CU Oct_Cover08_v1
10/6/08
11:49 PM
Page 1
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 UN ND DE ER RW WR R II T TE ER R .. C CA A
October 2008 A Business Information Group Publication Publications Mail Sales Agreement #40069240
AIG’s Sinking Fortunes BY DAVID GAMBRILL
The Power of Branding BY ALISTER CAMPBELL
Use and Abuse of Credit Scoring BY CRAIG HARRIS
Replacement Cost Guarantees Distribution Wars Free and Unequal Trade Broker Workflow Equipment Malfunctions Food Product Contaimnation
Selling insurance would be easier if consumers: Better understood insurance Could ask “what if” without fear Had a safe and fun place to learn Were better informed Could get straight answers All of the above Consumers can now access all of the above and more on a revolutionary website dedicated to providing straight answers and having conversations – www.changeinsurance.ca. In
conjunction
leading
role
with in
our
eliminating
broker
partners,
consumer
Aviva
has
frustration
with
taken
a
insurance
companies by engaging and educating consumers like never before. With innovative features such as blogs and a frequently asked question tool for brokerage websites, we’re now changing insurance together online too. Learn how you can participate on www.joinourmission.ca – where there’s also $25,000 in prizes to be won!
Aviva CU Oct 2008 final.indd 1
9/30/2008 9:53:38 AM
pg3,4Contents_v1_DG_VM
10/6/08
11:57 PM
Page 3
VOL. 75, NO.10, OCTOBER 2008 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca FEATURES
16
COVER STORY:
AIG’s Sinking Fortunes Once thought to be unsinkable, American International Group Inc. (AIG) ran into a serious iceberg in mid-September, causing its stock to dive deep to the bottom of the market. Only a last-minute, US$85-billion life raft thrown out by the U.S. Federal Reserve has kept AIG from sinking into bankruptcy. What does all of this mean for the Canadian insurance market?
Best Buy Brokers will boost their business by selling the value propositions of respected brands. BY ALISTER CAMPBELL
26 46
BY DAVID GAMBRILL
Credit Scoring More clarity is needed around the reasons for not allowing credit scoring in establishing auto insurance rates. BY CRAIG HARRIS
58
22 Incidental Insurance Quebec brokers want the provincial regulator to acknowledge that auto replacement guarantees sold at the point of sale by car dealers are insurance products that should be sold by licensed brokers. BY RCCAQ
32 Dirty Wars Free Trade Can free trade between two provinces be reconciled when one has a private auto insurance market and the other is public?
The fight for distribution is getting nasty out there, with issues arising out of alleged credit use, banks selling insurance and group insurance. BY RANDY CARROLL
BY GINNY BANNERMAN
70
36 Analyzing Workflow As pedestrian as it may appear at first, identifying and defining processes is a hot topic in broker management circles these days. BY RENEE DUREPOS
Equipment Failure Power-hungry technologies are straining equipment that distributes the electricity in commercial buildings.
40 Escalating Claims
80 Policy Change
average award increase to Cdn$5 million and more. BY JESS. C. BUSH AND HAROLD HOPF
62 Consumer Connection As the quest for business-tobusiness technological advances continues, technology may in fact be turning towards more consumer-centric approaches. BY VANESSA MARIGA
66 Segmenting Tech Users More people are using the Internet today to conduct their business. Who are these tech users exactly? And what do they want their technology to do for them? BY ISMAIL PISHORI
76 Contamination Recall Businesses engaged in food preparation are looking for ways to respond swiftly in the event of a product recall.
Automating policy change starts by allowing brokers to retain in their BMS all of the information they collect from a consumer at the point of sale. BY SCOTT ANDREW
84 Back in the Day The role of insurance has shifted our culture in such a way that claims events today are more frequent, less realistic and less friendly in their resolution than they were four or five decades ago. BY FRANK CAIN
88 Business Intelligence BI technology gives brokers a more comprehensive view of their customers and allows brokers to do things with their data that would otherwise be prohibitively expensive. BY STEPHANE FRECHETTE
BY ED MITCHELL AND STEVE GRULER
For various reasons, tort awards for catastrophic cases in Canada have pushed the
BY HANS SCHOLS
October 2008 Canadian Underwriter
3
pg3,4Contents_v1_DG_VM
10/6/08
11:57 PM
Page 4
VOL. 75, NO. 10, OCTOBER 2008
PROFILE
14 Family Tree IBAO president-elect Peter Blodgett says brokers need to instill in young people the notion that being a broker is an admirable career, as opposed to being “just a job.” BY VANESSA MARIGA
SPECIAL FOCUS
8
Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800
Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796
Art Director Gerald Heydens
Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793 Account Manager Mike Wells mike@canadianunderwriter.ca (416) 510-5122 Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
Art Consultation Pylon.ca Production Manager Gary White (416) 510-6760 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou
Editorial
10 Market Watch 92 Moves & Views 94 Gallery
Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by Business Information Group, a division of BIG Magazines LP, a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. Business Information Group is located at 12 Concorde Place Suite 800, North York, ON, M3C 4J2. Phone: (416) 442-5600. Canadian Underwriter, USPS 022-494. US office publication: 2424 Niagara Falls Blvd., Niagara Falls, NY 14304-0357. Periodicals Postage Paid at Niagara Falls, NY, USA. US postmaster: Send address corrections to Canadian Underwriter, Po Box 1118, Niagara Falls, NY 14304. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. We acknowledge the financial support of the Government of Canada through the Canada Magazine Fund toward our editorial costs. © Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 12 Concorde Place., Suite 800, North York, ON, M3C 4J2 Subscription Rates: 2006 Canada 1 Year $ 34.95 + $ 2.45 GST = $ 37.40 2 Years $ 48.95 + $ 3.02 GST = $ 46.11 3 Years $ 62.95 + $ 4.41 GST = $ 67.36 Single Copies: $7.50 + .53 GST
= $8.03
Annual Statistical Issue (included with above subscription) Or separately: $37.00 + $2.59 GST = $39.59 Elsewhere 1 Year $42.00 2 Years $68.00 3 Years $95.00
MEMBER
4
Canadian Underwriter October 2008
GST Registration number 890939689RT0001 Second Class Mail Registration Number: 08840 Publications Mail Agreement #40069240 Return undeliverable Canadian addresses to: Circulation Dept. Canadian Underwriter 12 Concorde Place, Suite 800 North York, ON, M3C 4J2
pg9OCT IBAO School Ad
9/30/08
10:43 PM
Page 19
n o i t a Educ , s r e k o r b r o f ! s r e k o r b y b
INSURANCE BROKERS ASSOCIATION ONTARIO
IBAO's School of Insurance provides its broker members with a progressive, professional, and current educational program, in keeping with the knowledge and standards expected of today's professional broker.
Helping brokers brokershelp help brokers, makes makes good good business sense. sense. George Cooke, Cook, President & CEO, Chief Executive The Dominion Officer, of Canada The Dominion General Insurance Company
The Dominion is pleased to continue its long term sponsorship of the IBAO School of Insurance and the top student awards. We thank IBAO for the ongoing opportunity to partner on broker professional development, and for their ongoing consumer-focused, strategic support of independent brokers.
Millions of Canadians rely on us for their peace of mind.
And we rely on you to deliver it. All across this vast and beautiful country, the majority of Canadians depend on their 32,000 local Insurance Brokers for their insurance needs. And a good night’s sleep. None of this would be possible without the bond established between brokers and Canada’s leading insurers. The strength of this bond comes from a spirit of mutual respect, professionalism and cooperation. This relationship enables us all to deliver the peace of mind our millions of customers so much want and deserve – a trust brought to life in the now familiar BIP logo and magenta “security” blanket. It is with heartfelt thanks that brokers right across Canada here recognize the support of our partners in this industry, for without them millions of Canadians could not sleep as easy as they do.
Your Best Insurance is an Insurance Broker
2008 Full Partners
Supporters
Grain Insurance & Guarantee
Participants
The Wawanesa Mutual Insurance Company Underwriters, Lloyd’s England
pg8Editorial_v2_DG_VM
10/6/08
11:59 PM
Page 8
EDITORIAL
Walking through Wonderland
At this point, the industry’s relative financial health is obscuring puzzling rate behaviours that might ultimately erode the industry’s credibility. David Gambrill, Editor david@canadianunderwriter.ca
8
Canadian Underwriter October 2008
Quarterly figures over the past three years confirm what is visible to all who have followed the (re)insurer’s latest 2008 Q2 results: insurance companies’ loss ratios are starting to become a problem. This is true in all lines of business. For federally-regulated insurers, both licensed in Canada and abroad, loss ratios have been on a steady incline for the past three years. For federally-licensed Canadian (re)insurers, personal property loss ratios increased from 56.25% in 2006 Q2 to 73.67% in 2008 Q2. In commercial property lines for these same Canadian (re)insurers, the loss ratio jumped from 49.70% in 2006 Q2 to 77.58% in 2008 Q2. As for auto insurance lines, it’s the same story: for Canadian (re)insurers, the loss ratio went from 68.52% in 2006 Q2 to 81.58% in 2008 Q2. The figures for foreign-based, federally-regulated insurers are different, but the direction of the loss ratios — i.e. up — is exactly the same. So with loss ratios on the way up, shouldn’t pricing come up accordingly? Not when the industry has double the capacity it needs to underwrite risks in Canada. MSA Research notes the Canadian insurance market has more than Cdn$11 billion in capacity available to underwrite business in Canada. Considering that Canada’s
biggest claims event ever — the 1998 Ice Storm in eastern Ontario and Quebec, resulting in around 800,000 claims — cost Canadian (re)insurers a total of Cdn$1.6 billion, you can appreciate that it will take quite the calamitous disaster to make a dent in that kind of overcapacity. And so, with this huge cushion at the industry’s disposal, anecdotal tales of illogical behaviour abound. Loss ratios are going up in commercial lines and the credit crisis threatens to result in increased litigation
With loss ratios on the way up, shouldn’t pricing come up accordingly? against directors and officers of financial corporations? No problem, lower D&O rates further. For that matter, offer cut-rate discounts of anywhere up to 50%. After all, loss ratios in commercial lines were lower than 50% only two short years ago. (Forget about the fact that they are almost 80% now.) Lest anyone think this is all about (re)insurers’ behaviours, guess again. The regulator’s behaviour in the sagging auto insurance market is equally puzzling. For example, auto insurance caps designed to control insurers’ expenses are under attack in the courts.
One cap, in Canada’s secondbiggest private auto market, has already fallen. The regulators’ response? Alberta approved a marginal rate increase of only 5%, even though insurers and actuaries say the loss of a cap will more likely escalate (re)insurers costs by 20-30%. Yes, the regulators protect policyholders’ wallets in the short term. But aren’t they also supposed to be protecting the consumers’ longterm interests? Some insurers might tell you that, relative to the industry’s darkest moment ever, in 2001, the industry is in comparatively good shape. That’s true, if the nightmare scenario is your standard of comparison. But at this point, the industry’s relative financial health, buoyed by a surfeit of available capacity, is obscuring the puzzling market behaviours that ultimately stand to erode the industry’s credibility when it comes to boasting good underwriting discipline. And regulators are not helping by approving only marginal rate increases in an effort to protect the policyholders’ pocketbooks in the short term. It’s time for regulators and (re)insurers to plan a strategy for educating the consumers as to the need for increasing rates. The industry’s future financial health — and the consumers’ pocketbooks over the long term — depends on it.
pg5ACEINAHorizons Ad
6/10/08
9:18 AM
Page 1
EXPAND HORIZONS.
MAKE PROGRESS. Let ACE take on the responsibility of risk. Our expert underwriting, superior claims handling and local market experience free you to focus on the possibilities, not the liabilities. For more on ACE Canada, visit www.ace-ina-canada.com PROPERTY & CASUALTY
ACCIDENT & HEALTH
LIFE
pg10,11Marketplace_v2_DG_VM
10/7/08
12:05 AM
Page 10
MARKETPLACE
Canadian Market CANADIAN P&C INSURERS’ RESULTS IMPROVE FROM Q1 TO Q2 IN 2008, BUT DECLINE OVER 2007 Canadian and foreign property and casualty insurers licensed by the Office of the Superintendent of Financial Institutions (OSFI) reported better financial results in 2008 Q2 than they did during the first quarter of 2008. But they were still well off the pace established during the second quarter of 2007. OSFI figures for 2008 Q2 show Canadian and foreign insurers licensed by the federal regulator reported a quarterly profit of about Cdn$1.4 billion. That result shows a marked improvement over the Cdn$628-million profit the industry recorded in 2008 Q1. But it is still well off the mark of the Cdn$2.044 billion profit the industry posted during the second quarter of 2007. Of particular note is the continuing increase of claims ratio numbers for personal accident auto insurance. Canadian companies licensed with OSFI saw a huge jump between their overall claims ratio for personal accident auto insurance reported in 2007 Q2 (74.78%) and that reported in 2008 Q2 (99.43%). Similarly, foreign companies licensed by OSFI saw their auto insurance personal
10 Canadian Underwriter October 2008
accident claims ratios go from 107.72% in 2007 Q2 to 112.39% in 2008 Q2.
A.M. BEST PREDICTS CONTINUING SOFT MARKET FOR CANADIAN P&C INDUSTRY Canada’s property and casualty insurance sector is stable, “but strong capitalization and profitability provide the ingredients for continued softening in the market,” according to a recent market report by A.M. Best. In its special report, Canadian P/C Insurers See Profits Shrink, Watch Softening Market, A.M. Best observes that in the Canadian insurance market, pricing is down across major commercial lines, returns are diminishing and profits are expected to continue falling until rates recover. Net income for 2007 was about Cdn$4.6 billion, down 3.5% from 2006, the report notes. “Numerous and severe summer and winter storms marked 2007, and harsh weather continued into the first half of 2008, affecting property and automobile claims,” the report says. Auto insurers’ 2007 net loss ratio increased to 70.8% from 67.5% the year before.
CSIO TO SWITCH SERVICE PROVIDER, INDUSTRY MUST UPDATE IP ADDRESS NOV. 21 The Centre of the Study of Insurance Operations (CSIO) will switch service providers for its upload/download system, CSIOnet, on Friday, Nov. 21, 2008. All insurance brokers, companies and vendors that use the network must change
their IP address setting on that date to ensure business continues uninterrupted. The change will improve service for approximately 1,800 broker offices across Canada, a CSIO release says. “We are very excited about providing a robust network that will deliver improved services and continue to exceed members’ requirements and needs,” said CSIO president Steve Kaukinen. “On Nov. 21, users will need to make a very simple change to their computers. CSIO staff will be available to answer any questions and help implement the changes to ensure that this transition happens easily.” Instructions on making the change can be found at www.CSIO.com or by calling toll free 1-800-463-2746.
COMPETITION BUREAU GIVES ICBC SEAL OF APPROVAL ON OPTIONAL AUTO INSURANCE Insurance Corporation of British Columbia (ICBC)’s policies related to optional auto insurance do not contravene the Competition Act, a federal Competition Bureau investigation has concluded. The bureau initiated its inquiry after receiving a complaint alleging that ICBC’s policies were anti-competitive and had prevented and substantially lessened competition in the optional auto insurance market in British Columbia, a Competition Bureau release says. The inquiry focused on policies that:
prevent brokers affiliated with competing insurance companies from selling optional auto insurance from both their affiliate and ICBC; and • prohibit screen scraping by brokers, which means not allowing brokers to capture customer data from ICBC’s information system in order to process transactions on behalf of another insurance company. The bureau found that although ICBC’s actions and policies restrict how its competitors conduct their business, reasonable alternatives are readily available, the release continues. “Consequently, any resulting impact on competition from these policies is unlikely to be substantial.” •
Regulation FACILITIES ASSOCIATION CALLS ON FSCO TO RECOGNIZE COST OF CAPITAL Ontario bumped up rates for its private passenger auto insurance by 2% at last filing, but the rate change did not include a “cost of capital” provision that Facilities Association wants the provincial regulator to include. In a report to the Insurance Brokers Association of Canada (IBAC), Facilities Association (FA) maintained its position that a cost of capital be included in the actuarial process to determine the province’s auto insurance rates. Ontario’s insurance regulator, the Financial Services
pg10,11Marketplace_v2_DG_VM
10/7/08
12:05 AM
Page 11
MARKETPLACE
Commission of Ontario (FSCO), does not currently recognize the inclusion of the cost of capital in the rate-setting process. “Cost of capital has always been a bone of contention for stakeholders and legislators alike,” FA noted in its report. “The argument for the acceptance of this process will be ongoing and certainly one that will not be solved in the immediate future.” FA says the cost of capital is necessary to ensure that rates set for the residual market are higher than those set for the voluntary market, so that the two markets don’t compete with one another on pricing. Based on its cost of capital model, FA says Ontario auto rates for the residual market should have been set higher than 2%.
to insure their risk (therefore making it necessary to go to an unlicensed market to find the capacity). To qualify for the exemption, CRA requires clients to provide five letters of declaration
from insurance companies recording their refusal to provide coverage. The letters must be dated prior to the inception of the policy. In its 2008 annual report to IBAC, TIC noted CRA is test-
ing a user-friendly ‘Export List’ created by a joint TICIBAC committee. The export list itemizes insurance coverages that are not available from insurers licensed in Canada.
Your Right Choice for Quality Claims Solutions Robert Miller, CIP, BBA, Branch Manager, Kentville, Nova Scotia
IBAC, TIC JOIN FORCES TO HELP SIMPLIFY EXCISE TAX PROCEDURE The Insurance Brokers Association of Canada (IBAC) and the Toronto Insurance Conference (TIC) have proposed a model ‘Export List’ to make life easier for brokers’ clients when they apply for an exemption from the excise tax on unlicensed insurance. Clients of commercial insurance brokers must pay an excise tax when purchasing insurance through foreign, unlicensed markets. Canada Revenue Agency (CRA) allows an exemption from paying the excise tax if clients can prove not enough capacity exists in the licensed Canadian market
At Cunningham Lindsey, we offer you more than just claims handling know-how. You’ll receive customized solutions unique to your claim or program requirements; online claims tracking and comprehensive management reporting; an expanded network of skilled adjusting professionals both here and abroad; and the highest level of service in the industry with performance reports to prove it. We’re working hard to make your choice for the right claims partner that much easier. Visit our website at www.cunninghamlindseycanada.com or email us at corpservices@cl-na.com.
