C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A
JA N U ARY 2 0 1 4 A Business Information Group Publication #40069240
Wild Ride
BY ANGELA STELMAKOWICH
Cargo Crime Wave BY CRAIG HARRIS
All-Risk Threshold BY MICHAEL TEITELBAUM
Prevent. Prepare. Respond.
A Catastrophe Doesn’t Have to be a Disaster Catastrophic events may be inevitable and unpredictable, but with the right preparation they don’t have to mean huge losses to a business. Crawford has dealt with every kind of catastrophe, from floods, to ice storms, to fires. Not only can we help you and your clients respond to these events, we can also help you prepare for them, so losses are minimized when they do happen. Contact us at info@crawco.ca to find out how Crawford can help you prevent, prepare, and respond to catastrophes.
www.crawfordandcompany.ca
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VOL. 81, NO. 1, JANUARY 2014 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca
COVER STORY
Wild Ride It looks like 2014 will be “steady” on the claims front — barring a repeat weather performance like 2013 that left parts of Alberta and the Toronto area drenched and in need of assistance. Ontario auto and support of independent adjusting is also expected to be in the mix.
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BY ANGELA STELMAKOWICH
FEATURES
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18 Employee Retention
52 Cyber Risk
The changing demographics of Canada’s insurance industry means employers must be prepared to meet the challenge.
Small businesses account for an ever-growing share of cyber crimes as thieves look for easy access to personal information, credit card numbers and vulnerable paths into the computer networks.
BY MARGARET PARENT
Fraud Identification
Ice Storm
26 Duty to Defend
A new anti-fraud initiative is based on the whole being greater than the sum of its parts by bringing insurers together and pooling their data.
A storm provided an icy finish to 2013, a “coming-of-age” year for Canada. A few severe weather events conspired to ensure p&c insurers will pay out more in cat losses for 2013 than for any other year.
A case out of Quebec confirms that under provincial law, an excess insurer’s obligation to defend is only triggered by exhaustion of primary coverage.
BY BEN KOSIC
BY GLENN MCGILLIVRAY
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Cargo Crime Trucking companies and their insurers face a rising tide of crime that involves more than just theft. Billions of dollars of commercial cargo transported across Canada is at risk from organized criminal networks. BY CRAIG HARRIS
BY NICOLAS ROCHE
30 Changing Conditions 2014 is expected to bring with it many changes to the insurance industry, including those involving Ontario auto, severe weather and risk exposure. BY WILLIAM STAR
All-Risk Policies
44 D&O Liability
An Ontario court has ruled the precise cause of damage arising from a fortuitous event is not required for recovery under an all-risks policy.
An Ontario ruling shows how willing regulators are to seek out all potentially responsible parties to recover the costs of contamination remediation.
BY MICHAEL TEITELBAUM
BY SELINA LEE-ANDERSEN
BY SCOTT VANDENBERG & PATRICK CRUIKSHANK
60 DisputeResolution Root problems in Ontario auto insurance are contributing to high dispute volumes. But will the current review of the dispute resolution system serve to remedy these concerns? BY MAY GIBILLINI
65 Sinkhole Risks Canada may not be a hotspot for sinkholes, but there have been incidents where vehicles and trains have been serious damaged. Care must be taken to manage associated risks. BY GREG MECKBACH
January 2014 Canadian Underwriter
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VOL. 81, NO. 1, JANUARY 2014
Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793
PROFILE
Photo: Simon Cheung
Associate Editor Greg Meckbach gmeckbach@canadianunderwriter.ca Twitter: @CU_Greg (416) 510-6796
12 Claims Education As the new president of the Ontario chapter of the Canadian Insurance Claims Managers Association, Alex Walker’s priorities include educating members though the use of seminars and motivational speakers. BY GREG MECKBACH
SPECIAL FOCUS
10 Editorial 12 Marketplace 68 Moves & Views
Online Editor Harmeet Singh hsingh@canadianunderwriter.ca Twitter: @CU_Harmeet (416) 442-5600 ext. 3652
Senior Publisher Steve Wilson steve@canadianunderwriter.ca Twitter: @InsuranceMedia (416) 510-6800 Art Director Gerald Heydens Art Consultation Sascha Hass Production Manager Gary White (416) 510-6760 Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 510-5187
Associate Publisher Paul Aquino paul@canadianunderwriter.ca Twitter: @InsuranceCanuk (416) 510-6788 Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122 Account Manager Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
Circulation Manager Mary Garufi mgarufi@bizinfogroup.ca (416) 442-5600 ext. 3545 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou
Account Manager Elliot Ford eford@canadianunderwriter.ca (416) 510-5117 Connect with Canadian Underwriter twitter.com/CdnUnderwriter
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www.CanadianUnderwriter.ca/MediaGroup
70 Gallery
Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd., a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. Business Information Group is located at 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 Phone: (416) 442-5600. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. Š Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 Subscription Rates: 2013 Canada 1 Year $49.95 plus applicable taxes 2 Years $73.95 plus applicable taxes
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ISSN Print: 0008-5251 ISSN Digital: 1923-3426
ess on oors for busin d s it ed en p o ion. ung Limited Great Depress e Jardine and Yo th f o writer p ri g e , in th nadian Under 33 a 19 C , ed 18 ch er n b u m la Nove of two nderwriter ine and his staff s – Canadian U ar ye 0 8 r fo Norman F. Jard – and nuar y 1, 1934 ada. magazine on Ja surance in Can In f o e ic o V e n as th has been know te, rm Jardine wro o N l ia or it ed l iptions, In his inaugura and paid subscr ts ac tr n co g in vertis us and can ave given us ad ur confidence in yo te ia ec “To those that h pr ap elves e cere thanks. W shall prove ours n e si w r g, ou in d h n yt te an ex we n means , if determinatio assure you that r worthiness worthy of it.” nly proved thei ai rt ce r te ri d w anadian Under e very proud an C ar r of te s ri er w d n er u d n fo The Jardine Canadian U ice that Norm ter, the staff of rv la se s d ar ye an y 80 it d al an cy of qu uphold the lega Industry. determined to iends the Insurance to ed d vi ank you, our fr ro th p to am ke te li is ld h ou d an riter w adian Underw uragement. All of us at Can pport and enco su s, es n si bu r for you and advertisers, Sincerely,
er Senior Publish
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80 Years of COVERING THE 8 DECADES THAT MAKE UP OUR HISTORY Throughout 2014, our Anniversary Year, Canadian Underwriter will be digging into the archives to publish a few pages in each issue to reminisce. As the year progresses, we’ll showcase content from our 80-year history, including covers, articles and advertisements. We’ll also be bringing additional archived content online – so please keep an eye on our upcoming issues for further details.
Articles – 1935
(a sampling of some articles from the 2nd year of publication)
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Covers – 1935 Below you will find a sampling of cover pages from our 2nd year of publication. Unfortunately, our 1934 archived issues have gone astray. As you will notice from the cover pages, the original font for the Canadian Underwriter logo was actually ‘fire smoke trails’.
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Advertisments – 1935
A sampling of advertisements from 1935, Canadian Underwriter’s 2nd year in print.
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COVERING THE 8 DECADES THAT MAKE UP OUR HISTORY
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EDITORIAL
Quake Stakes
The actions include seismic upgrades to major bridges, development of a business preparedness program and improvements to high-risk parts of the municipal water system. Angela Stelmakowich, Editor astelmakowich@ canadianunderwriter.ca
10 Canadian Underwriter January 2014
The City of Vancouver looks to be taking a page from elsewhere to update its plan to enhance preparedness that will surely be needed in the event of a major earthquake. Based on a staff report in response to a city council directive in 2011, the plan considers lessons learned from recent events in Chile, New Zealand and Japan. Of the 56 actions meant to enhance municipal and public preparedness are seismic upgrades to major bridges, development of a business preparedness program and improvements to high-risk parts of the municipal water system. Using recent actual events as a cue — coming as they do with real damage and real costs — helps provide some answers to what-if and when questions being raised more frequently around earthquake preparedness in Canada. A report penned by AIR Worldwide on behalf of the Insurance Bureau of Canada (IBC) offers some motivation. It details modelled scenarios for a 9.0-magnitude quake off the west coast of Vancouver Island and a 7.1-magnitude earthquake about 100 kilometres northeast of Quebec City. Using hard numbers — a proven motivator — the report puts insured loss estimates for the western scenario at approximately $20.4 billion and about $12.2 billion for the eastern scenario. “Events of this magnitude have a domino effect on the Canadian economy triggered by property
damage, supply chain interruption, loss of services, infrastructure failure and business interruption,” says Don Forgeron, IBC’s president and chief executive officer. Such possibilities were likely on the minds of those in Vancouver. “City Hall is working harder than ever before to prepare Vancouver for a major earthquake, with essential steps to reduce risks of damage, boost our emergency response services and improve the safety of everyone who lives and works here,” says Mayor Gregor Robertson. The AIR Worldwide study notes shake, tsunami, fire following event and liquefaction and landslide in the western scenario would produce direct loss of about $58.6 billion for property, about $1.9 billion for infrastructure and about $1.5 billion for public assets. Preparedness is one thing; insurance coverage another. That said, both are needed. To combat insurable losses, not only must product be available, people also need to be willing to purchase that protection. But getting people to make that choice absent major local events in recent memory can be tough. A new poll by the Insurance Information Institute (III) in the United States found just 10% of homeowners have quake insurance, down from 13% in 2012. The percentage was higher for western states, at 22%, but still down from 27% in 2012. III president Robert Hartwig notes that while fewer people are buying
earthquake insurance, the potential cost of U.S. earthquakes “has been growing because of increasing urban development in seismically active areas and vulnerability of older buildings, which may or may not have been built or upgraded to current building codes.” Closer to home, a recent online poll by Canadian Direct Insurance Inc. shows 30% of the B.C. tenants and homeowners surveyed identified fire as their top concern, followed by theft at 19%, water at 17% and earthquake at 10%. But factors beyond price and availability can influence buying decisions. A paper co-written by Helene Joffe, a professor at the University College London and recent recipient of Lloyd’s Science of Risk prize, notes that emotive and cultural factors play a key role in shaping risk-related behaviours, such as buying earthquake insurance. Even in an area well-versed in quakes and the damage they can do — California — the Automobile Club of Southern California is offering a discount of as much as 7% on homeowners insurance policies to members who insure their single-family homes through its affiliated insurer, and also purchase or renew a California Earthquake Authority insurance policy. “In California, it’s not a question of if, but rather when, the next big earthquake will strike,” says state insurance commissioner Dave Jones. Likely, the same can be said for Beautiful B.C.
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MARKETPLACE Sign up to receive Canadian Underwriter’s free Insurance Headline News Email Alert: http://bit.ly/cuenews
Claims ALBERTA FLOODS PROVE EXPENSIVE: SWISS RE Swiss Re announced in December that it expects the flooding this past June in southern Alberta will be 2013’s third costliest disaster, when measured by insured losses. The figure is among the preliminary Sigma estimates of total insured losses from natural catastrophes and man-made disasters in 2013, which Swiss Re pegs at US$44 billion, down from US$81 billion in 2012. Overall economic losses were US$130 billion, down from US$196 billion in 2012. Hail and flooding in central Europe, tornadoes in the United States and the Alberta floods were among the 10 costliest disasters in 2013, notes Swiss Re. It estimates insured losses from the Alberta floods at US$1.9 billion, with economic losses of about US$4.8 billion. The full Sigma study will be published this spring.
B.C. CASE CONSIDERS CIVIL AUTHORITY INTERRUPTION The Supreme Court of British Columbia ruled December 2 in favour of St. Paul Fire and Marine Insurance Company over a dispute on the scope of coverage of an “interruption by civil authority” clause in a commercial policy. The dispute follows a July 18, 2009 evacuation order issued to residents close to Kelowna because of nearby forest fires, notes the ruling
12 Canadian Underwriter January 2014
by Justice Margot Fleming. One order affected a condo complex that was insured for revenues loss by St. Paul Fire and Marine, doing business as Travelers Canada. The policy had an extension of coverage that stated: “We will pay your actual loss of revenue when a civil authority denies access to an insured location as a direct result of physical loss or damage by a covered cause of loss to property not at an insured location. We will pay for loss of revenue for up to four consecutive weeks while access to an insured location is denied.” After the evacuation order was lifted July 21, 2009, the property had “a significant number of cancelled bookings and empty suites among those available for rent.“The plaintiffs filed a proof of loss for loss of rental income between July 19 and August 31, 2009 in the amount of $463,287.50, the judge writes. The defendant denied coverage for losses incurred after July 21, 2009. Justice Fleming ruled that “the policy excludes coverage for subsequent or consequential losses that occur after access by a civil authority is no longer denied, in this case, after the evacuation order was lifted.”
SOME GAPS WITH GENERAL LIABILITY POLICIES: CHUBB Many executives at Canadian for-profit private companies interviewed as part of the 2013 Chubb Private Company Risk Survey fail to buy tailored insurance solutions,
thereby foregoing the opportunity to transfer risk. “The survey continues to provide evidence that private companies overlook the opportunity to transfer risk through tailored insurance solutions, relying instead on general liability insurance policies, which may leave gaps in coverage,” Chubb notes in a statement. Risks for which tailored insurance solutions are not being purchased include allegations of misrepresentation, mismanagement or negligence in oversight of the company against members of the Board of Directors or company officers; and breaches of privacy with respect to confidential information and notification to affected individuals.
Regulation RECOMMENDATIONS ON SIGNATURE SYSTEMS “Electronic commerce legislation does not oblige anyone to use electronic means to conduct business,” notes a report prepared by Fasken Martineau DuMoulin LLP for the Centre for Study of Insurance Operations (CSIO). The report reviews Canadian laws on electronic signatures and gives advice on how to implement such systems. Among other things, the report states certain notices and declarations (such as a notice of cancellation of a contract of insurance, including for non-payment of premium) and certain alterations to a policy by an
insurer are not permitted to be effected by electronic notice. Daniel Fabiano, a lawyer at Fasken Martineau DuMoulin, further advises carriers and brokers to ensure electronic documents, electronic signatures and electronic records management systems “be designed with evidentiary concerns in mind.”
Risk SOME KNOWINGLY GOING WITHOUT COVERAGE: POLL An online survey commissioned by Allstate Canada shows that some Canadian homeowners, renters and drivers admit to having been not properly insured. Thirty percent of the about 1,500 Canadian adults responding to the poll by Abacus Data who have owned or rented a house, condo or apartment admitted not having tenant or property insurance. Just 8% of respondents reported they had driven without any auto insurance, the survey shows. Among owners and renters, men were more likely than women (33% versus 28%) not to have insurance, to drive without insurance (10% versus 6%), and not to report a collision to insurance providers (21% versus 8%).
NEED TO ADDRESS SOCIAL, ENVIRONMENTAL EFFECTS OF SUPPLY CHAINS: KPMG KPMG’s latest annual survey of corporate responsibility (CR) reporting notes many large corporations, especially
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in the oil and gas sector, do not fully report on the social and environmental impacts of their own supply chains. The assessment of CR reporting quality considered seven criteria: strategy, risk and opportunity; materiality; target setting and indicators; suppliers and the value chain; stakeholder engagement; governance of CR; and transparency and balance. “Recent incidents, including oil spills and factory disasters, should remind business leaders how important it is to manage the environmental and social impacts of the supply chain,” KPMG notes.
RISK MANAGEMENT, STOCK PRICE RESILIENCE LINKED There is a direct correlation between more mature risk management practices and stronger financial results and organizational resiliency, notes the recent Aon Risk Maturity Index Insight Report. The report, penned by Aon Global Risk Consulting in collaboration with the University of Pennsylvania’s Wharton School, identified a relationship between risk maturity levels and relative resilience of an organization’s stock price in response to significant risk events. Among the characteristics that determine risk maturity are board- and senior-level understanding and commitment to risk management, transparency of risk communication, and a risk culture that encourages engagement and accountability at all levels of the organization.
Technology CANADIAN BROKER, U.S. TECH COMPANY PARTNER ON TEXT-BLOCKING APP Waggoner Insurance out of Winnipeg and Florida-based Protext Mobility have teamed up to offer a text-blocking mobile app to curb distracted driving across Canada. The partnership and distribution agreement creates DriveAlert-Canada, which will offer Protext Mobility’s DriveAlert product, available for Android and BlackBerry. Using OBD-II technology, the app’s features include being able to set up automatic replies to text messages and to prevent web browsing. “The agreement provides Protext Mobility the ability to leverage the experience and expertise of the insurance broker channel across Canada in partnership with traditional auto insurers,” says Steve Berman, CEO of Protext Mobility. Peter Tessier, a past chair of the Insurance Brokers Association of Canada’s technology committee and Brian Kreitz, who heads Waggoner Insurance, will lead day-to-day operations.
STAFF USING UNAPPROVED SOFTWARE APPS: MCAFEE More than 80% of polled staff reported using non-approved software-as-a-service (SaaS) applications in their jobs, notes a survey carried out by Statecast for McAfee. IT employees use a higher number of unapproved apps
than other employees. McAfee reports that cloud technology has made using such apps even easier for employees, without assistance from the IT department. Overall, almost 35% of all SaaS applications used were non-approved. Microsoft Office 365 was the top unapproved SaaS application used by respondents (9%), then Zoho (8%), LinkedIn (7%) and Facebook (7%). On average, 15% of users reported having experienced a security, access or liability event while using SaaS. .
