hot Water Warranties
52 Evolution of TPAs
Implied warranties associated with leased products apply not only at the outset of the term of the lease, but for its entirety.
The qualities and design of third party administrators in Canada have shifted over time.
BY HILLEL DAVID AND MARK MASON
44 Pain in the Neck Injured insureds who want out of Ontario’s new Minor Injury Guideline (MIG), which caps minor injury claims at $3,500, are taking advantage of a little known provision in the Insurance Act. BY SARA PENNY
BY ED DOYLE
58 User Experience Advantage Before going down the road of agency portals, insurers should first investigate user experience platform (UXP) technologies. BY WENDY AARONS-CORMAN
63 Detection Triangle A combination of consortium data, in-house data and leadingedge analytics technology creates the perfect fraud-fighting trio. BY DAN McKENZIE
BY LOUIS A. FRAPPORTI AND RALPH D’ANGELO
January 2012 Canadian Underwriter
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VOL. 79, NO. 1, JANUARY 2012
PROFILE
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796 Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793
10 Positive Projections Incoming OIAA president Steve DelGreco says the association will continue to focus on enhancing the training and education of its membership during his term. BY VANESSA MARIGA
SPECIAL FOCUS
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Editorial
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Marketplace
Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800 Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788 Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122 Account Manager Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
Art Director Gerald Heydens Art Consultation Sascha Hass Production Manager Gary White (416) 510-6760 Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549 Circulation Manager Mary Garufi mgarufi@bizinfogroup.ca (416) 442-5600 ext 3545 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou
Connect with Canadian Underwriter
66 Moves & Views
twitter.com/CdnUnderwriter
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68 Gallery
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www.CanadianUnderwriter.ca/MediaGroup 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 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 Phone: (416) 442-5600. 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, 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 Subscription Rates: 2011 Canada 1 Year $49.95 plus applicable taxes 2 Years $73.95 plus applicable taxes
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Canadian Underwriter January 2012
Education is the key to your success!
Insurance Institute National Education Week 2012 February 27 to March 2 Unlock your career potential and enhance your professional development by taking advantage of the special seminars and events on offer during National Education Week!
In the increasingly complex world of insurance, continuous learning isn’t an option—it’s essential. With events held throughout Canada on a variety of relevant and topical industry issues, National Education Week offers rewarding opportunities to help you set yourself apart from others in the industry. To find out what’s on in your local area, visit the website or contact your local Institute or Chapter.
www.insuranceinstitute.ca/NationalEducationWeek
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EDITORIAL
Ontario Auto Still Bent Out of Shape
One year doesn’t make a trend, but the fact that insurers’ auto liability costs are increasing significantly even over one year points to the need to finish the job on Ontario’s auto reforms. David Gambrill, Editor david@canadianunderwriter.ca
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Canadian Underwriter January 2012
Before Ontario introduced its auto insurance reforms back in September 2010, insurers sounded a cautionary warning that apears to be supported by 2011 Q3 statistics from the Office of the Superintendent of Financial Institutions (OSFI). Prior to the implementation of the Ontario auto insurance reforms, insurers were concerned that whatever cost savings the reforms might be able to achieve on the accident benefits side might be offset by increasing costs on the tort/liability side. The root of the insurers’ concerns at the time was a lack of clarity about what impact a proposed future catastrophic impairment definition might have on insurers’ costs. If the proposed definition of a catastrophic injury is too loose, for example, trial lawyers could opt to sue for damages in tort instead of trying to go through accident benefits instead. An expert panel issued a report to FSCO earlier this year with recommendations on a new definition for catastrophic impairment. Thus far, we don’t have any public word from FSCO on what the new definition will be. Similarly, a promised new, permanent Minor Injury Guideline (MIG) was at the time — and still is — up in the air. The MIG determines which injuries will fall under
the legislated $3,500 cap on minor injuries. If the cap is not tightly defined, insurers say, that might give trial lawyers an opportunity to take their claims outside the framework of the MIG, potentially raising costs for insurers. An interim MIG is now in place and is supposed to tide the industry over until a permanent one is established. Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), has indicated it expects the permanent MIG to be ready in 2014. So with all of these “interim” transitional frameworks in place, what are the numbers showing one year into the reforms? Not surprisingly, the numbers are showing that accident benefits claims ratios are coming down. In some instances, insurers are actually starting to make money on the product again for the first time in more than three years. But sure enough, these gains have come at the expense of auto liability claims ratios, which appear to be on the rise. OSFI’s 2011 Q3 figures show that claims ratios of Canadian federally regulated insurers on the auto liability (tort) side increased from 66.62% as of 2010 Q3 to 76.82% over the same period this year. In comparison, auto liability claims ratios were at 65.66% in 2009 Q3, which makes the
10% difference over the span between 2010 and 2011 leap off the page. The auto liability numbers are not much better — worse, in fact — for federally regulated foreign companies licensed to do business in Canada. Their auto liability claims ratio stood at 69.07% in 2009 Q3. That crept upward to 73.01% in 2010 Q3. By 2011 Q3, it was a whopping 114.02%. Claims ratios higher than 100% indicate insurers are losing money in that particular area of auto insurance. So put simply, OSFI’s numbers suggest that even though Canadian insurers have started to make money on the accident benefits side of the auto insurance business, or at least not lose as much money (foreign insurers have seen their personal accident claims ratios go down from 220.6% to 129.1% over the past year), something is still amiss. And that something is the recent escalation of auto liability claims costs. One year doesn’t make a trend, but the fact that these costs are increasing significantly even over one year points to the need to finish the job on auto reforms. This means something more than a transitional approach to catastrophic injury and the forthcoming permanent minor injury guideline.
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MARKETPLACE
Canadian Market AUTO PERSONAL ACCIDENT LINES IMPROVE AFTER ONTARIO AUTO REFORMS Automobile personal accident lines showed a huge improvement in 2011 Q3 compared to the same period last year, according to figures released by the Office of the Superintendent of Financial Institutions (OSFI). During the third quarter of 2010, Canadian insurers automobile private passenger personal accident lines stood at 125.4%. Over the same period this year, after Ontario introduced its auto insurance reforms, the claims ratio had been shaved down to 75.67% Foreign insurers had a claims ratio of 220.57% in auto personal accident lines in 2010 Q3, a figure that had almost been halved (to 129.16%) in 2011 Q3.
Claims ALBERTA WINDSTORMS CAUSE $200 MILLION IN DAMAGE Estimated insured damage caused by windstorms that hit southern Alberta in November amounts to at least $200 million, Insurance Bureau of Canada (IBC) reports, citing a preliminary estimate reported by Property Claim Services Canada
8 Canadian Underwriter January 2012
(PCS-Canada). Data collected by PCSCanada, a service that tracks insured losses arising from catastrophic events in Canada, confirms that thousands of claims have been filed for damage to homes, cars and businesses in the wake of the storm. “Thankfully, there were no serious injuries, and insurance should cover most of the damage,” said Doug Noble, IBC vice president of Alberta. “There is no doubt that we are seeing more and more the impact of severe weather in Alberta.” Over the past three years, Alberta insurers have paid out approximately $2 billion in damages resulting from five disasters.
MUNICH RE, SCOR ESTIMATE THAI FLOODING TO BE MORE THAN $800 MILLION Munich Re and SCOR have estimated their losses due to Thai flooding to be roughly Cdn$674 million net before tax (Munich Re) and Cdn$188.5 million, net of retrocession and before tax (SCOR). In view of the marginal penetration of flood insurance for residential properties in Thailand, the losses caused by this event will come almost entirely from manufacturing and supply chains, a SCOR release says. The floodwaters are still slowly draining away in some
of the industrial areas with the highest exposure, creating difficulty for adjusters to access the affected areas. “A large number of electronic key component manufacturers were affected, leading to production delays and disruptions at client businesses,” SCOR said. Munich Re said “approximately 25% of the world's supply of components for computer hard drives is manufactured in Thailand and was thus directly impacted by the floods.”
PSYCHOLOGICAL AND PHYSICAL IMPAIRMENTS CAN BE COMBINED TO DETERMINE CATASTROPHIC IMPAIRMENT: ONTARIO APPEAL COURT Psychological and physical impairments can be combined for the purpose of determining whether or not an injured person has a catastrophic impairment, the Ontario Court of Appeal has ruled in Kusnierz v. Economical Mutual Insurance Company. The appellant in the case, Robert Kusnierz, was involved in a serious single vehicle accident 10 years ago (he was 29 years old at the time). He suffered numerous physical and psychological injuries as a result of the accident, including the loss of his left leg below the knee and clinical depression. The Ontario Superior Court ruled that his psychological injuries should not have been combined with his physical
injuries in the assessment of whether he met the 55% threshold for a whole person catastrophic impairment. But in a unanimous decision by a three-judge panel, the Appeal Court decided Kusnierz in a manner consistent with the Ontario Superior Court's decision in Desbiens v. Mordini. In Kusnierz, the Appeal Court quoted extensively from Desbiens in support of its finding that psychological impairments can be combined with physical impairments in determining catastrophic injuries under the SABs. “The text of the regulation itself indicates that the drafters clearly intended the definition of ‘catastrophic impairment' to be inclusive rather than restrictive,” the Appeal Court wrote, quoting from Desbiens.
Regulation B.C. REQUIRES INSURERS TO BECOME MEMBERS OF GIO B.C. has passed regulations under the Insurance Act requiring companies transacting home, auto and business insurance — with the exception of ICBC and mutual companies — to be members of the General Insurance OmbudService (GIO). The regulations come into effect July 1, 2012. GIO has operated across Canada since 2002 in coop-
MARKETPLACE
eration with federally ordered insurers that are required to belong to an independent complaints resolution service. GIO provides consumers with cost-free, independent and impartial services to resolve their complaints about car, home and business insurance, applying best practices in cooperation with member companies, consumers and governments. “GIO's consumer service officers work hard to provide the best assistance to consumers,” added GIO
executive director Brian Maltman. “The decision of the B.C. Government is a welcome endorsement of our efforts.”
NEW BRUNSWICK PROPOSES DRAFT REGULATIONS FOR BANNING CREDIT SCORING IN ALL INSURANCE LINES New Brunswick's department of justice has posted draft regulations for public consultation that would ban credit scoring in residential, property and auto insurance lines.
In addition, the draft regulations would not allow insurers to decline to issue, refuse to renew or terminate coverage on the grounds of a person's age, gender or marital status. The draft regulations would also prohibit insurers from refusing coverage to: • applicants who have been insured by the Facility Association; • applicants who were declined insurance or refused a renewal by another insurer; • people who have experienced a lapse in coverage
for a period of less than two years, or • people who have made a claim in the past for which they were at fault. Finally, the draft regulations state an insurer would not be allowed to decline to issue, refuse to renew or terminate auto insurance on the grounds of a vehicle's age. Exceptions to this include antique vehicles, reconstructed vehicles and vehicles “substantially modified for enhanced performance.”
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PROFILE
Positive Projections Vanessa Mariga Associate Editor
Incoming OIAA president Steve DelGreco says the association will continue to focus on enhancing the training and education of its membership during his term. Steve DelGreco, incoming president of the Ontario Insurance Adjusters Association (OIAA), intends to further develop education and training opportunities for OIAA members during his term so that the association’s membership can continue to project the value of the insurance industry as a whole. DelGreco is a regional manager of accident benefits at Unifund. He said he always knew he wanted to work in the insurance industry. Growing up in the Toronto area, a good friend in high school had a dad who owned a brokerage. The stories his friend would tell him about his father’s line of work piqued DelGreco’s interest. “He would tell me about his dad and the different scenarios and people he would en-
10 Canadian Underwriter January 2012
counter everyday through work, and it just seemed to be interesting to me,” DelGreco says. “So a career path into insurance became my route.” Initially he intended to focus on the broker side of the business. But as it turned out, he started his career as a trainee in an insurer’s claims department. “I really liked dealing with people,” DelGreco says. “In claims, you are helping them in their time of need. I’m a bit of a corny guy when it comes to insurance, but we help people, we really do. And that means a lot to me.” The job can get stressful, he admits, for the very same reason why he loves it so much. “One of the challenges is that you’re dealing with people when they’re not at their best,” he says. “They’re under a lot of stress, understandably. That stress can be because they have lost their home or they have damage to their home. Or sometimes they are injured. “You’re helping them to rebuild their home, fix their basement or to get treatment for their injuries. The challenge is that they’re not always in the best mood. They’ve often heard misleading stories about how their insurance company is going to treat them.” DelGreco is passionate about changing any negative
perceptions of the insurance industry. As the incoming president of the OIAA, DelGreco says he and the association’s executives are all enthusiasts about the industry in which they work. During his term, which will commence in the summer of 2012, DelGreco said OIAA’s focus would be on enhancing the training and development of its members and attracting new people to the industry. He suggested the OIAA has already been successful attracting new people to the industry, pointing to a job fair
Despite competition in the insurance industry, when there’s a need, the flags are pulled down and everyone focuses together to help out. that has become a fixture at the OIAA’s annual Professional Development and Claims Conference held each year in February at Toronto’s Metro Convention Centre. During the conference, the OIAA buses in students from nearby colleges with insurance programs. The students can take in keynote speakers and get
tips on resume writing. Most importantly, they have an opportunity to network with representatives from various organizations and companies in the industry. The event gets bigger every year. It started with 50 or 60 student participants; last year, the attendance surpassed 300. This demonstrates students are increasingly viewing the industry as a viable career path, says DelGreco.
PROFESSIONAL EDUCATION For those already in the adjusting profession, the association is exploring ways to increase the educational and professional development opportunities available to its members. “We have a committee right now that is investigating online learning,” he says. “While a roll-out date has not been finalized just yet, we are exploring the possibility of putting some courses on our Web site. These will likely cover a range of topics from technical courses to computer skills.” Auto insurance regulatory reforms in Ontario highlight the need for continuing education and professional development in the adjusting community. In addition, the OIAA’s board members wish to enhance the association’s educational offerings, he continues.
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PROFILE
Last year, the OIAA collaborated with the Insurance Institute to develop a course focused on serious injury. The course was developed in response to a recommendation made during the Financial Services Commission of Ontario (FSCO)’s most recent five-year review of Ontario’s auto insurance legislation. The recommendation suggested insurance claims departments should focus on the needs of claimants with serious injuries, and that industry organizations and associations should work together to offer this training. OIAA surveyed its membership. The feedback suggested a gap does indeed exist and that a course would be of great value. The OIAA brought its expertise and knowledge to the table. The Insurance Institute of Canada brought its facilities and resources to develop and deliver the training. In the end, both groups worked together to create a 10-week long program, broken up into five different modules. The training intends to modify the way an adjuster views the claim and injury. It calls on adjusters to expand their perspective to include not only the injured person’s physical ailments, but also the external forces that may affect the
healing of those ailments. The pilot program ran in the late fall of 2011. DelGreco says the OIAA is already immensely proud of the initiative. “Partnering with the Insurance Institute for an initiative on that scale was a first for us, but we’re hoping it’s the first of many collaborations,” he says. Furthering the professionalism and expertise of the adjusting community helps to break down any stigmas
plaguing the insurance industry, he says. And involvement with the association itself is a form of education in how the industry functions, he observes. “When I first started in the OIAA, I got to know a lot more people from across the province,” he says. “I’ve learned about the challenges in other regions, not just those in the GTA. If I need help or have a question, I now have a lot of people I can call on. My involvement at the association
over the past six years has also educated me on this industry and given me even more of an appreciation for it.” Although the insurance industry is very competitive, ultimately it is a community, DelGreco says. And when a member of the community falls on hard times, the industry rallies around them. “Despite the competition, when there’s a need, the flags are pulled down and everyone focuses together to help out,” he says. “It’s astounding and I am so proud to be a part of it.”
January 2012 Canadian Underwriter
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Ontario Home Warranties and the Law Property claims adjusters are legally required to use insurance restoration contractors that are registered with Ontario’s home warranty corporation. Robert Curry
Director, Field Claims, Tarion Warranty Corporation
An unfortunate fire causes a total loss of an insured home. The insurer immediately swings into action, investigating the cause of the fire, the coverage that applies and the extent of the insured damages. The claim reserve is established and the file progresses well. Arrangements are then made to remove the remnants of the old home. A new home is constructed using the insurance restoration contractor.This contractor builds a turnkey home for the insured family and soon they move in. Just another happy customer and another closed file. All is well. Or is it? Was the insurance restoration contractor a registered builder? And was the home enrolled in the new home warranty program? The Ontario New Home Warranties Plan Act defines a builder as a person who undertakes the performance of all the work and supply of all the materials necessary to construct a completed home. By law, every
12 Canadian Underwriter January 2012
builder of residences in Ontario must be registered by Tarion Warranty Corporation, must enroll the new home and provide statutory warranty.
