Canadian Underwriter December 2013 by Annex Business Media

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Real Puzzler

2014 PRIMARY INSURANCE MARKET OUTLOOK

Cyberbullying Suits BY CAROL B. KREILING

Digital Age BY DOUG MCPHIE

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VOL. 80, NO. 12, DECEMBER 2013 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

2014 Primary Insurance Market Outlook Things are changing for property and casualty insurers in Canada. Issues — some old; some new — are now demanding insurance companies consider and align each piece of the puzzle to achieve the desired solution. Preparing for a mix of everything from the best to the worst may be the most reliable approach for the interesting times ahead.

28 FEATURES

Cyberbullying

Municipal Risk Assessment Tool

Nova Scotia now has legislation that allows a victim to sue a cyberbully in court. Would a homeowners’ policy provide coverage to parents sued for their child’s cyberbullying?

Three municipalities will test MRAT, an aid meant to help stem the flow of sewer back-up claims by helping cities identify sewer and storm water vulnerabilities.

BY CAROL B. KREILING

BY ANGELA STELMAKOWICH

16 Innovation Survey

50 Digital Response

PwC research shows that while the vast majority of financial services leaders see innovation as a key driver of success, Canadian financial institutions struggle with innovation and lag their global counterparts.

For insurers these days, getting the business strategy right means also getting the digital piece right. But almost half of surveyed companies say they have no single cohesive digital strategy business case.

BY KAREN FORWARD & ALLAN BUITENDAG

BY DOUG MCPHIE

22 Rail Insurance

58 Independent Adjusting Supply Chain

The Canadian Transportation Agency has issued a discussion paper on liability insurance requirements for federally regulated railway operators. Should requirements be revised to establish minimum coverage requirements? BY GREG MECKBACH

Food/Beverage Contamination

Privacy Breaches

Discussions today about supply chain management risk issues are reflective of what insurers have been doing over the last 25 years with one of their own critical supply chain links: independent adjusting. BY FRED PLANT

26 Political Risk Insurance

With food and beverage recalls rapidly becoming a common occurrence, what are the risks (and costs) associated with a contamination event?

There are many risks and costs that could be triggered by a privacy breach. Businesses managing personal information must ensure privacy-compliant business practices are in place.

Companies looking to have operations in either developing or developed countries should understand all risks of doing so. Political risk insurance may offer a solution, although it has imitations.

BY NICKY ALEXANDRU

BY ÉLOÏSE GRATTON

BY ANTON TCHAJKOV

December 2013 Canadian Underwriter

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VOL. 80, NO. 12, DECEMBER 2013

Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793

PROFILE

Photo: Bud Moore

Associate Editor Greg Meckbach gmeckbach@canadianunderwriter.ca Twitter: @CU_Greg (416) 510-6796

10 Transformative Time The recent floods in southern Alberta gave Janet Stein a whole new perspective on risk. That transformative time is something the recipient of the Donald M. Stuart Award, the countryâ&#x20AC;&#x2122;s highest honour in risk management, will always remember moving forward. BY ANGELA STELMAKOWICH

SPECIAL FOCUS

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

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Account Manager Elliot Ford eford@canadianunderwriter.ca (416) 510-5117

Editorial Connect with Canadian Underwriter

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62 Moves & Views

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2014 Symposium 10th Anniversary

Thursday, April 10, 2014 Toronto Board of Trade First Canadian Place, Toronto

BREAKFAST KEYNOTE SPEAKER

Peter Zaffino President and CEO Marsh Inc.

The CIP Society’s Symposium is celebrating its 10th anniversary! This year’s theme “The Future”, speaks to the industry challenges of tomorrow. Will you be prepared? INDUSTRY LEADERS: ‘Up Close and Personal’ An exciting new format for the first time! Executive leaders join us for up close and personal sessions—sure to be an event highlight. Debbi Coull-Cicchini

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Denis Dubois

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Christine Lithgow

President & CEO, Aon Reed Stenhouse Inc.

Sharon Ludlow

President & CEO, Swiss Reinsurance Company Ltd.

Pat Van Bakel

President & CEO, Crawford & Company (Canada) Inc.

Peter Zaffino is President & Chief Executive officer of Marsh Inc., headquartered in New York. Mr. Zaffino has played a number of high-level strategic roles in Marsh & McLennan Companies including President and CEO of Guy Carpenter & Company, LLC.

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EDITORIAL

Expect the Unexpected

A robust risk management approach should not stop at a particular percentile and a holistic risk management framework should include very unlikely, but potentially high-impact, events. Angela Stelmakowich, Editor astelmakowich@ canadianunderwriter.ca

Canadian Underwriter December 2013

December is upon us, as is the parade of sniffles, coughs and hacking that fill the air in workplaces, homes and everywhere else. This sort of thing is expected — it being December; this being Canada. It is also expected certain risk management measures will need to be employed (hand hygiene, for example) to keep infection at bay. But what if it were more than a tiresome cold — maybe requiring a day or two off work — that most would expect to run its course in a week or so? What if it were more... unexpected? Expect the unexpected is likely the advice of Towers Watson, whose report, Extreme risks 2013, argues a robust risk management approach should not stop at a particular percentile and a holistic risk management framework should include very unlikely, but potentially high-impact, events. “While interesting in its own right, we believe the consideration of extreme risks can be useful in helping to design more robust investment portfolios and more robust risk management processes,” Tim Hodgson, head of Towers Watson’s Thinking Ahead Group, notes in a statement. The report ranks risks in three categories: financial, economic and “other,” the last greatly expanded in the 2013 report, released in late October, to include 30 risks. Among the report’s top 30 high-impact events — very rare, but would have a high

impact on global economic growth and asset returns — is a global pandemic. Earlier this year, AIR Worldwide announced the release of a new pandemic flu model designed to capture the excess morbidity, mortality and insurance losses cause by pandemic influenza. Almost a century after the 1918-1919 Spanish flu killed 50 million people, notes Pandemic Perspective, published in November by Aon Benfield, “pandemic risk remains the most important mortality exposure for the insurance industry and is placed above other forms of catastrophic event, including natural catastrophes, nuclear explosions and terrorism.” Less dramatic, but still important, AIR Worldwide noted business interruption is among the areas where insurers and reinsurers may incur potentially significant losses. “Pandemics are low-frequency events with a potentially high level of severity and impact to insurers and reinsurers in the areas of life, health and disability,” said Nita Madhav, a senior scientist at AIR Worldwide. “Other lines such as workers’ compensation, personal accident and business interruption may also incur significant losses, depending on policy specifics,” Madhav added. The flu pandemic model includes more than 18,000 simulated events — ranging in severity from mild to severe — that can start and spread anywhere in the world and

last from months to years. The Public Health Agency of Canada notes it has been projected as much as 30% to 35% of the workforce may be absent as a result of the effects of pandemic influenza on individuals and families. This past January, Zurich North America reported the influenza outbreak in the United States at the time was the most widespread outbreak of the virus since the H1N1 pandemic in 2009-2010. The insurer released two risk bulletins, including one providing guidance on what a business should do in a flu outbreak. “Whether you are a global company or a local retail business, extended worker absenteeism due to an influenza outbreak could affect every part of your business.” Among other things, the bulletin recommended identifying critical processes and functions that must continue for the business to remain viable; evaluating critical suppliers and customers, as well as developing a contingency plan for critical materials, parts or essential services; and identifying essential employees or expertise to find ways to protect critical employees through isolation, remote work or medical intervention. January is just around the corner — and is expected to offer much of the same sniffling and hacking December did, unless, of course, it offers something unexpected. Best to be prepared to manage whatever risk reveals itself, expected or not.

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

Claims NEW ARBITRATION HEARING IN ONTARIO MIG DISPUTE A delegate in the Office of the Director of Arbitrations for Ontario’s auto insurance regulator has rescinded an earlier decision related to the Minor Injury Guideline (MIG) in the Statutory Accident Benefits Schedule (SABS) and ordered a new arbitration hearing. In Scarlett v. Belair Insurance Company, an arbitrator with the Financial Services Commission of Ontario found in a preliminary hearing that Lenworth Scarlett’s medical and rehabilitation claim, after a 2010 vehicle accident, was not subject to the $3,500 limit for minor injuries. In an appeal ruling in late November, Director’s Delegate David Evans cited several flaws in the arbitrator’s decision. Evans ordered a new full arbitration hearing with a new arbitrator to address all issues between Scarlett and Belair, not just those addressed in the preliminary hearing. Evans notes the arbitrator “did not direct his mind to the relevant test of whether Mr. Scarlett’s impairment was predominantly a minor injury” when he arrived at his decision.

MOST FIRMS IN CALGARY HAD EMERGENCY PLANS A poll by Ipsos Reid found most surveyed Calgary-based businesses had emergency response plans (ERPs) in place before the June flooding, but there were gaps in plans, instructions and protocols.

8 Canadian Underwriter December 2013

Ipsos Reid did 50 phone interviews with businesses with 100 or more employees in Alberta that were directly affected by the flooding. Of those surveyed, 80% said they had an ERP prior to the flooding, and 81% rated their plans as effective. Of those who reported having effective ERPs, only 19% said they were able to reach employees or communicate well. Among those who said their plans were ineffective, 67% said they had gaps in contact information.

CLAIMANT NOT PRECLUDED FROM PURSUING MEDIATION A Financial Services Commission of Ontario (FSCO) arbitrator has ordered Unifund Assurance Company to pay Kadian Augustin treatment expenses of about $2,935, plus interest, after the company denied the auto claimant medical benefits because she had refused to attend insurer’s examinations. FSCO arbitrator Susan Sapin noted that Augustin is not precluded from pursuing mediation for her claim. Injured in a vehicle accident, Augustin made a claim to Unifund Assurance for medical and attendant care benefits, and a weekly nonearner benefit (NEB), meant for claimants who suffer “a complete inability to carry on a normal life as a result of and within 104 weeks after the accident.” She was unemployed and a caregiver to her two children, but had not purchased optional coverage for caregiver benefits.

Unifund Assurance refused to pay for medical benefits on the basis that Augustin failed to attend insurer’s examinations to determine whether her accident injuries fell within the Minor Injury Guideline (MIG), and further refused to pay an NEB, reporting that Augustin did not apply for it, Sapin noted. The insurer’s notice to Augustin “does not state that Unifund ‘believes’ the MIG applies, or why,” as well as fails to state “medical reasons” for refusing to pay the benefit claimed, Sapin wrote. “I find it is reasonable to require an insurer who chooses to refuse to pay an initial claim to counter with something more than simply a desire ‘to determine if your impairment is predominantly a minor injury as described in the [MIG],’ as Unifund has done in this case.”

Regulation POSITION ON ELECTRONIC COMMERCE RELEASED The Canadian Council of Insurance Regulators (CCIR) released its final position paper on the use of electronic commerce in insurance products, citing the need for consumers to have access to advice at all times. The report, released on November 15, follows the first position paper last May, in which the CCIR requested feedback from stakeholders. “Generally, brokers and intermediaries are of the view that a licensed agent should

be involved in each insurance transaction,” notes the report. While insurers support consumer choice and the option of using an intermediary, they also “generally believe that the Internet allows for the same level of advice as other methods of interaction.”

INSURER MUST DEFEND CLIENT BEING SUED The Court of Appeal for Ontario has ruled Wawanesa Mutual Insurance Company has a duty to defend a homeowners’ insurance client being sued in a third-party claim. The court came to the decision on the claim — related to a traffic accident in which the homeowners’ daughter was injured — despite a clause in the policy excluding claims for bodily injury to others in the household. In August 2003, Kelly Bawden, then eight, was hit and injured by a vehicle while riding her bicycle on a sidewalk in Toronto. The vehicle was driven by Joyce Wilson and owned by Randall Wilson. Kelly Bawden’s parents, David and Elizabeth Bawden, sued the Wilsons. The Bawdens’ homeowner carrier, Wawanesa Mutual, refused to provide a defence to the Wilsons’ third-party claim against the Bawdens. In a March 2013 ruling, Justice Mary Sanderson found the insurer has a duty to defend. Wawanesa Mutual appealed, citing an exclusion in the policy. But Ontario’s high court ruled in November to uphold the earlier decision. The clause excluding cover-

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MARKETPLACE

age for bodily injury to other people living in the policyholder’s home “only catches claims by a family member directly against the insured.”

CO DETECTORS TO BECOME A MUST IN ONTARIO HOMES The Insurance Bureau of Canada (IBC) has commended the move to make carbon monoxide detectors mandatory in homes across Ontario. Progressive Conservative MPP Ernie Hardeman’s private member’s bill was passed in the legislature in November and just requires Royal Assent to become law. The bill expands the scope of the Fire Protection and Prevention Act, 1997 to cover measures relating to the presence of unsafe levels of CO, and to fire safety. IBC points out that 88% of all homes have something that creates a CO threat.

a rate change of -5% to +5%) for general liability, financial institution liability and professional liability. There was a 0% to 10% increase for directors and officers liability.

Risk CANADA CURRENTLY FACES A TIDE OF RISKS: IBC CEO

Canadian Market

“Insurers are now operating in an environment characterized by a rising tide of regulatory and legislative issues and initiatives,” Don Forgeron, president and CEO of the Insurance Bureau of Canada, said during IBC’s 2013 Regulatory Affairs Symposium. The events of 2013 have demonstrated the insurance industry in Canada is facing a significant tide of risks, including regulatory risks, Forgeron told attendees. But if the pendulum of regulation swings too far, he said, “it endangers healthy and robust insurance markets, and, therefore, availability and affordability of products.”

HIGHER CAT-EXPOSED PROPERTY RATES: MARSH

Technology

Overall insurance rates fell during 2013 Q3, although rates in Canada increased for catastrophe-exposed property risks and for directors and officers liability, notes a new report from brokerage and risk management firm Marsh Ltd. In one table noting rate changes, there was a 0 to 10% increase in property for catastrophe-exposed risks in Canada. In major market liability, Canada was stable (meaning

INDEPENDENT BROKERS INVESTING IN TECH Independent agencies and brokerages in the United States are increasing their specializations and planning to make more investments in technology for the coming year, notes the Independent Insurance Agents & Brokers of America (IIABA). In its report, created in collaboration with Reagan

Consulting, the IIABA found specialization has increased across agencies of all sizes. “Developing an expertise or proficiency in a certain industry or product has shown to facilitate targeted leads and referrals, improve retention and provide a competitive edge for an agency,” notes an IIABA statement. Many agencies are planning to invest in technologies over the coming year. For smaller agencies (revenue less than $5 million), Internet marketing and social media were the top investment plans; for firms with over $5 million in revenue, agency management systems were the priority.

Reinsurance MORE CREATIVITY NEEDED IN LONG TERM: A.M. BEST Reinsurance firms are advised to get into lines of business other than the property catastrophe business as competition from third-party capital sources continues, notes a new report from A.M. Best Company Inc. “Despite the less than robust market opportunities, capital from third-party investors such as hedge funds and pension funds continues to flood the industry, putting additional pressure on pricing in the overall reinsurance segment,” A.M. Best states. “These challenges are exacerbated by primary companies retaining more risk with each passing year, which decreases the pool of risk available to reinsurance

companies,” the report adds. “Managing third-party capital, as many reinsurance companies already do, is one way to gain fee income and maintain control of the business,” notes the report. “More creativity may be needed in the long term to stay relevant, and reinsurance companies also will have to spread into other lines of business.”

CAT BOND MARKET COULD REACH US$50 BILLION BY 2018: BNY MELLON Insurers and capital markets need to harness big data to close the disaster gap — the difference between insured and economic costs of natural catastrophes — BNY Mellon suggests in a report that states the cat bond market could balloon to US$50 billion by 2018. The number of cat bonds outstanding could more than double from the current level of US$19 billion to about US$50 billion by the end of 2018, notes BNY Mellon. Globally, natural catastrophes cost the insurance industry about US$13 billion in the first half of 2013, with overall economic losses estimated at US$45 billion. “Insurers and the capital markets can help reduce the disaster gap by working together with big data to deploy new capital to cover new perils in new regions. This will reduce the cost of rebuilding for governments and provide a positive contribution to society,” says Paul Traynor, international head of insurance for BNY Mellon.