Reinsurance REINSURERS FACING “HEADWINDS”: WILLIS RE Reinsurance carriers will face “headwinds” in 2014 as they are pressured to change contract conditions, Willis Re notes in a new report. “2014 is going to test the skills of reinsurers and intermediaries alike as buyers look to exact continued price benefit in a softening market,” note Willis Re chairman Peter Hearn and CEO John Cavanagh in the 1st View Renewals Market report. “2013’s underwriting performance is not reflective of strong market pricing and restrictive terms and conditions, but rather from a paucity of natural and man-made catastrophes,” Hearn and Cavanagh write. In 2014, there will be “pressure” on reinsurance contract conditions, Willis Re cautions in a statement.
DOWNWARD PRESSURE ON REINSURANCE PRICING: GUY CARPENTER Continued expansion of accessible capital, strong balance sheets and relatively low catastrophe losses were all drivers of the January 1 renewal outcome, which saw reinsurance rates-on-line fall in almost all classes and regions, states Guy Carpenter’s 2014 global renewal report. “It is the first renewal in over a decade where all major territories saw pricing move in the same direction, with some isolated exceptions,” Guy Carpenter comments. The Guy Carpenter Global Property Catastrophe Reinsurance Rate-on-Line Index fell by 11% at the renewal, largely driven by a 15% decline in the United States. In Europe and the United Kingdom, property CAT pricing also came under pressure at January 1, 2014, where prices fell 10% and 15%, respectively, with risk-adjusted reductions of as much as 20% achievable in some cases. But significant catastrophe losses in Germany, some parts of the Nordic region and Canada in 2013 caused catastrophe rates for lossaffected programs to rise. Market conditions demand reinsurers rethink old ways of doing business and seek new opportunities through innovation. “Clients most commonly sought an extension of hours clauses, improved reinstatement provisions and expanded coverage for terror exposures,” the report adds.
January 2014 Canadian Underwriter
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Claims Education Greg Meckbach Associate Editor
As the new president of the Ontario chapter of the Canadian Insurance Claims Managers Association, Alex Walker’s priorities include educating members though the use of seminars and motivational speakers. Educating claims managers, managing an agreement on arbitrating disputes between carriers and giving back to the community are all priorities for the Ontario chapter of the Canadian Insurance Claims Managers Association (CICMA), says Alex Walker, who began his two-year term as association president in September. Walker, director of claims relationships at RSA Insurance, took over the reins from Jo-Ann Eccleston. “The goals for the next two years will be to continue to focus on education and information for our members by providing seminars, motivational speakers and individual speakers,” Walker says. One major event is the
14 Canadian Underwriter January 2014
47th annual joint conference with the Ontario chapter of the Canadian Independent Adjusters’ Association. Technology support for claims investigation, data mining and cyber risk will be among the topics discussed at this year’s joint conference, scheduled for February 4 in downtown Toronto. The CICMA Ontario chapter also has four meetings annually, where attendees can hear from invited guest speakers. At the chapter’s March 2013 meeting, for example, a panel of speakers from RSA, Aviva, Desjardins and CGI Group Inc. discussed using computer software as a means of detecting fraud in auto claims. The most recent chapter meeting in December hosted author and motivational speaker, Martin Latulippe, who survived a hockey accident in 2001 at the World University Games in Poland. “He gave a great lecture on leading in changing times,” Walker says of Latulippe. “He was a really, really engaging speaker and we always try to make sure that we have a motivational speaker in December.”
GETTING INVOLVED Walker became involved in the CICMA Ontario chapter in 2008. At the time, he was president of the Ontario Pond of the Honourable Order of the Blue Goose (known as Blue Goose Ontario), a fraternal
organization of property and casualty insurance professionals whose activities include generating money for charity. While serving as Blue Goose Ontario president, “I was asked by a member of the CICMA executive to join CICMA and to consider joining the executive branch,” Walker says. He did so in 2009.
“With the past year of cat activity, in terms of storms, one possible topic in our meetings this year could be storm activity and the industry response.” That year, Walker became CICMA Ontario’s director for qualifications and arbitrations. Each CICMA regional chapter has a director who administers the Canadian Inter-Company Arbitration Agreement, which is intended to provide an informal alternative to litigation when there are subrogation claims between insurance companies. Walker later became treasurer and vice president before serving in his current role as president. His term as president is scheduled to end in the fall of 2015. “When I first joined, executive positions were a year,” Waker notes, and a
person rotated up one position each year. “But then when I transitioned from treasurer to vice president, we decided that in order to make the executive branch a little more stable, that the positions should be a two-year term.”
REFLECTING MEMBER NEEDS That may also help with education themes, which Walker says are usually determined by the local chapters. “When the executives meet, we do go to our members and ask if there are any specific topics that we want to talk about,” he reports. “With the past year of cat activity, in terms of storms, one possible topic in our meetings this year could be storm activity and the industry response.” Two catastrophes that the industry had to respond to last year were the floods in southern Alberta in late June and the July 8 rainstorm in and around Toronto. Heavy rainfall June 19 to 21 in Alberta (200 millimetres in some areas) combined with late snow melt resulted in Canada’s more expensive natural disaster to date. When measured by insured losses, it is expected to exceed $1.7 billion. Less than three weeks later, Canada experienced its thirdcostliest natural disaster (to date, estimated at about $850 million) when the Toronto area was hit by two separate storm cells that dropped 126
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millimetres of rain on Toronto Pearson International Airport. With the normal rainfall for all of July being 74.4 millimetres, the July 8 deluge caused widespread sewer back-ups and power outages. “I found myself troubleshooting escalations, making sure RSA was communicating clearly to our broker partners and letting them know what to expect, but also making sure that the right people were available to handle theclaims,” Walker recalls, commenting in general on the major Canadian catastrophes of 2013. “People come to us insurers to get peace of mind, so if they have a claim, that is really when the stakes are high and you want to make sure that you are looking after people in a helpful and empathetic manner,” he adds.
While studying at the University of Toronto, Walker says that he already knew he wanted to pursue a career in either banking or insurance. He attained his CIP designation in 1998 after six years in the industry. Walker started his career in 1992 as a claims clerk with Zurich Canada, where he later worked his way up to adjusting commercial claims. In April 1996, he moved to RSA as an intermediate auto claims adjuster, and five years later in 2001, he moved to Chubb
Photo: Simon Cheung
PATH CLEAR
Insurance Company of Canada, where he was a claims service centre manager. But it was back to RSA in late 2006, where Walker currently works out of RSA’s office in Mississauga, about 30 kilometres west of downtown Toronto. “My focus is to strengthen the relationship between our brokers, claims, underwriting and sales,” he says of his
current role at RSA. “There are not a lot of Canadian p&c carriers that have a role like this, that recognize the importance of the relationship between claims and underwriters and brokers.”
COMMUNITY FOCUS For the CICMA, one of its priorities is to “give back” to the community, Walker says.
Last year, for example, the CICMA Ontario chapter donated about $30,000 to Camp Oochigeas, which offers summer camp and year-round programs for children with cancer and their siblings, he reports. “You will continue to see us have that charity element,” he says of the CICMA Ontario chapter. While technology is clearly important to claims management — as evidenced by the related content scheduled at the joint conference — computers cannot replace the people skills of claims managers, Walker emphasizes. “I think that technology is definitely going to be playing a major role as we move forward as an industry,” he says. “All the carriers are looking to streamline their claims processes and make sure they are efficient while serving the customer,” he says. Still, he adds, “at the end of the day, technology cannot necessarily replace delivering quality, helpful empathetic claims service.” In addition to managing claims, insurance professionals are also “anxiety managers,” Walker suggests. “We are there to help minimize people’s fears of having a loss,” he says. “So the proof is in the pudding when somebody actually does have a claim. You need to make sure that your claims proposition is robust and that it responds exactly as you said it would.”
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Opinion/Analysis
Ben Kosic
Chief Executive Officer, CANATICS
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The Greater Whole In the past, fraudsters have taken advantage of individual insurers who opted to piece together suspicious claims in isolation. A new initiative, however, is based on the whole being greater than the sum of its parts, bringing insurers together and pooling their data.
where, KPMG reports, as much as $1.6 billion per year is paid by insurance companies to cover fraudulent claims. This systemic abuse affects every single driver in the province. Insurers, regulators and consumers find this unacceptable and, in response, the industry is increasingly looking at cost-effective ways to fight organized crime. The more insurers can prevent premeditated fraud across companies, the better. Data pooling is the key to fighting this kind of crime and it is the simple principle behind the formation of CANATICS, or Canadian National Insurance Crime Services.
Who benefits when the property and casualty insurance industry effectively fights organized fraud? Certainly, individual insurers save money, allowing regulators and law enforcement agencies to allocate resources to other areas. But the real beneficiaries are honest Canadians who pay their insurance premiums and want the abuse and associated costs eliminated from the system. The fact is that organized criminals do not care what rules, regulations or laws are in place; they simply identify the easiest target. It is also clear that auto insurance fraud is big business in Canada. Nowhere is this truer than in Ontario,
CONNECTING THE DOTS
16 Canadian Underwriter January 2014
CANATICS represents a game changer in the fight against insurance fraud. Instead of an insurance company having only one, limited view of suspicious claims activity, now the industry can connect the dots and identify patterns of organized fraud. This will empower individual insurers to act on information and pursue organized criminals to the fullest extent of the law. This concept may be new to Canada, but it is proven elsewhere. For example, the Insurance Fraud Bureau in the United Kingdom and the National Insurance Crime Bureau in the United
Illustration by Sandy Nichols/threeinabox.com
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States have been using collective industry data for years to show patterns of organized fraud activity. CANATICS will employ the same information-intensive fight on fraud. The final report of the Ontario Automobile Insurance AntiFraud Task Force, released in November 2012, recommended that “insurers should move aggressively to establish an organization that would pool and analyze claims data in order to identify potential cases of organized and premeditated fraud.” While CANATICS was incorporated in January 2013, the work behind it has been years in the making. It started as the Insurance Fraud Group in Ontario and involved an extensive, successful proof of concept phase. With that foundation in place, CANATICS now has nine member insurance companies representing 70% of all auto insurance direct written premiums (DWP) in Ontario, or approximately 40% of market share on a national basis. Membership is open to all insurers and the organization is committed to keeping the barriers to entry as low as possible for companies of all sizes. The mission is to combat insurance crime for the benefit of all Canadians. It is a simple formula, but complex in its delivery. The idea is to provide individual insurers with superior intelligence derived from analytics performed on industry-pooled data, with an unwavering focus on data quality, privacy and security. It is crucial to note that CANATICS is focused on organized and premeditated fraud, which involves rings, organized schemes and patterns of fraudulent activity. It is equally important to note what CANATICS is not. It is not an investigative body and will not collect evidence and build cases for prosecution. Similarly, the organization is not an industry database or clearinghouse of information. Information will be pooled, but identifiable information will not be shared across insurance companies. In this sense, CANATICS acts as a consortium for industry-wide fraud network analysis. CANATICS will provide “alerts” to insurance companies when patterns are detected through sophisticated, leadingedge data analytics.These alerts, consisting of a computergenerated linkage report detailing the specifics of suspicious claims, will serve as the basis for investigations, not for decisions. The individual insurance company decides how it wants to pursue the suspicious leads. The alerts give insurers the thread and line it up with the needle; it is up to the insurer to follow the thread and see where it leads.
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EMBRACING DATA ANALYTICS The industry-wide view of data is critical. In the last five years, insurance companies have embraced a wide range of data analytics for fraud detection, including anomaly detection, predictive modelling and fraud network analysis. While individual methods of data analysis are effective, the
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cumulative value of all methods together is significant.When insurers collaborate, the effect of the data analysis is greatly improved. Think of it as the difference between looking through a keyhole versus viewing a panorama. With pooled data, inter-relationships between potential suspicious claims and the correlations across insurance companies can be seen. In fact, this pooling of data will provide more information on trends and suspicious activity than has ever been available. That said, protecting privacy is paramount. Privacy measures include educating consumers on the benefits of the use of personal information and industry-wide data analysis for fraud detection in order to reduce premeditated and organized fraud and its effect on them. CANATICS operations and those of its members are designed to be compliant with applicable laws and regulations, particularly the federal Personal Information and Protection of Electronic Documents Act, and corresponding provincial legislation. This high standard is reflected in the CANATICS model of privacy by design. It is built right into the development of the organization. That means only the data needed to support fraud detection through analytics will be collected and appropriate consent will be obtained. Representatives for CANATICS are working with regulators and federal/
18 Canadian Underwriter January 2014
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provincial privacy commissions to enhance the already-strong consent language in place through standard auto insurance applications.
NO ACCESS As mentioned, industry data is pooled, not shared. Members will not be able to see any personally identifiable information from other insurers. CANATICS is the processor, not the owner, of the data. In this role, leading industry practices (including standards compliance with
The idea is to provide individual insurers with superior intelligence derived from analytics performed on industry-pooled data, with an unwavering focus on data quality, privacy and security. and adoption of privacy by design principles advocated by the Ontario Information and Privacy Commissioner) will be used to secure data and prevent unauthorized access, disclosure, copying, use or modification of data. Information will be stored at a secure data centre in Canada. With these and other safeguards in place, CANATICS shows promise that it is poised to make a huge difference in
fraud detection in the p&c insurance industry when it eventually goes live. New members are welcome, as this will serve to widen the view of pooled industry data. There is the very real potential of expanding to other provinces and growing from a representation of approximately $8.5 billion in Ontario auto insurance DWP to more than $20 billion in DWP across Canada.
MORE POSSIBILITIES There is also the possibility of extending collaborative data analytics to other areas, such as life and health insurance benefits. The reality is that this line of business shares many of the same data entities and relationships as auto insurance, particularly accident benefits and bodily injury. In fact, there are opportunities to leverage the pooled data approach to areas outside of general insurance, including workers’ compensation.The avenues for growth are ripe with potential in the months and years ahead. A collaborative approach is the best way to reduce the costs associated with systemic insurance fraud.This will help the industry, but just as importantly, it will benefit the millions of honest policyholders who pay their premiums and expect a fair and efficient auto insurance system.
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H idd en
Talent Canada’s insurance industry has a hidden retention issue and employers should expect some challenges. Although progress has been made to meet the industry’s changing Margaret Parent demographics and retirements Director, to date, the impact of Professionals’ Division, upcoming retirements looms, Insurance Institute of Canada demanding steps be taken to support smooth transitions. The impact of the changing demographics of the insurance industry’s workforce, now and over the next five to 10 years, is going to be incredibly challenging for employers. The good news: The Insurance Institute’s demographic research shows that the industry did a good job of recruiting youth into the industry over the last five years — enough to offset the retirements seen to date. The bad news: The industry has not yet seen the numbers of retirements projected. Going forward, the impact of retirement will increase substantially. To meet the challenge, the level of recruitment
20 Canadian Underwriter January 2014
and retention will need to increase substantially. But focusing on recruitment alone will not solve the problems.
BEYOND RECRUITMENT TO RETENTION “Although the perceived and actual importance of retention has increased in recent years, it is still considered an issue of lesser importance than recruitment,” writes Richard Loreto, author of the Insurance Institute’s recent report, A Demographic Analysis of the P&C Insurance Industry in Canada, 2012-2022. “Given the trends in Canada’s labour market, this is a perception that must change,” Loreto cautions. “Increasingly, as the supply of younger workers grows more slowly,” he continues, “retention strategies will have to ensure that an organization’s existing workers are not unduly tempted by the potential advantages of working for a new employer.” Employers cannot afford to lose all who may exit either voluntarily (often workers in their 30s who are seeking increased salaries or career advancement) or through retirement (mature workers who are taking a lot of knowledge and experience with them). To help industry employers learn more about workforce strategies to address these challenges, the Insurance Institute has contracted with subject matter expert Lisa Taylor, president of
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Challenge Factory, to lead a three-part instructional program for the industry’s human resources professionals and to offer insight and ideas about the demographic factors impacting the industry’s talent management.
Retirement is not the end “We need to stop looking at retirement as it has traditionally been defined — to retire (to conclude your working life) between 55 and 65, was established in the 1930s when the then-average lifespan was 61,” says Taylor. “Today, with people expecting to live until they are in their 80s or possibly upwards to 100, retiring at 60 (which is the average retirement age in the insurance industry in Canada) means many still-vibrant workers are leaving with a third of their lives ahead of them. It is not so surprising then that they are leaving and working somewhere else.” As the demographic research shows, of the employees who responded to the Insurance Institute’s surveys in 2009 and 2012, “one in three indicated that they plan to retire in the next five years,” Loreto says. “Of those, seven in 10 expressed a clear preference for continuing to work on a part-time basis with their current employer,” he reports. “This pattern of retiring and continuing to work is evident across the finan-
As the demographic research shows, of the employees who responded to the Insurance Institute’s surveys in 2009 and 2012, “one in three indicated that they plan to retire in the next five years,” Loreto says. “Of those, seven in 10 expressed a clear preference for continuing to work on a part-time basis with their current employer.” cial services sector. Leading organizations are recognizing that career paths need to continue past age 60 and are starting to offer phased retirement programs to avoid loyal, experienced talent from taking their expertise to a competitor who is more flexible,” says Taylor.
