Canadian Underwriter October 2012 by Annex Business Media

C A N A D Aâ&#x20AC;&#x2122; S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A

OCTOBER 2012 A Business Information Group Publication #40069240

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VOL. 79, NO. 10, OCTOBER 2012 FEATURES

CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Virtual Protection

Duty of Care An Ontario court has ruled insurers owe a duty of care to customers who would be reasonably expected to rely on their insurer’s information. BY CARR HATCH

Regulators in Canada are considering whether or not electronic commerce practices in insurance meet consumer protection standards. The ability to “buy and bind” raises issues about customer access to advice from licensed professionals. It continues to be a discussion that is, in some areas, pitting brokers against direct insurers. BY CRAIG HARRIS

Consumer Trust

16 Economic Outlook

42 Legal Expense

78 Resilient Homes

The insurance industry is not scoring high when it comes to consumer trust. Insurance companies must do more to demonstrate they care about the well-being of insureds.

First-half results for 2012 show slower economic growth has lead to slower premium growth and lower investment returns, while “abnormal” weather has offered benefits.

BY STEVE PIEROWAY

BY GREGOR ROBINSON

Legal expense insurance was previously an untapped resource. But increasing availability can help improve access to justice in some of the most common and problematic areas of the law.

With weather changing, homes built to suit today’s conditions may not bode well for property damage tomorrow. Protective measures need to be in place and building codes altered to meet changing conditions.

BY BARBARA HAYNES

BY JASON THISTLETHWAITE

56 Social Media

82 Data Exchange

Companies are trying to learn a new language, one increasingly influenced by social media that has changed how people get information, work and communicate.

Clearly defined standards will help to ensure the Insurance Brokers Association of Canada’s new automation data exchange initiative fulfills its promise to enhance broker connectivity.

BY KARL GREENLAW

BY SCOTT ANDREW

64 Mobile App

87 Commercial Lines

A new mobile app will help brokerages help consumers access them by phone or email, and offers the ability to create accident reports right on their phones.

Commercial lines have traditionally taken a back seat to personal lines. With changing times, however, is commercial becoming more attractive?

BY PAUL TAYLOR

BY CLINTON D’SOUZA

60 Risk Survey Public company executives south of the border seem not to be concerned about being sued, even though a quarter of surveyed firms have been. BY MARY MALONEY

22 Professional Liability Brokers would do well to bone up on common definitions in professional liability policies so they offer prompt notice and also protect themselves. BY HUGH FARDY

30 Ontario Auto Reform Two years on and it is still not entirely clear what path has been set by Ontario’s 2010 auto reforms. And the paucity of case law is not helping to provide additional direction. BY LEE SAMIS

34 2012 NICC

Who owns the client list of a producer when the brokerage is being sold and the producer is heading out the door?

Canada’s p&c insurance industry is facing complex issues. Industry players should be prepared for issues ranging from regulation to crime, consolidation, technology and financial innovation.

BY THE CIP SOCIETY

BY HARMEET SINGH & ANGELA STELMAKOWICH

Client List

68 Electronic Download An ever-changing technology landscape, one that now features eDocs, has left many brokers with more questions than answers BY PATRICK DUREPOS

October 2012 Canadian Underwriter 3

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VOL. 79, NO. 10, OCTOBER 2012

PROFILE

Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793 Online Editor Harmeet Singh hsingh@canadianunderwriter.ca Twitter: @CU_Harmeet 416-442-5600 ext. 3652

14 Broker, Brand and Beyond Ask Debbie Thompson, incoming president of the Insurance Brokers Association of Ontario (IBAO), about her volunteer journey to support broker professionals and she responds that it is a labour of love she sees continuing for some time. BY CRAIG HARRIS

SPECIAL FOCUS

Editorial

Associate Publisher Paul Aquino paul@canadianunderwriter.ca Twitter: @InsuranceCanuk (416) 510-6788 Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122 Account Manager Christine Giovis christine@canadianunderwriter.ca (416) 510-5114 Account Manager Elliot Ford eford@canadianunderwriter.ca (416) 510-5114

10 Marketplace 90 Moves & Views

Senior Publisher Steve Wilson steve@canadianunderwriter.ca Twitter: @InsuranceMedia (416) 510-6800 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

92 Gallery

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instouch.com/group/CanadianUnderwriter

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. ÂŠ 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: 2012 Canada 1 Year $49.95 plus applicable taxes 2 Years $73.95 plus applicable taxes Single Copies $10 plus applicable taxes Elsewhere 1 Year $73.95 Annual Statistical Issue (included with above subscription) or separately $38 plus applicable taxes Subscription Inquiries/Customer Service

GST Registration number 890939689RT0001 Second Class Mail Registration Number: 08840 Publications Mail Agreement #40069240 Return undeliverable Canadian addresses to: Circulation Dept. Canadian Underwriter 80 Valleybrook Drive, Toronto, Ontario M3B 2S9 We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund (CPF) for our publishing activities.

Gail Page (416) 442-5600 ext 3549 gpage@bizinfogroup.ca ISSN Print: 0008-5251

4 Canadian Underwriter October 2012

ISSN Digital: 1923-3426

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EDITORIAL

Little Big Plan

Does it matter if there are fewer big fish swimming in the p&c space of Quebec’s pond? Is this a concern in similar pools across the country? Angela Stelmakowich, Editor astelmakowich@ canadianunderwriter.ca

Canadian Underwriter October 2012

It appears Quebec has just about reached its limit, market concentration-wise, likely making the chances of more mergers and acquisitions in its property and casualty insurance industry more of an exception than the rule. So suggested Mario Albert, president and CEO of the Autorité des marchés financiers, during a presentation at the recent National Insurance Conference of Canada in Quebec City. Albert was careful not to shut the door on the possibility of future M&A activity in la belle province, although any such likelihood seems attached to a whole bunch of maybes, it depends and time will tells. Quebec first inched — then leapt — toward what Albert calls the critical threshold of concentration with a few hefty deals in the last year or so. He cited Intact Financial Corporation’s acquisition of AXA Canada ($2.6 billion) in 2011, followed by JEVCO Insurance Company ($530 million) this year; and RSA Canada’s purchase of L’Union Canadienne ($150 million). That deal propelled RSA into the Top-5 insurers in Quebec. David Crozier, senior vice president of operations at Economical Insurance, commented in a presentation last November the Intact-AXA merger represented a larger shift in Canada’s p&c marketplace than if Economical, Wawanesa Mutual Insurance Company and Gore Mutual Insurance Company were to all demutualize in the next year.

So? Does it matter if there are fewer big fish swimming in the p&c space of Quebec’s pond? Is this a concern in similar pools across the country? At the very least, Albert would say, it is a concern because of less consumer choice and competition. The welcome waves initially associated with those big fish — for consumers, expanded offerings and available locations, options and services; for companies, growth potential and operating performance — could threaten to dry up should those fewer swimmers opt for a change in direction. Then again, could these big moves make our fragmented market a little less so. A 2011 paper from the Insurance Brokers Association of Canada notes the space is populated by 316 p&c insurers. Albert pointed out that, as it stands in Quebec, most brokers are selling products of no more than three insurers. Can a broker truly say he or she has identified the best deal/package/protection available when choice is dictated by what so few players may feel comfortable offering? Catherine Mainguy, president of the Regroupment des cabinets de courtage d’assurance du Québec, said last year the Intact-AXA merger means 50% of the provincial broker channel’s business will be done with the company. If in a position of strength — or hoping to win the battle for scale in a bid to leverage efficiencies — an M&A may seem an attractive option.

PwC suggested in a client newsletter last May that mid-sized insurers seeking scale should consider merger opportunities. “Those companies caught in the middle — too large to be niche players, but too small to reap economies of scale — will have to rethink their strategies,” noted Allan Buitendag, leader of PwC’s national insurance consulting practice. During a presentation in May, Intact president Louis Gagnon repeated his prediction that approximately 25% of the existing p&c insurance market share will change hands within the next five to 10 years. It is not Intact’s “intention to control the market,” Gagnon said. The acquisition of AXA means the company now has “a suite of products that is difficult to replicate,” he pointed out. “And that was the objective.” It may be that acquiring (if a company is well-capitalized and well-managed) affords a faster and safer way to grow than doing so organically. PwC reported that although it expected M&A deal volume in the Canadian insurance sector to strengthen in 2012, measures such as Solvency II, low yields, demutualization of Canadian p&c insurers and uncertainty around legislation and federal regulation in the United States will influence how things roll out. Will all this make for a refreshing dip or is everyone going to get all wet? Maybe it depends on what time will tell.

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MARKETPLACE Sign up to receive Canadian Underwriter’s free Insurance Headline News Email Alert: http://bit.ly/cuenews

Regulation RULING ON CATASTROPHIC IMPAIRMENT OVERTURNED The Court of Appeal for Ontario has sided with a claimant and against her insurer, Aviva Canada Inc., in her bid to have the injuries she sustained in a car accident classified as “catastrophic impairment.” The Appeal Court decision, handed down on September 17, overturns a ruling by the Divisional Court in 2011. In Pastore v. Aviva Canada Inc., Anna Pastore was walking in November 2002 when she was hit by a car and sustained serious injuries to her left ankle. Failing to heal properly, Pastore had surgeries and an eventual right knee replacement when the pain changed her gait. Pastore became “almost completely dependent on others for her most basic personal care needs.” In May 2005, she applied to Aviva Canada to have her injuries classified as “catastrophic impairment.” A designated assessment centre (DAC) review — based on a section of the Statutory Accident Benefits Schedule (SABS) — found she had catastrophic impairment “due to mental or behavioural disorder.” With regard to daily living, DAC concluded Pastore had “marked impairment” and an overall “moderate impairment” when considering the three other categories, namely social functioning,

10 Canadian Underwriter October 2012

concentration, persistence and pace, and deterioration or decompensation in work or work-like settings. Aviva rejected the assessment, leading first to mediation and then to arbitration. At issue was if “marked impairment” in one category could lead to a catastrophic impairment designation. The Divisional Court disagreed with the findings of both the arbitrator and FSCO delegate, each of which upheld the DAC assessments. The court determined SABS guides require all four categories to be considered for a catastrophic impairment injury. Ontario’s Appeal Court determined otherwise.

Canadian Market INVESTOR GROUP TO BUY CUNNINGHAM LINDSEY An investor group led by private equity firm CVC Capital Partners says it will acquire majority ownership in Cunningham Lindsey after a recapitalization agreement. Stone Point Capital has had a majority ownership of Cunningham Lindsey since 2007, with Fairfax Holdings also retaining a substantial amount of the company. CVC reports both companies will remain “substantial and active shareholders.” In its own statement, Toronto-based Fairfax reports it will “effectively sell its interest in Cunningham Lindsey for proceeds of

approximately $260 million.” It will then invest $35 million of that into shares of Cunningham Lindsey. Current CEO Philippe Bès will continue to manage the company with the rest of its existing management team. The transaction is subject to regulatory approvals and other closing conditions.

NEW AUTO INSURANCE PLAN ANNOUNCED Mercedes-Benz Financial Services Canada has announced a new affinity auto insurance plan for drivers of the luxury brand’s vehicles, what the company calls a first for all of Canada. The First Class Insurance program was developed by Marsh Canada Ltd. and Aviva Canada Inc. The program is brokered by Marsh and serviced by OIS Ontario Insurance Service Limited and by Services D'Assurance Youville Inc. in Quebec. It is underwritten by subsidiary companies of Aviva Canada, including Scottish & York Insurance Co. Ltd., Traders General Insurance Co. and Elite Insurance Co. The program will be the only branded auto insurance program sponsored by a luxury auto finance company. “The program was designed to protect our customers while providing a high-level of service that is truly commensurate with the Mercedes-Benz brand,” Stefan Karrenbauer, the company’s president and CEO, says in a statement.

Among other things, the new program includes preferred auto insurance rates; repairs done at a companyapproved collision centres; and preferred residential insurance rates, including multi-policy discounts.

Claims FSCO AWARDS MEDICAL MARIJUANA COSTS A Financial Services Commission of Ontario (FSCO) arbitrator has ordered Personal Insurance Co. of Canada to pay a claimant monthly benefits to cover the costs of medical marijuana. FSCO ruled in late July that T.N., who sustained catastrophic injuries in a car accident in 2000, will receive monthly payments of $567.70, starting March 27, 2007, attendant care benefits of $5,056.80 monthly from October 2000, and housekeeping and nutritional counselling services. T.N. submitted that using medical marijuana was the only effective relief for her pain, anxiety and symptoms. The FSCO arbitrator determined Personal Insurance had not adequately shown that medical marijuana was experimental in T.N.’s case. “This is a frustrating comment since it suggests that insurers must prove an experimental treatment is not effective, an almost impossible task,” Talaal Bond, a partner at Miller Thompson LLP, wrote in a recent blog on the firm’s website.

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MARKETPLACE

Reinsurance WILDFIRES, STORM HIT U.S, CANADA: REPORT The United States and Canada have had billions of dollars of damages from wildfires, storms and a hurricane in August, notes the Global Catastrophe Recap for August by Aon Benfield. Claims from storm damages in the Calgary area will reach the hundreds of millions of dollars, after as much as six centimetres of hail hit parts of the region. In the U.S., total economic losses from Hurricane Isaac will reach the single-digit billions of dollars. As well, dozens of fires in Oklahoma also burned 110,000 acres of land and destroyed 603 homes in August, the report notes. More than 1,000 claims were made with payouts topping US$30 million, says the Oklahoma Insurance Department. Total economic losses could reach hundreds of millions of dollars, since 85% of the home damage was uninsured, it adds.

By the end of 2011, the industry’s net underwriting loss was $34 billion, notes Stormy Futures for U.S. Property-Casualty Insurers: The Growing Costs of Risks of Extreme Weather Events.

While 2012 has not been as severe, recent disasters speak to a trend that has been growing over 30 years. Ceres advises insurers to work with climate scientists to develop new modelling

and lend expertise to land use planners. They also need to look at risk exposure based on emerging weather patterns, and update insurance pricing and underwriting of risks based on Cat trends.

On Target Together Since 1981, RIBO has worked closely with brokers to help serve and protect the public. With more than 1,200 brokerage firms registered, employing approximately 16,000 individual registered brokers – RIBO’s mission has never been stronger.

Risk Management P&C SHOULD READY ITSELF FOR WEATHER TRENDS The property and casualty industry in the U.S. needs to be proactive in its catastrophe modelling and industry dialogue about climate change, Ceres reports.

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October 2012 Canadian Underwriter 11

In 2012, our links with our partners continued to gain strength.

2012 Full Partners

Thank you all.

Proud Supporter of Brokers Displaying this Symbol

Every year, the links with our insurer partners continue to build as we gain strength from each other.

Link by link, initiative by initiative, we are together forging a relationship with that most important audience of all: the Canadian consumer. At the very core of the broker profession is trust, and gaining the trust of consumers is the single most important thing we can do, since our strength in the marketplace and in Canadian society depends on it. The most significant consumer-oriented tool we have is the Broker Identity Program, designed to raise the profile and enhance the professional reputation of insurance brokers, and thereby reinforce, and assure the perpetuation of the broker distribution channel in Canada. This ongoing quest for customer satisfaction and loyalty is important to us all, which makes it equally important that we, as brokers across Canada, express our heartfelt thanks to you as our valued associates in the industry, and pay tribute to the partnerships we mutually enjoy.

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In 2012, our links with our partners continued to gain strength.

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Every year, the links with our insurer partners continue to build as we gain strength from each other.

Participants Underwriters, Lloydâ&#x20AC;&#x2122;s England, Pafco, Northbridge

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PROFILE

Broker, Brand and Beyond Craig Harris Freelance Writer

Debbie Thompson, the incoming president of Insurance Brokers Association of Ontario (IBAO), is a passionate advocate for the customer experience that she feels only community-minded brokers can provide. Ask Debbie Thompson why she volunteers her time to support the broker profession and her reply is direct and straightforward. “One of the main reasons I began this journey with the IBAO is because I believe in the broker brand,” she says. “Our brand is not just a symbol; it represents an experience.” Thompson, who also sits on the national committee for the Broker Identity Program (Bipper), notes that a key challenge for brokers today is how to capture that experience in an instantly recognizable advertisement or image. “Sometimes when the Bipper ads come out, there is frustration about them not being ‘sexy’ enough,” says Thompson. “There is always the comment, ‘Where is the Flo?’” she laughs, referencing

14 Canadian Underwriter October 2012

Progressive Insurance’s gregarious and ubiquitous television huckster. While it would be nice to have Bipper as readily identifiable as the Nike Swoosh (or Flo), Thompson says other companies, such as Apple and Starbucks, are household names that also offer the promise of an experience. “They are both recognizable symbols and yet they give the customer a sense of what they can expect when they walk into the store or use the product,” observes Thompson, a big fan of the late Steve Jobs.