WARRANTY REQUIREMENTS FOR NEW HOMES Many insurance restoration contractors are not “registered” builders. Many do not know they must “enroll” the new home before construction.They may not be familiar with the requirements of providing a warranty for the home. As a result, they may face stiff fines or even jail time for conviction. Are property claims adjusters facilitating this crime? Warranty protection relieves the insurer from providing compensation for improperly constructed homes. It protects both the property claims adjuster and the insured if the builder/ contractor goes out of business after construction of the new home or condo is complete. Here is what you need to know to protect yourself and your company.Tarion Warranty Corporation is a private corporation established in 1976 to protect the rights of new homebuyers and regulate new homebuilders.Tarion is responsible for administering the Ontario New Home Warranties Plan Act, which outlines the warranty protection that new home and condominium builders must provide by law to their customers.
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The homeowner is entitled to warranty coverage for seven years from the date of occupancy of their new home. Tarion’s primary purpose is to make sure builders abide by this legislation. Tarion will step in to protect consumers when builders fail to fulfill their warranty obligations. Over the years,Tarion has paid out over $190 million in claims from its guarantee fund. Financed entirely by builder registration, renewal and home enrolment fees, Tarion receives no government funding and has guaranteed warranty protection for well over 1.45-million new homes in Ontario. As the regulator of Ontario’s new home building industry,Tarion registers new home builders and vendors, enrolls new homes for warranty
builder, go to www.tarion.com and search by geographic area under “Licensed Builder Directory.” Make sure the new home is enrolled before construction begins. Provide the new home address and builder’s name to Tarion using Tarion’s Web site. Direct your insured to sign up through the homeowner’s portal on Tarion’s Web site so they can communicate their warranty details online with Tarion. Your insured is entitled the same
statutory home warranty available to all new homeowners in Ontario. By following these simple steps, you will be providing your clients with the best protection available and complying with provincial legislation. The information above refers only to Ontario. However, most other provinces have similar new home warranty programs in place. Please take the time to research the new home warranty protection available in your province.
Coming Through For You!
Adjusters should be asking restoration contractors if they are registered builders with Tarion Warranty Corporation. By law, every builder of residences in Ontario must be registered by Tarion. coverage, investigates illegal building practices, resolves warranty disputes between builders/vendors and homeowners and promotes high standards of construction among Ontario’s new home builders. Tarion also works with the building industry to help educate new homebuyers about their warranty rights and how to maintain their warranty.
WHAT PROPERTY CLAIMS ADJUSTERS SHOULD DO Ask the restoration contractor about to construct the new home if they are a registered builder with Tarion. Check www.tarion.com/Services/builder_search.aspx by entering the name of the contractor to obtain their registration number. If they are not registered, advise them to register with Tarion before constructing the home, or choose another builder that is registered. To find a registered
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Giving Notice
Michael S. Teitelbaum
Senior Partner, Hughes Amys LLP Hughes Amys LLP is a member of The ARC Group Canada.
The 2011 Ontario Court of Appeal ruling in The Sovereign General Insurance Company v.Walker1, a decision from a motion for summary judgment, addressed two important points: • A single policy of commercial insurance can contain separate notice conditions applicable to separate areas of coverage. In other words, a party cannot rely on statutory notice conditions applicable to property coverage while pursuing a liability claim.
14 Canadian Underwriter January 2012
OVERVIEW The plaintiff brought two separate actions. The first arose out of a slip and fall and judgment was awarded in the plaintiff’s favour.The second was an attempt to collect from the defendant’s insurer pursuant to s. 132 of the Insurance Act.
First action The slip and fall occurred at the Power Centre in Burlington, Ontario on Jan. 30, 1999.The plaintiffs issued a statement of claim against Emshih Developments Inc., the owner of the property, and against Sun Shelter Industries Inc., the contractor responsible for maintenance. Emshih also cross-claimed against Sun Shelter.
Illustration by Sandy Nichols/www.threeinabox.com
Ontario’s Court of Appeal finds that a single policy of commercial insurance can contain separate notice conditions applicable to separate areas of coverage.
• The court expanded the class of persons capable of properly giving notice per the terms of the policy’s notice conditions.The purpose of “by or for the insured” was expanded to include a codefendant in the action. As the property owner in a slip-and-fall case, the co-defendant was held to be a person with “sufficient proximity to the claim to have knowledge of the information required.”
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ANNOUNCEMENT
Sun Shelter went bankrupt before delivering a statement of defence or a statement of defence to cross-claim. It was noted in default on June 13, 2003. Counsel for Emshih then discovered, sometime in the weeks before the scheduled trial date of Apr. 11, 2005, that Sovereign General Insurance Company was Sun Shelter’s liability insurer. Counsel for Emshih contacted Sovereign on Mar. 29, 2005 and informed the insurer for the first time about the claims against its insured and the imminent trial date. The trial was adjourned to permit Sovereign an opportunity to participate, but Sovereign declined. Emshih settled and the trial proceeded as against Sun Shelter only. Judgment was awarded to the plaintiff.
Rick Orr, CIP
The Insurance Brokers Association of Ontario (IBAO) is pleased to announce that Mr. Rick Orr, CIP has been elected as IBAO’s 69th President. Rick was officially inducted at the recent IBAO Convention held at the Royal York in Toronto, and formally assumed his role as President on January 1, 2012. Rick is currently the co-owner of Orr Insurance Brokers Inc. in Stratford, Ontario along with his brother Jeff. Rick is a fourth generation insurance broker working at the same brokerage started by his great grandfather in 1895. Before joining the family brokerage, Rick enrolled in the insurance program at Mohawk College in Hamilton in his early twenties. He then joined the Hartford Insurance Company in Toronto, where he worked for two years in the commercial underwriting department. In 1992, Rick joined the Stratford brokerage. Rick was president of the Perth Huron Brokers Association in 1997 and 1998. In 2000, Rick joined the education group of committees. After spending three years on committees, Rick joined the IBAO board as territory director in 2003. In addition to his duties with the IBAO, Rick has held a seat on the board of CSIO for 3 years and also sits on the Insurance Brokers Association of Canada technology committee bringing a business and industry perspective to these groups. Rick is incredibly involved in the community, where he sits on the local hospital foundation and chairs the Stratford Parks Board. His theme as President for this year is ‘Be a Broker. Be Involved.’ “The idea behind the theme is to encourage every broker to get out there and become involved in their community. Be a part of it, build on it, enhance it,” added Orr.“Our consumers are encouraged by watching their local broker participate in the community. It’s an essential part of the broker brand.” “Rick brings a lot of enthusiasm and experience into his new role as President,” said IBAO CEO Randy Carroll.“We are thrilled to have him lead our 12,000 brokers into 2012 with a sense of excitement and innovation.” Rick and his wife Jane are proud parents to their two daughters, Sydney and Kaylee.“The support of my family has meant the world to me over the years that I’ve spent with IBAO,” added Orr.“I am so excited to head into this next chapter in the role of President and expand on an already wonderfully established, respected and productive association”
16 Canadian Underwriter January 2012
Second action The plaintiffs, Marie and Albert Walker, then commenced a second action against Sovereign for payment under s. 132 of the Insurance Act. This provision allows a third party to recover against an insurer where its insured has failed to satisfy a judgment for damages. A motion for summary judgment was brought for the amount of the plaintiff's judgment against Sun Shelter less Emshih's contribution. Sovereign brought a cross-motion for summary judgment to dismiss the action.
MOTION FOR SUMMARY JUDGMENT Sovereign took the position that Sun Shelter was in breach of the policy conditions, since Sovereign had not received proper notice of the claim. The plaintiffs submitted that counsel for Emshih, the insured's co-defendant in the action, gave proper notice of the claim. In making this argument, the plaintiffs relied on the following statutory condition in the commercial insurance policy issued by Sovereign to Sun Shelter, under the heading ‘Who May Give Notice and Proof’: “8. Notice of loss may be given, and proof of loss may be made by the agent of the Insured named in the contract in case of absence or inability of the Insured to give the notice or make the proof, and absence or inability being satisfactorily accounted for, or in the like case, or if the insured refuses to do so, by a person to whom a part of the insurance money is payable (emphasis added).” The motion judge held that Emshih, as a result of its cross-claim against Sun Shelter, was “a person to whom a part of the insurance money is payable.” As a result, Emshih’s notice to Sovereign was deemed to be in compliance with the terms of the policy. The defendant submitted that the plaintiff’s reliance on this statutory condition was misplaced.This was a liability claim and the notice provision was in a part of the commercial insurance policy that specifically applied to property coverage and the peril of fire. Ontario Superior Court Justice William Hourigan disagreed, stating in
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Paragraph 48 of his decision: “In my view, on the wording of the policy, all perils insured by the policy are subject to the statutory conditions. Sovereign’s case at its highest is that there is an ambiguity regarding whether statutory condition 8 is applicable. It is well established that where an ambiguity is found to exist in an insurance contract, the language in issue shall be construed against the insurance carrier.”2 Justice Hourigan went on to find that, in any event, the plaintiffs would have been entitled to relief from forfeiture pursuant to s. 129 of the Insurance Act. To the extent that there had been a breach of the notice condition, such a breach amounted only to imperfect compliance.
18 Canadian Underwriter January 2012
THE APPEAL DECISION The Ontario Court of Appeal upheld Justice Hourigan’s decision, but for different reasons. Ontario Court of Appeal Justice John Laskin agreed that even though Sun Shelter itself had not given Sovereign notice of the claim, Sovereign had received notice from the owner of the parking lot, Emshih, a co-defendant in the original action, and that this notice complied with the policy conditions. However, Justice Laskin disagreed with the motion judge’s finding that statutory condition 8 was the notice provision applicable to the plaintiff’s loss. “Perhaps in isolation, the word ‘perils’ is broad enough or ambiguous enough
to support the motion judge’s conclusion,” Laskin wrote. “But, the policy must be read as a whole. And when it is read as a whole, there is no ambiguity. The policy contains two separate sets of conditions. Each set must be given scope and meaning.” Sovereign’s policy with Sun Shelter contained two standalone coverages, each with its own set of conditions.The statutory notice conditions applied to property coverage while the policy conditions applied to liability coverage. Since this was a liability claim, the applicable notice requirements were contained in the policy conditions, which were distinct and separate from the statutory conditions relating to property coverage. Nonetheless, the outcome remained the same and the appeal was dismissed. Upon analysis of the separate notice provisions for liability coverage, Justice Laskin determined that Emshih, as codefendant in the first action, was still within a class or persons capable of giving notice under the terms of the policy. The notice of loss requirement contained in Section 3(a) of the policy conditions for liability coverage reads as follows: “In the event of an accident or occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given promptly by or for the insured to the insurer or any of its authorized agents (emphasis added).” In determining the class of people that should be entitled to give notice for the insured, Justice Laskin wrote: “Given its purpose and importance, if the notice is to be given for an insured instead of by the insured itself, the person giving it should have sufficient proximity to the claim to have knowledge of the information required by s. 3(a) [of the policy conditions, cited above]. Emshih was just such a person. It owned the property where the accident occurred; it was a defendant in the original ac-
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tion; and it cross-claimed against Sovereign’s insured. In giving notice to Sovereign, Emshih was giving notice for Sun Shelters as contemplated by s. 3(a) of the policy.3 Justice Laskin went on to conclude that in any event, the plaintiffs would have been entitled to relief from forfeiture.
COMMENT Justice Laskin's decision emphasizes, yet again, the importance of reading and understanding a policy of insurance as a whole. Separate areas of coverage can contain separate notice conditions. An insured — or in this case, a plaintiff bringing an action under s. 132 — is not entitled to rely on notice provisions not applicable to their particular claim. The second important point relates to policy conditions that provide for notice “by or for the insured.” Generally, this type of wording has been understood to apply mainly to brokers giving notice on
The potential implications for insurers in terms of who can give notice of a claim are obvious. If insurers wish to continue with the historical understanding that the insured and a representative of the insured are the persons who are obliged to provide notice (and not plaintiffs or co-defendants), then changes to the wording of notice provisions are required.
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Notice is to provide the insurer with sufficient awareness of a claim so that it can respond in a timely and appropriate fashion. It follows that anyone close enough to have sufficient knowledge of the claim should be capable of giving notice for the insured. behalf of the insured.This has now been expanded to include any persons with “sufficient proximity to the claim to have knowledge of the information required.” Following Justice Laskin’s reasoning, a notice provision must be interpreted in light of its purpose. Notice is to provide the insurer with sufficient awareness of a claim so that it can respond in a timely and appropriate fashion. It follows that anyone close enough to have sufficient knowledge of the claim should be seen as capable of giving notice for the insured. As the property owner in a slipand-fall action, the co-defendant was held to be just such a person.
1 2011 ONCA 597 2 see Consolidated-Bathurst v. Mutual Boiler, [1980] 1 SCR 888 (SCC)). 3 As a matter of interest, the Appeal Court did not address one of the other notice provisions, which provided that the insured should be required to forward any court process served on it to the insurer, which had not been done. The language in that provision does not indicate that the process can be forwarded on behalf of the insured.
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January 2012 Canadian Underwriter 19
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Cleaning up the
Cracks in Plumbing A link exists between flexible supply hose plumbing failures and the storage of everyday cleaning products. Who should warn about what?
could be done without closing the main entry valve to a building. This article will focus on issues and risks associated with “supply tubes,” the lines that connect a shut-off valve to the toilet, faucet or other apparatus downstream from the shut-off valve.
Fred J. Ablenas, Ph.D Director, Chemistry Pyrotech BEI
20 Canadian Underwriter January 2012
One hundred years ago, it was not unusual to see a series of threaded steel pipes running directly into a toilet tank or to the bottom of a faucet.The first generation supply tubes were chromeplated, semi-rigid, 3/8-inch copper tubes that could be artfully bent to connect some shut-off valve with the toilet or faucet. The handyman soon found out that “artful” bending was a little bit more complicated than it looked. Kinked tubes did not work well and the combination of cutting and bending often resulted in a tube that was too short for its intended purpose.This opened up a market for a semi-rigid plastic supply tube made from cross-linked polyethylene (known as “PEX” for short).
Illustration by Sandy Nichols/www.threeinabox.com
THE EVOLUTION OF SUPPLY TUBES Plumbing has come a long way since the Romans invented aqueducts and lead pipes. The production of steel pipe helped indoor plumbing become practical at the turn of the 20th century. By 1940, threaded steel pipes were being supplanted by lighter and easier-to-install copper tubing. As the plastics industry matured, a variety of relatively inexpensive plastic pipes hit the market in the 1970s and 1980s, with varying degrees of success. After reliable potable water supplies opened up a market for a multitude of devices that use water in the home and workplace, practical considerations led to the practice of installing shutoff valves for each apparatus so that minor repairs or replacements
PEX were installed with compression fittings basically the same way as the obsolete 3/8-inch plated copper tubes, but PEX was barely flexible enough to contort to the needs of the installation without any pre-bending. The trouble with supply tubes, especially for toilets, is that they are normally visible. Although they are easy to install, PEX supply tubes tended to be somewhat ugly. While shiny, chrome-plated copper tubes gleamed in bathrooms everywhere, PEX tubes were drab white or grey plastic proudly printed with references to the various ASTM or NSF standards to which they conformed. Once again, creative manufacturers came to the rescue of both the plumber and the interior designer. They developed a modern, flexible supply tube covered with a shiny, braided stainless steel jacket.These modern tubes are fitted at each end with nuts and gaskets sized perfectly for the standard compression fittings used for the rigid and PEX tubes. In fact the shiny, braided steel wire jacket covers a rather homely flexible black rubbery hose that actually carries the water. The hose is a good water barrier but, by itself, it cannot resist the water pressures normally found in buildings. The braided steel jacket is literally the knight in shining armour for the inner hose, supporting the hose against internal water pressures that would otherwise cause it to burst open.
Flexible supply tubes in cabinets under the sink have failed a surprising number of times due to exposure to salt or acid. The cuplrit is usually household cleaning products stored in the same cabinets where the flexible hose is located.