The talent escalator is broken When there are no career options for people with the most seniority in an organization, they remain in place. “In an ideal organization, talented recruits see attractive career paths. Senior people stay engaged until retirement, without blocking opportunities for those mov-
Projections of Exits
ing up,” says Taylor. “But in many organizations today, large numbers of baby boomers are clogging the senior ranks. Some have retired in place, waiting to be packaged out. Others can’t afford to retire. Many want to feel useful and wanted, but their organizations have no plan for making this happen. Meanwhile, aggressive young managers conclude that they must move elsewhere to advance.”
Change to achieve the desired results Given the trends in Canada’s labour market and the demographics of the industry, employers’ recruitment efforts, retention strategies, succession planning and retirement programs will need to change.The belief that the insurance industry can continue to do things the way it has always been done, is a belief that will have to change. “Talent, like technology, is going to revolutionize the workforce,” states Taylor. Why are demographics so important to HR strategies and decisions? “Demographics explain about two-thirds of everything,” David Foot, professor emeritus of economics at the University of Toronto, and co-author of Boom, Bust & Echo: Profiting from the Demographic Shift in the 21st Century, writes in the book. The rest of the insurance industry’s workplace dynamics may well be explained
Projections on Retirement Potential maximum decrease in the industry’s 2012 workforce by 2022 could be as high as:
23% 24% 2 years 1 year
31% 5 years
16% 3 years
6%
Industry
Management
28% 43%
4 years
Source: Insurance Institute of Canada, A Demographic Analysis of the P&C Insurance Industry in Canada, 2012-2022
Source: Insurance Institute of Canada, A Demographic Analysis of the P&C Insurance Industry in Canada, 2012-2022
January 2014 Canadian Underwriter
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Career Timelines Have Changed Since 2008 75+ Before 2007
Retirement
< Transition with Purpose
65-75 50-75+
Preparation > for Retirement
Mid-Career
Retirement
Legacy Careers®
< Transition with Purpose
40-60s 35-50s
Mid-Career
Preparation for > Promotion < Transition with Purpose Early Career 20-40s
20-35
Foundation Career
Source: Challenge Factory Inc. 2012
Cohort Analysis 2007
Age 41-60
BUST Age 28-40
ECHO
Age 12-27
49% 36% 12%
BOOM Age 46-65
2012
BOOM
BUST
Age 33-45
ECHO
Age 17-32
Source: Insurance Institute of Canada, A Demographic Analysis of the P&C Insurance Industry in Canada, 2012-2022
22 Canadian Underwriter January 2014
37% 35% 27%
by evolutions in processes. There has been a lot of necessary evolution in the last century, notes a report by Josh Bersin, principal and founder of Bersin by Deloitte (Deloitte Consulting LLP), entitled Predictions for 2013: Corporate Talent, Leadership and HR — Nexus of Global Forces Drives New Models for Talent. “In the early 1900s, the focus was on steel, resources, railroad, with a lot of focus on becoming proficient, automated, data-driven on finances and logistics, resulting in processes, strategic priorities, and eventually technical systems for efficiency,” Taylor explains. “By the 1950s and ’60s, the focus had moved on to customer and marketing, the beginning of data warehousing all the way through to the entire rise and fall, and continued focus and evolution of the dotcom craze, including how dependent we are on the Internet and how significant marketing analytics have become,” she says. “Continued evolution from operations, to finance, to the customer, to what Bersin is indicating, globally, that now is the time for the talent revolution. Just as the Internet transformed how work was done and how we related to customers, demographics, skills and leaderships are going to be the next wave that will have just as significant an impact on how businesses operate. And it’s elevating the role of HR,”Taylor reports. Before the Internet, the role of the chief information officer (CIO) or vice president of IT “was at the senior management table, but not necessarily the strongest voice at the table. And if you think of the role of the CIO today in strategic decision-making and how integrated technology is and how business gets done, you can’t really imagine CIOs not being a strong voice at the table,” she says. “As we go through the talent revolution, it’s HR’s turn. The demographics, skills shortage and leadership are going to be the critical issues that will leap frog the way things get done. It’s not an evolution, but a revolution,” emphasizes Taylor.
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Craig Harris Freelance Writer
Whether they are hauling laundry detergent, t-shirts or electronics, trucking companies — and their insurers — are facing a rising tide of crime that involves more than just theft. Billions of dollars of commercial cargo transported across Canada is at risk from increasingly sophisticated organized criminal networks that have found a new take on “high-reward, low-risk” activity. Thieves have pinpointed vulnerabilities in transportation security and exploited patchwork law enforcement to steal valuable merchandise and redistribute these wares to grey/black markets or overseas buyers. The estimated costs of cargo crime range widely — from hundreds of millions to as much as $5 billion per year. Part of the problem is that the trucking industry does not have a precise handle on the losses because of reporting issues. “It’s very difficult to give a firm number; we
24 Canadian Underwriter January 2014
get asked that question all the time,” says Jennifer Fox, vice president of trade and security for the Canadian Trucking Alliance (CTA), a federation of provincial trucking associations. “But we know it’s a big problem and getting bigger.” For Marsh Canada’s national transportation risk leader, Greg St. Croix, only about one in four cargo theft losses are actually reported. St. Croix estimates that cargo crimes amount to $5 billion annually, with $500,000 in trailer merchandise stolen from the Greater Toronto Area each day. “If anything, the numbers are low,” St. Croix says. “The thieves are not the guys in balaclavas or gangs walking down railway lines. These are very sophisticated criminal networks; they have technology, and in many cases, they are tracking loads and schedules from the safety of their own homes, usually with an intended market to sell to,” he reports.
PROFITABLE NICHE Organized crime networks have latched onto a particularly profitable niche in the trucking industry, a $65-billion sector of the economy that accounts for the movement of roughly 90% of consumer goods and foodstuffs in Canada.
Illustration by Sandy Nicols/threeinabox.com
Combating Cargo Crime
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“These thefts are often committed through organized crime groups, with the cargo targeted and stolen to order. A trailer load of cargo with a value of $50,000 that’s sold for 10 or 20 cents on the dollar is a substantial return for a couple hours work.”
“Regardless of the cargo stolen, it’s always a 100% profit margin,” notes Clive Thomson, national transportation portfolio executive for Zurich Canada. “These thefts are often committed through organized crime groups, with the cargo targeted and stolen to order. A trailer load of cargo with a value of $50,000 that’s sold for 10 or 20 cents on the dollar is a substantial return for a couple hours work,” Thompson says. Sources cite many specific examples of this type of theft in action. “T-shirts (get) stolen from Brampton, Ontario at 3 a.m.,” says Garry Robertson, national director, investigative services for the Insurance Bureau of Canada (IBC). “At 8 a.m. the same day, half the load is being offered for sale at a flea market in Port Elgin, Ontario, while the other half is containerized and being trucked to Los Angeles for shipment to India. The theft gets reported at 9 a.m. during a yard check.” Robertson notes that cargo theft has a “significant effect” on the Canadian economy, with organized distribution schemes in the black market “that equal that of commercial logistics.” In fact, several sources now use the term “cargo crime” to reflect the expanded nature of criminal activity involved in these losses. “It is not just theft of a trailer or merchandise, but we are increasingly seeing cyber crime, identity theft, hijacking, smuggling and infiltration of carriers,” Fox says. “‘Theft’ doesn’t really take into account what is going on.”
STATISTICAL CHALLENGE The IBC became involved with the cargo crime issue two years ago, working with the CTA as a subject matter expert on a
report showing the links to organized crime and terrorist fundraising, Robertson says. The report, released in May 2011, was shared with the federal government and continues to be a focal lobbying point for the trucking and insurance industries. Robertson says statistical reporting of cargo thefts is an ongoing challenge for the trucking industry. There is, in fact, no distinct criminal code or legal reporting field for cargo theft, which falls somewhere between personal auto theft and theft over $5,000. As such, the industry has to parse through law enforcement agencies and Statistics Canada to find numbers related to cargo crime. “There are little or no statistics showing the extent of the problem or the underlying losses to the (trucking) industry and the insurance industry,”
Robertson observes. “One of the biggest issues surrounding the collection of data on the topic is the lack of uniform reporting of the loss.” IBC began a pilot reporting project in 2011 with its insurance company members and the trucking industry to allow standardized cargo loss information to be shared with law enforcement agencies across Canada.That cargo-reporting program is being extended in 2014, says Robertson, with notice reports sent to border agencies in Canada and the United States, and better search capabilities to help identify recovered property. The insurance industry is also working with Statistics Canada on a report encompassing two years of trailer thefts. “This could give us a very good starting point to see what property was stolen, where it was stolen from and if (any) at all was successfully recovered,” says Robertson. “The data collection is a vicious circle,” Fox comments. “We need the statistics to show government the extent of the problem, but we have to rely on various agencies to collect the data in the first place. Fortunately, with the IBC’s cooperation, we are making progress.” Fox further notes the CTA and related organizations — including the Ontario Trucking Alliance, Verisk Crime Analytics, CargoNet and select police agencies in Ontario — launched “Project Momentum” in the fall of 2013 to raise greater awareness of cargo crime in Canada. “We often find there is a stigma involved in cargo losses,” she says. “Trucking companies don’t want to report them because they don’t want to be singled out. But we have found that these types of crimes affect carriers of
January 2014 Canadian Underwriter
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all sizes, with varying levels of security.” Cargo crime can also happen anywhere in Canada, although there are certainly hot spots, St. Croix says. One obvious area is the Highway 401 corridor between Windsor and Montreal, with crossborder and port opportunities between the two points. Cities with large ports and import/export infrastructure — such as Vancouver and Halifax in Canada and Miami and New Jersey areas in the U.S. — are also prime candidates for high cargo crime activity.
RAISING AWARENESS Fox says that the trucking industry is addressing cargo crime by raising awareness about the sophisticated nature of the thieves and emphasizing simple strategies to curb losses, such as improved lot security and driver training. St. Croix says Marsh Canada encourages trucking companies to conduct a comprehensive security review at least once a year, which should address issues such as hiring practices and background checks for drivers, particularly for criminal records. Driver training programs could include an orientation on crime awareness, as well as information about high-risk regions and safety practices. St. Croix suggests truck carriers should also look at logistics and tracking of
26 Canadian Underwriter January 2014
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loads and trailers through GPS and telematics, as well as security policies and procedures for on-site premises. “We see far too much theft from socalled ‘secure lots,’” he says. “This kind of security review would be a big step forward,” he adds.
“The police have limited resources and with the numerous avenues available to introduce stolen products into the marketplace, the issue is beyond the scope that the police can manage.” FILLING THE GAPS Zurich Canada’s Clive Thomson agrees that security is often overlooked in the trucking industry. “On any day of the week, you can drive around a busy commercial area and see trailers parked, unattended and vulnerable,” he says. “I would suggest that you could walk up to many of those trailers, open the doors, see what’s inside and never be approached by anyone questioning your presence,” he adds. Thomson emphasizes Zurich Canada is intent on helping truck carriers reduce
losses. “Through facility and over-theroad security operational evaluations, we work with our customers to develop security protocols,” he notes. “Prevention can be as simple as closing a gate and limiting access to a facility, or installing telematics technology in equipment to help safeguard the driver and the cargo,” Thomson says. One insurance company in the U.S., Travelers Insurance, currently has a dedicated cargo theft unit, which uses a high-tech cargo “bait trailer” to catch criminals. However, this approach has not yet been used in Canada, mainly because of a lack of law enforcement resources necessary for this type of surveillance. Many sources note police and other law enforcement agencies are often unable or unwilling to pursue cargo criminals to the fullest extent of the law. “We need stiffer penalties,” argues Fox. “Those found guilty of cargo crime usually pay a fine and don’t get jail time. This should not just be treated as theft over $5,000,” she contends. In Ontario, for example, only a relatively small number of police forces have a dedicated cargo theft unit. Both the York and Peel regional police services near Toronto operate commercial auto crime units, but the practice is not widespread, especially given the number of police jurisdictions that span the 401 corridor.
NOT A VICTIMLESS CRIME “Aside from the extreme cases, cargo theft is primarily seen as a victimless crime,” Thomson suggests. “The police have limited resources and with the numerous avenues available to introduce stolen products into the marketplace, the issue is beyond the scope that the police can manage.” St. Croix argues that it is time to rethink the “victimless” label of cargo crime. “I get extremely frustrated when this is called a victimless crime,” he says. “The proceeds go to organized criminal networks, which traffic in drugs, guns and violent crimes. This is inter-connected, and we know that. It’s time for all those involved to get serious about it.”
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Duty in
Excess
A recent decision by the Superior Court of Quebec confirms that under Quebec law, an excess insurer’s obligation to defend is only triggered by the exhaustion of the primary coverage. The ruling also suggests an insured should be mindful of keeping its excess insurer fully informed of all material facts and keep in mind its defence strategy.
Nicolas Roche
Associate, Heenan Blaikie LLP
In February 2013, Justice Luc Lefebvre of the Superior Court of Quebec dismissed Tembec’s claim against its excess insurer, AIG, pursuant to settlement payments made by Tembec to third parties.The judgment, Tembec v.AIG, was initially appealed and — unfortunately for interested readers — recently settled out of court. Interestingly, the case dealt with the scarcely discussed topic of an excess insurer’s duty to defend and its prerogatives pursuant to same.
UNDERLYING FACTS Tembec sells resin to its client Uniscope, Inc., which in turn resells it to Cargill. In 2007, an inspection by the U.S. Food and Drug Administration (FDA) revealed the presence of melamine in Tembec’s resin, which prompted a product recall by both Tembec and Uniscope. Cargill and Uniscope later sued Tembec for losses incurred in connection with the product recall.
THE INSURANCE COVERAGE Tembec was insured pursuant to policies issued by Zurich, with a $5-million cap per occurrence. Further,Tembec was covered by an excess policy
28 Canadian Underwriter January 2014
issued by AIG for any claim in excess of the Zurich policies’ coverage, up to $50 million.
TEMBEC’S CLAIM AGAINST AIG In June 2007,Tembec informed its broker that it had received a demand letter from Cargill related to the recall.The broker, in turn, notified Zurich and AIG of the demand letter. Uniscope also put Tembec on notice and filed a lawsuit in October of that year. Shortly thereafter, Cargill also filed a claim against Tembec and Uniscope. Neither Uniscope nor Cargill had quantified their damages at the time of filing their claims. In May 2008, Zurich undertook to defend Tembec under reserve of the $5-million policy cap. A few weeks later, Cargill and Uniscope quantified their claims against Tembec in excess of $7 million. In June 2008, all parties agreed to participate in mediation. Tembec’s broker then informed AIG that according to Zurich, the total amount of the claims could possibly exceed $5 million. In November of that year, Cargill provided Tembec with documents establishing its hard re-
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call costs at $6.7 million. That December,Tembec’s broker requested that AIG become involved in the management of the claims and participate in the upcoming mediation session scheduled in January 2009. Shortly thereafter, Tembec provided AIG with a file summary prepared by its counsel, as well as Zurich’s reservation of rights (ROR) letter regarding Cargill’s claim. It also provided AIG with 4,000 documents pertaining to Cargill’s claim. On December 24, 2008, AIG informed Tembec it would attend the next mediation session. Although no settlement was reached regarding Cargill and Uniscope’s claims at the January 8, 2009 session, the parties nonetheless continued the mediation process. On January 16, 2009, AIG received a chart prepared by Tembec’s paralegal regarding Cargill’s claim for hard recall costs. On January 26, AIG issued Tembec an ROR letter stating that coverage would begin only once Zurich’s coverage was exhausted. On February 5, AIG directed its own
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Justice Lefebvre strongly disagreed with Tembec’s assertion that its excess insurer acted in bad faith. AIG reviewed an important amount of documentation in a very short period of time and adequately co-operated with Tembec. expert to prepare a report for the next mediation scheduled a week later. AIG received its expert’s report, which evaluated Cargill’s claim at $3.3 million, 48 hours prior to the meeting. During the mediation session, the parties agreed to settle Cargill’s claim for $6.1 million, of which Zurich agreed to pay $3.6 million.Tembec’s coverage under the Zurich policies was thereby exhausted considering prior ancillary settlement payments. AIG, however, only agreed to contribute $560,000 to the
settlement, leaving Tembec $1.5 million out of pocket. As for Uniscope’s claim, it was settled for $1.7 million, with the entire amount paid by Tembec. Tembec responded by suing AIG on the basis that the latter failed to properly defend Tembec and acted in bad faith by failing to diligently investigate the claims. Tembec further argued that the settlements reached with Cargill and Uniscope were reasonable and, therefore, could be set up against AIG.