Keal Oct 08 Ad
9/30/08
10:20 PM
Page 19
Keal Oct 08 Ad
9/30/08
10:20 PM
Page 20
pg14,15OctProfile_v2_DG_VM
10/7/08
12:07 AM
Page 14
PROFILE
Extending the Family Tree Vanessa Mariga Associate Editor
IBAO presidentelect Peter Blodgett says that a top priority for the association is to foster the continued growth of the broker channel Peter Blodgett believes he’s come across a good thing having a career as an insurance broker. Now, as he prepares to take on the role of president of the Insurance Brokers Association of Ontario (IBAO), he wants nothing more than to spread the word. Blodgett is currently the president and owner of Darling Insurance Ltd. in Peterborough, Ontario. The brokerage was founded in 1928, and his father purchased it in 1973. Like many others in this industry, Blodgett followed in his father’s footsteps, eventually taking over the business in 1997.
MOVING ON UP Though he grew up with insurance being an integral part of the family, he admits his career path was not a brick road laid out before him. “I wasn’t really planning on
14 Canadian Underwriter October 2008
any one direction to go as far as my post secondary school, so my father suggested I go to George Brown College and enroll in its business administration insurance program,” he says. Blodgett graduated with honours and landed his first gig with a major insurer. After a year, he had enough of that side of the business and decided to join the broker side. “I guess what’s kept me in the business is that I like to deal with people,” he says. “I enjoy the interaction and the thrill of the sale. That’s kept me in the game all of these years.” After getting his feet wet in the brokerage side of the business under the tutelage of his father, Blodgett and his soonto-be wife, Cindy, moved to nearby Bobcaygeon, Ontario. There, they purchased their own small brokerage. “We purchased it in March 1983, we got married in April 1983, my wife got her broker license and we did this all within a two- or three-month period,” he chuckles. “It was a quick reality shake in terms of getting our start in the insurance business.” The pair ran the Bobcaygeon brokerage for the next 12 years. They returned to Peterborough in 1995, when Blodgett reteamed with his father. Two years later, he bought his father out and took ownership of Darling Insurance. Today, the
business has grown to three branches — the original office in Peterborough, as well as offices in Bobcaygeon and Omemee, Ontario. Also, Blodgett has just launched Beyond Insurance Brokers in Whitby, Ontario.
POSTER BOY FOR PERPETUATION You could call Blodgett a poster boy for the importance of perpetuation and succession. As competition with direct writers increases during the current soft market, Blodgett says ownership and perpetuation of the independent broker channel will emerge as focal points of his term as IBAO president. Earlier in 2008, IBAO drew its line in the sand in terms of its view on insurers’ control over brokerages. The association has made it clear that insurers should not be allowed to own a portion of a brokerage that would give the insurer “control in fact” over the brokerage (i.e. more than 50%). “The fact remains that brokers have to take a real serious look at the companies that they are going to partner with,” says Blodgett. “I guess it boils down to asking if they want to partner with companies that are creating alternate distribution networks, which take business away from the broker, or do they want to partner up with companies
who are solidly behind the independent broker distribution network?” A second issue, one that often gets downplayed, “is not only the perpetuation of our business, but the perpetuation of our staff and finding quality people to take over from those who are retiring or who are deciding to move onto another career,” he says.
We purchased the brokerage in March 1983, we got married in April 1983 and Cindy got her broker license within a twoor three-month period. It was a quick reality shake in terms of getting our start in the insurance business. Brokers need to establish in young people’s minds the notion that being an insurance broker is an admirable career and “not just a job,” Blodgett adds. Although he’s living proof of the all-too-common case of one generation taking over from the next, Blodgett maintains the industry cannot rely exclusively on this form of suc-
pg14,15OctProfile_v2_DG_VM
10/7/08
12:07 AM
Page 15
PROFILE
cession any longer. The first step to attract new blood to the business is to begin targeting and promoting the broker career path to the next generation while they are still in school. Blodgett says brokers need to get creative in reaching out and extending its branches beyond the family tree. At the same time, he can’t help but beam with pride that his daughter, Victoria, chose a career in insurance. She has opted to be a commercial underwriter, he notes, adding
that — like father, like daughter — she did not intend to land in the business. “She came out of university and took a look at the industry and said: ‘This is something I can really see myself doing,’” Blodgett says. “It’s kind of nice to hear someone say they took a look at our industry and thought: ‘There’s a career opportunity for me there.’ I’m proud of her for that.” Blodgett notes the Young Brokers’ Council has really gained momentum across the
country. Promoting the development of this council may prove to be a good tool in both reaching out to youth as they contemplate their career choices, and fostering future brokerage principals, he says. “These aren’t just a bunch of young folks getting together to hang out,” he says about the Young Brokers Council. “They’re quite serious about the council’s role and the profession. We need to respect the fact that they are going to be the industry leaders eventu-
ally, and give them every opportunity to find their way to become leaders.” Ultimately it’s in the broker’s hands how to perpetuate his or her own business. “However, I would like to think most brokers would like to see their brokerages perpetuated by people who have given them their all; that the broker would work with them and find a way to allow them to have some skin in the game, as it were, and allow them to perpetuate the business into which they have poured their heart and soul.” It’s about more than just promoting brokers, says Blodgett. The entire industry needs to do a better job at promoting its positive role in society. But before insurance professionals can begin promoting their business to others, they need to do a bit of internal promotion first. That, Blodgett says, will serve to be the best form of advertisement for people contemplating a career in the business. “Our entire industry needs to be proud of what we do,” he says. “In the olden days, when you went to a party and you told the other party-goers you were in insurance, they would give you a dirty look.” Not anymore, he says. “We provide a genuine service to the consumer. I’m proud of that. We all need to be proud of what it is that we do.”
October 2008 Canadian Underwriter
15
pg16,18,19,20Branding v3_DG_VM
10/7/08
12:17 AM
Page 16
The power of BRANDING
Alister Campbell President and CEO, Zurich Canada
This is not another article about the sad reality of our cyclical industry. Facts are facts. Over the last 30 years, our industry has generated an average return on equity (ROE) of barely 10%. Although recent years may have been better, the scars from the spectacularly bad 2% industry ROE in 2002 are still pretty fresh. The reality is that we are all competing in a slow-growth industry with excess capital. So while it may not be popular to say, I predict that cyclical markets are likely to be with us for a while. Instead of mourning reality, it is more productive to discuss why our industry is so distinctly cyclical relative to other slow-growth industries, and what we could/should be doing to moderate its painful peaks and troughs. I want to focus on what I believe to be one key driver of that cyclicality, a driver over which we have far greater control than we do over the growth rate in Gross Domestic Product. That driver is value.
16 Canadian Underwriter October 2008
PRICE VERSUS VALUE “Price is what you pay; value is what you get.”
- Charles Munger,Vice Chairman of Berkshire Hathaway Inc. In a world of pure commodities, price is the only variable. Too often we are told insurance is “just a commodity,” and thus we excuse the hand-to-hand price wars we so regularly fight. But insurance should not be “just a commodity.” Putting aside our industry perspective for a moment, let’s think about this issue from the perspective of the consumer. In my case, I buy food and drink water and coffee like everyone else, but I readily pay premium prices for certain food products with brands I trust, or from stores that have brands that signal quality. I pay extra for certain brands of bottled water. I will walk past two other coffee shops to get to my preferred brand location. Water and coffee are commodities, but successful companies have built compelling value propositions for these products based on unique customer insights and have, through this process, created value for me and for their shareholders. Why can’t we do the same with insurance? Most consumers do not buy anything on price alone.Yes, price is important, but perceived value is what most influences our choice of one product over another. Unlike price, value is multi-dimensional and largely driven by our own unique mix of emotions and psychological needs. If price
Illustration: Anson Liaw
Brokers need to appreciate their own brand value is enhanced when they sell the value propositions of good companies with powerful and respected brands.
xli_cu_octl 2008.qxp
9/15/2008
1:51 PM
Page 1
The strength and expertise to protect your business
Property insurance and loss prevention solutions You can feel secure in our large capacity and deep understanding of complex industrial loss exposures to protect your facility against severe property damage and prevent costly shutdowns. PLATINUM PROPERTY XL Our Platinum Property XL coverage provides the capacity to insure 100% of your account. Through our global insurance network, we can issue policies worldwide and provide you with a one-stop solution. Additionally, our global network of experienced field consultants provides effective assessment and advice for your facilities. So whether they’re around the corner or around the world, you can feel secure. ENHANCED LOSS PREVENTION CONSULTING SERVICES Our property program is supported by Global Asset Protection Services (XL GAPS) for even greater breadth and scope of services. XL GAPS has a 118-year track record of excellence in property loss prevention consulting services. EASILY-ACCESSIBLE LOSS PREVENTION REPORTS Right from the start, the data in our loss prevention reports is yours and easily accessible anytime from our secure website via MyAnalysis®, the XL GAPS online reporting tool which easily turns data into fully-customizable reports. Because the best way to minimize your exposures is when we’re all on the same page.
XL Insurance Company Limited is rated: A+ by S&P A (Excellent) by AM Best A1 by Moody’s A+ by Fitch.
With the large limits of Platinum Property XL, the convenience of MyAnalysis®, and the expertise of XL GAPS, we’re the only property insurer you’ll need. We also offer additional lines of business including casualty, professional and specialty. For more information or a live demonstration of MyAnalysis®, call 800-609-2581.
“XL Insurance” is a registered trademark of XL Capital Ltd. XL Insurance is the global brand used by member insurers of the XL Capital Ltd group of companies. In Canada, coverages are underwritten by the Canadian branch of XL Insurance Company Limited. Coverages not available in all jurisdictions. Ratings accurate as of August 25, 2008.
Experience our strength: www.xlinsurance.com
pg16,18,19,20Branding v3_DG_VM
10/7/08
were the only factor, premium brand coffee shops could not compete. It is perceived value that causes some to pay significantly more for a designer coffee or for the added self-esteem that comes from wearing one label versus another. Insurance is the ultimate perceived value sale. It has a core intrinsic value and a high ratio of emotional and psychic benefits relative to the cash paid out. Since the vast majority of customers rarely — or never — make a claim, for many insurance is a purchase that delivers zero cash back for cash spent. Yet, year after year, consumers buy insurance for the peace of mind of knowing that they are protected if something bad happens. But how many insurance consumers today voluntarily pay extra for one brand over another, knowing in their hearts that they are getting greater value? How many insurers are investing in building brand value to support this desirable behaviour? And how
12:17 AM
Page 18
Brand is not enough. The brand promise has to be true. It must be based on a powerful customer value proposition genuinely rooted in customer understanding. This means knowing what your customers truly value. many companies are thinking from a customer-centric perspective and creating innovative, distinctive and branded product solutions to meet unique needs? You know the answer. THE POWER OF BRAND Amazing as it sounds, today there are no “famous” retail intermediated property and casualty companies in Canada. Research shows that no broker company
has more than 10% “unaided” awareness among consumers. Yes, there are wellknown direct writers and well-known captive agent companies. But not one “broker” company. This is a fascinating issue for our industry and in particular for the broker channel. As hard as it may be to explain to some actuaries, brand marketing works. But intermediated insurers in Canada generally do not have the margin to support brand marketing so there is almost never any sustained investment in brand power.Without brand power behind them, both companies and their brokers are exposed. Why is it so serious an issue? Because brand is a forward-looking statement of promised value, a way to convey the inherent quality of a product. Companies allocate huge budgets to brand marketing for this reason. No one is immune to the power of a strong brand. Insurance products from companies with known brands increase customers’ comfort level,
pg16,18,19,20Branding v3_DG_VM
10/7/08
12:17 AM
Page 19
companies find this route fundamentally unattractive and prefer annual guaranteed cost products. By segmenting these different insurance buyers, we can deliver unique value to each segment. Brokers who understand these buyers best will know to offer both options, but recommend the one most suited to the customer’s need. In the end, the customer and their broker can decide what is right for them.
assuring them that if they make a claim, it will be paid.Without brand, what else do you have to fall back on? Price! And thus the slippery slope. SELLING VALUE Brand by itself is not enough.The brand promise has to be true. It must be based on a powerful customer value proposition genuinely rooted in customer understanding. Being customer-centric is a prerequisite for successfully selling value. This means knowing your customers and what they truly value. It means understanding their needs, how they feel about those needs and providing a solution that satisfies their needs. It also means understanding that customers can be different and that customers segment themselves. Different customers perceive value differently. Do we segment insurance customers effectively? Let me give a practical example: longhaul trucking. Insurance is a major cost-
driver in this industry; as a result, trucking companies are particularly sophisticated insurance customers.To satisfy the varying needs of long-haul trucking customers, some insurance companies offer both captive and traditional “guaranteed cost� policies. Why? Because some trucking companies have a greater risk appetite and prefer captive solutions that allow them to self-insure part of the risk and assume more ownership of their individual claims experience. Other
BROKER AS TRUSTED ADVISOR The complexity of commercial insurance creates a tremendous need for professional advice. Customers need a broker who understands their business and the market in which they operate. No software will ever capture the knowledge, experience and judgment a professional broker can offer. No program will ever deliver the professional expertise, the true understanding of risk exposures and the capacity to choose an insurer
pg16,18,19,20Branding v3_DG_VM
10/7/08
10:58 AM
that best matches a customer’s needs that a well-trained broker can provide. No computer — no matter how ‘intelligent’ — can forge a collaborative professional relationship with a customer.The broker as trusted advisor is indispensable. The threat to brokers comes if they focus not on their advisor role, but on their more limited function as “pricecheckers.” With the Internet, today’s personal insurance customers no longer
Page 20
need professionals to check price. Selling insurance as a commodity based on price alone is the express route to obsolescence. Just ask your friendly neighbourhood travel agent (if they’re still around). With the Internet and sites like Expedia, the travel agency business is dying. As the Internet expands its capabilities, it will continue to transform other industries — music, video rentals, etc. And the Web is just getting started.
On Target Together Since 1981, RIBO has worked closely with brokers to help serve and protect the public. With more than 1,200 brokerage firms registered, employing approximately 16,000 individual registered brokers – RIBO’s mission has never been stronger.
Company size is no protection; commercial insurance will not be immune. PARTNERING TO CREATE VALUE So what to do? Work together. Companies need to invest in their brands. Companies and brokers need to develop more customer-centric insights and increase the actual and perceived value of their solutions.And brokers need to appreciate their own brand value is enhanced when they sell the value propositions of good companies with powerful and respected brands. Today, it’s unfortunately true that too many customers do not know who their insurer is, or that they are insured by an established, financially stable company managed by dedicated and trustworthy professionals. By not sharing this knowledge, brokers not only diminish their
Cycles aren’t going to stop anytime soon, but the peaks and troughs can be smoothed if our industry learns from other industries about how to break free from the purecommodity, price-play game. own value, but also miss out on the benefit of telling customers about the value delivered by their insurer. Brokers who do not sell strong brands with pride risk losing business to captive agent companies or direct writers that invest in their own brand value.
Registered Insurance Brokers of Ontario
401 Bay Street, Suite 1200, P.O. Box 45, Toronto, ON M5H 2Y4 (416) 365-1900 Or 1-800-265-3097 Fax: (416) 365-7664 www.ribo.com
20 Canadian Underwriter October 2008
THE BOTTOM LINE Cycles aren’t going to stop any time soon, but the peaks and troughs can be smoothed if our industry learns from other industries about how to break free from the pure-commodity, price-play game.Working together, brokers need to help their companies build stronger brands. Brokers need to help their companies become more customer-centric. And companies need to help brokers demonstrate their professional value as trusted advisors.
Taking your brokerage to new heights?
FINANCING
We’re in the business of growing business. And we want to grow with you. Our Quest Financing program can help you get the most out of your business, whether your plans call for growth or succession. We can provide acquisition or succession financing as well as the flexibility and innovation that enables you to meet your specific goals. And our M&A experts can help you get it done quickly and as cost effectively as possible. We’d appreciate the opportunity to talk with you about the future of your business. Contact us to discuss how together we can make it happen.
INSURANCE w w w. i ngi ns ur anc e. c a/ f i na n ci n g
INWQ82857_cdnundrwrtr_Crane_rev2.indd 1
5/21/08 3:19:46 PM
pg22,24Incidental v2_DG_VM
10/7/08
12:22 AM
Page 22
Distribution without Representation Quebec brokers believe auto replacement guarantees sold by car dealers are insurance products that should be sold by licensed brokers. Johanne Lamanque Executive Director Regroupement des cabinets de courtage d’assurance du Quebec (RCCAQ)
The issue of distribution without representatives in Quebec did not just arrive overnight.When Bill 188 on the distribution of financial services and products was adopted in 1998, the subject was a concern for brokers. In clear terms, the new legislation provided for four methods of distributing financial products and services, including — for the first time in Quebec law — distribution without a representative. Johanne Lamanque, executive director of the Quebec broker association Regroupement des cabinets de courtage d’assurance du Quebec (RCCAQ), says that in order to prevent overlapping or shifting, the Act clearly mentioned products for which this type of distribution is allowed.According to her, from the beginning, “distribution without representatives was presented as an exceptional situation.” But since that assurance was given, she says, “we’ve seen the emergence of parallel distribution networks that are not subject to any rules.”