FOCUS ON COMMUNITY Most IBAO members live and work in their communities, offering customers a unique experience in purchasing protection for their cars, homes and businesses. And they have the needs and interests of their communities at heart, Thompson says. “We need to find a way to help brokers express the experience that goes with our brand.” When it comes to commitment to the broker brand, Thompson certainly walks the talk. She has volunteered with various broker committees and organizations for more than 10 years, serving as president of the Insurance Brokers of Toronto Region in 2002. Thompson has also been on the IBAO Board of Directors, and now the Executive Committee for more than

seven years, responsible for helping to develop and implement education, property and casualty insurance initiatives and membership growth, including leading the vision and mission of the organization. She sees her role as IBAO president as an extension, “another step in my journey,” of volunteer experience.

BUILT TO LAST On the business side, she began her insurance career in an administrative role in 1979 with the then-Citadel Insurance Company. A resident of Pickering, Thompson received her broker licence in 1984 and started with RKS Insurance as an account manager.

There are many interesting facets to this profession. We get to learn so much about other industries and parts of the economy. She recalls that her father, a carpenter, used to bring her and her four siblings to construction sites from an early age. “I have always been interested in construction, and I have been able to apply that interest in construction to builders’ risk and, of course, construction insurance, as well as professional liability.” When RKS Insurance was

bought by Sinclair-Cockburn Financial Group, Thompson honed her skills and focused her attention on business insurance, serving as vice president of the commercial division and a partner with the brokerage for more than 18 years. She also obtained CAIB and CRM designations. “I know the old adage is that few people graduate from school and say, ‘I want to be an insurance broker,’” she comments. “But there are many interesting facets to this profession. We get to learn so much about other industries and parts of the economy.” After Sinclair-Cockburn was bought by Hub International in 2010, Thompson made the transition to Beyond Insurance Brokers, a Whitbybased brokerage led by former IBAO president Peter Blodgett and Ontario broker of the year, Judy Bell (2009). As director of business development for the relatively new brokerage, Thompson is responsible for marketing and growth of the brokerage, including commercial insurance production. “I have gone from managing people to leading people.” The marketing aspect of her new role includes tapping into areas where brokers traditionally have not been in the vanguard: web-based and social media. This dovetails with another priority for Thompson in her term as IBAO president — encourag-

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ing brokers to adapt to the world of online consumer expectations.

“This industry has traditionally been in a 9-to-5 mode, but that is not how the consumer expects to do business anymore,” she points out. “We have to get brokers to think differently.”

of diminished consumer protection, given both the complexity of the product and the expertise of the seller. “We do not want insurance to be seen as just another commodity,” Thompson says. “At the end of the day, an insurance contract is still a legal contract. That is

moting insurance brokering as not just a job, but a profession and an opportunity for ownership and entrepreneurial spirit,” Thompson suggests. “We need to get out to the schools and training programs and encourage them to learn more, do more, dream more.” The revitalization of younger brokers is also criti-

Thompson observes how when she shops online at sites such as Amazon, there is built-in assistance and the option to speak to a person 24/7 in the event of processing glitches. “I think this is how brokers will have to evolve and adapt to offer services beyond the 9-to-5 world. It will be a challenge for us.” One clear obstacle in selling insurance in the online world is the potential threat

why the broker is wellpositioned to offer the best of both worlds — knowledgeable advice and online presence.” Thompson says younger brokers are “getting it,” and there is a renewed emphasis at IBAO on attracting new members and reaching out to students and young professionals. “I think we as brokers can do a better job of pro-

cal for succession planning — what should be the lifeblood of the broker distribution channel. “Hardly a day goes by when we don’t hear a story about a brokerage being offered a buy-out or transition by an insurance company,” Thompson says. “The companies often tell them, ‘We’ll take care of it for you.’ But it should be us as an association helping our member brokers and giving

ONLINE IN LINE

them the tools to properly plan a smooth and stable succession strategy that includes our young brokers.” Thompson’s view of IBAO’s role is not one in which the association should be self-regulating or monitoring brokers, but rather arming members with the resources and best practices they need to preserve and grow market share. Many of these tools and practices were identified in the most recent vision and mission statement of IBAO, unveiled earlier this year. Not surprisingly, that vision touched on many key priorities Thompson has identified for her upcoming term as IBAO president — building the brand, coping with the expectations of the online consumer, reaching out to younger brokers and focusing on effective succession planning strategies. “We firmly believe in what our brokers have to offer, in terms of knowledge, service and the customer experience,” she says. “Our role should be to help them succeed — not just for their sake, but for the future of the broker channel.” While this may seem like a daunting task for the president of an association under constant pressure from direct writers and banks, Thompson puts a positive spin on her volunteer “journey” to lead Ontario’s brokerage profession. “It has been a labour of love,” she laughs. “And I see the love affair continuing.”

October 2012 Canadian Underwriter 15

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Low Down Challenge Results for the first half of the year show that slower economic growth has resulted in slower premium growth, lower interest rates have produced lower return on investment and the Gregor Robinson “abnormal” weather over the Senior Vice-President, first six months of the year Policy and Chief offered some benefits. Economist Insurance Bureau of Canada

“If all the economists were laid end to end, they'd never reach a conclusion.” George Bernard Shaw Let me contradict the great writer and offer some conclusions for the first half of 2012. Back in March at the annual Swiss Re breakfast, I suggested slower economic growth would likely mean slower premium growth. That happened. How much slower? Growth in direct written premiums slowed from 5.6% in the first six months of 2011, to 3.6% in the first half of this year.

16 Canadian Underwriter October 2012

MACRO-ECONOMIC TRENDS Six months ago I also projected the prolonged period of record low interest rates and volatile financial markets would continue. That also proved to be the case: at the end of June 2012, average yields on 3- to 5-year Government of Canada bonds were 92 basis points lower and the TSX index was 1.8% down compared to the same period in 2011. As one would expect, this has had a direct impact on the property and casualty industry’s return on investment, lowering it by almost half a percentage point to 3.5% — from 3.9% in the first half of last year.

SEVERE WEATHER The natural environment is the second trend that we at the Insurance Bureau of Canada (IBC) considered. Noted was the relationship between higher temperatures and the increased intensity, frequency and duration of precipitation; in other words more severe weather. Global data shows the number of catastrophic

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Figure 1

Canadian Real GDP Growth (Y/Y, %)Pressure 6.0% 4.0% 2.0%

19 9 19 3 94 19 9 19 5 9 19 6 9 19 7 98 19 9 20 9 2000 0 20 1 0 20 2 20 03 0 20 4 0 20 5 06 20 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 20 12 13

0.0% -2.0% -4.0% Source: IBC with data from StatsCan. 2012 and 2013 are Bank of Canada’s July forecasts

weather events has been rising over the last 25 years, meaning more rainstorms, floods, droughts, wildfires and heat waves. These trends are also present in Canada — temperatures are rising and events that used to happen once every 40 years are now happening once every six years in some parts of the country, Environment Canada reports. But for the first half of 2012, the industry experienced some benefits from climate change, with a very mild winter, record temperatures in the summer, and fewer costly weather events. In other words, we had abnormal weather — with record hot weather in Canada and the United States — as predicted, but without the adverse impact on claim costs that we had in the first six months of 2011.

REGULATORY ENVIRONMENT The third major trend affecting the insurance industry is increased attention from regulators. IBC acknowledges the importance of prudent regulation to the success and stability of the property and casualty industry — in providing assurance to consumers, and in ensuring a level playing field. However, we continue to be concerned about the impact of regulatory changes on the industry’s costs, and on the potential impact on the price of insurance to consumers.

18 Canadian Underwriter October 2012

Canada’s p&c insurance companies are well-capitalized as stated on many occasions by the insurance industry’s solvency regulator. IBC agrees, and the figures bear this out — as does our industry’s history in meeting claims obligations.

FINANCIAL RESULTS Overall, the mid-year financial results show a decrease in the loss ratio to 62.4% from 68.4% reported in the first six months of 2011, as well as an increase in the industry’s capitalization with the capital ratio increasing from 237.5 to 241.8. During the first six months of 2012, we were lucky with the weather, with only $260 million in Cat claims, considerably lower than the $1 billion reported at this time last year. The mild weather was a factor in the 5.6% drop in net claims. However, insurers will continue to be challenged on the underwriting front as severe weather in the third quarter pushed insured Cat losses more than $700 million — these could put 2012 on par with the past few years (excluding the Slave Lake event). Additionally, the return on investment is continuing to decline, the result of the low interest rate environment.

LINE OF BUSINESS Turning to performance by line of business, loss ratios fell for three of the four major insurance lines. In the first six months of 2012, personal and commercial property loss ratios benefited from decreases in direct incurred claims and higher earned premiums. However, as noted above, third-quarter results will likely be much weaker owing to the rising costs of natural catastrophes. The Ontario auto market is performing better, but is not out of the woods yet. Auto results may have been better were it not for higher claims from the bodily injury segment of the market and the continuing impact of fraud.

INVESTMENT PERFORMANCE After the financial crisis of 2008 and the slide in equity markets resulting from the Euro debt crisis in 2011, insurers increased bond holdings by 5.5 percentage points — from 72.7% in 2006 to 78.2% in 2011. The investment mix continued to be very conservative in the first half of 2012, with 76.1% in fixed-income securities, 12.1% in common and preferred shares, and almost a percentage point increase in the proportion held in short-term deposits. When we look at industry investment performance, two points stand out:

The bigger the questions our changing climate poses, the better our answers need to be. As natural catastrophes increase in frequency and severity, no one has all the answers. But what we do have at Swiss Re is the depth of expertise and global capacity to offer innovative ways to transfer financial risk and rebuild. Moreover, we have the most advanced proprietary natural catastrophe modelling system in the re/insurance industry. Pioneered in partnership with scientists and engineers, this provides our clients with a unique, constantly updated perspective on natural catastrophe risks. So can there be anyone better placed to help you anticipate, evaluate and mitigate the impact of climate change? At Swiss Re, risk is our raw material; what we create is opportunity. Looking for better answers? Plug into www.swissre.com

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Figure 2

1.8

1.8 Slave Lake

1.2

8 months 0.6

0.6

Catastrophic Insured Losses ($, Billions)

CAT Losses, 2006 to 2012

2006 2007 2008 2009 2010 2011 2012* *Estimated catastrophic insured loss Source: IBC with data from Facts Book, PCS, Swiss Re, Munich Re, and Deloitte

Figure 3

National Direct Loss Ratios by Line 100% 75%

H1 2011 H1 2011 72% 73% 75% 73% 69% 68% 69% 61% 61% 54% 52% 56%

50% 25% 0%

P Prop

CProp

Auto

PPAuto

CLiab

Total

Source: IBC with data from MSA

• Investment income fell by $139 million — even though the total industry investment base rose by 2.3% in the first half of 2012 compared to the same period in 2011. That is significant, and demonstrates just how challenging the investment environment is. • Second, in the past four years, the industry’s average return on investment of 4.1% is half of what it was in the prior 16 years. Insurers also appear to be holding a higher proportion of their assets in cash. Following the 2008 crisis, companies had started to reduce cash; now they seem to be growing more cautious once again. It is believed several factors foreshadow a prolonged period of invest-

20 Canadian Underwriter October 2012

ment uncertainty, among which are the slow pace of the U.S. recovery combined with uncertainty over the upcoming presidential election and related resolution of the fiscal cliff, the continuing Euro debt crisis and whether or not a break-up over the euro can be avoided, and decelerating growth in China and other major emerging economies which are further weakening global economic prospects.

OUTLOOK Most forecasts for economic growth have been revised downward since the expectations held in early spring, reflecting fiscal tightening in many devel-

oped countries and growth deceleration in emerging markets. At home, the road ahead will continue to pose challenges as Canadian households are holding a record amount of debt and as both federal and provincial governments are shifting focus to deficit reduction. As headwinds swirl around the global recovery, insurers not only face underwriting challenges brought about by climate change and fraud, but also possibly weaker demand and a prolonged low interest rate environment. In addition, increased regulation will continue to shape our industry.

Working Together â&#x20AC;&#x201D; The Crawford Difference At Crawford we value our broker partners. We can show you how to more efficiently prepare your market submissions, as well as provide you with powerful analytical tools to help you manage any risk portfolio, no matter how complex. We recognize the importance of communication throughout the claims management process, and we strive to proactively manage every file from beginning to end. Whatever your needs, Crawford is here to help. Contact us at info@crawco.ca for more information.

www.crawfordandcompany.ca Crawford & Company (Canada) Inc. is an equal opportunity employer

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On Notice Hugh Fardy

Senior Vice President The CG&B Group Inc.

Brokers are well-advised to get acquainted with the common definitions contained in every professional liability policy to fulfill their obligation to provide prompt notice — and to protect themselves. Claim shall mean that the insured has received notice of legal process, suit, subpoena, or that a demand for money or services has been made against the insured. Potential claim means the insured has become aware of a proceeding, event or development which could in the future result in the institution of a claim against the insured. Every professional liability policy contains definitions similar to these. They are followed later in the policy by a clause stating the insured’s responsibility to give notice to the insurance company,

22 Canadian Underwriter October 2012

including the need for that notice to be prompt and to provide copies of any pleadings and reports. Insurance brokers must know what definitions and notice clauses are in policies provided to their clients. It is very important that these are pointed out to the insured. If the insured does not understand what constitutes a claim and when to report, he or she may default and prejudice the position of the insurance company and, in the extreme, suffer a denial of coverage. This becomes all the more important when the client is you — the broker — particularly with regard to your own errors and omissions (E&O) insurance. Far too many brokers are taking liberty with this policy responsibility, perhaps as a result of concern over reporting issues that never ultimately develop into a claim. Just as with a fire, the sooner that an issue is reported, the sooner the experts can begin to address it, hopefully minimizing damage. Another advantage of reporting correctly is the knowledge and experience gained by insur-

Two words a broker should hear more.

Thank You.

Thank you for making sure your customers get the coverage they really need. Thank you for doing whatever it takes to get your customers back on track. Thank you for supporting the community where you live. Thank you for pushing us and asking what’s next. Thank you for recommending a Canadian company.

Certain conditions, exclusions and restrictions may apply. The BIP logo is a registered trademark of the Insurance Brokers Association of Canada (IBAC) used with permission. All other trademarks are properties of Intact Financial Corporation used under license. © 2011 Intact Insurance Company. All rights reserved.”

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If brokers feel they can handle the issue by themselves based on the amount, they need to think again. Errors and omissions insurers have history replete with examples of “small issues” that have blown up into large dangerous issues. ance companies, keeping them abreast of the legal issues and attitudes. Collecting that information allows insurance companies to better serve you as an insured. But the real advantages of proper reporting go to the insured (broker). Early action by the company can reduce financial loss, maybe even dismissing the issue before it develops into a real claim. It is not only the lawsuit type of claim that must be reported. There are many types of potential claims that arise as part of the daily routine. Recognizing and reporting them effectively will be a great advantage to the broker and their insurer. A broker may become involved in an action by a client against the insurance company. As such, lawyers in that action may request or even subpoena the broker’s deposition. Brokers have regulatory bodies to which they are responsible. On occasion, they may be asked to provide the regulator with a copy of their file on a specific account. Often in the process of dealing with a claim for an insured, the insurance company will request a copy of the broker’s file information or perhaps a statement by the broker on how the account was serviced.

VALUABLE GUIDANCE In each example, no one directly sued the broker. Still, each may constitute a potential claim for the broker as the issue progresses. The E&O policy provides more than defence and indemnity. For those unfamiliar with the legal process, there is the advice and guidance of legal and adjusting experts. Advice on how to deal with the client and what to expect in discovery is a must for the rookie in the

24 Canadian Underwriter October 2012

process; guidance on how to react to requests such as those outlined above, will assist a broker in how to respond, as well as what or what not to say. Insurance policies may stipulate that a broker not do the following: discuss claims; provide any documents without approval; admit liability; incur cost; provide statements; or discuss settlement without express approval. Those stipulations are there as additional protection for the broker. That advice alone may help prevent an unhappy client from turning into a plaintiff. The need to report definitely applies when the anticipated claim amount is less than the deductible on the broker’s E&O policy. If brokers feel they can handle the issue by themselves based on the amount, they need to think again. Errors and omissions insurers have history replete with examples of “small issues” that have blown up into large dangerous issues. Even if it is best for the issue to be handled by the broker, there is still the access to advice and guidance to keep the broker safe from future difficulty. Use of a proper and signed release is just one way brokers can protect themselves. Insurance companies do not punish the broker who reports on the safe side — if issues do not develop into claims, they are not regarded as a black mark against a broker. That said, repeated reporting of a similar type issue may lead to some questions from the carrier or, better yet, some advice on procedures that can serve to assist the broker. Once a claim or potential claim is reported, it becomes largely the job of the insurer. However, that does not mean the broker’s responsibility is done. The broker must co-operate with his

or her insurer and respond efficiently to any requests made. It is important that information and/or documentation be provided as soon as practical. Every broker should have a section in his or her procedures manual on claims. Steps on what to do and what not to do should be included. As soon as anyone gets the feeling or is told directly that there will be further action, legal or otherwise, the claims process kicks in. That process needs to start with a “one up” reporting rule. No matter who learns about a potential claim, that person needs to immediately advise his or her manager. A meeting of all staff involved in the account should follow. At the meeting, there should be a general discussion as well as an account from each person regarding his or her involvement in the account. All relevant documentation and information should be gathered and files secured. All collected information then needs to be sent to the carrier and a single claims contact designated going forward. The procedures manual also requires a section on what not to do in a potential claim situation. Do not attempt to settle; do not admit liability; do not discuss payment; do not provide documents; and do not discuss your insurance position. Once the report is made, the carrier will assess and make a coverage confirmation. That is when the policy benefits begin. The E&O policy is there for your benefit; ensure that you get the most from it. The insurer and its representatives are available to work with brokers. Remember, payment of defence and indemnity on these claims directly impacts the results of the insurance company. They have no desire to make mountains of molehills.