FINDINGS OF THE COURT Justice Lefebvre reviewed the principles applicable to an excess insurer’s obligation to defend. First, the judge found that AIG’s obligation to defend under the excess policy was only triggered once Zurich’s coverage was exhausted. He pinpointed that moment as February 12, 2009, when Zurich agreed to contribute to the Cargill settlement, thereby exhausting the $5 million coverage. In addition, the judge noted that until December 2008, both Zurich and Tembec were under the impression that the claims
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would settle for less than $5 million. Second, having established when AIG’s obligation to defend was triggered, Justice Lefebvre strongly disagreed with Tembec’s assertion that its excess insurer acted in bad faith. AIG reviewed an important amount of documentation in a very short period of time and adequately co-operated with Tembec. On the other hand, the judge found that Tembec failed to provide AIG with all the necessary information in a timely fashion to allow it to determine its position regarding coverage, liability and quantum. He also reminded Tembec that the excess insurer’s duty to defend entitles it to dictate the conduct of the defence. Justice Lefebvre noted that during the February 12, 2009 mediation session, Tembec’s in-house counsel refused to follow the strategy of AIG’s representatives, which was to contest the damages based on AIG’s expert report. The judge was very critical of the work performed by Tembec and Zurich, which tasked a paralegal without the necessary skills to evaluate the Cargill
and Uniscope claim. He equally disapproved of Zurich and Tembec’s decision not to depose any Cargill representatives and not to prepare an expert report to contradict Cargill’s alleged damages. Finally, Justice Lefebvre analyzed the settlements reached by Tembec to determine whether or not they were reasonable and could be set up against AIG. He found that AIG’s report established that Tembec overpaid to settle the claims. He speculated Tembec may have done so to maintain good business dealings with Uniscope and to avoid the risk of paying uncovered punitive damages. AIG’s contribution to the settlement was, therefore, deemed sufficient and, in fact, in excess of what it was obliged to pay. However, AIG’s claim for reimbursement was dismissed since the insurer paid without any reserve.
CONCLUSION Justice Lefebvre’s ruling confirms that under Quebec law, an excess insurer’s obligation to defend is only triggered
by the exhaustion of the primary coverage. This principle was reaffirmed by the Quebec Court of Appeal in the 2013 decision, Canadian National Railway Company v. Chartis Insurance of Canada. Justice Lefebvre’s judgment further serves as a stern reminder to insureds that where the excess insurer’s duty to defend is triggered, the insurer is entitled to dictate the defence strategy. Considering their different exposures to risk, the excess insurer should understandably not be bound by the primary insurer’s litigation strategy. As such, an insured would be welladvised to keep in line with its excess insurer’s defence strategy, even where it may somewhat deviate from the one previously established by the primary insurer, such as in Tembec v. AIG. This case also suggests an insured should be mindful of keeping its excess insurer fully informed and up to date with respect to all material facts, especially where it expects the latter to step into its primary insurer’s shoes on short notice in a complex case.
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State of
Change
Opinion/Analysis
William Star
President & Chief Executive Officer, Trillium Insurance Group Inc.
2014 is expected to bring with it many changes on the insurance industry front, but if change is based on political gain, this could prove costly and destabilizing. Ontario auto, severe weather, risk exposure and thoughtful underwriting will be part of the mix. 2014 will be a year of change â&#x20AC;&#x201D; and change is good if it leads to improvement. If, however, change is just for political gain, then nobody is a winner. In Ontario, for example, the insurance industry has already seen changes made to avoid an early election. Last year, the Ontario Liberals were forced by the provincial New Democrats to support a 15% reduction in automobile insurance premium. There is no actuarial support for this reduction and it will be problematic for insurers. The British North America Act, which created the Dominion of Canada in 1867, provides that the
32 Canadian Underwriter January 2014
business of insurance is the responsibility of the provincial governments. However, many insurance companies are federally registered through the Office of the Superintendent of Financial Institutions (OSFI) rather than being under the jurisdiction of the individual provinces. Although Ontario still has the responsibility of approving rates and forms for companies doing business in the province, OSFI reviews the financial condition of the companies that are federally registered. When OSFI became aware of the rate reduction request by Ontario, it suggested that it would have to review the changes to make sure the insurers would remain solvent. In some ways, it is similar to the problems arising in the United States with Obamacare. Health care south of the border may not be not as good as Canadaâ&#x20AC;&#x2122;s, but our health care evolved over many years. It was not put into force overnight to satisfy a political agenda. The Democratic Party in the U.S. wanted a health plan to be introduced prior to the 2014 elections. It rushed into a plan that was not well thought out with a computer system that was not ready or properly tested. As a result, the partyâ&#x20AC;&#x2122;s popularity has diminished and many Americans have been hurt since they cannot keep the private
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health plans that they liked. Politicians in Ontario can learn from the mistakes made with Obamacare and not force rate changes in automobile insurance without justification.
UNHEALTHY EVOLUTION There is another comparison to be made between Obamacare and Ontarioâ&#x20AC;&#x2122;s nofault automobile insurance plan. The Ontario system, like the health plan, evolved over the years. Unfortunately, many of the changes in auto insurance were made for political reasons resulting in an inferior plan. Because it is a no-fault plan, the driver who caused the accident is compensated in the same manner as the innocent driver. This plan that compensates both drivers is costly. It does not encourage safe driving since even careless drivers are compensated. It also leads to excessive fraud since drivers do not have to determine fault to collect benefits. Cutting back on benefits is not popular, but would help to correct some of the fraud problems. Obamacare needs more healthy young people to sign up for coverage to offset older sick people. Ontario auto has the reverse problem since it needs more seniors to offset the cost of young drivers. Under the no-fault system, drivers who are retired cannot receive loss of income benefits even though they are required to pay for the coverage. Because young drivers have a greater accident frequency than older drivers, they benefit more from this plan than more mature drivers. If a decrease in auto rates is mandated, young drivers will get a greater benefit than seniors. Over the last 20 years, there have been major changes in the insurance market in Ontario. It is less noticeable in the provinces where private companies cannot offer car insurance. Ontario auto insurance was at one time a strong market for Ontario-based companies. Unfortunately, Ontario stopped licensing new insurance companies and advised applicants to apply to OSFI. Section 48 of Ontarioâ&#x20AC;&#x2122;s Insurance Act notes the capital requirement for a stock com-
34 Canadian Underwriter January 2014
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pany is $3 million.To apply to OSFI, an applicant requires $10 million. Now a large percentage of the insurance business in Ontario is controlled by large foreign companies. Competition is the best way to control pricing, a point Ontario has ignored. Although Ontario is the largest insurance market in Canada, there has not been a new insurance company licence issued by Ontario in many years. The top 10 companies now control over 70% of the automobile insurance in Ontario.That percentage will continue to increase because of the lack of competition. Banks are now taking a larger percentage of the insurance market, which in some ways could be good since most banks are Canadian-owned.
2014 will have many diverse challenges for insurers. Based on recent weather developments, storms will likely continue during the year and will create unusual and unexpected individual losses. However, banks do not understand insurance risks.When Calgary was flooded in the summer of 2013, some banks had exposure to insurance risks as well as the banking risk as a mortgagee. It does not appear they had considered a proper enterprise risk study. Financial results reported by some banks in 2013 showed their results were affected by a combination of insurance results and banking exposures. In fairness to the banks, Calgary has never had a history of flooding to that extent. However, financial institutions that are involved in multiple businesses must review their overall exposure to an event that could expose them to numerous losses from any one event.
WEATHER BEATEN The industry had a variety of unusual weather exposures in 2013. In addition to the Calgary floods, there was also
flooding in Toronto and the year ended with serious ice storms in Toronto and many parts of Ontario. The storm then moved east and ended up in the Maritime provinces. These are just some of the examples of climate change experienced throughout the entire world â&#x20AC;&#x201D; and more changes can be expected in 2014. This is a serious challenge for the insurance and reinsurance markets. The difficulty is that pricing and exposure is usually based on history and the 2013 storms had few, if any, equals and could not be predicted. As a result, the industry is facing changes in weather patterns never previously recorded. Insurers must now consider buying reinsurance on an overall enterprise exposure with a large retention within their financial abilities. Many of the leaders in the industry, increasingly executives from the financial community, lack the experience to deal with insurance exposures. They must rely upon reliable information providing details of the insurance risk exposures.
MORE CONSOLIDATION EXPECTED The insurance and reinsurance markets are overcapitalized and this will lead to greater consolidation in 2014. The industry recorded good results in the past year, even with unusual storms throughout the world. The strong performance from the stock markets helped to offset the insurance risk results. 2014 will have many diverse challenges for insurers. Based on recent weather developments, storms will likely continue during the year and will create unusual and unexpected individual losses. Based on history, since the stock markets were strong in 2013, a correction can be expected during the year. Some market sectors have grown too fast and could crash. The insurance industry depends upon investment income in addition to underwriting income. Caution is recommended at this time. 2014 will be a year of change and some companies will outperform their competitors. Others will disappear. Indeed, 2014 will be a year to remember.
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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.
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Wild Ride
Severe weather â&#x20AC;&#x201D; be it wind, rain or hail â&#x20AC;&#x201D; will again be a focus in 2014. Will related claims make for a wild ride, leaving adjusters and insurers bruised, but not out, like during a tumultuous 2013? Or will calmer conditions prevail, allowing insurance partners to hang tight and get themselves prepared for the next rough year? ANGELA STELMAKOWICH
36 Canadian Underwriter January 2014
N
othing to talk about? There is always the weather. It appears this conversation default continues to be a frequent topic on the lips of insurance partners when it come to property and casualty claims. Will severe weather — regarded now as being more frequent and perhaps more severe than many can recollect — cause concrete damage to homes, vehicles and/or businesses? Or will it plunge blocks of neighbourhoods and business districts into darkness, necessitating that various public services and different levels of government pitch in to get the lights back on? One need look back no further than late December, when the ice storm that pummelled Ontario before moving eastward to cause more damage cast a pall over the festive season, trapping parts of Canada’s largest city in an icy cocoon. There are no firm figures on what this beauty turned beast will mean in terms of claims and associated costs. One reported estimate from BMO Nesbitt Burns notes the toll for ice storm damage in Ontario, Quebec and Atlantic Canada could produce $400 million to $600 million in gross losses for the p&c industry. Also in early January, Toronto City Council asked the provincial and federal governments to provide financial assistance to the city and Toronto Hydro for the more than $171 million in storm-related costs incurred. The ice storm, specifically, caused substantial damage to municipal forestry infrastructure and the city had (to date) received reported losses amounting to about $106 million of private damage. Certainty is a luxury, but some trends appear to have cemented themselves. With an eye to claims, severe weather — whatever form that may take — lies smack dab in the middle of discussions and considerations moving forward. Weather has company, of course, with talk in 2014 also expected to focus on how best to prepare for the claims picture created by the mandated 15% rate reduction in Ontario auto and the need to sustain the claims-adjusting profession.
January 2014 Canadian Underwriter 37
COVER STORY
Wild Ride
TRICKY FORECAST Most sources do not expect any big swings (up or down) in the claims outlook for 2014 — absent any hiccups. Overall, notes Irene Bianchi, senior vice president of claims and corporate services at RSA Insurance in Toronto, “the claims outlook for 2014 is relatively steady, but for the ongoing concern of severe weather.” Toronto-based Bob Fitzgerald, president of ClaimsPro Inc., a member of SCM Insurance Services Group of Companies, would likely agree — again barring significant weather events such as the Calgary and Toronto flooding, and the Toronto ice storm. Rich Zamperin, vice president of claims for Allstate Insurance Company of Canada, based in Markham, Ontario, expects “more uncertainty in the coming year, putting upward pressures on loss costs, frequencies, expenses (including litigation), pendings, staffing and customer service. With this increasing uncertainty, it will be important for the property and casualty market to be able to adapt, innovate and evolve to meet our customers’ insurance needs.” Pat Van Bakel, president and chief executive officer of Toronto-based Crawford & Company (Canada) Inc., says he would not be surprised to see claim frequency decline in 2014. “Many policyholders will be faced with higher premiums and higher deductibles as their policies renew and they may take a more conservative approach to reporting claims,” Van Bakel notes. “It is reasonably safe to suggest that 2013 was a bit of an anomaly with two of the most significant catastrophe events in Canadian history occurring within weeks of each other,” he adds. Clearly, weather-related claims took their toll nationally last year, says Michael Morris, vice president of national operations for Cunningham Lindsey in Mississauga, Ontario. “Insurance claims from wind and water surpassed the claims for fire damage and the trends have increased with severe weather events,” Morris reports. 38 Canadian Underwriter January 2014
Zamperin, too, regards severe weather as an issue to watch. “We expect additional pressure on property claims resulting from more severe weather patterns. This will drive significant spikes in claim volume, as well as catastrophe activity similar to what we’ve seen in 2013 in Alberta and Ontario,” he says.
“The p&c demands on claims-handling resources will continue to be high around all weather-related events and we foresee catastrophe planning and mitigation strategies as key discussions with our insurance partners,” Michael Morris suggests. “According to various weather forecasts, we will be in a deep freeze during the 2013/2014 winter, and that will no doubt have an immediate effect on the claims in Canada,” says Patti Kernaghan, president and chief executive officer of Kernaghan Adjusters in Vancouver. “The weather predictions for the rest of the year are unclear. However, given the last few years of very severe weather patterns, it is likely to be repeated in 2014,” Kernaghan adds.
Swiss Re recently issued preliminary estimates of insured losses for property and business interruption from natural catastrophes and man-made disasters in 2013. The southern Alberta flooding was listed as the third most costly disaster last year, with estimated insured losses of US$1.9 billion and economic losses of US$4.8 billion. “The p&c demands on claims-handling resources will continue to be high around all weather-related events and we foresee catastrophe planning and mitigation strategies as key discussions with our insurance partners,” says Morris. Water-related claims as a result of increased storm activity have put tremendous strain on municipal infrastructures, a trend that has emerged over the past 10 years, he says. “As this trend continues, we will see more and more waterrelated claims, such as sewer back-up, business interruptions and so one.” Bianchi sees aging infrastructure in the country’s cities as an urgent priority. “It has become clear that Canada’s infrastructure can’t cope with severe weather and resulting water-related damages.” Governments investing in municipal infrastructure, including better planning, “will play an important mitigating role by preventing unsound decisions, such as construction on flood plains. It’s unrealistic and unsustainable for the insurance industry to bear the substantial costs associated with aging infrastructure and poor planning,” Bianchi emphasizes. “The industry needs to play a bigger role in loss prevention, which will go a long way in terms of cost control,” she suggests. “From a broker and insurer perspective, consumer education aimed at loss control measures is essential.” There are several areas where education (and convincing) may be needed. Consider formerly lowly basements, which have been transformed from basic storage areas to comfortable living spaces. “A growing number of Canadians are investing in finished basements, which are giving rise to mounting replacement costs for sewer back-up-related claims,” Bianchi says. “Growing Canadian afflu-
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ence means more people are investing in home renovations, which very commonly includes a finished basement with expensive furnishings and other bigticket items, such as high-end entertainment systems. With the rising trend of water-related damage, this is leading to a higher concentration of claims in addition to higher replacement costs.” And there are few indications the trend of making basements more liveable will change. As such, precautions have become all the more important.
Also with regard to specialist demand, she suggests “there will be an increase in business interruption claims that often require accounting expertise to work with the adjusters.”
DRIVING AUTO
EMERGING CLAIMS AREAS Trying to predict what will happen with p&c claims can be a slippery proposition, suggests Fred Plant, president of Plant Hope Adjusters Ltd. in Moncton, New Brunswick. “All anyone can do is guess, as there are no measurable predictors one can use to size up what may or may not happen with events that influence the number of claims that will come about in a year,” Plant says. “As insurers develop new product lines, so will there develop new claims associated with those products,” he says. “If the p&c insurance industry responds with the coverages that are emerging as necessary for business today, then interesting claims and complex litigation will soon follow,” Plant predicts. Bianchi points out new condo developments and other construction projects are on the rise. “Overall this is a reflection of increased economic activity, which is very good for the insurance industry, but in general, it will also lead to more losses.” Zamperin adds that “there is also upward pressure on costs for building restoration and damage mitigation, as well as environmental issues such as mould and asbestos containment during the restoration process.” Mould remediation could become an issue not only related to the number of claims, but also to their costs. “There will continue to be an increased need for specialists to quantify or identify loss issues, such as specialty engineering firms, etc.,” Kernaghan expects.
40 Canadian Underwriter January 2014
can creep up. Adjusting fees may be reduced, but the indemnity dollars may, therefore, increase without confirmation on cause of loss or management of the ultimate claim payout,” he explains.
Although everyone would like to see insurance offered in a stable, affordable and accessible way, comments Rich Zamperin, “mandated rate cuts are simply a short-term, Band-Aid solution that fails to address systemic issues that require attention.” And increased safety requirements for independent adjusters “will also ultimately increase costs in terms of training and equipment needs,” she adds. But having independent adjusters on site can help to guard against certain issues that will lead to higher costs, Fitzgerald notes. He points to concerns related to the trend to handle many personal lines property losses by telephone through contractors on site. “Without an adjuster on location confirming the scope and reviewing the contents list in person, the claim costs
Another issue of concern, a perennial, is what is happening with Ontario auto. “We have also seen an uptick in bodily injury (BI) claims, which are expected to continue,” Bianchi says. “The legal environment has become more conducive to bodily injury claims. We’ve seen a resurgence of legal advertising aimed at auto accident victims, and heightened consumer awareness of the potential for sizable claims settlements.” Zamperin also regards Ontario auto — most recently in the public eye with the directive by the provincial government to reduce rates by an average of 15% over two years — as a driver for the p&c claim outlook. He cites both accident benefits (AB) and BI, which he characterizes as “a definite watch item.” Says Zamperin, “There is increasing political and regulatory uncertainty that is largely Ontario-driven, and is mostly in the injury area of the business.” BI claims are among those becoming more expensive, more quickly than other types. Zamperin says there are a few reasons for this, including spillover from Ontario AB claims and the need for alternative dispute resolution reform. Bianchi suggests the mandated rate reduction “has potential to significantly impact the bottom line for insurers in 2014. Changing regulations around the definition of catastrophic impairment is also anticipated to have a significant impact on costs this year,” she says. Zamperin would likely agree. Although everyone would like to see auto insurance offered in a stable, affordable and accessible way, “mandated rate cuts are simply a short-term, Band-Aid solution that fails to address systemic issues that require attention,” he comments. “Insurers need to continue to preserve the intended outcomes of the 2010 reforms and reduce overutilization in the system,” Zamperin emphasizes.