22 Canadian Underwriter October 2008
In October 2006, the RCCAQ took part in a consultation led by the Autorité des marchés financiers (AMF) on replacement guarantees. At the heart of the discussion is the difference between a replacement cost endorsement offered by insurers and brokers and a replacement warranty offered by the province’s car dealers.The two guarantees are somewhat different, but consumers are exposed to the dealers’ replacement warranty earlier in the sales process, denying brokers and insurers to counsel consumers about other available alternatives. In its consultation with the AMF, RCCAQ made its position extremely clear: replacement guarantees of any kind are insurance products that must be distributed by certified representatives. Once again invited to take a position on this issue last April, the Regroupement repeated its demands to the Canadian Council of Insurance Regulators (CCIR). In its submission, RCCAQ pressed the AMF to take a position in order to halt current practices, and particularly to prevent the emergence of parallel distribution networks that will have adverse effects on consumers and the brokerage network. “For the brokerage network, distribution without representatives as we see it at this time — particularly in the automobile, recreational
APPLIED SYSTEMS ANNOUNCES A TOTALLY NEW BROKER MANAGEMENT SYSTEM.
Epic 2 5 Y E A R S O F I N S U R A N C E I N D U S T R Y E X P E R T I S E. F O U R Y E A R S I N D E V E L O P M E N T. You don’t win by standing still. Not in an industry as competitive as this one. Over the past four years we’ve solicited input from insurance agents and brokers around North America. And combined it with our 25 years of industry expertise. And then created Applied Systems Epic™. The result is a new broker management system that’s superior to anything, anywhere. Not an enhancement. But a totally new system.
A system that will help you transact with customers more efficiently, more quickly, and with easier, faster access to information. A system that will help you build a bigger and better book of business. We invite you to see what Epic is all about. Visit http://epic.appliedsystems.com
®
pg22,24Incidental v2_DG_VM
10/7/08
12:22 AM
vehicle and agricultural machinery sector — poses significant risks of eroding our market,” Lamanque says. “We cannot allow parallel networks to emerge that are not subject to the same rules, particularly since we have spent the last 10 years meeting a level of requirement that ensures a quality practice that favours the consumer. We need to act.”
CONCRETE ACTIONS On the political scene last April, the Regroupement submitted its position concerning distribution without representatives to the CCIR special committee on the sale of supplementary insurance. Discussions have also started up again on this issue with the AMF. To encourage awareness among its membership, the Regroupement initiated a series of regional meetings during which the issue of distribution without representatives was discussed in depth. During these meetings, Quebec brokers talked about the phenomenon, its extent, its
Page 24
current scope and the risks it poses. Measures to be taken were also suggested. RCCAQ’s ultimate goal is to mobilize all of its members. The association appealed to its member brokers in July 2008 to gather information on non-compliant practices so that the RCCAQ could measure the extent of the phenomenon. At the same time, RCCAQ arranged a series of meetings with several pivotal players in the province's property and casualty insurance industry to identify allies that might help support the brokers’ position. The next RCCAQ convention, to be held from Nov. 12-14, 2008, will offer an opportunity for the brokers to publicly show their support. An information session will be part of the program, informing brokers that they will have to take a stand on this issue during the annual general meeting. When the RCCAQ refers to the law and respect of the law, it of course refers to
the regulatory body and the legislator. But the outcome of this file also has a political component, Lamanque notes. “If we really want to reverse the direction, we need to be present and visible among Quebec’s political players,” she says. “We must make sustained representations and lobby the Autorité des marches financiers (AMF) as well as the Ministère des Finances.We must make our messages heard.”
AFFIRMING OUR PRESENCE At the moment, “the Quebec brokerage network is somewhat behind the times in this regard,” Lamanque says. “On the national level, one of the principal issues of the hour, the revision of the Bank Act, had a favourable outcome for brokerage firms due to the pressure exercised by brokers on MPs, and federal ministers and senators.We have a lot to learn about ways of doing things. Most Canadian provinces have become organized over the years and frequently communicate their messages to elected officials.”
The right partner can help you get a leg up on the competition. If you’re looking to make the most of your business opportunities, CNA is there for you with an industry-wide reputation for integrity, diversity, financial strength and customer focus. We offer brokers the resources and support to help them succeed. Global presence. Local underwriting authority. Financial strength and stability. When you want solid support for your business, we’re ready to give you a hand.
www.cnacanada.ca One or more of the CNA insurance companies underwrite the products and services described. Information is for illustrative purposes only and is not a contract. This document is intended to provide a general overview of products and services described. Remember that only the policy can provide the actual description, terms, conditions and exclusions. All coverages not available in all provinces. CNA, the OneWorld design, and the One Product One Source design are registered trade-marks of CNA Financial Corporation that are used under license. © 2006 Continental Casualty Company, Toronto, Canada.
pg26,28,30CreditScoring v2_DG
10/7/08
12:26 AM
Page 26
Risking it all on
Credit By Craig Harris Freelance Writer
Ontario brokers have raised concerns about how credit scores are used by some insurance companies, particularly in auto insurance. Although Ontario regulations prohibit access to an individual’s credit history for auto insurance rating and underwriting, the Insurance Brokers Association of Ontario (IBAO) says it has evidence that insurers are, in fact, requesting and collecting credit scores, especially for online quotes. The IBAO is looking to Ontario’s insurance regulator for a response, and perhaps even a broader debate on the issue. CREDIT HISTORY AND AUTO INSURANCE The use of credit history to determine a person’s insurance risk has shown an uneven evolution in the Canadian property and casualty market. The practice is widespread among U.S. insurers and has generated significant public controversy and regulatory response, but the ability to use credit scores in Canada depends on the province and the line of business. Sources say there is evidence that insurers are increasingly making use of credit history as a key risk indicator and predictor of claims activity. Credit history has been allowed in Quebec’s property damage auto insurance market for more than five years. Alberta also permits insurers to use credit scores for optional auto insurance.Yet Ontario and the Atlantic provinces do not allow credit history and other “lifestyle factors” to be used for auto insurance rating and underwriting. A March 2005 bulletin from the Financial Services Commission of Ontario (FSCO) lists “credit
26 Canadian Underwriter October 2008
history” as one of the factors of “underwriting and risk classification that are expressly prohibited.” In all provinces, regulations are silent on the use of credit scoring for homeowner insurance, meaning insurers are free to use it in that line of business. The regulatory inconsistency from product to product and from province to province may allow loopholes of which insurance companies can take advantage in their rating and underwriting practices. When it comes to Ontario auto insurance, the province’s broker association says some insurers may not be living up to the spirit or letter of the regulation. “We have reports from our members that credit scores are being used to determine rate and access to insurance products,” says IBAO president Rodney Hancock. “We have seen cases where consumers cannot get a quote online unless they are willing to provide the insurer consent to get the credit score. Our concern is that the regulation does not allow that practice in determining an auto rate.” Hancock says the IBAO provided FSCO in July with a broad sampling of instances that, the association alleges, shows insurers were contravening the regulation on credit scoring. FSCO spokesperson Rowena McDougall declined to speculate on any follow-up or response from the regulator, but did note: “Our responsibility to consumers is to enforce the Insurance Act and to monitor the industry for compliance to the Act. It is very important that there is compliance with this part of the Act regarding lifestyle factors.”
Illustration: Anson Liaw
There appears to be some confusion about regulations related to the use of credit scoring, prompting calls for a broader public discussion about insurers’ use of credit to determine risk.
e
D
e
g insur n i r e an liv c
. to g n i keep v o m you As we move the business forward we have simplified, refreshed and modernized our corporate brand. Royal & SunAlliance is now known simply as RSA. Same bright ideas. Same great products. And most importantly, the same positive people. After all, it’s people that get things moving. See how we can keep you moving. Visit www.rsagroup.ca. © 2008. RSA is a registered trade name of Royal & Sun Alliance Insurance Company of Canada. “RSA” and the RSA logo are trademarks used under license from RSA Insurance Group plc.
pg26,28,30CreditScoring v2_DG
10/7/08
12:26 AM
IBAO said in September it is expecting a response from the regulator within the next two months, although Hancock notes that “we will be following up to see where they stand and I am not sure how long that will take.” He makes it clear IBAO does not have a formal position on whether insurer use of credit scoring is a positive or negative practice for brokers and consumers. “We have no position on whether credit scoring is good or bad, in terms of whether it should be used,” Hancock says. “But if the rule is that you cannot use it, then it should apply to all companies. So let’s make sure the regulation is followed and we are all using the same set of rules.” WHEN TO USE CREDIT The situation is also blurred by the fact that insurance companies may already have access to a consumer’s credit history for homeowner coverage. “Right now, they (insurers) can collect credit scores for personal lines property insurance,” Hancock says. “It is likely difficult to ignore that information when they are looking at the other side, especially if an insurer is writing both the home and auto as a joint policy. So maybe the rule at this point in time needs to be looked at. If we can’t draw the line here, then let’s draw the line somewhere else.” One insurance company that would welcome a revision of the credit scoring line is ING Canada. It has been using credit history for six years, particularly in Quebec’s physical damage auto insurance market. According to Martin Beaulieu, the company’s senior vice president of personal lines, the use of credit scores, or as ING calls it “financial discipline indicator,” is one of many legitimate variables in the underwriting and rating process. “What is clear is that financial discipline is a good predictor of insurance experience,” says Beaulieu. “It is a very good predictor of driving habits, and what care you take of your belongings. From that perspective, it can help 28 Canadian Underwriter October 2008
Page 28
determine what kind of risk a client represents for insurance companies.” The fact that credit scores can differentiate between higher and lower insurance risks is reinforced in several U.S. studies, according to the Insurance Information Institute (III). In a report released in July 2007, the U.S. Federal Trade Commission found that auto insurers’ use of insurance credit scores leads to more accurate underwriting, in that there is a correlation between insurance credit scores and the likelihood of
It is clear financial discipline is a good predictor of insurance experience. It is a good predictor of driving habits and whether you take care of your belongings. filing an insurance claim. A 2004 study commissioned by the Texas Department of Insurance on the use of credit information by insurers doing business in the state reported a strong relationship between credit scores and claims experience. And a June 2003 study by EPIC Actuaries conducted for the American insurance industry also discovered that, overall, insurance scores significantly increase the accuracy of the risk assessment process.
ING Canada uses credit scoring only where permitted by regulation, such as in Quebec and for Alberta’s optional coverage auto insurance market. Beaulieu says ING is piloting a residential program for credit history across Canada. There is growing evidence of insurance companies in Canada using credit scoring, according to Beaulieu. (Several major insurers were contacted for this article, but declined to comment.) CREDIT SCORING IN QUEBEC “In Quebec, it is hard to find an insurer that is not using it,” he says. “Brokers there have been familiar with the process for several years. In the other provinces, we see the trend of insurers trying to use it. There is a ‘first mover’ advantage to that client segmentation. I think it is in the best interests of brokers for all insurers to be allowed to use it in order to compete on a level playing field.” Renée Kramkimel of Gamut Insurance Agency in Mount Royal, Quebec, says there was some initial resistance by consumers to the request for credit history when it was first introduced, but most have come to accept it as a routine part of the insurance process. “In the past few years, it has become a normal thing,” she says. “Today, there are so many places that check your credit, most clients don’t bat an eyelash about it anymore.” In fact, Kramkimel argues that access to credit history can help brokers in terms of assessing the type of payment plan offered to a particular client. “For my brokerage, what I like about it is if someone asks for a quote, the credit score does provide some information,” she says. “I am not going to carry a receivable or have to cancel a client for non-payment. It helps my bad debt.” She adds that her brokerage has never had a risk denied based on a bad credit score. For ING Canada’s Beaulieu, how exactly an insurance company uses credit history is the real issue. He says ING only uses credit scores with the express consent of the consumer, which is part of privacy
pg26,28,30CreditScoring v2_DG
10/7/08
12:26 AM
legislation requirements in Canada. The company does not decline coverage or increase rates as the result of a poor credit score, but rather offers a discount for those with positive credit history. For consumers concerned that third party access to their credit history will lead to a lower credit rating, Beaulieu says insurance company requests represent “soft hits” that leave no trace. “Those who use it have to be disciplined as to how they use it,” he notes. “Consumers have to know what we are going to do with it, so it has to be done in the proper fashion.” LOW PROFILE IN CANADA The relatively low profile of credit scoring in Canada differs markedly from United States, where public controversy over the practice has prompted regulators in 26 states to adopt laws that prohibit or limit its use in underwriting or rating decisions. In many cases, the con-
Page 30
cern about credit history involved allegations of discrimination by insurance companies related to race, ethnic origin and income levels. Some companies were accused of declining coverage or raising rates based solely on credit scores, particularly in certain urban settings. Beaulieu acknowledges Canada’s early experience with credit scoring may not have been entirely positive for consumers either. “I think some insurers used it to decline access to coverage in the early stages, but that is not part of the practices anymore,” he says. For Beaulieu, the time is right for a broader debate about how credit scoring is — or should be — used by insurers across the country. “The best way to ensure there a level playing field and proper controls as to how it is used is to open up the gates and make sure this is done openly and with full disclosure,” he recommends. “As long as you say, ‘This can be done for this, but not for
that,’ I think there will always be uncertainty about whether some companies are using it properly or improperly.” “You cannot prevent insurers from using marketing twists to try to get that segment of financially disciplined consumers,” Beaulieu adds. “We favour as an organization that governments and regulators would give permission to use as many variables as possible for pricing and underwriting, with the financial discipline indicator as one. So let the free market decide if this is a good practice or not.” Some, such as IBAO’s Rodney Hancock, agree this kind of public discussion may be in order, given the current confusion around existing rules on credit scores. “At some point in time, there may be a debate over whether the use of credit is appropriate or not,” Hancock says. “We may need to have a bigger debate and a clearer direction about what we are going to do with credit scoring.”
When you need immediate HIÆFLHQW UHVSRQVH \RX FDQ UHO\ RQ WKH WHDP RI SURIHVVLRQDOV DW VWURQH WITH OVER 20 YEARS in the disaster restoration industry, we’ve built a solid reputation for quality and service that is second to none. We believe this is due, in no small part, to our TEAM APPROACH to handling claims.
! 1HZ ORFDWLRQ
:LQGVRU servicing Essex County & surrounding regions
Through our network of corporately-owned offices, our full-time staff of experienced professionals, not only serve their local area, but work in tandem to respond to the largest catastrophic events. From our corporate administration staff to our on-site carpenters, all the employees at STRONE are committed to excellence of workmanship and dedication to customer service. Contact us today and see what our TEAMWORK can do for you.
Offices throughout Ontario www.strone.ca claims@strone.ca HEAD OFFICE 1-866-877-5834
30 Canadian Underwriter October 2008
sw 5
7/10/08
3:36 PM
Page 1
SOUTH WESTERN GROUP Always Thinks to the Future WE ARE: A Technologically Advanced Paperless Operation offering Electronic Policy Document Delivery
SWG is committed to Quality Service, Quality Underwriting combined with an extensive product line including Hard to Place Property and Casualty Contact Us: E-mail: quotes@swgins.com Fax: 1-877-FAX 2 SWG (1-877-329-2794) Phone: 1-800-668-4275
www.swgins.com
pg32,34Ontario_v2_DG_VM c
10/7/08
12:30 AM
Page 32
Levelling the Playing Field
Opinion/Analysis
As the distribution revolution continues, the quest for competitive advantage is starting to tip the scales against the interests of consumers The distribution revolution has been under Chief Executive Officer, way for the past few years and we believe that a select number of players are currently employing Insurance Brokers Association of Ontario debatable practices in order to gain market share and benefit from a non-level playing field. What needs to be done to address these issues? What advantages do these strategies provide? We are concerned that in three main areas, certain practices in Ontario’s insurance market appear to run contrary to the direction of existing regulations, public policy and the interests of consumers. Specific problem areas include the use of credit, creative interpretations of the definition of group marketing and the continued aggressive marketing practices of those banks with insurance arms. In the long run, the consumer will suffer the consequences at the gain of those employing such practices.
Randy Carroll
USE OF CREDIT In recent years, the biggest push we have seen is primarily from online carriers. Our provincial broker association has obtained information that prompted it to ask the provincial regulator to confirm carriers are not using technology to access credit information behind the scenes and/or employing this information to select against certain segments of consumers. No insurer should deem it acceptable to use credit to determine with whom they do business. In rating for an automobile policy in Ontario, it is illegal to use credit to determine rate. Brokers do not have any appetite or technical wherewithal to access a client’s credit information.
32 Canadian Underwriter October 2008
Even if they did, they have both a legal and ethical obligation to place the interests of the consumer first. Accessing credit information to treat one segment of consumers differently than another would be a blatant contravention of both our legal and ethical obligations. Proponents of using credit argue it is the best predictor of future behaviour. Whether or not one agrees with this point, the current regulatory reality in Ontario is as follows: using credit — either directly or indirectly — to determine automobile rates is a blatant disregard for the current regulations that govern us all. GROUP MARKETING In the area of group marketing, the interpretation of what counts as a bona fide “group” is becoming increasingly creative. It has definitely gone too far when you can obtain a group rate by virtue of being able to spell the word “group.” One dilemma is that, because the filing process is less intrusive, there is no incentive for group providers to filter out risks that no longer qualify at renewal.This creates the proverbial “Hotel California” scenario, in which you can enter a group, but you can never leave. Who suffers as a result? First, consumers who actually qualify for group rates suffer because their portfolio is potentially flooded with risks that do not have the underwriting characteristics the group was intended to lever. Also disadvantaged are those who choose to play within the rules and have in place an appropriate compliance policy to ensure filed rules are being followed. At some point, the issue of group rating will have to be addressed, whether through clarification of an existing policy or introduction of new guidelines. With the Insurance Act currently under review, perhaps the time for change is upon us. Given the negative consequences of doing so, why would anyone work outside both the spirit
pg32,34Ontario_v2_DG_VM c
10/7/08
12:30 AM
and the letter of the regulations that govern our conduct? Sometimes accidents happen. Another possibility is that the potential gain of calculated business decisions outweighs the potential penalties involved. Either way, it is time for people in the industry truly concerned about this issue to speak up and encourage change. In a recent submission to government, the Insurance Bureau of Canada (IBC) recommended that Ontario’s industry
YES, WITH
Page 34
regulator, the Financial Services Commission of Ontario (FSCO), be given the ability to use administrative and monetary penalties. In Ontario, we support this recommendation, as it provides the regulator with the ability to respond more quickly with penalties that reflect the breach of regulation and serve as deterrents to similar or future behaviour — a system that would easily lend itself to a risk-based environment.