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Getting Schooled

Carr Hatch

Associate, Leonard H. Kunka Group Thomson, Rogers Barristers and Solicitors

An Ontario court recently ruled that insurers owe a duty of care to their customers since customers would reasonably be expected to rely on information communicated to them by their insurer. The issue of optional auto insurance benefits under Ontario’s revised Statutory Accident Benefits Schedule (SABS) is front and centre in the 2012 decision, Zefferino v.Meloche Monnex Insurance Company. Legislative amendments adopted by the Ontario government for individuals injured in car accidents on or after September 1, 2010 resulted in significant reductions to accident benefits to which those individuals are entitled. Changes of note include the following: • a reduction in available medical and rehabilitation benefits, in standard auto insurance policies, from $100,000 to $50,000;

26 Canadian Underwriter October 2012

• a halving of attendant care benefits from $72,000 to $36,000 for persons who sustain non-catastrophic injuries; and • elimination of housekeeping benefits (formerly as much as $100 weekly) and caregiver benefits (formerly starting at $250 per week) for non-catastrophic injuries. Despite the aforementioned reductions in benefits in standard policies, Ontario maintained the requirement for every insurer to offer optional benefits under SABS. In Zefferino, the plaintiff was injured in a motor vehicle accident and would have been entitled to income replacement benefits of $1,000 per week, had he purchased the optional benefit available when he renewed his policy (his standard income replacement benefit gave him entitlement to $400 per week).The plaintiff argued that had he known about the optional benefits, he would have purchased them as part of his auto insurance coverage. Using a three-step analysis, Ontario’s Superior Court of Justice recognized that insurers owe a duty of care to their customers as a customer would reasonably be expected to rely on information communicated to them by their insurer. After finding that a duty of care was owed to the plaintiff, the court next assessed whether or

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not the insurer breached this duty of care.The court adopted a purposive approach to the requirement for every insurer to offer optional benefits, stating that an insurer may need to take a more detailed history of its customer, provide hypothetical loss scenarios and then ensure the customer understands the optional coverage, its costs and whether or not it might apply to their particular circumstances. In essence, the customer must be offered the optional coverage in a manner that enables that person to make a “fully informed decision” about what level of coverage to purchase. Ontario’s Insurance Act sets mandatory coverage levels that apply to every auto insurance policy. In Zefferino, the court stated: “to make [the] mandatory offer of optional coverages meaningful, consumers must be given an understandable alternative which would allow them to measure the need for more against risk and cost. Otherwise there would be no purpose behind the mandatory language [for optional increased benefits].” The court pointed out that optional accident benefit coverage may not be as well-known to the customer as optional increased liability coverage, for exam-

The court strongly emphasized the need and importance for insurers to make the optional accident benefit coverage known to their customers in a “meaningful way” to enable them to make “fully informed” decisions. ple, which may increase the insurer’s obligation to fully explain the optional increased accident benefit coverage. It is important to note that in finding a breach of the standard of care by the defendant, the court rejected the defendant’s argument that its conduct in not making a detailed inquiry into the customer’s circumstances and without providing a quote as to additional costs of optional coverage was consistent with

28 Canadian Underwriter October 2012

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industry practice at the time. The court ruled there was a failure in the defendant’s conduct — both for this particular customer and in its general standard practice — to offer the optional benefit in any “meaningful way.” After finding a breach of the standard of care, the court ultimately determined that the plaintiff failed in the final step of the test, which was whether or not the plaintiff would have likely purchased optional benefits if they were properly offered and explained, and if so, in what amount. Regardless of the decision’s outcome, the court strongly emphasized the need and importance for insurers to make the optional accident benefit coverage known to their customers in a “meaningful way” to enable them to make a

“fully informed decision” when assessing the risk and cost of the optional accident benefit coverage. In personally contacting several insurance companies, this completely unofficial survey makes clear that a customer with characteristics similar to my own, including age and a “fairly” clean driving record, would have optional accident benefit coverage levels that were quite reasonable relative to the annual costs of the insurance policy on his or her motor vehicle. For example, responses indicate a driver with similar characteristics would face the following costs: in the range of $160-$230 annually to increase weekly income replacement benefit coverage

from the standard of $400 per week to $1,000 per week; $50-$70 annually to increase benefits to $600 weekly; about $60-$80 yearly for optional housekeeping and caregiver benefits of $250 per week for accident victims with non-catastrophic injuries; $35-$55 per year for a policyholder to access $100,000 for medical and rehabilitation coverage for non-catastrophic injuries, as opposed to the standard $50,000 in line with the

After finding a breach of the standard of care, the court ultimately determined the plaintiff failed in the final step of the test, which was whether or not the plaintiff would have likely purchased optional benefits if they were properly offered and explained. revised SABS; an additional $100-$130 annually for $1 million in medical and rehabilitation coverage; and $6-$10 annually to increase attendant care benefits from $36,000 to the pre-2010 benefit level of $72,000. Considering the recent reductions in standard coverage under the SABS, the Zefferino ruling and the seemingly low costs for optional increased accident benefit coverage, both the insurer and, in turn, the insured or prospective customer must have a clear understanding of the available coverage options. Sweeping reductions in standard benefits for car accident victims under standard policies under the new SABS, is expected to lead to an even greater duty placed on the insurer to ensure that its customers are able to make fully informed decisions. This duty on the insurer is arguably even greater than as discussed in the Zefferino decision. The motor vehicle accident at the heart of that case occurred before the changes to SABS in 2010, a time when customers had access to much more accident benefit coverage under standard policies than they do today.

Specialized claims adjusting takes specialized expertise and experience. Specialized losses are by their very nature intricate, complex and full of challenges. In the absence of strong leadership these losses can and frequently do take on a life of their own. At Cunningham Lindsey we provide this leadership.

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Auto ImpactStalled Opinion/Analysis

Lee Samis

Principal Samis & Company

It is two years later, but the story on the effects of Ontario’s 2010 auto reforms is yet to be told. Absent clear case law, there has been little to silence the voices of disagreement that were heard when the reforms first came into force. September 1, 2010 — the effective date for a variety of reforms applicable to the Statutory Accident Benefits Schedule (SABS) — was designed to be a turning point for Ontario auto.The introduction of the reforms was welcomed, but with caution. Two years later, this might be a good time to think about how the reforms are playing out. By this time, we might have expected to be able to pronounce upon the success, or otherwise, of the effort. But here we are with 24 months of post-reform experience, and not much insight in the outcome of the coverage changes. In the claims world, it is not the intent of the reform that matters; it is the features that are applied by courts and arbitrators. The signals

30 Canadian Underwriter October 2012

sent from dispute resolution can, and very often do, recast our understanding of obligations. At the same time, the economic incentives will motivate some people to manipulate the process to take advantage of any weakness that the case decisions identify. The cynicism that permeates claims departments calls for a “let’s-just-watch” approach. Too many well-intended reforms have not had the expected results over the years.The September 2010 reforms started out with fundamental controversy, which in itself is ominous. Key stakeholders vocally disagree about the scope of the “minor injury” concept, yet nothing has emerged to remedy this fundamental disconnect. Anecdotally, we hear reports of a very large number of cases being characterized as “minor injuries” with the consequent limitation of benefits, notably a $3,500 cap on medical and rehabilitation benefits.

WAITING FOR GUIDANCE Unexpectedly, not one Ontario dispute about minor injury has emerged from arbitration or court proceedings yet. (Some case law from other jurisdictions is emerging to underscore the vulnerability of a minor injury concept.)

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Stakeholders still cling to their perspectives of 2010, but no Ontario case law has brought us any closer to closing the chasms of disagreement. Underlying this lengthy uncertainty is the backlog of cases in the Financial Services Commission of Ontario (FSCO) mediation process. By statute, all SABS cases must be mediated before arbitration or litigation can commence.With 20,000 or 30,000 cases awaiting attention, it is not surprising the minor injury disputes have not emerged for judicial/arbitral consideration. The minor injury concept is a tool engaged to contain costs by stratification of auto injuries by severity. Bluntly put, if the injury is minor, then not much is payable. At the other end of the spectrum, we label the most serious cases “catastrophic” in an attempt to identify the cases that will access a very rich level of compensation.The “Cat” definition has been a problem for 10 years or more, but it is only recently that studies and reports have proferred some strategies for amending the definition. At this point, we are still dealing with a legacy definition from 1996 that needs to be cleaned up.That reform did not make the 2010 package — and it is still not in place, but is tantalizingly close. In September 2010, Cat reform was an item on the “to do” list; it still is. Conclusion: Two cornerstones to address the pre-September 2010 reform needs remain veiled in uncertainty.

CONCEPTS IN TROUBLE That is not to say there has not been insight from courts and arbitrators about September 2010 issues. Right now, the case law emerging suggests that some of those reform concepts are in trouble. First, the announced interest rate reform associated with the September 2010 package has been the subject of arbitral consideration. One of the reforms addressed the shocking 2% per month (compounded) interest rate on overdue benefits. The rate was reduced to 1% per month compounded. FSCO Bulletin 04/10 stated, and many

Page 29

insurers understood this to mean, that the interest rate was reduced to 1% per month as of September 2010. However, the FSCO arbitrator in Federico and State Farm Mutual Automobile Insurance Company notes the interest accumulates at 2% per month before and after September 2010 if the benefit was due prior to that date.The arbitrator further commented that the bulletin provisions were confusing.

Another SABS interpretation decision has given consideration to the effect of the September 2010 reform by specifying the need for claimed expenses to be “incurred” in accordance with the SABS definition. One would be forgiven for thinking that no such provision is necessary in a contract of insurance, but it is commonplace for SABS claims to be advanced asserting “basic supervisory” attendant care — effectively paying

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At this point, we are still dealing with a legacy definition of Cat from 1996 that needs to be cleaned up. That reform did not make the 2010 package — and it is still not in place, but is tantalizingly close.

family members for their mere presence in the household, “just in case.” It is unpalatable to be funding these claims when there is no corresponding expenditure. And the claims can quite easily mount to many hundreds of thousands of dollars. The September 2010 reform was thought to have closed this loophole by requiring the person providing the services to have economic loss. In Henry v. Gore Mutual Insurance Company, a judge of Ontario’s Superior Court of Justice refused to limit the claim to the amount of economic loss sustained. The ruling signals that if the person has any economic loss, then the full limit of benefit is claimable whether or not there is economic loss of that magnitude. On this theory, payment for a bus ticket would suffice to give an entitlement to $6,000 per month as an attendant care benefit. The courts also offer a decision of concern about the concept of optional benefits. Reduction in SABS coverage in recent reforms has been accompanied by a mandatory requirement that insurers offer an optional coverage, at additional cost, to facilitate an attempt to replace the benefits taken out of the basic program. In short, bands of coverage are moved from the mandatory package of coverage to the optional zone. Unfortunately, in the decision of Zefferino v. Meloche Monnex Insurance, Ontario’s Superior Court was quite demanding as to what actions are necessary to comply with the obligation to offer the optional benefits. The judge described the duty of insurers with the words, “consumers must be

32 Canadian Underwriter October 2012

given an understandable alternative which would allow them to measure the need for more coverage against risk and cost.” In that case, it was found to be insufficient to merely mention the existence of optional coverage and to invite a further inquiry. The judge seems to take the view that there must be some kind of meaningful description of the coverage, its application to the person’s personal circumstances, and the cost to enable the applicant to understand the option in a meaningful way.The court did not comment on the fact that such an approach would require the insurer to address the possible claims of the applicant in question as well as others who could claim optional benefits. It appears that the effect of this decision may be to require many insurers to alter their practices in a significant and, perhaps, costly way. From a claims point of view, there is concern that an inadequate offer will lead to the argument that the person, if more informed, would have purchased optional benefits. Therefore, the argument goes, the person should be provided with the optional level of benefits. Zefferino was unable to persuade the court to take that next step in his case. Conclusion: The scorecard for the cases post September 2010 is 0 for 3.

OPEN TO FRAUD There is an important point to be learned about anti-fraud efforts as these cases are considered. The cases highlight the following issues: payment of 2% per month interest — an unbeliev-

able economic incentive to dispute, etc.; payment of insurance proceeds in excess of economic losses; and possible access to optional benefit features without applying for or paying for the expanded coverage. There are many other examples to help us understand that the significant fraud activity in auto insurance is not the cause of the problems — fraud is merely a symptom of a system lacking in adequate controls — which offer benefits that far exceed needs. It is not a stretch to say that these types of flaws permeate the entire system. No wonder it costs so much and delivers so little in tangible benefits. Regrettably, many will not see the Emperor’s clothes while blinded by the halo of untested 2010 reforms. Ultimately, it will be clear that the reforms, if they turn out to be very effective, have only succeeded in moderating the effect of some of the flaws. Although the underlying problems are more challenging, these will not be faced as long as opinion leaders are content to wait for better times. Of course, if the other September 2010 reforms are watered down by future arbitration or court decisions, then insurers will have to reconsider their positions with more than two years of backlog to manage. The long tail of the unveiling is a challenge for all. Decisions cited: Federico and State Farm Mutual Automobile Insurance Company (FSCO A08001138); Henry v. Gore Mutual Insurance Company, 2012 ONSC 3687 (CanLII); and Zefferino v. Meloche Monnex Insurance, 2012 ONSC 154 (CanLII).

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Change of Topic National Insurance Conference of Canada: Where Industry Leaders Meet (Quebec City)

Canada’s property and casualty insurance industry is facing complex issues. Insurance and reinsurance companies, brokers, regulators and risk managers are likely to be touched by the changes currently unfolding.

Harmeet Singh

Attendees to the 6th annual edition of NICC in Quebec City from September 30 to October 2 received new insights on the many established and emerging issues currently facing the insurance industry: from regulation to consolidation, crime, technology and financial innovation.The only constant may be change, meaning industry players would be well-advised to be prepared.

Online Editor

Angela Stelmakowich Editor

CONSOLIDATION NEARS LIMIT The head of Quebec’s financial regulator told the industry crowd at NICC that there appears to be little opportunity for more mergers and acquisitions in the province’s property and casualty insurance industry following some recent M&A activity, including three major deals. The consolidation level in Quebec’s p&c market is nearing its critical threshold, Mario Albert, president and CEO of the Autorité des marchés financiers (AMF), told delegates. Albert commented that, in general, Quebec’s p&c market is performing well, but increased concentration is a concern since it could serve to limit consumer choice and competitiveness. He pointed to the “fairly significant” impact of Intact Financial’s acquisition of AXA Canada and, more recently, JEVCO Insurance Company, and RSA Canada’s purchase of L’Union Canadienne.

34 Canadian Underwriter October 2012

Five main players now represent 59% of the market share in Quebec (when measured by direct premiums written), Albert reported. He cited the Herfindahl-Hirschman Index, a measure of market concentration. For Quebec’s market, a level of 1,000 or below represents an acceptable unconcentrated market. Quebec is currently at 1,050, he noted, meaning above the threshold and getting to a concentrated level. Another challenge for AMF going forward will be how best to regulate insurance distribution online, especially with its potential for security problems and fraud, Albert said. Strong security practices already exist in many cases, he told delegates, and added that banks have best practices that could be applied to other companies. Still, a major challenge will be to implement a regulatory framework quickly enough to prevent the province from having to play catch-up with developing conditions, or possibly worse, having to create regulations to correct problems later. An additional challenge for the regulator will be to ensure that licensed agents maintain their important role when more insurance business is done online. The AMF expects to continue its efforts to develop a compromise for industry professionals who have concerns their incomes are threatened by the online world, he said.

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DEFINITIONS REVIEWED The Office of the Superintendent of Financial Institutions Canada (OSFI) reports that the results of its analysis around the capital framework review, as well as a quantitative impact study analysis, are expected to be published for consultation in December. The findings are the result of the second phase of OSFI’s capital framework review, which consists of a review of the definitions of capital and of insurance, credit and market risk factors, and an explicit recognition of risk aggregation and operational risk, state the 2012 NICC presentation notes delivered by OSFI superintendent Julie Dickson. The first phase of the review was completed with the introduction of the 2012 Minimum Capital Test (MCT) guideline, Dickson said. “The industry will have an opportunity to assess the capital impact of all these initiatives,” she told conference delegates, “in addition to commenting on the draft 2014 MCT guideline in the spring of 2013.” The timeframes are meant to provide industry with “a lot of lead time and opportunities to comment on the capital initiatives before they are finalized in the fall of 2013,” she said. Overall, the briefings that Dickson currently receives relating to results in the p&c industry “are rather dull compared to others sectors — and that’s a good thing,” she said. “Dull is good, especially in an environment unlike any we have experienced for many decades.” While p&c companies “are being negatively affected on the investment side due to low interest rates and market performance, and economic uncertainty weighs on the sector, other measures look good,” Dickson suggested. It is a tale of the good and the not so good. The p&c sector experienced the best return on equity this year since 2007, although 34 companies did have negative ROE; and while underwriting income has been the strongest since 2006, a third of the industry continues to experience underwriting losses. To the good, favourable weather in the first half of 2012 and Ontario auto insurance reforms “look to be having a

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favourable impact on the industry.” Noting the scope of events in recent years linked to natural catastrophes and global financial turmoil, Dickson added Canada’s p&c sector escaped the worst of it.That said, she emphasized industry must guard against complacency.