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But there are some positive signs, he suggests, citing the Ontario government’s move to establish a panel to review the dispute resolution system, headed by Chief Justice Douglas Cunningham. Justice Cunningham’s interim report last year headed in the right direction, Zamperin says. Once the final recommendations are released, “all insurers will need to act on those recommendations in a timely basis,” he recommends.
capabilities. As we continue to grow out this sought-after skill set, we expect to see a steady to upwards trends in service need.”
SUSTAINING EXPERTISE Timely action is also needed with regard to ensuring that the independent adjusting profession remains healthy. Absent that, sources caution the expertise to help address matters in a timely and less expensive way could be lost. A definite area of concern, says Plant, is adjuster recruitment and training. “Many adjusting firms are relying on hiring people who are near the end of their careers in claims. This is a BandAid approach that has a certain end,” he says. “Few adjusting companies actually bring in fresh recruits off the street and train them from the ground up.” Fitzgerald notes that many senior adjusters are retiring. “Specialty-type losses requiring expertise in claims handling will likely increase in outsourcing needs for future as we see many senior adjusters retiring and fewer adjusters coming through the ranks with expertise to handle these specific losses,” he says. “This is especially demonstrated by way of more common desktop adjusting models,” he reports. “As the number of independent adjusters continues to shrink, the demand for the experienced adjuster who really knows how to handle a claim will go up. With that, so will the cost of that service,” Plant predicts. Adds Morris, “We need to do more to attract college students to enter into the insurance programs, develop new mentoring programs, and do a better job of showcasing the opportunities the loss adjusting career has to offer.” That said, he adds, independent adjusters “will continue to be utilized for our large and complex loss-handling 42 Canadian Underwriter January 2014
“Specialty-type losses requiring expertise in claims handling will likely increase in outsourcing needs for future as we see many senior adjusters retiring and fewer adjusters coming through the ranks with expertise to handle these specific losses,” says Bob Fitzgerald. ALL AT ONCE That need may be no clearer than during a catastrophe, when many claims must be handled at once. Is the claims process comfortably equipped to deal with an associated large number of claims? Van Bakel says “this varies from company to company, from event to event, and with the geography of the event.” During the Alberta and Toronto floods, “we managed to mobilize hundreds of staff in a few days to deal with the large number of claims we had to deal
with. However, there were some that failed to either execute their catastrophe plan, or perhaps that did not have one. But all in all, the industry met the challenge.” Plant’s suggestion? “Insurers may want to consider making independent adjusting an integral part of their overall claims-handling strategy rather than an ad-hoc process where they push a panic button once and then expect the adjusters to jump and serve them.” Van Bakel notes that “2013 provided a lot of lessons and warning signs for our industry; specifically, how prepared we are as an industry to respond to major spikes in claim volumes in a short period of time.” As such, “now is the time to debrief on these events, model future events, and build adequate plans to respond to ever-changing customer expectations — this ranges from claims staff to contractors and all other aspects of the supply chain,” Van Bakel emphasizes. “Climate change has had an undeniable impact on both the frequency and severity of catastrophic events year over year,” says Bianchi, adding the unprecedented flooding last year posed a tremendous challenge for the industry. But it may be possible for some challenges to be overcome. “If insurers were able to send pre-determined percentages of claim files out to IAs on a regular basis, we would be better-equipped during times of catastrophe or significant weather events to assist and understand their claim file-handling philosophies,” Fitzgerald comments. “Standing agreements in advance of catastrophic events, which clearly outline protocols, are critical to a smooth claims process during a large weather event,” he says. As well, “having system connectivity would allow a seamless assignment of claims between systems and vendors which, again, makes the process run more effectively,” he says. During Cat events, “indemnity amounts increase significantly due to greater costs in material and labour,” both of which are at a premium, Morris says. As well, expenses associated with
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“2013 provided a lot of lessons and warning signs for our industry; specifically, how prepared we are as an industry to respond to major spikes in claim volumes in a short period of time,” notes Pat Van Bakel. handling these types of losses have risen, “primarily because of the increased use of experts such as lawyers, engineers, etc., which reflects the insurers demand for better quantifying the loss and exploring subrogation opportunities.”
CUSTOMER SERVICE KEY All would agree that serving customers is critically important. With storm-related claims, though, Kernaghan suggests this may be one area where the industry as a whole is falling down. “We need to get better on servicing the policyholders. We offer a product that has a promise and we are not doing a great job delivering on that promise in a timely manner. We need to be more efficient in our service delivery,” she emphasizes. Efficiency, however, is not necessarily the same as as quickly as possible. Closing claims quickly is a shared and laudable objective, but doing so too quickly — absent a full review — can be to the detriment of all, in fact increasing resources allocated and costs incurred. “Sometimes short-sighted decisions made in a rush can lead to files being reopened or even litigated down the road,” Kernaghan cautions. “Experience and expertise gives the expert independent adjuster the tools to make better decisions in a timely manner, without false deadlines pushing them,” she adds. Technology offers promise as a means to achieve the twin goals of meeting customer needs and helping contain costs, she says. “How we use technology to control costs and communicate more effectively and efficiently will have an enormous effect in the future.” 44 Canadian Underwriter January 2014
Fitzgerald concurs that implementation of new technologies can enhance the workflow process and expedite the claims-handling process. That said, “in order to use these technologies effectively, we must be able to have connectivity between systems in order to realize the net gains that can be implemented by use of these new systems.” That seamless and open approach “to claims handling with connectivity between partners and all claims handling systems will allow more efficient and innovative workflows, which will ultimately reduce the overall costs of managing outsourced files and the indemnity paid on claims that are currently managed by telephone and through a number of different systems that are not connected to one another,” Fitzgerald adds. “Improved workflows and use of technology can definitely improve a claims lifecycle and overall costs,” Morris agrees. “We believe there is opportunity for us as the industry continues to look at new ways to improve cost efficiencies without compromising customer satisfaction,” he continues. “Insurance is an evolving business and it’s, therefore, imperative to use innovative resources and processes to enhance the service we deliver and to make us more efficient,” Bianchi says. “From a claims perspective, this ranges from using the latest fraud detection technologies to streamlining our workflows, with a view to managing costs while enhancing the claims experience for customers who need us during very difficult times,” she says.
Zamperin notes things such as technology, efficiencies through improved workflow and enhanced collaboration (both internally among staff and externally between insurers) “will continue to drive improvements in efficiency and effectiveness, enhanced customer service and a more a engaged workforce.” That said, “these efforts take investments by companies, so it is important that cost containment efforts are enabled quickly and with clear measures to ensure they are delivered,” he says. “The regulatory framework within which companies operate will require support through innovation and the enablement of a market-driven, competitive pricing structure that works to the best interest of consumers.” Van Bakel expects that “the pressure from Cat activity is likely going to drive further cost containment measurements at the carrier level and we expect that that will, in turn, impact firms like ours.” But Plant notes there is a limit to how far cost-cutting can go. “Where does the cost-cutting scale go out of balance with bottom line?” he asks. “It is time for rates to rise to sustain the industry.” Looking forward, Zamperin remains cautiously optimistic. “It’s important we’re 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 we’ll be there to support them through tough moments,” he says.
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Personal Liability Selina Lee-Andersen
Counsel, McCarthy Tétrault LLP
A recent case out of Ontario serves as a cautionary tale for directors’ and officers’ environmental liability. It signals the willingness of regulators to seek out all potentially responsible parties to recover the costs of remediation, which could include ordering directors and officers to personally cover interim remediation costs pending the outcome of any regulatory or court proceedings. In today’s competitive business environment, directors and officers are expected to drive the financial success of their companies while adhering to the highest standards of business conduct. In so doing, directors and officers can attract potential personal liability for wrongful conduct. One aspect of management that is attracting greater
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scrutiny is decision-making within the context of companies’ environmental performance. The environmental liability of directors and officers can arise in two ways: (i) violations of environmental laws; and (ii) civil claims for environmental incidents that cause damage to property or harm to individuals. It is generally understood that directors and officers are subject to potential liability for the remediation of contaminated sites under the broad sweep of environmental legislation, particularly where they have had management of or control over contaminants, or where they have made decisions that resulted in contamination. Consider the recent Ontario case, Baker et al. v. Director, Ministry of the Environment, which raised more than a few eyebrows when former directors and officers of Northstar Aerospace, Inc. and its parent company were held personally liable by Ontario’s Ministry of the Environment (MOE) for contamination located at the site of the nowinsolvent company’s former facility in Cambridge, Ontario.While Baker was settled before the MOE’s position could be tested before Ontario’s Environmental Review Tribunal (ERT) or the courts, it signals the willingness of regulators to seek out all potentially responsible parties to recover the
costs of remediation where a company is no longer able to continue financing remediation activities, even where the directors and officers did not cause or were not involved in the decision-making that led to the contamination. This article will also consider strategies to help mitigate environmental liability as directors and officers carry out their corporate duties.
OVERVIEW OF THE BAKER CASE Northstar operated a facility for manufacturing and processing aircraft parts at the site from 1981 to 2009. The company’s operations resulted in trichloroethylene contamination, which migrated from the site to nearby residential properties. Northstar commenced voluntary remediation in 2005, but although the future costs of site remediation were estimated to be in the millions of dollars, no funding was set aside by the company for the work. When Northstar began having finan-
cial difficulties in March 2012, MOE issued a remedial order to secure the continued performance of remediation work. Following the sale of substantially all of Northstar’s operating assets (other than the site) in July 2012, no personnel or resources were left to continue the remediation work. On the basis of human health concerns, the ministry stepped in the following month to continue remediation work at the site. In October 2012, MOE issued a remediation order against certain individuals who were directors and officers of Northstar from 2004 to 2012.The ministry claimed that these individuals had management and control of site remediation. The directors and officers in question appealed the order to the ERT, claiming they would suffer irreparable harm if the order was not stayed since they would incur remediation costs of approximately $1.4 million per year. The group was unable to recover any costs from the insurance policy intended
to indemnify former Northstar directors and officers as the policy excluded the costs of environmental remediation. In its appeal, the directors and officers claimed a range of defences, including that some of them were not on the board during the time of the contamination and had no specific responsibility for environmental matters. MOE argued that the directors had allowed the company to file for protection under the federal Companies’ Creditor Arrangement Act and stop remediation activities at the site, which made them responsible for remediation under Ontario’s Environmental Protection Act (EPA). A stay was not granted and the former directors and officers were ordered to immediately pay for the continuation of the necessary remediation work until any appeal process was completed. This resulted in the group having to pay approximately $800,000 out of their own pockets for the completion of interim remediation work.
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A possible implication of this case is that regulators may require increased security in the permitting process to ensure that regulatory authorities have adequate funds for contingent and future environmental obligations.
Subsequently, the former Northstar directors and officers reached a settlement with MOE and agreed to pay about $4.75 million to MOE in exchange for the withdrawal of the order.
UNCERTAINTY PREVAILS Since a settlement was reached by the parties before the Baker appeal could be heard, it is uncertain whether or not the facts of the case would have supported MOE’s assertion that Northstar’s former directors and officers were personally liable for the remediation of the site, even where they did not cause or were not involved in the decision-making that led to the contamination. If the MOE had been successful in arguing its case, this would have expanded the liability of directors and officers beyond the scope established in the ERT’s June 2011 ruling, Currie v. Director, Ministry of the Environment. That decision, where the directors of a former corporate owner of a contaminated site were ordered to remediate the site, even though the property had been subsequently purchased by a new party, confirmed that the MOE’s power to issue orders under the EPA extends to all corporate directors — both former and current — provided that such directors had a sufficient degree of management or control of the property. In Currie, the ERT reiterated the 1995 ruling of the Ontario Environmental Appeal Board in Caltex Petroleum Inc. v. Ontario (Ministry of Environment and Energy) that (i) the onus is on directors to present evidence of their lack of involvement if they wish to avoid being subject to an EPA order, and (ii) the presumption of a director’s management and
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control of corporate affairs can only be rebutted by a “very convincing case.” It is too early to tell whether or not other provincial regulators will follow the MOE’s approach in Baker. However, the case serves as a cautionary tale that regulators may expect directors and officers to personally cover interim remediation costs pending the outcome of any regulatory or court proceedings. A possible implication of this case is that regulators may require increased security in the permitting process to ensure that regulatory authorities have adequate funds for contingent and future environmental obligations.
MANAGING ENVIRONMENTAL LIABILITY IN A COMPETITIVE BUSINESS ENVIRONMENT In order to attract high-calibre candidates to boardrooms, companies will need to ensure that directors and officers are sufficiently protected from personal liability. For individuals who currently serve on boards or are considering taking up a board position, the Baker case offers some lessons on how to mitigate the risks of environmental liability not only for directors and officers, but also for companies: • Ensure sufficient protection for directors and officers in indemnity agreements. Directors and officers are typically indemnified against costs incurred as a result of any civil, criminal, administrative or other proceeding arising from the individual’s association with the company. • Review directors’ and officers’ insurance policies to determine the scope and limits of any coverage for environmental claims. There is no stan-
dard wording for environmental coverage, so care should be taken in reviewing individual policies. • Establish a fund to cover potential environmental remediation costs, particularly where the company engages in higher-risk activities, such as manufacturing or natural resource extraction. In addition, the following actions can help directors and officers meet their due diligence obligations and reduce the likelihood of environmental incidents and related claims against the company: • Review decisions and actions taken by management in response to environmental incidents. • Maintain appropriate records to demonstrate that directors and officers have been diligent in performing their duties and overseeing the operations of the company. • Ensure the company has robust environmental policies and environmental incident response plans in place. • Regularly consult with the company’s environmental managers to address any issues of concern and ensure that issues are reported to senior management in a timely way. • Ensure that employees are aware of their responsibilities to comply with requirements under environmental legislation (e.g. spill reporting obligations). • Ensure that environmental audits are carried out at regular intervals. Following Baker, it is more important than ever for directors and officers to proactively manage environmental issues with the objective of minimizing their risk exposure in the face of constantly evolving environmental liabilities.
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Icy Finish It looked like Canada’s natural catastrophe story for 2013 was just about told when the ice storm mere days before the year’s close added the chapter, “It ain’t over till it’s Glenn McGillivray over.” Some day, there will Managing Director, be another major wind or Institute for Catastrophic Loss ice storm, demanding that Reduction discussions begin now about how much should be spent to guard against what may amount to fairly rare events. In what may amount to a “coming-of-age” year for Canada, a string of severe weather events — ending with a major ice storm — conspired to ensure that Canadian property and casualty insurers will pay out more in catastrophe losses for 2013 than for any other year — by far. At writing, preliminary insured losses for Ice Storm 2013 were still a few weeks away, but
50 Canadian Underwriter January 2014
claims totals for five earlier events had already pushed 2013 insured losses to somewhere between $3 billion and $3.5 billion. This puts the country in a league with many other western industrialized nations that face multi-billiondollar claims years on a regular basis. Perhaps somewhat ironically, the late-year ice storm came on the 15th anniversary year of the massive ice storm that ravaged eastern Ontario, the Ottawa/Montreal corridor and parts of the Maritimes — it was not until the floods in southern Alberta last June that the January ’98 ice storm fell from first to second in the ranking of costliest insured Canadian natural catastrophes — and on the tenth anniversary year of the widespread northeastern blackout in August 2003. Once again, several hundred thousand Canadians found themselves without electricity, many for as long as five days or more. The latest storm was exceptional, rare to be sure, but not unheard of. And while it had the potential to be on par with the ’98 event had it continued a few days longer, by the end of it, Ice Storm 2013 was no fair analog to the Great Ice Storm, whether measured by ice accretion, customers without power, property damage or fatalities. Still, it was a significant event.