IT REALLY CAN BE THIS EASY – LET US SHOW YOU HOW OVER
135 YEARS
OF
PROVEN SUCCESS,
The Guarantee Company of North America is Canada’s leading specialty insurer. We take pride in providing specialized quality products via the independent broker network with a “Guarantee” of excellence to our policyholders.
• Professional Claims Services • Committed to the Independent Brokers • Commercial Lines - No Contract required - No Premium Volume required
• Personal Lines - Contract required
PRODUCTS WE OFFER: • Contract Surety • Commercial/Miscellaneous Surety • Fidelity Bonds • Directors’ and Officers’ Liability • Credit Insurance • Guarantee GOLD®
34 Canadian Underwriter October 2008
gcna.com
BANKS AND INSURANCE A third issue, which has significant and broad-reaching implications, is the aggressive practices employed by those in the banking sector that are tied to an insurance provider. During the recent review of the Bank Act, the Canadian Bankers Association (CBA) lobbied for the ability to market insurance from within their branches. If this could not be granted, the banks requested, then at the very least they wanted permission to display material about property and casualty insurance within their branches. The government considered changes to the Bank Act, and then opted to uphold the current regulation that prohibited both in-branch sales and marketing of insurance products at the branch level. It is beyond the scope of this article to re-hash the public policy reasons for why such prohibitions exist. The bottom line is that, for consumers, this issue was laid to rest in 2007. Or was it? Again, we have obtained information that warrants approaching regulators about the need to make sure banks are upholding both the spirit and the letter of these prohibitions. It remains to be seen how the regulator will react to such information. But clearly this issue is far from over. If anything, what we know causes us to believe the next time the Bank Act is opened, the debate will be far more heated than in the past.With respect to the existing Bank Act prohibitions, we asked for status quo, and in 2007 the federal government granted us the status quo.The role of the regulator is to enforce the status quo. In an industry that continually reviews market conduct in an effort to ensure the consumer’s priority of interest remains first and foremost, how do the scenarios outlined above reflect what we are trying to accomplish? Simply stated, they don’t. It is incumbent upon the many who do abide by current regulation that governs our behavior to speak out in opposition to any few who do not. Remember that even if the actions of a minority run afoul of existing regulation, that jeopardizes the trust consumers bestow upon the majority. This is not an opportunity to speak out; it is an obligation!
pg36,38,39WorkFlow_v2
10/7/08
12:36 AM
Page 36
Power of Process
The
Renee Durepos Vice President, Operations, Keal Technology
Some brokerages could benefit simply by reviewing and defining their existing processes. Workflow analysis can help brokers recognize problem areas such as bottlenecks, backlog and overlapping roles.
“Workflow” has become a buzzword for brokers in a soft market, especially as efficiency becomes even more important to principals. What exactly do people mean when they talk about workflow, particularly as it relates to productivity and technology? And how can brokers use this to their advantage? Workflow is a hot term in broker management these days.The Independent Insurance Agents and Brokers of America (IIBAA) released a best practices guide in July, including business processes and information management of interest to insurance brokers. Several recent seminars in Canada have explored how brokers can improve their workflow with the aim of greater efficiency. WHY WORKFLOW, WHY NOW? The timing is not coincidental. Several factors have conspired to bring workflow — sometimes referred to as business process management — to the primary attention of broker principals. One is the growing size and complexity of brokerages.
36 Canadian Underwriter October 2008
Given a larger number of employees, several locations or branch offices, and an increasingly varied mix of personal and commercial business, brokerage operations are more challenging to manage. When you factor in multiple insurance carrier interactions, these business processes can become even more complicated. And then there is the persistent soft market. Revenues through commissions are decreasing. It also appears loss ratios are creeping up; that means lower contingent profit commissions. Brokers have to do more with less to maintain their profit margins. Something has to give. And workflow is a logical place to start looking. Workflow is a powerful but often misunderstood concept. In short, it can be defined as a formal definition of the steps required by a process and the sequence in which these steps should take place. Initially, workflow is about how work is done and in what sequence — not about technology. However, technology has the ability to automate both the steps and the sequencing of steps for workflow in brokerage operations. The goals of workflow can be varied – streamline routine tasks, eliminate errors and reduce redundancies (particularly in data re-entry). However, some brokerages could benefit simply by reviewing and defining their existing processes. Improving workflow can make non-revenueproducing processes, such as customer service requests or policy changes, happen much more efficiently.Workflow analysis can also help brokers recognize problem areas such as bottlenecks, backlog and overlapping roles.
AIG-CommercialIns_Ad:AIGRM_AskUs
7/15/08
3:35 PM
Page 1
WE’VE CHANGED OUR NAME, BUT NOT OUR ABILITY TO MANAGE RISKS.
In July 2008, Commerce & Industry Insurance of Canada became AIG Commercial Insurance Company of Canada. Good news is that’s about all that has changed. We still offer unmatched underwriting expertise, claims service and financial strength you can rely on.
VANCOUVER
TORONTO
MONTREAL
666 Burrard Street, Suite 1100 Vancouver, BC V6C 2X8 800-663-0231
145 Wellington Street West Toronto, ON M5J 1H8 800-387-4481
2000 McGill College Ave., Suite 1200 Montreal, QC H3A 3H3 800-361-7211
®
Insurance and services provided by subsidiaries of American International Group, Inc. (AIG). Coverage may not be available in all jurisdictions, and is subject to actual policy language.
pg36,38,39WorkFlow_v2
10/7/08
12:36 AM
KNOW THYSELF One of the biggest issues Keal Technology has found in its consulting practice is that many brokerage principals don’t know precisely how routine tasks are processed by dozens of their employees on an everyday basis. Some think they know how their operations work, but their perception is often at odds with the reality of the existing workflow. Essentially, they don’t know what they don’t know. And if they don’t know how the work is actually done, it is difficult, if not impossible, to measure efficiency. Worse, there are missed opportunities when certain tools or technologies are not used to enhance productivity. In many cases, the solutions to workflow problems or bottlenecks may be sitting right in front of a brokerage principal’s eyes. For example, here are three questions brokerage principals or office managers might ask: • Do you measure how many policies each CSR handles on average?
Page 38
Do your CSRs have defined service procedures, or is it left to the individual? • Is there at any given time a backlog of client files on your CSRs’ desks? These are not theoretical questions. They are practical queries that can spell the difference between poor or aboveaverage productivity. Keal Consulting estimates a personal lines CSR should be able to handle a book of up 2,500 policies depending on the chosen workflow that best suits the working environment. Most brokers are unable to measure their staff’s daily workload and overall performance. Similarly, if principals were to ask different CSRs how they handle the same task, they would likely get a range of responses. Often the answer simply comes down to: “Because that’s the way it’s always been done.” Lack of consistency in business processes and the inability to create a culture of change are perhaps the most glaring causes of inefficiency in a brokerage. The symptoms are often backlogs and delays in service. •
When the Problem is Ease of Doing Business the Smart Answer is
38 Canadian Underwriter October 2008
8
Revamping workflow is not a one-time event. It has to start with reviewing and analyzing work processes. That means defining virtually every procedure – from making the best use of a broker management system (BMS) to evaluating the service structure within the brokerage. Are there standard service protocols and timelines for handling client inquiries? Can CSRs provide real-time service and electronic quotes? Are service requests differentiated between personal and commercial lines? INTRODUCTION TO CHANGE Brokerage principals looking into workflow or technology need to be ready to change — and so do staff. If your CSR has spent the past five years processing policies the same way, it will be hard to get him or her to change.Take it one step at a time. Perhaps select one critical process each quarter; in each instance, ask if there might be a better way to accomplish the same task. Measure how much time, cost or how many steps the
pg36,38,39WorkFlow_v2
10/7/08
12:36 AM
process takes in its current form. Then measure later to see if you improved it. Although brokers have control of their internal business processes, the reality of the insurance distribution chain is that several parties have to work together to streamline workflow, including brokers, insurers and technology vendors. Often no single person in a brokerage actually looks at how changes implemented by third parties affect their operations. This type of review should cover the entire lifecycle of the policy from quote to bind to renewal. More specifically, workflow definitions should include how effectively technology is used in areas such as SEMCI, download and real-time integration with insurance company Web portals. Small changes in areas like processing new business, renewals and endorsements can make a big impact on how efficiently the work actually gets done. One good example of workflow efficiency is broker interaction with company portals. Given that endorsements, inquiry
Page 39
and claims, uploading, new business and renewals occur on a daily basis in any broker’s office, it is crucial to measure how efficiently these tasks are performed and where opportunities exist for time or cost savings. In one U.S. study, it was estimated brokers who used real time through their BMS saved an average of 15 days in annual CSR time over those brokers who relied on insurance company Web portals. Solutions are available that provide this real-time option: they allowing brokers to link to multiple company portals without the need for any modification. Information is inserted into the appropriate fields of an insurer’s Web portal; each file is processed live with one single connection, one single entry and one single interface. Brokers can use efficient SEMCI to automate workflows to ensure fast, consistent information processing in the office. Another example is in the area of document management. Many brokers use imaging as a way to replace paper-based
processes, and this can be beneficial. But technology consultants have observed that constant scanning or imaging adds time to CSRs’ workflow and size to a broker’s database without proven benefit. In one case, consultants found that up to 73% of scanning or imaging could be eliminated.
WORKFLOW CANDIDATES How does a brokerage know whether or not it needs to look at its workflow and business processes? Ask yourself the following questions: • Are you or your employees feeling overwhelmed (by backlog, delays, errors)? • Can you describe how work is processed on a day-to-day basis in your office? • Are your employees making full use of the technology in your brokerage? Your answers to these questions will spell out how much you need to look at your workflow to improve efficiency and productivity.
Doing business in a fiercely competitive environment, the smart Insurer looks to make an opportunity out of a problem. Broker Connectivity becomes an asset, Underwriting Automation an advantage. And the resultant Ease of Doing Business increases both competitiveness and profitability. So more and more smart Insurance Carriers are looking to iter8 for a positive and innovative approach to problem solving. Underwriting Automation of greater than 70% is now common, turning up dramatically higher levels of speed, accuracy and customer service. Established, pre-built and developed templates mean solutions are implemented rapidly. And real-time Broker Connectivity ensures ease of use, efficiency of transactions & data transfer, freedom of choice and an edge over the competition. When we look at your business problem, we see an answer. The smart one.
www.iter8.com
888.999.7107 Ext 280
e mail: info@iter8.com
The Smart Solution is iter8 October 2008 Canadian Underwriter
39
pg40,42,44Escalating_v1_DG_VM
10/7/08
12:38 AM
Page 40
Expansion Without Contraction Jess C. Bush Partner, Blaney McMurtry LLP
Harold Hopf Senior Vice President, Head of Claims, Swiss Reinsurance Company Canada
Tort awards for catastrophic cases in Canada are pushing the average award increase to Cdn$5 million — and climbing
It is important to understand how each of the above four factors contributes to the final award amount. The combined effect of these factors has resulted in average award increases of Cdn$5 million or more for catastrophic injuries.
Tort awards for catastrophic cases in Canada have doubled since the late 1990s due to a convergence of factors. Understanding what’s causing this trend will help the insurance industry determine if these increases are permanent, and what can be done to stem the tide. Ultimately, this analysis will affect reserve levels and how insurers price their products. Tort awards are increasing for a variety of reasons, including: • higher health care costs; • reduced discount rates; • higher future care awards for claimants with behavioral issues; and • a more aggressive and experienced plaintiff’s bar that has been pushing an aggressive agenda featuring an ever-expanding variety of claims.
CONTRIBUTING FACTORS
40 Canadian Underwriter October 2008
Health costs Rising health care costs have had the greatest impact on higher tort awards for catastrophic cases in recent years. In a leading case in 1999, Osborne (Litigation guardian of) v Bruce (County), an Ontario court awarded 24-hour care by a registered practical nurse (RPN) at what was then the prevailing rate of $21 per hour. Today, the approximate hourly rate for an RPN is at least $35 per hour. This difference in the hourly rate alone produces an increase of approximately Cdn$2.2 million, assuming a life expectancy of 20 years and equivalent present discount rates. Osborne involved a 14-year-old passenger in a motor vehicle who was rendered a paraplegic
www.crawfordandcompany.ca
pg40,42,44Escalating_v1_DG_VM
10/7/08
12:38 AM
with minimal brain function.The Court in this case determined the awards for the various heads of damages, but it did not total same in the judgment.Taken together, the total awards equal approximately Cdn$7 million, plus interest and costs.
Reduced discount rates Reductions in the discount rate, particularly for future care costs, have had a dramatic effect on overall awards in recent years. Changes in discount rates for the purposes of calculating a present value for future payment streams can result in an enormous adjustment to the ultimate cost of a claim.
Over the past several years, plaintiffs’ counsel have been cooperating more often with each other and sharing best practices. The result is a more aggressive and sophisticated presentation of their cases. The statutory discount rate in 2008 of .75% for the first 15 years and 2.5% thereafter has been greatly reduced from the flat statutory rate of 2.5% for all years applied to awards in 1999. On an award of Cdn$300,000 per year for more than 20 years, the impact of the statutory discount rate changes since the 1990s to today results in an increased award of approximately Cdn$800,000. Furthermore, economists have been called as witnesses to testify to the need for further reductions in the discount rate in light of escalating health care costs in the future. In one case, the court adjusted the discount rate for future care costs to 0% for the first 15 years and 1.5% thereafter.
Higher future care awards Insurers are seeing an increase in the frequency and severity of claims made
42 Canadian Underwriter October 2008
Page 42
for supervision costs on losses involving head-injury cases in which behavioral impairments are alleged. Claims are being presented for around-the-clock care in these and other cases, and it is important to question the need for these expenses in each case.Why is this important? One only need examine the jury verdict in Sandhu v. Wellington Place Apartments, confirmed by the Ontario Court of Appeal in 2008. The plaintiff, 2, fell five floors from the bedroom window of an apartment. His injuries included permanent and severe frontal lobe brain injury. The court affirmed an award for future care costs in excess of Cdn$10 million. Leave to appeal to the Supreme Court of Canada has been sought.
Aggressive plaintiff’s bar Over the past several years, plaintiffs’ counsel have been cooperating more often with each other and sharing best practices.The result is a more aggressive and sophisticated presentation of their cases and a corresponding number of higher rewards. However, there are some pro-active measures that can limit extraordinary awards in these cases.
TORT AWARD REDUCTION STRATEGIES To reduce these awards, it is important to focus on areas in which change is possible. Although it is not possible to control the escalation of health care costs and reductions in the statutory discount rate, one can begin to identify areas in which cost reductions can be achieved by breaking down/dissecting recent awards and breaking them down into their component parts. The determination of future care costs is predicated on a projection of extraordinary future care costs to be incurred by the claimant as a result of the loss. Many items included in recent claims — such as cell phones and computers — are not extraordinary; arguably, they are not recoverable as part of a settlement or judgment. This can also include certain
housing costs. Plaintiffs are only able to claim extraordinary housing costs and should not be compensated at a level above what’s reasonably expected if the catastrophic injury had not occurred. Over the past several years, much has been written about litigation management, which is an important subject. Insurers and the defence bar need to be able to conduct open dialogues with one another on this topic. “Insurers need to support and invest in defence counsel and seek opportunities for continuing education,” says Greg Somerville, executive vice president of claims and reinsurance at Aviva Canada. “Insurers and defence counsel need to partner on cases and implement strategies to handle the catastrophic case exposures and be sensitive to any joint and several exposures.The right counsel needs to be assigned, someone who brings in the best available experts to challenge expenses that are either inappropriate or will never be utilized by the plaintiff.” The defence bar and insurers need to work as a team to ensure only the proper sum of money is placed in the plaintiff’s hands. The handling of each case needs also to be considered as a time of learning for how best to manage future cases.
The use of structured annuities needs to be considered in settlements and in presentation to the courts. There will be instances in which a trial must take place, but it must be remembered a trial can be a financial and emotional drain. Insurers and their counsel need to be alert to any and every opportunity to settle a case that has merit before it escalates into a situation in which a trial is the only route to resolution.Through teamwork with their counsel, Insurers need to exercise creativity in the negotiation process so that fair settlement can be reached.
Reduce
cycle time.
WHAT PROGRESSIVE COLLISION REPAIR CENTRES ARE DOING Throughput Performance Solutions by PPG provides collision repair centres with the tools and courses to improve their Quality, Speed and Lower Cost of Operation. How you and your policy holders benefit: • shorter cycle times, which get vehicles through the repair process quicker • streamlined processes that reduce waste and save on costs • expert and guaranteed workmanship you can depend on For more information please contact PPG Customer Service at 1-888-310-4762.
World Leaders In Automotive Finishes ©2007 PPG Industries www.ppgrefinish.com
pg40,42,44Escalating_v1_DG_VM
10/7/08
12:39 AM
Life expectancy and home care are two additional factors to consider. Life expectancy estimates used by plaintiff’s counsel are often overstated; they might be reduced based on an evaluation conducted by a qualified expert who has specific knowledge of the plaintiff and the plaintiff’s specific injuries and health history.