PREPAREDNESS CRITICAL Complacency may be the foe of preparedness, something that is sorely needed if Cat event losses are to be minimized. Preparedness could prove the difference between life and death, economic resilience and recovery, Don Forgeron, president and CEO of the Insurance Bureau of Canada (IBC), told NICC delegates. Taking a look at the big picture is key to providing leadership, Forgeron said. “It looks beyond the consuming preoccupations of the present to the emerging significant risks of the future.” Earthquake presents a major risk to this country, he said. “It’s an issue that’s crying out for leadership — a peril that goes beyond the focus of insurers into

Citing the Herfindahl-Hirschman Index for Quebec, a level of 1,000 or below represents an acceptable unconcentrated market. Quebec is now at 1,050, meaning it is getting to a concentrated level. the homes of each and every vulnerable Canadian,” he told delegates. “Beyond the risk to human life, an earthquake in Canada presents the most significant risk to the insurance industry and possibly to the Canadian economy.” Delegates were asked to imagine if a 7.2 magnitude earthquake hit historic Quebec City. Unprepared, there would be damaged or destroyed homes, collapsed bridges, power outages, severed communications, and food and water shortages. Prepared, losses would be reduced as a result of measures like upgraded building codes, retrofits in older homes, co-ordinated response plans, and post-disaster plans that are integrated among all levels of government.

AUTO REFORM IN DRIVE Despite Ontario’s auto insurance industry not being in as bad a situation as many may think, it needs to adopt a considerably tougher stance to address fraudulent claims, Toronto lawyer John McLeish said during a panel discussion at 2012 NICC. McLeish, a partner with personal injury firm McLeish Orlando LLP, suggested the 2010 auto reforms mean that Ontario’s industry is “almost there in terms of a dream product.” In the first half of 2011, accident loss benefits improved over the previous year, as has the industry financial loss ratio, McLeish reported, citing data from a Financial Services Commission of Ontario report to a government committee earlier this year. That said, problems persist. For example, an IBC-commissioned report indicates that Ontario has the highest average premiums in the country and high costs for insurers. George Cooke, CEO of The Dominion and a fellow panelist, said studies suggest that 10% to 15% of costs in Ontario auto product relate to fraud. Much of that fraud is concentrated in the Greater Toronto Area, Cooke noted. McLeish said that the insurance industry needs to fight harder against exaggerated claims. “In a way the insurance industry is (its) own worst enemy,” he suggested. McLeish reported having spoken to insurers who know from their own investigations that exaggerated claims are being made, but pay out “nuisance claims” to avoid the larger legal costs of a trial. “I think that’s a huge mistake.” McLeish cited the Canadian Medical Protective Association, which represents physicians, as an example of how fraud can be fought successfully. “If you start a lawsuit against a doctor, you have to absolutely assume that case is going to go to trial,” he told delegates to the NICC, which could be expensive for defence lawyers and plaintiffs. “They will spend two dollars to save a dollar,” if they do not think a claim is right, he commented. “It’s worked wonderfully well for them.”

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Steve Pieroway Vice President Marketing & Client Service Policy Works Inc.

The insurance industry is not scoring high when it comes to consumer trust. Ability, reliability and benevolence can help ensure insurance companies are seen as trusted and concerned about the well-being of insureds. More than a decade ago,TEAMmakers inc. carried out a study of the Canadian insurance marketplace, from the consumer perspective. Industry panelists involved in the study — Bridging the Gap Between the Insurance Industry and its Consumers — reported “consumers have lost confidence in the insurance industry and a trust gap has formed.” At the time, the study pointed to “a climate of increased skepticism” that was driving consumer distrust in the insurance industry. In the spring of 2008, Aviva Canada Inc. launched an advertising campaign to “change” the way insurance is done. In a press release, Paul Fletcher, senior vice president of brand marketing, stated at the time the company’s “investiga-

38 Canadian Underwriter October 2012

tions told us consumers feel disconnected, and distrustful of insurance.” And a recent study titled Insurance 2020: Innovating Beyond Old Models, by the IBM Institute for Business Value, found that 58% of consumers surveyed distrusted insurance companies. Should brokers be concerned? Absolutely. In the relationship marketing literature, trust is invariably positioned as a key antecedent to the development of sustained, successful business relationships. Direct links between trust and loyalty behaviour, such as repeat purchasing and word-of-mouth promotion, are continually established and verified. Quite simply, higher levels of trust lead to higher levels of loyalty — and this means higher levels of profitability. The question is: Why do consumers have feelings of mistrust towards the insurance industry? The answer may be in the nature of insurance itself.

INSURANCE SERVICES Search, Experience or Credence? Products and services are believed to exist along a search-experience-credence continuum. What does this mean? Search qualities are those that can be fully evaluated prior to purchase, such as

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a pair of jeans or a television set; experience qualities are those that must be first purchased and consumed, or experienced, such as a haircut, before evaluation can be made. Credence qualities, on the other hand, are those that the consumer can never fully evaluate even after purchase and consumption — those whose outcomes are accepted on faith. This is due to the complexity of the service being rendered; lay people do not have the training or knowledge to effectively judge how well a service has been performed. As services become more difficult to evaluate, there tends to be more uncertainty, or from the consumer point of view, more risk. Insurance brokering is a credencebased service. For many customers, it is almost impossible to tell if a broker has done a good job, especially for the given price. In the commercial realm, risk managers at larger organizations may have some background in insurance and determining risk. More often than not, however, they are industry experts, not insurance experts. As such, risk managers and business owners alike are left to rely on their insurance brokers as the experts in determining their needs. This places the purchaser of insurance in a position of vulnerability.

What is Trust? In the relationship marketing literature, trust is defined as a “willingness to rely on an exchange partner in whom one has confidence.”Trust is a multi-faceted construct, comprised of three factors: ability, reliability and benevolence. • Ability — This is defined as the level of competency in completing a task or job. In terms of insureds, ability refers to the expectation that a job (providing insurance consultation) will be completed to the highest possible standard. • Reliability — This is being able to consistently and repeatedly complete a task. Reliability is the expectation that a consumer will consistently receive the same level of service, visit after visit. • Benevolence — Perhaps the most overlooked aspect of trust, benevolence is

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the act of placing the needs of customers first; to look out for the well-being of the other party involved in a transaction. Although inherent in an exchange is benefit to both parties, benevolence is making customers feel as though their best interests are top of mind.

Mistrust in Insurance There is a high degree of perceived vulnerability because of a lack of knowledge. Greater uncertainty leads to a greater degree of risk, which, in turn, invokes feelings of vulnerability. Though not exhaustive, the following factors may contribute to feelings of mistrust towards the insurance industry.

Placing customer needs first is essential. A lack of transparency — from pricing calculations to compensation and contingency payments — may create feelings of mistrust as insureds may not be aware of how such things are handled. • Lack of insurance knowledge — As noted earlier, insurance, especially commercial insurance, is a complex service that few understand. It is a credencebased service that is not easily evaluated by insureds. And a lack of commercial insurance knowledge can produce feelings of uncertainty and, perhaps, anxiety. This may lead to feelings of

mistrust, especially when there is a lack of communication and transparency. • Lack of transparency — How are prices calculated? How much commission is being paid? Are brokers tied to an insurance company or not? Do insurance companies own brokers? Why are certain coverages selected? Why are certain markets chosen? When clients are given proposals, the answers to all of these questions go through a prospect’s mind. A lack of transparency — from pricing calculations to compensation and contingency payments — may create feelings of mistrust since insureds may not be aware of how such things are handled. • Fluctuations in pricing — Hard and soft markets; premium increases and decreases. It may be difficult for insureds to understand inconsistent premium pricing and insurance policy pricing behaviour particularly, in the case of the latter, if the underlying risk remains the same. Added to a lack of both transparency and understanding, price fluctuations can trigger feelings of systemic mistrust. • High degree of vulnerability — Unless the insured is an expert in insurance, a certain degree of vulnerability will exist. This arises from the asymmetric relationship that exists between insured and broker, as it is assumed the broker has greater knowledge of insurance. If insureds fear opportunism, this fear may lead to feelings of mistrust. • Perceived lack of benevolence — This is an interesting one. As indicated in the TEAMmakers inc. report, consumers feel as though brokers are not as benevolent as they could be. That is, when presented with an opportunity, brokers may look to put their own interests first. This is most often not true, but the perception in the consumers’ mind is strong enough to make consumers feel guarded. Trust is an essential component to any relationship. This is especially true of the relationship that forms between brokers and insureds. That said, trust must be earned, and it is built over time. A deeper understanding of how trust is developed may help to bridge the gap between mistrust and trust.

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Gaining

Traction

Barbara Haynes CEO and President DAS Canada

Legal expense insurance was previously an untapped resource. But an increasingly litigious environment, coupled with enhanced availability of related insurance products, seems to indicate the times are, indeed, changing. With an international survey arguing that the affordability of legal counsel is a major impediment to accessing the Canadian justice system, our country has a long way to go to ensure that all Canadians can defend their legal rights. Fortunately, increasing availability of legal expense insurance improves access to justice in some of the most common and problematic areas of the law. The high cost of legal counsel puts justice out of comfortable reach for most except the very wealthy, while government cuts have made legal

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aid inaccessible for almost all but societyâ&#x20AC;&#x2122;s most needy citizens. Middle-class Canadians and small and medium enterprises (SMEs) remain vulnerable to potential legal action in an increasingly litigious society. Europeans have long embraced legal expense insurance; the concept originated there in 1920, and the majority of the population holds a policy. Globally, the legal expense insurance market accounts for more than $10 billion in written premiums. In 2009, the DAS Group launched DAS Canada, the first coast-to-coast provider of legal expense insurance, offering a product suite that provides comprehensive legal cost coverage and advice to an extent only previously available in Europe.

INTEREST GROWING Though Canada joined the party fairly recently, the concept of legal expense insurance appears to be gaining interest, as growth in written premiums makes clear that individuals, groups and businesses are all becoming more aware of the benefits offered by such policies. It is not difficult to see the countless practical

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Because of the high cost of pursuing delinquent accounts, many SMEs would forfeit money owed to them rather than spend thousands of dollars in legal fees to pursue them.

benefits of legal expense coverage.Take, for instance, the benefits for SMEs. Our economy needs entrepreneurs who are willing to take risks to create jobs, products and services. But very few SMEs have the capital to fund in-house legal counsel, forcing them into uncharted waters. All businesses will inevitably encounter any number of legal issues — some predictable; others unimaginable. Take, for example, the Toronto restaurant owner who was charged with assault earlier this year for throwing spices in the face of a would-be burglar. “Spice-gate” meant that the owner, who was simply trying to protect his property, will no doubt face significant legal fees defending himself regardless of the verdict. More common scenarios involve employment disputes, statutory licence protection and tax protection, to name just a few. Should such issues arise, the costs of legal defence could cause some businesses significant financial strain. On the flip side, many SMEs are also leaving a great deal of money on the table as a result of the cost of legal representation. As an example, because of the high cost of pursuing delinquent accounts, many would forfeit money owed to them rather than to spend thousands of dollars in legal fees to pursue them. Unforeseen legal challenges are not unique to businesses; individuals engage in many day-to-day legal relationships that pose the risk of resulting in expensive actions. This is where an individual plan can be essential. The employer-employee relationship, for example, is one of the most common sources of legal disputes for indi-

44 Canadian Underwriter October 2012

viduals. An employer wishing to dismiss a staff member must act within the boundaries of employment law, but will more often than not act with its own interests in mind. What happens if the employee believes he or she is being dismissed unfairly? While each case is different, that employee may be entitled to compensation well in excess of the statutory minimum severance. However, without a job and income, many individuals in this situation would likely be deterred from taking legal action. A legal expense insurance policy would offload these risks and permit the beneficiary to pursue his or her own interests.

BROAD APPEAL While individual legal issues are far too numerous to list, anyone who owns property or drives a car can benefit from legal expense insurance. An annual policy generally costs less than a couple of hours of a lawyer’s time, but covers a wide variety of issues, including property disputes, tax issues and legal defence. While policies cover costs related to going to court, even more valuable is the fact that many of the aforementioned situations could be minimized, defused or avoided altogether. Just as medical doctors will encourage patients to eat well and exercise, a practice known as preventative medicine, similarly, DAS provides “preventative support” to its policyholders through free legal advice from lawyers who have expertise in a relevant field. For the average individual or business, obtaining critical legal guidance would likely cost in excess of $360, the aver-

age hourly rate for a lawyer in Canada. And since most individuals and businesses do not have lawyers on retainer, the time spent researching and finding suitable counsel adds further to the costs. Being able to speak with a lawyer at any time, DAS policyholders are better able to ensure they fully understand their legal rights and responsibilities. As such, they can deal with issues while these are in their infancy, rather than later when they turn into potentially costly litigation. Canadians are beginning to understand the importance and benefit of such policies, and the concept is gaining growing interest in both the legal and insurance communities. Intact Insurance now includes access to legal information as an automatic feature in small business policies. The concept of full legal expense insurance also has the support of law societies and bar associations in Canada, with the Canadian Bar Association passing a resolution which states that “legal expense insurance has proven to be an innovation that significantly increases access to justice for the middle class.” Likewise, in Quebec, the Barreau du Quebec has long been an active supporter of legal expense insurance. Taking the average spend in Europe of C15 per capita as a benchmark for a developed market, the legal expense insurance market potential in Canada could grow to be in the region of about $500 million as support and awareness continue to grow. This represents a sizeable revenue opportunity for brokers, and an invaluable way to fill critical gaps in current insurance products.

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Virtual Protection Regulators in Canada are examining whether or not electronic commerce practices in insurance meet consumer protection standards. While the internet has exploded in terms of comparison price shopping and research, the ability to â&#x20AC;&#x153;buy and bindâ&#x20AC;? raises key issues about customer access to advice from licensed professionals and appropriate safeguards. It is a discussion that is, in some areas, pitting brokers against direct insurers. BY CRAIG HARRIS

46 Canadian Underwriter October 2012

wo consumers are considering purchasing an auto insurance policy. One, perhaps in his early 50s, telephones a broker and arranges to meet in person to discuss and secure coverage. The other, a new driver in her early 20s, checks the web for prices and chooses the best rate, filling in forms and binding coverage online. Despite the different buying habits, are both customers getting the same level of regulatory protection? That’s the question the Canadian Council of Insurance Regulators (CCIR) set out to explore in an issue paper that was released last January. “Consumers should enjoy the same protection, regardless of the means of communication chosen,” states the paper, Electronic Commerce in Insurance Products. “Canada does not have an oversight framework that is specific to the online distribution of insurance products.”

October 2012 Canadian Underwriter 47

COVER STORY

Virtual Protection The CCIR’s Electronic Commerce Committee called for submissions from interested parties — and got a slew of responses by mid-June from brokers, direct insurers, associations and others. Touching on a number of key regulatory themes in the online world, the paper clearly hit some hot buttons among insurance industry players. Broker groups, in particular, see clear warning signs when it comes to online consumer protection. “The product is complex and even though some insurance providers are promoting the product like a commodity that can be purchased in a box or off the shelf, that is far from the case,” says Randy Carroll, chief executive officer of the Insurance Brokers Association of Ontario (IBAO). “Consumer protection needs to be the focus when it comes to e-commerce. Understanding what has been purchased and more importantly what has not been purchased must be part of any transaction, be it online or otherwise,”Carroll says. “The commoditization of insurance does not protect consumers,” notes the submission from the Insurance Brokers Association of British Columbia (IBABC). “Losing the cost of a DVD or a plane ticket is an inconvenience; losing the value of a house is financially and personally devastating.” Not surprisingly, direct insurers and agency writers have a different view of the need for regulations in the online world. “We believe that consumers should be allowed to use the model of their choice for insurance transactions,” says Alain Thibault, president and chair of the Canadian Association of Direct Response Insurers (CADRI). “We do not want to see any unnecessary barriers or obstacles that will get in the way of that choice. We think the insurance research and transaction process, no matter what the medium, should be as easy and seamless as possible,” Thibault adds. “CAFII supports consistency of regulation across channels,” the Canadian Association of Financial Institutions in Insurance states in its submission to the 48 Canadian Underwriter October 2012

CCIR. “The regulatory frameworks that are now in place have been, and can continue to be, adapted for the internet distribution channel.”

RISE OF INTERNET The spotlight by CCIR on electronic commerce is a reflection of the growing popularity of the internet for price-comparison shopping, research and, in some cases, purchasing of insurance products. It is estimated that Canadians spend more time on the in-

Touching on a number of key regulatory themes in the online world, the CCIR paper clearly hit some hot buttons among insurance industry players. Broker groups, in particular, see clear warning signs when it comes to online consumer protection. ternet than other industrialized countries, outpacing the United States and the United Kingdom in 2011, notes information from ComScore. Industry Canada reports that in 2009, 80% of Canadians aged 16 and older, or 21.7 million people, used the internet for personal reasons, up from 73% in 2007. Online transactions were more prominent than in 2007, with 50% of home users ordering goods or services over the internet.