RISKS AND SUPPLY TUBES Stainless steel is generally more corrosion-resistant than so-called “mild” steels. Stainless steel owes its corrosion resistance to alloying elements such as chromium, which form thin films of intractable protective oxide on the surface of the stainless steel. However, chloride ion is the Achilles heel of stainless steel: chloride, which is found in salt or muriatic acid, breaks down the protective surface oxides and circumvents the “stainless” property, leading to its corrosion. Normally, flexible supply tubes in cabinets under the sink are not exposed to
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salt or, hopefully, acid.Yet we have seen a surprising number of failures of braided tubes due to this type of attack. The culprit is usually some householdcleaning product stored in the same cabinet where the flexible hose is located. Cleaning products with “bleaching” or “disinfecting” properties, as well as most dishwasher detergents, contain hypochlorites. This class of chemical gives bleach its “bleaching”
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property and also acts as a disinfectant in swimming pools. The trouble with hypochlorite solutions is that they produce volatile hypochlorous acid, one of the chemicals responsible for the “chlorine” smell associated with bleach and swimming pools. Even solid (powder) formulations will produce hypochlorous acid vapour due to exposure to ambient humidity. The braided, stainless steel jacket of the flexible supply tube is not only susceptible to attack by chloride ion (a byproduct of the hypochlorite), but it is also vulnerable to “stress cracking corrosion” due to the tensile forces induced in the wires by the water pressure inside the rubbery hose. Instead of causing a general corrosion and accompanying warning signs, chloride ions attack preferentially between the individual steel crystals, or “grains,” that make up the wire. As a result, the wire breaks squarely, as if it was cut by a small saw blade. As the wires break, the (formerly)
and finally explodes. This results in a flood. And, as insurance adjusters will point out, this type of failure inevitably happens five minutes after the occupants of some building have left for the day (or night).
WHO’S AT FAULT?
shiny flexible hose starts to resemble a cactus, with little stainless steel spines (from the individual broken wires) sticking out. Once enough of the wires break, the elastomeric hose underneath is no longer supported against the internal water pressure, so it balloons out
In this type of loss, the insurer will often ask the technical expert if any party is at fault. • Should the homeowner have stored a routine household-cleaning product in the cabinet underneath the kitchen or bathroom sink? • Should the manufacturer of the cleaning product have put a warning on the product label, indicating that the cleaning product might result in the corrosion of this type of flexible supply tube? • Should the manufacturer of the flexible supply tube with the braided stainless steel jacket have warned the installer (or ultimate owner) that the hose could fail when installed in proximity to
A catastrophic event
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certain types of cleaning products? The technical explanation for this type of failure and loss is very simple. But the answer to all of the above questions may in fact be a resounding, “I’m not sure.” For example: Given the multitude of materials and consumer products on the market, it is hard to argue the average consumer should have the technical knowledge required to recognize all sorts of product and material interactions. Federal regulations already outline very precise labelling requirements for the sort of cleaning product that can lead to this type of failure. But labelling regulations cannot be expected to cover each and every eventuality — unless the consumer is expected to bring home and read a telephone book-sized information manual with every product he or she purchases. The National Plumbing Code already requires that this type of (flexible) supply tube meet a plethora of performance
ilar failure in copper or PEX plumbing.) It is difficult to assign blame in this type of failure, but perhaps property owners need to be held more accountable. The type of failure under discussion, like many other failures in buildings, normally occurs over a period of months or even years.Thorough annual inspections of all exposed components in a building would help to identify this type of failure before it becomes catastrophic. In the meantime, everybody should move those “bleaching action” cleaners out of any cabinets in which these braided supply lines are found.
criteria, including pressure resistance and a lack of toxic ingredients. Should the Plumbing Code really be expected to delve into material-specific properties? (For example, the same hypochlorite vapours that destroy the stainless steel jacket in question will not induce a sim-
1 The French translation of “supply tube” is tuyau d’alimentation. The common French term for “supply tube” is “speedway” (actually “le speedway”). The author is unable to explain the origin of this term. 2 Interestingly, one supplier of braided flexible supply tubes has started adding the instruction “install only in exposed locations” to their label.
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Implied Warranties in
Hot Water An Ontario court finds that implied warranties associated with leased products apply not only at the outset of the term of the lease, but for its entirety.
Hillel David
Partner, McCague Borlack LLP
Mark Mason
Partner, McCague Borlack LLP
The Ontario Divisional Court in December 2011 released its decision in two appeals involving property damage caused by the failure of leased hot water tanks1. In each case, the hot water tank located in the homeowner’s basement developed a leak that resulted in damage to the home and its contents. The appeals raised a number of issues relating to implied warranties in lease agreements: the application of the Consumer Protection Act; the time period during which the implied warranties were operative; the time period during which the product was defective; the differences between sale and lease agreements; and the duty to warn. The decision is one of considerable importance, and not just because literally hundreds — if not thousands — of similar claims awaited the outcome. Essentially, the court ruling confirms that implied warranties associated with leased
24 Canadian Underwriter January 2012
products apply not only at the outset of the term of the lease, but for its entirety. A lessor, in other words, has an obligation to supply a safe and properly functioning product in each and every lease payment period, and will be liable for loss or damage resulting from a breach of that obligation, regardless of how far into the lease term that might occur.
BACKGROUND The hot water tank in the Collett claim was 19 years old at the time of loss. In the Szilvasy claim, it was 10 years old. The tanks had each been leased for a considerable period of time. The plaintiffs in each case — Geoffrey and Sandra Collett in Collett, and Shirley Szilvasy in Szilvasy — had assumed their leases from previous homeowners. Evidence at trial indicated it was virtually impossible to detect internal corrosion that ultimately led to the failure and loss of the tanks. Also, there was no practical way of maintaining the product to prevent the type of failure that occurred. It was common ground among the parties that no written agreement set out the terms and conditions of the lease. However, the presence of a written contract would not have made any difference given the provisions of the Consumer Protection Act. That statute extends the application of the statutory implied warranties of fitness for
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A lessor has an obligation to supply a safe and properly functioning product in each and every lease payment period. The lessor will be liable for loss or damage resulting from a breach of that obligation, regardless of how far into the lease term that might occur.
intended purpose and merchantable quality that are mandated by Section 15 of the Sale of Goods Act to goods that are leased or otherwise supplied under a consumer agreement. The Consumer Protection Act also renders void any contract term that purports to negate or vary any implied condition or warranty under the Sale of Goods Act. Section 9(1) of the Consumer Protection Act adds a warranty that the services supplied under a consumer agreement are of a “reasonably acceptable quality.” It should be noted, however, that the protection provided by the Consumer Protection Act extends only to “consumer transactions,” which the act defines to mean “any act or instance of conducting business or other dealings with a consumer, including a consumer agreement,” and is limited to instances in which the consumer or the person engaging in the transaction with the consumer is located in Ontario when the transaction takes place. The lessor, Reliance Home Comfort, initially took the position that the Consumer Protection Act did not apply to these cases, because the act came into force well after the start dates of the two leases. At the court hearing, however, Reliance conceded that the act did apply because the failures and the losses occurred while the act was in force.
THE COURT’S FINDING In the Small Claims Court decision from which the appeals were taken, the court held the implied warranty of fitness continued with each monthly lease payment as a new starting point. Reliance disagreed, arguing that the implied warranties applied at the start of the lease
26 Canadian Underwriter January 2012
term and continued only for a reasonable period thereafter; they were no longer in place 10 and 19 years respectively after the installation of the tanks, as was the case in these claims. The divisional court made the critical finding that “reasonableness” lay at the heart of the issues before the trial judge. The judge had to decide, in a consumer context, what it meant to provide goods of a “reasonably acceptable quality” in the circumstances before him. The court said Reliance promised to provide the homeowners with a working hot water tank at all times. If the tank failed, Reliance undertook to replace it. If it required service, Reliance provided it. There was no meaningful way to differentiate between Reliance’s contractual obligations on the basis of the age of the tank. Given Reliance’s acknowledged contractual obligation to provide a working hot water tank at all times, it would be illogical to conclude that there was not a continuing warranty as to the proper functioning of the tank. This decision is important in all claims involving loss or damage from the failure of leased products in which warranties are implied either by the Consumer Protection Act or under the common law. The decision stands for the proposition that unless the contract provides otherwise (and is capable of so providing2), those implied warranties will be effective throughout the term of the lease, regardless of how much time has passed since the start of the lease, and not just during some relatively short period of time after the start date. In other words, a lessor has an obliga-
tion to supply a safe and properly functioning product in each and every lease payment period. The lessor will be liable for loss or damage resulting from a breach of that obligation, regardless of how far into the lease term that might occur. Although no product can last forever, lessees are entitled to assume — and to rely on the lessor’s implied assurance — that a product will be reasonably fit and safe for use during the period of time that the lessor leaves the product with the lessee and charges lease payments. Lessees are entitled to rely on the lessor to tell them when the time has come to replace a leased product, such as a hot water tank. In this instance, Reliance had knowledge and experience regarding the nature of and deficiencies associated with the tanks it leased to its customers.Therefore, the court concluded, Reliance should have decided when to take leased tanks out of operation and replace them with new tanks. Apart from the implied warranties, Reliance was not entitled in the circumstances to transfer the risk of loss to its customers, the court found. McCague Borlack LLP lawyers Hillel David and Mark Mason represented the plaintiffs (respondents) in these subrogation claims in the Divisional Court. 1 Collett v. Reliance Home Comfort; Szilvasy v. Reliance Home Comfort, 2011 ONSC 6928 (Div. Ct.). These appeals were heard together in the Ontario Divisional Court. 2 There are certain limitations to the application of the Consumer Protection Act and therefore to the agreements for which there will be a prohibition against the removal or limitation of implied warranties.
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Craig Harris Freelance Writer
Insurance companies and adjusters are using social media to investigate claims, even as Canadian case law is evolving on evidence and admissibility. The bigger question may be whether companies have formal policies that govern access to claimant social media information. Insurance companies and claims adjusters are increasingly relying on social media as an investigative tool to verify and, in some cases, challenge the accuracy of personal injury claims.Yet many appear reluctant to discuss their policies for accessing and using social media information on platforms such as Facebook, MySpace, hi5 and LinkedIn. Specifically, little public information is available about policies and procedures that insurance companies have in place to monitor how social
28 Canadian Underwriter January 2012
networking information is collected and the purpose for which it is used. “Insurers and adjusters are using social media more and more, but I think the policies for using it are still in the early stages,” notes Kadey Schultz, a lawyer and partner with Hughes Amys LLP. “The case law around this is new and the technology is still emerging. I don’t think formal policies are really there yet for most companies.” The number of referrals for social media claims investigations by insurance companies has certainly increased significantly, observes Keith Elliott, vice president of operations and business development for Reed Research, an investigation firm. But as of yet, investigators don’t see the numbers warranting the creation of a whole new approach for handling them. “We analyze and investigate the referrals on a case-by-case basis,” Elliott says. “There are no blanket strategies.” Insurance companies are clearly using social media in claims investigations, says Michael Fitzgerald, a senior analyst with research firm Celent. But most do not have an “operational strategy” to evaluate the information gathering process around online social networking sites, he adds.
Illustration by Sandy Nichols/www.threeinabox.com
Investigating Social Media
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COLLECTING SOCIAL MEDIA INFORMATION “A major part of that discussion has to be how the social media information is collected, the purpose for which it can be used and any ethical considerations surrounding the information,” says Fitzgerald, whose firm published a report in October 2011 entitled Using Social Data in Claims and Underwriting. “For example, even if data is available on a certain site, will an insurer rope off some of it or use it all?” Several Top 10 property and casualty insurance companies contacted for this article declined to comment on their use of social media in claims. While case law is evolving on the production of personal information stored on these sites, some sources say insurers are still wrestling with internal protocols for how employees should access social media. “Some companies have internal blocks and restrictions on employees or adjusters using social networking sites such as Facebook, so how could they do research if they can’t access the site?” asks Schultz, whose law firm recently published a paper, “Creeping” Up on Plaintiffs: The Use of Facebook in Litigation. State Farm Canada has developed a social media policy for the collection of information on networking sites, according to Brian Donaher, Canadian claims section manager for the company’s special investigation unit. “Our social media policy is relatively new,” he says. “We have had policies in place for safeguarding information, but we developed this to guide our employees’ use of social media. Our employees always advise claimants that they are representatives of the company. Everything we do is identified as being on behalf of State Farm.” Social media are certainly of value to the company, Donaher adds. They are becoming an increasingly better-known tool the company can use to investigate claims. “However, it is not the first place we go,” he says. “Social media supplements our investigation techniques.” Schultz concurs that social media represent simply one component of a claim
investigation. “As much as these sites can help to inform, it is also important to view the information as a snapshot,” she says. “You have to incorporate it into a total assessment of the claim; you can’t just hang your hat on social media.” Crawford & Company (Canada) Inc. is also informing its adjusters about the benefits of using social media. It issued a training bulletin last fall educating adjusters about how social networking sites can be a potentially valuable source of information.
As much as social media sites can help to inform, it is also important to view the information as a snapshot. You have to incorporate it into a total assessment of the claim. You can’t just hang your hat on social media. “A casualty or accident benefit adjuster should relish the prospect of being given the opportunity to view information and/or photos posted by a claimant on such (social media) sites, which may or may not lend credence to their claim,” notes Crawford & Company’s director of professional development Stephen Scullion. “Adjusters must have an unquenchable thirst for information regarding the claimants they are dealing with in order to reach a settlement that accurately reflects the facts of the loss.”
CREATIVE STRATEGIES Creative strategies may be required to access relevant data, according to adjusters, lawyers and investigators. For example, although social media sites might display public — and hence usable — information, what if the security settings render such information private? “Given social media’s nature, there are alternate approaches [to accessing information],” Elliott says. “For example, a claimant can’t control or manipulate what other people are posting about him or her.That claimant’s ‘friends’ may also have open profiles that include information about the person, which is publicly available information.”_ A little strategy must also be used, notes Scullion. “If the claimant knows that you are going to be viewing their Facebook page, you can be sure nothing further is going to be put on it,” he says. “Therefore, be discreet. Review the page from time to time, perhaps on diary.” Insurers and adjusters have to ensure the information they are seeking is relevant and that the timing of requests for information is appropriate, Schultz says. “They also need to be aware of how to search and document social media information,” she says. “It does no good for an adjuster to note on a file that he or she saw Facebook pictures of a claimant engaged in certain activities. You have to save the file, print it, date it.” Several sources say insurers should consider ethical boundaries in any coherent social media policy. There is little in the way of regulation or legislation on the use of social media for claims, Fitzgerald notes. But some legal groups have established ethical guidelines. For example, both the New York State Bar Association and the New York City Bar Association have issued opinions that outline the appropriate scope for obtaining evidence from social networking websites. For example, the associations consider 1) anonymous “friending” of people to gain access on sites such as Facebook and 2) directing a third party to “friend” someone for the purposes of investigation to be unethical practices.
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Our social media policy governs how we collect information, what we use it for and how we safeguard personal privacy. In social media, you need to be careful about how you are gathering information and that you are respecting privacy regulations.
These guidelines are being followed in the insurance industry, according to sources. “Our social media policy governs how we collect information, what we use it for and how we safeguard personal privacy,” says Donaher. “In social media, you need to be careful about how you are gathering information and that you are respecting privacy regulations.” An adjuster must collect permitted information in a fashion that shows the highest obedience to ethical conduct, according to Scullion. “Information garnered that has any taint of underhandedness will nullify its value in the eyes of the court.” Elliott says his firm obtains information valuable to its clients. “If it is not properly obtained, it is not valuable to our clients,” he adds. “Roughly 70% to 80% of our cases on social media are in litigation, so there are rules about contacting people represented by counsel.”