December 2013 Canadian Underwriter

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PROFILE

Transformative Time Angela Stelmakowich Editor

Janet Stein, recently honoured with the Donald M. Stuart Award, has learned how a new perspective can have lasting influence. Viewing something from a different position cannot help but offer a new perspective. But when that something is the worst flood event ever to hit parts of southern Alberta — prompting insurable loss estimates that eclipse those of the 1998 ice storm — a change of perspective can be transformative. “For me, those experiences were a transformative time in my life and I will take that forward to all my future endeavours,” Janet Stein, director of risk management and insurance at the University of Calgary, said in accepting the Donald M. Stuart Award at the RIMS Canada Conference in Victoria this past October. The award, bestowed by the RIMS Ontario Chapter since 1979, celebrates outstanding contributions in the risk management profession. One such contribution took place during June’s flooding in Calgary. Stein was among the

10 Canadian Underwriter December 2013

many who volunteered in the university’s Emergency Operations Centre, helping transform the usual to the unusual to help those in need. And there was no shortage of those in need. Flooding that ravaged parts of the city and elsewhere in southern Alberta spurred an exodus of sorts to unaffected (or less-affected) areas. The university was one such place. In just two days, more than 700 people had signed up to volunteer and do whatever needed to be done. Providing shelter and food to the more than 1,100 evacuees who would arrive was paramount. “Those residences, the majority of them, actually close in the summertime. So there’s no staff to make beds; there’s no sheets — the students bring their own. They bring their own laptops, they bring their own telephones — none of that is in the rooms,” Stein says. Staff and volunteers helped make beds; instructors and students in medicine, nursing and social work checked to ensure evacuees were alright; and volunteers helped entertain children and adults alike. The response to the flooding taught Stein several things: there is a hero in every person; everyone needs compassion and warmth in a crisis; and people must be prepared for anything. Though the university had a lot of training, she says, “we honestly had never run

through a scenario where 1,000 people show up on your campus within two days and try to find housing and food for them in the middle of the summer.” The whole experience provided everyone involved with a different way of looking at things. Consider resources such as faculty and students in

“For me, those experiences were a transformative time in my life and I will take that forward to all my future endeavours.” medicine, nursing and social work. “You don’t think of a university as being able to produce those resources to help in a time of need. It changed the whole face of what we were,” says Stein. “To take evacuees in and then build programs to keep them safe and to keep them occupied, and help people out the best we could, was just not where our emergency planning had gone before,” she says. Some of the lasting good may be a ramping up of efforts by post-secondary institutions to identify how they can best co-ordinate in a crisis, and the creation of “a template of a system to handle a huge influx of volunteers on an emergency basis,” Stein suggests.

PAST EXPERIENCE Twenty years earlier, in 1993, Stein was working at the U of C, but not in risk management. That did not really exist as an entity then. She was in an administrative position in the executive suite, where she did things like review contracts. But the vice president then decided to pull together all the bits and pieces to create a more comprehensive and cohesive group dealing with safety, security and risk management. The group “could look at risk from an acrosscampus, all-encompassing standpoint rather than it just being about property or just about liability,” Stein says. The prospect piqued her interest. That interest, coupled with her contracts and accounting experience to help understand the ins and outs of claims, lead Stein to go work in the risk management group. It soon became clear it was a good move. She began taking Insurance Institute of Canada and risk management courses. Both are important since the insurance courses provide a baseline of understanding of documentations, while the risk management courses are more “big picture thinking.” At that time, says Stein, no one went to school for risk management. Today, U of C has a risk management program. In its school of business, risk management can be taken

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PROFILE

Photo: Bud Moore

businesses now that risk management is part of that portfolio, both for shareholders and for the business itself,” she says. “It can’t be this siloed thing where everybody does their own little thing and nobody connects the big picture at the top. You just can’t exist that way anymore.” Stein sees hope for the future. Recalling the flood, she says more than half of the volunteers were students. “Those people are being left our legacy in capable, capable hands.”

as a specialization, she says. The risk management group and the academic group regularly interact, says Stein, which she regards as valuable and mutually beneficial. “We’re helping them out with the academic piece of it and they’re helping us out on the operational piece because they have the research background into what’s going on everywhere else. You couldn’t ask for a better combination.” One of her first tasks in risk management was to look at the U of C’s kinesiology program — everything from gyms to the activities held outdoors — to analyze, identify gaps and offer input on how to fill those gaps. “Part of it was identification

and transparency of risk for the users, as well as identification of risk and filling in those gaps from the university’s perspective. Honestly, that analysis stuff was the stuff I jumped on. It was the most exciting part because it was all new.” It is an excitement that remains with Stein still. “At the university, it’s constantly like that because we’re doing research in new areas. Because you’re on the leading edge, you never get bored. There’s always something to analyze, something new to learn.”

ALWAYS LEARNING Stein’s passion for all things risk management may be one reason she has been so

involved in RIMS. She has filled numerous leadership positions on local, national and international committees, and currently serves as chair of the RIMS Canada Council Centralized Conference Programming Committee. She also lectures on risk management issues. Risk must be viewed as a living, ever-changing thing. “Not only are standards changing, but society is changing. And every time society changes, so does risk,” Stein suggests. “If you sit back and say I’m always going to apply the same risk techniques I always did, it doesn’t necessarily support the societal changes that are out there,” she comments. “It’s expected, I think, in

MORE HONOURS The recognition of the Donald M. Stuart Award is not the first risk management honour for Stein, but it has proved an emotional one. “I want to give you an idea of what has helped make me a leader and a mentor,” Stein said in her speech. One by one, she asked people in the audience to stand: her husband, Mark; the people she works with or has worked with at the university; the people she has worked with as part of various RIMS committees; university risk managers across Canada; and all the people who had talked to or just said hello to her at the conference. Facing a room of people standing, she said: “Now you know what makes a leader. Look at the people around you. That is support, and that’s the future of risk management.”

December 2013 Canadian Underwriter 11

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Carol B. Kreiling, J.D.

Vice President, Claims Expert, Reinsurance P&C Canada Claims Team, Swiss Re

With regard to coverage for the tort of cyberbullying, is there an app for that? No, concluded a task force report exploring the death of a Nova Scotia teen. But questions remain about whether or not a homeowners’ insurance policy provides coverage to parents sued for their child’s cyberbullying. Just three weeks after Rehtaeh Parsons’s death, Nova Scotia enacted Canada’s first legislation establishing cyberbullying as a tort. Parsons, a 17-year-old from Cole Harbour, Nova Scotia, hanged herself after being cyberbullied. In response, the province created the Nova Scotia Task Force on Bullying and Cyberbullying. The task force studied cyberbullying in-depth, issuing its recommendations in February 2012

12 Canadian Underwriter December 2013

as part of a 105-page report, Respectful and Responsible Relationships:There’s No App for That. Legislation followed. Nova Scotia’s Cyber-safety Act now allows a victim to sue the cyberbully in civil court. This act has real teeth. If the cyberbully is a minor, the defendant’s parents could be jointly and severally liable for damages awarded to the plaintiff — including general, special, aggravated and punitive damages. With this new tort in cyberbullying, the question becomes this: Would a homeowners’ insurance policy provide coverage to parents sued for their child’s cyberbullying? Most Canadian homeowners’ policies — and most in the United States — do not insure loss or damage resulting from any intentional or criminal act or failure to act. Certainly cyberbullying is an intentional act. In its Bullying Prevention and Intervention, Policy/Program Memorandum No. 144, released in October 2007, Ontario’s Ministry of Education described bullying as a form of repeated, persistent and aggres-

Illustration by Dave Whamond/threeinabox.com

Cyberbullying as a Tort

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sive behaviour, directed at an individual, intended to cause fear and distress and/or harm to another person’s body, feelings, self-esteem or reputation. Most homeowners’ policies also exclude sexual, physical, psychological or emotional abuse, molestation or harassment or the failure of any person to take steps to prevent such abuse.

DUTIES ON PARENTS Under Nova Scotia’s new law, a parent may avoid liability if he or she can satisfy the court that he or she exercised reasonable supervision over the defendant at the time of the cyberbullying. The court may consider a number of factors — including the age of the defendant, psychological or other medical disorders of the defendant, whether the parent supplied the electronic device used in the cyberbullying, any conditions imposed by the parent, whether the defendant was under the parent’s direct supervision and, if not, whether the parent acted unreasonably in failing to supervise the defendant. If a court finds a parent failed to supervise his or her cyberbullying child, the homeowners’ carrier could have a strong argument against coverage based upon the “failure to act” clause. Of course, the suit could trigger a duty to defend — depending upon the wording of the lawsuit and the homeowners’ policy language. If a cyberbully is found liable in a civil case, the Cyber-safety Act allows special, aggravated and punitive damages to be

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awarded against the parent. Keep in mind that most homeowners’ policies will not pay punitive or exemplary damages. Legislators in the United States are also scrambling to address the issue of cyberbullying and teen suicides. No such Cyber-safety Act — in which parents face liability for their minor child’s cyberbullying — has been enacted in the U.S. — yet. However, on October 1, Maryland’s legislature enacted Criminal Law – Misuse of Interactive Computer Service (Grace’s Law). Named after teenager Grace McComas’s post-bullying suicide, Grace’s Law expands Maryland’s cyber harassment law that applied only to harassment via e-mail to apply to harassment on social media as well. Grace’s Law does not create a “tort” against either the cyberbully or his or her parent, but does impose criminal

If a court finds a parent failed to supervise his or her cyberbullying child, the homeowners’ carrier could have a strong argument against coverage based upon the “failure to act” clause. penalties. Conviction under the act carries a penalty of as much as a year imprisonment or a fine of up to $500. The Educator Escalation Channel has partnered with Facebook. Days after Grace’s Law was enacted, Maryland’s Attorney General announced a joint initiative with Facebook. This new program allows Maryland school officials to object to a Facebook user’s content — flagging questionable or prohibited language. School officials will not target speech that is unlawful; rather, they will flag speech they consider to be “hurtful or lacking in redeeming societal value.” Further, school officials say they are not going after the person who posted the offensive remarks; they just want the hurtful language taken off Facebook.

ALLEGATION OF NEGLIGENT SUPERVISION While no other province in Canada has enacted legislation declaring cyberbullying to be a tort, per se — federally, the Senate standing committee on human rights has issued a 126-page report on cyberbullying and Ontario has introduced the Anti-Bullying Act, 2012 to create awareness and prevent cyberbullying in schools — parents could always face a lawsuit alleging negligent supervision as a result of cyberbullying. For example, such a lawsuit could be based on failure to properly supervise their child’s electronic activities.

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Victims of cyberbullying may file civil actions against parents of cyberbullies for negligent supervision.Again, depending upon the wording of the lawsuit and the homeowners’ policy language, at the very least, a duty to defend could be triggered by such a lawsuit. In response to the wave of recent tragedies arising from cyberbullying, many Canadian and U.S. communities alike have passed anti-bullying laws that carry criminal penalties. After teenager Amanda Todd committed suicide, her city council of Port Coquitlam, British Columbia, passed a resolution making bullying a criminal offence punishable by fines or mandatory programs. The City of Regina also enacted an anti-bullying law — making it an offence to share intimate images without consent. Similar criminal laws have recently been enacted in the Alberta towns of Blackfalds (with fines up to $10,000) and Hanna (with up to six months jail

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Under the Nova Scotia law, a parent may avoid liability if he or she can satisfy the court that he or she exercised reasonable supervision over the defendant at the time of the cyberbullying. The court may consider various factors. time — which could apply to bystanders who encourage bullying.) While a homeowners’ policy excludes criminal acts, a parent could face a negligent supervision lawsuit after his or her child has been convicted of one of these crimes. Would a homeowners’ policy’s “failure to act” exclusion apply to such a suit? It is not clear yet what impact Nova Scotia’s Cyber-safety Act will have on lawsuits against parents of cyberbullies.

Other provinces may enact similar civil remedies for victims of cyberbullying. But certainly personal lines’ insurers are confronted with increased exposures. In order to protect their interests, personal lines’ insurers might consider adding more specifically worded exclusions, such as the following: • any “bodily injury,” “property damage” and “personal injury” arising out of electronic communication and any claim for damages of negligent supervision arising out of electronic communication, or • any claim for damages of negligent supervision arising out of electronic communication. Personal lines’ companies must remain vigilantly informed of legal developments of this evolving insurance exposure. Underwriters must be nimble and stand ready to respond as the courts issue opinions interpreting coverage — and we all know — there’s no app for that.

December 2013 Canadian Underwriter

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Reluctant Innovators

Canadian financial institutions are struggling with innovation, new research by PwC shows. How can these institutions, including insurance companies, change to focus on opportunities, rather than barriers, and ensure that they are not outrun by more innovative players in the years to come?

Karen Forward Director, Financial Services Consulting, PwC

Allan Buitendag National Insurance Consulting Leader, PwC

Innovation can drive growth, create a competitive advantage, improve customer satisfaction and lower costs. Global research by PwC has shown that the vast majority of financial services leaders see innovation as a key driver of success in the years to come.Yet when it comes to innovation, Canadian financial institutions lag their global counterparts. Why? And what can financial institutions do to close the gap? PwC’s Global Innovation Survey, released in December 2013, found a clear link between innovation and growth. Insights were gathered from 1,757 C-suite and board-level executives from more than 25 countries, including Canada, across more than 30 sectors. A large segment of Canadian respondents included members of the financial services industry, with representatives from banks, asset managers, insurance providers and researchers. The research demonstrated the most innovative companies are set to grow 62.2% over the next five years — nearly twice the pace of the anticipated global average (35.4%) and three times as fast as the least innovative companies (20.7%). It is no wonder that 43% of the executives surveyed reported that innovation was already a competitive necessity — and 51% felt it would become a necessity within five years. Threequarters of the CEOs polled for PwC’s Unleashing the Power of Innovation 2013 survey now consider in-

16 Canadian Underwriter December 2013

novation to be just as important as operational effectiveness, if not more.

CANADA’S INNOVATION SKEPTICS However, Canadian financial institutions see innovation rather differently than their peers in the United States, the United Kingdom and elsewhere. More cautious, Canadian firms seem less willing to embrace innovation as a way to grow their business in the years to come.

A focus on barriers, not opportunities Canadian financial institutions believe innovation is far more challenging than their counterparts in the U.S., the U.K. and elsewhere do. From establishing support structures for innovation to measuring innovation return on investment (ROI) and finding and keeping the right talent, Canadian firms seem to focus on the challenge, rather than the opportunity. In Insurance Banana Skins 2013, a survey of risks produced by the Centre for the Study of Financial Innovation in association with PwC, innovation and social media were ranked as greater risks in Canada than anywhere else in the world. Why do Canadian firms seem so wary of innovation? Culture is a key factor. Financial institutions often try to avoid risks that they deem unnecessary. Banks and insurers are large, complex organizations with complex processes and

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change can be difficult and costly. The regulatory environment is often cited as a barrier to change as well, its many rules and restrictions hindering the efforts of firms to grow and adapt. It appears that Canadian financial institutions may be reluctant to innovate and change because they do not yet see a compelling reason to do so. Canadian institutions emerged from the global recession relatively strong and unscathed, having successfully focused on improving their cost-effectiveness. Market saturation means that there is little real competition for market share, and firms have generally been able to sustain solid, profitable performance for years. Why change what works?

Hemmed in by a narrow perspective Canadian financial institutions also seem to view innovation in rather limited terms.The survey released in December demonstrates Canadian executives are focused on innovations in technology (33% of respondents) and systems or process improvements (22%). Canadian firms are much less likely to look at product, service or customer experience innovations. PwC believes this is because in many organizations, innovation continues to be driven by the IT function.That is not a bad thing, of course — but it does mean that firms are missing out on key opportunities to create new products and deliver better customer experiences. Technology-driven innovation tends to be internally focused and driven by operational concerns. This can lead to the IT function being seen as disconnected from the organization’s efforts to grow revenues and boost market share. A lack of support Canadian financial institutions significantly lag their U.S. counterparts when it comes to having support models in place to drive and sustain innovation initiatives. This seems to be an issue of organizational maturity around innovation. Few Canadian financial institutions have innovation-specific roles or the frameworks needed to generate, collect, manage, measure and track new 18 Canadian Underwriter December 2013

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ideas — in part because, as previously noted, these firms have yet to see a compelling case to do so. In contrast, more financial institutions in the U.S. and elsewhere have established cross-functional teams dedicated to innovation. These teams devote time to developing, exploring and testing ideas for new products, new business models and new ways to interact with customers. It is a more rigorous approach where innovation is a daily effort, not a moment of sudden inspiration. For example, a Canadian property and casualty carrier has recently employed a dedicated six-member innovation services team that is tasked with employee engagement in innovation initiatives, including providing resources for staff to allocate 15% of their time to innovation.

A question of investment There is one area where Canadian financial institutions outperform their global peers. Half of Canadian financial firms say they take advantage of government innovation-related funding — more than in the U.S., the U.K. or globally.

Using cross-functional teams dedicated to innovation is a more rigorous approach where innovation is a daily effort, not a moment of sudden inspiration. In part, this can be seen as a reflection of the fact that Canadian companies enjoy a high level of government incentives and support for research and innovation activities. What is not clear is whether those funds are being used to fund the right kinds of innovation — or whether firms are making the overall investment that they need to in order to remain competitive.