In an informal survey, CADRI members reported that in 2011, they provided almost 1.7 million quotes online, mainly for car insurance. As well, the association noted that sales resulting from online quotes are increasing as a percentage of total sales (i.e. original quote provided online to the consumer). Some companies report that more than 40% of their new business is originating from online quotes. With all this activity, issues are emerging when it comes to the risks inherent in electronic commerce. The CCIR listed seven main areas where regulations may be needed to ensure that consumers: • have access to additional information/ advice; • know they are dealing with a regulated entity; • have and understand the necessary information about the products; • have the opportunity to review the accuracy of information they provide; • are aware of the terms and conditions; • can rely on the transaction; and • know that their personal information is secure. Arguably, the most contentious suggestion in the CCIR paper is the notion a “licensed intermediary review the insurance application completed by a consumer to ensure that the product in question suits the consumers’ needs.” While this is only one of many possible regulatory solutions floated by the committee, it garnered plenty of attention among direct response insurers. Other CCIR consumer protection measures included having the relevant information and advice available on the provider’s website and having an online provider enable consumers who visit its website to contact a licensed intermediary at any time. “In terms of consumer protection, there has to be some principles, but we don’t think it should favour one form of distribution,” Thibault says. “There is no guarantee that if you talk to someone, you are going to get the right information. The information should be provided by a regulated entity, but we feel that the information can be provided by that

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COVER STORY

Virtual Protection entity in a way that reflects consumers’ choice of their insurance model. Phone or face-to-face are not the only ways to provide information to consumers.” In fact, Thibault comments that online web information tools are getting more sophisticated and effective at educating consumers through comparison charts, scenario building, simulations and reflective questions. Similarly, CAFII opposes any requirement of intermediary review of online insurance products or applications. “Given that clients have chosen to do their research and transaction on the internet rather than face-to-face and telephone, mandating the use of a licensed agent would add redundancy and costs and go against clients’ needs and wants,” the association notes. “Requiring a licensed agent to review an application is particularly problematic as it would mean that clients may be delayed or prevented from completing their transaction,” it adds. “Risk mitigation techniques for distributing insurance without an intermediary have been developed and can be utilized in internet distribution,” CAFII points out. “These techniques include plain language communication of key facts, advice tools, free-look features, complaint-handling protocols, privacy requirements and claims handling.”

LEGALLY BOUND? The Co-operators indicated it has “concern with the recommendation that insurers have licensed intermediaries review each application… Who is legally bound if a problem results; the reviewer or the applicant? Most questions are simple. ‘Yes’ and ‘No’ answers. It will be difficult for the reviewer to discern much from such limited information.” The company adds that a grey area could exist where the consumer may “unintentionally shift risk to the reviewer and, therefore, may not be as diligent in answering questions. Moreover, there may be some confusion with the policy effective date. If the reviewer has concerns with an area of the application, but cannot reconnect with the client in 50 Canadian Underwriter October 2012

a timely fashion, is the policy not valid until the review is complete?” In its submission to the CCIR, State Farm Canada argued that a licensed intermediary review of online applications would create an uneven playing field. “Imposing a requirement that providers attempt to ensure that all online purchases suit consumer needs by having a licensed individual review each purchase for suitability could ac-

online websites, pose a high risk of consumers making errors, misunderstanding coverage, overlooking optional protection and binding policies without review. IBAO’s Carroll cites the example of optional increased accident benefits in Ontario auto insurance, which may not be properly identified in an online transaction. “IBAO is of the view that if advice by a licensed intermediary is a requirement in the physical world, the same obligation and involvement should exist in the virtual world,” Carroll says. “Also, an insurance product should not be finalized online without interaction from a licensed intermediary,” he adds.

STANDARD OF CARE

The commoditization of insurance does not protect consumers, notes the submission from the Insurance Brokers Association of British Columbia. Losing the cost of a DVD or a plane ticket is an inconvenience; losing the value of a house is financially and personally devastating. tually impose a more onerous standard on providers in the online environment than in other environments, which we believe would be inappropriate,” stated Barbara Bellissimo, senior vice president and chief agent - Canada for State Farm Insurance. However, brokers contend the complexity of the insurance product, coupled with the self-fill applications of

“It’s easy for online sellers to create websites with images and language evoking ‘relationships,’ leading consumers to reasonably assume they are getting the standard of care that has been inherent in face-to-face insurance transactions with intermediaries for decades,” IBABC noted in its submission. “No one wins, except perhaps lawyers, when those customers suffer uninsured losses and learn the hard way that they didn’t have the coverage or the advocacy they thought they had, perhaps because they didn’t tick the right box or read and fully understand the fine print.” In particular, B.C.’s broker association wants to see more attention paid by regulators to what actually constitutes a “legal insurance contract” over the internet. The submission lists some key questions: • Has the consumer entered into a contract when he lands on the seller’s website? • Is it when he hits the “I accept” button at the first screen, the last screen, when the credit card payment has been authorized, or on delivery and final acceptance of contract documents? • Is a signature required? • What types of electronic signatures are acceptable? • Are the rights and obligations of other named insureds adequately handled?

COVER STORY

Virtual Protection • How might the terms of usage of the website be used to commit a customer to terms for the insurance contract of which he may be unaware?

SECOND THOUGHTS Some of the uncertainty around the actual purchasing and legal binding of an insurance contract led the Insurance Brokers Association of Alberta (IBAA) to suggest a “cooling off “ period for consumers to reflect on their virtual buying decision. “Transactions undertaken on the internet when an intermediary is not present for a significant portion (of the) process often results in decisions made with insufficient information,” the IBAA notes. “A cooling off period allows for second thoughts and the obtaining of additional information to ensure the product purchased meets the insurance needs of the consumer.” In addition, the Insurance Brokers Association of Nova Scotia (IBANS) identified a topic unaddressed by the CCIR discussion paper: professional liability in the case of online sales. “There is some question of accountability and consequence in the event of a consumer who purchases online without receiving advice and subsequently has a claim impacted or denied,” IBANS stated in its submission. “Is this an errors and omissions situation and, if so, whose E&O coverage, if any is to be afforded, would answer?” Amidst these concerns, the CCIR suggested in its discussion paper a host of other possible consumer protection measures that may apply to online insurance. These varied from ensuring consumers know they are dealing with a regulated entity by posting required information about the company online (and possible links to regulator sites) to imposing legal obligations on providers’ websites for disclosure of necessary product information to addressing personal information and security risks.

SIGNED AND SEALED? Another interesting point raised by the CCIR is whether or not electronic forms and signatures for certain transactions, such as termination of insurance contract 52 Canadian Underwriter October 2012

by insurer or designation of beneficiary, should supplement paper-based processes. For example, a termination of insurance contract is required to be sent via registered mail. In recent revisions to the provincial Insurance Act, both Alberta and British Columbia kept this requirement intact, although some suggest that electronic forms and signatures are just as, if not more, valid as paper forms.

Transactions undertaken on the internet when an intermediary is not present for a significant portion of the process often results in decisions made with insufficient information, the IBAA noted. A cooling off period allows for second thoughts and the obtaining of additional information. “The termination of insurance contracts could be done by electronic means as easily and safely as paper format,” The Co-operators stated in its response to CCIR. “It can be argued that electronic means are as effective, and as likely to come to the consumer’s attention, as a registered letter.”

State Farm’s Bellissimo pointed out that “several U.S. states have recently enacted legislation that allows insurers to communicate with consumers completely electronically, including electronic delivery of cancellation and nonrenewal notices.” While regulations for online sales of insurance do not currently exist in Canada, certain provinces, such as Ontario, have enacted general electronic commerce legislation. Other jurisdictions, such as the U.K. and the European Union (E.U), have set out regulatory structure and oversight for the sale of both online insurance and financial services products. In the U.K., the Financial Services Authority (FSA) regulates e-commerce and distance contracts though rules of conduct that apply to firms and brokers, as noted in the CCIR paper. It provides “key rules” for general insurance brokers that set out requirements for distance contracts pertaining to information provided to consumers, the ability for consumers to receive the contract on paper, the right of consumers to change the means of distance communication used and information made accessible to the consumer about the name of the firm, geographic location and its registration with the regulatory body.

DIRECTIVE ISSUED The E.U. has also implemented regulations for e-commerce in financial services through a 2002 directive that applies to all member states. The directive states: “Because of their intangible nature, financial services are particularly suited to distance selling and the establishment of a legal framework governing the distance marketing of financial services should increase consumer confidence in the use of new techniques for the distance marketing of financial services, such as electronic commerce.” The directive creates a set of obligations for the service provider related to information about the provider, the financial service offered and information about the contract. It also sets out rights for the consumer, including required information about redress procedures and the right for customers to withdraw

COVER STORY

Virtual Protection

Legislation should be technology-neutral and allow us to communicate with our customers in the method they prefer, while effectively accounting for information security and privacy concerns. from the contract within 14 days (or 30 days for certain life insurance products), subject to certain terms and conditions. Broker groups, such as IBABC and IBAO, say that they would support such regulatory measures in Canada. “We support modernization, which increases competition and leads to serving consumers more effectively,” Carroll comments. “However, we caution against moving too quickly to the internet without significant controls being in place to protect the public interest and maintain confidence in the insurance sector.”

BEST PRACTICES Direct insurance groups and companies indicated in their CCIR submissions that they are not opposed to a framework governing online distribution of insurance per se, but would prefer principle-based regulations that promote best practices. “Electronic commerce will continue to evolve quickly and other forms of transactions, such as mobile delivery, may become more prevalent in the near future,” CADRI noted in its submission. “In this environment, it will be difficult for CCIR members to ensure that the regulatory framework remains current unless a principles-based framework is adopted. A principles-based framework can be more easily harmonized across jurisdictions,” the associated noted. 54 Canadian Underwriter October 2012

“Both insurers and consumers can equally benefit from the expanded use of the internet,” The Co-operators observed. “This can be achieved through best practices and regulation where required.” For example, the provision of basic product information “should be considered more of an insurance best practice, as opposed to a regulatory requirement,” the company suggests. “Moreover, it would be extremely difficult for a regulator to define, monitor and enforce such provisions with the variety and complexity of products in the market.” Social media, while not a specific focus of the CCIR electronic commerce issue paper, was cited in several submissions as an emerging area of electronic commerce that will involve increased consumer and insurer interaction. “Even electronic communication via email or a web-based secure messaging system is no longer cutting-edge,” State Farm’s Barbara Bellissimo observed. “Many consumers want to deal with insurers via text message or through mobile apps. Legislation should be technologyneutral and allow us to communicate with our customers in the method they prefer, while effectively accounting for information security and privacy concerns.”

FEEDBACK UNDER REVIEW In terms of future directions for the CCIR Electronic Commerce Committee, the regulatory body has received

25 submissions to its issue paper and is currently reviewing the feedback. “If CCIR agrees that significant issues exist, the committee will develop recommendations for regulatory changes,” the council notes on its website. It has not outlined a timeframe for this process. “To date, we are in a holding pattern waiting to see what the CCIR recommendations are based on the input that they have received,” Carroll says. “I am not aware of when we will see that report.” Judging by the submissions and level of interest in the topic, there is an emerging sense that the initial discussions should translate into clear and consistent principles that govern all online sales of insurance products. “The consumer protections already inherent in insurance transactions should not be compromised for the sake of an online delivery method,” IBABC observed in its submission. “Customers may not be demanding a regulatory framework, but they expect that it will be there.” The larger question is whether or not regulators can devise a broad and flexible enough set of guidelines to regulate a rapidly changing electronic commerce environment, while ensuring consumer protection in the virtual world. That will be a formidable task in the months and years ahead.

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Unsocial Media Companies are trying to learn the language of today’s way of communicating, one replete with social media vehicles ranging from Facebook to YouTube. Karl Greenlaw Founder and CEO Brovada

It is amazing how much society has changed over the last few years. The advent of social media has influenced where we get information, how we work, the tools we use, and most important, how we communicate with one another. The way in which we exchange thoughts and information has changed so drastically that companies are struggling to keep up with the new reality. In a world of services such as Facebook, Twitter and YouTube, how should we conduct ourselves? How do we remain relevant? And how do we protect both ourselves and our businesses?

CHANGING SOCIAL INTERACTION Until recently, social interaction was governed by the rites and rituals inherent to physically meeting in person or by phone. Outside of broadcast media, communication was limited to those with whom you shared a personal relationship

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(friends, family and colleagues). Social media — or perhaps more appropriately termed “unsocial media” — provides ample opportunity to communicate with the masses, but does so in a way that is without relationship or intimacy. Face-to-face meetings are being replaced by Google+; rather than sharing interests over a glass a wine or cup of coffee, people look to websites such as Pintrest; chatting on the phone has been usurped by texting; and Twitter and Facebook allow individuals to monitor the actions/events of others without actual interaction. These new tools are fundamentally different from the social interaction behaviour innate to the evolution of our species. Rightly or wrongly, our society’s approach to interaction is changing and there does not seem to be any signs of it slowing down.

LOSING HUMAN INTERACTION So how does this affect the insurance business? Although insurance is known to be a conservative industry, where the pace of change and adoption of new technology has been slow and methodical, it too is seeing a dramatic change. As a technophile, you would think I would be embracing and supporting this transition; in reality, I struggle with the lack of human inter-

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action these tools provide. Lost is the interpretation of someone’s tone and intent when speaking on the phone; gone too is the ability to read body language and adapt the conversation appropriately when meeting face-to-face. While sharing a meal in person, one can gain better insight into a person’s likes and dislikes through the conversation as it relates to the environment, the meal and the atmosphere. In sales, these are all physical cues that can provide insight into the customer. Reading emotions and reacting accordingly is a key factor in building a longterm relationship that ultimately leads to more sales.

STRETCHING THE TRUTH Beyond the unsocial aspects of social media, there are fundamental differences in the way we act online compared to in person. My brother, who runs a mortgage brokerage, has found that people who submit applications online are much more likely to omit, distort or blatantly lie on an application compared to those who submit in person. One applicant had gone so far as to lie about filing for bankruptcy only two months prior. People take liberties when hidden behind the veil of their iPad screen. Even in light of the growing number of inaccurate applications, my brother reports there are far more submissions coming in via the internet than the phone; it is a risk he has to take.

BEWARE OF SHARING It is amazing how much information — true or false — people offer up to the online world without ever thinking about the potential consequences to their privacy. One man’s trash is another man’s treasure in this case. Employers frequent online sources to gather information on potential hires. There have been cases involving people submitting injury claims and being denied settlement because of information discovered on their Facebook profiles. It is even possible that information retrieved via social media channels

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could be used by insurance companies at the time of underwriting. The reality is that the vast majority of people who share information so openly online would never do the same in person. And, unfortunately, once the information is posted it will always be out there. The cloud-based storage services that have become so popular of late are not immune to having their data compromised (or in some cases legally accessed by third parties). Social media has encouraged this blind trust; society’s ignorance towards the business model behind the software being used. Current online behaviour allows companies to collect and analyze personal data that is then sold to the highest (and lowest) bidders. In the era of targeted marketing, this is big business.

The reality is that the vast majority of people who share information so openly online would never do the same in person. And, unfortunately, once the information is posted, it will always be out there. CREDIT SCORING TO INCREASE Credit scoring has become an integral part of the underwriting process, especially for direct insurers. Credit scoring offers a roundabout way to infer a person’s character as a driver or homeowner by extrapolating that against their ability to maintain a good credit rating. Although the two items do not directly correlate, it does assist the underwriter as they have little opportunity otherwise to assess character. This is an area where brokers clearly have a distinct advantage. If the direct business came in by phone it would at least provide some gauge of trustworthiness by allowing the underwriter to interpret the tone and tendencies of the individual’s voice.

As a result of the directs employing credit scoring, other insurers have followed suit and have embraced the practice as an added sanity check over and above the broker’s frontline underwriting skills. Brokers need to be extremely careful with how they utilize the credit information they obtain. It is only a matter of time before a major insurer announces a breach of its security and the loss of consumer data.

KNOWING YOUR COMPANY’S ONLINE REPUTATION Much like an individual, a business’ reputation can also be seriously harmed within the virtual landscape of Facebook, Twitter and blog discussions. Opting not to be online may hinder growth and it may surprise many brokerages that they are being discussed on the web. Insurance is highly competitive and it only takes one disappointed customer to create a negative perception. Unfortunately, online negativity is very difficult to address. At a minimum, companies should perform frequent searches to stay in tune to their “online image” and, ideally, address any problems as they arise. There are successful firms, such as Radian6, whose sole purpose is to track brands online through the social channels on a company’s behalf. A company can then address any discontent in a timely manner to protect its respective brand.

ADAPTING TO UNSOCIAL MEDIA The challenge going forward, for brokers and carriers alike, is to be able to adapt your business so that it remains truly connected with customers, while still leveraging social media as a sales tool. Successful companies will need to embrace this new opportunity and use it to their advantage. Monitor your online brand and understand how customers want to interact. Unsocial media is here to stay and companies must, at a minimum, be able to co-exist in both the real and virtual worlds.