Page 44
Although home care has become the default arrangement for courts, no legal requirement mandates home care.There is a big difference between the cost of home care and that of residential care. Costs associated with home care, including housing and case management fees, are removed when a plaintiff is placed in residential care. In addition, home
care staffing is not always available, even when awarded, and home care is often not feasible for the duration of the claimant’s life expectancy. Taking into account the nature and duration of future care required can dramatically reduce the total award in many cases. The use of structured annuities needs to be considered in settlements and in presentation to the courts. This should provide a safety net for claimants on a tax-free basis, allowing the elimination of a gross-up for income taxes and a reduction of guardianship and management fee amounts sought. In Sandhu, the Ontario Court of Appeal recognized the security of an annuity for the infant claimant. The large awards in recent cases have set a precedent. It will take a thorough understanding of all the factors contributing to these high amounts, as well as a concerted effort on the part of the defence team, to ensure reasonable, fair and appropriate amounts are delivered to claimants.
Increasing Tort Awards The value of tort awards in Ontario has been steadily increasing. Here are a few recent awards: • Sandhu v. Wellington Place Apartments, (2008 ONCA 215) — an award for future care costs in excess of Cdn$10 million. • Gordon v. Greg and Ford Credit [2007] O.J. No. 225 (Ont. Sup. Ct Jus) — assessed damages of Cdn$11.5 million (plus interest, plus costs) for Gordon and Cdn$12.6 million (plus interest, plus costs) for Morrison. • Marcoccia v. Gill and Ford Credit [2007] O.J. No. 1333 (Ont. Sup. Ct. Jus) — assessed damages in excess of Cdn$16 million.
44 Canadian Underwriter October 2008
“I’m here to lend a hand.”
Best Doctors
360°
A new name for an ongoing service.
Help is at hand Over the past twenty years Best Doctors has completed over 20,000 case reviews through our InterConsultation™ program – an in-depth review of a member’s medical files by Best Doctors world renowned specialists to provide medical opinions and treatment plan options. Best Doctors 360º has been part of the process every step of the way.
Best Doctors 360° is a unique program designed to help Best Doctors members navigate the healthcare system. Best Doctors 360º provides the resources needed to personally deliver customized advice, guidance and one-on-one support to each Best Doctors member. Two invaluable components are included in the program – Best Doctors Community and Best Doctors HealthGuide.
Best Doctors Community is a program created to ensure each Best Doctors member has knowledge of the services available to them in their local area. Best Doctors Community provides information such as public and private home care, respite resources, volunteer drivers, pet and babysitting services, elder care and local chapters of Foundations and Societies.
Best Doctors HealthGuide is a comprehensive database of medical programs and services, providing members with the tools they need to navigate the healthcare system. Information about wait times, how to find a local family doctor1, drug funding programs, access to clinical trials, nutrition and wellness and health assessment tools are all part of Best Doctors HealthGuide.
For more information on how this program can benefit your clients, call 1-877-419-BEST (2378) or email us at 360@bestdoctors.com
Best Doctors Canada One Queen Street East Suite 2000 Toronto ON M5C 2W5 | bestdoctorscanada.com | 416.504.8555 | 1.877.419.2378
1. Based on availability in your area. Best Doctors does not endorse a specific physician. BEST DOCTORS and other trademarks shown are trademarks of Best Doctors, Inc. Used under license.
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 46
AIG’s Sinking Fortunes Based in the United States, the American International Group (AIG), dubbed the “world’s largest insurer,” is seriously listing, shocking a Canadian insurance industry that is now wondering what will happen to AIG’s Canadian operations.
DAVID GAMBRILL EDITOR
46 Canadian Underwriter October 2008
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 47
It
was perhaps the most remarkable sinking since the Titanic. In the span of 48 hours, the stock of the American International Group (AIG) in the United States, commonly branded in the media as the “largest insurance company in the world,” sank to the bottom of the financial markets in mid-September 2008.The only thing saving AIG from bankruptcy proceedings was a last-minute, US$85-billion life raft thrown out by the U.S. Federal Reserve. “I think it’s hard to believe that a [broker’s] market [such as AIG], which has historically been so strong financially and is as well-respected as it has been, went south so quickly,” said Peter Blodgett, president-elect of the Insurance Brokers Association of Ontario (IBAO), summarizing much of the water-cooler discussion about AIG transpiring in any number of Canadian broker offices. “I think it caught a lot of people off-guard.” The U.S. Federal Reserve’s rescue effort comes with a significant catch: AIG is all but required to sell off a portion of its assets. Publicly,AIG says it wants to keep its property and casualty units. But privately everyone is waiting for the other shoe to drop, knowing Canadian (re)insurers have the financial means to acquire AIG’s Canadian property and casualty insurance subsidiaries should they be put up for private auction.Whether they will have the opportunity to buy is anyone’s guess. AIG’s financial shipwreck in the United States confounded many observers because it flew in the face of how well-capitalized AIG’s insurance units remain. But the iceberg AIG hit had more to do with the wheeling and dealing of AIG’s Financial Products unit in the murky world of credit derivatives and associated subprime mortgage exposures.
Canadian Underwriter October 2008 47
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 48
COVER STORY
AIG’s Sinking Fortunes
One might expect public confidence in the solvency of insurers to be a topic for conversation in light of AIG’s now-legendary liquidity problem. On the contrary, the Canadian property and casualty industry expresses complete confidence that what happened in the United States can’t happen here. Canada’s federal system of financial solvency regulation simply wouldn’t allow its insurance industry giants to navigate in such shallow capital waters, Canadian industry analysts observe.
of how a CDS works is as follows1: The Sunny Days Pension Fund owns Cdn$20-million worth of a five-year bond issued by Troubled Corporation. Fretting that Troubled Corporation might live up to its name, Sunny Days tries to protect itself in the event of a default. Sunny Days therefore buys a CDS for a notional amount of Cdn$20 million from Security Bank. In return for Security Bank’s credit protection, Sunny Days pays Security Bank 2% of Cdn$20 million
tangible, physical asset in order to trigger the protection. Advisen notes AIG “is one of the largest players in the CDS market, with almost [US]$600 billion of gross notional exposure in ‘super senior’ credit derivatives, including [US]$80 billion tied to subprime mortgages.” The media’s conflation of the derivatives activities of AIG’s Financial Products unit with the activities of AIG’s well-capitalized insurance units is partly a
“I think it’s hard to believe that a [broker’s] market [such as AIG], which has historically been so strong financially and is as well-respected as it has been, went south so quickly. I think it caught a lot of people off-guard.” AIG HITS THE ICEBERG Although media headlines typically refer to AIG as an insurance company, most insurance industry representatives don’t view what happened to AIG as an insurance-related crisis. A recent briefing by the consulting group Advisen observes that, in addition to the capital locked up in its property and casualty operations, AIG also derives income from businesses unrelated to traditional unlicensed insurance products. “The crisis at AIG is driven in large part by losses on a type of investment instrument called a credit default swap (CDS) issued by AIG Financial Services, a unit separate from the insurance businesses,” Advisen notes. “A CDS operates something like an unregulated insurance contract. It provides protection against a default on assets tied to mortgage debt and securities.” In a credit default swap, one party makes periodic payments to another in exchange for a payout if a third party defaults on a loan.A very simplified version
48 Canadian Underwriter October 2008
($400,000) in quarterly installments of Cdn$100,000 over five years. If Troubled Corporation does indeed fold sometime before the five-year payment schedule is up, Sunny Days stops paying the quarterly premium to Security Bank and Security Bank refunds the pension fund’s Cdn$20-million loss. If there’s no default, Security Bank gives Sunny Days its Cdn$20 million back after five years and keeps the quarterly payments. Either way, Sunny Days is protected in the event of Troubled Corporation filing for bankruptcy. A CDS isn’t an insurance product, in the sense that it doesn’t require a loss to a
byproduct of AIG’s status as a somewhat peculiar financial animal. “I don’t know what AIG is,” Dan Danyluk, the CEO of the Insurance Brokers Association of Canada (IBAC), said in an interview. “I don’t think anybody’s known for a long time. It’s an incredibly densely complex organization. The fact of the matter is, [AIG held] securities deemed by rating agencies to be secure because nobody believed that that many people would default on their mortgages. And in fact, that many people did default on their mortgages.” And when they did, ratings agencies in the United States responded with downgrades. Over the period of five years,AIG saw its credit rating go from a ‘AAA’ rating in 2001 to an ‘AA-’ rating in late 2007. But AIG’s ship really started to take on water on Sept. 14, 2008, when large U.S. investment banks such as Lehman Brothers and Merrill Lynch — banks that, like AIG, were exposed to losses arising out of defaulted subprime mort-
Insurance Risk Management
Zurich HelpP int
One global insurance program for your expanding business. Even for places you’ve never been. Zurich HelpPoint is here when you need more than just insurance. So we offer the Zurich Multinational Insurance Proposition (MIP)*. It helps you keep global insurance programs compliant when you expand your business to a new market and expose yourself to new risks. The strength of Zurich MIP lies in a transparent and thorough set of solutions for writing and maintaining global insurance programs in over 170 countries. Our game-changing solution can help you sleep better at night, no matter the time zone. For more details about Zurich HelpPoint, visit www.zurich.com
Here to help your world. Because change happenz® and Zurich® are trademarks of Zurich Insurance Company. * patent pending.
0846_CA_GC8_CanUnderwriter_206x276.indd 1
25.9.2008 9:25:22 Uhr
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 50
COVER STORY
AIG’s Sinking Fortunes
gages — either declared bankruptcy or arranged mergers in order to forestall bankruptcy. AIG ran into a serious cash-flow problem. Ratings agencies such as Fitch, Standard & Poor’s (S&P’s) and Moody’s had all downgraded AIG’s credit rating. In downgrading AIG from an ‘A’ to an ‘A-,’ S&P’s stated on Sept. 14: “The main reason for the rating actions is the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgagerelated losses. Mark-to-market losses from mortgage-related investments and swap exposures have placed significant pressure on AIG’s ability to access capital and liquidity.” The credit downgrades “trigger[ed] contract provisions that required the company to post US$14.5 billion in collateral,”Advisen says. Exacerbating this state of affairs, if AIG failed to post the collateral, it would be considered to have defaulted on its subprime mortgagerelated CDSs, as Steven D. Levitt writes in his blog on the New York Times Web site. “Were AIG to default on CDSs, some other AIG contracts (tied to losses on other financial securities) contain clauses saying that its other contractual partners could insist on prepayment of their claims.”At the parent company level,AIG had nearly US$80 billion in shareholder equity, but most of it was locked up in the group’s life and property and casualty insurance operations and could not be liquidated to meet the collateral costs. Upon observing the company’s serious cash-flow problems, shareholders showed no mercy. AIG’s stock prices fell 60% in one day following the announcement of the rating downgrades. As AIG tried to rally support from private investors, its stock price plummeted to less than $2 per share in a span of 48 hours, having traded at $75 per share only a year before. Negotiations with private investors collapsed and AIG faced filing for Chapter 11 bankruptcy protection.At this point,AIG started discussions with the U.S. Federal Reserve bank,
50 Canadian Underwriter October 2008
“I don’t know what AIG is. I don’t think anybody’s known for a long time. It’s an incredibly densely complex organization.” which announced an extraordinary US$85-billion loan to AIG on Sept. 18. The terms of the loan were stringent. They left the U.S. federal government owning 79.9% of the company; interest and other payments connected to the debt amount to a total of 11.3%.Analysts saw the strict terms as a means to force AIG to act quickly to resolve the crisis. “The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due,” the Federal Reserve
announced in a statement announcing the loan. “This loan will facilitate a process under which AIG will sell certain units of its businesses in an orderly manner, with the least possible disruption to the overall economy.”2 Brian Wilcox, the president of the Toronto Insurance Conference (TIC), a Canadian commercial brokers association, says the U.S. Federal Reserve’s loan to AIG was necessary, even if in the longterm it may not prove to be sufficient. “What happened in the United States with the government coming in and providing the federal band-aid was necessary,” he says. “AIG is just one part of what’s happening in the United States, which affects us all. Had they not done that, I wouldn’t want to predict what would have happened. Personally, I think it’s only a band-aid. I think that AIG is still in a scenario in which they’ve got to shake things up.” A.M. Best noted in a recent Web seminar that AIG’s property and casualty operations remain well-capitalized, allowing such a shake-up to be possible. “It’s very important to note, from our perspective, that the operating companies remain strong,” said Tony Diodato, who heads A.M. Best’s property and casualty ratings for the U.S. market. “Although AIG’s business profile and franchise value has been tarnished by the recent events, A.M. Best believes AIG remains a formidable player in the property casualty marketplace. However, A.M. Best has shortterm concerns, including potential policyholder departures, erosion of confidence from key constituents such as brokers, banks and credit facilities.” Risk managers were certainly having a second look at AIG policies. Asked for their first impressions of the crisis, many risk managers in the United States — the people who buy AIG’s insurance products on behalf of the companies they represent — reported looking for other options, even though they recognized the strong financial position of AIG’s property and casualty units. Advisen, which does consulting work
Seeing the world through
your eyes
/a g]c` PcaW\Saa U`]ea a] R] g]c` `WaYa
AV]cZR\¸b bVS a]ZcbW]\ PS OZZ OP]cb g]c-
/]\ >]aWbW]\W\U g]c T]` acQQSaa >`]bSQbW\U eVOb g]c dOZcS
BVS e]`ZR¸a QV]WQS T]` `WaY [O\OUS[S\b BVS QV]WQS T]` g]c
eee O]\ Q][
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 52
COVER STORY
AIG’s Sinking Fortunes
for the Risk and Insurance Management Society (RIMS), an association of risk managers in North America,conducted a survey to measure confidence in AIG after the US$85-billion bailout. Its survey of 1,000 risk managers found that 68% of respondents said they were “very confident” or “somewhat confident” in AIG’s financial strength.At the same time, 71% of AIG commercial lines policyholders said they planned to get quotes from AIG competitors when their policies were up for renewal. “Many insurance buyers recognize the crisis at the AIG ultimate parent level didn’t affect the solvency of the insurance subsidiaries, but nonetheless there was immediate reaction among brokers and buyers to look at all options,” said David K. Bradford, the executive vice president and chief knowledge officer of Advisen. “After the federal loan was secured, it’s clear that the marketplace responded with support for AIG. Still AIG will have to fight to keep its book of business and this fight will likely drive further reductions in premium pricing.”
obviously have control [over AIG Canada’s destiny] somehow. Are they going to sell it? Are they going to keep it? That part we have no control over, so my client isn’t going to be able to make a choice over that.” Certainly there is a lot of speculation among Canadian brokers and risk managers alike about whether AIG Canada is destined to be unloaded as part of the forthcoming sale of the company’s assets. AIG’s general insurance division accounts for about US$72 billion of the company’s overall US$1.7 trillion in operating income. In Canada, AIG has five main
SPILLOVER EFFECT
non-life insurance operations3 that collectively reported a 2007 net income of more than Cdn$209 million. Speculation about a potential sale of AIG’s Canadian subsidiaries persisted even after AIG announced on Oct. 3, 2008 that it planned to keep the core of its property and casualty operations. “American International Group, Inc. (AIG) today indicated its intent to refocus the company on its core property and casualty insurance businesses, generate sufficient liquidity to repay the outstanding balance of its loan from the Federal Reserve Bank of New York and address its capital structure,” the company announced in a press release. “AIG had drawn $61 billion on the Fed credit facility as of Sept. 30, 2008. AIG plans to retain its U.S. property and casualty and foreign general insurance businesses, and to retain a continuing ownership interest in its foreign life insurance operations. AIG’s worldwide property and casualty
In Canada, brokers reported receiving calls from AIG’s commercial policyholders, asking about the status of their insurance.And what would be the broker’s advice in these unusual circumstances? “Certainly AIG Canada is different than the U.S.,” IBAO president Rod Hancock cautioned. “All of the safeguards of OSFI [Canada’s financial solvency regulator, the Office of the Superintendent of Financial Institutions] and the government regulations have not changed, so AIG has to follow those rules. So from that perspective, I wouldn’t be saying we have to move [the policyholder over to another insurer]. I think you are going to get clients that will want to look and see what there is. But I wouldn’t worry about saying, ‘We have to get out of here,’ because [AIG Canada] will pay a claim tomorrow in Canada. “The larger issue seems to me to be what is the AIG U.S. going to do? They
52 Canadian Underwriter October 2008
businesses generated approximately [US]$40 billion in revenues in 2007. The company is exploring divestiture opportunities for its remaining highquality businesses and assets.” Brokers at the National Insurance Conference of Canada (NICC) in OttawaGatineau at the time of AIG’s announcement believed AIG was not giving away names largely because it wanted to tease potential offers from buyers. Had AIG listed the companies it wanted to sell, it ran the risk of having to sell them at “firesale” prices, brokers and reinsurers noted. Certainly AIG’s Canadian assets would be an excellent pick-up for any number of well-capitalized companies in Canada, Canadian brokers note. “Every major market in Canada is looking to buy,” says Peter Burns, second vice president of the IBAO. As of press time, merger rumours abounded. Canadian holding companies and insurers Fairfax Financial, Manulife Financial and Sun Life were all reported to have been in the running to buy AIG’s Canadian subsidiaries or portions thereof. Other names coming up in brokers’ gossip circles include Lloyd’s of London, ING Canada, AXA Canada, Munich Re and even Dominion of Canada General Insurance Company.Transatlantic Re board members announced they were already looking over offers for sale of the reinsurance company. Whatever happens to AIG and/or its Candian holdings, consumers in Canada are protected because of AIG’s reliance on the independent broker channel to distribute their insurance products, says Justin MacGregor, past president of TIC and currently president-elect at IBAC. “The thing about the AIG situation is that they are a broker-oriented company,” says MacGregor. “Certainly I know from our shop, the moment we became aware that things could be going awry, we were looking for alternatives [for AIG policyholders] should the worst happen. We didn’t know whether the sky was going to be falling in, whether this was
CHB 14204 Broker wealth
1/25/07
3:39 PM
Page 1
wealth: n. valuable possessions or resources. Insurance protects the wealth your clients have accumulated. The more wealth, the greater the need for protection against risk. Clients trust you to recommend the best policy to manage that risk. Chubb Insurance better defines its insurance to reduce risk and protect wealth.