Illustration by Sandy Nichols/threeinabox.com
Opinion/Analysis
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TAKEAWAYS Although essentially all hazard events offer a long list of lessons, two themes come out strong in the wake of Ice Storm 2013. First, the ice storm again raised the issue of personal preparedness.The vast majority of people affected by this event simply were not ready for a severe weather event. The lack of preparedness and overall awareness of what to do prior to, during and immediately following hazard events was evidenced by the many instances of carbon monoxide poisoning reported in the press, caused when people used unorthodox and dangerous means to heat their homes during the outages. Despite nagging warnings, few people take steps to prepare, and this must change. Second, the event shone a glaring spotlight on the poor condition of the hydroelectric grid, particularly in the
Investing in mitigation always involves the question of cost/benefit: How much should be invested to get major stakeholders to a certain risk comfort level? What is realistic and doable? City of Toronto, where the system is old, trees tend to be older and larger, and streets are narrower. The ice storm, the July 8 flood event in the Greater Toronto Area (GTA), and the earlier urban flood event in southern Alberta warn of society’s growing vulnerability due to aging infrastructure.This lends some credence to the idea that many natural catastrophes are, in effect, man-made. Often, in the wake of severe weather events, the common mantra heard from politicos, public utilities and others is that the event was “just too big” and nothing could have been done to prevent it or lessen its impact. It would be difficult, however, for Toronto Hydro to use this strategy when the corporation has in the not-so-distant past taken
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the rare step of publicly criticizing the poor state of its own assets and has issued dire warnings about future reliability of its own service. The Toronto Star reported on December 30, 2011 that unions for Toronto Hydro warned that “a yet-to-be released ruling by the Ontario Energy Board risks slashing Toronto Hydro’s budget for renewing its aging system by two-thirds. And that, they say, will lead to an increas-
ingly unreliable power system — a conclusion that Toronto Hydro doesn’t disagree with.” Notes the article, “‘We’re seeing neighbourhoods that are getting 12, 18 outages a year,’ Toronto Hydro vice-president Blair Peberdy said… The downtown core’s system is also aging. Much of it is 50 years old, dating back to the start of the 1960s construction boom.” On January 5, 2012, The Star reported
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“the Ontario Energy Board has told Toronto Hydro it can see little evidence that the utility’s state of repair is as bad as the utility claims.” The board told Toronto Hydro “to manage its spending the same way other utilities in the province have done. As a result, it won’t allow the utility to make a special case for radically higher spending on renewal and maintenance at a full-blown hearing before the board.” Two months later, on March 7, 2012, The Star reported that Toronto Hydro was being dropped by its insurer FM Global at contract renewal June 1. “Toronto Hydro has been warning that a decision in January by the Ontario Energy Board curbing its equipment renewal program will prevent it from replacing aging equipment — leading to longer and more frequent blackouts. Peberdy said the prospect of insuring less reliable equipment seems to have triggered the decision by the insurer, Factory Mutual insurance, or FM Global,” the article noted.
BALANCE ESSENTIAL Toronto Hydro now finds itself in the unenviable position of being criticized after the July 8 GTA flood for having too many underground assets and after the
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recent ice storm for not having enough. It must now make some tough decisions. Investing in mitigation always involves the question of cost/benefit: How much should be invested to get major stakeholders to a certain risk comfort level? What is realistic and doable? For the sake of discussion, consider storm water management. While it is technically feasible to put a storm sewer system into Toronto that could handle heavy rain events such as the August 19, 2005 and July 8, 2013 storms, the cost would be beyond prohibitive (some estimate it would require the entire annual GDP of Canada) and the disruption due to construction would be unlike anything ever experienced in the country. One news report posited it would cost about $2 billion to underground all remaining overhead lines in Toronto, not including other associated costs like installing stand-alone traffic signals. (An even more recent article has suggested the total is more in line with $15 billion.) Whatever the total, a 2013 feasibility study entitled Underground overhead wires: Town of Markham: Yonge and Davis Corridors — by Lehman & Associates, DPM Energy and George Todd Consulting with the Town of Newmarket — notes that “the cost of converting an existing overhead
distribution system to an underground system is relatively high — typically five to six times more expensive than the relocation of an above-ground system.” While even the $15 billion is considerably more realistic than the storm sewer upgrade example noted previously, it is substantial nonetheless. So the question remains: How much should be spent to bolster the grid for what amounts to be fairly rare damaging wind and ice storm events? And what about an underground system that can withstand flood, which likely is not factored into the $15 billion? As of late, there have been many calls for senior governments in Canada to invest in the country’s infrastructure, including storm water systems. While a similar call must go out for upgrades to the grid, it is necessary to be smart about any decisions and choices made. As with the August 2005 Toronto flood, once an extreme event happens, it is clear it can happen again. Witness July 8, 2013. One day, there will be another major ice storm in the GTA. Let the discussion begin.
Ice Storm 2013 (Ice accretion in millimetres: December 21-22) Trenton Toronto Pearson Airport
30 24.8
Vaughan
25
Grimsby
27.7
Orillia Niagara Downsview Niagara Escarpment
3-4 27.7 20 7-8
Hamilton
20
Barrie
20
Brampton Cornwall
20-30 15
Kingston
20
Kitchener
15-20
Recent Insurance Press Releases featured on insPRESS.ca Canadian P&C brokers should aim their arrows at the untapped opportunity of receivables insurance by Receivables Insurance Association of Canada – Jan 14
Donald Kunkel Appointed National Vice President of Business Development for AssessMed by AssessMed Inc. – Jan 6
ClaimsPro Adds More Expertise to Northwestern Ontario and Eastern Manitoba Region with Acquisition of North Country Adjusters Inc. by SCM Insurance Services – Jan 14
Hub International Executive Eileen Greene Receives 2013 Best Women In Sales Award by HUB International Limited – Jan 3
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Insurance Industry Steps Up to Help Ice Storm Victims by Insurance Bureau of Canada – Jan 2 ClaimsPro Emergency Response Teams Gear up to Handle Claims in Midst of Historic Ice Storms by SCM Insurance Services – Dec 23 Granite Claims Solutions Central and Eastern Canadian Locations are on Alert for Ice Storm-Related Claims by Granite Claims Solutions – Dec 23 Gregory Knowles Receives the CIP Society’s Greater Toronto Area Fellow of Distinction Award by CNA Canada – Dec 18 Burns & Wilcox Canada Strengthens Professional Liability Offering with New Hire by Burns & Wilcox Canada – Dec 18 Team STRONE-Itech Raises $1,525 During Movember 2013 by STRONE-Itech – Dec 18 DKI Canada Continues To Grow by Disaster Kleenup Canada Ltd. (DKC) – Dec 16 Burns & Wilcox Canada Supports National Growth Strategy with Key Operations Hire by Burns & Wilcox Canada – Dec 16 $3,390 Raised for Charities at STRONE-Itech Christmas Party by STRONE-Itech – Dec 13 Introducing a new force in the reinsurance market by JLT Towers Re – Dec 13 Burns & Wilcox Canada Offers Professional Liability Coverage for Seedsmen by Burns & Wilcox Canada – Dec 12
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INSPRESS COLUMN AD JAN 2014.indd 1
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Net Losses Scott Vandenberg
Assistant Vice President, Product Innovation, Northbridge Insurance
Patrick Cruikshank
Director, Professional Liability, Northbridge Insurance
Massive cyber crimes may generate big headlines, but major corporations are not the only possible targets. With a recent survey showing that 40% of cyber attacks are on small and medium-sized businesses, smaller organizations also need to protect themselves against related risks. Information is a powerful tool â&#x20AC;&#x201D; and in the information age, it has become a popular target for criminals. Computer hackers recently posted 2 million compromised usernames and passwords attached to Facebook, LinkedIn and Twitter accounts, just months after a similar attack affected 38 million Adobe software users. Sony, meanwhile, lost at least US$171 million responding to a 2011 cyber attack that exposed approximately 77 million customer files connected to the PlayStation Network and Qriocity service. Each case generated headlines around the world.
54 Canadian Underwriter January 2014
BIG AND SMALL But the threat of cyber crime is hardly limited to major corporations. Forty percent of attacks are on small and medium businesses, notes survey results issued last year by Symantec, which offers online security services. In October 2012, Symantec and the National Cyber Security Alliance also released results from a survey of 1,015 small and medium-sized businesses (less than 250 employees) across the United States. â&#x20AC;&#x153;Almost 40% of the over 1 billion cyber attacks Symantec prevented in the first three months of 2012 targeted companies with less than 500 employees,â&#x20AC;? the company noted in a press release at the time. Small businesses are also victimized in an evergrowing share of the crimes as thieves look for easy access to personal information, credit card numbers and vulnerable paths into the computer networks used by larger suppliers and customers. Put another way, every business is at risk. The challenge is that many related insurance offerings that have been developed for massive U.S. organizations, such as national retailers and financial institutions, are offered by specialty companies, and come complete with the high premiums and steep deductibles that smaller Canadian enterprises cannot afford. While op-
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tions for small and mid-sized businesses are beginning to emerge, addressing the growing demand for coverage that is just as robust as the support enjoyed by big business, some insurance providers offer limited protection and exclude certain types of risks. A good example of the gaps that exist can be seen when companies need to notify customers about lost personal data. Some insurers will only cover the cost of mandated notices — such as those that apply to every breach that occurs in Alberta — but other provinces only mandate notices in certain circumstances, or have no mandatory reporting requirements at all. Businesses with this restricted coverage will be left to pay the cost of informing customers about the other leaked details. In contrast, robust cyber coverage helps a business notify customers even if the reports are not mandatory.
BUSINESS… INTERRUPTED Some of the steepest losses of all can emerge in the form of interrupted business. A virus uploaded to a manufacturer’s computer server might bring production equipment to a halt for several days, requiring a costly response by information technology teams. But this financial damage can easily be eclipsed by the price of idled production and unfilled orders. Business interruption insurance can help to offset the related threat. An Internet attack on a small retail florist, for example, might translate into the cost to rebuild a website, send letters to thousands of customers, and pay for a credit-monitoring service to limit future losses where credit card data has been compromised. In each case, attacks also affect productivity as employees are pulled away from their usual activities to restore data or respond to an attack. It is why comprehensive cyber risk coverage should protect a small business from lost revenue. Potential issues can even be traced to the information that a small business, without the support of an in-house legal team, willingly shares through a website or Internet server. Consider the scenario
where a small hotel posts pictures of local tourist attractions without paying for the Internet-sourced images, and is then sued for $10,000. Other lawsuits can arise if a business incorporates another company’s trademark into its own website without gathering the required permission, or if any other damaging information is published. Cyber risk insurance for small businesses would protect against online legal liabilities such as these. As important as the appropriate coverage will always be, insurers can also offer access to in-house risk management teams or third-party experts to help prevent breaches and contain any of
Valuable business information is often compromised when employees lose laptops, hard drives or USB keys. To compound matters, many people struggle to remember where they put every storage device after loading them with data. the issues that emerge. After all, small businesses may need access to this help from their insurer more than larger companies, which tend to have the required in-house expertise.
STAFF EDUCATION KEY Unwitting staff members have been known to surrender important data like usernames and passwords by responding to “phishing” emails, which appear to come from internal executives or human resources teams. But they are less likely to leak these details if they know how to recognize the fakes. Beyond educating staff about possible risks, however, their hardware also needs to be guarded as carefully as the data itself. Valuable business information is often compromised when employees lose laptops, hard drives or USB keys. To compound matters, many people struggle to remember where they put every storage device after loading
them with data. Businesses can minimize these potential losses by encrypting data and tracking the hardware on which it is stored. These threats are not even limited to a company’s hardware. A growing number of businesses have adopted Bring Your Own Device (BYOD) strategies, allowing employees to access corporate files through personal devices such as tablets and smartphones. Symantec reports that 37% of working adults surveyed now use a personal device for both work and play, and 17% of them store personal information on a work device. While multiple uses enhance productivity, they also create new threats that can be lessened with clearly defined policies on exactly how devices can be used. Corporate Canada clearly recognizes the need to protect information. The 2012 Canadian Businesses and Privacy-Related Issues report, prepared by Phoenix Strategic Perspectives Inc. on behalf of the Office of the Privacy Commissioner of Canada, asserted that 77% of companies polled recognized the importance of protecting privacy. The same study showed that a mere 44% of respondents encrypt data storage devices. And even fewer know how they would respond to a problem. In addition, the survey found that less than a third of Canadian businesses have established guidelines to deal with a security breach. Findings are based on a random-digit dialing telephone survey administered to 1,513 Canadian residents 16 years of age and older. If personal information is compromised, a sound crisis management strategy will ensure that everyone is informed about the loss and prepare managers for the moment the media comes calling. Other strategies will back up, recover and encrypt lost data as quickly as possible, while disaster plans will help to prepare for the worst and hope for the best. No single strategy is foolproof, but these steps will help to discourage possible cyber attacks. Coupled with the right coverage, these efforts will help small and mid-sized businesses minimize their Net losses.
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Michael Teitelbaum Partner, Hughes Amys
Ontario’s Divisional Court has determined the precise cause of damage arising from a fortuitous event is not required for recovery under an all-risks insurance policy. As such, the ruling proposes that a much lower threshold is required to establish coverage under these policies. OVERVIEW The October 2013 ruling by Ontario’s Divisional Court, 1422253 Ontario Limited v. Coachman Insurance Company, is an important decision addressing when coverage will be found under all-risks policies. In lowering the threshold test established by the trial judge, a three-judge panel ruled that for coverage under such a policy to be found, it is enough for the insured to show that the loss arose from an external cause. This
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was interpreted to mean that the loss (1) was not deliberately caused by the insured, and (2) was not expected to arise in the ordinary course of the insured’s business. With respect to this second element, the court suggested two important propositions. Firstly, the court proposed at para. 12 the appropriate question was not whether there was evidence that the damage was “inevitable,” but rather whether the damage was not “something one would expect to arise in the ordinary course of business.”The court opined that just because an event is inevitable, does not mean that its occurrence is in the regular course of business. Secondly, the court held that the precise cause of the damage need not be proved by an insured in order to determine whether or not the event was expected to occur in the ordinary course of business.
FACTS This decision involved an appeal from an order granting the defendant insurer’s motion for non-suit.The insured owned and operated a gas station and held an “all-risks” policy issued by
Illustration by Sandy Nichols/threeinabox.com
External Considerations
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The damage in question was caused by a crack in a fuel fill-pipe, which allowed water to contaminate the fuel. This contamination rendered the fuel unusable, caused damage to the fuel pumps, and resulted in the interruption of the insured’s normal business activities.
the insurer, Coachman Insurance Company. The policy insured stock and equipment against “all risks of direct physical loss or damage from any external cause.” The damage in question was caused by a crack in a fuel fill-pipe, which allowed water to contaminate the fuel.This contamination rendered the fuel unusable, caused damage to the fuel pumps, and resulted in the interruption of the insured’s normal business activities. The insurer paid for the loss related to the contaminated fuel, but not the pumps or the business interruption loss. The insured commenced an action for the unpaid damages. At the conclusion of the insured’s case, the insurer brought a motion for non-suit.
ISSUES ON APPEAL The Divisional Court was asked to decide whether or not the insured was required to establish that the loss in question was the result of a “fortuitous event, not an inevitable event.” Further, the court was asked to consider if the threshold set by Justice Maddalena when proving the cause of the
THE TRIAL DECISION In August 2012, Justice Theresa Maddalena of Ontario’s Superior Court of Justice identified the issue as whether or not the insured had provided prima facie proof that the loss was fortuitous, so as to fall within the parameters of the policy’s all-risks coverage. The trial judge held that, although there was evidence of a loss, there was no evidence that the loss was the result of a fortuitous event, which she defined as “a happening by chance rather than by design.” Justice Maddalena held that there must be some evidence to connect the cracked fill-pipe to a fortuitous event and not some other cause. In these circumstances, she found that such a connection could only be made on the basis of expert evidence, which was not adduced.
loss — that expert evidence was required to connect the cracked pipe to a fortuitous event and not some other cause — is the correct one.
THE APPEAL DECISION Analysis The Divisional Court stated that an allrisks policy is meant to insure against all risks except those specifically excluded from the policy. The court explained that these policies “are meant to insure against risks, not certainties, and accordingly, the policy in this instance required that the damage arise from an external cause.”
In order to constitute a loss arising from an external cause, the loss cannot be (1) deliberately caused by an insured, or (2) expected to arise in the ordinary course of the insured’s business. The court held, at para. 13, that the trial judge erred in concluding the insured was required to establish that the loss in question was “the result of a fortuitous event, not an inevitable event.” In so finding, the court reasoned that just because a loss is inevitable, does not mean its occurrence is in the ordinary course of the insured’s business. Specifically, while the corrosion of the pipe over time to the point that the pipe fails is inevitable, the failure of the pipe (even if due to corrosion) may not be expected in the ordinary course of business if the pipe has been regularly inspected. Thus, the court concluded at para. 14 that the proper inquiry was as follows: Accordingly, the question for the trial judge was not whether there was evidence before her upon which she could find the break not to have been inevitable but whether the break in the pipe was not something one would expect to arise in the ordinary course of business. The evidence relied on by the Divisional Court included the following facts: (1) the experienced contractor had never seen fill-pipe rust out or break in this manner, (2) the principal of the insured, an experienced gas station owner, had never experienced a broken fill-pipe and had recently had the pipes tested, (3) the break occurred during business hours and required the immediate shut-
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down of the gas supply operation, and (4) the insurer’s denial of coverage on the basis of a policy exclusion was perceived as a deemed admission by the insurer that the loss would be covered by the policy, but for the exclusion. The court ruled the precise cause of the cracked pipe need not be proved in order to determine if the event was expected to occur in the ordinary course
of business. Accordingly, the test formulated by the trial judge was too high a standard, as it effectively required the insured to prove the exact cause of the loss. In support of its ruling, the court relied on the result in the 1999 decision, Goderich Elevators Ltd. v. Royal Insurance Co., which involved a financial loss when too much stored grain had become “heated.” In that case, the Court of Ap-
“GeT all THe rIGHT cOnnecTIOnS!”
peal for Ontario held that, “although the cause remains unknown, the fact that grain became ‘heated’ while in the care and control of Goderich is exactly the kind of ‘fortuitous event’ that triggers the coverage of this all-risks policy. Something happened which resulted in damage to the grain. The answer to the insureds’ assertion that this conclusion would extend coverage to the normal day-to-day business risks of warehousing is that the Goderich plant manager, with over forty years of experience in the business, had never before had a cargo of grain downgraded as occurred here.”