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Mary Maloney

Vice President and Executive Protection Product Manager Chubb Insurance Companies of Canada

A survey of public company executives in the United States reveals little concern over the possibility of being sued — this despite almost a quarter of responding companies having already been sued. U.S. public company executives may be in for an unexpected lawsuit if results from the Chubb Group of Insurance Companies’ 2012 Public Company Risk Survey are any indicator. More than 80% of respondents reported it was unlikely they would be sued, despite the fact that 23% of the public companies surveyed already had been. And with activities like mergers and acquisitions and enforcement of anti-bribery laws in-

60 Canadian Underwriter October 2012

creasing south of the border, directors and officers may well be exposed to future lawsuits. Canadian executives are also up against some new risks that may increase the likelihood of a directors and officers liability lawsuit.The business landscape in Canada has shifted in the last few years, with public company leaders facing greater risk from securities class action lawsuits, new anti-corruption regulations and more cyber attacks on corporate networks.

LAW SPURS LITIGATION Securities class action lawsuits have become an increasing concern in the years following the passage of Bill 198, a new law aimed at improving the quality of public disclosure among Ontario corporations. In force since December 31, 2005, Bill 198 added a secondary market liability provision to Ontario’s Securities Act , resulting in increased legal liability for alleged

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misrepresentations in public disclosure made by the directors and officers of publicly traded companies. Bill 198 does not require that the defendant must have acted with scienter, or the intent to deceive, manipulate or defraud; under the bill, liability can be found when the defendant was simply negligent. NERA Economic Consulting notes that in 2011, 15 new securities class action cases were filed in Canada, more than in any previous year. Nine of those cases were connected with Bill 198. A total of 35 cases have been filed since the new legislative provisions came into force at the end of 2005; to date, 24 cases remain unresolved, 10 cases have settled and one case has been dismissed. The 10 settlements have resulted in payments by defendants of almost $100 million, an average of about

nition from independent organizations. In September, the country won praise from the Berlin-based graft watchdog, Transparency International, for its improvement in enforcement activity.With 34 ongoing investigations,Transparency International pointed out that Canada joins Australia and Austria as the most improved enforcers. The Organisation for Economic Cooperation and Development (OECD) noted last year that enforcement of

CFPOA had increased, with credit for these cases largely attributed to the RCMP’s anti-corruption task force, formed in 2008. The organization also commended Canada for codifying corporate liability, as well as other offences, in the criminal code. Despite the praise, the OECD also cautioned that Canada’s regime for enforcement of CFPOA remained problematic in several important areas. For instance, the organization noted that Canada’s

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TOUGH ON CORRUPTION Although Canada’s Corruption of Foreign Public Officials Act (CFPOA) took effect in 1999, there had been little enforcement activity until recently. As in other countries around the world, such as the U.S., regulators in Canada have been ramping up anti-corruption efforts leading to more enforcement activity. For example, Niko Resources, a Calgary-based international oil and natural gas company, pleaded guilty to one count of bribery under CFPOA in June 2011. Canada’s work is also receiving recog-

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ability to successfully prosecute is in jeopardy unless the Public Prosecution Service of Canada receives the resources it needs to prosecute the large volume of cases that may soon follow its investigations. As well, among other recommendations, the OECD suggested amending CFPOA so it clearly applies to bribery related to the conduct of all internationally. Along with the increased regulatory oversight of corrupt business practices, there has been a growing trend toward holding executives personally accountable for this offence. While insurance is usually available to cover a companyâ&#x20AC;&#x2122;s liabilities, when it comes to an individual executiveâ&#x20AC;&#x2122;s liability, the issue is much less clear. Policies can be written to state that there is coverage in the case of a violation of CFPOA as long as it is insurable by law. In some cases, regulators may oppose insurance coverage for executives as it could be seen as watering down the punitive remedy.

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GROWING CYBER THREAT Computer security is also a significant risk for companies in Canada and one that is often underestimated by executives. A cyber breach is not a matter of if, but when. Two in five companies have experienced a significant cyber security issue

in a recent 12-month period, notes information from the Computer Security Institute. And the trend is expected to continue with highly skilled statesponsored hackers breaking into corporate and government networks in search of trade secrets and other valuable information.

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In the U.S., the issue has received a lot of attention following a series of highprofile attacks by hacktivists against companies such as Sony. While hacktivists are often motivated for political reasons and seek publicity, other state-sponsored hackers work under the radar in search of valuable corporate information, including trade secrets, facts on bids and contracts, proprietary product design details and information relating to things such as social security numbers and bank account numbers of customers and employees. In Canada, hackers using China-based servers broke into the computer systems at the federal Department of Finance and the Treasury Board of Canada in 2011. Some of Canada’s biggest companies, including PotashCorp and Nortel Networks Corp., also have been targeted by hackers. In the case of the Potash cyber breach, as the company fought a hostile takeover attempt by Australian mining

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giant BHP Billiton, hackers were attacking the computers of law firms representing both companies. Poor security against cyber attacks “is increasingly recognized as impacting not just national security, but also public safety and economic prosperity through growing cyber crime and loss of intellectual property,” notes an Au-

gust 2011 memo from William Baker, deputy minister of public safety, to Public Safety Minister Vic Toews. Business leaders are constantly challenged to identify the key risks facing their companies and to successfully manage them. In Canada today, the top risks facing business leaders include securities class actions, government oversight and the threat of cyber attacks. These risks have the potential to have an impact on a wide number of Canadian businesses and lead to significant losses, including a directors and officers liability lawsuit that could prove costly. Business leaders with an understanding of the risks will be in a better position to take steps to avoid a loss. Beyond risk mitigation measures, businesses can turn to insurance to help them offset any losses should they occur. The shifting risk landscape brings with it new risks, but businesses that are prepared and informed can manage those risks and avoid potentially damaging losses.

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Coonstant C mpanion Paul Taylor

Vice President Independent Broker Resources Inc.

A new mobile application was recently unveiled in a bid to help Ontario brokers serve their customers more efficiently while also providing a vehicle by which to build their own brand. Independent Broker Resources Inc. (IBRI), which is wholly owned by Insurance Brokers Association of Ontario (IBAO), has recently launched the “Insurance Companion,” a mobile application for insurance brokers. In collaboration with Waxworks Creative Inc., the mobile app is designed to appear to the endconsumer as though the insurance brokerage created the application itself. If a brokerage purchases the app, it is branded with the brokerage’s logos and colour schemes, includes all pertinent contact information of a specific location and, if the brokerage has mul-

64 Canadian Underwriter October 2012

tiple branches, allows clients to select the contact details for their branch of choice. The business address, contact numbers and email addresses used are specified by the brokerage on a branchby-branch basis. What functionality does the app provide to brokers and, in turn, their customers? The app’s primary function is to offer the consumer quick and easy access to the brokerage by phone or email, as well as to provide the ability to create accident reports or simple first notice of loss reports on their phone. The application contains a question set template that follows the traditional accident details wallet card. Beyond capturing the traditional driver and vehicle information electronically, the reports can also collect photos and the GPS location of the reporter.They can include pictures of vehicle damage, drivers’ licences and liability cards, making the reports detailed and quick to capture. Once complete, the reports are sent via email to an address specified by the brokerage.

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BODY SHOP BUILDING Prior to the app being launched, an offer was extended to insurance companies to provide IBRI with their lists of preferred auto body shops. IBRI continues to add to the list of insurers who have provided auto body shop names, although lists have already been received from the majority of insurers. The mobile application can use this information, coupled with the GPS location provided by the mobile device, to direct the consumer to the nearest insurer-approved auto body shop to expedite any repairs. Providing immediate access to information at the point of need can help mitigate claims costs. In addition to auto body shops, the same functionality directs users to the nearest collision reporting centre, or local police service where no reporting centres exists. Work continues with broker associations across the country to make the mobile app available nationally.

SPEAK EASY Why has the application been built the way it has been? First, the mobile phone has become the average consumer’s primary means of communicating. Through phone, email, text and internet browsing, the phone is now a connection to the world, and the many apps available make the internet and social and professional networks available to the consumer in the manner they want. For the broker, having a presence on customers’ phones is a continuing reminder that they have chosen you as their insurance provider of choice, offering a tremendous opportunity to reinforce the broker’s branding. For the consumer, it is an easy and simple way to contact his or her broker for all insurance needs. Second, IBRI wanted to introduce an application into the market quickly, and to signal to insurance companies our interest in working with them to make the application beneficial to them. Although some insurers have already built their own applications, which offer

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some beneficial functionality for broker customers, IBRI’s belief is that space is best controlled by the brokerage. With an insurer-built application, the brokerage could potentially lose control of its messaging to its customers. It may also be very difficult to manage and track numerous company applications as consumer needs change. Perhaps most important is that if brokerages are promoting multiple insurance company applications, they are losing a valuable branding opportunity themselves. The relationship between the broker and the customer is strengthened when the mobile application offered reinforces their own brand.

Perhaps most important is that if brokerages are promoting multiple insurance company applications, they are losing a valuable branding opportunity themselves. The relationship between the broker and the customer is strengthened when the mobile application offered reinforces the broker’s own brand. CHANGING EXPECTATIONS The last reason speaks more to today’s business environment: Consumer expectations have changed. In an increasingly connected world, there is little doubt that consumers expect more from the businesses that provide the products and services they purchase.The companies that are focusing their businesses on the overall consumer experience are winning customers’ loyalties. In step with continuing to increase their service levels and accessibility, companies are continually upping consumer expectations of what “good” customer service is. IBAO is acutely aware of this trend. The association has been conducting consumer surveys for a number of years

and is watching consumers’ trending expectations for more and better access to products and services on their terms. The association has focused tremendous effort on educating its membership of insurance brokerages on these trends over the last three to four years. For brokers, it is important to remember that consumers are not comparing the service provided by your office with that of another broker.The consumer is likely dealing with only one broker and, as such, does not have that available comparison. Today, all service providers are judged equally by consumers. Brokers need to compare their own service provision against the best service that they recall receiving from another business, regardless of what that product or service actually was. How does the Insurance Companion fit into this? It is an additional means by which the consumer can choose to communicate with his or her broker. In the event that a consumer needs help, there is a sense of reassurance since that assistance is only an email away. That same help will be there if the consumer requires coverage information. The application offers consumers that additional touch point. Last, it is a reinforcement of the broker’s brand, displaying a continuous presence that is available on demand, as needed. For that segment of consumers who want to communicate in this way, they should have the opportunity to do so. The mobile app initiative is still in the early stages. IBRI will continue to develop the application, expand its functionality for brokers and their customers, and collaborate with insurers to offer services that are company-specific through the broker’s application. The Guarantee Company has already worked with IBRI to provide additional options for brokers and claims service efficiencies. More are expected to follow, hopefully making the application the best choice for brokers, their customers and their insurers now and into the future.

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eVolution

eDoc Having a firm grasp on the what, why and how when it comes to electronic document (eDoc) download can help to guide brokers toward enhanced efficiency. Patrick Durepos President Keal Technology

Single Entry Multiple Company Interface (SEMCI) and, more recently, eDoc download are quickly evolving technologies that hold promise for the independent broker distribution channel. But the ever-changing technology has left most Canadian brokers with more questions than answers. While eDoc offers many opportunities for a brokerâ&#x20AC;&#x2122;s environment, a solid understanding of the what, why and how is essential to fully exploit this tool. So what exactly is eDoc? The industry has had access to the standard CSIOnet batch download, developed by the Centre for Study of Insurance Operations (CSIO), since 1998. It is used by the

68 Canadian Underwriter October 2012

majority of Canadian brokers to process hundreds of thousands of transactions each and every day. The eDoc initiative is a piggyback process to electronic data interchange (EDI), as we know it today. It involves using the same CSIOnet pipe to send electronic documents to the broker either at the same time as the policy data using AL3, or afterward with a linked document using XML. These eDocs are attached to the appropriate policy/client in the broker management system (BMS) and/or document management system (DMS). Key to making the process work effectively, though, is to fully automate. There is recognition in the industry that SEMCI plays an important role in fostering brokerage efficiency. Clearly, brokers need access to all document copies between the insurer and the insured for efficient support, as well as for errors and omissions reasons. In past, the prevailing view may have been that documents located only at their original place and accessible only when needed was the most economical and most log-

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ical approach.That is no longer the case. Over the last few decades, SEMCI was the subject of different analyses and trials by several different parties. Recently, though, the Insurance Brokers Association of Canada (IBAC) and its member provincial associations have adopted guiding principles that led to CSIO establishing and creating an XML standard for SEMCI transactions. Intact Insurance and RSA have already announced the delivery of this enhancement for their brokers. “There have been many eDoc initiatives in the industry over the last few years, including our own. While these initiatives have provided significant value to brokers, the CSIO approach brings our industry to a completely new level; combined with existing eDoc tools, brokers will have the flexibility to design workflows that are the most appropriate for their

The CSIO approach brings our industry to a completely new level; combined with existing eDoc tools, brokers will have the flexibility to design workflows that are the most appropriate for their operations and their customers.

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brokers deliver better customer service.” It is no surprise that many other insurers are following and making eDoc a priority this year. As a BMS vendor, Keal is committed to doing its part to ensure that broker’s technology keeps pace with new processes. Interest noted and projects requested to date suggest this process is on its way to becoming the standard for broker access to all documents prepared for insureds by insurers.

SURVEY SAYS… In a recent survey of Keal brokers, more than 90% of respondents said they will download or make use of this functionality; 80% reported they will download all available insurer documents. Critical to making this work effectively is to organize processes so there is as little disk space implication as possible. So how does it all work? At Keal, the process for brokers is both automated

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If not managed properly, over time storage of documents in the database will affect the performance of the BMS and become another challenge. To avert these issues, the use of an integrated DMS, which compresses the files and provides simultaneous back-up procedures, is recommended.

and customized so that suspenses or abeyances are created automatically for review by customer service representatives, technical service representatives or others, as required. The available documents range from policy dec pages, loss notices, company memos, information on direct bill electronic fund transfers, endorsements and the list goes on. Additionally, brokers have the choice to download all available insurer documents or only those selected, based on insurer options. Consider the following example: a broker may want to review all loss notices for quality or service requirements, but may not want to see any electronic payment information details. This is possible since all documents are saved in the BMS or DMS for either immediate or future review — when and if either is required. In this case, the loss notices would get attached to the policy/client via the creation of an activity.The notices would then be automatically stored in the BMS or DMS for disk space and efficiency reasons, all while maintaining a link to the policy/client record. To validate the effectiveness of the eDoc process, Keal conducted an analysis with one broker this past July. Over a three-week period, all incoming insurance company documents from one specific insurer were examined. The review determined that more than

70 Canadian Underwriter October 2012

3,700 documents from one specific company had been received by mail and scanned into the company’s sigXP and dokXP system. Of these documents, 89% could fit with the new eDoc download initiative, resulting in that specific broker becoming a pilot broker for the eDoc project. The option offers a bit of green and a step toward going green — by avoiding costs associated with printing, assembling and shipping documents, and by reducing broker time spent on opening mail and scanning documents.

SPACE MATTERS Disk space is an important part of the equation and must be carefully considered.With different insurers using their technology in different ways, it is still too early to pin down a formula that can accurately define the requirements of disk space and its impact on brokers’ technical environments. A broker pilot project carried out in May 2012 revealed documents as small as 300 kilobyte (KB) and as large as 1.2 megabytes (MB). When downloading 1,700 documents, the total space requirement was 2.3 gigabytes (GB). While it took 2.25 hours to download without any impact on brokers, it took just 10 minutes to automatically process and attach the documents in the BMS. The pilot makes clear that eDoc enhancement can have an enormous im-

pact to disk space requirements. The good news is that disk space costs are falling; the not-so-good news is that the size of data storage is increasing exponentially. This presents many challenges, including that the larger the data, the greater the disk space requirement.This, in turn, translates to greater time required to do back-ups, which impedes system availability. If not managed properly, over time storage of documents in the database will affect the performance of the BMS and become another challenge.To avert these issues, the use of an integrated DMS, which compresses the files and provides simultaneous back-up procedures, is recommended. A stand-alone DMS will require brokers’ processors to touch all documents. Just imagine the potential for errors and lost time. So where does all of this leave the broker? IBAC and its member provincial associations are to be commended for leading the initiative and CSIO for its support and standards development. It is now up to each and every broker to start planning so they are prepared for any impact this will have on their technological environments. Never has it been a more opportunistic time to embark on proper document process, go paperless and use an integrated DMS. If not yet there, it may be time to dive in and discover what benefits are available.

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The CIP Society Ethic Series

The CIP Society Insurance Institute of Canada

The CIP Society represents more than 16,0000 graduates of the Insurance Institute of Canadaâ&#x20AC;&#x2122;s Fellow Chartered Insurance Professional (FCIP) and Chartered Insurance Professional (CIP) Programs.The CIP Society, through articles such as this, is working to bring ethical issues to the forefront and provide learning opportunities that enhance the professional ethics of all insurance professionals.