CAN CANADIAN INSTITUTIONS BECOME MORE INNOVATIVE? Canadian financial institutions’ relative lack of ambition around innovation is concerning, because companies that fail to innovate effectively may find themselves

outrun by more innovative, faster-growing players in the years to come. But Canadian firms can take steps to now address their innovation challenges. First, firms should define and communicate the benefits of embedding the spirit of innovation throughout their organizations.They should adopt a longterm view, as innovation takes time. And they need to build structures and processes that support ongoing innovation efforts to turn great ideas into reality. The most innovative companies have a well-defined innovation strategy, and a structured, organized approach to uncovering, developing and testing new ideas. PwC is seeing very encouraging signs in our own work with clients. There is growing interest in training in innovation and innovation techniques, and in how to create the processes and structures needed to build an innovative culture. Leaders are also talking to companies in a range of sectors outside of financial services to discover how others approach innovation — and bringing those lessons back to their companies. These are positive steps. To make the most of them, firms should also remember that everyone is an innovator. Although the ideas generated by those outside the C-suite may be incremental or have relatively smaller benefits than those conceived by executives, the aggregate benefits of such ideas can be significant and this makes everyone feel involved and responsible for innovation and continuous improvement. Customers will say what they want and need, and will help to test and refine products and services into something they will use, enjoy and talk about. Front-line staff can be tremendous sources of ideas on how to improve processes and the customer experience. Vendors and suppliers can also offer their own insights and ideas into how to do business in new, different and potentially game-changing ways. Canada’s financial institutions have long been admired for their stability and good governance. With the right structures and support in place, they could be just as admired for their ideas and innovations. All it takes is the will to change.

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Product recalls are rapidly becoming a common occurrence in the food and beverage industry. As international supply chains continue to expand in complexity, so do Nicky Alexandru risk exposures, increasing the Vice President, likelihood of a product Crisis Management, contamination. Global Casualty, American International Group (AIG)

Across the globe, product recalls are rapidly becoming a common occurrence in the food and beverage industry. For example, from 2011 through 2012, the Canadian Food Inspection Agency (CFIA) reported 388 Class I and Class II food and beverage recalls across Canada â&#x20AC;&#x201D; recalls that cause public harm. In the United States during 2012 alone, there were 1,276 Class I and II recalls (as defined by the U.S. Food and Drug Administration, FDA) of food and beverage products. That equates to about 30 a week in the U.S., according to AIG analysis of FDA and Department of Agriculture data. While these statistics alone are alarming, product recalls are only one chapter of a bigger and more complicated story: the actual product contamination event.

20 Canadian Underwriter December 2013

In addition to a recall, a product contamination incident may cause business interruption, loss of reputation (or brand damage) and loss of earnings. These are complicated and expensive events. As international supply chains continue to expand in complexity, so do risk exposures, increasing the likelihood of a product contamination. Even plants with the best controls are at risk. Human error, mechanical breakdown or sampling failures can happen at any time. A mistake can also originate with suppliers of ingredients or packaging materials. New or unexpected contaminants (e.g., melamine) are detectable only if specific tests are performed. Private label owners outsource production so they do not have direct control over the manufacturing and testing of their own products. As detection technology gets better, governments respond in the interests of public safety. Regulators that monitor these types of events can force companies to take corrective action, ranging from product recall, extended product recall or suspension of production. A contamination at an ingredient supplier may prompt a government agency to order a recall of all products manufactured using ingredients purchased from the supplier, even though the products did not test positive for any contamination.

Illustration by Dave Whamond/threeinabox.com

Costly Recalls

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REPUTATION RISK Reputations for providing safe food are valuable assets that firms have an incentive to protect. The potential long-term damage to a brand can eclipse the shortterm cost of recalling products. Results of a 2007 Harris Interactive poll show that 55% of consumers said that they would temporarily switch brands following a recall incident and 21% would avoid purchasing any brand made by the manufacturer because of health and safety concerns. Moreover, four out of five respondents indicated general concerns over recent food safety recall incidents. The cost of a significant contamination event can many times dwarf the costs associated with the actual recall of a product. For large companies that have faced a recall in the past five years, 77% of respondents to a recent Grocery Manufacturers’Association poll estimated the financial impact to be as much as US$30 million; 23% reported even higher costs. Many companies understand intuitively the risk of a product contamination, but fail, for the most part, to recognize the true financial severity ahead of time.The three primary components of a major product contamination event include the following: • product recall expenses (product replacement costs, recall and redistribution expenses, product destruction costs, and related crisis management consultant fees); • business interruption (financial loss due to product unavailability, decontamination downtime, government action, brand damage and loss of contracts); and • third-party liability (financial loss due to third-party property damage and bodily injury).

RUNNING THE SCENARIOS Many companies can imagine a contamination and recall event associated with the failure of a single control point. However, “worst case” contamination scenarios are infrequent and, therefore, very difficult to model, with-

out the right experience and expertise. A “worst case” event may include a confection manufacturer who sells chocolate to dozens of food manufacturers. During routine government testing, Salmonella is detected. The government strongly encourages the manufacturer to notify all customers that several lots of product must be recalled. In addition, the source of the

brand damage during clean-up and remediation. This scenario can be financially devastating to the manufacturer. A limited, more likely scenario may include the cost of temporary product unavailability and shutdown of a single production line for a few days. For example, a juice manufacturer receives several complaints of juice boxes containing cloudy juice product that has been contaminated by mould. An internal investigation finds a packaging defect that affected 20,000 cases of juice. The company is faced with a financial loss caused by recall expenses and replacement of the contaminated product. However, unlike a “worst case” contamination, the financial impact of this event is more easily modelled.

CONTAMINATION CONSEQUENCES

Regulators that monitor these types of events can force companies to take corrective action, ranging from product recall, extended product recall or suspension of production. contamination cannot quickly be identified, and the manufacturer is forced to cease production on its production line, destroy all recovered product, sanitize production equipment and storage facilities, and retest for the presence of the contaminant. The expenses incurred by the manufacturer quickly escalate beyond recall costs, including the costs to provide replacement product to customers, loss of contracts with customers who find a new supplier, business interruption loss, and

Whatever the case, the main consequence of underestimating the severity of a product contamination incident is financial vulnerability. If a company purchases an inadequate amount of product contamination insurance, the company may be exposed to a potential financial shock. Unfortunately, some of these companies do not get a second chance as the product contamination put them out of business. This will continue to happen. Working with a risk management partner with deep experience in this area can help companies avoid this fate by helping them to do the following: • better understand potential product contamination exposure; • understand the impact of retaining exposure on the balance sheet versus the risk transferred via insurance, captives or other means; and • better manage third-party volumes or contractual indemnity provisions, by measuring the contamination risk at the supplier or contract manufacturer level. The more food and beverage companies understand their potential financial risk, the more informed decisions that they can make about how to protect their customers, supply chain and bottom line.

December 2013 Canadian Underwriter

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Track Off Whether or not federally regulated railway operators should have a specific dollar value of liability insurance limits are among the issues now being explored as part of a public consultation. Stakeholders are also being asked if railway companies should be required to notify their insurer of changes that could mean coverage is no longer adequate. Greg Meckbach Associate Editor

The Canadian Transportation Agency (CTA) is asking federally regulated railway operators, as part of a recently released discussion paper on liability insurance requirements, whether or not there is a need to revise rules to establish minimum coverage requirements for liability insurance. Stakeholder input on the adequacy of insurance coverage for the issuance of certificates of fitness required for federal railway companies and possible improvements to the current regulatory framework on insurance requirements is due January 21. Rail safety has been in the news of late following a number of derailments, the most high profile of which was the tragic loss of almost four dozen lives in July in Lac-Mégantic, Quebec. CTA currently reviews the insurance coverage of federally regulated railway firms on a case-bycase basis, examining a number of risk factors, including the volume of dangerous goods transported. The paper was issued November 19, about a month after the ruling Conservatives announced the federal government plans to require federally regulated railway operators to carry “additional insurance.” The discussion paper poses several questions, one being whether or not the government should mandate “minimum requirements.” Unlike other industries that have liability risk

22 Canadian Underwriter December 2013

stemming from their handling of hazardous materials — such as operators of nuclear reactors — railways regulated federally are not mandated to have a specific dollar value of liability insurance limits. By contrast, nuclear reactor operators must have basic liability insurance of at least $75 million for each nuclear installation, an amount that federal natural resources minister Joe Oliver has commented will be increased, through legislation, to $1 billion. Oliver also plans to require major crude oil pipelines to have a minimum “financial capacity” of $1 billion “to respond to any incident and remedy damage.” That capacity could include insurance coverage.

RISK FACTORS VARY WIDELY But for railways, CTA explains, the government does not set a dollar value on coverage requirements because the operators “can vary a great deal” on risk factors such as volume of traffic, commodity mix, scope of operations, number of crossings and whether they run through rural or urban areas. The Railway Third Party Liability Insurance Coverage Regulations do stipulate that operators must be covered for third-party liability, third-party bodily injury or death, including injury or death to passengers and third-party property damage, excluding damage to cargo.

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In addition, railway operators must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” the paper notes. CTA reports there are 30 federally regulated railways. The agency reviews coverage for each of these operators and has the authority to issue and suspend certificates of fitness. CTA issues certificates of fitness only “if it is satisfied that there will be adequate third-party liability insurance coverage for the pro-

posed construction or operation,” notes an e-mail from a CTA spokesperson. One certificate that CTA did suspend was that for Montreal, Maine and Atlantic (MMA) Railway Ltd., whose freight train with 72 crude oil tanker cars derailed in Lac-Mégantic. CTA announced in August that MMA had not demonstrated its third-party liability insurance “is adequate for ongoing operations.” Two months later, CTA postponed — until February 1, 2014 — the date that

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its suspension of MMA’s certificate would take effect. MMA was found to have “demonstrated that there is adequate third-party liability insurance coverage, including self-insurance,” for its railway operations to February 1. Commenting on the decision to allow MMA to continue to operate until February 1, CTA stated October 16 that it found “a significant decline” in the overall volume of commodities — including dangerous goods — transported by MMA, and the volume of dangerous goods was forecast to drop by more than 80%. The railway’s risk exposure was reduced because MMA stopped shipping crude oil and “the distance over which dangerous goods are carried has been reduced” by 90%. The ruling was based on risk factors, including class and volume of dangerous goods transported, that the agency is mandated to examine when deciding whether or not to issue a certificate of fitness. Among the other risk factors considered for each railway operator are passenger ridership, passenger and freight train miles, volume of railway traffic, types of population areas served, number of level crossings, speed of trains, train crew training, method of train control and the applicant’s overall safety record. As part of its public consultation, CTA is now asking if those factors are sufficient, if the list should be expanded or if any factors on the list should be removed. In the case of MMA, the railway had a policy with XL Insurance Company Ltd. with a per occurrence limit of US$25 million, note court documents filed along with the company’s application for protection under the Companies’ Creditors Arrangement Act (CCAA). XL covered MMA for pollution clean-up expenses, bodily injury and property damage, while a separate inland marine policy with Travelers Property and Casualty Company of America covered MMA for property, rolling stock, track and repairs and business interruption. In its CCAA submission last summer, MMA noted it had not received any indemnity either from Travelers or from XL, “notwithstanding claims presented.”

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NEED FOR VARIED REQUIREMENTS? CTA is asking stakeholders if there should be more and/or different third-party liability insurance requirements for the transportation of certain commodities, such as dangerous goods. Questions include whether or not regulations should be revised to establish minimum requirements, if there should be a distinction “between general commodities and dangerous goods,” and whether or not a need exists for separate coverage requirements of Class 1 railways (such as Canadian National and Canadian Pacific) and shortline railways. Beyond the public consultation, the federal government has suggested it plans to strengthen the law mandating railway insurance. “As efforts to clean up and rebuild Lac-Mégantic demonstrate, railway companies must be able to bear the cost of their actions,” Governor General David Johnston read from the recent Speech from the Throne on October 16.“Our government will require shippers and railways to carry additional insurance so they are held accountable.” As well, the Standing Senate Commit-

CTA is now asking if those risk factors are sufficient, if the list should be expanded or if any factors on the list should be removed. tee on Energy, the Environment and Natural Resources has suggested there be a minimum level of insurance. “The scope of the Lac-Mégantic disaster and the reported difficulties in securing funding for loss of life and personal and property damages, as well as environmental cleanup and other liabilities, underscores the need for minimum thresholds for liability coverage,” notes a committee report, Moving Energy Safely: A Study of the Safe Transport of Hydrocarbons by Pipelines, Tankers and Railcars in Canada, released in August. Some provinces already mandate a specific dollar value for the railways they regulate. CTA does not regulate railways that “reside wholly within the boundaries of a single province,” adding the majority of provinces require “insur-

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ance coverage for third-party liability.” For example, Ontario Regulation 301/96 stipulates that railway operators in the province must have liability coverage, with a “primary limit” of at least $10 million per occurrence, for third-party bodily injury or death, third-party property damage (excluding damage to cargo), passenger liability and named perils pollution. In Quebec, provincially regulated railways transporting hazardous substances are required to have $10 million in liability coverage, while those carrying passengers must have $20 million and others must have $5 million in coverage. CTA is also asking those taking part in the public consultation if any mechanisms should be established in the regulations “to ensure that railway companies notify their insurer” of changes that could mean its coverage is no longer adequate. Would administrative monetary penalties be an “appropriate mechanism” to enforce compliance? Should there be a mechanism to ensure railway firms notify their insurers of all substantive changes on a timely basis?

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Politically

Speaking Companies that are considering having operations in either developing or developed countries would do well to understand all risks of doing so. One solution could be political risk insurance, specialized insurance that offers benefits, but also has limitations. One of the basic principles of finance is that with greater risk comes the possibility of greater returns. This often leads companies to seek opportunities in new and fast-growing regions. Unfortunately, the downside to this strategy is the need to manage the uncertainty and potentially disastrous consequences of political risk.

purchased from either public agencies or private insurers. Public agencies may be national, such as Canada’s Export Development Canada (EDC), or international, such as the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group.

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Anton Tchajkov

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WHAT IS POLITICAL RISK? Political risk refers to the negative repercussions that result from the action or inaction of governments. It is usually highest in developing countries where the economy and politics are unstable, with agitated social groups. A recent example is the political unrest and violence that occurred during the “Arab Spring” movement in Northern Africa. However, political risk can also materialize in more developed countries, as seen by the continued financial trouble and social unrest in Europe. Because political risk is difficult to predict and is beyond the control of an individual company, specialized insurance, called political risk insurance (PRI), can be purchased to mitigate the negative impact of political risks. PRI can be

26 Canadian Underwriter December 2013

The most recent annual reports of MIGA and EDC show that both agencies have experienced an increased demand for PRI in recent years. Since 2008, EDC’s average PRI exposure has increased from $1.4 billion to $1.6 billion in 2012, with an average annual increase in premiums from 0.86% in 2008 to 1.35% in 2012. In terms of geographic concentration of risk, in 2012, 47% of EDC’s PRI exposure was related to the Middle East and Africa, 27% to Asia/Pacific, 12% to South and Central America, 12% to North America and the Caribbean, and 2% to Europe. Regarding what type of companies use PRI, it is not surprising that in 2012, more than 44% of EDC’s PRI exposure was connected to the extractive industry (which includes oil and gas, and mining).The infrastructure and environment

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industry was a close second at nearly 40%. The remaining industries, ranked in order of EDC’s total PRI exposure, were surface transportation, light manufacturing, information and communication technology, and resources.

INSURABLE POLITICAL RISKS PRI policies vary and in each case should be carefully considered and negotiated.That said, the following political risks are often insured: • expropriation and nationalization of assets by the host country’s government; • regulatory changes that discriminate against the foreign company; • foreign company’s inability to convert or transfer local currency into another currency or out of the host country; • breach or repudiation of contract by the host country’s government; • failure by the host country’s government to honour sovereign obligations; • refusal or frustration of the host country’s government to co-operate with arbitration, or the occurrence of new conditions in the host country that prevent arbitration altogether; • imposition of trade embargoes; and • the occurrence of political violence.

WHAT PRI DOES NOT COVER Unfortunately, PRI does not offer blanket protection against all political risks, which is another reason why companies should read their PRI policies carefully. Typically, the following political risks are not covered under such policies: • currency devaluation or inflation (note that derivatives can be used to hedge against this risk); • actions that were illegal in the host country to begin with, or the failure of a company to comply with an existing law or regulation; • legitimate government actions and laws, such as revised tax rates or regulations, that are non-discriminatory and apply to all companies generally; and • for a lender using PRI, the policy will typically only compensate for the basic principal and interest amounts (as they are originally scheduled), and not extra payments, such as default interest, prepayments, accelerated prin-

Page 29

cipal, yield protections, indemnities, tax gross-ups or increased costs.

BENEFITS AND DRAWBACKS OF PRI Chris Zavos, an experienced PRI lawyer and partner in Norton Rose Fulbright’s London, U. K. office, notes that “one of the obvious benefits of political risk insurance is to facilitate foreign investment by allowing insureds to mitigate their cross-border risk.The political risk market has been around for some time and the market is experienced in assisting to resolve situations that may be entirely unfamiliar to insureds. It also continues to evolve to meet the needs of insureds — most notably over recent years with the development of political violence cover, post 9/11, and more recently, the Thai riots by way of example.”

Unfortunately, PRI does not offer blanket protection against all political risks, which is another reason why companies should read their PRI policies carefully. On the other hand, the main drawback of PRI is that the insurance can be prohibitively expensive. Also, it will not cure fundamental defects or risks to a transaction.