If your client’s wealth is worth protecting, Chubb is your recommendation.
Chubb Defines Insurance
www.chubbinsurance.com Chubb Insurance refers to Chubb Insurance Company of Canada. The precise coverage offered is subject to the terms, conditions and exclusions of the policy as issued.
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 54
COVER STORY
AIG’s Sinking Fortunes
“We’re regulated for solvency purposes by OSFI and they set out the capital requirements for the property and casualty industry. They set very high capital requirements. In fact, next to Australia, they’re probably the highest capital requirements in the world.”
of Canadian insurers. When asked about the source of their confidence, they point to the fact that Canada’s regulatory environment around solvency is much different here than in the United States.
a knee-jerk reaction or whether there might be a reality that would be dealt with in a sensible manner and put back onto a sensible footing.The second there was an indication something was wrong, we were acting in the client’s best interests to identify alternatives should the worst-case scenario break.”
SOLVENCY REGULATION IN CANADA
PUBLIC CONFIDENCE IN INSURANCE Post-bailout, it appears the worst-case scenario is no longer a concern. Members of Canada’s property and casualty insurance industry are working hard to make sure the Canadian public understands the insurance industry is an innocent bystander in all of this. Brokers, insurers and regulators alike are concerned that AIG’s poor fortune in the United States, triggered by its Financial Products unit — a unit that has nothing to do with insurance — has potentially and unfairly dragged the good name of the insurance industry through the mud. “Until just recently, there has been a prolonged, a several-months-long debate about confidence in the banking industry, the confidence in the investment industry and only in the last very short period of time, in the last week or so, did this become a discussion about public confidence in banking, investment and insurance,” observes Paul Kovacs, the president and CEO of the Property and Casualty Insurance Compensation Corpora-
54 Canadian Underwriter October 2008
tion (PACICC). The fund pays claims to policyholders in the event of a Canadian insurer bankruptcy. “I think that’s an important message for our colleagues in the insurance industry,” Kovacs continues. “For the very first time, this global dialogue, which is also a Canadian dialogue, has expanded to include a discussion saying, ‘I am also concerned about insurance.’The implications of that are unclear, because this is very new for us.” Almost invariably, sources interviewed for this story did not believe AIG’s meltdown in the United States would ultimately lead to a crisis of confidence in the Canadian insurance industry. In fact, Canadian industry sources show manifest and absolute confidence in the solvency
“We’re regulated for solvency purposes by OSFI and they set out the capital requirements for the property and casualty industry,” says Barbara Sulzenko-Laurie, the vice president of policy for the insurers’ trade organization, the Insurance Bureau of Canada (IBC). “They set very high capital requirements. In fact, next to Australia, they’re probably the highest capital requirements in the world. They add to the cost of carrying out business in Canada, and that’s been a source of concern for us for a number of years. Having said that, in these times, people can look to that solvency regulation as being a protection.” OSFI makes no apologies for setting its capital targets high. At the NICC, OSFI superintendent Julie Dickson told hundreds of Canadian insurance industry delegates that OSFI’s capital requirements meant no Canadian property and casualty insurer had to take a writedown on the basis of similar credit derivatives activities that ultimately sank AIG’s fortunes. “OSFI has faced criticism in the past for our stance against financial leverage in P&C companies, and we have been criticized by those who say we artificially
pg46-56Cover Story (Oct08) v1_DG_VM
10/7/08
12:41 AM
Page 56
COVER STORY
AIG’s Sinking Fortunes
add to the cost of capital, but despite the criticism we stand by our decisions,” Dickson said. “Regulated P&C companies in Canada do not have debt on their balance sheet, nor are they generally selling products that require collateralization in the event of credit downgrades. Debt — and OSFI has been adamant about this — does not belong on the balance sheets of operating P&C companies.” In a separate statement, OSFI said it is satisfied with the capital requirements for Canadian insurers following on the heels of the financial services meltdown in the United States. “In general, we can say that federally regulated financial institutions (banks and insurers) are well capitalized, which is helping them deal with the current market events,” said OSFI manager of communications and public affairs Rod Giles.Would OSFI be tempted to raise its capital requirements as a result of the dampening effect the United States credit crisis might ultimately have on Canadian insurance companies’ investment portfolios? “Regarding capital requirements, there are no changes envisioned at this time,” Giles responded. “We believe the current regulatory requirements are appropriate.” Kovacs observed OSFI’s role as a dedicated solvency regulator distinguishes Canada’s regulatory environment from that of the United States. In the United States, for-profit ratings agencies play a much stronger role in the determination of an insurer’s solvency, Kovacs said. More than a few Canadian insurance industry representatives have suggested the U.S. regulatory environment, including the role of ratings agencies, might be in line for some changes after the AIG bailout. “Certainly if you compare between Canada and the United States, there is a role played by the rating agencies in the United States,” Kovacs says. “The rating agencies are evaluating, judging, pontificating on the solvency of the insurance companies in the United States. In Canada, the solvency supervisors are doing that.”
56 Canadian Underwriter October 2008
The stronger role for ratings agencies in the United States is derived in part from U.S. regulators not having solvency as the only item in their job description, Kovacs suggests. In addition to solvency, U.S. regulators must also oversee rate adequacy and market conduct. “There is a more complicated responsibility of American insurance regulators when compared to OSFI’s clear focus on solvency and confidence in the system,” Kovacs says. Seeing what ratings agencies do, U.S. regulators have developed a certain confidence in letting ratings agencies handle solvency determinations while the regulators focus on other aspects of their role. What happens to that confidence going forward may soon be up for discussion. There is a fly in the ointment of Canadian insurance regulation, however, and that is in that nebulous area of provincial versus federal jurisdiction.Although OSFI has an admirable track record overseeing federally regulated and licensed insurers, Kovacs notes, not all insurers in Canada are federally regulated. Some insurers operate in only one or a few provinces and hence choose to be licensed exclusively with provincially regulators. And with many — but not all — provincial regulators, it’s a whole new ball game, Kovacs notes. “PACICC has great confidence in OSFI and…feels very positive about the current OSFI system and approach that they have in place,” he says. “We have more questions about
some — and perhaps I’ll be a little bolder and say most — provincial solvency supervisory systems. In the experience that PACICC has been through, the companies that have failed recently have been disproportionately provincially supervised.” Kovacs said PACICC has recently undertaken and published research identifying which provincial regulators have met the standards for insurance industry regulators, as outlined in a 2005 report by the International Association of Insurance Supervisors (IAIS). Meeting these minimum standards is crucial for preventing spectacular insurer insolvencies of the type that AIG has temporarily averted, the IAIS notes in a Sept. 22 press release. “The Federal Reserve’s rescue offer would likely not have been made if it were not for the core value of AIG’s insurance subsidiaries, which exists due to sound solvency regulation and oversight provided by IAIS members worldwide,” the international regulatory association noted. How AIG will look coming out of this financial crisis is anyone’s guess. Much is still to be determined. But clearly strong solvency regulation plays a critical component in making sure insurance company ships have the proper capital base to avoid icebergs in the future, the Canadian P&C industry notes. 1 This example is an offshoot of a scenario outlined in the Wikepedia definition of a CDS, with apologies to Wikepedia (and the online encyclopedia’s critics). 2 The U.S. federal government just recently passed a US$700-billion financial aid package that would allow the government to buy toxic, subprime mortgage-related assets and thereby remove them from the U.S. financial markets. 3 American Home Assurance Company (Canadian Branch), Transatlantic Re (Canadian Branch), Commerce & Industry Insurance Company of Canada, The Boiler Inspection and Insurance Company of Canada, AIG United Guaranty Mortgage Insurance Company of Canada.
Performance
expect nothing less
As the leading specialty insurer in Canada, Kingsway is dedicated to delivering fair, accurate, courteous, and timely service to insurance brokers across Canada. Kingsway provides insurance products for a wide array of commercial auto and casualty exposures not readily available in the standard market. As an open market insurer providing direct access to insurance capacity, every broker is important to us. Performance when you need assistance placing a specialty risk, expect nothing less.
KINGSWAY
Calgary - 888.805.4647
l
Mississauga - 800.265.5458
l
Montreal - 800.387.6695
l
www.kingsway-general.com
pg58,60FreeTrade_v2_DG_VM
10/7/08
12:44 AM
Page 58
Free But Unequal The governments of B.C. and Alberta in April 2006 signed an agreement designed to promote free trade between the provinces. The agreement is the Trade, Investment and Labour Mobility Agreement, more commonly called TILMA. There are a host of “operating principles” within TILMA. Of particular interest to the brokerage community are the following: • establish a comprehensive agreement on trade, Ginny investment and labour mobility that applies to Bannerman all sectors of the economy; Chief Executive Officer, • eliminate barriers that restrict or impair trade, Insurance Brokers investment and labour mobility; Association of Alberta • enhance competitiveness, economic growth and stability in Alberta and B.C.; and • increase opportunities and choice for workers, investors, consumers and businesses. Under TILMA, B.C. and Alberta want to open their borders for trade, investments and labour. Here in Alberta,TILMA is an important and overarching policy initiative of Premier Ed Stelmach, reflected in the fact that TILMA was introduced in the last session of the legislature as Bill 1. The Insurance Brokers Association of Alberta (IBAA) has attended several functions at which Premier Stelmach has talked about the importance of TILMA for the advancement of the economies for both provinces. He has said TILMA will ensure equal access across borders.
58 Canadian Underwriter October 2008
Through TILMA, the Alberta government will try to achieve harmonization with B.C. rather than to protect narrower domestic interests. As a business community, it is easy to believe in and support the basic principles of free trade. However, the IBAA has gone on record saying we cannot support “free trade” when it comes at the direct expense of a business sector in one province, or when an existing competitive level playing field is skewed in favour of one player. We believe this will happen under TILMA. Currently brokers enjoy a reasonable degree of mobility between the provinces. Each province recognizes the other’s licensing standards and agrees to allow those standards to apply for extraprovincial licensing of brokers (or “agents,” as we are called in Alberta).Therefore, from a licensing perspective, all looks reasonably good in terms of labour mobility, suggesting that both provinces are in sync with TILMA. But in reality, such is not the case for Alberta insurance brokerages. Insurance brokerages from B.C. can come into Alberta facing no barriers to business: they can be licensed, obtain insurer contracts and open their doors for business. For Alberta brokerages going to B.C., it is a different story. In both B.C. and Alberta, the largest portion of a typical brokerage’s business is auto insurance. In B.C., the government has a monopoly on auto
Illustration: Anson Liaw
The governments of B.C. and Alberta are attempting to reconcile free trade between two provinces that have vastly different auto insurance markets
This man leads one of Canada’s foremost underwriting companies. Behind him is a dedicated team focussed on delivering quality service and innovative solutions. Behind them is the expertise of a parent company with 77 years experience of underwriting in North America. And behind them all is the financial security of the Lloyd’s global insurance market. So why trust anyone else to back up your business?
Rob Lee Managing Director MINT Canadian Specialty
As an agent of Lloyd’s of London, MINT Canadian Specialty’s philosophy is to provide innovative solutions and quality service to our brokers and policyholders. With access to the expertise and resources of our $5 billion parent company, we pride ourselves on delivering a wide range of products covering errors and omissions, allied healthcare, products liability, medical malpractice, business interruption and employment practices liability cover. Our financial strength is proven by our ‘A’ rating from A.M. Best.
MINT Canadian Specialty is an agent of Lloyd's of London and a subsidiary of Top 50 US property and casualty insurer Markel Corporation
For further information contact: MINT CANADIAN SPECIALTY 145 King Street East, Suite 500, Toronto Ontario M5C 2Y7 Tel: 416-360-MINT (6468) www.mintcanadian.ca
pg58,60FreeTrade_v2_DG_VM
10/7/08
12:44 AM
insurance through the Insurance Corporation for British Columbia (ICBC). ICBC controls the number and location of distribution (or “Autoplan”) outlets. Without Autoplan, an insurance brokerage cannot sell primary auto insurance. There has been and continues to be a moratorium on issuing Autoplan contracts, although they are available for purchase from existing contract holders. One of our members recently investigated purchasing a brokerage in Vancouver and found the cost for an Autoplan contract exceeded Cdn$750,000 — a significant barrier to entry for an Alberta insurance brokerage into the B.C. market! Another concern with TILMA is that both Alberta- and B.C.-based credit unions will be able to market insurance products in Alberta. In B.C., credit unions now own and operate insurance brokerages. In Alberta, credit unions are currently prohibited from owning and operating insurance brokerages. B.C. credit unions
Page 60
are actively seeking to move into Alberta; even now, they are approaching Alberta brokerages, offering to purchase them, as they feel TILMA will open the doors for entry into Alberta. If B.C. credit unions can come into Alberta and can own and operate insurance brokerages, Alberta-based credit unions will want the same business powers. In fact, recently Alberta credit unions met with MLAs requesting to have the prohibition lifted on the basis that their “financial margins continue to shrink.” We find this to be amazing. Credit unions continue to do well; in fact, they are growing.Their own data indicate their asset base has grown from Cdn$9 billion to more than Cdn$14 billion in five years. They are financially strong and have prospered within a consumer-friendly and responsible legislative framework. The same cannot be said for brokerages in Alberta. On average, our members lost 8% in earnings and faced greatly
increased expenses in the first year auto reform was introduced in Alberta. They have seen the cost of doing business continually rise over the past five years. We wonder if constitutionally the government of Alberta can allow Albertabased credit unions to operate beyond Alberta’s borders or allow out-ofprovince credit unions to come into Alberta and operate under the Alberta Credit Union Act. It is an interesting question, and one that will have to be answered if TILMA opens the borders for credit unions. In order to have equal access across borders, the Alberta and B.C. marketplaces need to be much more similar than they are now. There can’t be a level playing field with a government monopoly in one province and private enterprise in the other. In our view, until B.C. has a free market insurance system it becomes impossible to achieve equal access across borders.
Any Clients Going South this Winter?
TravelStar® Travel Insurance Make sure your clients pack TravelStar® from Group Medical Services, out-of-country medical coverage for Canadian snowbird travellers.
• • • •
Single Trip Daily Emergency Medical Plans from 1 to 183 Days Multi-Trip Annual – MultipleTrips eachYear upto15or30Days All-Inclusive Plans – Combined Medical,Trip&BaggageCoverage Non-Medical Coverage – Trip, Baggage, Golf & Sports Equipment
No Age Restrictions, No Medical Questions Under Age 60 Up to $5 Million Coverage, 24 Hour Worldwide Assistance,Top-Up Existing Coverage
Online Applications are Underwritten Up-Front with Immediate Confirmation Complete plan details online at www.gms.ca/travel
Become a Group Medical Services Broker and add GMS TravelStar® Travel Insurance to your insurance mix Build healthy client relationships – and your bottom line! looking after you and the ones you love
1-800-667-3699 • www.gms.ca
Group Medical Services has been Canada’s health and travel insurance expert since 1949. We offer a complete range of Individual Health, Travel and Group Benefit products.
Become a Group Medical Services Broker. Contact GMS at 1-800-667-3699 today! TravelStar® Insurance underwritten by Group Medical Services. Group Medical Services is the operating name for GMS Insurance Inc. Products not available for sale in Quebec or New Brunswick.
60 Canadian Underwriter October 2008
/a O P`]YS` g]c¸`S bVS PSab
/\R bVOb¸a eVS`S >SOQS 6WZZa Q][Sa W\ eWbV a][SbVW\U []`S bVO\ O TcZZ ZW\S ]T W\ac`O\QS ^`]RcQba 5`SOb ^S]^ZS @SOZ ^S]^ZS eV] ]TTS` ab`]\U ac^^]`b O\R TOab `Sa^]\aS b] VSZ^ g]c
0cb g]c eO\b b] PS SdS\ PSbbS`
^`]dWRS PSbbS` W\ac`O\QS a]ZcbW]\a /b >SOQS 6WZZa eS¸`S R]W\U SdS`gbVW\U eS QO\ b] VSZ^ g]c R] SdS`gbVW\U g]c QO\ T]` g]c` Qcab][S`a 7b [OYSa O RWTTS`S\QS bVOb `SOZZg aV]ea
> 3 /1 3 67::A7 <AC@/<13 1=; =C@ >=:71G 7A E=@97<5 4=@ G=C
pg62,64Quoting_v2_DG_VM
10/7/08
12:54 AM
Page 62
Connecting with Consumers Vanessa Mariga Associate Editor
The future of broker tech may be turning towards consumer-centric technologies.
For years, brokers’ associations have been toiling with the question of how best to approach the escalating incursion of direct writers into the distribution channel. Association-driven attempts at the development and launch of a SEMCI (single-entry, multiple-carrier interface) solution have been unsuccessful thus far— the Quebec broker association, the Regroupement des Cabinets de Courtage d’Assurance du Quebec (RCCAQ), recently laid to rest its RCCAQ Central project, which in turn developed based on the wind-up in late 2005 of the multi-million-dollar CSIO Portal. Carriers, brokers and vendors alike often cite political reasons as a primary source of failure. For example, it is often asserted that in order to create a SEMCI solution, carriers would have to give up proprietary information that might represent the source of their business advantage over competitors, and brokers would all have to put themselves on the same level of the technological playing field — irrespective of the level of their previous investments in technology — in order for it to work. In the meantime, while debate about SEMCI solutions rages on, brokers still have to compete with direct writers who do not need access to multiple carriers in order to provide online insurance quotes to consumers. So, what’s a broker association to do? Develop a different form of technology for the purpose of online quoting — technology that doesn’t require industry-wide consensus or a treasure chest of cash to produce. In this spirit, during this past spring, the Insurance Brokers Association of Ontario (IBAO) partnered with
62 Canadian Underwriter October 2008
Compu-Quote to create MyInsuranceShopper.ca, an online resource that allows brokers to provide consumers with fast and easy online quotations from a variety of carriers. The online shopper Web site is modelled on a different kind of technology than a SEMCI portal, which is a business-to-business application. The Web site “allows the brokers association to bring its brokers under one umbrella [and provide] an opportunity to present themselves to the consuming public,” says Compu-Quote president John Savage. “The difference with what the CSIO and RCCAQ were doing was they were building an application that would work between the insurance brokers and the insurance companies. That’s another world.”