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58 Canadian Underwriter January 2014
Completely Updated for 2014- over 10,000 changes!
Similarly, the Divisional Court concluded that although the cause remains unknown, the cracking of the fill-pipe is exactly the kind of fortuitous event that triggers coverage of the all-risks policy.
Disposition The appeal by 1422253 Ontario Limited succeeded. The Divisional Court held that as the loss was not caused by the deliberate acts of the insured, and this was not a loss that could be expected in the insured’s ordinary course of business, the loss was truly a fortuitous event. Accordingly, the order of the trial judge was set aside and the insured was awarded indemnity under the policy.
COMMENTARY Insureds should take comfort in this ruling, as it proposes that a much lower threshold is required to establish coverage under all-risks policies. They need
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Insurance Brokers Association of Ontario Elects New President from Waterloo
only show that something external has happened which resulted in damage; they need not prove the precise cause of that fortuitous event. The latter would involve a much higher threshold that would, in many cases, require retaining expert witnesses, significantly increasing the cost of litigation. This case also assures insurers that all-risk policies will not be interpreted so broadly as to find coverage where none was intended. The Divisional Court emphasizes that, despite the lower threshold for a finding of coverage, all-risk policies do not insure certainties (i.e., risks that arise in the normal course of business). The court underscores that the result in this decision does not inappropriately extend coverage offered by all-risk policies to normal day-to-day business risks (i.e., business risks involved in the operation of a gas station) given the damage at issue (i.e., a cracked fuel-pipe) is of such a nature that it rarely occurs in the ordinary course of business (i.e., both the contractor and the gas station owner testified they
This case also assures insurers that all-risk policies will not be interpreted so broadly as to find coverage where none was intended. The Divisional Court emphasizes that, despite the lower threshold for a finding of coverage, all-risk policies do not insure certainties. had never before in their careers seen a fill-pipe damaged in this manner). Additionally, the nature of the coverage position taken must be carefully considered. As seen here, the denial of coverage solely on the basis of a policy exclusion can lead to an unintended consequence. Specifically, a court could potentially deem the taking of an off-coverage position on the basis of the exclusion alone as an admission by an insurer that the loss would be covered, but for the exclusion. This very sort of deemed admission was one factor relied on by the court to conclude that the loss was not something one would expect to arise in the ordinary course of business, thus bringing it within the parameters of the allrisks policy. As the trial judge, Justice Maddalena, gave oral reasons, the decision at first instance is not readily available. Thus, while it is not possible to confirm the exact language of the exclusion, or whether, initially, the insurer only argued an off-coverage position on the basis of the exclusion, and not fortuity, the Divisional Court’s decision appears to indicate this is what transpired. Many thanks to Casey B. Marvin, student-at-law in Hughes Amys LLP’s Toronto office, for her excellent assistance in the preparation of this article.
Chris Floyd, CIP
The Insurance Brokers Association of Ontario (IBAO) is pleased to announce that Mr. Chris Floyd, CIP, has been elected as IBAO’s 71st President. Chris was officially inducted at the recent IBAO Convention held at the Royal York in Toronto, and formally assumed his role as President on January 1, 2014. Chris currently serves as President of Individual Insurance for the Ontario Teachers Insurance Plan (OTIP) and its group of companies, which includes OTIP/RAEO Insurance Brokers Inc., TW Insurance Brokers Inc. and Canadian Labour Insurance Services Inc. Chris is directly responsible for the marketing, business development and management of operations and results for the sales, service and underwriting business efforts of the group. Chris started his insurance career as a claims adjuster at Gore Mutual Insurance in 1986. He joined OTIP in 1994 as a Service Manager. Chris advanced to the role of Vice President soon after and took on his current role as President in 2004. “Chris is well respected and admired in the industry for his hands on, results focused approach to leadership,” said IBAO CEO Randy Carroll.“We are honoured to have Chris take on this very important role as President of our association and we know he will lead our group of brokers with vigor.” Chris is a Chartered Insurance Professional (CIP) and a graduate of the Institute of Corporate Directors Program from the University of Toronto’s Rotman School of Management. In addition to his work with IBAO, Chris also sits on the Board of Directors of the Insurance Brokers Association of Canada (IBAC). Chris volunteers his time as a coach at the representative level with both Kitchener Minor Hockey and Waterloo Minor Hockey. “It is humbling to take on this role,” said Floyd.“This is a challenging time for our brokers, our industry and IBAO. I am excited to work with brokers, insurers, and government to continue to move forward and make the broker channel the channel of choice for consumers.As I said during my induction speech, the job is to make sure that all brokers are ready to adopt the tools they need today in order to be successful for tomorrow. My goal is to help brokers understand the need to get ready for tomorrow today.”
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Systemic
Change Opinion/Analysis
May Gibillini President, inHEALTH Inc.
Needed
Ontario’s automobile insurance dispute resolution system is currently under review. But will the review — meant to develop recommendations to make the system more efficient and predictable — get to the root of conditions that continue to drive consistently high dispute volumes? As the insurance industry awaits Justice Douglas Cunningham’s final report on Ontario auto insurance dispute resolution system (DRS) reform, is that agenda putting the cart before the horse? While the DRS needs modernization to improve efficiency, consistently high dispute volumes will continue to present barriers to the success of a proposed new dispute resolution (DR) body. Root problems in Ontario auto insurance are contributing to high dispute volumes and need to be addressed with systemic reforms.
60 Canadian Underwriter January 2014
FEWER ACCIDENTS, MORE DISPUTES In the past five years, Ontario’s auto insurance sector has seen accidents and claims steadily decrease as disputes increased 128%. Figures from the latest Ontario Road Safety Annual Report show that there were 215,533 reportable collisions in 2010, down from 233,487 in 2007 and 240,630 in 2000. Additionally, the General Insurance Statistical Agency reports that injury claims fell by 28% in 2011. Dispute volumes have not returned to pre2010 levels, and although the Financial Services Commission of Ontario (FSCO) eliminated the mediation backlog, too many claims are still pending in the system.This is adding to insurers’ uncertainty around the success of the September 2010 reforms, amplified by the provincial government’s call for a 15% premium reduction within the next two years. Justice Cunningham’s interim report, published November 2013, proposed a new DR model that would shorten dispute timelines by imposing a six-month limit and consolidating mandatory mediation and pre-arbitration. Report recommendations will likely mitigate present inefficiencies. However, resolving Ontario’s ADR problem requires addressing root
problems within auto insurance accident benefits (AB) and bodily injury (BI) products that continue to create high dispute volumes. The interim report notes that nearly two-thirds of disputes concern treatment and assessments; 45% of disputes involve medical benefits; and 16% involve assessment and examination expenses. Identifying the root causes of these high volumes, however, falls outside the scope of Justice Cunningham’s review and recommendations.
ACCIDENT BENEFITS TOO RICH, TOO COMPLEX The high volume of treatment and assessment disputes is fuelled by Ontario’s enriched accident benefits system. The Insurance Bureau of Canada (IBC) noted in its submissions for proposed reforms to the FSCO ADR Process that the average cost of a medical/rehabilitation claim climbed from $28,978 in 2005 to $50,296 in 2010. In addition, Health Claims for Auto Insurance (HCAI) data shows that more than 9,000 health care businesses provide services at a ratio of one business per every seven claimants. The September 2010 reforms reducing the medical rehabilitation limit for non-catastrophic claims to $50,000 and making certain benefits optional did not go far enough. Ontario is still the richest provincial no-fault schema, making non-catastrophic limits available for up to 10 years, which has propped up cottage industries feeding off of the ruling “assessment paradigm.” To temper the richness of the no-fault schema, AB claims are divided into three categories with corresponding monetary limits: minor, non-catastrophic and catastrophic injuries. Three monetary caps add layers of complexity that are propagating disputes. It is very likely that there will be even higher dispute volumes as debates over the contentious minor injury $3,500 cap work their way through the system. The $3,500 monetary limit is used as a blunt instrument to contain costs in light of uncertainties around the use and success of the minor injury treatment guideline (MIG).The Superintendent of Financial Services committed to developing an enhanced treatment protocol which, when delivered, should be accompanied by systemic reforms.
INTERACTION OF AB, TORT CLAIMS PROLONGS DISPUTES The interaction between the no-fault and tort schemas also impacts dispute volumes. In Ontario, a person has a minimum of two claims for the same accident, afforded by the right to sue a third party and to access no-fault benefits under the Statutory Accident Benefits Schedule (SABS) schema. Both claims can remain open for many years, thereby accruing costs while Ontario auto insurers, and by extension their policyholders, fund both cost centres.
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A more rigorous centralized decision-making process (within the internal review process) in conjunction with the provision of expert benchmarks and guidance through established protocols would certainly result in a more consistent approach. This, in turn, should have the desired effect of reducing disputes.
The tort and no-fault systems were intended to work harmoniously so that as the SABS was enriched, the ability to sue was restricted. Somewhat similar to the minor injury cap on the AB side, BI claims are subject to both a verbal threshold and a deductible. Presently, the verbal threshold for tort claims has been compromised by a number of judicial decisions and the average quantum assessments on general damages have increased well beyond the deductible. It would appear that attempts at restricting the right to sue have the opposite effect and are, in fact, driving up claim costs. Ironically, the very generosity of the no-fault benefits system is being used to fuel the claimant’s corresponding tort action in attempting to meet the threshold. The longevity of the AB claim is, therefore, tied to the longevity of the BI claim. Safeguards may be in place to ensure that claimants are not receiving “double recovery,” yet the fact remains that insurers are funding both processes and their respective legal and staffing costs. Thus, there is an incentive for plaintiff’s counsel to keep the AB claim open while pursuing a tort action, with the unintended consequence being increased use of the DRS.
BALANCED SOLUTION NEEDED The solution is to remove the minor injury monetary cap, reduce the med/ rehab benefits period and resolve medical disputes with clinical adjudication. In tandem with other key changes to eradicate fraud and reduce the overall monetary limits for accident benefits,
62 Canadian Underwriter January 2014
Ontario legislators ought to remove the minor injury monetary cap in favour of an enhanced and closely monitored treatment protocol, reduce Ontario’s medical and rehabilitation benefits allowance to be better aligned with other provinces, and move to handle medical and rehabilitation disputes for accident benefits through clinical review and an adjudication body of health care providers. By removing uncertainties in the current minor injury treatment protocol and committing to monitoring outcomes, a third category of claim and the $3,500 cap would no longer be required. Benefits would only be paid for treatment deemed necessary by the protocol and claims would be assessed on their own merits. A new and robust treatment protocol would be accompanied by a reduced access period for medical rehabilitation benefits, perhaps two to five years. Disputes about treatment, assessments and the minor injury definition could resolve with clinical adjudication and not the DRS alone. Without the aforementioned changes, there is a serious threat to the success of DRS reform. Tools are already in place to help effect these changes. HCAI can capture treatment outcomes to build a rich database that would inform subsequent reviews of the protocol. Justice Cunningham’s interim report suggested that insurers consider establishing a formal internal review process — integral to reducing the number of disputes entering the DRS — after a benefit denial. A more rigorous centralized decision-
making process (within the internal review process) in conjunction with the provision of expert benchmarks and guidance through established protocols would certainly result in a more consistent approach.This, in turn, should have the desired effect of reducing disputes. Strategic implementation of this review would also enhance customer service and reduce costs. These changes to the AB system will have a direct impact on the success of the new DRS by removing treatment and assessment disputes, and at the same time, will indirectly have a positive impact on the longevity of BI claims, short of a major overhaul of the tort system. At the very least, it is time for the industry to evaluate its return on investment on the limits currently in place. Is the system at the point where the verbal threshold and deductibles in BI and the minor injury definition in AB are satisfactorily managing smaller claims? The simple answer is, no. Minor and soft-tissue injuries should be treated according to the MIG and should not meet threshold for a tort action. However, this is not always the case. There are large costs associated with defending and holding a hard line on threshold claims. An open, far less complex auto system with streamlined access to treatment for the management of minor injuries supported by clinical review seems like the natural next step to an affordable product. For the sake of affordable auto insurance, it is time to look hard at root problems and think creatively about effective — and enduring — solutions.
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Hole Picture Greg Meckbach Associate Editor
Canada may not be a hotspot for sinkholes compared to, say, Florida. That said, there have been incidents where cars — even trains — have been damaged or destroyed because they dropped into sinkholes, demanding that care be taken to manage associated risks. Canada is no Florida when it comes to sinkholes and the damage they cause. However, on this side of the border, geology experts note that vehicles can be damaged or destroyed when road surfaces cave in as a result of either natural or human activities. “We are fortunate in one sense, because (in Canada) we don’t have the hazard level that we have in Florida,” suggests Stephen Evans, a geological engineering professor at the University of Waterloo whose areas of expertise include landslides. “We don’t have the enormously dense
population, both in terms of people on the ground and in terms of highway networks,” Evans explains. Florida is susceptible to karst, a “geological condition in which subsurface carbonate rock layers, often comprised of limestone or dolomite, dissolve and leave behind an underground void,” states a report released in December by Irvine, California-based CoreLogic Inc. “Sinkhole activity and subsequent property damage will continue to be a substantial risk” across the United States, the report notes. Although Canada does not have a similar geology that would cause “as many catastrophically formed sinkholes” as in Florida, “we do have environments where so-called sinkholes develop because of subsurface erosion or subsurface solution,” Evans says, citing as an example parts of the Rocky Mountains. Another way sinkholes form in Canada is when silt — deposited at the end of the last ice age — is eroded, he explains. “Both railways and highways would be subject to these hazards.” The Transportation Safety Board of Canada (TSB) cites two incidents involving freight trains: one in 1997 not far from Pointe au Baril, Ontario, near the eastern shore of Georgian Bay; another near Lytton, British Columbia. “In both accidents, the underlying soil foundations had become saturated due to the spring run-off and a large portion of the roadbed had been eroded from beneath the rails,” notes a
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“Even places not commonly associated with sinkholes can experience the formation of these subsurface voids, such as when an underground water pipe breaks and the flowing water erodes a cavern below the surface,” CoreLogic notes in its recent analysis.
TSB report. “In both accidents, the trains plunged into the depressions. Neither the train crews nor their respective railway control centres were aware of the track bed failures before the accidents.” In parts of central British Columbia and western Ontario, Evans says small cave systems develop because of underground erosion, and “we might have a road collapse or a railway cave in.” In this type of situation, “the hazard to life itself is pretty significant, I would think, to the driver or to the crew of the train.” A more recent sinkhole — local news reports estimated the hole measured five by three metres with a depth of more than a metre — that resulted in damage to vehicles occurred last March near Montreal-Trudeau Airport in Dorval, Quebec. “It was a shallow sinkhole, but it swallowed two cars,” Abouzar Sadrekarimi, a professor of civil and environmental engineering at Western University in London, Ontario, reports. “From what we have seen, the sinkholes in Canada happen often by man-made or construction activities.” Sadrekarimi, a geotechnical engineering expert who co-wrote several papers on liquefaction, says a sinkhole forms when a void or disruption under the ground leads to a collapse of surface material. “The sinkhole would basically start as a small cavity and then expand, most often, with the action of water seeping through and eroding the soil with it,” he explains. “At some time, the cavity becomes large enough that the soil above that cavity is so thin that it’s no longer able to arch across the cavity.” AYear in Review, posted on Environment Canada’s website, cites a number of events that resulted in sinkholes: the July 8 deluge in the Greater Toronto
Area, with videos capturing sinkholes opening up; in June in Fort McMurray, Alberta, where fast-moving waters pockmarked road surfaces with sinkholes; and the spring flooding in Ontario’s Cottage Country, causing a huge sinkhole on Highway 11 that forced traffic to be detoured. Detailed statistics on sinkhole-related auto damage claims are hard to come by, but one traffic safety expert suggests the related damage could be significant. “In some areas, the drop can be as much as 10 feet, so the whole orientation of the vehicle changes,” notes Brian Patterson, president and chief executive officer of the Ontario Safety League. “It’s so abrupt, that it would be like hitting a wall,” Patterson says. He suggests that sinkhole accidents are more common at night or when there is no surface water. “Sometimes when they occur, there is already surface water bubbling, so people become aware of the change,” Patterson points out. One incident where bubbling water from a broken watermain provided a warning to drivers was in downtown London, Ontario shortly after 3 am on October 31, 2007. “A car approached it, but at least (the driver) recognized that it was obviously something that you should stay away from, because the water level was starting to cover the intersection,” reports John Lucas, director of water and wastewater for the City of London. “Even places not commonly associated with sinkholes can experience the formation of these subsurface voids, such as when an underground water pipe breaks and the flowing water erodes a cavern below the surface,” CoreLogic notes in its recent analysis. The London incident caused “quick
and devastating erosive effects on the sandy soils within 10 metres of the failure location,” notes a staff report later submitted to the city’s environment and transportation committee. “Once in a while, a sewer will collapse internally and materials are being washed into the sewer, and those materials keep coming from above until eventually it gets to the road surface,” Lucas points out. However, road patrols usually identify potential problem spots before they become significant, he says. Ontario Regulation 239/02, the Minimum Maintenance Standards for Municipal Highways, requires that municipalities inspect roads on a regular basis, he notes. “Where you’ve got large stretches of roadway, municipalities have to take a more serious look at culverts and where they’ve directed water” underneath roads, Patterson recommends. In Canada, Sadrekarimi says that highways tend to be vulnerable to sinkholes as a result of the material used in their bases. “For construction of the highway, we need to use cohesionless and granular material to provide the good base for it,” he explains. “If we use, for example, a clay material or an impermeable soft material, you wouldn’t get a strong base, and over time, it may deform.” But the disadvantage of those granular materials is that they are “susceptible to erosion by water seepage,” Sadrekarimi continues. “In a case where you have, for example, leakage from a watermain or a sewage pipe, or we have heavy rainfall, this seepage could actually erode this cohesionless soil, and form a cavity under the ground,” he says. “So if this continues unnoticed, it could become larger... and become a sinkhole.”