PRI AS A RISK MANAGEMENT TOOL Given the benefits and drawbacks of PRI, when should a company use it? Randy Bushey, a veteran insurance industry consultant, recommends that decision should come after a thorough analysis of the economic, political, contractual and business issues involved. “For Canadian companies (particularly manufacturers and contractors) exploring opportunities with foreign government and quasi-government players, the result of their enterprise risk management initiatives lead to assessing their own confidence of their ability to complete the contract and receive final payment. Inevitably, that objective assessment involves a review of local economic and political stability issues in the juris-

diction. The result in many cases sees Canadian entities shifting the risk to a PRI insurer, thereby reducing expectations of reward in exchange for obtaining a heightened degree of financial certainty,” Bushey reports. As part of a company’s enterprise risk management process, it should do the following: • Thoroughly assess risk and conduct due diligence: Before investing abroad, a company, with the help of its advisors, should carefully consider what risks it will be most vulnerable to in the new host country. Every effort should be made to understand the new host country, particularly its politics, economy, history, foreign investment track record, what interest groups hold the most power and influence, and whether any cultural, social, ethnic or religious tensions exist. • Develop a comprehensive risk management plan: This should include specific plans and procedures to deal with business disruptions, supply chain failures, crisis management and communications, and credit risk/control. • Use multiple risk management tools: Besides PRI, political risk can be reduced by reliance on bilateral investment treaties or free trade agreements and the use of negotiated stabilization clauses in contracts with host governments. However, even if these options are available, they may not cover all political risks and the possibility exists that a host government will default on its commitments. PRI offers protection against this. • Develop a long-term view: In addition to staying current regarding new developments and political risks, a company should develop a sustainable and long-term position in the host country. Community relationships should be valued and built on trust and respect, with local stakeholders and partners receiving a fair portion of benefits. Lobbying can also be considered, but care must be taken to comply with all lobbying, anti-corruption and anti-bribery laws in place in the company’s original and new host country.

December 2013 Canadian Underwriter

Real Puzzler Things are changing for property and casualty insurers. In Canada, 2013 provided a dramatic illustration of how one event (or two) threaten to jumble the pieces expected to be part of the p&c puzzle moving forward. Preparing for everything from the best to the worst â&#x20AC;&#x201D; and understanding how a single piece can influence the p&c solution as a whole â&#x20AC;&#x201D; may be the most reliable way to approach the times ahead.

28 Canadian Underwriter December 2013

t is still Canada; it may still even be the same type of perils the country has always known. But there now appears to be something different — and decidedly concerning — about the potential impact of events and insurable losses that property and casualty companies operating in the country can expect to see in the near and more distant future. The events of 2013 — highlighted by a horrific rail disaster book-ended by two flood events expected to produce close to $3 billion in insured losses — clearly demonstrate the need to be on the lookout for old perils that can have new, bigger impacts. Those three incidents alone have launched a federal review and fuelled renewed discussions around flood insurance. There is also talk of the influence of Ontario auto (highlighted by the governmentmandated average 15% rate reduction), increasing regulation, plentiful capacity, telematics, mergers and acquisitions (M&A), customer expectations and buying behaviours, earthquake risk, cyber attacks and technology. All this, coupled with the continuing influences outside Canada’s borders, demands that p&c companies be prepared to rethink current approaches to solve individual and collective puzzles. Perhaps, the best preparation is to expect the unexpected. That said, understanding risk, anticipating challenges, focusing on underwriting discipline, embracing innovation, enhancing customer service and being prepared to respond in a timely manner — all may reveal opportunities for p&c insurers. Canadian Underwriter asked senior executives for some of the country’s primary insurance companies the following question: What are the key trends affecting the Canadian property and casualty market and what sort of response is needed to meet the challenges or opportunities in 2014? Here is what executives had to say, presented in alphabetical order by last name.

December 2013 Canadian Underwriter 29

COVER STORY

Real Puzzler

Barbara Bellissimo Chief Agent & Senior Vice President, State Farm Canada

In 2014, State Farm will continue to advocate for change to improve the affordability of insurance, while ensuring that coverage remains available for the risks Canadians face. Increased regulation continues to add cost. Consumers would benefit from modernization of auto insurance rate oversight across the country. Encouragingly, legislation recently introduced in Alberta may lead to the elimination of the annual industry-wide adjustment and allow for a file-andapprove system. At State Farm, we see this as a small positive step forward to minimize compliance costs, enable insurers to respond more quickly to market conditions, and promote innovation. We will continue to call attention to the consumer benefits of a competitive pricing environment with provincial regulators. The challenge to achieve a healthy Ontario auto insurance market continues. Positive cost developments from the 2010 reforms will disappear without follow-through by the government to reinforce its original objectives. The Statutory Accident Benefits Schedule is unique to Ontario and has driven costs by encouraging fraud and coverage overutilization. To achieve cost reductions, we urge the government to implement the proposals that are already on the table. Lasting cost reductions will require further reforms. Solutions can be found in the contract language of existing successful auto insurance systems in North America. Severe weather events earlier this year have piqued public interest in property insurance water coverage. Lost in the conversation about whether or not insurers should begin to offer overland flood coverage is the insurance industryâ&#x20AC;&#x2122;s existing struggle to continue to offer sewer back-up coverage. All levels of government must encourage the building of more resilient communities; those that are able to withstand a wide range of severe weather incidents, not just overland flooding. 30 Canadian Underwriter December 2013

Consumers more than ever are looking for a seamless and personalized experience characterized by authenticity and simplicity throughout all interactions with insurers and brokers.

Jean-FranĂ§ois Blais President, Intact Insurance

2013 is unfolding as expected with modest economic growth and low interest rates; all indicators point towards the same environment for 2014. While equity markets are most exuberant, much uncertainty remains as North American monetary policymakers weigh their options. At the industry level, insurers are closing 2013 with uncertainty over the outcome of the cost reduction measures that the Ontario government will adopt. While we are hopeful that the governmentâ&#x20AC;&#x2122;s initiative

will reduce the cost of the protection that drivers enjoy in Ontario, the 15% objective will remain a stretch. However, it will be imperative for the government to reach that goal if it wants to maintain the availability of auto insurance in the province. Good drivers in Ontario and across Canada deserve a break. This is why Intact will roll out across the county in the upcoming year its telematics solution to brokers, whereby their customers could benefit from a discount on their auto insurance premium that may reach 25%. What did not unfold as expected was the unprecedented devastation caused by the flooding in Southern Alberta and the Greater Toronto Area. These events have again demonstrated the fragility and vulnerability of our nation to natural disasters and the urgency for Canadian society to adapt to climate change. While insurers rethink the protection we offer to consumers, its design and its pricing to ensure its availability and sustainability, it is of the outmost importance that the industry encourages governments, NGOs, planners, builders and consumers to make our cities, communities, public infrastructures and the buildings where we live and work more resilient. This will be the most enduring contribution we could make towards the prosperity of our society. Consumers more than ever are looking for a seamless and personalized experience characterized by authenticity and simplicity throughout all interactions with insurers and brokers. As the traditional distinctions between distribution channels become less and less evident, Intact intends to offer brokers and their customers unmatched service levels, a broader suite of products and much improved online communications and buying tools. We will also continue to invest in more modern and flexible technology platforms that will allow brokers to offer the outstanding experience their customers have come to expect from them.

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COVER STORY

Real Puzzler

Alister Campbell Chief Executive Officer,

The Guarantee Company of North America

The Canadian insurance industry got thrown a lot of curve balls, knuckle balls and even the occasional spitball in 2013. Floods, train crashes, collisions and another episode of the Ontario auto saga all combined to make our continued struggles with record-low interest rates even more challenging. And there are so many balls in the air. With so many rapidly evolving trends in technology, distribution and customer-buying behaviours, it is a real challenge for any insurance executive to choose which balls to swing at, and which to just let go by. So let’s focus on what we know for sure. Ontario auto rates will fall. Residential rates will climb. Companies will continue to buy up distribution. Big machine underwriters will use big data to refine rating, but become even less transparent to brokers and customers. More telematics options will enter the auto market. Interest rates will stay low, and Canadian economic growth will underperform the United States, but outperform Europe. While we are at it, let’s try to quantify what we do not know. Are proposed reforms to Ontario auto adequate to offset mandated reductions? Are we really sure we know where water is going to accumulate next? Will politicians get more engaged in property insurance as premiums start matching those of auto in flood-prone zones? Will telematics empower or weaken intermediaries? Will consumer’s love of the Web start to shift buying patterns in commercial lines? The list of uncertainties is just as long as the list of things we think we can be sure about! What’s the strategy for times like these? Small ball. It is likely a mistake to swing for the fences. Better to execute the perfect bunt or hit through a market gap to advance a runner. Steal a base only when the percentages are really stacked in 32 Canadian Underwriter December 2013

your favour. Keep your head up and be prepared to duck fast when politicians or competitors show a lack of control. Should be a great game!

Customers need to confirm that any new players that come into the industry have a firm grasp on what they are insuring and have the ability to pay for the kind of severe weather claims that are predicted to become more common.

Patrick Lundy President & Chief Executive Officer, Zurich Canada

Risk and uncertainty continue to permeate the global economy, as escalating effects of catastrophic events, government regulations and active M&A activity will continue to have a significant impact on the Canadian property and casualty insurance industry in 2014. The need for people to have a good grasp of the risk they are ready to insure is greater than ever.

Traditionally, Canada has had limited exposure to catastrophic weather events, but the last few years have shown that the environment is changing, as evidenced by the estimated $1.7 billion of insured losses for the Alberta floods and the estimated $0.9 billion of insured losses for the Toronto floods. Having the right tools, maps and predictive models is key to charging an accurate price for the risk, and capacity in certain areas may become harder to come by. Updated flood zone maps for Canada are of the utmost importance in being able to respond accurately to the increased flooding activity. While capacity may be harder to come by through established channels, this opens opportunity for newer entrants to market. Customers need to confirm that any new players that come into the industry have a firm grasp on what they are insuring and have the ability to pay for the kind of severe weather claims that are predicted to become more common. Consequences of these perils cause ill-prepared carriers to need more capital or simply walk away from the market. Not only is the industry seeing new players, the players already on the field are combining. Primary insurers are continuing to purchase brokerages without strong regulatory oversight. This may cause channel conflicts. Building a work environment that fully taps into the potential of all individuals is key to success. The industry is seeing skilled insurance professionals move from carriers to brokers, but less often is it the other way around. With carriers placing greater value on employees with sales mindsets, I see a more even sharing of expertise between brokers and carriers in the coming year. The regulatory environment is continually evolving and tightening. Carriers are grappling with the significant hit related to HST on affiliated reinsurance contracts, ORSA (Own Risk Self Assessment) guidelines have been finalized and will take effect in January 2014, and changes to capital calculations are expected to be implemented in 2015.

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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COVER STORY

Real Puzzler There is a need for companies to have dedicated enterprise risk managers to help respond to the ever-changing legislation. These changes will strengthen the insurance industry from a capital and risk management perspective, but also come at a cost. Despite these and other challenges, there are still keen opportunities for insurers. With the right people and having an understanding of the growing Canadian and global markets like technology, health care and financial services, there are plenty of areas in which to prosper.

Ken McCrea President & Chief Executive Officer,

Wawanesa Mutual Insurance Company

Perhaps the most significant trend is the response by the insurance industry to severe weather events through changes to product design and pricing of property insurance products. While the Calgary flood and Toronto rainstorm were the high-profile events of 2013, there were several other significant weatherrelated losses in Western Canada. Increased claim costs from water, wind and hail are resulting in premium increases. Product changes are designed to show consumers how much of their premiums are related to these perils and to offer choices in coverage amounts, deductibles, coverage inclusions/exclusions and discounts for loss control actions. Both companies and brokers are challenged to educate customers on reasons for premium increases and product design changes. There will be continued focus on earthquake risk. Following the recent release of the Insurance Bureau of Canadaâ&#x20AC;&#x2122;s study, the industry will engage various stakeholders with the goal of preparing Canada for a major earthquake. Many property owners in exposed regions do not carry earthquake insurance. At Wawanesa, in order to continue offering effective protection to customers, we are proactively managing the 34 Canadian Underwriter December 2013

lenges in utilizing the data for rate setting, including regulatory approval, and implementing it in company systems. Technology development will continue to receive attention. At Wawanesa, we remain focused on our technology renewal strategy, including upgrades to company/broker integration and replacement of legacy systems.

Kevin McNeil President & Chief Executive Officer,

Gore Mutual Insurance Company

Canadian insurers operate in a very competitive marketplace with significant excess capital, which kept 2013 rooted in another year of a soft market. Early indications suggest increasingly frequent climatic activity may not produce the pricing response one might have expected. risk through product design changes in addition to maintaining a high-quality reinsurance program. In the automobile market, while it might not be seen as a trend, concern over the Ontario premium reduction regulation dominates. While reducing the price of auto insurance in the province is a very desirable objective, achieving the regulationâ&#x20AC;&#x2122;s premium-reduction targets in a fair and balanced manner is dependent upon government introducing necessary cost-reduction changes. The emerging use of telematics will be a significant trend in 2014 and beyond. The required technology seems readily available, but there are chal-

As I write this, the news is filled with images and statistics about Typhoon Haiyan, the strongest storm to ever hit land. When I consider key trends affecting the insurance industry, my mind turns to increasing severe weather patterns. It is said that 2013 is the seventh hottest year on record. A host of alarming issues come with that. Our industry must be aggressive in its response. We need to find prudent ways to protect customers and their families. Traditionally, our industry has fallen trap to reading in additional coverages and delaying rate increases that will help us keep pace with escalating claims and reinsurance costs. Being prudent means keeping families safe, but it also means protecting coverage availability. Insurers want to be there to provide the coverage clients need in the event of a loss. Our industry has faced consumer confidence issues, which is unfortunate, considering the profoundly positive impact that we have when our policyholders need us. When a severe weather event occurs, we all have the occasion to serve clients professionally and quickly. While analytics, research and predictive modelling are important, the insurance industry cannot overlook the influence of genuine personal service. From the broker who takes the time to understand a clientâ&#x20AC;&#x2122;s needs, to the claims adjuster who compassionately serves clients, we collectively impact the brand, which is why we all choose our partners carefully.

The Dominion joins Travelers under the umbrella. The Dominion and Travelers Canada, two strong organizations, have come together to provide you an even broader choice of insurance solutions. You can count on an unwavering commitment to our promises, dedication to our customers and brokers and outstanding service. We look forward to showing you, in every way we serve you, that it’s better under the umbrella®.

travelerscanada.ca The Dominion of Canada General Insurance Company joins St. Paul Fire and Marine Insurance Company and The Travelers Insurance Company of Canada as the Canadian licensed insurers known as Travelers Canada. © 2013 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. New 10-13

Canadian Underwriter_8.125 x 10.875_11.4.13_jod.indd 1

11/4/13 2:36 PM

COVER STORY

Real Puzzler We must be on a quest to attract top talent to the industry. And we must invest in training that talent. As insurers witness an alarming increase in severe weather events, we need to recognize the importance of crisis management and response. When disaster strikes, it is the people in our industry who will most influence the clients’ experiences. We all want to be there to respond when clients need us. As Gore Mutual prepares to celebrate its 175th anniversary, it occurs to me that this fundamental position has not changed and looks just as it did in 1839 — our industry providing genuine personal service in a client’s time of need.

Ellen Moore Chair, President & Chief

Executive Officer, Chubb Insurance Company of Canada

This has been a very challenging year for the Canadian insurance industry with the advent of several major weather events. These storms put Canada on the front pages of newspapers around the world and brought home, after a near 15-year hiatus, that Canada is not immune from major catastrophic weather and the resulting damage caused. While both events left our customers and brokers in dire circumstances, the Calgary flooding produced unprecedented dislocation of people from their homes and workplaces. Employees in the insurance industry took part in fundraisers and neighbourhood coalitions, responding to help flood victims wherever possible. Our claims staffs have begun the loss-settlement process, working very long hours and under very difficult conditions, to respond to get the help needed by our customers. It is circumstances like these that allow us to demonstrate our value proposition. There are also other significant issues industry will continue to deal with into 2014. Operating margins in our business continue to be under pressure from the effects of low investment 36 Canadian Underwriter December 2013

With such market challenges, it is even more important that Chubb stays focused on underwriting discipline, prices to exposure, is innovative with products and excels in customer service. Continuing to provide top-notch service and products while managing our balance sheet and underwriting profit, remains the top priority. Chubb is optimistic about 2014, expecting some lift in the global economies that are critical to Canada, continued stability in the Canadian economy and stable pricing of industry products.

Sean Murphy

President, Lloyd’s Canada

What should we expect in 2014? We should expect more change and evolution of risk. The ability to succeed is predicated on our ability to adapt and seek out the opportunities those changes will present. yields, rising costs and loss development trends. Canadian insurers operate in a very competitive marketplace with significant excess capital, which kept 2013 rooted in another year of a soft market. Early indications suggest recent severe and increasingly frequent climatic activity may not produce the pricing response one might have expected for both commercial and personal insurance products. Regulation continues to increase significantly and will continue to do so, all adding cost to the system. In the auto segment, proposed pricing regulation runs counter to loss development trends. Such mandates can create market instability at the very least.