NUTS AND BOLTS The technology upon which MyInsuranceShopper.ca is based is not earth-shattering, Savage says. In fact, it’s a tweak on what’s been available on the market for more than a decade now. The Web site employs a quotation tool that Compu-Quote built for the IBAO — a tool that’s very similar to products and applications already used by brokers. After quotations are generated, consumers are able to pass them along to brokers they have selected through the Web site.The broker receives the information within their rating application. All of Compu-Quote’s applications have a rating service application, even though brokers have only local applications installed on their desktop, Brian Schwab, executive vice president of CompuQuote, says. The broker’s local application calls through the Internet to Compu-Quote’s rating engine, which generates almost 1 million quotes in any given month, no matter how many carriers brokers represent. Compu-Quote has developed a technology that allows business rules to be built into the rating application, says Savage. “Those business rules can look at all of the variables that are sent to the
Whatever Your Market Needs – You Can Turn To Avec For Effective Underwriting Solutions Avec Insurance Managers Inc. provides high quality, specialized underwriting and claims services on behalf of our Insurance Company Partners. WE CURRENTLY PROVIDE:
Ocean Marine: Both Cargo and Commercial Hull and related products Inland Marine: Contractors Equipment; Motor Truck Cargo Surplus Lines: Vacant Dwellings; Off Campus Student Residences; Builders Risks Boiler & Machinery: Stand Alone Placement Casualty: Including Monoline Placements Standard Commercial Property Fleet Insurance
Representing: • Lombard General Insurance Company of Canada • Royal & SunAlliance Insurance Company of Canada • Echelon General Insurance Company • Aviva Insurance Company of Canada • Omega General Insurance Company • The Boiler Inspection & Insurance Company (BI&I)
AVEC INSURANCE MANAGERS INC. Toronto Office: London Office:
W
Tel: (416) 862-2832 Tel: (519) 438-8396 www.avecami.com
Fax: (416) 862-9388 Fax: (416) 862-9388
With localized service for Western Brokers through AVEC INSURANCE MANAGERS (WEST) INC. Servicing Brokers in Alberta & British Columbia Tel: (604) 936-9444 • Fax: (604) 936-9114 • www.avecwest.com
pg62,64Quoting_v2_DG_VM
10/7/08
12:54 AM
engine and evaluate those variables and do the looking up of the rates, etc.,” says Schwab. “Essentially, it sits as a Web service and is called by the various applications. So MyInsuranceShopper.ca calls the same engine that our rating applications in the brokers’ offices do. It sends a secure XML data stream to the rating engine that receives it, it evaluates the data and sends it back in XML to the calling machine.”
THE NEXT STEP Savage predicts partnerships between software vendors and associations will likely strengthen in the future. And the focus of future technological solutions will not be so heavily dependent upon developing business-to-business technology, he believes, but rather on developing more consumer-centric products such as online policy issuance. Of course, even to explore the possibility of online policy issuance, carriers will need to be on board and work with brokers, Savage notes. “I think you’ll see a growth in the
Page 64
consumer’s desire to do business on the Internet,” says Savage. “And the success of the IBAO’s site and consumers will start the drive to provide increasing opportunity to provide issuance of the policy….I think that as consumers get more comfortable with transacting insurance policies and quotations, they will want to take that next step [towards online policy issuance].” Schwab agrees. He points to what’s happening online in other industries as a sign of what’s to come in the area of insurance. “When you book a flight, do you do it over the Web, or do you still walk down and see your travel agent?” he asks. “I think we’ll see consumers moving in that direction. But for consumers, the broker’s role of providing advice and advocacy will be maintained.” Schwab believes there’s been a cultural shift, with brokers of all stripes now focusing more heavily on the sales process itself. “The direct writers have taken market share, not because in our opinion they do any better job of servicing, but they are more focused on the sales process itself,” he suggests. “We see
brokers looking to level that playing field.” Schwab sees the IBAO taking on projects like MyInsuranceShopper.ca as a means for independent brokers to rival direct writers, some of which have advertising budgets that individual brokers can’t match. “The IBAO has looked at the collective group of brokers in Ontario, and if each contributes to the platform in marketing, advertising and technology, [independent brokers] can compete on a level playing field with the direct writers,” Schwab says. “Now we see the next step of that evolution: brokers will become more focused on the sales process itself and we’re building tools to help them achieve that.” Both Savage and Schwab say they’re very pleased with the relationships they’ve developed with the associations. “Ultimately our customers are their members,” says Schwab. “Anything we can do to help them take back some market share, without being completely altruistic about it, makes good business sense for the both of us.”
Brenda E. MacKenzie, CIP
Commercial Property, Casualty, Boiler & Machinery, Ocean Marine, Commercial Automobile, Personal Homeowners, Personal Automobile
MITSUI SUMITOMO INSURANCE CO., LTD. 24F, Dundee Place, 1 Adelaide St. E., Toronto, ON, M5C 2V9
64 Canadian Underwriter October 2008
The Wawanesa Mutual Insurance Company announces the recent appointment of Brenda E. MacKenzie as Vice President, Maritime Region. Ms. MacKenzie, who has significant industry experience, joined Wawanesa in 1997 as a Claims Adjuster after a number of years with another carrier. She subsequently assumed roles of increasing responsibility and in 2004 was appointed Automobile Manager, Maritime Region. Ms. MacKenzie has earned her Chartered Insurance Professional designation. The Wawanesa, established in 1896, is a Canadianowned leader in the insurance industry. The Company conducts business throughout Canada, California and Oregon and has combined assets of over $5 billion and annual premiums exceeding $1.8 billion.
pg66,68Tech_v2_DG_VM
10/7/08
12:56 AM
Page 66
Segmenting
Tech
Consumers Ismail Pishori Vice-President, Financial Services Vertical Marketing, TELUS
Communication technologies and applications like Facebook,text messaging and Web cams are giving consumers near-limitless options for interacting with one another.This new wave of greater social interaction has migrated from our homes to our schools, and, more recently, to our offices.The reality is, the consumers of tomorrow will thrive on this kind of innovation.As a result, financial institutions face a difficult challenge: adapt, or risk falling behind in the race to meet consumer expectations. Who are the future consumers? How will their presence affect the financial industry? What do organizations such as insurance companies and brokers need to do to prepare for this imminent change? Letâ&#x20AC;&#x2122;s examine the first question. To understand the future consumer, we have to consider factors beyond age and income â&#x20AC;&#x201D; we also need to think about the way they communicate with each other, and the technologies they use.Technology trends go a long way towards explaining where financial firms need to be in order to serve future consumers. Based on the research TELUS conducted with intelligence provider IDC Canada, TELUS has identified seven new market segments, four of which are the key drivers behind changing consumer communication preferences.
66 Canadian Underwriter October 2008
These four key drivers are:
The Young Embracers The early adopters of new technologies, these future consumers, between the ages of 13 and 24, are paving the technology road by favouring new communication tools such as instant messaging, live chat, social networking and frequent e-mail. The Mobile Professionals These educated, e-mail savvy, busy young professionals are looking for tools that will help them save not only time, but money as well. The Laptop Warriors These are the workplace influencers. Ranging in age from 18 to 34, the Laptop Warriors promote new ways to interact within the workplace and are keen on using tools such as live chat to communicate. The Internet Savvy People in this group are comfortable using the Internet and actively explore new ways of incorporating it within their homes.Theyâ&#x20AC;&#x2122;re generally older males and, like the Laptop Warriors, are open to communicating live over the Web.
pg66,68Tech_v2_DG_VM
10/7/08
12:56 AM
WHAT DOES THIS ALL MEAN? Although theYoung Embracers have led the charge, all four of these key segments desire new ways to interact with one another.Technological adoption isn’t just for the young, it’s for the seasoned as well.There’s a significant older presence in the Mobile Lifestyle and Internet Savvy segments. Ultimately all four groups are the key influencers of change, causing a rapid shift in an industry that for all intents and purposes hasn’t seen much movement in years. For example, although many insurance agencies and banks have embraced new communication formats such as Web chats and online services, others are just starting to test these high-tech waters. For more cautious organizations, communication with customers often comes in three formats: face-to-face conversations, phone calls and snail mail carried by Canada Post. The future consumer, who thrives on social interaction, will be looking for new ways to reach out to the financial service providers they patronize through video conferencing, instant messaging and other interactive tools. In fact, recent research by IDC finds that among 13- to 17-year-olds, 42% prefer to use instant messaging as their communication tool-of-choice compared to the phone. Furthermore, those between the ages of 18 and 24 opt to use social networking sites. Why is this change occurring? The answer is simpler than you might think. It can be described in one word: access. Think about how many people had access to the Web and its tools back when early Web browsers launched in the 1990s; now compare that number to the millions of people who have Internet access today. IDC’s research reports that 94% of survey respondents say they use the Internet at least once a day; nearly half report it’s “very important” that broadband Internet is available everywhere they go. Even more striking is that 60% of respondents “strongly agree” they couldn’t go more than a few days
68 Canadian Underwriter October 2008
Page 68
without going online. The same can be said for mobile devices, which used to be designed for the business elite but are now accessible to nearly all consumers. Indeed, we have access to more communication tools than ever before. For financial service providers, the rate at which consumers adopt these technologies indicates the need to invest in communication systems that accommodate the ways in which future consumers want to connect. If financial institutions don’t adapt quickly, they will be missing out on a substantial slice of the bottomline pie.
Technology trends go a long way towards explaining where financial firms need to be in order to serve future consumers. However, financial services organizations have several challenges to address first. For one thing, financial services firms will have to review their customer experience strategies to make interactions faster and simpler — a challenge all the more difficult because of the ongoing need to ensure customer interactions are secure and confidential. Further to that, integrating new communication channels will add a significant amount of pressure on current technology infrastructure. Organizations will need to turn to new IT solutions and implement service-orientated infrastructure to help streamline this complex shift in technologies. Despite this, financial services providers are finding solutions among the technologies that the future consumers are using already, including social media Web sites, wireless text messaging systems and instant messaging applications on computers. Once new and relatively unexplored tools, these programs have become consumer staples used at home, while travelling, in classrooms and almost everywhere else.
ACT SOON The term ‘future consumer’ implies a single group, but financial institutions need to realize there are different segments, each with unique needs that will have to be addressed. The Young Embracers may find solace in their text messaging, but the Internet Savvy may require a completely different approach that emphasizes interaction through a channel such as live chat. Organizations need to examine their current IT capabilities and begin implementing these new channels immediately. Rather than waiting for change to happen, it’s important to anticipate it, understand it and plan for it. Equally important is the consistent delivery of the customer experience, no matter what technology the consumer is using to interact with their financial institution. Educating and training employees how to manage the future consumer’s needs is therefore a pivotal exercise. Financial services organizations must also consider ahead of time the impact their decisions will have on the customer relationship. Decisions are too often made with little consideration of the ill effects they might have on vital customer experience values, such as availability, fairness and consistency.To be successful in this field, you need to factor in these core values before any significant decisions are made. Finally, meeting the needs of the future consumer will require financial institutions to assess their current customer experience plan and determine where areas of improvement might be addressed. Assessment tools are available that help organizations build tailored road maps to an improved customer experience strategy. After all, improving the customer experience requires more than free swag or longer branch hours. Success in an evolving industry is determined not just by early adoption of new technologies or a cultural shift internally, but through targeted customer experience strategies that are executed with the future consumer in mind.
pg70,72,73,74Equipment_ v3_DG_VM
10/7/08
1:02 AM
Page 70
Power-hungry new technology is straining equipment that distributes electricity inside commercial buildings. With hurricane season upon us, many people’s lives are disrupted due to storms shutting down businesses, causing undue hardships and loss of By Hans Schols incomes. People feel vulnerable and at the mercy President and CEO, of nature. But for many businesses, a more comThe Boiler Inspection and Insurance Company mon vulnerability is the breakdown of their equipment and the infrastructure that supports of Canada (BI&I) this equipment. The risks business and industry face are exacerbated by four converging trends: • aging infrastructure; • demand for equipment in a global economy; • rising energy demands and costs; and • proliferation of technology. Fortunately, there are ways to mitigate and manage risk. What’s needed are innovative strategies focused on engineering, risk assessment, loss prevention and contingency planning.
Aging infrastructure Aging equipment and the proliferation of powerhungry new technology is straining the North American infrastructure, including the power grid and the equipment that distributes electricity inside commercial buildings. Much of the transmission grid system was developed more than a half century ago. The electrical systems
70 Canadian Underwriter October 2008
in many buildings were not designed to carry the loads that are necessary today. Consider these facts: • Electricity consumption at peak demand times is growing at twice the pace that committed power generation capacity is being added. • A recent North American Electric Reliability Corporation (NERC) survey of utility industry professionals ranked aging infrastructure and limited new construction as the Number 1 challenge to electric reliability — both in likelihood of occurrence and potential severity. • The electric transmission system is increasingly operating close to its capacity margin; many areas of the grid are regularly under stress. • Construction of new transmission facilities is still slow and continues to face obstacles. • The average age of transformers used within the utility industry is more than 30 years old; many units are nearing the end of their expected life. • Electrical systems within buildings are often overlooked and under-maintained. Too many building owners don’t realize that electrical equipment requires preventive maintenance. • Estimates on the annual costs to North American industry from power surges and other related anomalies have ranged from US$30 billion to US$200 billion. • Despite reliance on sensitive digital technology, equipment owners too often neglect to install adequate electrical surge protection, placing equipment and business activity at risk. Such trends increase the risk for more frequent
Illustration: Anson Liaw
Equipment Breakdowns in an E-world
EXPERTISE / INTEGRITY / RESPECT / TRUST / STRENGTH / STABILITY These characteristics should be the price of admission to any business relationship. At Great American, this is where the conversation begins.
The Property & Inland Marine Division of
Property & Inland Marine Division
Great American Insurance Company / Canadian Branch www.GreatAmericanInsurance.com 330 Bay Street, Suite 800 Toronto, ON M5H 2S8 Scioto Plaza, Suite 2100 40 King Street West Toronto, ON M5H 3C2
These values are fundamental to our success as one of the most respected property and casualty carriers in the United States. By partnering with a Canadian network of skilled independent brokers, we can offer our customers the unbeatable combination of security, protection and the peace of mind they need to build their businesses for the future.
pg70,72,73,74Equipment_ v3_DG_VM
10/7/08
and severe blackouts and brownouts, electrical system breakdowns, equipment damage, business interruption and structure fires. In fact, the National Fire Protection Association (NFPA) reports electrical distribution failures each year are responsible for about 9% of fires in commercial buildings. The loss of power or poor power quality presents other exposures. In our information-based society, with its explosive data growth, any power interruption can result in a commercial disaster. Data can be lost due to equipment breakdown and it can be expensive, and sometimes impossible, to restore the information due to rapid changes in technology.
Global competition Demand for equipment and equipment components is increasing around the world. As developing nations’ GDP and per capita income have grown, so too has their middle class. China and India
1:02 AM
Page 72
alone account for about 40% of the planet’s population. Their citizens want what Canadians want: reliable electric power and technology and modern equipment that make life better. Yet worldwide manufacturing capacity for some critical infrastructure equipment, such as transformers, has remained relatively flat. Emerging domestic markets in these and other developing countries are consuming more of that available capacity. The result is an unprecedented competition for equipment as economies expand and standards of living rise. Given that more equipment is manufactured abroad, delivery times for equipment — including spare and replacement parts — have lengthened significantly. Prices also continue to rise, with no end in sight.This fierce competition for equipment creates serious risks for businesses, including supply chain disruptions, production delays, lost customers, rising operating costs and even legal liability.
Rising energy demands, costs No business is immune from the increasing costs of power and the threat of power shortages and disruptions. Peak demand for electricity in Canada, which occurs in summer, is forecasted to increase by 18% in the next 10 years, but committed power generation to meet peak demand is projected to rise just 8.4%, according to a study published by the North American Electric Reliability Corporation. As the reliability of the power supply becomes a greater concern, increasingly businesses and institutions are installing and operating their own power generation equipment to offset costs and ensure the availability of electricity. More businesses are exploring or turning to alternative fuels and renewable energy sources, including wind, solar, photovoltaic, fuel cells and geothermal power. New equipment and technology is now located in places it has never been before, being operated and maintained
pg70,72,73,74Equipment_ v3_DG_VM
10/7/08
by personnel who might lack experience and training. Hospitals and schools, for example, might have micro turbines, or office buildings might rely on fuel cells and diesel generators. This trend is adding to the equipment, property and business interruption exposures facing commercial operations.