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MOVES & VIEWS UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
In December, On Side Restoration Services Ltd. announced that Amandio Contreiras [1] had been named the company’s new chief operating officer. Before joining On Side Restoration, Contreiras worked for 11 years at Reliance Comfort LP, holding roles such as director of strategic initiatives and residential sales, notes a press release from On Side Restoration. His appointment will allow Mike Sully, executive vice president of the company, to concentrate on marketing and business development in his evolved role as chief marketing officer. On Side Restoration has 22 branches stretching from Victoria, British Columbia to St. John’s, Newfoundland, with 300 emergency response vehicles and approximately 700 staff.
2
Heather Masterson [2], president and chief executive officer of Totten Insurance Group Inc., has been selected as one of Business Insurance’s 2013 Women To Watch. Before joining Totten, Masterson held several executive positions at Totten’s parent company, HUB International Ltd., and previously worked at American International Group Inc., notes a statement issued in December by Totten Insurance Group. The Women To Watch feature “spotlights 25 women who are doing outstanding work in commercial insurance, reinsurance, risk management,
68 Canadian Underwriter January 2014
1 employee benefits and related fields,” the statement adds. Totten has divisions that specialize in commercial lines, commercial casualty, commercial property, hospitality and professional liability.
3
Unica Insurance and Wawanesa Insurance recently made their respective eDocs solutions, using Extensible Market Language (XML) standards from the Centre for Study of Insurance Operations (CSIO), available to their brokers. Unica’s XML eDocs solution, which is now live, provides electronic declaration pages for brokers using any broker management system (BMS) providing eDocs support, including TAM and Epic (Applied Systems), The Broker Workstation (CSSI), SigXP (Keal Technology) and Powerbroker (Zycomp Systems). Wawanesa Insurance has also made its XML eDocs available to broker partners. Via CSIOnet, eDocs can now be automatically transferred directly into the BMS and electronic documents can be automatically attached to the
2 correct customer and policy in Keal Technology’s sigXP BMS, notes a news release from Keal. The eDocs process uses CSIO data standards to transmit over electronic data interchange (EDI) attaching an XML message to the transmission. Aviva Canada, Intact Insurance, RSA, Economical Insurance, Gore Mutual Insurance Company and SGI Canada also offer eDocs to Keal clients.
4
The Centre for Study of Insurance Operations (CSIO) has appointed two new directors to its board. “Sean Christie, chief information officer and vice president of information services at Gore Mutual Insurance Company, brings a wealth of skills and leadership expertise in the areas of strategic planning, infrastructure, operations and information technology,” notes a statement from CSIO. Andrew Wood, chief information officer for Northbridge Financial Corporation, has also joined the board. Wood “brings considerable skills and leadership expertise
5 in the fields of process re-engineering, business architecture, IT strategy, and organizational design and development,” CSIO adds.
5
Gregory Knowles [5], vice president of sales and producer management at commercial carrier CNA Canada, has been honoured with the 2014 Greater Toronto Area Fellow of Distinction Award, notes a statement from the Chartered Insurance Professionals’ (CIP) Society, a division of the Insurance Institute of Canada. CIP Society presents the award — recipients are nominated by colleagues and a nominating review committee makes the final selection — annually to a Fellow Chartered Insurance Professional (FCIP) for his or her “outstanding achievement in the insurance industry in Toronto.” Knowles began his insurance career in 1992 with Chubb Insurance, and joined CNA Canada as an underwriting manager in 1998. He was promoted to branch manger of CNA Canada’s Calgary office in
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MOVES & VIEWS
6 2003 before being transferred to the Toronto office in 2007.
6
Burns & Wilcox Canada announced in December that Philip Zanotti [6] has been hired as the company’s senior manager of operations. Zanotti previously served as senior project manager, business management services at the investment management firm, Invesco Canada Ltd., notes a statement from Burns & Wilcox, a wholesale broker and underwriting manager for retail brokerages. Before that, he worked for three years at TD Waterhouse Canada Inc., “where he led two account management departments, and designed and implemented procedures that ensured anti-moneylaundering compliance when validating corporate entities.”
7
Jardine Lloyd Thompson Group plc recently announced the launch of JLT Towers Re, which combines Towers Watson & Co.’s North American and London
8 market reinsurance broking businesses with JLT Re’s international reinsurance operations. In September, London-based JLT agreed to acquire the reinsurance broking business of New York City-based Towers Watson. JLT provides insurance, reinsurance and employee benefitsrelated advice, brokerage and associated services, while Towers Watson’s services include administering retirement plans, and managing health and group benefits programs. As part of the sale, Towers Watson clients will continue to have access to its risk consulting and software services and JLT Towers Re can continue to use Towers Watson’s proprietary actuarial models and software. JLT reported in November that regulatory approvals required to complete its acquisition of Towers Watson’s reinsurance broking business have been received. “This announcement removes all the prior ownership uncertainty that had surrounded the legacy Towers Watson Brokerage operation,” Eric Steen, Toronto-based senior vice president of JLT Towers Re, says in a release.
8
Year. “The Business Person of the Year Award is presented annually to an individual in the business community who has made an impressive impact on not only the economy, but the workforce and the people,” notes a statement from Peace Hills Insurance. Brickner, who joined the company in 1982, has served as president and CEO since 1990. Owned by the Samson Cree Nation, Peace Hills Insurance is represented by 186 brokers with a total of 478 locations.
9
Wynward Insurance Group has announced the company has been selected by Mediacorp Canada Inc. as one of Canada’s top 50 small and medium employers for 2014. The award “recognizes companies that lead their industry in attracting and retaining quality employees,” Winnipeg-based Wynward notes. The top 50 employers are assessed on eight criteria: physical workplace; work atmosphere and social; health, financial and family benefits; vacation and time off; employee communications; performance management; training and skills development; and community involvement. In addition to the head office in Winnipeg, the company has offices in Regina, Halifax and London, Ontario.
9 Applied Systems has announced that Caroline Schweppe [8] is the company’s new vice president of insurer solutions. Schweppe had been vice president of business development at ClearRisk Inc., an online provider of risk management solutions to carriers, brokers and professional risk managers. She has also worked at CGI and the Insurers Advisory Organization. Schweppe holds a diploma in Canadian Risk Management from the University of Toronto. “With her deep understanding of information technology and the business needs of insurers, Caroline will enable us to enhance the products, services and value we provide across Canada,” says Jeff Purdy, Applied Systems’ senior vice president of international operations.
In December, Edmonton-based Peace Hills Insurance announced its president and chief executive officer, Diane Brickner [9], had been selected by Alberta Venture magazine as its 2013 Business Person of the
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The 58th Annual Black Tie Dinner of the Toronto Insurance Conference (TIC) was held at the Four Seasons Hotel in Toronto on November 7. The guest speaker was Amanda Lang, Canadian journalist and senior business correspondent for CBC News. Lang anchors the daily program, The Lang & O'Leary Exchange, on CBC News Network. The annual dinner saw a new record number of guests attend.
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Swiss Re celebrated the major milestone of 150 years of managing risks around the world with a special event at the Carlu in Toronto on November 14. Swiss Re’s 150 Years Anniversary event, “Open minds connecting generations” provided the opportunity for Swiss Re staff to join dozens of property and casualty and life insurance industry executives to reflect on the past, look to the future and offer thanks for their partnership with Swiss Re. The event featured a cocktail reception; a “Connecting generations” photo exhibition; a display of historic artefacts from Swiss Re’s archives; dinner; presentations from Sharon Ludlow, President and CEO of Swiss Re Canada and Eric Smith, President and CEO of Swiss Re Americas; and a special keynote speaker – social entrepreneur, New York Times best-selling author and syndicated columnist Craig Kielburger – who inspired and engaged guests with new ways to think about sustainability.
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APPOINTMENT
GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Philip R. Baker The Board of Directors of Creechurch International Underwriters Ltd. is pleased to announce the appointment of Philip R. Baker to the position of President. Mr. Baker was a senior member of Creechurch management between 1997 and 2003, re-joining the company in 2010 after seven years at a major global insurance company where he led its Financial & Professional Services Division. Since 2010 Phil has been responsible for underwriting oversight, product management and business development at Creechurch. In his new role as President, Phil will provide leadership, strategic direction and general oversight of Creechurch’s operations. Phil will focus on expanding Creechurch’s Canadian footprint, seek new market opportunities, enhance the product portfolio and expand distribution throughout Canada. Phil holds an MBA from Wilfred Laurier University and a Bachelor of Arts from the University of Western Ontario. Creechurch International Underwriters, founded in 1996 is one of the leading underwriting management companies in Canada, offering specialized insurance to a wide spectrum of business sectors. Part of a large global insurance and reinsurance organization with 60 offices on four continents Creechurch underwrites exclusively on behalf of large A rated multinational insurers. Its products are distributed through licensed Canadian insurance brokers from our offices in Toronto and Montreal.
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Unica Insurance hosted its 9th Annual Executive Forum on November 18 at the Mississauga Convention Centre, with approximately 250 brokers and staff in attendance. During the morning session, Unica provided an overview of key industry trends and a synopsis of its own 5-year journey of change since La Capitale’s acquisition of Unica (then York Fire & Casualty). In addition, guest keynote speaker Michael Vickers rounded out the morning with his presentation, “Becoming Preferred: How to Outsell and Outposition the Competition.”
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APPOINTMENT
GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
ENCON held a Toronto-area broker reception on November 21 at the Westin Harbour Castle hotel in Toronto. About 250 people attended the event, including 30 ENCON representatives from its Ottawa and Mississauga offices.
Dan Kleiman Zurich North America announced the appointment of Dan Kleiman as Vice President & Regional Leader, Canada Commercial. In his new position, which became effective January 1, Kleiman oversees the nearly 100 market-facing underwriters and underwriting managers who are part of the Commercial Markets regional field organization within Canada. Mr. Kleiman is based in Toronto and reports to Patrick Lundy, President and CEO of Zurich Canada. “Dan’s leadership will be crucial in implementing the pace, tone, strategy and execution of the business objectives within our Canadian market,” said Lundy. “I am confident that Dan’s experience will further our commitment to customer focus and allow us to successfully pursue our profitable growth goals and our focus on sales mindset.” Dan brings a wealth of experience to this new role, having served most recently as segment head of our commercial real estate practice within Zurich North America Commercial. During his time in this role, he established industry-leading experience in the areas of claims, risk engineering, product underwriting and marketing. “His strong technical and market facing capabilities enhance our ability to understand the needs of our customers and their businesses and to offer them superior service and products tailored to those needs,” Lundy added. Dan joined Zurich in its Kansas City office in 2007. Prior to joining Zurich, he held commercial lines roles with increasing levels of responsibility at Chubb and Fireman’s Fund Insurance Company in Kansas City, Chicago and New York. Mr. Kleiman earned a BA in English Literature from Indiana University. He holds the professional designation of Chartered Property Casualty Underwriter (C.P.C.U.).
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Hundreds of well-wisher’s attended a special event at The Eglinton Grand in Toronto on November 20, recognizing The Retirement of Robert Dempsey, President and Chief Operating Officer of The Guarantee Company of North America. Robert (Bob) Dempsey joined the Guarantee Company of North America in 1987 as branch manager of the company’s Woodstock office where he was responsible for Personal Lines and Surety. In 1993, Dempsey became Senior Vice President in The Guarantee’s Toronto office, responsible for the Ontario and Maritime Province operations. In 2000, Dempsey was promoted to Executive Vice President with his
responsibilities expanding to include corporate business development in all lines of business. Then in 2006, Dempsey was appointed President and Chief Operating Officer of the company. Bob will now be looking forward to leisure time at his cottage, spending even more time with his grandchildren and perfecting his golf game. (with photos from Patrick Thompson)
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Michael McDermott John Barclay, President and CEO of the South Western Group, is pleased to announce the appointment of Michael McDermott to the position of Director of Underwriting. Michael brings with him over 18 years of experience with several Insurance Companies, both in Canada and the United Kingdom in various Underwriting Capacities, underwriting risks that ranged from simple package policies to complex multi-line insurance policies to specialty casualty risks, including medical malpractice, commercial general liability and umbrella liability. Having spent over 8 years at a Multi-National Broker, Michael brings considerable knowledge working with large and complex projects with a strong focus on Risk Management.
Western Direct Insurance held its second Quotes 4 Cures campaign in support of Women’s Cancer Health Awareness Month. During the month of October, for every home or car insurance quote completed in Alberta, Western Direct donated $10 to the Canadian Cancer Society. The campaign successfully raised $27,500 in the fight against women’s cancers. Photo: Jeff Burke, President
of Western Financial Group (far right) and Melanie Hampson, Manager of eBusiness for Western Direct (inside right), present Tiffany Kraus, External Engagement Lead for the Canadian Cancer Society (inside left), and Graham Harder, Corporate Development Specialist – Sponsorship for the Canadian Cancer Society (far left), with a cheque for $27,500.
Hub International Limited (Hub) has announced Eileen Greene, Vice President and Partner, Hub International HKMB Insurance Brokers, was named the Insurance Sales Award winner at the 2013 Best Women in Sales Awards, presented by Zars Media. The award was presented on December 3, 2013 at The Savoy in London at an inaugural ceremony recognizing the most exemplary women in sales/revenue generating roles across eight business sectors, notes Zars Media. Winners were selected
based on a competitive evaluation by a panel of independent judges for the following criteria: general sales ability, track record in
Simmlands Insurance Services Ltd. chose WICC as the recipient for the funds raised at its Charity Golf Tournament, which was held on July 2. Photo: Paul Meinschenk, Vice President of Broker Distribution at Simmlands, proudly presented the $4,517 donation for WICC to WICC Ontario board member Michael Butler.
In this new role, Michael will provide leadership and direction to position South Western Group as a leading provider of Specialty and General Property/Casualty lines of business within the Canadian marketplace. Founded in 1961, South Western Group is an Insurance Intermediary providing marketing and underwriting expertise, including risk management to independent agents and brokers across Canada. Dealing only with markets that are licensed in Canada, both domestic and international, we are backed by substantial Errors and Omissions Insurance as well as Fidelity Insurance. South Western Group has been providing “Professional Insurance Underwriting and Marketing through Service, Integrity and Stability” for over 50 years in the insurance industry.
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achieving and exceeding targets, and a good understanding of the implications of change on the wider business.
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Arch Insurance Canada Ltd. hosted a broker reception at The Shangri-La Hotel in Toronto on November 21. Broker partners of Arch Canada enjoyed the surroundings, as well as the chance to meet with friends and take an opportunity to make new ones.
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RIMS’ Québec chapter (AGRAQ/QRIMA) hosted its November conference luncheon, which highlighted the challenges and vulnerabilities corporations face globally when protecting their workforces from threats of kidnap and ransom. Chubb and the Ackerman Group delegated their expert, H. Wesley Odom Jr. (formerly CIA) to speak about the pitfalls to avoid and the benefits of being prepared in advance of high-risk travel.
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The Insurance Bureau of Canada (IBC)’s president and CEO Don Forgeron gave a lunch address at the Economic Club of Canada, located at Toronto’s Intercontinental Hotel, on November 21. The presentation title was Adaptation Through Innovation: The MRAT Story.Forgeron discussed the municipal risk assessment tool (MRAT), a web-based aid to help calculate the probability of municipal sewer backflows now and that may also serve as an underwriting tool to calculate risk in future. Forgeron told attendees that MRAT is being launched as a pilot project in partnership with the communities of Coquitlam, B.C., Fredericton, N.B. and Hamilton, Ont. “Insurers and municipalities have a key role to play in preparing
their cities for a new era of severe weather and we are pleased to be partnering with these three forwardthinking cities,” he said. Called the first climate adaptation technology of its kind, MRAT is designed to help municipalities identify vulnerabilities in their sewer and storm water infrastructures and to prioritize improvements to prevent sewer back-ups. Changing weather, resulting in more torrential rain and flooding, is overwhelming vulnerable sewer and storm water infrastructure and causing sewer back-ups and basement flooding. The genesis of MRAT “was the realization that infrastructure failure in Canada was responsible for the majority of evermounting insured losses that accompanied rainstorms across the country,” he said.
82 Canadian Underwriter January 2014
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