As with all businesses, people move on to new jobs and new employers. But who is the rightful owner of the client list of a producer, having built an impressive book of business over two decades, when he or she heads out the door? More than 20 years ago, an energetic university graduate began work as a producer in a small insurance brokerage office. At the time, he signed a contract containing non-compete and nonsolicit clauses, which he assumed were standard fare for the industry. In time, the producer proved to be a key contributor to the brokerageâ&#x20AC;&#x2122;s team and a valuable asset to the owner, growing an impressive book of business.

72 Canadian Underwriter October 2012

Over the years, the brokerage was bought and sold a number of times. Although the original documents were not typically referenced and the business ran quite harmoniously, things were about to change. The brokerage went up for sale yet again, and a willing buyer was not difficult to find. A business valuation was made based on the consistency of the revenue stream that occurred and, in turn, a sale of the business to an outside party was completed. But not everyone at the brokerage was pleased with the news, particularly the energetic producer. Armed with prior knowledge of the new ownerâ&#x20AC;&#x2122;s reputation as being someone who was difficult to work for, the producer handed in his resignation and notified his clients where he would be working in the future. Having done a bit of pre-planning, he downloaded the details of his client base, copied the files and departed. The new owner was furious and the discussions began. The producer felt the client list was his property; the former owner indicated there was

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always an understanding that the clients belonged to the brokerage, yet at the same time felt it was incumbent upon the brokerage purchaser to do his due diligence; and the new owner suggested the price tag for the business was based on the brokerage owning the clients, pointing to the original 20-year-old documents signed by the producer. The producer then argued the terms of the old contract were too aggressive and would not stand up in court. In the spirit of honourable business dealings, what remedies are available to the affected parties to resolve this disagreement amicably and ethically?

Nadine Austin, FCIP Senior Investigator, Complaints & Investigations Department Registered Insurance Brokers of Ontario This is a difficult scenario, perhaps because the ethical issues are more subtle and exist within a legal interpretation of the contracts and events. An ethical perspective, in this case, can draw on compassion, but by downloading and copying files, our producer is off to a bad start. The original contract was signed 20 years earlier. If the contract was between the company and the producer — and the company was still operating under the original name and in the absence 74 Canadian Underwriter October 2012

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of an updated contract — the original contract will still be in effect. The business had been bought and sold before and the producer never made any noise about owning the files that comprised what he referred to as “his book of business.” Clearly, the present owner believed the client list in to-

If the contract was between the company and the producer — and the company was still operating under the original name and in the absence of an updated contract — the original contract will still be in effect. tal represented his business and contributed to the value of the portfolio for the purposes of the sale and purchase agreements.The price tag is based on that fact. The producer does not “own” his files and has no right to “download the de-

tails of his client base or copy the files.” The policy documents issued by the insurers clearly indicate who the broker of record is, and in the absence of any other agreement that segregates the producer’s clients from the rest of the brokerage clients, this producer has no ownership. However, the new owner may quickly assess this producer will make an arrangement with another brokerage and actively pursue moving these clients’ policies to his new brokerage. If the new owner agrees to sell the producer the files that he has identified as being his client list and the two parties agree to a price, the business is free to travel with the producer. Both parties have an obligation to advise the clients of the transaction in writing. Whether a particular client stays with the brokerage or moves with the producer is up to the client. After a 20year relationship the producer may have had with some of the clients, the new owner may feel it is better to receive some remuneration and let the files go.

Eric Walker Partner Cookson Walker LLP This situation raises a number of important ethical conduct issues, including integrity, confidentiality and good faith.

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The producer acted dishonestly by taking business he should have known was not his, and potentially breached client confidentiality by downloading client information and files to another broker without the clients’ permission. The brokerage accepting the producer and the business is not acting in good faith towards another broker by condoning the actions of the producer. I have found this very situation in practice. My client was the broker looking to hire the producer with a book of business the producer did not own. With my assistance, she and the producer approached the broker of record and successfully purchased and moved the accounts in an orderly fashion, preserving and ensuring confidentiality was maintained, along with the quality of service to the clients.

Bradley Wells Partner Snowden LLP As between a brokerage and a producer, the “ownership” of clients can be difficult to determine. A court will first consider the express terms and conditions of the employment contract between the parties for assistance. However, even where the employment contract stipu-

The producer does have a non-competition clause in his employment contract, which gave the new owner at least some comfort that the producer’s book would remain. lates the producer’s book of business is “owned” by the brokerage, typically the issue to be determined (as in this example) is whether or not the producer is prohibited upon leaving the brokerage from competing with the brokerage or soliciting its clients. Here, the producer’s employment contract contains a non-competition clause, which, dependant on its terms, may or may not be enforceable. Setting

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aside the legal issue of enforceability, the ethics of this situation are not clear-cut. From the producer’s perspective, it is understandable that he feels at least some ownership of the book of business. He built the book over a 20-year period, he likely has very close ties with his long-term clients who refer to him the majority of his new business, and he likely has a legal opinion that his particular non-competition clause may be unenforceable. From the new owner’s perspective, the price paid for the business included the producer’s book of business. The new owner most likely did his or her due diligence and had the employment contracts reviewed by lawyers. The producer does have a non-competition clause in his employment contract, which gave the new owner at least some comfort that the producer’s book would remain. As indicated, ethically there is no clear-cut answer here as there are ethi-

cal and moral factors that favour both the producer and new owner. Whether the reader feels that the producer can ethically solicit “his” clients will largely depend on where the reader sits (as owner/management or producer). One solution to this issue is for the producer to buy the book of business from the new owner.While not ideal for either party — producer has to expend funds and likely negotiate a bank loan; new owner may be losing a large industry segment that was intended as a growth area — it is better than commencing legal proceedings.

Furthermore, by purchasing the business rather than “stealing” it (as it could be characterized), the producer has the opportunity to enhance his ethical reputation in the brokerage and insurance community.

LAST WORD When a producer decides to move a book of business from one firm to another, he or she should consider what effect it will have on all parties involved. In this case, the producer worked hard over 20 years to build an impressive book of business and felt the original

The best way for the producer to remedy the situation is to admit that the matter is not clear-cut and an acceptable solution must consider the interests of the clients, the old owner and the new owner. contract he signed was, in retrospect, too aggressive. However, the producer failed to consider everyone else’s interests when he downloaded and copied client files. After all, the insurance industry is a small pond and the producer has given his clients and both owners at least one reason not to trust him. The best way for the producer to remedy the situation is to admit that the matter is not clear-cut and that an acceptable solution must consider the interests of the clients, the old owner and the new owner. The solution should maximize benefits for all. Best practices suggest the way to avoid litigation is to get all parties to agree on a price for the business. Although it may not be easy to agree, an acceptable price can be reached that takes into account the effort of building the business, client wants, and the expectations of both the new and old owners. Through a fair sale of the business, everyone wins, especially the producer, whose professional image remains intact.

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Close to Home Homes built today are designed to withstand todayâ&#x20AC;&#x2122;s weather. But todayâ&#x20AC;&#x2122;s weather is changing and becoming more extreme, and that may not bode well for property damage in future.

Director Climate Change Adaptation Project

78 Canadian Underwriter October 2012

building sector. Meetings have been held in Toronto, Halifax, Montreal, Edmonton and Vancouver, revealing challenges that homebuilders face, but also a range of practical solutions.

CLIMATE CHANGE CONFUSION Homebuilders have a great deal of expertise in building homes designed to withstand local weather conditions. That said, translating the local or regional impacts of climate change into decision-useful data and practices that builders can employ to make homes more resilient represents a significant challenge. Information on the materials, installation and costs of building practices that are most effective at improving resiliency to climate change has yet to be developed or communicated to the industry in any comprehensive way.

NO MARKET FOR ADAPTATION Many homebuilders expressed concern that the added construction costs involved in adaptation represent a competitive disadvantage. Should they try to pass the cost onto the consumer, other builders could simply offer cheaper homes. This concern is, in part, generated by a lack of awareness among homeowners regarding the economic benefits of investing in adaptation. Most homeowners see climate change as a longterm concern and are predisposed towards investments in aesthetics, not resilient building design.

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Jason Thistlethwaite

Climate change creates a significant challenge for Canadian homebuilders because it is linked to an increase in damaging extreme weather. Indeed, in the last few decades, homeowners have experienced a significant increase in property damage associated with extreme weather. In 2011, for example, the Canadian property and casualty insurance industry paid out a record-breaking $1.7 billion in claims for property damage. Damage from wildfires in Slave Lake, Alberta, a tornado in Goderich, Ontario and flooding in Manitoba and Quebec serve as important reminders of this growing trend. Homes built today are expected to provide a safe haven from extreme weather for the next 50 years. But these homes are built to withstand todayâ&#x20AC;&#x2122;s climate conditions, rather than those expected as the climate changes. Climate change adaptation represents an important process that can help build homes resilient to climate change risks. For most homebuilders, however, climate change adaptation is a new concern. Indeed, most research on climate change within the housing sector focuses on improving energy efficiency to help mitigate the greenhouse gas emissions that cause climate change. To improve awareness, the Institute for Catastrophic Loss Reduction (ICLR), with support from Natural Resources Canada, facilitated a series of meetings with stakeholders in the Canadian home-

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Even if consumers were willing to invest in adaptation, builders expressed concern that they could be held liable for repairs associated with new building practices and that they did not have the capacity to train subcontractors on new design and building methods.

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the building code could establish a market for adaptation.This approach would level the playing field for all homebuilders, avoiding any one builder suffering a competitive disadvantage. The building code provides prescriptive guidance on different building practices based on weather “loads and values” that assume the past climate will be representative of the future. For the code to promote adaptation, future weather scenarios and climate loads

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80 Canadian Underwriter October 2012

would need to be incorporated. Experts at our meetings agreed that there is a great deal of uncertainty over how to integrate future weather conditions into the code.

THE PATH FORWARD Despite these challenges, stakeholders also identified a range of practical solutions that could help establish a market for adaptation through the building code. Dialogue among the building scientists, climate experts, the insurance industry and homebuilders represent a critical first step. Many of the most significant sources of risk for new homes identified by climate scientists (such as an increase in extreme wind events) and potential solutions developed by building scientists (such as the installation of high-wind straps) have not been discussed with builders. This is unfortunate because builders can offer important expertise on the costs, materials and training necessary to implement these resilient building practices. Homebuilders agreed that such dialogue could help facilitate a voluntary program that encourages builders to construct “demonstration homes” that test and integrate climate change adaptation into new home builds. The idea for this approach is based on the EnergyStar program that proved successful in spreading energy-efficiency building practices throughout the sector. In 2012, many of these energy-efficiency practices were incorporated into the Ontario Building Code. ICLR is currently working with the Ontario Home Builder’s Association, building scientists from the University of Western Ontario’s Insurance Lab for Better Homes, and the insurance sector to develop a set of building practices that can be tested through demonstration homes. This effort is designed to help build momentum around the use of adaptation in new home builds, and eventually in the building code. This work represents the first formal effort to integrate adaptation into new home builds so that they continue to provide a safe haven from extreme weather throughout their life span.

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C o u n t d o w n

in Real Time

Scott Andrew

President and CEO Custom Software Solutions Inc.

The Insurance Brokers Association of Canada’s (IBAC) automation data exchange initiative offers great promise to enhance broker connectivity. Its use, however, must be in line with clearly defined standards. Use of the innovation initiative known as IBAC Data Exchange has resulted in some marketing departments blurring the lines of the project’s principles and definitions. As such, it may be an opportune time for a refresher on the project. For those of us who wear the technology provider/partner hat and are vested in the broker distribution business, it is important to us that the right solution be identified.This will not only foster the viability of independent brokers, but also enhance their competitive advantage. IBAC has been working with industry partners, insurance companies, brokers and broker associations, and broker management system (BMS) software vendors to pin down an acceptable definition of what “real time” data exchange is and how “real time” can benefit the industry. BMS vendors in Canada have been part of efforts

82 Canadian Underwriter October 2012

to chart a path for its implementation from the onset, and IBAC has facilitated a spirit of great competitive co-operation. What has cropped up, however, is the use of “real time” to describe integration processes that may not meet standards established by the IBAC initiative, producing some confusion within the industry. It is critically important that all industry participants possess a clear understanding of “real time” so that support can be given to the proper initiatives and projects. IBAC literature generally defines “real time” as the ability to concurrently update a broker’s management system and an insurer’s system by exchanging standard, nonproprietary messages that are based on — and strictly adhere to — the CSIO (Centre for Study of Insurance Operations) XML language. The literature goes on to describe what the “real time” process is not and what it is, namely that the communication taking place between systems uses XML as the language of choice, and any need to modify the content of this communication should naturally occur on the side of the transmission where the translation is needed. In situations — particularly when an insurer’s system is not capable of receiving or sending data in real time, or if its system is not built using a more current software technology platform — an insurer’s system may need to translate and

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store the incoming request so it can be processed at a later time. When straight-through processing is not possible, a “real-time” response is limited to a simple acknowledgement of receipt. Similarly, workflows must avoid and do not require connection to, or a broker’s use of, an insurer’s web portal. Technologies such as bridging or traditional screen scraping have been developed and are used as a means to leverage an insurer’s web portal.

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START TO FINISH From a purely technical point of view, this approach will work. However, it is not ideal and can involve a much higher level of maintenance than solutions based on straight-through processing. There are several properties inherent in the latter approach that support improved electronic workflow between a BMS and an insurance company’s system. Collectively,these properties define what real time is and, just as important, what it is not.

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84 Canadian Underwriter October 2012

Consistent with the vision of a broker’s ideal electronic workflow, it is important that any and all transactions started within a BMS must also finish in the broker’s system. The interaction between a broker and a customer requires a certain amount of data to be captured when entered into the broker’s system. Once completed, it is the broker’s system that initiates and sends the required data to the insurer’s system in a fashion that is secure, transparent, does not require user intervention, and strictly adheres to the CSIO’s standards. A BMS is the originating system responsible for creating and sending the appropriate XML message for transmission to an insurer’s system. All too often, insurer systems have requested BMSs to send data in formats specific to them, which promotes inefficiencies in the workflow process by creating one-toone relationships between each BMS and each insurer system. Standardizing the method and content of the communication between systems promotes efficiencies and allows for the greater possibility of true realtime communication between these systems.The most ideal scenario would be one in which a BMS can transparently and electronically communicate with an insurer’s system — and uses CSIO XML as the language to do so. This activity is performed as a function that is within and completely native to the BMS. The broker’s and the insurer’s systems will reflect the current status of the customer’s policy within seconds of that being updated from within the broker’s own BMS. Today, there are many variations to this ideal scenario presented as being in “real time” when, in fact, they are not. Terminal or web-based screen-scraping tools, store-and-forward methods, batch systems and software-bridging techniques are among the common methods that may be disguised or marketed as real time. However, none of the aforementioned options comply with the standard, nonproprietary, straight-through, electronic message-based model illustrated earlier.

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By IBAC’s own definition, it is clear that real-time policy change from within a BMS cannot be accomplished by using a web interface (portal) or middleware. Many existing company portals or middleware-provisioned services portals are being rebranded by simply not calling them what they are — portals. Portals that collect or change broker data after the BMS produces different data in both the broker and company systems. Some insurance companies and middleware providers are still trying to preserve this technology solution. However, it is not difficult to identify the middleware solutions that diverge from the initiative. This involves being presented with data collection screens that are not generated by your BMS provider. Divergence can further be confirmed if the resultant data collected in these interfaces is not retained in the BMS.

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The most ideal scenario would be one in which a BMS can transparently and electronically communicate with an insurer’s system — and uses CSIO XML as the language to do so. To concurrently update the broker and company systems with all data, one needs to start and end in the BMS. One cannot take a detour to some form of middleware (portal) and collect additional data for the company system without having a method to update the BMS. IBAC has a number of companies committed to the Data Exchange project, with the goal being to start and end in the BMS, in real time, concurrently updating broker and company data.The foundation of this initiative is sound

and with the involvement of BMS vendors from the beginning, that positive start can now move on to efforts to attract more insurer business partners until all are part of the initiative.

INDUSTRY-WIDE ADOPTION This previously elusive objective now appears to be within reach. Brokers can do their part to help get there by using their considerable influence with carrier companies to garner support for the data exchange project as defined by IBAC, as well as encourage support for BMS vendors with a view to achieving industrywide adoption. BMS vendors, for their parts, will continue to compete on service and features beyond the ability to universally exchange data.This will undoubtedly lead to more research and development dollars being funnelled into the customer facing features — precisely where it needs to be.

Do you trust your neighbour to restore your property? You should. Because when the going gets tough, it’s your neighbors who will be there first to help.

Across the street, across the country.