Earlier this year, Lloyd’s — which marks its 325th anniversary in 2013 — released the annual Lloyd’s Risk Index. The index assesses corporate risk priorities and attitudes amongst the world’s business leaders. Many of the top 50 identified risks resonate in the context of Canada’s insurance industry. I was drawn to two identified risks as being particularly illustrative of our experiences in 2013. Firstly, regulation and changing legislation continues to be at the forefront of C-suite executive minds. Like all other regulatory bodies, Canadian regulators are actively diligent to ensure the insurance industry remains robust, consumer rights are protected and company failures negated. All worthy goals, but when regulatory directives clash, how will individual companies react? How will a mandated decrease in one of the largest insurance market segments in Canada impact the strategies of insurers most affected? Will they enter into unfamiliar classes of business to offset their loss in premium income? Will their push for market share into other lines put further pressure on rates, creating a domino effect on other markets that compete in that segment? Or will the directive to reduce auto rates spur on the quest for more consolidation in the insurer ranks?

COVER STORY

Real Puzzler Secondly, many believe environmental risks due to climate change are on the rise. In 2013, we witnessed several significant weather-related loss events. In Canada, two of the most severe occurred in Alberta and Toronto in the early summer months. According to the Intergovernmental Panel on Climate Change report, Canada and other countries distant from the equator will feel the impact associated with climate change most acutely. We should anticipate that these types of severe weather events will become the norm in Canada. How quickly will lessons learned from 2013 be applied to future events? Will there be a rise in consumer expectations for the industry to better cope with the claim settlement process as weather-related losses become more frequent? What should we expect in 2014? We should expect more change and evolution of risk. The ability to succeed is predicated on our ability to adapt and seek out the opportunities those changes will present.

John Oâ&#x20AC;&#x2122;Donnell

President & Chief Executive Officer, Allstate Insurance Company of Canada

With increasing political and regulatory uncertainty affecting the insurance industry in Canada, 2014 promises to be a year focused on the ability of the property and casualty market to adapt, innovate and evolve. It is important that insurers are able to understand our customers and provide them with the knowledge to make choices that best suit their individual insurance needs. We need to be a reliable and credible source of information for our customers, and demonstrate that we will be there to support them through tough moments. With increasing public attention on insurance premiums, some aspects of our industry are bound to change. Insurers all want to see insurance offered in a stable, affordable and accessible way, but rate cuts are simply a 38 Canadian Underwriter December 2013

The government is increasingly focusing on cyber security, which is certain to lead to more legislation and regulation. Insurers need to ensure their customers are protected against cyber risk by offering solutions that address identification, control and coverage. short-term, Band-Aid solution that fails to address larger systemic issues that require attention. Ultimately, it is our customers who make us successful and they have the power to choose their insurer based on what values are important to them. It is important to understand our customers and how they vary across different markets. We owe it them to continue providing trusted advice and a competitive product; insurers will do this by innovating and fostering a thriving marketplace. It is critical that the industry has the ability to adapt and offer new solutions and services in a timely manner to keep up with customer interest and demand.

Insurers rely on regulators to help us achieve this. Companies require the flexibility to enter into new markets and offer innovative programs. Those that adapt and evolve will succeed; those that maintain the status quo run the risk of being left behind. If systemic costs are properly addressed, if insurers have the regulatory ability to innovate and adapt, and if we all practise strong corporate management, a healthy, competitive market will emerge. In this scenario, it is the customer who benefits the most, and from that we all succeed.

Lynn Oldfield

President & Chief Executive Officer, AIG Canada

The trends in the property and casualty marketplace as we close 2013 have been apparent for a number of years. Insurers continue to experience low economic growth prospects, a continuing low interest rate environment, plentiful domestic and global capacity, expanding regulation and governance, more new commercial entrants vying for market share and an increased frequency of catastrophic losses. Looking back over the past year, the events that stand out are the catastrophic losses in the Alberta floods, the train derailment tragedy in LacMĂŠgantic, Quebec, and the Toronto July rainstorm accompanied by power outages, flooded basements, a stranded GO Train and shuttered subway stations. Cat losses are becoming the norm, rather than the exception. The negative media coverage of the insurance industry claims response in Alberta was a wake-up call for many carriers. AIG needed to change the conversation. AIGâ&#x20AC;&#x2122;s commercial property market leadership and vast experienced claims team provided a unique platform to facilitate positive change in the claims process. Our partial claims advance payments to commercial property clients provided much-needed liquidity during chal-

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COVER STORY

Real Puzzler lenging times of displacement, cleanup, repair and reconstruction — all well before the final proof of loss was filed or the application of flood retentions was completed. The question we asked ourselves was, “How much of this claim do we know for sure is covered?” The client and broker reaction was one of gratitude and respect. The challenge is to sustain that service responsiveness in every aspect of AIG’s business and exceed expectations. The Toronto Insurance Conference has drafted a Declaration of Emergency, which requires carriers to extend coverage at existing terms, conditions and pricing for the duration of a declared emergency by civil authorities. Canadian p&c carriers should voluntarily agree to do the right thing, whether through an agreement, commitment or endorsement of cover.

Gary Owcar

President & Chief

Operating Officer, CNA Canada

In a rapidly changing industry, one thing remains constant — the importance of underwriting and the need to produce an underwriting profit. In the low-yield environment the insurance industry has experienced for the last few years, companies can no longer rely on investment income to shore up earnings. Rather, they must have the expertise to fully understand and respond to the nuances of their customers’ industries through underwriting and pricing that reflects each industry’s unique risks. Three trends stand out as important for our market. The first is the increasing frequency of catastrophes throughout the world. No longer immune, Canada experienced two natural disasters this year; the largest was the Alberta flood that weighed in as the worst floods in Canadian history. When a catastrophe happens, many lessons are learned, which highlight the need for effective enterprise risk man40 Canadian Underwriter December 2013

Finally, the trend of greater regulation of our industry is accelerating. The current dialogue on regulation is relevant to all global writers. The Financial Stability Board, an international board chaired by the Governor of the Bank of England, has been established to co-ordinate at the international level the work of national financial authorities and international standard-setting bodies, as well as to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. Carriers and brokers need to speak out for our industry to ensure that proposed regulations are effective and reasonable, not costly, complex and burdensome.

Sylvie Paquette

The frequency and severity of weather-related Cat events, along with earthquake risks, means it is clear Canada’s insurers need to focus more sharply on Cat risks in their business mix, pricing models, coverages and claims organizations. agement (for customers, brokers and carriers), thorough underwriting, coverage, claim service and accurate pricing. The second trend is the evolving nature of business risk. For example, cyber attacks on individuals, corporations and governments are proliferating. The government is increasingly focusing on cyber security, which is certain to lead to more legislation and regulation. Insurers need to ensure their customers are protected against cyber risk by offering solutions that address identification, control and coverage.

President & Chief Operating Officer, Desjardins General Insurance Group

The past year will be remembered for the record insured losses from the catastrophic flooding in Alberta and the torrential rains in the Toronto and Montreal areas that cut sharply into insurance industry profits. With our changing climate, the frequency and severity of weather-related Cat events is a trend that will worsen in the future. Add in the very real earthquake risks in the Vancouver, Montreal and Ottawa areas (highlighted recently by the Insurance Bureau of Canada), and it is clear that Canada’s insurers need to focus more sharply on Cat risks in their business mix, pricing models, coverages and claims organizations. But insurers cannot tackle these huge challenges on their own. Governments at all levels have a big role to play, by improving building codes and outdated infrastructure, restricting development in flood-prone areas, and providing financial back-up. With the launch of our usage-based insurance (UBI) offerings, DGIG is part of another key industry trend. UBI offers drivers more personalized insur-

The leading UBI/BBI provider in the UK uses the same technology as the Williams Formula 1 team. EŽǁ ŝƚ͛Ɛ ƐŚŝŌ ŝŶŐ ŝŶƚŽ ƚŽƉ ŐĞĂƌ ŝŶ EŽƌƚŚ ŵĞƌŝĐĂ͘ /Ŷ ƵƌŽƉĞ͕ hƐĂŐĞͲ ĂƐĞĚ ĂŶĚ ĞŚĂǀŝŽƵƌĂůͲ ĂƐĞĚ /ŶƐƵƌĂŶĐĞ ʹ h /ͬ / ʹ ŚĂƐ ĐŚĂŶŐĞĚ ƚŚĞ ĨĂĐĞ ŽĨ ƚŚĞ ŝŶƐƵƌĂŶĐĞ ŝŶĚƵƐƚƌǇ͘ EŽǁ ĂĚǀĂŶĐĞĚ͕ ƉƌŽǀĞŶ h /ͬ / ƐŽůƵƟ ŽŶƐ ĨƌŽŵ ƵƌŽƉĞ ĂƌĞ ďĞŝŶŐ ŝŵƉůĞŵĞŶƚĞĚ ŝŶ EŽƌƚŚ ŵĞƌŝĐĂ͕ ĂŶĚ ĂƌĞ ĂůƌĞĂĚǇ ůĞĂĚŝŶŐ ƚŚĞ ƉĂĐŬ͘ tŚŝĐŚ ŝƐ ǁŚǇ ǇŽƵ ƐŚŽƵůĚ ƚĂůŬ ƚŽ YƵŝŶĚĞůů͕ ƚŚĞ EƵŵďĞƌ ϭ h /ͬ / ƉƌŽǀŝĚĞƌ ŝŶ ƚŚĞ h<͕ ĂŶĚ ƚŚĞ ĨĂƐƚĞƐƚͲ ŐƌŽǁŝŶŐ ƉƌŽǀŝĚĞƌ ŝŶ EŽƌƚŚ ŵĞƌŝĐĂ͘ YƵŝŶĚĞůů ƐŽůƵƟ ŽŶƐ ŐŽ ĨĂƌ ďĞǇŽŶĚ h / ĂŶĚ ƚŚĞ ƐĐŽƌŝŶŐ ǁŚŝĐŚ ůĞĂĚƐ ƚŽ ƉŽůŝĐǇ ŚŽůĚĞƌ ĚŝƐĐŽƵŶƚƐ ʹ ƚŚĞǇ ŚĞůƉ ŝŶƐƵƌĂŶĐĞ ĐĂƌƌŝĞƌƐ ƚŽ ŝŶƐƉŝƌĞ ĂŶĚ ĞĚƵĐĂƚĞ ǀĞŚŝĐůĞ ŽǁŶĞƌƐ ƚŽ ĚƌŝǀĞ ƐĂĨĞůǇ ĂŶĚ ƌĞƐƉŽŶƐŝďůǇ͕ ŝŶ Ă ǁĂǇ ƚŚĂƚ ŝƐ Į ŶĂŶĐŝĂůůǇ ƌĞǁĂƌĚŝŶŐ͕ ĞŶŐĂŐŝŶŐ ĂŶĚ ĨƵŶ͘ YƵŝŶĚĞůů ƐŽůƵƟ ŽŶƐ ĂƌĞ ŚĞůƉŝŶŐ ƚŽ ƐƚĂŵƉ ĚŽǁŶ ƚŚĞ ĐŽƐƚƐ ŽĨ ĐůĂŝŵƐ͕ ůĞĂĚŝŶŐ ƚŽ ŵŽƌĞ Ăī ŽƌĚĂďůĞ ƉƌĞŵŝƵŵƐ ĨŽƌ ĐŽŶƐƵŵĞƌƐ͕ ĂŶĚ ƚƌĂŶƐĨŽƌŵŝŶŐ ƚŚĞŝƌ ƌĞůĂƟ ŽŶƐŚŝƉ ǁŝƚŚ ƚŚĞŝƌ ĐĂƌƌŝĞƌ ŝŶƚŽ ŽŶĞ ƚŚĂƚ ŝƐ ŝŶƚĞƌĂĐƟ ǀĞ ĂŶĚ ƌĞǁĂƌĚŝŶŐ͘ >ĂĚŝĞƐ ĂŶĚ 'ĞŶƚůĞŵĞŶ͕ ƐƚĂƌƚ ǇŽƵƌ ĞŶŐŝŶĞƐ͘

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COVER STORY

Real Puzzler ance, and a strong financial incentive to improve the way they drive. Concerns about “big brother” monitoring will fade as these telematics programs become more widespread, and as other value-added services are tacked on. It is clear that those companies that quickly embrace new technologies like telematics will have a clear lead over their slower competitors. While many insurers are wrestling with how to update or replace legacy systems, postponing tough decisions and investments could be costly. That’s because technology is becoming ever more important to the customer experience. Efficient systems and seamless online and mobile applications are just as important as the friendly, knowledgeable voice on the telephone. DGIG is tackling both the people and technology sides of the equation, to position itself as the customer experience leader in Canada — along with so many of our competitors. Addressing all these key issues requires deep pockets, which is why I also believe that the consolidation trend in the industry will continue. In 2014 and beyond, size and reach really will count.

Rowan Saunders

President & Chief

Executive Officer, RSA Canada

The continued pressure of severe weather was unequivocal in 2013, when the market faced two of Canada’s most expensive natural disasters within the space of three weeks. These unprecedented events tested the industry’s ability to meet customers’ needs. Given the increased frequency and severity of weather-related events, the opportunity lies in having the ability to respond quicker, manage costs and become more sophisticated at Cat, risk and accumulation management going forward. Additionally, having a customerfocused approach to property rate, deductible and policy changes will be 42 Canadian Underwriter December 2013

critical in driving retention. Customer education as to why these changes are necessary, their options, and the valueadded services and benefits your proposition brings to the table, will be key. In Ontario auto, uncertainty looms as the insurance industry awaits further details on the “cost” element of the government’s imposed “cost and rate reduction strategy,” which needs to be timely, reasonable and realizable to ensure that the customer does not suffer the consequences of an unsustainable market. RSA anticipates that regulated products such as auto will continue to be exposed to political interference and commoditization. To remain competitive, it will be crucial to utilize scale, technology and data analytics to develop the next level of pricing sophistication in this segment, or alternatively, shift focus towards higher margin, niche and specialty lines of business. Lastly, the industry needs to advance customer interactivity in order to address continued changes in consumer behaviour and expectations. Insurers and brokers alike should look outside our industry, and beyond Canadian borders, to discover new, innovative and enhanced channels and touch points that improve our customer-centricity. Overall, 2014 will evolve how we address a familiar set of challenges. Winning strategies will focus on putting the customer first.

Greg Somerville

President & Chief Executive Officer, Aviva Canada

Key trends Aviva sees continuing in 2014 revolve around the complexities of auto insurance in Ontario, customer

behaviour, especially purchasing preferences, and weather-related events. These trends represent a number of new realities that we will face collectively in 2014. Managing auto insurance in Ontario requires balancing government directives with consumer expectations and insurers’ claims costs. The 15% mandatory average rate reduction is only achievable if significant change is made to take costs out of the system. In addition to working with the Insurance Bureau of Canada (IBC), Aviva has formally submitted ideas to the government on ways to reduce costs. As individuals, we can engage our local MPPs on the need for these changes to make insurance affordable and accessible for everyone. For customers, it is about putting them at the heart of the insurance process and being available to do business at their convenience. Insurance providers should recognize and respect evolving customer preferences that are trending towards selfservice buying models. Insurers and brokers must join forces, adapt and find solutions. At Aviva, we are investing in lead-generation tools and digital solutions to help brokers respond to evolving customer preferences. Following the catastrophes of Southern Alberta and Toronto and the unprecedented losses in their wake, there is a renewed urgency to act on climate change and weather issues. Government at all levels, industry bodies and consumers must work together to better protect citizens and communities. A promising development on this front is IBC’s newly implemented Municipal Risk Assessment Tool that helps city governments identify sewer and storm water vulnerabilities, so that they can plan and fund infrastructure improvements. Consumers have a role to play by managing their own risks and expectations and we, as insurers, can encourage this through greater education. By working together, our industry will be better prepared for the future.

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COVER STORY

Real Puzzler

John Taylor

President & Chief Executive Officer, Ontario Mutual Insurance Association

Two of the key trends in 2013 are familiar to everyone in the property and casualty industry as they have been with us for a number of years: Ontario auto and severe weather. Much has been said and written on issues concerning Ontario automobile insurance, primarily driven by the provincial government’s unprecedented position on mandating rate reductions across the industry. There is not yet enough proof of sustainable improvements in Ontario automobile insurance results following the reforms of 2010 to allow for the level of reduction mandated. In 2013, the insurance industry did see the government moving towards implementation on a number of initiatives in the spirit of the 2010 reforms. Nonetheless, there is no delivery date as yet for the key reforms relating to a Minor Injury Treatment Protocol and the definition of catastrophic injuries. Results are also starting to suggest that any cost stability in the first-party benefit structure will be eroded by increased claims arising from tort. These are fundamental issues for all stakeholders, including consumers. The political automobile insurance platforms that Ontario’s three parties have built are pointing towards destabilization, which of course, is the opposite of the stated intentions of the reforms of 2010. For 2014, the industry needs to focus on communicating at an understandable level to policyholders on how auto insurance works in Ontario and why it costs what it does. Severe weather and frequent storms highlighted by the flood events in Alberta and Toronto in 2013 have put a stronger Canadian spotlight on water loss exposure, and particularly on the broader economic effect of these events. 44 Canadian Underwriter December 2013

The coming year will see a continuing focus on leveraging digital technology to control distribution costs and provide better service to customers across every touch point — sales, service and claims processing. I believe in 2014, we will see opportunities for more productive discussions on public-private forums on better municipal control of building and flood plains, understanding of infrastructure deficits, the need to be proactive in looking at better weatherresistant construction methods and building codes, and how to come to grips with the insurability of water damage in general.