LEGAL GUIDANCE Speaking of counsel, judges in Canada are sorting through the ramifications of social media in litigation. Several court decisions in personal injury claims have ruled that content posted on social media sites such as Facebook is producible and admissible as evidence, at least in limited form. In Ontario, cases such as Kourtesis v. Joris (2007), Murphy v. Perger (2007), Leduc v. Roman (2009) and Wice v. Dominion of Canada General Insurance (2009) show defence lawyers have successfully argued for the production and preservation of private social networking information in some capacity. More recently, an Ontario Superior Court Justice ordered production of a plaintiff’s social media photos in Morabito v. DiLorenzo (2011). In the case, which involved a lawsuit for injuries sustained
30 Canadian Underwriter January 2012
in a motor vehicle accident, Ontario Superior Court Justice James A. Ramsay ruled that photographs, but not necessarily status updates or wall posts, were relevant to the matter at hand and producible. He also ordered the plaintiff to re-attend examination for discovery to answer questions about the photos posted on Facebook and MySpace sites. Conversely, in Schuster v. Royal and Sun Alliance Insurance Company of Canada (2009), the court ruled the plaintiff did not have to preserve or produce her Facebook site because the defence did not provide evidence to show it contained relevant information. “The case law on social media and disclosure of information does not provide a clear direction or guidance one way or another,” says Donaher. “This is an emerging area and I think each case is being decided on its specific merits. You may have one case where social media information has been ordered to be produced as evidence at trial or arbitration or as a discovery undertaking and another where it has not.” Arbitration rulings from the Financial Services Commission of Ontario (FSCO) on production of social media information have also been mixed. In a decision released in January 2011, Prete and State Farm, FSCO arbitrator Denise Ashby found the relevance of images posted on a social networking site was too remote when weighted against other factors such as sensitivity and practicality. She therefore declined a request from State Farm for disclosure of a claimant’s photo and video posts to his Facebook account. In a more recent decision, FSCO arbitrator Robert Bujold ordered a claimant to produce photos of herself posted on
Facebook and hi5 sites. In Rakosi and State Farm, a dispute arose between Eniko Rakosi and State Farm about the claimant’s entitlement to benefits stemming form a car accident on May 5, 2008. State Farm asked for production of photos posted during a two-year period from 2008 to 2010. Bujold noted that the request from State Farm met the test for a “semblance of relevance.” “For every one of these cases heard by an arbitrator at FSCO, I know there are several more lined up,” Schultz notes. “The arbitration decision in Rakosi may lead to even more requests for social media information.” And so it should, according to Fitzgerald. “Instead of this being a ‘Big Brother’ issue of insurers spying on their customers, it can have a positive side and a real value,” he says. “Social media investigations can help establish the accuracy of a claim and also reduce the amount of insurance fraud. I don’t know of any adjusters who would ignore a potential source of information if it could help them do their jobs.” And since the courts have shown themselves to be amenable to accepting evidence from social media sites, “a review of these sites should now constitute a mandatory part of an adjuster’s investigative repertoire,” notes Scullion. But social media investigation should be conceived as a single element of an insurer’s or adjuster’s overall claims strategy, according to Schultz. “It has to become a best practice,” she says. “Insurers and adjusters should take a strategic and well-researched approach to social media, not bury their heads in the sand in this electronic age. Like surveillance, it is one tool that has to be looked at in the entire context of the claim.”
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Arm’s Length The insurance industry has established a number of key protocols to ensure the potential for conflict does not arise as a result of common corporate ownership of adjusting, medical examination and other claims services. BY DAVID GAMBRILL
32 Canadian Underwriter January 2012
S
CM Insurance Services acquired two independent medical examiners (IMEs) during the last two months of 2011. The acquisitions represented SCM’s entrance into a medical services market segment that it believes is complimentary to its current offering of insurance and risk management services. In fact, this strategy of owning standalone companies that each provide unique claims services — be they medical, engineering, forensics or data services — is not ground-breaking. Granite Global Solutions and Crawford & Company each own standalone business units that offer various claims solutions, including medical assessment services.
January 2012 Canadian Underwriter 33
COVER STORY
Arm’s Length But the common ownership business model has raised some eyebrows within the claims community. A number of high-level, hypothetical discussions are percolating about how courts and arbitrators might view the common corporate ownership structure of independent adjusting firms and IMEs. These discussions are occurring in part because treating injured claimants with fairness and integrity is a linchpin of the claims community. Naturally, the industry is vigilant to avoid any appearance of conflict between the interest of injured claimants in receiving the best possible medical assessment and the corporate financial interests of jointlyowned adjusting and IME firms. For this reason, companies in the industry — including insurance companies, adjusting firms and others — follow strict protocols and contractual obligations to make sure no potential for conflict exists through the common ownership of adjusting and IME firms. This is a sensitive story to tell, but ultimately it is worth telling because it says a lot about the degree to which the industry is alive to the issue of treating policyholders fairly.
ENTERING THE IME SPACE At first blush, it seemed to be a garden-variety consolidation story. SCM Insurance Services acquired Riverfront Medical Services, a provider of independent medical evaluations, on Nov. 1, 2011. At the time, SCM said its acquisition signaled its entrance into a market segment “complimentary to the continuum of insurance and risk management services it currently offers its clients.” SCM also made clear that, as part of the SCM group of companies, Riverfront would operate as a distinct business entity. Shortly after the deal, a discussion started to percolate within the industry about the ramifications of a company owning both an independent adjusting firm (SCM owns ClaimsPro) and an independent medical examiner. The discussion intensified when SCM Insurance Services purchased the 34 Canadian Underwriter January 2012
independent medical assessment division of Medisys in December. Medisys IMA has a national roster of experienced specialists in a wide variety of medical disciplines. It offers a number of assessments services, including independent medical examinations, functional abilities evaluations, physical demands analyses and more. Medisys IMA was SCM’s second acquisition of an independent medical examiner (IME) in 30 days. SCM plans to bring Riverfront and Medisys IMA together to form a single unit. That’s the long-range plan. For
It’s definitely a different style of acquisition for us, SCM says of its recent acquisitions of two independent medical examiners (IMEs). This is what we would call a ‘platform acquisition.’ It’s a platform to get into a whole new space. now, SCM is consulting with stakeholders and clients to determine the best way to undertake the consolidation of its newly purchased IMEs. Until then, Riverfront and Medisys IMA will continue to operate as two separate entities. People in the claims industry are curious about SCM’s entry into the IME space. SCM Insurance Services started off with adjusting roots in 1986. Over 15 years, the company entered into the investigative services area (distinct from its claims adjusting business) and, over the past four years, the company has ventured into the property appraisal
and inspection business, as well as into data management related to its property and risk management services company. SCM-owned companies include: • ClaimsPro, an independent adjusting company; • SCM Risk Management Services, a national risk inspection company in Canada that includes a team of loss control specialists, appraisers, valuation professionals and risk managers; and property data analytics solutions, including the iClarify service. • Forensic Investigations Canada Inc., a national private investigative services company; and • SCMTech, a technology company specializing in the development of insurance-related software. How does an IME fit into the picture? “It’s definitely a different style of acquisition for us,” said Corey Smith, SCM’s chief marketing and sales officer. “Other acquisitions we have made in the adjusting field, for example, we call those ‘tuck-in’ acquisitions. In this example, we understand the product. We understand the people that come with that acquisition, and we are able to integrate quite easily and create added value to the customer and internal corporate synergies. This [entry into the IME space] is very different. This is what we would call a ‘platform acquisition.’ It’s a platform to get into a whole new space.” Smith says SCM’s entry into the IME area is an extension of the company’s growth strategy, which is to continue to add insurance and risk-related services to its portfolio. “Our objective is not to combine all of these companies into one,” said Smith. “They are separate and distinct companies. But we think corporately we could add value to these companies.” For example, the deal would give Riverfront, which already has a strong presence in Ontario, a national platform, including a presence in western Canada and Quebec. Medisys IMA gains an enhanced proprietary file intake and workflow management solution.
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Arm’s Length “When we examine the IME space and we talk to our customers, the feeling is that we could take those same core competencies that helped raise the bar in our other companies and apply them to that IME space,” said Smith. “So it’s not at all about integrating [an IME company] with any of our other companies. It’s about creating a standalone company of sufficient scale that warrants an investment in adding technology to the workflow, adding geographical coverage, adding quality control procedures and the ability to capture data in such a way that offers future potential for data analytics. Those are our core competencies and we think we can apply them to the IME space.” In pursuing this corporate strategy, SCM is not necessarily a trail-blazer, as many in the industry point out. Granite Global Solutions also provides claims management and resolution services to insurance, corporate, government and legal clients. The company’s standalone business units include Granite Claims Solutions, an independent adjusting firm; Sibley & Associates, a full-service disability solution provider (not to be confused with an IME) that provides, among many other services, insurer examinations and diagnostic testing across Canada; Rochon Engineering; and CKR Global, a risk mitigation company. “From an investor’s point of view, owning a number of service providers can give the opportunity to create scale and size — which can be very efficient in providing central services like finance, information technology and human resources,” says Dennis Schembri, executive vice president of relationship management at Granite Global Solutions. “It also helps to have a dialogue ongoing between and among the various providers to provide better service to our insurance and legal clients — for example, in combating insurance fraud.” Crawford & Company has a division called Crawford Healthcare Management that provides ancillary services to the life insurance, property and casualty insurance and Workers’ 36 Canadian Underwriter January 2012
Compensation markets. “Crawford has no ownership or financial interest in any IME provider or medical assessment company,” says Heather Matthews, vice president of National Claims Management Centre. “It does make referrals for IME and various medical assessments through a network of accredited providers as directed by our principals.” Services the division supplies include disability management, returnto-work case management, vocational
claims business units are falling under the same ownership, brand or banner. But this would be a mistake, since the individual companies operate independently from one another. As Schembri puts it: “Each of our business divisions are separate legal entities, each with its own president and CEO and senior leadership team. Each has its own sales force and each is focused on providing the highest quality in the industry. That is something each division measures and tracks with determination. It’s what sets all our divisions apart from the average.”
COMMON OWNERSHIP: THE ELEPHANT THE ROOM
From an investor’s point of view, owning a number of service providers can give the opportunity to create scale and size — which can be very efficient in providing central services line finance, IT and HR, says Granite Global Solutions assessments, ergonomic evaluations, physical demands analysis and adjudication of short- and long-term disability claims. Additionally, the division has proprietary software, HealthWorks Advantage, a dynamic, interview-based decision support application for handling disability cases. This tool allows Crawford to assess the claim proactively to avoid or mitigate anticipated challenges. There is a temptation among some in the industry to characterize these business models as ‘one-stop-shopping,’ in the sense that so many standalone
SCM’s entry into the IME space has triggered a general discussion within the industry about common ownership of adjusters and medical assessment services or other claims service providers. Some have mused publicly about the topic on Canadian Underwriter’s public Web site and in on-the-record interviews. Still, there is an understandably cautious approach to discussing the issue. Some don’t want their concerns about hypothetical conflict scenarios to be mistakenly associated with specific companies, for example. Some are concerned that a discussion about potential conflict scenarios could unintentionally cast doubt on what are in fact sound business relationships within the claims community. Some sources contacted for the story expressed concern that airing their views might well give creative plaintiff lawyers the impetus to challenge business ownership structures on behalf of their clients in auto insurance claims. For these and other reasons, many chose to speak to Canadian Underwriter on the understanding that they would not appear in the story. In giving voice to hypothetical scenarios raised by anonymous sources, it is not intended for the reader to draw any inferences about specific companies or real-world scenarios. Basically, the discussion here is not about whether or not a conflict truly exists (and certainly Canadian Underwriter does not mean
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COVER STORY
Arm’s Length to imply a conflict does exist). The discussion is really about the steps that the claims community has taken and should be taking to avoid any potential for conflict related to business ownership. At its core, this story is about how the claims process works and is supposed to work. In fact, many may see this as a story about why the potential for conflict does not arise when a company owns both an independent adjusting firm and an independent medical examiner (IME).
DEFINING THE POTENTIAL FOR CONFLICT For the claims community, treating policyholders fairly and without partiality or bias is at the heart of the claims experience. Rules and regulations around the treatment of injured accident victims are in place to ensure the industry treats injured accident victims with fairness, dignity and respect. A claim is an opportunity for the insurer to make good on its promise to the consumer that the policyholder will be given the medical attention and resources he or she requires to get better after an accident. Canadian courts and arbitrators have issued numerous decisions holding IMEs and insurers to a high standard related to their handling of injury claims. In Ontario, the courts changed their Rules of Civil Procedure in January 2010 so that doctors must now declare they will remain impartial irrespective of whom arranges for their testimony. Among other things, the changes include the revamped duties of medical experts under Rule 53.03. This rule requires medical experts to acknowledge their duty to “to provide opinion evidence that is fair, objective and non-partisan.” Experts must now sign the Form 53 acknowledgement and attach it to their reports. As a further measure to ensure impartiality, the form emphasizes the medical expert’s duty to the court “prevails over any obligation which I may owe to any party by whom or on whose behalf I am engaged.” Some say the medical experts’ Form 53 declarations already provide protection against accusations of potential 38 Canadian Underwriter January 2012
conflict related to the broader business operations of independent medical examiners. But given the watchful eye of arbitrators and the courts looking for any signs of potential conflict, the common corporate ownership of an IME and adjuster might also potentially raise a red flag, some sources say. For insurance defence lawyers, the following hypothetical circumstance would represent a worst-case scenario. To be clear, this scenario is not based on any real-life episode. In fact, there
It’s really not a question of whether a conflict exists, but whether [the ownership structure] would bring whatever transaction — in this case, any arbitrations or court proceedings — into disrepute. That’s really the test. appears to be very few court or arbitration decisions related to the ownership of an IME. In our fictitious example, a plaintiff’s counsel represents an injured client during a discovery in a court or arbitration proceeding following a motor vehicle accident. The claimant’s representative starts asking questions about the corporate ownership of the IME and an independent adjuster. For instance, what if the plaintiff’s counsel starts asking a doctor who supplies services to an IME about the ownership of
the IME and who pays for his services as a medical assessor? The same plaintiff lawyer might subsequently ask an independent adjuster in the same discovery who owns his or her adjusting firm. The lawyer’s questions are designed to establish that the assessor and the adjuster both receive a pay cheque from the same corporate owner. After drawing this link, the lawyer would then ask the adjuster the basis for his or her decision about sending his or her client to a particular IME. The lawyer’s inference would be that the adjuster was mandated to send business from the adjusting division of the parent company to the standalone IME, suggesting a potential conflict between the corporate interest in making a profit and the claimant’s interest in receiving an impartial assessment. Framed in a rudimentary way, this hypothetical example lies at the heart of the industry’s current discussions around common ownership. Some sources say the potential for conflict increases as ownership consolidates over multiple entities, although there are ways to negate the appearance of conflict. “We live in a world in which we all tend to own a little bit of each other,” says trial and defence lawyer Lee Akazaki of Gilbertson Davis Emerson in Toronto. “If you have mutual funds, then like most of us, we have shares in Research in Motion [RIM]. We have a common stake in that company although nobody would say there was a conflict, because if somebody were to litigate, lawyers involved in that litigation would also probably be owners of a portion of RIM. “But it’s really not a question of whether a conflict exists, but whether [the ownership structure] would bring whatever transaction — in this case, any arbitrations or court proceedings — into disrepute. That’s really the test. If you have established holding companies with blind trusts to establish that there is no effective control from one or the other and that the only interest is no more or no less than a profit motive, those are ways in which you can get around the appearance of conflict to the extent that it satisfies the average person.”
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COVER STORY
Arm’s Length HOW THE CLAIMS INDUSTRY MAKES CONFLICT DISAPPEAR For many in the industry, the way in which the claims community operates negates any potential for conflict. Insurance Bureau of Canada, for example, says it’s important to keep in mind that the policyholder ultimately chooses where they go for medical services. They could get referrals from various sources, including adjusters, insurers or their own family physician. In some situations, an insurer may wish to challenge or review the findings of the claimant’s own health care provider or eligibility for an ongoing benefit. Section 42(1) of the Ontario Statutory Accident Benefits Schedule says: “for the purposes of assisting an insurer determine if an insured person is or continues to be entitled to a benefit under this regulation for which an application is made, an insurer may, as often as is reasonably necessary, require an insured person to be examined under this section by one or more persons chosen by the insurer who are members of a health profession or are social workers or who have expertise in vocational rehabilitation.” In these circumstances, under the current SABS, an insurer must provide the insured notice, including “the name of the person or persons who will conduct the examination, the regulated health professions to which they belong and their titles and designations indicating their specialization, if any, in their professions.” The current SABS includes a short section under the heading “Conflict of Interest.” This section states in part: “An insurer has a conflict of interest relating to the provision of goods or services to an insured person if (i) the insurer may receive a financial benefit, directly or indirectly, as a result of the provisions of the goods or services.” This section does not make reference to adjusting firms or IMEs. One way to interpret this section is that an insurer would stand to gain some kind of ‘financial benefit’ if it was seen to be channeling too much of its business to an IME. 40 Canadian Underwriter January 2012
To negate any potential of such a conflict occurring, a number of Canada’s larger insurers have established a rigorous request for proposal (RFP) process to establish a “roster” of IMEs. These
With this IME product, we do not see a lot of freedom for independent adjusting firms in this area, because of the importance of the medical assessment and the implications of the decisions that are made around this product. Insurance companies control the use of this. rosters will typically have anywhere in the range of between four and 20 IMEs, depending on the company. Contracts with these IMEs may last anywhere between one and three years, and the business would be directed equally to each of the IMEs on the roster. For example, if an insurance company’s roster included four IMEs, each of the IMEs on the list would get 25% of the insurer’s referrals. Insurance companies with their own in-house claims departments might make suggestions to claimants based on
their rosters of IMEs, selecting potential referrals from the list on a rotating basis. Other insurers may farm out the business to independent adjusting firms. When business is contracted out to independent adjusting firms, the key to avoiding conflict is in the nature of the relationship between the insurance company and the adjusting firm. Under the terms of most typical contracts between insurers and adjusting firms, the independent adjuster places claimants with IMEs according to the protocols established by the insurance companies. In other words, independent adjusting firms are typically not contractually allowed to place claimants without regard to the insurance companies’ IME rosters and without any instructions from the insurer. Ultimately, as long as insurance companies — and not independent adjusting firms — determine where claimants might go for medical examinations, the potential for conflict evaporates, sources say. “With this IME product, we do not see a lot of freedom [for independent adjusting firms] in this area, because of the importance of the [medical] assessment and the implications of the decisions that are made around this product,” Smith says. “Insurance companies control the use of this. This is the most robust RFP selection process I have ever seen. These [insurance] companies go through a rigorous process, and that process in their minds eliminates any potential for conflict. There’s complete transparency. “They [insurance companies] are examining the ownership structure of the [IME] companies, mostly to ensure that these ownership structures can support the product and the value proposition that’s being promised, and to ensure there is no conflict with IA [independent adjusters] or anything else. They make the decision corporately [which IMEs to use], and then their internal staff really has no freedom to deviate from that. “If it goes to an IA, the IA simply becomes an extension of [the insurance company’s] internal claims staff. That IA is typically bound by the protocols
COVER STORY
Arm’s Length around the usage of IMEs that the insurer dictates. It is very rare, in the cases we’ve examined, where the IA would have complete autonomy to deviate from any sort of protocols and choose whatever IME they wanted. They’re typically tasked directly by the insurance company or they are following the same internal rotation as they other claims staff are.”