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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

PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com

GRAPHIC COMMUNICATIONS Quelmec Loss Adjusters Identifying, Investigating, Resolving... for over a quarter century! www.quelmec.ca

Cameron & Associates Insurance Consultants Ltd. Insurance & Risk Management Consultants. 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

DAMAGE COST CONSULTANTS SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca

EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination. www.i-hire.ca

Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com

ENGINEERING SERVICES

McLarens Canada International Loss Adjusters and Surveyors. www.mclarens.ca

Canadian Underwriter October 2012

Informco Inc. Integrated Graphic Communications Specialists. www.informco.com

INSURANCE SOFTWARE APPLICATIONS Kanetix Ltd. - SAAS Division We provide corporate clients with fast & reliable insurance quoting systems, web services, web systems and hosting. www.kanetix.ca/about_dev_services

INSURANCE COMPANIES CONSULTING FIRMS

CRU Adjusters Calm in the face of a storm. www.cruadjusters.com

Kernaghan Adjusters Doing What Is Right®. www.kernaghan.com

complex engineering incidents. www.waltersforensic.com

Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com Walters Forensic Engineering Inc. Providing scientific answers to

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 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 The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com

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

Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management. www.thearcgroup.ca

INSURANCE LAW

SPECIALTY INSURANCE

The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca

William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

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Commercial Lines

Opinion/Analysis

Prove Commercial

Commercial lines are looking more attractive in an environment of lower investment returns, merging of some commercial brands and results that reflect profitability and growth Clinton Dâ&#x20AC;&#x2122;Souza for carriers. Senior Consultant Business Development

It has long been a reality that, in the context of efficiencies and operations, commercial lines have been regarded as a poor stepchild compared to personal lines. Carriers have been unable to capitalize on efficiencies of their commercial operations as effectively as with personal lines. In large part, the argument has been that the discrepancy is due to cost or because there has not been a strong demand. But as the Bob Dylan song goes, â&#x20AC;&#x153;The times they are a changing.â&#x20AC;? Current market conditions indicate a stabilized commercial lines market and a slow hardening of the market as has been demonstrated in a recent Towers Watson market survey. Lower investment returns, coupled with recent acquisi-

tions of JEVCO Insurance Company by Intact Insurance and GCAN Insurance Company by RSA Canada, have shown a focus on the commercial lines business in Canada.The merging of various Northbridge Insurance commercial brands has also provided a focused approach on the commercial space. Insurance carriers are holding the line in terms of sound risk assessment, underwriting discipline and cost-based pricing. As the commercial lines numbers reflect profitability and growth for carriers, so are the investments that carriers are starting to make in risk solutions advancements in commercial lines operations.

BIG NOISE ABOUT BIG DATA One such advancement helping commercial lines underwriters is being able to utilize big data in the risk management space. Big data can be characterized as a collection of data so large and complex that it becomes difficult to process and be relevant to the end-user. The increasing volume and detail of information captured by enterprises, and the rise of multimedia, social media and the internet has fuelled growth in information data. This growth in in-

October 2012 Canadian Underwriter 87

CU Seminar ad October 2012_Layout 1 12-09-17 11:05 AM Page 1

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 PROedge Seminars: Hamilton – Solar Power Risks: A Panel Forum . . . . . . . . . . . . . . . October 30 Vancouver – Fraud in the 21st Century: New Twists & Trends . . . October 30 Toronto – Equipment Breakdown Insurance . . . . . . . . . . . . . . . November 14 Vancouver – Organized Crime & Insurance . . . . . . . . . . . . . . . . November 15 Hamilton – Equipment Breakdown Insurance . . . . . . . . . . . . . November 20 Events: Toronto – CIP Society Wine & Cheese . . . . . . . . . . . . . . . . . . . . . November 6 London – Annual Speakers’ Breakfast . . . . . . . . . . . . . . . . . . . . November 21 London – CIP Society Annual Olympics at Palasad . . . . . . . . . November 22

CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country: PEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 30 Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 1 New Brunswick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2 Newfoundland and Labrador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 3 IIO – Cambrian Shield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 13 IIO – Southwestern Ontario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 15 IIO – Ottawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 16 Northern Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 20

Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety

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The increasing volume and detail of information captured by enterprises, and the rise of multimedia, social media and the internet has fuelled growth in information data. This growth in information has a major impact on commercial lines from the perspective of how it is underwritten today and how it will be underwritten in the future.

formation has a major impact on commercial lines from the perspective of how it is underwritten today and how it will be underwritten in the future. For commercial lines, a typical underwriter on a given risk would review data such as credit reports, previous claims, environmental reports, inspections, previous legal judgments, contractual liabilities, revenue figures and exposures, among other things. One of the key parts of commercial lines underwriting is to be able to obtain and review all of the information regarding a business. In commercial insurance the underwriter is asked to access both the subject and the object of insurance. For example, the challenge in commercial liability insurance is to access potential suits that may not have happened yet, but need to be part of underwriting and rating. A possible suit in liability has more impact on a risk than one that has already taken place. For a liability underwriter, there is a constant need to get all the information about the risk at the time of the submissions and throughout the policy term. The challenge is what is relevant and from where is the information accessed. In some cases, it could be from internal company information, such as a previ-

ous claim, or in other cases information could be from the business itself, or information on a business could come from what is on the net. Big data offers a solution by capturing, storing and analyzing, as well as visualization of, the data. For a commercial lines underwriter, gathering all the relevant information about the risk in one snapshot shot and not having to go to multiple data sources is a key efficiency and effective loss control method.

GETTING PERSONAL Another advancement in the commercial lines space has been recent developments on inland marine theft. Rightly or wrongly, the spotlight in large part by the Insurance Bureau of Canada (IBC) has been on personal lines automobile theft. As automobile is the largest line of business for the majority of the Canadian insurance market, the emphasis has been on this line of business. The problem with the industry focusing all efforts on automobile theft, a byproduct of which is auto fraud, is that as an industry, we tend to forget that insurance is made up of a number other lines of business. The specialty commercial lines of business, such as inland marine, commercial fleet and others, all have the same potential for

acts of theft and fraud as personal lines automobile. As an industry, we need to think much more broadly about managing risk for these other lines of business. Commercial lines carriers are beginning to adopt a similar approach as their personal lines counterparts in information-sharing and gathering to fight inland marine theft. One can only hope that the industry as a whole starts to also put equal effort into commercial lines fraud. As one claims adjuster has told me, no one has ever done a comprehensive study on commercial lines fraud. Yes, the times are changing and there has been advancements made in commercial lines from an efficiency and operations perspective. But there needs to be more advancements made. These do not have to be complex. It could be as simple as being able to do more uploads of specialty commercial lines business using a common standard. It could be taking a fleet schedule and being able to convert the data so that the carrier and broker do not need to re-enter the data twice into their own systems. Commercial lines may have been the stepchild that is now becoming part of the family and feeling wanted. Still, these lines need to be shown a bit more love. October 2012 Canadian Underwriter 89

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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

Alister Campbell [1] assumed his duties as CEO of The Guarantee Company of North America, effective September 4, 2012. Over the past 27 years, Campbell has held senior executive positions in a range of capacities within the life and property and casualty insurance industries. These include general management, marketing, brokerage distribution strategy, financial services and e-commerce, notes a company statement. Campbell holds degrees from the University of Toronto, the London School of Economics and the Wharton Graduate School of Business. He is a past chair of the Board of Directors of the Property & Casualty Insurance Compensation Corporation and deputy chair of the board of the Insurance Bureau of Canada, as well as a current member of the Board of Directors for the Global Risk Institute. As CEO, he will lead The Guarantee’s continued growth, overall strategy and operations.

Omega Insurance Holdings Inc. has named Matthew Cook as president of the group, including both subsidiary companies, Omega General Insurance Company and Focus Group Inc. Prior to his new role, Cook was the group’s chief financial officer and company secretary. “Under his financial

90 Canadian Underwriter October 2012

oversight we have validated our initial business plan, and we look forward to Matthew leading our team in his new role, as we continue to achieve our corporate objectives,” chairman David Atkins says in a statement. Philip Cook continues in his role as the group’s CEO, concentrating on assumption reinsurance transactions and specialty insurance products.

RSA has announced two new appointments to its senior leadership team in Canada to support the company’s growth strategy in Quebec and Atlantic Canada. Glen Bates [3], who joined the company in 1996, takes on duties as vice president in Quebec, as part of RSA’s acquisition of l’Union Canadienne. Fully bilingual, Bates will be responsible for leading RSA’s integration with l’Union Canadienne and for the company’s growth strategy in Quebec. He has held senior roles with RSA in several major cities across the country and is a former vice president in eastern Canada. Bates will be based in Montreal. Rosalind Staples-Simpson, RSA’s new vice president in Atlantic Canada, was previously director of commercial insurance. As part of her new duties, Staples-Simpson will oversee all sales, underwriting, operations, large commercial and specialty, commercial insur-

ance, personal insurance and Canadian Services Centre activities in the Atlantic region. The 12-year veteran of RSA will relocate to Halifax.

Kurt Johnston became the new vice president of sales and marketing for Granite Claims Solutions on August 1. Johnston most recently served as the company’s vice president of the marketing department. With years of experience in the technology field and businessto-business world, he brings an innovative, grassroots approach to the sales role, focusing on utilizing the wealth of talent throughout Granite Claims Solutions, notes a company statement. “Kurt will be instrumental in consolidat-

ing and growing our marketing and sales initiatives across the country,” says president and CEO Michael Holden. “As we continue to expand, which we will, Granite will remain aligned with our clients’ focus and expectations.”

Burns & Wilcox Canada has expanded its team to include Mei Han [5a] and Nicole Abraham [5b]. Han, who has more than seven years of experience as a broker and underwriter with expertise in personal and commercial coverages, will take on tasks as a commercial insurance underwriter. She previously worked at Aviva Canada, AIG China and Beijing New World Insurance. Abraham, the company’s new

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MOVES & VIEWS

5a national sales and marketing manager, brings more than 12 years of industry experience, including expertise in business development and broker management, to her new role. She joined the company after 10 years at Unica Insurance Company, and has worked at RSA Insurance in both the Toronto and Dubai offices. “Both Mei and Nicole will be instrumental in enhancing our service to Canadian brokers as we grow our business,” says Gary Hirst, executive director of Burns & Wilcox Canada.

Crawford & Company (Canada) Inc. recently named Nancy Toso as the new branch manager for the company’s office in Calgary. With Crawford since 2006, Toso has held positions as a casualty specialist, a general adjuster with the Global Technical Services division and branch supervisor of the Calgary office. She has previous experience in a management role with a large carrier and has held positions in the risk management com-

5b munity and brokerage business. “Nancy brings extensive knowledge of all facets of the insurance industry and her keen enthusiasm for our business to her new position,” says Walter Waugh, Crawford’s vice president of operations for Western Canada. In her new role, Toso will report to Waugh.

Kevin Skauge [7] is the new district regional manager, Saskatoon for FirstOnSite Restoration. With more than 20 years of international business experience, Skauge is now responsible for overall sales, operations and financial performance of the business in Saskatoon, as well as for providing leadership to the more than 50 local company employees. Skauge was born in Alberta, but spent the last 25 years in Australia, notes a statement from FirstOnSite, an independent emergency restoration company serving the residential, commercial and industrial sectors. While in Australia, Skauge’s position included

7 CEO of the Australian Institute of Building Surveyors and trade commissioner to the Canadian Consulate General in Sydney. “Kevin’s strong background in sales, marketing, and general management are a great complement to the operational strength of the local organization,” says Doug Irwin, senior vice president and managing director, Western Canada for FirstOnSite.

Terry Holowaty [8] was recently appointed as CARSTAR’s new quality systems specialist for Western Canada. Holowaty will work directly with franchise partners in British Columbia, Alberta, Saskatchewan and Manitoba to help them better understand and implement CARSTAR’s Quality Systems (CQS) best practices in the technical, estimating and production aspects of their operations. He will work to support the needs of insurance partners in these regions by ensuring their customers’ vehicles are repaired correctly and in a timely manner. A

journeyman autobody technician, Holowaty has more than 25 years in the collision repair industry and previously operated his own Independent auto damage appraiser company. “Terry’s experience and expertise in effective production, technical logistics and estimating practices will be invaluable to our current and future CARSTAR partners in the Western provinces,” says Lloyd Wheeler, the company’s regional director for Western Canada.

The Centre for Study of Insurance Operations (CSIO) has announced the appointment of Hans Gantzkow [9] to the position of senior architect and analyst in the CSIO’s Montreal office. Hans has more than 17 years of experience in various progressive roles at Accenture and Canada Health Infoway. Gantzkow’s previous experience includes building strong relationships with project teams and working in the deployment of large-scale, enterprise-wide solutions, including design, development, testing and operations. In his new role at the centre, he will be responsible for assisting in the development of CSIO XML standards and other technical and process improvement initiatives. Follow @CdnUnderwriter on

http://twitter.com/CdnUnderwriter

October 2012 Canadian Underwriter 91

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

The Association of Certified Fraud Examiners (Toronto Chapter) and the Canadian Association of Special Investigations Units (Trillium Chapter) held the Annual Fraud Forum on Sept 20. The event held at Le Parc Conference Centre in Thornhill, Ont. featured a mix of both general and insurance fraud seminars in addition to a tradeshow.

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92 Canadian Underwriter October 2012

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GALLERY

Aviva Canada has opened up the Aviva Community Fund competition for the fourth year, where Canadians can have a chance to win $1 million toward a project that will help to benefit their community. Canadians can visit AvivaCommunityFund.org and submit ideas they think will have a positive impact on their local community. Entrants can then rally support from their community to potentially have a share of the $1 million Aviva Community Fund. Aviva held an Aviva Community

Fund broker launch event in Toronto (BierMarkt @ Shops at Don Mills) on Sept. 24. Brokers were invited to celebrate the launch of the fourth year of the competition in a fun and social setting. Similar events were held across the country, and previous winners were invited to share their stories of success and encourage brokers to get involved. The Aviva Community Fund began in 2009 and has since provided funding to a total of 31 charities and community groups.

“Thanks for coming Winmar guy”. “The smell, the spots, the mould, and when you’re finished with the dog, can you take care of the walls too?”

CAPTION CONTEST Congratulations to our winner:

Nancy Valeri AM Fredericks

Thank you for all of your submissions. Watch for next issue’s contest Debby Matz

Winmar Property Restoration Specialists with over 60 locations across Canada www.winmar.ca

24 HOUR ASSIGNMENT/EMERGENCY RESPONSE • TOLL FREE 1-866-4-WINMAR (494-6627) October 2012 Canadian Underwriter

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GALLERY

The Insurance Brokers Association of Canada (IBAC) held its 91st Annual General Meeting at the Queenâ&#x20AC;&#x2122;s Landing Hotel in picturesque and historic Niagara-on-the-Lake in Ontario on Sept. 20-22. Stephen Halsall assumed the reins as IBAC president, succeeding Dale Rempel. Halsall emphasized the need for succession planning to ensure the health of the broker channel. Past executive members were honoured, guests took part in social activities and everyone was treated to a performance by The Waiters at the gala.

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

Jody L. McMillan, CIP CAIW President 2012 – 2013 The Canadian Association of Insurance Women (CAIW) would like to announce the appointment of Jody L. McMillan, CIP as President for the 2012 – 2013 term. Jody has recently joined the RSA Team in Ontario as part of the National Subrogation Unit, Subrogation Adjuster. Jody is a Past President of her local association, the Hamilton District Insurance Association, where she has been an active member since 1999. She has served on CAIW’s Board of Directors since 2004 and on the CAIW Executive Board since 2009. Jody is also a member of the Insurance Institute of Canada and teaches dance in her spare time. CAIW is made up of 10 associations from across Canada and provides excellent opportunities for their members to better themselves both professionally and personally. Members are provided the opportunities to network and participate in continuing education opportunities. CAIW members also volunteer their time to put on various fundraising events for local and national charities in their respective areas.

www.caiw-acfa.com October 2012 Canadian Underwriter

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The ARC Group Canada held its 2012 Annual Seminar & Cocktail Reception at the St. Andrews Club & Conference Centre in Toronto on Sept. 27. Individuals from ARC Group member law firms played their respective roles during a mock trial, based on the Rothwell v. Zenith case, that offered a “real-life” view of insurers’ exposure to bad faith claims. The trial was presided over by the Hon. Justice Colin Campbell of the Superior Court of Ontario. Attendees had the chance to network and discuss the activities of the day at a cocktail reception after the event.

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Your Breaking Insurance News Source... .ca Sign-up to receive Canadian Underwriter’s FREE Insurance Headline News Email Alert: http://bit.ly/cuenews

follow us on twitter: http://twitter.com/CdnUnderwriter • Headlines • News Stories • Magazine • Archives • Insurance Marketer • Careers • Events • Photos October 2012 Canadian Underwriter 97

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Friends, colleagues and guests recently gathered in downtown Toronto to help Dutton Brock, one of Canadaâ&#x20AC;&#x2122;s top insurance defence law boutiques, celebrate more than three decades of legal excellence. Held at One King West Hotel, one and all gathered together to celebrate the shared success by enjoying an evening of wine, food, song and good conversation.

98 Canadian Underwriter October 2012

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Reduce system maintenance and administration. Have more time to service your customers. Meet customer service goals by increasing your productivity and efficiency with Applied Systems cloud-based brokerage management systems and Compu-Quote rating services, hosted in its new Canadian data centre. To learn more about Applied Systems cloud-based solutions call 800-387-2028 or visit www.appliedsystems.ca

A Full Line of Products to Help Grow Your Business As one of the largest property and casualty insurers in Canada, Wawanesa Insurance has the breadth of products to meet your customers’ diverse and ever-changing needs. With our outstanding claims service, policyholders become customers for life.

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