Silvy Wright

President & Chief Executive Officer, Northbridge Financial Corporation

While adapting to change has always been a challenge, the increasing pace of change is creating a sense of urgency for businesses to adapt quickly

— and for those of us in the insurance industry, it is creating new and emerging exposures and opportunities at an unprecedented rate. Technology will continue to play an integral role in how we adapt as an industry. The coming year will see a continuing focus on leveraging digital technology to control distribution costs and provide better service to customers across every touch point — sales, service and claims processing. The insurance industry will also see continued investment in data and systems capabilities to better support improved analytics and decision-making. With 69% of surveyed Canadian companies reporting a cyber crime attack in the past year, cyber risk has quickly emerged as a new reality in the business landscape. The risks that come with our growing reliance on technology affects almost every company operating today — regardless of size or industry. Despite the rising importance of technology, insurance is at its core a people business. We need to continuously adapt to the needs of an evolving workforce and continue to invest in the talent we already have, while attracting those with the mindset and skill sets required to drive innovation and help the industry stay ahead of the change curve. Attracting talent is an area where our industry has struggled historically. The recent report released by the Insurance Institute clearly demonstrates that we have made a great deal of progress in this area — the property and casualty insurance industry is now both younger and more aligned with the age structure of Canada’s labour force than it was in 2007 — but there is still work to do. As many of us in the industry already know, there are great opportunities for a rich and rewarding career in insurance, and it is important that we let everyone in on our secret. The more we continue to innovate and advance, the more we will be able to attract the best and brightest — the future leaders of this industry.

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meta l; they are our s. They are our se cur ity an d our fre ed om . Our car s pr ove to us th at somet ime s lif e isn â&#x20AC;&#x2122;t ab out the de st inatio n, but the journ ey . W het her itâ&#x20AC;&#x2122; s ta king yo ur ba by home fro m the hos pit al for the fir st time, a roa d tr ip wit h fri en ds or an ins pir ing dr ive wit h a speci al someon e; CA R ST AR un derst an ds the rel at ion sh ip th at pe op le ha ve wit h their car s an d th at when somet hing ha ppen s to them , som et hing ha ppen s to us . Joi n the CAR ST AR com mu nit y on Fa ceb ook an d Tw itt er an d sh are wit h us how yo u # lov et he journ ey . be st fri en ds an d our wo rk hor se

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Best to Assess Angela Stelmakowich Editor

It is hoped a new pilot project involving three different municipalities in three different provinces will offer similar outlooks regarding the value of being able to assess municipal infrastructure before the next severe weather event occurs. The solution for increasing insured losses from sewer back-up claims following severe weather that overwhelms municipal infrastructure is not to hike premiums and slash cover, Don Forgeron, president and CEO of the Insurance Bureau of Canada (IBC), said following a recent speech in Toronto. Rather, Forgeron emphasized, the solution is to employ innovative aids like the webbased Municipal Risk Assessment Tool (MRAT). The tool is designed to help municipalities — perpetually facing budget constraints — identify current and future sewer and storm water vulnerabilities, thereby allowing for funding, planning and building according to their severity.

46 Canadian Underwriter December 2013

Changing weather, which is resulting in more torrential rain and flooding, is overwhelming vulnerable sewer and storm water infrastructure and causing sewer back-ups and basement flooding, Forgeron reported. “In Canada, we are now experiencing, on average, 20 more days of rain annually than we had in the 1950s.” The genesis of MRAT was the realization that infrastructure failure in Canada was responsible for the majority of ever-mounting insured losses that accompanied rainstorms across the country. Add to that a growing sewer and storm water infrastructure deficit.The Federation of Canadian Municipalities has pegged the sewer and storm water system infrastructure deficit at $55 billion.

PILOT PROJECT LAUNCHED Forgeron said MRAT offers a means of viewing the issue of sewer back-up more holistically. It is an idea that will be put to the test as part of a pilot project, announced by IBC in November, involving Coquitlam, British Columbia, Fredericton, New Brunswick and Hamilton, Ontario. These municipalities will be followed by six others: Winnipeg in Manitoba, London in Ontario, Bathurst and Moncton in New Brunswick,

Halifax in Nova Scotia and St. John’s in Newfoundland and Labrador — all of which have collaborated with IBC in the developmental work on MRAT. The tool is currently a very good prototype, Forgeron said in an interview with Canadian Underwriter. “The next step for us is to take the teachings of this pilot and modify the tool based on what we learned — and I’m sure there will be learnings — over the next year or so,” he noted. The learnings will provide guidance on what IBC needs to do “to make sure that this tool works for anyone who wants it on a go-forward basis,” Forgeron said. Municipalities currently have few, if any, tools to quantify the susceptibility of infrastructure to severe weather events. “We’re getting more rain events, we’re getting rain events that are greater than we’ve ever experienced before, we’re dealing with infrastructure that can’t handle it,” Fredericton Mayor Brad Woodside said

and slope that affect risk and can vary widely within a municipality. Based on information shared by cities and insurers, a unique risk formula is developed for each municipality. Climate information is added and the risk formula input into a geographic information system visualization tool. Once a risk formula is developed, participating municipalities will carry out rigorous testing to verify the accuracy of the formula and resulting MRAT

maps. The maps — red areas will indicate that basement flooding is more likely; green areas will indicate flooding is less likely — show areas of current and future risk of failure of municipal sewer and storm water infrastructure that could result in insurable losses. Those maps, in turn, can be used to plan and prioritize infrastructure repairs, adjust service levels and support requests for federal infrastructure dollars. Citing the challenges associated with

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“We’re getting more rain events, we’re getting rain events that are greater than we’ve ever experienced before, we’re dealing with infrastructure that can’t handle it.” in a video, played during Forgeron’s presentation. MRAT will help city engineers be proactive and include science, not just guesswork, Woodside suggested.

HOW DOES MRAT WORK? Information about municipal infrastructure, current and future climate, and insurance claims is combined to provide a picture of where infrastructure is vulnerable now and will be vulnerable in 2020 and in 2050. MRAT collects and analyzes key municipal data, including the following: • the age and design of sewer and surface water systems; • the urban development that influences system capacity; and • topographical features like elevation

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upgrading infrastructure, “being able to prioritize that long list is the main goal of a program like MRAT, which really allows us the tools to help set priorities,” Coquitlam Mayor Richard Stewart noted in the video. Added Dan McKinnon, director of Hamilton Water, “Working together in a collaborative way to use information, to really gather as much information as we can as

relevant to solve what is a very widespread and inevitably will be a continuing problem in the future is the right thing to do.”

WAVE OF LOSSES 2013 has provided plenty of motivation to consider water-related losses. Severe flooding in Calgary and Toronto significantly contributed to Canada’s almost $3 billion in insured losses from natural disasters to date this year. This far exceeds the previous four years of nat cat-related insured losses of approximately $1 billion annually, a total that itself is considerably higher than the average insurance payout for storm damage of less than $400 million annually from 1983 to 2008, IBC reports. The flooding in Alberta and Ontario “are examples of the destructive and costly impacts that severe weather are having on municipalities, business and families,” Bruce MacArthur, president and CEO of Tesera Systems Inc., an employeeowned Canadian consulting service, says in a statement. Since 2010, IBC, Tesera Systems and Dillon consulting, a Canadian-owned professional consulting organization, have been working with municipalities across Canada to refine the development of the MRAT system.

48 Canadian Underwriter December 2013

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TOOL FOR INSURERS MRAT offers a means of combating sewer backflows now, but also provides some future promise as an underwriting tool to calculate risk. That said, IBC reports it will be a minimum threeyear lag before insurers have access to MRAT. And this will only happen with participating municipalities’ agreement. “Over time, municipalities can use MRAT to demonstrate infrastructure improvements to insurers, which will allow insurers to make more informed underwriting decisions,” IBC notes. Other stakeholders are also looking at how to make cities more resilient. For example, the Building Climate Resilience in Cities information resources, released in late November, were developed through a series of workshops held in the United States and Canada during 2012 and 2013, notes in a recent statement issued by The Co-operators. “A

“Over time, municipalities can use MRAT to demonstrate infrastructure improvements to insurers, which will allow insurers to make more informed underwriting decisions.” well-integrated cross-sectoral approach will be critical to effectively manage the growing risks facing our climate-vulnerable cities in the decades ahead,” Kathy Bardswick, president and CEO of The Co-operators, says in the statement. The new resources include documents relating to building climate resilience in cities, such as specific papers on priorities for collaborative action, moving from risk assessment to redevelopment, and an insurer-city resiliency toolkit. The resources offer a collaborative platform for “co-ordinating a single, coherent voice that policymakers and planners can rely on to make decisions for the long-term resilience of cities to the changing climate,” notes Mazdak Moini, Aviva Canada’s vice president of underwriting strategy, risk and reinsurance. “Leading insurance companies are key to building urban climate resilience.

Insurers have a lot to offer, and much at stake, in working with cities to protect people and property from growing climate risks,” Mindy Lubber, president of Ceres, a non-profit organization mobilizing business leadership on climate change, says in the statement. The private sector has a crucial and catalytic role to play in efforts to build climate resilience in cities, it notes. “However, faster and larger-scale investment and behaviour change is needed to ensure cities are prepared for future risks.” Forgeron cited a World Bank study that found, on average, disasters raise government expenditures by 15% and lower revenues by 10%, leading to a combined 25% increase in budget deficits. “But there’s also evidence to show investments in mitigation reduce overall damage by much as 30%,” he said in the interview. “We’re hopeful and optimistic that we can work with those municipalities who have challenges from a fiscal point of view in terms of implementing (MRAT). Once implemented, we think it’s going to be a very, very valuable tool in them allocating scarce dollars to the projects that they need the most,” Forgeron told attendees at the recent event.

“I think the whole notion of predictive analytics is where the industry is going,” Forgeron said in the interview. “You’re seeing it more and more in different lines of business and I think this is very much in keeping with that,” he noted of MRAT. “It’s not just looking to the past to predict the future. It’s looking to the future to predict the future, which I think is a sea change for the industry.”

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ackling T Digital

Doug McPhie

Partner & Canadian Insurance Leader, EY

Most insurers are looking to build companies with strong foundations and innovative approaches that will stand the test of time. But getting the business strategy right also means getting the digital piece right, something that is proving tough for many insurers. It is true that Rome was not built in a day. But, with the right support, it became a city of rich culture, impressive architecture and attractions that have kept people coming back for centuries. Most insurers are looking to build companies with similarly strong foundations and innovative approaches that, like Rome itself, will stand the test of time.These days, though, getting the business strategy right means getting the digital piece right. And for many insurers, that is proving to be tough. Insurance in a digital world: the time is now — a recent

50 Canadian Underwriter December 2013

EY (Ernst & Young) survey of more than 100 insurance companies — found that insurers have been slow to embrace digital across the globe. Of those surveyed, almost 80% do not see themselves as digital leaders, believing instead that they “only play the digital game” or are “still learning to use digital capabilities for a competitive advantage.” While more than two-thirds of insurers polled globally feel they have delivered some quick, easy wins, it has not been accompanied by a long-term strategy to realize their ambitious digital objectives. In fact, nearly half of insurers say that they have no single cohesive digital strategy business case. The findings represent a missed opportunity that could give property and casualty insurers in Canada, and around the globe, an edge over the increasingly broad pool of competitors. Building out a comprehensive digital strategy can empower insurers to better meet customers’ changing needs, drive retention and, ultimately, improve bottom-line performance.The challenge is knowing where to start, and how to make it work for your company.

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When it comes to cross-selling, the survey finds a startling 89% of insurance companies do not leverage past interactions when recommending products or services to online customers. In fact, just 1% currently offer online rewards, discounts, apps or live website assistance.

UNDERSTANDING THE LANDSCAPE For insurers, embracing digital is about much more than online distribution channels. From mobile to social media to cloud computing to analytics, digital technologies can be applied across the entire insurance value chain to help engage customers, improve underwriting accuracy and pinpoint the best reinvestments. Admittedly, there are many factors holding insurers back from realizing their digital ambitions. Internal factors like legacy technology and culture are valid challenges. But, in order to grow, insurers need to evolve and respond to digital pressures, or risk losing their competitive advantage.

GETTING SUPPORT FROM THE TOP While 40% of insurers surveyed by EY say their digital strategy has support from senior management, more than one-third of respondents believe that support is “not always backed by actions, budgets or resources.” Further, the survey found that 79% of p&c insurers globally spend less than 10% of their business and IT development budget on digital, and more than half lack the right operating model to deliver digital capabilities. That is a major barrier. When ambition and investment levels are disconnected, technological transformation usually fails.Therefore, it is critical insurers’ projected spend is realistic and clearly matches their ambitions. Interestingly, the survey found that most of the biggest barriers preventing insurers from achieving their digital ambitions come from within their own

organizations.While it would be easy to blame external causes, findings indicate the main inhibitors of digital progress — in addition to support from the top — are legacy technology constraints and slow pace of delivery.That is where analytics can come in.

REALIZING THE POWER OF ANALYTICS Analytics is a bit of a buzzword these days, but for good reason. In the EY survey, analytics capabilities — the ability to look at and decipher meaningful patterns in data — emerged as the most in-demand skill set for insurers. The right analytics are a critical component of conducting business in any sector these days. But in the insurance industry in particular, well-developed analytics capabilities are a prerequisite for extracting maximum value from digital investment. With the right skill set in place, analytics can transform the business in a virtually endless number of ways. Never before has there been so much potential data at our fingertips, and the technology to potentially do something with it — and that is the key. With so much data — data that is also constantly changing — making sense of it can be overwhelming, and often fruitless. Knowing what one is looking for, having a goal, can certainly help to focus the analysis. Asking the right questions when it comes to data is critical.Too often, companies are looking at data that either does not make sense or that is irrelevant. Once the right analytics capabilities

are in place, a digital strategy will be more grounded in delivering on those ever-important changing customer expectations.

TYING BACK TO THE CUSTOMER Success in embracing analytics, and digital in general, all ties back to delivering on changing customer expectations. Sixty per cent of survey respondents say they are concerned that customers will ultimately leave them. And we know from previous insurance customer surveys that improving the quality and frequency of contact boosts customer loyalty and retention. Conveniently — you guessed it — digital technology provides a real opportunity for companies to improve and personalize their communication with their customers, often without a disproportionate increase in costs. When it comes to cross-selling, the survey found a startling 89% of insurance companies do not leverage past interactions when recommending products or services to online customers. In fact, just 1% currently offer online rewards, discounts, apps or live website assistance. Failing to communicate at these critical times is a big missed opportunity to engage with customers. The EY report cites the following example, according to Forbes.com: “Kodak did not fail because it missed the digital age. It actually invented the first digital camera in 1975. However, instead of marketing the new technology, the company held back for fear of hurting its lucrative film business, even after digital products were reshap-

December 2013 Canadian Underwriter

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C Chart 1

JustJust HowHow Digital Have WeWe Become? Digital Have Become? 7 billion 7 41%

— number of mobile-cellular subscriptions expected by early in 2014 — proportion of world’s households estimated to be connected to the Internet by the end of 2013

2.1 billion

— number of subscriptions globally for mobile broadband

2.7 billion

— number of people (39% of the world’s population) estimated will be using the Internet by the end of 2013

77%

— percentage in the developed world forecast to be online at the end of 2013

Source: The world in 2013: ICT facts and figures, International Telecommunication Union, February 2013

Chart 2 C

Insurers have plenty of digital work to do, but the potential upside is enormous 100 89%

“Not setting the baseline” for digital or are “still learning” Have operating models that do not facilitate digital

5 57%

Percentage P

79%

47%

Have no business case or no unified digital strategy

Do not consider past interactions

when recommending products or services to online customers

0 Source: EY, Insurance in a digital world: the time is now

Chart C 3

Key Challenges in Delivering Digital Strategies (Global non-life) 100

Percentage

80 64%

6 68%

Internal company structure or culture constraints

65%

60 47%

Creating a culture of rapid innovation and development

System issues implementation

Gaining internal management buy-in and investment

0 Source: EY, Insurance in a digital world: the time is now

52 Canadian Underwriter December 2013

ing the market. When Kodak decided to get in the game, it was too late.” The survey shows that insurance companies are vulnerable to that same kind of risk, as supermarkets and airlines begin to sell financial services and insurance products online. Especially given the sharp increase in mobile use in general, insurers need to ensure that they can deliver the services their customers expect not just online, but in mobile format. Currently, only 43% of insurers provide mobile quotes compared to 72% who provide quotes online. And while being able to submit a claim via mobile is important, by offering mobile apps for things as simple as company information and self-service, insurers can add the value, ease of interaction and convenience that customers now demand. Tied into that, insurers need to embrace the social media wave, especially as a relatively inexpensive marketing tool and a means to engage with and influence skeptical, digitally savvy younger consumers. Many p&c insurers surveyed already realize this potential — nearly 80% report they already use Facebook. As with data, however, social media, customer expectations and digital technologies themselves are always changing. So getting connected is only the beginning. With the pace of change so fast, and accelerating, standing still when it comes to digital is simply not an option. In fact, doing nothing means falling further behind. For insurers, the key to realizing their digital ambitions will be fine-tuning — and regularly updating — a strategy that integrates detailed budgets and forecasts with financial and human resources planning. Even with fulsome and appropriate support from the top, insurers will need to achieve significant — and rapid — improvement to close the current gap between their ambitions and their current digital reality. But as customers continue to demand considerable changes in how their insurance is delivered, the winners will be those insurers who execute well against those digital ambitions in the coming years.