BEYOND ROSTERS Each company’s protocol for handling claims is different. For example, not every company uses a roster approach for assigning claims to IMEs. Larger companies might be able to support a strict competition through an RFP process, but some smaller companies may not. And even if a roster system is in place, “there’s really no one policing” it, as one source says. “They have no one to police the system to see who is getting the fair share of the volume of the business.” But ultimately insurers have a vested interest in making sure the situation is policed properly, which is why they take such care with IMEs. As one source put it: “Remember, it’s not the IME company and it’s not the independent adjuster that suffer the consequences [arising from a conflict]. It’s the insurer. The IME company doesn’t have to pay [a court-ordered] special award. The IA company doesn’t have to pay the special award. All of the reputational consequences flow to the insurer. It’s their pocket, it’s their brand, it’s their reputation.” Insurers have been very careful about managing the IME side of the business, Schembri and Smith say. Both emphasize that it would be very rare for an independent adjuster to have absolute freedom to choose where to send a claimant for a medical examination. And even in those rare circumstances when an IA might find itself with some choice in the matter, companies like SCM have a protocol in place, Smith says. The adjuster would request specific IME placement instructions from the insurer, having 42 Canadian Underwriter January 2012
disclosed the cross-ownership between ClaimsPro and Riverfront and Medisys. If the adjuster does not then receive explicit instructions from the insurance company and is still left to decide, the protocol dictates that the adjuster would not send the business to Riverfront or Medisys. “On the rare occasions when ClaimsPro is expected to use another SCM-owned IME, we’re going to ask [the insurer] to pass or skip over that [SCM-owned] company on the list to make double sure there’s
Insurance companies go through a rigorous RFP process, and that process in their minds eliminates any potential for conflict. There’s complete transparency. no appearance whatsoever of conflict,” Smith said. “That volume is so small, not only are we comfortable with that, we’re happy to encourage that.” Granite Global Solutions (GGS) has a similar protocol in place that does not allow for mandated cross-referrals between Granite-owned companies. “The ‘appearance of conflict’ is
a difficult thing to manage, so at GGS we have taken steps to ensure it doesn’t exist,” Schembri says. “Our separate business divisions with their independent minds and management — relying on GGS only for central services in finance, IT and so on — means they do operate independently and would stand the scrutiny of any customer audit. Combining these back room administrative functions is a matter of efficiency and not connected to the provision of services in the marketplace. We will not take an assignment that could put us in a conflict situation, nor will we mandate referrals between groups. Oftentimes we do get referrals because our superior quality of service is clear, but our primary credo is to give the customer professional and independent advice.” Akazaki said disclosing the corporate ownership structure is a key step in reducing any potential for conflict. “I think the first thing that anybody who is engaged in that particular ownership arrangement has to do is be completely upfront about it,” he says. “Transparency is important. It’s not just the fact of a conflict but what the appearances are. If you are upfront about it and disclose it to all of the parties — either on your Web site or in the contract document — that’s one way to make it perfectly clear [to the claimant that the IME] they are dealing with has an owner that is an adjusting firm… “Once you disclose that, it allows parties to object. And if they know about the ownership and don’t object, they can’t later turn around and say, ‘I object to Dr. So-and-So testifying at my arbitration,’ because they knew about that issue all along and didn’t raise it. Then you would be able to lead evidence as to the corporate structure, who owns what shares of what, and what steps have been implemented to ensure the board of directors that controls the [IME] is operating independently of the controlling entities of the adjustment firm. These are the things you would have to put into place.”
Jacinta Whyte, General Manager and Chief Agent for Canada, Ecclesiastical Insurance Office, plc, is pleased to announce the following executive appointments.
Jamal Madbak, M.Sc., ACII, Chief Underwriting Officer
Rissa Revin, J.D., Vice President, Claims
Jamal Madbak has been appointed Chief Underwriting Officer. In his new role, Jamal is responsible for developing and executing Ecclesiastical’s underwriting strategy and for leading the organization’s growth in its National Programs and Risk Managed business areas. With an insurance career spanning some 30 years – in North America, Europe and the Middle East – Jamal has extensive experience in the property and casualty arena. Jamal holds a B.A. in Business Administration and an M.Sc. in Economics from the American University of Beirut. Rissa Revin has been appointed Vice President, Claims. Leading the organization’s national claims services, she is responsible for maintaining Ecclesiastical’s client-centric, service-oriented claims approach. Rissa is an accomplished insurance professional with over 15 years of experience in international property and casualty, claims and reinsurance. She holds a J.D. degree from Osgoode Law School. Rissa is a member of the Law Society of Upper Canada, the Professional Liability Underwriting Society and the International Association of Claims Professionals.
Colin Robertson, ACII, Vice President, Risk Control
Jan Wleugel, B.A., CRM, Vice President, Risk Managed Accounts
Colin Robertson has been appointed Vice President, Risk Control. Heading up Ecclesiastical’s risk control teams across Canada, he is responsible for the growth and evolution of the organization’s risk management practice. Colin brings over 13 years of experience in management, underwriting, risk control and marketing to his new role. He joined the Canadian team from Ecclesiastical, United Kingdom where he held a senior risk control position. Colin is an Associate of the Chartered Insurance Institute and holds a National General Certificate in Occupational Safety and Health. Jan Wleugel has been appointed Vice President, Risk Managed Accounts. Leveraging a 25-year career in the insurance industry and broad expertise in business risk management, Jan plays an integral role in the leadership of Ecclesiastical’s Risk Managed/Reciprocals practice. He holds a B.A., Administrative and Commercial Studies (Financial) from the University of Western Ontario and a Certificate in Internet and Business Technology from the University of Toronto. Jan is a member of The Toronto Board of Trade.
Protecting those who enrich the lives of others Owned by a charitable trust, Ecclesiastical is a unique specialist insurance company. Working closely with independent brokers across Canada we provide customized insurance solutions to faith organizations, retirement communities, educational institutions, unique properties, registered charities and non-profit organizations, and select commercial enterprises. Ecclesiastical is deeply committed to protecting those who enrich the lives of others and to supporting local and global initiatives that help eradicate poverty and improve the lives of people in need.
www.ecclesiastical.ca Celebrating 125 Years
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Neck
Pain in the vpi Insurance Services Annual Accident Benefits Adjuster Seminar
Sara Penny
Web Content/Social Media Specialist, vpi Inc.
Insureds who want to be bounced out of Ontario’s new Minor Injury Guideline (MIG), which caps minor injury claims at $3,500, are taking advantage of a little-known provision in the Insurance Act to move their claims forward. Insureds are taking advantage of a little known provision in Ontario’s Insurance Act to dispute insurers’ decisions that they should be treated under the Minor Injury Guideline (MIG), which includes a $3,500 cap on minor personal injury claims. Philippa Samworth of Dutton Brock LLP made the observation in her presentation to vpi’s Insurance Services Annual Accident Benefits Adjuster Seminar in Mississauga, Ontario on Nov. 18, 2011. Entitled ‘Pain in the Neck,’ the seminar featured Samworth as a speaker in addition to Dr. Howard Platnick and Dr. Leslie Kiraly. Samworth observed that insureds are retaining lawyers to dispute insurers’ decisions that the insureds should be treated under the MIG, and with MIG files, time is of the essence. Because of an existing backlog for mediation in Ontario in the range of between 12 and 18 months, in-
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sureds are using a little known provision in the Insurance Act, Section 280, to achieve a quick “failed mediation” ruling to move these cases forward, Samworth said. According Section 21 of the Ontario Insurance Act, mediation has failed if the time limit has expired and no settlement has been reached. Section 19 says the mediation must be concluded within 60 days of the filing of the application for mediation. The big problem with this approach is that insureds are under no obligation to serve insurers with a copy of their application, Samworth said. Once insureds have a “failed mediation,” they are able to file their claim. Samworth said insurers now need to review every application for mediation to make sure it has been properly completed and that it identifies the issues in dispute. If it is not properly
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completed, an argument could be made that the clock did not start to run at the time of filing. If a statement of claim is issued, the insurer should confirm when the application for mediation was filed at the Financial Services Commission of Ontario (FSCO) and verify that the claim was not issued before the “deemed failed mediation” date. The insurer should also request a copy of the application for mediation and a letter from opposing counsel stating the issues deemed to be failed, including all of the pertinent dates. Where are MIG claims headed? Samworth said files are getting to her very quickly, generally within six months after an accident. Some insureds have filed
Section 21 of Ontario’s Insurance Act says mediation has failed if the time limit has expired and no settlement has been reached. Section 19 says the mediation must be concluded within 60 days of the filing of the application for mediation. But insureds are under no obligation to serve insurers with a copy of their application. their claims in the Ontario Superior Court, while others have filed claims under the Simplified Rules in Superior Court.The rest are filed in Small Claims Court.The dollar value attached to treatment plans under dispute frequently comes in under the Small Claims Court limits. The issue with MIG claims is that insureds are seeking a declaration that they do not fall within the definition of a minor injury and therefore should not be restricted to the MIG, Samworth said. But Small Claims Court judges do not have the jurisdiction to give such a dec-
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laration.These cases involving small dollar amounts should be handled under the $100,000 limit for the Simplified Rules in Superior Court, Samworth said, and this is the position she is taking with her cases. Samworth said she is seeing “bizarre” cases that clearly appear to fall within the MIG. She reports seeing treatment plans with no documentation to support the claim. In some instances, she said, treatment providers have provided nothing in support of an insured’s assertion that “compelling evidence” exists to prove the insured does not belong in the MIG. There appear to be a lot of psychological issues associated with MIG claims, just as there were with the MIG’s precursor, the Pre-Approved Framework (PAF) Guidelines, she said. However, the definition of a minor injury in the MIG includes “clinically associated sequelae.”The MIG addresses psychosocial risk factors and has some provisions for dealing with issues such as stress and driving phobias. But there is some disagreement about how psychological conditions should be addressed in the Ontario Psychological Association Guidelines for Assessment and Treatment in Auto Insurance Claims, July 29, 2010. In summary, the guideline states psychological impairments are not included in the definition of a minor injury. But it also indicates the MIG will allow for some psychological interventions under the heading of “Supplementary Goods and Services,” although these are limited to addressing circumstances such as coping skills and distress. The guideline goes on to say driving phobia and transit phobia are not “sequelae” of physical injuries, so there will likely be many treatment plans for insureds having these phobias. Samworth said we will have to wait and see how these issues are handled when they get to court. Samworth concluded with a comment about “the irony of the MIG.” She said that out of the files she has seen (between 20 and 25) involving a request to be taken out of the MIG, the cases are
identical in that the treatment plans in dispute are for treatment that is available within the MIG. The treatment under dispute is usually longer and more expensive, but it is the same type of treatment. This begs the question of why providers feel their clients cannot get better within the MIG unless they have the identical treatment outside of the MIG, she said.
In several files involving a request to be taken out of the MIG, the treatment plans in dispute are almost identical to treatment available within the MIG. This begs the question of why providers feel their clients cannot get better within the MIG unless they have the identical treatment outside the MIG. In his presentation, Platnick focused on WAD injuries, giving an overview of specific signs and symptoms, and looking at the mechanics of injury as a way for the adjusters to gain greater insight into the WAD rating system, as established by the Quebec Taskforce. He highlighted the manner in which WAD injuries are addressed by the MIG, as well as the need for a precise diagnosis and knowledge of any pre-existing conditions. Dr. Leslie Kiraly delivered an in-depth analysis of the psychological aspects of whiplash and chronic pain. He presented some sobering chronic pain statistics reinforcing Platnick’s assertion that it is essential for adjusters to obtain the insured’s medical files and understand any pre-existing conditions. By defining the signs, symptoms and potential causes of different types of pain — neuropathic, nociceptive and mixed pain — he illustrated the correlation between psychological factors and the occurrence of chronic pain.
CSL Global is pleased to announce the opening of a new business operation in Canada. CSL Global (Canada) Ltd. provides a comprehensive range of specialist marine survey and claims handling services including Cargo, Transit, Hull & Machinery and P&I. CSL Global (Canada) Ltd will operate from key offices in Toronto and Vancouver and will be headed by Captain John Hosty.
Key members of our team include: Captain John Hosty VP, Operations is the principal founder and business leader for the CSL Canada venture. John is an experienced marine surveyor and business manager with over 25 years of experience in the marine industry. He is a qualified Master Mariner and sailed for 11 years in all ranks up to Captain on a wide variety of merchant vessels including LPG, LNG, chemical tankers and VLCC’s. His has significant technical expertise in the hazardous materials sector and has worked widely in this field including spill control management, emergency response and marine incident management. John’s business experience includes the founding and development of one of the largest marine and hazardous materials response companies in Canada. Andrew Rayner is VP, Business Development for CSL Global (Canada) Ltd. He has worked in the insurance industry since 1996 in a variety of roles including insurance broking and marketing for a specialist adjusting company operating in the marine cargo and environmental services market. Andrew is responsible for both local and international sales & development activities and comes to CSL with a significant pre-existing marine insurance market client network.
Captain Philip Vardon VP, Technical, is qualified Master Mariner (Canada) and a chartered insurance professional. Philip has 15 years sailing experience on various vessel types including tankers, bulk carriers, general cargo ships and multi-purpose vessels. He has been a marine surveyor and marine survey manager for over 10 years and has significant experience in a wide range of marine survey assignments (claims and loss prevention) including cargo, wet marine, marina & terminal liability, pleasure craft and small commercial vessels. In this period, Philip also has worked as a marine instructor guiding merchant navy cadets in the use of ECDIS, simulated electronic navigation and communications. Ken Rayner is the Chairman of CSL Global (Canada) Ltd and brings many years of valuable experience as a senior executive in the insurance industry. He has previously held positions such as President of Crum & Forster of Canada and Omega General Insurance companies. He also worked in the role of President of CULE Insurance and is currently Vice President of Marketing for the Totten Group part of HUB International. Ken started his career in Vancouver, followed by a significant tenure in Atlantic Canada and 25 years in Toronto. He brings a broad range of marketing and management skills to the CSL Canada team and networks closely with his many contacts in the Canadian insurance industry. Kaivan Chinoy, Office Manager, based in Vancouver, is a qualified Mercantile Marine Officer (Chief Officer) with extensive shipboard and marine operations involving navigation and transportation of crude oil, loading/ unloading of bulk & break bulk cargoes, containerization and marine surveying like loss control surveys, heavy equipment & project cargo risk management, grounding & refloating attendance. In 2007, he graduated with an MSc in Technical Management of Ship Operations from Glasgow & Strathclyde Universities and prior to joining CSL Global (Canada) Ltd, worked as an independent marine & cargo surveyor conducting loss investigation surveys on a wide range of damaged cargoes, container damage surveys and cargo securing surveys, on behalf of carriers, cargo interests, insurance and marine claims & adjusting companies.
The contact details for our Canadian Head Office are as follows: CSL Global (Canada) Ltd 55 Adelaide Street East, Suite 210 Toronto, ON, Canada M5C 1K6 Tel: +1 416 365 1884
Capt John Hosty Tel: +1 905 320 3861 Email: j.hosty@cslglobal.com
Mr Andrew Rayner Tel: +1 647 924 4848 Email: a.rayner@cslglobal.com
CSL is a leading provider of professional claims, risk control and recovery services to the marine insurance industry and to clients operating in and around the global cargo, shipping, transportation and supply chain sectors.
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06/01/12 3:51 PM
Insurance and Climate Change, Part 2: A Special Report from Churchill, Manitoba
Vanessa Mariga Associate Editor
This is the second part of a two-part series chronicling Vanessa Mariga’s week-long trip to the Canadian North to trace the connections between climate change, ice thaws, polar bears and insurance.
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Sea
Change Churchill, perched on the shore of Hudson Bay in Northern Manitoba, seems like an awfully long way to go to see firsthand the effects of climate change. I travelled to Churchill with the insurer RSA in November as part of its ‘Seeing is Believing Tour.’ Hosted by World Wildlife Fund (WWF), the tour was a chance to see firsthand the polar bears that occupy the area and the impact climate change is having on the survival of this species. When I told people about the trip, I was always met with confusion. ‘What does an insurance company have to do with climate change, polar bears and WWF?’ Last month, in Part 1 of this series, I traced links between climate change and the extended period of time that polar bears are being stranded on shore, near — and sometimes in — Churchill, a result of bears not being able to find sea ice on which to hunt. Over the course of the week, it was made clear to me what the connection is between the survival of these bears, and the insurance industry.
48 Canadian Underwriter January 2012
Photos: Gerald Allain
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TUNDRA BUGGY CRUISING On Day One of the trip I had the rare opportunity of going on a bear drop (see ‘Sea Change,’ Canadian Underwriter, December 2011). On Day 2, we pile onto a bus at 8 a.m. and make our way to the Frontiers North tundra buggy launch site. We will spend the next two days on the tundra, watching the bears in their natural habitat. The sun hides behind a cloud cover. The -14 C temperature plummets to -28 C with 70 km-h wind gusts. It hurts to breathe. My eyelashes freeze with each blink. As the bus crawls along the highway, we pass by Hudson Bay. One of our guides is Geoff York, senior program officer for polar bear conservation for the WWF’s Arctic Program. He points out that because of the temperature drop over the past 24 hours, the amount of ice on the bay, which should be frozen over by now, is approximately four times what it was the day before. Everyone on the bus cheers. It feels like our team has scored a touchdown in a crucial football game. We haven’t won yet, and our stats show us lagging far behind, but at least we’re on the board. Why are we cheering? The development of sea ice is a good sign for polar bears, because it means they can move out to their hunting grounds where seals are plentiful and begin to rebuild the crucial fat stores that sustain them over the summer months. It’s also good for insurance companies because it suggests some
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delay in the onset of climate change. Insurers will tell you climate change is the chief culprit in a number of particularly vicious weather storms that have caused the Canadian property and casualty insurance industry to pay out more than $1 billion in insured losses in each of the past three years. ‘Tundra buggies’ are airport fire engines retrofitted with school bus seats and windows, a propane stove, an observation deck off the back and the coldest washroom facilities known to humankind (I’m convinced). We lumber along abandoned military roads that weave through the tundra. When we spot bears, Arctic foxes or hares, we are told, we will lower the windows and observe in silence. We’re told it could take hours before we encounter anything, so be patient. If we’re quiet and still enough, the bears will likely wander up to our buggies. Within 10 minutes of setting out, we spy a polar bear sow sitting on a sheet of ice with her two cubs nestled against her body. Mom and babies get up to saunter away, and one of the cubs does a Bambi-like skid across the ice. A chorus of ‘awwwws’ fills the buggy. Further down the road, a sow is hunkered down in a patch of brush. One cub is tucked into her. The other lays a few feet away. Pete Ewins, WWFCanada’s senior species officer and one of our guides, says this is the third day or so they have been there, suggesting the sow is potentially suffering and desperately in need of getting out onto the ice to hunt.
CLIMATE CHANGE TUTORIAL As we roll through the tundra, the first four hours spent watching the bears on this science fiction-like landscape feel like 20 minutes. After lunch, Geoff and Pete hold a tutorial. They’ve created a mock classroom at the front of the buggy, filled with props and charts and maps. The Arctic is like the earth’s thermostat, the snow and ice reflect the sun’s rays and help to keep the planet cool, Pete explains. Multi-year sea ice — ice in the far North that lasts year-round —
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A polar bear makes its way past our Tundra Buggy.
is declining in range on average 11% per decade, Pete says. “So in absolute numbers, in September 2007, that coverage of multi-year sea ice was 4.1-million square kilometres,” he says. “And it’s projected, somewhat conservatively, to be 400,000 square kilometres by 2050. That’s a massive reduction.” The annual ice on Hudson Bay would cease to exist by then.The multi-year ice would be the last frontier for the survival of the polar bear. But as Geoff hastens to point out: “This isn’t just an Arctic or a polar bear story,” he says. “Changes happening here are affecting or will affect all of you where you live. The Arctic controls global climate. As the Arctic is changing, the whole world will be affected.” A link between warm Arctic temperatures and cooler continental weather is well documented in scientific literature, Pete adds. The exaltation (or elevation) of heat in the Arctic leads to adjustments in high and low pressure systems over the Atlantic. For example, if the sea ice melts, a jet stream that keeps the United Kingdom and Western Europe mild in the winter is cut off. The result would be much harsher winters and the freezing up of ports in areas like France, Germany and the United Kingdom. The potential icing over and/or
seasonal shutdown of ports that typically flow year-round might wreak potential havoc on supply chains. This in turn would affect commercial insurers that offer coverage in the event that a client company’s supply chain is interrupted. Furthermore, without ice blocking access, sea passages in the North could conceivably be open for longer, resulting in an increase in traffic through the area, Geoff says. The problem is, these areas haven’t been properly charted. And so an increase in traffic could potentially lead to an increased risk of ships running aground, resulting in spills. “Polar bears are the canary in the coal mine,” says Pete. “We have to decide as a society if we’re going to greet these signals and respond. If we don’t, then our grandchildren will have to. And [by then] it’s going to be thousands of times worse and more expensive [to fix].” Some current research shows that if societies initiate large enough actions on a broad enough scale, the arctic ice melt can be halted, Geoff says. “The sea ice will respond in our lifetimes, and definitely within our children’s lifetimes, and will start to come back.” As the afternoon rolls along, I find myself sitting down with Pete. He asks if I’m finding enough information for
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the story I need to write. That leads us into a discussion about whether more bridges need to be built between the science community and financial services community, including the P&C insurance industry.
UNDERWRITING CLIMATE CHANGE In insurance, for example, fire posed the biggest risk to the property and casualty industry for most of the past 300 years. The industry worked long and hard to mitigate that risk, aiding in the development of appropriate building codes and warning systems. But, over the past decade insurers have started to be hit hard by a deluge of claims arising from severe wet weather. Insurers are convinced the severe weather events are connected to climate change, although science is not yet at the point where it can confirm the links at a specific regional or granular level. The point here is that insurers have had to shift gears quickly over the past few decades: insurance underwriting for climate change and factoring climate change into premium pricing models remains a major challenge. During our conversation, Pete references The Stern Review:The Economics of Climate Change. In the 2010 report, Lord Nicholas Stern warns that ignoring climate change will eventually damage economic growth. “Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century,” Stern wrote. “And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term … The earlier effective action is taken, the less costly it will be.” That evening, at the Traders’ Table in Churchill, I have the opportunity to sit and chat with Shawn DeSantis, executive vice president of RSA Insurance in Canada. He tells me weather-related losses have been a concern in the Canadian marketplace for quite some time. But certainly over the past five years, the
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frequency of events and the geographic pockets in which they’re occurring has been a cause for concern. The rule of thumb in property and casualty insurance is that you have to be able to accurately predict the claims losses in order to predict the correct premium to charge policyholders. But if losses due to climate change are unpredictable, that makes underwriting the product and the development of mitigation strategies that much more difficult. “As underwriters, we’re spending a lot more time trying to understand how it is that we deal with this,” he says. “In
events and the impact of weather?” he says. “I would say at the moment there is increasing evidence that you may have to look at some different models. We had an unprecedented 2011 in terms of catastrophe [losses]. No one saw it coming. Lots of reinsurers would agree that the weather patterns and the patterns of catastrophes over the past 10 years are much, much harder to predict. So you are seeing some changes. Turning that into [accurately predicting premium] pricing is probably a way away though. But we are working toward it.” DeSantis said it’s not a case of inventing a new model or tool, but rather constantly increasing the sophistication of existing models. “We need to ensure that we’re keeping up with the challenges and we’re ahead of it, versus reacting to it.”
THROUGH A DIFFERENT LENS
1
2 1) Geoff shows a cast of a polar bear skull. 2) Polar Bears International at work on the observation deck of a tundra buggy.
the last couple of years, I would suggest that we’ve been reacting as an industry. We have always been trying to chase the appropriate premium or the appropriate risk mitigation for weather. I think the whole industry is on a strong learning curve for what this means on a go-forward basis.” The next day I speak with David Weymouth, risk director for RSA’s group operations, who agrees with DeSantis. “Are we beginning to see enough evidence for actuaries to understand that climate change ought to cause us to revise our view on pricing catastrophe
We were meant to spend the last day of our trip in the Nunavut community of Arviat. We were going to meet with community members to discuss the challenges climate change pose to their traditional way of life. But a blizzard has grounded us in Churchill. Across the street from our hotel is Mike Macri’s studio. Mike is a local photographer who has lived in Churchill for 40 years. With a bit of time to spare, Sarah Kennedy, communications officer with RSA, Juan Montalvo, a freelance photographer hired by RSA, and I pop over to look at his prints. Mike has been observing Churchill’s wildlife and environment through his lens for longer than most of the scientists in town. His images include northern lights blazing across the sky, igloos lighting up a dark tundra and polar bears lumbering across the terrain. In a soft-spoken voice he shows us his prints and explains when and how each shot was taken. We ask if he’s noticed a difference in the decades since he’s been keeping watch. “Absolutely,” he says. “I’m seeing birds that I would never see this far north, junglelike growth where it used to be just tundra with some wildflowers, and bears that are getting smaller and smaller. A change is definitely occurring.”
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3
rd
Party Administration
Opinion/Analysis
Ed Doyle
Doyle Risk Services Inc.
The Canadian third party administration (TPA) market has developed its own personality in response to the needs of the consumer. The qualities and design of TPAs have shifted in time with the evolution of the market. When I moved to Canada from the United States more than 14 years ago, third party administration (TPA) in Canada was still in its infancy. A TPA processes insurance claims or certain aspects of employee benefits plans for a separate company. Back then, the term ‘TPA’ was seldom used. When it was used, the position of a TPA adjuster was commonly characterized as being similar to that of an examiner at an insurance company. Much has changed over the years. The Canadian TPA market has developed its own personality in response to the needs of the consumer. Restrictions in the market and the unique culture of Canadian society have resulted in various incarnations of the standard concept.
WHEN SHOULD A TPA BE SELECTED? When determining whether or not a TPA is the right option for a particular program, a risk manager must consider the relative strengths and weaknesses of the TPA model and the appli-
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cation of the TPA model to the risk being considered.TPAs are often suitable for programs featuring a high frequency but low severity of claims. A TPA should also be considered when it is of paramount importance to the company to retain decision-making control for reasons such as maintaining the integrity of reputation, profile, brand or product. It is also important to consider the anticipated risk retention level: the benefits of a TPA may be reduced when a low self-insured retention (SIR) or deductible is in place, since the authority of the TPA would only be within the retention level.
TPAs: DESIRED QUALITIES AND DESIGN Clear Lines of Authority It is important to identify whether the TPA under consideration is capable of providing the service required, both from a quality perspective and from a direction and control perspective. Do adjusters know who their boss is? Who is holding the reins? Who is in charge? It might seem apparent when a program is contemplated, as well as throughout the selection process and implementation phase. However, on the front lines, the TPA adjuster can become confused when attempting to interpret fronting arrangements — for example, when the carrier issues the claim payments and adjuster fees and then invoices these fees back to the client. In addition, it is commonplace for independent adjusters, lawyers, contractors and other vendors to make routine enquiries into a reporting
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and authority contact at an insurance company.Without proper direction and control from the TPA, an unauthorized vendor or carrier could make decisions without proper authority. A vendor’s unfamiliarity with the TPA model, which is relatively unique, is understandable. But such unfamiliarity cannot be tolerated at the TPA. Unfortunately, it happens because of the relative size of the TPA talent pool compared to the overall adjusting talent pool. In other words, independent and staff adjusters do not have the specialized training to function as TPA adjusters. Therefore, proper training and supervision must be given to new hires.
Centralized Claims Management One perceived disadvantage of TPAs in Canada is that they are typically located in one location and yet service the entire country. Seen from a different perspective, the single location may in fact be an advantage: the adjusting team can build a claims management philosophy centered on the client, rather than focusing on the local field adjuster or branch manager who may have little interaction with the client. Of course, fieldwork is necessary in handling catastrophic or niche situations. But in this technological era, featuring cell phone cameras, scanners, email and recorded statements, the need for fieldwork is substantially diminished. Data Management In the past, the cost to establish and run an effective risk management information system (RMIS) was a significant barrier to entry for new TPAs. Technological innovation has eliminated this barrier. In fact, new TPAs might have a competitive advantage, since they are not burdened with potentially outdated systems. State-of-the art systems are now fast, adaptable, cheap and user-friendly. In the past, insurers were concerned about an inability to establish a reliable and accurate data feed that met the carrier’s internal needs while at the same time providing the data required to comply with federal and provincial reporting requirements. Cost was a factor,
given the historically modest market share of TPA business in Canada. However, as the TPA market share has increased, certain carriers have made substantial investments in IT infrastructure to facilitate this transfer of data. There are many competitive benefits to creating such a platform. Foremost, it establishes a sole entry point of data input. This eliminates duplication and reduces the risk of data integrity issues. The challenge for the TPA now is to adopt a RMIS system that can transfer data easily to the carrier.
Cost of a TPA Used effectively, a TPA should result in significant savings in both indemnity dollars and expense costs.TPA adjusters are typically compensated based upon their performance in audits, client
The TPA share of the overall claims management market might increase based on several factors, including a potential hardening market, reduced accident benefits exposure and a clearer understanding of the TPA product. satisfaction surveys and closing ratios. Therefore, it is in the adjuster’s best interest to achieve a fast, fair, frank and friendly resolution. TPAs are usually compensated on a “fee-per-claim” or “cost-plus” arrangement.These arrangements allow risk managers to determine their claims costs more accurately. Independent adjusters and their companies are typically compensated for how many hours they spend on a file. They play a very important, yet minimal role in a TPA program.They play a far greater role in claim programs that do not fit within a TPA structure.
Oversight and control of a TPA Oversight and management of a TPA must be a central component in any risk management program. Without a consistent schedule of audits, claim re-
views, large loss meetings, staffing consultation and bordereau analysis (bordereau are detailed documents that might, for example, detail the history of a risk), a TPA program might produce an inconsistent product quality or result in leakage due to lost opportunity costs. If the company designated as the TPA is also the independent adjuster, special attention must be taken to ensure field assignments are assigned only when necessary. This situation can create the potential for a conflict for the TPA, since fieldwork is usually a surplus cost to the TPA fees. The cost to administer oversight programs is relatively modest, but failure can prove costly.
THE FUTURE OF TPAs The TPA share of the overall claims management market has the potential to increase based upon several factors.These include a potentially hardening market; reduced accident benefits exposure; a clearer understanding of the TPA product; and heightened interest in the use of captives. If the potential of TPAs is to be met and the cost of risk is to be reduced, the risk management community must carefully identify and use the TPA product effectively. Headwinds that might slow the potential growth of the TPA market include the provincial management of the workers compensation system and the relatively small size of the self-insured market in Canada. Risk and claims managers tend to use consultants for workers compensation claim management. This is likely the result of a misunderstanding about how TPAs might add value in the area of workers’ compensation claims management. The overall difference in the cost of risk between guaranteed cost programs and large deductible/SIR programs has limited the market potential for TPA services. An opportunity for growth in the TPA services exists if the markets harden and large SIR/deductible program offer a lower cost of risk. The TPA industry will continue to evolve in Canada. It is up to the risk management community to ensure its evolution continues to reduce the cost of risk.