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Managing Privacy Breaches

Éloïse Gratton Partner, Co-chair, Privacy, McMillan LLP

Globalization, the growth of multinational corporations and the proliferation of Internet technologies as a means of transferring and sharing data, have increased the volume of personal data flowing between businesses. All of this has contributed to an increase in legitimate concerns about the protection of personal information managed by businesses, as well as potential challenges in the evaluation of the risks and damages involved in privacy breaches.

WHAT IS A PRIVACY BREACH? In Canada, the federal Personal Information Protection and Electronic Documents Act (PIPEDA) sets out ground rules for how businesses may collect, use and disclose personal information in the course of commercial activities.The federal government may exempt businesses or activities in provinces that have their own privacy laws if they are substantially similar to the federal law. The provinces of British Columbia, Alberta and Quebec have enacted provincial privacy legislation that has been recognized as substantially similar to PIPEDA; this legislation operates in place of PIPEDA in those provinces for intra-provincial matters. (Manitoba’s Personal Information Protection and

54 Canadian Underwriter December 2013

Identity Theft Prevention Act — which received Royal Assent on September 13, 2013, but is still awaiting proclamation — has not yet been confirmed by the Privacy Commission of Canada as being “substantially similar” to PIPEDA). These Canadian privacy laws, therefore, apply to the collection, use and disclosure of personal information by private sector businesses. Although a privacy breach is not defined in these Canadian privacy protection laws, in general, a breach takes place in the event that the confidentiality of personal information is compromised. More specifically, a privacy breach would occur when someone collects, uses or discloses personal information in contravention of a privacy law, deliberately or accidentally, such as when personal information is lost, stolen or improperly disposed of, “hacked” into (by third parties or programs that are not authorized to have access), or communicated or sent to third parties who have no legal right or official need to receive it.

WHAT ARE THE RISKS? There are many types of risks that may be triggered by a privacy breach, which include direct

Illustration by Dave Whamond/threeinabox.com

There are many types of risks and costs that may be triggered by a privacy breach, including those relating to managing and responding to the breach, reputational damage and financial exposure. Those businesses that manage personal information must ensure privacy-compliant business practices are in place.

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and indirect types of damages associated with those risks. These are summarized below in three categories: costs to manage and respond to a privacy breach; reputational damages; and the financial exposure of a business exposed to such a breach.

Costs pertaining to the privacy breach response Businesses subject to a privacy breach, on top of having to deal with the costs associated with the loss of data (i.e., the costs of restoring hard-to-replace information), would have to bear the costs pertaining to responding to the breaches. These costs would include investigative costs (such as forensic experts), outsourcing hotline support and providing free credit monitoring subscriptions (if there is a risk of identity theft or fraud), as well as providing customers discounts for future products and services. In some Canadian jurisdictions, such

Page 29

as in Alberta, notifying individuals and the Alberta privacy commissioner is mandatory if the incident involves the loss of, or an unauthorized access to or disclosure of, the personal information

A privacy breach may trigger damages to the reputation of a business. These damages would result from bad publicity, loss of trust or public confidence, loss of prestige and loss of current and future business following a privacy breach. where a reasonable person would consider there exists “a real risk of significant harm” to an individual as a result. In other Canadian jurisdictions, breach notification will either soon become mandatory, or it is, until then, strongly recommended by privacy com-

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missioners, including those for Canada, British Columbia and Quebec. Businesses should, therefore, also consider the costs associated with reporting data breaches. These include lawyers’ fees providing assistance in the preparation of the notification letters to affected customers, advising the relevant privacy commissioners and liaising with them and the public, as the case may be.

Reputational damages A privacy breach may trigger damages to the reputation of a business. These damages would result from bad publicity, loss of trust or public confidence, loss of prestige and loss of current and future business following a privacy breach. In 2009, privacy academics Sasha Romanosky and Alessandro Acquisti published a paper in the Berkeley Technology Law Journal, entitled Privacy Costs and Personal Data Protection: Economic and Legal Perspectives, in which they share, amongst other things, their findings on the effect of

CU Seminar ad December 2013_Layout 1 13-11-18 8:34 AM Page 1

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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.

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Toronto – Convocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 23

Victoria – PROedge: Condo Strata Act . . . . . . . . . . . . . . . . . . . . . . . . . January 23

Kawartha/Durham – Convocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 7

Ottawa – PROedge: Cyber Liability Exposures & Insurance . . . . . . . . January 29

Hamilton – Convocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 19

Toronto – Annual Fellows’ Reception . . . . . . . . . . . . . . . . . . . . . . . . . February 13

Conestoga – Convocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 27

Vancouver – PROedge: Water Damage Mitigation . . . . . . . . . . . . . . February 19

Montreal – Convocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 20

Victoria – PROedge: Class Action Lawsuits . . . . . . . . . . . . . . . . . . . . February 26

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

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privacy breaches on organizations that have been subject to such breaches. Also, in May of this year, the Ponemon Institute published benchmark research sponsored by Symantec on the Cost of Data Breach Study: Global Analysis. In order to calculate the average cost of a data breach, the study suggests including both the direct and indirect expenses incurred by the business, which would include damages resulting from reputational damages.

Financial exposure In order to properly assess the risks triggered by a privacy breach, businesses should take into account the risk of regulatory scrutiny, fines and penalties, as well as possible lawsuits. • Fines, Penalties and D&O liability: Certain Canadian privacy laws provide for potential fines and director and officer liability following a privacy breach. For example, Manitoba’s recently introduced privacy law provides that certain offences will be subject to a summary conviction, with fines up to $10,000 for an individual and $100,000 for a person other than an individual. In Quebec, An Act Respecting the Protection of Personal Information in the Private Sector provides that every person who collects, holds, communicates to third persons or uses personal information other than in accordance with this law is liable to a fine of $1,000 to $20,000, and any administrator, director or representative of the legal person who ordered or authorized the illegal act or omission is liable to the prescribed penalty. The Quebec act states: “Where an offence under this Act is committed by a legal person, the administrator, director or representative of the legal person who ordered or authorized the act or omission constituting the offence, or who consented thereto, is a party to the offence and is liable to the prescribed penalty.” • Damages to individuals affected: Individuals whose personal information has been compromised might also be subject to various risks and potential

Page 31

damages. For instance, they might be at risk of identity theft or fraud in situations in which SIN, banking information or other identification numbers have been compromised. They might be subject to physical harm through stalking or harassment, for instance, in the event that certain sensitive information, such as a women’s shelter’s list, has been compromised. They may also be at risk of psychological harm, humiliation or damage to reputation, for example, through medical records revealing a stigmatizing disease or disciplinary records being compromised. Privacy breaches may also trigger financial harm, such as the loss of a business or employment opportunity.

pull” credit check on a customer without his prior consent. What should also be taken into account in this risk analysis is the fact that privacy class actions also seem to be on the rise. For instance, in Quebec, following the Investment Industry Regulatory Organization’s (IIROC) breach in April 2013, in which an employee lost an unencrypted laptop containing the financial information of more than 52,000 brokerage firm clients, a privacy class action was filed. The amount claimed in this case is $1,000 for each individual affected. In light of the fact that these privacy class actions in Quebec are often granted at the authorization stage, the damages and risk for a business can be substantial. It can include the legal costs of having to defend itself against a privacy class action, as well as any damages awarded by courts to the potentially large number of affected individuals.

CONCLUSION

EVALUATION AND RESPONSE In evaluating the risks triggered by a privacy breach, businesses, therefore, also have to determine what type of damages may be awarded to individuals following a privacy breach.They should take note that while the extent of the privacy invasion usually used to have to be significant for damages to be granted by the Federal Court, it seems that damages are now more easily awarded and that these damages are also on the rise. In a November 2013 judgment from the Federal Court, Chitrakar v. Bell TV, the Federal Court awarded over $20,000 in damages following a privacy violation by Bell, which conducted a “hard

The risks and costs for a business that may be incurred following a privacy breach include the costs of investigation and communication (time and resources committed to the breach), as well as resources committed to mitigation, reputational repair and damage control.The risks also include having to deal with claims in damages from affected individuals. In order to limit these types of risks, businesses managing personal information will want to ensure that privacycompliant business practices are in place at all times. For those insuring these risks, they may wish to request privacy compliance legal opinions from their clients, request and ensure that their clients conduct privacy impact assessments prior to launching new products and services, and request annual privacy audits. They may further insist on their clients investing in preventive measures such as conducting privacy training for their the marketing, information technology, human resources and customer service staff who manage employees’ and customers’ personal information.

December 2013 Canadian Underwriter

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Chain Under

Strain

Opinion/Analysis

Fred Plant President, Plant Hope Adjusters Ltd.

When one considers supply chain risks today, it becomes clear that the adjusting links are under strain. There is a need to rethink the focus on cost-cutting by many property insurers and, instead, view the engagement of adjusting firms as an investment in maintaining solid operations. There is plenty of talk about supply chains today, their associated risks and the measures needed to build a robust supply chain. Discussions revolve around everything from avoiding the trap of focusing solely on cost savings to the challenges of managing increasingly complex supply chains and the need to implement risk management programs. The fact that supply chain risk is topical today is a function of the transformation of business over the last 25 years. Supplies now come from parts of the world where risks exist (natural disasters, political unrest and labour stoppages, to

58 Canadian Underwriter December 2013

name a few) that largely did not exist at home or were less severe or frequent. Those risks, however, pose a threat to maintaining the supplies necessary for business to stay in business. Identifying the critical elements of supply and managing the associated risks to reduce contingent business interruption losses is fundamental to responsible business operation. Discussions today about supply chain management risk issues are reflective of what insurers themselves have been doing over the last 25 years with one of their own critical supply chain links: independent adjusting. Independent adjusters are concurrently facing both a high degree of scrutiny and demands to deliver with less. Do insurers really want their independent adjusters, those they hire to represent them to deliver their products, embattled and weak? Or do they want well-trained, responsible professionals carrying their brand and protecting their bottom line? Over the last 25 or more years, property insurers in Canada have focused on cost-cutting when it comes to claim service suppliers such as independent adjusters and contractors â&#x20AC;&#x201D; both of whom are integral to the whole property insurance proposition.

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In the absence of a more collaborative approach where insurers support and encourage their adjusting partners — viewing their engagement not with disdain, but rather as an investment in maintaining solid operations — the supply chain will continue to weaken and, one day, will break.

IMPAIRED INVESTMENT IN TRAINING, RECRUITING Contractors can speak for themselves, if they dare. I speak from the standpoint of independent loss adjusting, a service that almost every insurer in this country utilizes to some extent — some significantly more than others.That said, they all buy the service in one form or another at some point. Despite the importance of adjusting service to the “supply chain” — that is, the actual activity of determining what should be paid, no more and no less — many (although certainly not all) insurers have undertaken to reduce adjuster margins with the effect of reducing the ability of adjusting firms to invest in both training and employee development (recruiting). Those who have perpetrated this process in the name of cost savings have been very much focused on the “little picture,” thereby reducing expense today to meet today’s targets, with seemingly scant consideration for the long-term effects of such actions. One need only look back a few months to Calgary and Toronto and the sudden influx of substantial claims associated with the very sort of catastrophic weatherrelated events that many experts say are going to happen more frequently and with greater severity.

CHAIN FRAGILITY EXPOSED With those events, the fragility of the supply chain was exposed. Insurers did not have the capacity to deal with everything at once, so some of those claimants did not end up with what they would have received had the same damage

60 Canadian Underwriter December 2013

occurred in milder circumstances. That is not fair to policyholders and that is not fair to shareholders. I was brought up in the property and casualty insurance industry believing that fairness was the foundation on which the business was built. However, without the resources necessary to properly and fairly deal with losses, claims get paid that should not get paid and the amounts paid become less important than closing the file. What savings are truly realized when this is the result of cost-cutting? How is it that the fundamental principle of insurance, to indemnify the insured based on the insurance contract, has given way to expediency and metrics measurement? The answer is simply shortsightedness.

COLLABORATIVE APPROACH KEY The supply chain in the p&c business in Canada has been weakened considerably. In the absence of a more collaborative approach where insurers support and encourage their adjusting partners — viewing their engagement not with disdain, but rather as an investment in maintaining solid operations — the chain will continue to weaken and, one day, it will break. Those insurers that have not given in to the “reduce costs at all costs” ideology will be well-positioned to remain in business and pick up customers from insurers that brokers will cease to want to represent. The additional rub could be that those customers, by then, may be a cynical lot. Developing and maintaining a steady

supply of effective independent loss adjusting service is not solely the responsibility of insurers. Adjusters must be committed to take the higher fees provided by those insurers engaged in the long-term view and use that to invest in training and talent. Some adjusting companies in Canada today may have more focus on the rate of return to investors than investment in professional development that will pay off later.The combination of an insurer and an adjusting entity both narrowly focused on today’s numbers may be the biggest threat to the stability of independent loss adjusting in Canada. An independent adjuster may well say that this point of view is tainted in that I have a vested interest in wanting to see insurers embrace and partner with adjusters to continue to develop experienced and capable field adjusters.Those independent adjusters would be right on that point. Nearing the end of my career, it would be easier for me (and like-minded independent adjusters) to leave matters to those who would reduce claims adjusting to mindless processes that do not hold together the fabric of the p&c insurance proposition with the threads of fairness and respect. However, it is no option at all to simply watch the adjusting profession be weakened on the notion of saving a few dollars today. Insurance industry insiders see the effects and understand the importance of identifying the perils associated with supply chain risk.Their peers would do well to take a good look at what they are doing to their own supply chain.

Recent Insurance Press Releases featured on insPRESS.ca New Appointment: Amandio Contreiras – COO at On Side Restoration Services, Vancouver Office by On Side Restoration Services Ltd. – Dec 10

Unica Insurance Goes Live with CSIO XML eDocs Solution by Unica – Dec 2

Norfolk Mutual Insurance Company joins Mutual Concept Computer Group Inc.’s (MCCG) Client Community by launching their Insurance Business Solution (IBS®) implementation project for their back-office solution by Mutual Concept Computer Group Inc. – Dec 10

Tim Dempsey joins Catastrophe Response Unit (CRU) by CRU - Catastrophe Response Unit – Nov 29 Burns & Wilcox Canada Offers Errors & Omissions Coverage for Legal Professionals by Burns & Wilcox Canada – Nov 28

Peace Hills Insurance President and CEO named Alberta’s 2013 Business Person of the Year by Peace Hills Insurance – Dec 10

New MGA TCB Underwriters Ltd. excited to launch in the Canadian Market by TCB Underwriters Ltd. – Nov 26

Wynward Insurance Group named one of Canada’s Top Small & Medium Employers by Wynward Insurance Group – Dec 6

The Right Tools for the Right Jobs: CRU - Catastrophe Response Unit introduces new Mobile Power Unit by CRU - Catastrophe Response Unit – Nov 25

DKI Canada Expands With New Member in Edmonton, AB & Regina, SK by Disaster Kleenup Canada Ltd. (DKC) – Dec 3

Burns & Wilcox Canada Introduces New Broker Lounge by Burns & Wilcox Canada – Nov 21

Cunningham Lindsey Appoints Lee Powell Director of Property Claims – Commercial Risk Division by Cunningham Lindsey Canada Claims Services Ltd. – Dec 3 Cunningham Lindsey Appoints Scott Marshall Director of Transportation Fleet Services – Central Region Cunningham Lindsey Canada Claims Services Ltd. – Dec 3

MedThree Insurance Group Launches to Provide Integrated Solutions for Healthcare & Life Science Industries by MedThree – Nov 20 Burns & Wilcox Canada Highlights Enhanced Personal Accident Coverage by Burns & Wilcox Canada – Nov 19 Itech Environmental Services Welcomes Dean Cluff by STRONE-Itech – Nov 18

STRONE Welcomes Kabir Shaal by STRONE-Itech – Dec 3

Granite Claims Solutions Adjusters Denis Houle and Catherine Whiten Move to Halifax Branch by Granite Claims Solutions – Nov 15

Burns & Wilcox Canada Offers Comprehensive Environmental Coverage by Burns & Wilcox Canada – Dec 3 Heather Masterson to be Honoured as One of Business Insurance’s 2013 Women To Watch by Totten Insurance Group – Dec 3 Cira Medical Services Welcomes Caroline Codsi as General Manager for Eastern Canada by SCM Insurance Services – Dec 2

Burns & Wilcox Canada Provides Coverage for Property Managers by Burns & Wilcox Canada – Nov 14 Harold Druken, NEW St. John’s On Side Restoration Branch Manager by On Side Restoration Services Ltd. – Nov 14

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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

The Travelers Companies Inc. has completed its acquisition of The Dominion of Canada General Insurance Company from E-L Financial Corporation Ltd. The combined organization, which will be referred to as Travelers Canada, will remain headquartered in Toronto, Travelers Companies reports. Brigid Murphy, formerly president of The Dominion, is now president and CEO of Travelers Canada. “We look forward to leveraging the strengths and expertise of both organizations to deliver an expanded range of products and an even higher level of service,” says Alan Schnitzer, vice chairman and head of Travelers’ financial, professional and international insurance business segment.