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The New-Look Law Firm
Ralph D’Angelo Senior Counsel, Manager, XClaim Portfolio Claims Services
Louis A. Frapporti Partner, Gowlings
The economic landscape for Canadian property and casualty insurers has changed dramatically over the past 20 years. The industry has experienced unprecedented consolidation and increased competitive pressures.The Top 10 property and casualty insurers in Canada controlled almost 60% of the market share in 2010. As a result of these pressures, in an effort to find a competitive edge, insurers have been compelled to develop innovative, more cost-effective methods to deliver insurance services and value to their clients.These efforts have extended to their suppliers and vendors, which have also had to adopt more innovative and responsive strategies to maintain market share. However, law firms, the insurance industry’s most significant supplier of services, have been largely resistant to this trend.
54 Canadian Underwriter January 2012
THE VALUE CHALLENGE For much of its long and storied history, the legal profession in Canada has been somewhat immune from the economic pressures that have buffeted and shaped the commercial and insurance landscape. Its status as a licensed monopoly, among other reasons, has permitted it to at least partially escape the impact of rapid technological advances as well as the pricing pressures from Asia and other emerging economies that have had such a profound impact on commerce in this country and abroad. Nonetheless, like any service industry, law firms are now having to accommodate the demands of their clients, who are looking to retain counsel in the same way they procure other goods and services — i.e. through the use of sound commercial procurement practices geared toward reducing cost and increasing value. Among the more prominent proponents of innovative and value-based legal service delivery is the U.S.-based Association of Corporate Counsel (the ACC).The ACC is comprised primarily of corporate in-house counsel in a wide range of industry sectors, including the insurance field. It has expended considerable effort in recent years promoting its “value challenge” to corpo-
Illustration by Sandy Nichols/www.threeinabox.com
Advanced technology and cost pressures have caused insurance companies and law firms to develop new ways of doing claims business together.
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rate law departments and law firms. It describes this initiative in the following way: “The ACC Value Challenge (AVC) is an initiative to reconnect the value and the cost of legal services. Believing that solutions must come from dialogue and willingness to change things on both sides, the ACC Value Challenge is based on the concept that law departments can use management practices that enhance the value of legal service spending; and law firms can reduce their costs to corporate clients and still maintain strong profitability. The ACC Value Challenge promotes adoption of management practices that allow both sides to achieve their key objectives.” The ACC outlines an impressive number of approaches aimed at increasing the value of legal services. Among them, the promotion of value-based fee structures (including fixed rates, annual retainers, contingent rates, blended rates or rebates), novel staffing options, data
and knowledge management tools and increasing efficiency through technology. Many of these approaches represent relatively radical departures from the traditional lawyer-client relationship, certainly in Canada. Few of these approaches are commonly used within the insurance litigation context, in which considerable allegiance to the
hourly rate billing model and traditional modes of interaction between client and outside counsel have held fast. Notwithstanding the insurance industry’s adoption of innovative service delivery strategies, insurers and their law firm suppliers still exhibit considerable resistance to change when it comes to the provision of legal services. This can be attributed to a variety of causes; among them is an unquestionably strong institutional aversion on the part of insurers and law firms to the disruptive risk that arises in the adoption of change. To the extent that insurers have demanded innovation through the reduction of costs and/or an increase in collaboration or control, their efforts have typically involved putting downward pressure on law firms in relation to their hourly rates or through the creation or expansion of in-house legal departments. However, an increasing number of insurers and law firms are finding truly
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innovative ways to take up the ACC’s value challenge. One such example is Gowlings’ XClaim initiative.
XCLAIM INITIATIVE Developed over the past several years and in partnership with insurers, the XClaim service delivery model in the insurance litigation field focuses on client value and needs through a combination of aggressive alternate fee arrangements (where desired by the client), novel staffing options, new work processes and a proprietary and custom designed litigation management software application accessible to the client on an extranet portal basis. This business model as been separately branded as XClaim. The firm’s XClaim group provides defence and subrogation recovery services to insurers through a dedicated staff of insurance litigation specialists who are hired on a contract basis.The segregated nature of this professional group encourages knowledge sharing and close collaboration of staff and counsel. In addition, it facilitates greater cost containment by avoiding the predictable and not insignificant annual hourly rate increases normally attendant to equity track associates who often perform the majority of work on insurance litigation matters.
Using XClaim litigation management software, all claims-related and financial information, including all litigation documentation, is digitized and uploaded so that the client has full access to its claims files on a remote basis, 24/7. One of the more significant aspects of this practice is the proprietary XClaim litigation management software platform. Counsel manage their litigation portfolio in close collaboration with claims adjusters and in-house counsel through the use of a claims management software platform that the client accesses through an extranet portal. All claims-related and financial information — including all litigation documentation — is digitized and uploaded onto the system so that the client has full access to its claims files on a remote, 24/7 basis. (See Figure 1.) Among the more important components of this service delivery approach is the recognition that value is obtained through delegation of tasks to the most
capable, lowest-cost legal service provider. Accordingly, the staffing model is leveraged on the aggressive use of administrative staff, law clerks and paralegals that possess specialized knowledge about this practice area. These staff members can function at a high level with less time-consuming oversight required by more expensive counsel.This frees up counsel to focus on tasks that require and benefit from their participation — i.e. tasks requiring legal judgment that only counsel can do. The use of fixed fees is another significant component of this approach. To use alternative, non- hourly rate fee arrangements, clients and counsel must both understand what value means in the context of the provision of legal services. Value in this context shifts the focus from the hours expended performing a task to the importance or value of that task to the client. It also assumes a full appreciation of the law firm’s costs for providing that service and its need to receive a fair return on its investment. This appreciation is accomplished in part by ensuring that the law firm is given a sufficient portfolio or critical mass of files so that the firm can spread out and average the risk and the costs associated with the program over the entire portfolio of files. This in turn helps lower the firm’s costs.
Figure 1
WORKING COLLABORATIVELY In summary, this innovative approach to legal service delivery results in greater transparency and accountability, significantly reduced costs and ultimately, much greater value. The legal and insurance industries have great strides to make, which they can achieve by working collaboratively to bring innovation to their respective business models. The confluence of new technologies, a willingness to consider new work processes and a tolerance for the assumption of a reasonable degree of risk in pursuing new strategies presents significant opportunities for both insurers and their counsel in the years ahead. Those who successfully meet these challenges will unquestionably reap the rewards.
56 Canadian Underwriter January 2012
Symposium 2012
!
Power of Information: Revolution or Evolution Thursday April 26, 2012 7:30 a.m. – 4 :00 p.m. Toronto Board of Trade First Canadian Place 4th floor, 77 Adelaide St. W. Toronto, ON M5X 1C1
Now in its 8th year, the CIP Society’s Symposium is the insurance industry’s premier event for insurance leaders and emerging professionals. This full day forum, Power of Information: Revolution or Evolution, features timely seminar sessions and dynamic keynote speakers and presenters.
“Excellent speakers and topics. An eye-opening experience for leaders and team members.” —Symposium 2011 Attendee
NEW! Debate panel presented by the University of Toronto’s Hart House Debating Club.
Breakfast Keynote Speaker
Lunch Keynote Speaker
D. Glenn Foster, B.Sc., M.Ed Author, The Kinesic Interview technique, and How Can I Get Through to You?
Silvy Wright President & CEO Northbridge
Sponsors:
For more details, visit www.insuranceinstitute.ca/symposium2012
www.insuranceinstitute.ca/symposium2012
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The User Experience
Advantage
Wendy AaronsCorman
President, North America, edge IPK Incorporated
Before insurers embark on or continue down the path of creating agency portals to communicate with agents or consumers, they should first take a step back and investigate user experience platform (UXP) technologies. Clearly, the Internet and all of the new devices associated with it have highlighted the importance of consumers and agents being able to communicate with their carriers as quickly, clearly and directly as possible. But before insurers embark on or continue down the path of creating agency portals to communicate with agents or consumers, they should first take a step back and investigate what some are calling the latest disruptive technology — user experience platform (UXP) technologies.
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Upon considering a UXP, insurers may find themselves at a different decision point. That is, rather than deciding between building or buying an agency portal, they may find themselves making a choice between the new UXP approach versus the traditional agency portal.Whatever the ultimate decision, it’s worth the due diligence to explore the options.
The Demand for UXP For years insurers have focused their technology efforts on systems supporting the core insurance process — quote, policy, billing, claims, etc. As insurers diversify their markets and products, and as their requirements change, they have found that a single vendor or custom application rarely, if ever, satisfies all their needs.As a result, insurers have typically been driven to acquire many different systems to implement and support. Commonly referred to as “silos on the back end,” this arsenal of disparate technological investments has turned into a maintenance nightmare for most insurers. In many instances, these investments serve as reliable workhorses behind the scenes, doing the
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day-to-day and minute-to-minute job of processing the insurer’s business. Existing systems continue to provide trustworthy calculations and outputs. New and shiny systems may be tempting, but most insurers are hesitant to fix what isn’t broken. And yet, time marches on; the evolution of insurance dictates more requirements for products and services. Given that the next generation of employees, agents, brokers and insureds expect easy and immediate access to information and capabilities, the array of systems and subsequent supporting needs will only grow.
For years, insurers have focused their technology efforts on systems supporting the core insurance process — quote, policy, billing, claims, etc. As a result, insurers have typically been driven to acquire many different systems. Commonly referred to as “silos on the back end,” this arsenal of disparate technological investments has turned into a nightmare for most insurers. When the Internet was still in its infancy and the insurance industry was still learning its potential, insurers were most interested in using this new medium to reach their agents through Web applications.Thus the agency portal was born.As insurers developed the software to reach the agent channel, technology vendors recognized and capitalized on a new niche market for agency portals. Since that time, however, demand has progressed well beyond what agency portals have to offer. The Web has become a central source of information and processing for all industries, with the result that potential Internet insurance buyers began to demand a pleasant user experience — including an intuitive look and feel, ease of accessing infor-
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mation and speed. Thus the race was on for insurers to provide an optimal user experience. But for the insurance industry, it is already challenging enough to maintain multiple back end systems. Now there is a demand for an ideal user experience regardless of the user (buyer, agent, employee, adjuster, vendor, etc.). Insurers Q
were and are still having difficulty keeping up with the functional needs, never mind providing unique experiences to match each user’s preferences. In addition, new devices such as smart phones and tablets have been embraced, translating to the need to support new browsers. And what about different languages?
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UXP solutions extend and expose an insurer’s back office systems to users, so insurers need only worry about the processing portion of their insurance products. UXP also provide an added level of security by protecting the back-end systems from hacking. Because UXP solutions are the first point of entry for the agent or consumer, the solution must ensure protection beyond a simple sign-on.
The traditional approach to supporting these needs has been custom development and/or vendor application purchases. But whether an insurer builds or buys a frontend application, it will most likely support only a set of outward-facing distribution requirements such as agency portal or a few browsers — and most often only in English.This approach will not even satisfy the current, much less the future, demands of an insurer’s distribution channel. By the time an insurer gets the solution to market, the requirements have likely already changed.When it comes to the user experience, one can’t work around the technology with manual processing as is often done on the back end. There is a better way to deliver and manage the user experience.
WHAT UXP CAN DO Enter UXP technologies. This “presentation platform” approach has been available and maturing in the European market for years and is now gaining momentum in North America. Industry analysts are talking more about UXP and the necessity of considering this approach for delivering customized user experiences to distribution channels. UXP solutions focus solely on presentation, enabling any core offering to support the latest Web technologies, including Ajax
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and Widgets. Since the UXP extends and exposes the back office systems to the users, insurers need only worry about the processing portion of their insurance products. UXPs also provide an added level of security by protecting the back end systems from hacking. Because UXP solutions are the first point of entry for the agent or customer, the solution also needs to be sophisticated enough to ensure protection beyond a simple sign-on. At the highest level, UXPs should effectively manage the delivery of the user experience regardless of device (Web, tablet, PDA), browser and language. The UXP should also enable delivery of these experiences to multiple user types or groups, giving the insurer the opportunity to keep the process consistent while providing a different look and feel for as many unique sets of users needed. It should be able to ‘white label,’ which describes a process in which a product or service is offered under the brand of one company (a distributor) while a separate company (the producer) actually makes the product or provides the service. For example, if the insurer is interested in finding revenue within a white-label channel, such as selling home insurance through a mortgage broker, the UXP provides the look and feel of the channel, while keeping the functional and back-end connections intact.
UXPs can be used for modern technology solutions, but they are ideal for extending back-end systems, no matter how old they are.Yes, there are some requirements for integration to occur, but the integration layer of the technology allows for a multitude of ways to access an insurer’s existing environment. UXPs not only access data in existing databases, but they can leverage existing workflow and rules engines such that logic does not have to be recreated or managed in multiple places. Distribution channels are continually expanding. Last year, the industry focused on developing technology in aid of industry agents and brokers.This year, the industry is bringing insureds into the equation. In time, the industry will want to reach third party administrators and white labels. It would help customer service representatives (CSRs) to have a single view into the insurers’ disparate back-end systems to better serve their customer. Today CSRs have to enter a policy number repeatedly into a number of front-end applications to gather all the data they need for a customer call. UXPs can provide a single view of the customer and enhance the process of providing better service. Underwriters and brokers also need a single view to service the customer, but they may have additional requirements such as a book of business dashboard, also supported by a UXP.
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INSURANCE INTERNET DIRECTORY ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org
CLAIMS ADJUSTING FIRMS ClaimsPro Inc. Committed to providing leading-edge claims management services. www.scm.ca Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com CRU Adjusters Calm in the face of a storm. www.cruadjusters.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters Doing What Is Right®. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors. www.mclarens.ca
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PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com Quelmec Loss Adjusters Identifying, Investigating, Resolving...for over a quarter century! www.quelmec.ca
CONSULTING FIRMS Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
CONSTRUCTION CONSULTANTS MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca
Walters Forensic Engineering Inc. Providing scientific answers to complex engineering incidents. www.waltersforensic.com
EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination. www.i-hire.ca
ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com
The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca
GRAPHIC COMMUNICATIONS Informco Inc. Integrated Graphic Communications Specialists. www.informco.com
INSURANCE COMPANIES Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com Catlin Canada Underwriting Ambition. www.catlincanada.com Chartis Insurance Company of Canada Your world, insured. www.chartisinsurance.com FM Global The leader in property loss prevention. www.fmglobal.com
DAMAGE COST CONSULTANTS SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca
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Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com
INSURANCE SOFTWARE APPLICATIONS Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Munich Reinsurance Company of Canada Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com
RESTORATION SERVICES Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca
RISK MANAGEMENT The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com
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Triangle Consortium data, in-house data and leading-edge analytics technology create a perfect triangle for fighting fraud. Dan McKenzie Principal, Fraud Solutions, SAS Canada
As insurance fraudsters become more sophisticated, the industry must evolve and collaborate to counter increasingly sophisticated fraudulent claims. Fortunately, today’s advanced analytics give organizations the capability to sift rapidly through volumes of data and transactions, allowing the company to decide accurately and in realtime whether or not a claim is high-risk and, if so, what its subsequent course of action should be. Many organizations are going a step further: they are integrating social network analysis tools into the claims process to help unmask relationships using direct and indirect links existing between seemingly unrelated parties and claims. By using modeling techniques such as predictive analytics, anomaly detection and fuzzy matching, social network analysis enables insurers to visualize customers or transactions in
terms of their relationship with other parties and claims. If you couple these fraud-fighting tools with the advent of improved tools to manage ‘big data’ more efficiently (i.e. the emergence of tools that allow insurers to turn their increasingly vast amounts of information into insight), the concept of ‘more’ has never been better suited for success. Using these pattern-recognition tools, organizations can now manage enormous pools of data, convert the data into digestible information and then carriers can use this information to make decisions quickly, accurately and effectively. In fact, in Gartner’s 2011 Market Trends Report, big data and pattern-based strategies are highlighted as “the next frontier for insurers.” Gartner asserts that insurance companies learning to leverage these frontiers in order to fully understand their overall risk profile will gain a competitive advantage.
NEW FRONTIERS IN FRAUD DETECTION Speaking of new frontiers, the insurance industry as a whole is still witnessing an increasing amount and sophistication of waste, abuse and
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CU Seminar ad January 2012
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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:
CIP Society PROedge Seminars:
Toronto – GTA Annual Fellows’Reception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 9 London – Annual Indoor Volleyball Tournament . . . . . . . . . . . . . . . . . . . . . . . February 17 Vancouver – 3rd Annual Battle of the Ins. Bands Charity Event . . . . . . . . . . February 23 Ottawa – CIP Society Gourmet Chefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 29 St. John’s – CIP Society Curling Bonspiel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 29 Toronto – GTA Annual Curling Bonspiel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 29 Toronto – CIP Society Symposium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 26
Ottawa – Luncheon Seminar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2 Toronto – Severe Weather . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 21 Toronto – Leading Insurance Coverage & Liability Cases . . . . . . . . . . . . . . . . February 28 London – Leading Insurance Coverage & Liability Cases . . . . . . . . . . . . . . . . February 29
CIP Society PROedge Seminars: Hamilton – Leading Insurance Coverage & Liability Cases . . . . . . . . . . . . . . . January 25 Calgary – Influence with Ease with Jeff Mowatt . . . . . . . . . . . . . . . . . . . . . . . January 26
Convocations IIO – Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 26 IIO – Kawartha/Durham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 3 IIO – Hamilton/Niagara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 16 II0 – Conestoga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 23 Montréal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 28
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
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The concept of consortium data and the sharing of fraud-related information to tackle fraud are gaining traction in Canada. Insurers are starting to realize that plugging into a rich database of shared, fraud-related information can help detect fraudsters who are making claims across multiple insurance companies.
fraud, the latter of which is no doubt fueled in large measure by the financial turmoil gripping the world’s economy. And so, as fraudsters continue to become ever more sophisticated, what’s an insurer to do? The old adage ‘Birds of a feather flock together’ is certainly true in the context of insurance fraud. A new generation of sophisticated fraudsters is linking to worldwide criminal organizations well versed in the art of flying under the radar. Insurers are therefore relying on more sophisticated tools to help them outsmart the fraudsters. To this end, the concept of consortium data and the sharing of fraud-related information to tackle fraud are gaining traction in Canada. Insurers are starting to realize that plugging into a rich database of shared, fraud-related information can help detect fraudsters who are making claims across multiple insurance companies. CGI announced a new fraud detection solution powered by SAS in November 2011. In this solution, cutting-edge technology is combined with rich historical data to help give Canadian property and casualty insurers a more accurate picture of fraud and the crime rings that commit it. Data contributed by participating insurers is combined with an advanced software framework to produce a composite fraud score that can be used fully and consistently across the insurance value chain — from policy
inception to claim.The solution is more powerful when insurers integrate the consortium data into their own in-house, fraud-fighting tools. By integrating data from their own various lines of business — i.e. home insurance claims, car claims etc. — into the solution’s consortium data, insurers can greatly augment their ability to detect fraud. This is welcome news to Ontario’s auto insurance system. The Ontario Office of the Auditor General observed in its 2011 Annual Report that the
The future will undoubtedly see more collaboration and cross-industry support, focused around a rich repository of consortium data that allows for the sharing of fraud knowledge. province’s drivers generally pay much higher premiums than other Canadian drivers do. More specifically, the average injury claim in Ontario of $56,000 is five times greater than the average claim in other provinces, the auditor general says. Insurers have linked a significant portion of their escalating claims costs to auto insurance fraud. Estimates peg the cost of auto insurance fraud in Ontario at between 10% and 15% of total premiums, or in 2010 about $1.3
billion. The bottom line? Fraud costs everyone. By reducing the business costs associated with fraud, insures will be able to pass on the savings to customers. By better sharing critical information, the Canadian insurance industry will be well positioned to break down barriers and increase awareness across all insurance business lines. Increasingly, the industry will be able to coordinate their efforts to fight fraud and approach the issue in a more systematic way. Imagine the concept of consortium data applied to various business segments, or building a cross-industry collaboration portal? The consequent wealth of fraud data would increase detection capabilities two- or three-fold. We have only just scratched the surface of the possibilities that consortium and collaborative fraud fighting technologies can provide. The future will undoubtedly see more collaboration and cross-industry support, focused around a rich repository of consortium data that allows for the sharing of fraud knowledge. The key to success, however, is combining consortium data with in-house data, all enabled by leading-edge analytics technology. Many believe these three areas will provide the fundamental pillars for future fraud detection and prevention. Taken together, they will help paint a clear picture of fraud and prevent and disrupt the activities of fraudsters before they even begin.
January 2012 Canadian Underwriter
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MOVES & VIEWS
UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
CSL Global has launched a new business operation in Canada. CSL Global (Canada) Ltd will operate initially from key offices in Toronto and Vancouver, and will provide a range of specialist marine survey and claims handling services including cargo, transit, hull and machinery and P&I. Captain John Hosty [1a] will head up the organization. Hosty is a marine surveyor and business manager with more than 25 years of specialist experience in marine, health and safety, hazardous materials management, emergency response and environmental protection. Other key members of the team include Andrew Rayner [1b], Philip Vardon [1c] and Ken Rayner [1d], based in Toronto, and Kaivan Chinoy in Vancouver.
2
Strone has announced a series of director appointments. Joe Pilarcyzk has been appointed to the role of Strone’s director of operations. He has served as a manager for seven-and-a-half years with the company. Mike Kelly has accepted the role of director of business development. He has 20 years of experience within the insurance industry in both claims management and procurement. Stephen Coombs has been
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1a
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appointed director of Ontario sales of Strone.
3
The CIP Society has honoured four insurance professionals with 2011 National Leadership Awards. Glenn Gibson [3a], executive vice president and global chief strategy office at Crawford & Company, is an award recipient in the Established Leader category. Awards in this category recognize industry veterans who have demonstrated an ability to lead by example and instill a sense of professionalism in others. Three people received recognition in the Emerging Leader category. Awards in this category go to industry professionals who, through early achievements and successes, demonstrate an ability to lead and motivate others. In 2011, the recipients in this category are Andrew Clark [3b], vice president and SME insurance and risk solutions department manager with Marsh Canada Limited; Simon Charbonneau,
Canadian Underwriter January 2012
commercial lines underwriter with AXA Insurance Inc; and Vincent Gaudreau, vice president and insurance broker with Les Assurances Gaudreau Demers et Associés Inc.
4
Travelers Canada has launched a product designed to limit cyber exposures and manage associated risks. ‘CyberRisk’ is the newest addition to Travelers Financial and Professional Services line. The standalone product has 10 coverage options that address exposures and the ripple effects associated with a cyber-related event. Third-party liability coverage includes network and information security liability;
communications and media liability; and regulatory defence expenses. First-party coverage includes crisis event management expenses; security breach remediation and notification expenses; computer program and electronic data restoration expenses; computer fraud; funds transfer fraud; e-commerce extortion; business interruption and additional expenses.
5
XL Group is growing its presence in Toronto with three new additions to its North America Property & Casualty insurance team. The new hires include Betty Bingler [5a], vice president of sales and marketing;
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MOVES & VIEWS
Lions Club, the Canadian National Institute for the Blind and is a dedicated supporter of the Club Day Away Program, which gives seniors an opportunity to engage in activities outside of a hospital setting.
3b
5a Melissa Plaxton [5b], senior underwriter for excess casualty; and Martina Perdue, environmental underwriter. Bingler joins XL from ACE, where she served as vice president of strategic marketing. In her new role, she will help develop countrywide marketing and distribution strategies for XL’s products. Plaxton will concentrate on developing pricing and coverage alternatives to meet clients’ needs. Prior to her new post, she managed a book of property and casualty business for GCAN Insurance Company. Perdue most recently worked in the public sector as an environmental specialist with Canada’s Technical Standards and Safety Authority. XL in-
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5b tends to draw on her expertise and experience to better understand and address clients’ environmental risks.
6
Toots (Elsie) Everley, former RIBO president and IBAO territory director, is a recipient of the 2011 Ontario Senior Achievement Award. The award recognizes and honours outstanding seniors who, after age 65, have made significant contributions to their communities. The outstanding voluntary or professional achievement may have occurred in any field of endeavour. Each year, 20 individuals are selected to receive this award. Everley is a member of the Redlake District
7
CARSTAR Automotive Canada Inc. announced the appointment of Gerry Hughes as CARSTAR’s regional manager in British Columbia. Responsible for heading up CARSTAR’s store sales efforts in the province, Hughes will also work to build and maintain strong relationships with CARSTAR’s existing franchise, insurance and fleet partners. He joins CARSTAR with more than 25 years experience in sales and account management in the B.C. collision marketplace.
8
Aviva Canada Inc. and Hagerty Canada LLC have partnered to launch the ‘Hagerty Silver Wheel Plan.’ The plan offers Canadian antique and classic car enthusiasts extensive coverage, including agreed value coverage — with no appraisal requirements — and access
to Hagerty’s extensive network of products and resources in the United States. As of Jan. 1, all Silver and Custom Wheel policies were to be transitioned to the Hagerty Silver Wheel Plan upon policy renewal. Current Silver and Custom Wheel clients will continue to receive all of the benefits afforded by their existing policy and there will be no changes to existing coverage.
9
Winmar Franchise Corp. has announced an executive appointment on the West Coast and the opening of a new location on the East Coast. Sean M. Douglas will serve as Winmar's new regional vice president of British Columbia. Based in Chilliwack, he will be responsible for corporate support for the current Winmar locations in B.C., as well as sourcing and seeking new franchise partners in the area. On the other side of Canada, the restoration firm has announced its newest location, Winmar Amherst Nova Scotia, located at 26 Industrial Park Drive. Jonathan MacDonald will lead the team as project manager/estimator.
Canadian Underwriter has a new home! Please note that our new mailing address is: 80 Valleybrook Drive Toronto, Ontario, M3B 2S9
January 2012 Canadian Underwriter
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
More than 350 delegates and 60 exhibiting companies attended Business Information Group’s inaugural, twoday International Sites and Spills Expo, held at the International Centre in Mississauga, Ontario on Nov. 3-4, 2011. Featuring three tracks of conference speakers, the event was the first of its kind to combine hazardous materials management and site remediation with cleanup and sustainability. The Hounourable Mike Harcourt, former premier of British Columbia and mayor of Vancouver, discussed how his belief in conservation and sustainable development has shaped his career both in and out of elected office. Harcourt dedicated himself to helping British Columbia earn its reputation as one of the most livable, accessible and inclusive places in the world.
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Blouin Dunn LLP hosted an Open House on Nov. 3, 2011 to showcase their new office at 199 Bay Street (Suite 4805, Commerce Court) in Toronto. More than 150 attended and enjoyed great food, drinks, music and the magnificent view of the Toronto Harbour, CN Tower and downtown skyline.
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Elliott Special Risks LP (ESR), a Markel International company, celebrated its 45th Anniversary in 2011. To celebrate, ESR held cocktail receptions in Montreal, Toronto and Vancouver. More than 600 guests, including brokers, reinsurers, adjusting firms and ESR staff, attended and enjoyed the camaraderie. Representatives of Markel International were present at these occasions. ESR became the Canadian underwriting division of Markel International on Oct. 1., 2009. [Photos shown are of the Toronto event held at the Arcadian Court on Nov. 9.]
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The 56th Annual Black Tie Dinner of the Toronto Insurance Conference (TIC) was held at the Four Seasons Hotel in Toronto on Nov. 10. Guest speaker was Stephen Lewis, one of the world’s most influential speakers on human rights, social justice and international development. Formerly a United Nations special envoy for HIV/AIDS in Africa, he has been named by TIME Magazine as one of the 100 Most Influential People In The World — in the same category as The Dalai Lama and Nelson Mandela.
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TIWA’s Annual Wine & Cheese n o i t p e Rec Don’t miss out on our event of the year!
Thursday February 16, 2012 5:00 pm – 8:00 pm The Hyatt Regency 370 King St. West, Toronto
& e n i W se e e h C
Plan today to attend the premier social networking event of the New Year – the Toronto Insurance Women’s Association (TIWA) 2012 Wine & Cheese (‌a proud member of the Canadian Association of Insurance Women) Tickets are only available through advance purchase and will not be sold at the door.
TICKETS: $55 each Go to www.tiwa.org for tickets and information
Or for ticket Inquiries contact: $EBBIE (UGHES s DEBBIE CADILLACCAREER COM s Deadline for ticket orders is noon on Friday, February 3, 2012
Door Prizes Contributions are Welcome!
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Polygon hosted a cocktail reception on Nov. 17 at Canyon Creek Restaurant in Mississauga, Ontario. The event was a chance to thank clients for their support. Staff spent time with clients in a relaxed environment and shared some good company and conversation. Offices in Montreal and Vancouver are to host similar events.
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York Fire & Casualty Insurance Company is now Unica Insurance Incorporated and will operate under the Unica brand name, the company announced on Nov. 14. The rebranding of York follows its acquisition in 2008 by La Capitale General Insurance, one of Quebec’s largest P&C insurers. The company reiterated what it called its “steadfast commitment” to the broker distribution channel. “We do things a little differently than other insurance companies and this translates into big value for our customers,” said Martin Delage, president and chief operating officer of Unica. “Our new name, Unica, reflects the unique nature of our company and our continued commitment as a dependable, Canadian company.”
ADVERTISERS’ INDEX ACE INA Insurance
84 (OBC)
The ARC Group Canada Inc
37
Aviva Canada Inc.
2, (IFC)
Canadian Litigation Councel
9
CARSTAR Automotive Canada
39
Crawford & Company (Canada) Inc.
15
CSL Global (Canada) Ltd.
47
Cunningham Lindsey Canada
25
Ecclesiastical Insurance
43
The Economical Insurance Group
29
FirstOnSite Restoration
22, 23
The Guarantee Company of North America
21
Granite Claims Solutions
31
Insurance Brokers Association of Ontario (IBAO) Insurance Institute of Canada
16 5, 41, 57, 64
Insurance Internet Directory
62
PCA Adjusters
19
Plant Hope Adjusters Ltd.
83 (IBC)
Quelmec Loss Adjusters
59
RIMS
45
RSA – Royal & Sun Alliance Insurance Company of Canada
35
ServiceMaster of Canada Limited
55
Starlight Insurance Gala
61
The Sovereign General Insurance Company
17
TIWA
74
WICC
51
WINMAR
13
Unica Insurance Inc.
7
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SCOR held its annual celebration of the Beaujolais Nouveau Wines release on Nov. 17, 2011 at the Rosewater Room in Toronto. While enjoying the company of industry colleagues, guests sampled a selection of the 2011 Beaujolais Nouveau wines in addition to gourmet offerings prepared by the Rosewater.
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MDD, a forensic accounting firm, hosted their annual American Thanksgiving Event on Nov. 24, 2011 at the Real Sports Bar & Grill in Toronto. The event raised $3,714 for the Starlight Children’s Foundation.
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Hollywood actor James Woods was on hand to help CARSTAR Automotive Canada Inc. celebrate the grand opening of its 16,000-square-foot new head office in Hamilton. Following the grand opening, the company hosted more than 600 guests at a casino-themed event in support of Cystic Fibrosis Canada (CFC). With help from Woods, Sam Mercanti, CARSTAR’s president and CEO, presented a cheque for $101,250 to CFC. The donation was raised throughout the year based on various events and fundraisers held by the company and its franchise partners. Over the past 10 years, CARSTAR has raised more than $1.9 million to fund research and treatment for Cystic Fibrosis. Dubbed ‘CARSTAR Vision Park,' the new building houses CARSTAR University, the company’s learning and research centre. It also serves as a central hub for franchise partners to give their management and repair employees up-to-date, handson technical training and classroom learning sessions. CARSTAR Care Centre — which provides support to CARSTAR’s franchise and insurance partners, as well as assistance to customers in event of an accident — will also be located in the facility.
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Catlin Canada held a Christmas party, dubbed ‘Festive Ping Pong,’ at SPiN Toronto on Dec. 7. Guests were treated to appetizers, drinks and, of course, some friendly matches of ping pong.
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Friends of Hughes Amys LLP gathered at the Irish Embassy in Toronto for the firm’s annual Holiday Cocktail Party on Nov. 30. The event included a photo booth, in which people could have their pictures taken wearing accessories such as wigs, hats, etc. Attendees enjoyed hors d’ouevres such as oysters while listening to music and talking to colleagues.
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Sotheby’s Canada, in partnership with XL Insurance, hosted a private preview and VIP cocktail reception of Sotheby’s fall sale of Important Canadian Art at the Royal Ontario Museum in Toronto on Nov. 23. Guests were treated to sale highlights and tips for bidding at auction with Sotheby’s Canada president David Silcox. One night after the reception, an art auction featuring painted works by Jean Paul Lemieux, Alex Colville and Jack Bush fetched more than $7.8 million. The Lemieux painting Country Club surpassed expectations when it was sold for $1.095 million. Its presale estimate was between $400,000 and $600,000. The rare James Wilson Morrice canvas entitled Evening Stroll, Venice vaulted past its presale estimate of $250,000 to $350,000 when it sold for just under $1.5 million.
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