Intact Financial Corporation has made several changes to its executive committee as of December 1. Louis Gagnon [2a], former president and chief operating officer, is now president of service and distribution, notes a statement from Intact. In his new role, Gagnon will oversee the development and the expansion of the company’s direct operations — belairdirect and Grey Power — as well as expansion of its proprietary distribution network. Mark Tullis [2b], former chief financial officer and senior vice president, is now executive vice president of

62 Canadian Underwriter December 2013

governance and capital management. Tullis is responsible for developing an integrated approach to the company’s oversight functions. He will also oversee the finance, compliance, legal and audit activities and will assume greater responsibilities in the strategic management of Intact’s capital by overseeing its investment management activities. Louis Marcotte [2c], former senior vice president of strategic distribution, is now senior vice president and chief financial officer. Marc Pontbriand [2d], president of direct to consumers distribution, retires at year’s end.

The Board of Directors for the Insurance Corporation of British Columbia (ICBC) announced

in November the permanent appointment of Mark Blucher [3] as president and CEO. Blucher has held the position of interim president and CEO since October 2012, and before that, was senior vice president of insurance, notes a statement from ICBC. As well, Paul Taylor’s term as board chair has been extended until January 17, 2017.

Brovada Technologies Inc. has obtained Centre for Study of Insurance Operations (CSIO) Certification for eDocs. “By obtaining CSIO Certification for our eDocs solution, we’re confident that brokers and insurers using our technology will support eDocs downloads as efficiently as possible,” Michael Wright, senior vice

president of operations at Brovada, notes in a CSIO statement. Brovada is a software provider specializing in business process integration, system conversions, legacy system integrations and broker connectivity with offices in Ontario and New Brunswick. CSIO data exchange standards are company-neutral and are designed to help solve data compatibility issues, facilitate more efficient and seamless integration of information, and improve implementation of technology solutions.

Silvy Wright [5], president and CEO of Northbridge Financial Corporation, is now chair of the Board of Governors for the Insurance Institute of Canada. Wright is a former

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MOVES & VIEWS

and environmental claims,” the firm notes. He has more than 16 years of insurance adjusting experience and has served as the control adjuster “for a number of significant accounts.”

president of Market Insurance Company. As part of its recent board elections, the Insurance Institute reports T. Neil Morrison, president and CEO of Hub International HKMB Ontario Ltd., will serve as the new deputy chair, and J.R. (Bob) Tisdale, president and chief operating officer of Pembridge and Pafco Insurance Companies, will serve as vicechair and governor at large.

Chris Floyd [6] will serve as the Insurance Brokers Association of Ontario’s new president for 2014. Floyd formally assumes his new role as president on January 1, 2014, replacing Debbie Thompson of Beyond Insurance Brokers Inc. Floyd, president of individual insurance for the Ontario Teachers

Insurance Plan (OTIP), began his insurance career as a claims adjuster at Gore Mutual Insurance in 1986 and joined OTIP in 1994. He is a Chartered Insurance Professional and a graduate of the Institute of Corporate Directors Program from the University of Toronto’s Rotman School of Management.

Claims services firm Cunningham Lindsey announced in November that Lee Powell [7] is now director of property claims for the company’s commercial risk division. “As a highly skilled and specialized loss adjuster, Lee has handled large and complex multimillion-dollar losses involving commercial property, commercial and product liability,

New York City-based Marsh Inc. has appointed Donald Bailey as head of sales for the brokerage and risk management firm’s United States and Canada division. Bailey has previously held positions as president of emerging business for The Allstate Corporation, CEO of Willis North America Inc., and CEO of Willis HRH. Based in New York City, his new appointment took effect December 2. In this newly created position, Bailey will work to increase the effectiveness and capacity of Marsh’s sales team and will work closely with its global team.

John Trozzo, president of the Property Casualty and Underwriting Club, is now a partner with Bullseye Imagery and Inspection Services, which offers loss prevention and risk control services. “Servicing insurers, brokers/ agents and risk managers since 1989, John brings extensive risk management and loss prevention experience to the executive team,” a company announcement says.

Scott Marshall [10] has joined the claims services firm Cunningham Lindsey as its transportation fleet director, central region. Marshall was previously a transportation/equipment/ cargo specialist “at a national insurance adjusting company and brings 34 years of experience in the industry,” notes Cunningham Lindsey. In his new role, he will be responsible for recruiting, training and mentoring transportation fleet services adjusters.

Bell & Grant Insurance Limited and Assurance Goguen Champlain — the former having 124 years of experience and the latter opening its doors in 1915 — will merge with Fraser & Hoyt Insurance (2011) Inc. to create the leading commercial insurance brokerage in Atlantic Canada. The merger is to take effect January 1, 2014. Goguen Champlain Insurance has operated in Moncton for 67 years. The three firms will continue to operate under their existing titles, although employees in Fraser & Hoyt’s Halifax office will relocate to a Bell & Grant office, notes a company statement. Follow @CdnUnderwriter on

http://twitter.com/CdnUnderwriter

December 2013 Canadian Underwriter

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

Gilbertson Davis Emerson LLP held its annual Fall Reception for its clients and industry partners on October 3, at The Albany Club in Toronto.

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64 Canadian Underwriter December 2013

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

The Canadian Boiler and Machinery Underwriters Association held its 2013 Annual Engineering Insurance Conference at the St. Andrew’s Club & Conference Centre in Toronto on October 10. Touted as “the insurance industry’s premier annual forum on all things related to equipment breakdown,” the event marked the conference’s 40th year. The agenda featured a line-up of speakers on an array feature topics.

The entire executive team at Totten Insurance Group (TIG), Canada’s leading MGA provider of niche products is pleased to announce that Heather Masterson, President & CEO has been awarded as one of the Business Insurance 2013 Women To Watch. The Women To Watch feature spotlights 25 women who are doing outstanding work in the industry and exemplify a certain criteria, including: recent professional achievements, contributions to the advancement of women in business and inﬂuence on the maketplace. Congratulations Heather!

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December 2013 Canadian Underwriter

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

On October 17, AGRAQ/QRIMA (RIMS Quebec Chapter) held a conference luncheon where Tim Keane, Operations Manager for FEDNAV Canartic operations spoke about the history of marine shipping within the Canadian Artic. Risk managers, brokers and other industry stakeholders received a better understanding of the risks at stake and what’s to come.

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Over 125 Toronto-area claims and underwriting professionals enjoyed themselves at the official office opening of Dolden Wallace Folick LLP’s new Toronto location at Second Floor 366 Bay Street on October 17. A boutique insurance defence firm launched in Vancouver in 1994, DWF made a strategic move in 2012 to open a Kelowna, B.C. office and added the Toronto office this past April. DWF’s partners from Vancouver, together with the firm’s resident partner in Kelowna, Janis McAfee, were on hand to welcome industry guests and outline DWF’s vision as the firm moves forward in the Ontario market. DWF leaders in the new Toronto office include Mikel Pearce, formerly with London Guarantee before joining a Toronto insurance firm; Gerry Gill, who most recently worked in a senior claims position with GCAN/ RSA in Toronto; and Matthew Miller, formerly of a Toronto insurance defence firm. Local guests were entertained well into the evening.

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On October 22, at the RitzCarleton in Toronto, Aviva Canada colleagues, broker partners and friends from the insurance industry gathered for a send off of out-going Aviva Canada President and CEO Maurice Tulloch. A number of attendees took to the microphone with kind words and fond memories for Maurice as he moves to England to take on his new role as CEO of Aviva UK & Ireland General Insurance.

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More than 1,000 people made their way through the exhibit hall to visit the 75-plus exhibitors at the Insurance Brokers Association of Ontarioâ&#x20AC;&#x2122;s (IBAO) 93nd Annual Convention and Exhibition in Toronto at the Fairmont Royal York Hotel on October 23-24.

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Continued on Page 72â&#x20AC;Ś December 2013 Canadian Underwriter

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GALLERY Continued from Page 71…Exhibit Hall at the Insurance Brokers Association of Ontario’s (IBAO) 93nd Annual Convention and Exhibition October 23-24

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The Insurance Brokers Association of Ontario (IBAO) held its 93nd Annual Convention at the Fairmont Royal York Hotel in Toronto, October 23-25.

Among the numerous speakers, meetings, seminars and education sessions, two conference features drew â&#x20AC;&#x153;full-houseâ&#x20AC;? crowds: Kathleen Wynne, Premier of

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Ontario, at the AGM and the annual CEO Panel. 1) CEO Panel: Left to right: Jean-Francois Blais, Randy Carroll, Chris Floyd, Evan Solomon, Michael Brattman,

Brigid Murphy, Maurice Tulloch, Karen Gavan, Doug Heaman, Debbie Thompson, Tracey Boland, Alister Campbell and Rick Orr pose for a picture.

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IBAO Awards The Insurance Brokers Association of Ontario (IBAO) presented its 2013 Awards of Excellence during the Gala on the final night of its 93nd Annual

Convention in Toronto on October 25. This is the fourth year that the IBAO has recognized outstanding members for the work they do in the industry and in

their respective communities. The Awards include the following categories: Broker of the Year, Young Broker of the Year, Brokerage of the Year and Affili-

ate of the Year. This year, the Wallace E. Wood Memorial Award was also presented. The names of the 2013 winners are listed to the right.

IBAO President Debbie Thompson presented the following Awards (1-5) 1) Broker of the Year: Left to right: Debbie Thompson and Linda Papadopoulos, recognized as Broker of the Year. 2) Young Broker of the Year: Left to right: Scott Sleightholm, Young Broker of the Year Award winner, and Debbie Thompson.

3) Affiliate Achievement Award: Left to right: Debbie Thompson and Gillian Van Kempen, accepting the Affiliate Achievement Award on behalf of the Insurance Brokers Association of Durham Region. 4) Brokerage of the Year: Left to right: Debbie Thompson and Jason Famme, Amanda May and James Famme of W.B. White Insurance in Oshawa, Ontario, Brokerage of the Year.

5) Wallace E. Wood Memorial Award: Bryan Yetman and Debbie Thompson present the Wallace E. Wood Memorial Award to Rick Orr (centre). 6) Kathleen Wynne Speaks: Left to right: Debbie Thompson greets the Honourable Kathleen Wynne, Premier of Ontario.

7) Left to right: Michael Brattman, Rick Orr, Chris Floyd, Doug Heaman, Randy Carroll and Debbie Thompson gather for a photo during the 6th Annual Awards of Excellence Gala at the 2013 IBAO Convention in October. 8) Left to right: Una Roy, the Bipper and Jeff Roy enjoy the IBAO Booth’s “What’s Your Vision” theme. December 2013 Canadian Underwriter

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Cunningham Lindseyâ&#x20AC;&#x2122;s Commercial Risk Division held a cocktail reception for its clients and partners at Hyâ&#x20AC;&#x2122;s Steakhouse Cocktail Bar in Toronto, on October 24.

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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 Dedicated to fellowship and charity. 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 Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com DSB Claims Solutions High Performance Adjusting Satisfaction Guaranteed! www.dsbclaims.com

Granite Claims Solutions Global Adjusters and Marine Surveyors www.graniteclaims.com PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com Quelmec Loss Adjusters Identifying, Investigating, Resolving... for over a quarter century! www.quelmec.ca

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

INSURANCE LAW INSURANCE COMPANIES Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com

CONSTRUCTION CONSULTANTS

Catlin Canada Underwriting Ambition. www.catlincanada.com

MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca

FM Global The leader in property loss prevention. www.fmglobal.com

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

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

ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com

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

National Bank Insurance Auto | Home Home and Auto Insurance in Quebec. www.nbc-insurance.ca RSA Leading car, home and business insurer. www.rsagroup.ca

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

REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.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 Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com

Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca

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

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

Your Breaking Insurance News Source... Sign-up to receive Canadian Underwriter’s FREE DAILY Insurance Headline e-News: http://bit.ly/cuenews 78

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Aon Benfield held its 12th annual Canadian Rendezvous on October 23-25 at the Delta Meadowvale in Mississauga. The event brought together 27 Canadian property and casualty insurers and 66 reinsurers from around the world. More than 400 treaty renewal meetings took place during the Rendezvous. The more than 325 attendees also mingled at the social events, including luncheon addresses featuring Dominic Christian, Executive Chairman of Aon Benfield International, presenting on the topic of flood exposure from both a

Canadian and global perspective; Adam Podlaha, Head of International Impact Forecasting; and Slobodan Simonovic, Professor, Department of Civil and Environmental Engineering and Director Engineering Studies, Institute for Catastrophic Loss Reduction, University of Western Ontario. Each evening had a cocktail reception, dinner and entertainment provided by comedian Ross Bennett. The final evening featured the event’s traditional Casino Night, highlighted by the ever-popular Texas Hold’em Poker tournament.

On November 7, CARSTAR Collision and Glass Centres announced a new partnership with the Ottawa Senators Foundation: the CARSTAR Community Power Play Campaign. The initiative will see CARSTAR, through the Ottawa Senators Foundation, donate four refurbished vehicles to three local charitable organizations and one deserving family in need. The initiative helps mark the opening of three new franchise locations in the National Capital Region, joining two stores already servicing the area. The donated vehicles will provide the Ottawa Community Housing Foundation, the Boys & Girls Club of Ottawa, the Ottawa Senators

Foundation and one local Ottawa family in need of transportation additional mobility. The local charities will use these vehicles to provide essential services to their clientele across the National Capital Region. Additionally, CARSTAR and its local owners will lead efforts to raise $30,000, which will be donated to the Ottawa Senators Foundation. These funds will support the ongoing work of the Ottawa Senators Foundation to provide life-enriching access and opportunities for the more than one in five children and youth in our community that otherwise do not have resources or ability to access social recreation and education programs.

John Kartechner, Senior Vice President of Aon Benfield, said “the event just keeps getting bigger and better; next year, marking the 13th annual event, falls on October 2224 at the same location.”

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WICC Ontario Chapter held its Annual Breakfast for Cancer on November 6 at the Fairmont Royal York in Toronto. More than 500 insurance industry supporters attended the sold-out event. Guest speaker was GreaterToronto-Area, 18-year-old singer-athlete, Carley Elle Allison, who shared her courageous story with the early-morning audience. Eight months ago, Carley’s life as a Grade 12 student, athlete (competitive figure skater) and singer suddenly changed when she was diagnosed with a very rare tumour in her throat: a “clear-cell sarcoma.” The tumour was located against a nerve of her vocal cords. Carley moved the audience with details about how after months of treatment, chemotherapy, and surgery to remove the tumour and radiation —

that her cancer is now in remission. Throughout this consuming and brave battle, Carley managed to graduate from high school and also begin skate training on the ice again in September. Two weeks out of radiation therapy and just days after the WICC Breakfast, Carley competed in a junior women’s figure skating contest. You can follow Carley’s courageous journey on her blog found at: http://carleyelleallison. wordpress.com

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The Registered Insurance Brokers of Ontario (RIBO) held its annual general meeting at the Arcadian Loft in downtown Toronto November 7. Attendees heard from outgoing president Bob Carter, who spoke about seminars held across the province, aimed primarily at principal brokers, that saw RIBO staff log more than 2,500 kilometres; how attention on the Ontario governmentmandated auto rate reduction affords brokers an opportunity to review clientsâ&#x20AC;&#x2122; existing coverage; and an initiative that will create a searchable database of insurance disciplinary decisions in Canada.

Canadian Underwriter December 2013

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Another year stronger “At Aviva, we put people first. From our valued broker partners to the families and businesses we serve, we strive to do the little things right each and every day. This year, we continued to listen, and responded with even more for you and your customers. We delivered on our promise to give our broker partners a competitive advantage in the marketplace with new personal lines products, and developed robust retention strategies that will help our industry adapt and succeed long-term. We also maintained our focus on our commercial lines sales and service proposition and are working through the steps you’ve told us are required to get the experience right for you and your customers. In claims, we continued to provide customers with responsive, expert service – exemplified through our customer-focused response to two of the largest catastrophe claims events in Canadian history. Together with you, our broker partners, we made 2013 another successful year. From all of us at Aviva Canada – thank you. We look forward to working with you to protect Canadian families and businesses in 2014.”

Greg Somerville President and CEO, Aviva Canada

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