Proliferation of technology The acquisition of new sophisticated equipment for a range of business applications is on the rise.The result is rapidly increasing equipment values occurring in virtually all types and sizes of businesses and industries. In many cases, however, both a business’s property and its contents valuations are underestimated and understated, and therefore underinsured. Main Street has gone high-tech, with self-checkout and point-of-sale systems and other electronics that track inventory, manage energy systems and operate fire and security alarms.You might find
1:02 AM
Page 73
a sensitive and expensive Magnetic Resonance Imaging (MRI) scanner in a medical office located in a strip mall. Auto service centers routinely use digital diagnostic equipment. As Computer Numerical Control (CNC) machines become more affordable, smaller machine shops rely on automation. This widespread use of electrical and electronic equipment, which is highly vulnerable to power surges and other disturbances, is creating equipment and business risks for commercial operations whose owners may not understand their exposures. Moreover, technology is advancing so rapidly that much of it becomes obsolete quickly, making it difficult to repair or find replacement parts. In many cases, if key components are unavailable, it must be completely replaced. We are also experiencing a data tsunami, meaning that data loss exposures are severe and growing. Surgesensitive technology — critical to every business — makes today’s equipment
even more vulnerable to a breakdown. With new technologies and applications that store digital data, business data exposures are growing so fast that the cost ofdata recovery may easily eclipse the expense of equipment repair and replacement.
INNOVATIVE SOLUTIONS As these trends emerge, they also converge. For instance, aging utility equipment increases the risk of power blackouts; in turn, blackouts increase the risk of damage to the surge-sensitive technology upon which business and industry relies. Faced individually, each trend presents new challenges. But the combination of these risks can threaten a business as never before. It is therefore important for equipment owners to assess their exposures, improve equipment maintenance and operation, develop business contingency plans and include appropriate insurance protection, loss prevention and loss control programs.
MOVING AT THE SPEED OF YOUR BUSINESS Like you, we accelerate in placing the customer’s needs in the fast lane by providing solutions to niche and non-standard accounts. A.M. Fredericks Underwriting Management Ltd. is one of Canada’s leading federally licensed Managing General Underwriters. Our expertise in commercial liability, professional liability and property risks to brokers across Canada is second to none. G G
We underwrite on behalf of: Kingsway General, Temple Insurance, AXA Insurance, Echelon, Economical Insurance, Royal and SunAlliance, Great American Insurance Group.
Toronto Office: 888-302-9215 Montreal Office: 888-351-2994
www.amfredericks.com
Celebrating 15 Years
pg70,72,73,74Equipment_ v3_DG_VM
10/7/08
Much can and is being done to improve the quality and broaden the sources of the energy supply, which is vital to our economic future. Industries dependent on large transformers, for instance, can maximize the lifespan of their equipment with dissolved gas analysis and other testing that can identify transformer defects and help set priorities about repairing, refurbishing or replacing equipment.
PREVENTATIVE MAINTENANCE This is more important than ever, since high demand in China and other fastgrowing countries has driven up the cost and greatly extended the delivery time for new transformers. Most transformers greater than 20 MVA, the size used in industrial plants, are sold out until 2009. Even smaller transformers used in commercial businesses such as shopping malls and office buildings can have delivery times of three to six months. Every business, meanwhile, should
74 Canadian Underwriter October 2008
1:02 AM
Page 74
have an effective electrical preventative maintenance program. It should include a multi-zone surge suppression system for each facility to help prevent breakdowns in the electrical distribution system and protect essential electrical and electronic equipment. Why is this important? The Institute of Electrical and Electronics Engineers (IEEE) reports the failure rate of electrical components is three times higher for systems on which preventive maintenance is not performed. An effective electrical preventative maintenance program also can save energy, reduce the risk of fires, help protect worker safety and improve power quality, which is so important to the operation of electronic equipment and protection of valuable data. Over the past two decades, there has been an increase in the frequency and severity of electrical system breakdowns. Professional engineers can analyze and troubleshoot conditions, while tools
such as infrared and ultrasound testing can help spot potential problems. A qualified and experienced contractor can help a business decide how extensive an electrical preventive maintenance program is needed, based on the characteristics of the facility and the vulnerability of the business.
PLAN FOR CONTINGENCIES In a competitive business environment, with just-in-time delivery systems and maximized productivity, facility up-time is critical to business and maintaining a leadership position in your market. Given global competition, increasing demands for power, an aging infrastructure and the explosion of new technology, business and industry must protect critical equipment and plan for contingencies. Should those protections and contingencies fail, equipment breakdown insurance should be purchased to protect the viability of the business.
Winmar-ClaimsCanada-Oct2008.ai 9/12/2008 3:15:44 PM
SERVICE LOCATIONS ACROSS CANADA GENERAL CONSTRUCTION CONTENT HANDLING & CLEANING CCRN ESPORTA WASH SYSTEM STRUCTURAL DRYING MOULD & ENVIRONMENTAL RESTORATION 24 HOUR EMERGENCY SERVICES
For your nearest location visit our website at
www.winmar.ca
pg76,78Contamination_v1_DG_VM
10/7/08
1:05 AM
Page 76
Total
Recall Businesses involved in the growth, production or preparation of food are looking at ways to respond quickly in the event of a product recall.
Ed Mitchell Senior Underwriter for Product Recall, XL Insurance
Steve Gruler Founder, President, Global Quality Consulting
Upton Sinclair’s 1906 novel The Jungle exposed poor work and unsanitary conditions in the U.S. meat-packing industry, prompting social outrage and eventually the passage of landmark legislation including the Meat Inspection Act and the Food and Drug Act. More than a century later, stories of food safety and contamination are not central to any novel’s plot, but are spreading in news headlines across the globe, including Canada. As a result, businesses involved in the growth, production or preparation of food are looking at ways to reinforce their quality and risk management strategies to avoid any food safety issues and to prepare themselves financially to respond quickly in the event of a product recall.
ADVANCE PREPARATION Advanced preparedness has become essential: regulators are under pressure to do more to reform and implement stricter oversight of food safety in an effort to minimize the increase in recalls over the last few years. One bill already introduced into the House of Commons in April aims to toughen Canadian product-safety laws.The bill’s content is
76 Canadian Underwriter October 2008
similar to the government’s Food and Consumer Safety Action Plan, allowing the health minister to invoke mandatory product recalls, raise fines under the Food and Drug Act and force companies to report injuries, illnesses and defects stemming from their products. More than 837 products were recalled between 2002 and 2006, not including automobiles, drugs and medical devices, according to a 2007 study conducted by the Toronto-based National Quality Institute. Approximately 69% of these recalls involved food. Allergy alerts are the most common reason for food product recalls. The second most common reason, representing about 20% of recalls, is the possibility of a dangerous ingredient or contamination of the food product by bacteria, toxin, virus or some other substance. The price of contamination outbreaks in food can be costly, both monetarily and in terms of the loss of human lives (as Canadians have seen in recent months because of the deadly listeriosis outbreak). When a salmonella outbreak in the United States began in April and sickened more than 1,000 people, tomatoes were thought to be the initial culprit. Consumers avoided buying tomatoes, and tomatoes were dropped from restaurant menus while the incidents were investigated. Although the outbreak appears to be over, the Center for Disease Control (CDC) and state health departments are continuing to conduct surveillance for cases of infection with the outbreak strain. Preliminary results to date support the conclusion that jalapeño peppers were a major vehicle of transmission and serrano peppers also
pg76,78Contamination_v1_DG_VM
10/7/08
1:05 AM
were a vehicle.Tomatoes possibly were a vehicle, particularly early in the outbreak. Contamination might have occurred on the farm or during processing or distribution, but the ultimate cause has yet to be determined. For food producers, having proactive quality systems in place is a key risk management strategy in preventing contamination from happening. It can also, as in the tomato incident, provide key evidence helping to clear the good name of a company or industry quickly, thereby minimizing damage to corporate reputations. Central to this is a company’s HACCP (Hazard Analysis Critical Control Points) plan that focuses on food safety and brand equity while incorporating a product-testing regime that constantly needs to be reviewed.
SUPPLY CHAIN RISK In today’s global market, the supply chain presents significant risk management challenges. Having an appropriate traceability and recall plan in place is critical to managing supply chain risks.At a minimum, the traceability plan must adhere to the “one-step-up, one-step-down” principle, so that the company will know immediately both the person the product (or its ingredients) came from and the next person to whom it has gone. Food companies tend to rely on certificates of analysis that accompany supplied goods. Ultimately it is impossible to remove the supply chain risk, but companies can go a long way towards improving that risk by building in testing programs for supplied ingredients and products, as well as carrying out appropriate due diligence and auditing of suppliers. Some companies look at their recall loss exposure by looking at batches, lots or daily production and create a loss scenario based on testing cycles.This is a very useful way to estimate loss potential. But history has shown irregular and unexpected situations often cause the largest losses. In a contamination situation, the size of the recall will depend on the amount of identifiably affected products. For example, a company that
78 Canadian Underwriter October 2008
Page 78
segments production into small batches, tests each batch and only releases product once test results are known will be in a strong position to prevent a severe loss happening, assuming the contamination is picked up in testing. On the other hand, a company that segments production only into daily production amounts, releases product to the market and only receives test results on those products a week later will be more exposed to suffering a severe loss: at a minimum, it will have to recall the whole week’s worth of production.
For food producers, having proactive quality systems in place is a key risk management strategy in preventing contamination from happening. Likewise, with the supply chain risk increasing, companies could also look to assess the potential impact of a contamination of multiple products by a contaminated ingredient. Due to their processes, some companies will be more exposed to a severity loss than others, but all companies should look to assess that exposure. A sound business continuity plan will have in place contingency plans like back-up suppliers or the maintenance of spare production capacity in plants. In a recall situation, the last thing a company wants is to be left without the ability to get products back on the supermarket shelves quickly. The longer this takes, the higher the potential loss of retailer and consumer confidence and therefore the greater damage to a company’s reputation.
INSURANCE FOR A CRISIS Although product recall insurance is available to address the expenses involved in the physical recall of food products, it is important to look at how coverage responds to addressing the expense and implementation of crisis management. For insurance providers, the question is not only how they can help prepare
their clients to handle associated recall expenses but also to handle changing regulatory requires and best prepare clients to handle a recall crisis situation to protect vital business assets, including their reputation. In a recall situation, however, it is important to note that a company’s General Liability (GL) policy may provide coverage against a third-party claim or product-related lawsuit. GL policies do not typically cover expenses related to product recall losses. A GL policy more than likely does not cover the cost typically representative of a product recall including business interruption expense, overtime and expenses for employees to handle the recall, product disposal costs or redistribution of new products. Often the business interruption loss will be limited to the amount of time it takes a company to restart production after a recall. Loss of customers and damage to the company’s reputation may have a more lingering effect.This is why product contamination insurers see value in not only providing their clients with coverage to help pay for outside communication assistance to address a recall situation appropriately, but often offer up-front communications guidance with public relations experts to develop an appropriate plan of action before faced with a re call, assistance with product security, laboratory testing or even regulatory advice. Although product recall insurance is available from a growing number of insurers, only a small percentage of food suppliers are carrying the coverage. Many still consider product recall insurance to be a form of “luxury” coverage. That misperception is likely to diminish, since there is some talk of regulatory requirements requiring businesses to carry product recall insurance. Traditional product recall insurance will be more of a necessity in the food industry’s risk management plans, but greater attention to quality control and advance crisis management planning is equally important. Being prepared for a product recall in advance of it happening is vital; it is perhaps the difference between disaster and a client’s survival.
REST ASSURED “A new generation in collision repair performance.” At Assured Automotive, we deliver on our promise to provide each policy holder with a quality collision repair. We fully understand that a positive repair experience with us, leads to a repeat policy holder for you! Assured Automotive is the largest corporately owned chain of collision facilities in Ontario and a proven leader in the collision repair marketplace. We have 30 locations throughout the GTA & Surrounding Area. Our growth and sustainability has been fuelled by strong leadership and performance at every level of the company – our production employees, store managers and support staff. Operational consistency allows us to achieve business results which outperform industry standards. Our corporately owned business model puts us in complete control of cost structures and decision making – leading to more predictable performance management outcomes for our customers.
Outperform with Assured!
www.assuredauto.ca
pg80,82CustomSoftware_v2_DG_VM
Opinion/Analysis
10/7/08
1:07 AM
Page 80
Living Policy Change In order for a broker to manage a risk today and in the future, 100% of the information initially collected to underwrite the risk needs to be retained by the broker for future use.
Scott Andrew CEO, Custom Software Solutions Inc.
Following up on a June 2008 Canadian Underwriter article, “Automating Policy Changes: Bringing Life to Change,” the executive of Custom Software Solutions Inc. felt it necessary to share knowledge acquired over the last nine years — knowledge based on its work on a policy change automation project. We have titled this article “Living Policy Change,” as this is what we have done for almost a decade. Custom Software Solutions has a working model in use in more than 200 brokerages across Canada, a model that supports automation of all policy transactions from within a single-entry, multiple-carrier interface (SEMCI), brokerfriendly system. On this basis, we are equipped to address some concerns, facts and issues put forward in the June article. The author of the June article was correct in stating: “Policy change is arguably the most
80 Canadian Underwriter October 2008
complex insurance transaction and represents a weak link in the efficiency of the traditional broker distribution channel. Automation challenges associated with policy change/endorsement for both broker workflow and insurer technology are real and numerous.” Some have likened automated policy change to the Holy Grail, perhaps in equal part due to its perceived great value and elusiveness. But we do not agree with the statement in the article that says: “Future efforts will likely involve a much tighter integration between broker management system (BMS) vendors and insurance companies.” We will explain this concept later in the article.
AUTOMATING CHANGE The task of automating policy change (along with all other transactions) was tremendous; its achievement required a number of strong partners along the way — partners willing to persevere through the ups and downs of a complex and challenging project. We chose one partner insurance company and had buy-in from the partners and staff at our sister broker company. Our project caught the attention of the Canadian Advanced Network and Research for Industry and Education (CANARIE), a Canadian
Toast to Something New! A
CULE Insurance is a Managing General Agent offering insurance coverage, through approved brokers, to the hospitality industry. CULE has an exclusive arrangement with a leading Canadian insurer offering the security of 100% Canadian licensed paper and can insure establishments with up to 100% liquor sales. The proprietors of CULE have been actively involved in the hospitality industry as owners and professionals since 1976. Their personal experience with hospitality establishment’s unique risks and insurance requirements give CULE an inside advantage in developing a product and process dedicated to the distinctive needs of this sector. Provide your clients the very best choice in hospitality insurance coverage. Contact CULE today to show you how.
www.culeinsurance.com 9 Dyas Road Toronto, On M3B 1V7 • 416-384-1616 or toll free 1-877-384-1616 • Contact Ken Rayner at ken@culeinsurance.com
CULE/MC7548/CLC.indd 1
10/3/08 12:07:26 PM
pg80,82CustomSoftware_v2_DG_VM
10/7/08
1:07 AM
not-for-profit corporation mandated to facilitate improved Internet access and develop the use of next-generation research networks and the applications and services that run on them. CANARIE is supported by its members, project partners and the Government of Canada. CANARIE’s E-Business program provided Cdn$1.175 million in research and development in 2003.
Current solutions are designed to allow policy issuance and policy change processing with exception-only underwriting within a SEMCI environment. Automating policy change starts where the broker starts — the point of sale with the client. The broker collects all the necessary data to underwrite and rate the risk at this point. The rating and underwriting tool the broker uses must retain this information: any future change requires all the information be used again to underwrite and rate the risk, facilitating an automated point of sale change. Existing BMS systems do not have the ability to retain all the data, underwrite, rate and incorporate business and business process rules. The bottom line is they cannot facilitate change requests within a SEMCI environment.
ORIGINS OF I-BIZ Our existing rating and underwriting module (Intelliquote – IQ) was extended to develop this automated transaction solution, which we refer to as I-Biz. The broker facilitates the change from within their system, ensuring accuracy and limiting errors. In addition, through I-Biz, brokers are able to calculate change premium for the client at the point of sale. This solution electronically exchanges 100% of the edited and
82 Canadian Underwriter October 2008
Page 82
underwritten risk data — or a subset of this data, depending on what the insurance company requires — from the broker’s system to the carrier insurance company.This allows policy issuance and policy change processing with exception-only underwriting intervention within a SEMCI environment. The processed policy data then flows back to the broker’s office and automatically updates the broker’s policy/client management, accounting and billing systems (non-vendor specific).These transactions can happen in real time or with a batch system, depending on the insurance company’s back office systems and business rules. In order for a broker to manage a risk today and in the future, 100% of the information initially collected to underwrite the risk needs to be retained by the broker for future use. IQ, and by extension I-Biz, was designed around the broker-client point of sale; it allows the broker to build on the information collected in each step of the underwriting process, requiring entry of each data element only once.This evolution in data collection and management — including its dynamic interaction with the companies’ rating and underwriting philosophies and concepts — is known as Dynamic Data Standards Management (DDSMS). It forms the basis for the design of IQ. IQ/I-Biz is designed in a modular format capable of being integrating with other BMS systems. This concept allows brokers to receive all the benefits of IQ/I-Biz and its electronic data exchange capability, but at the same time retain their investment in their current systems. I-Biz is a product and workflow that allows both the broker and the insurance company to become more efficient and competitive in the industry. Feedback from the 200 brokers running I-Biz has been very positive: reports include
evidence of increased revenue and lower expense ratio related to streamlined sales, renewal and administration processes. Company benefits include reduced processing, entry, underwriting and errors on both new business and policy changes.This, in turn, leads to increased support from brokers.
FUTURE CHALLENGES In developing this working solution, many challenges have been dealt with on both the broker and company sides. Policy sequencing and coverage item re-ordering was solved; missing data was filled using assumed values provided business rules allowed for it. Underwriter intervention was streamlined based on insurance company and broker rules to minimize human interaction and improve efficiencies. The I-Biz process and workflow embraces the broker vision of SEMCI for all transactions. Next steps include an insurance company product called I-Broker, which places the I-Biz tools in a company’s Web site, thereby allowing
Next steps include an insurance company product that will allow insurers to offer brokers transaction processing through a SEMCIstyle portal. an insurance company to offer brokers transaction processing through that portal.This product is an available add-on to I-Biz, so companies can offer an automated solution to their brokers whether they use IntelliQuote or not. Custom Software Solutions and its partners are pleased with the progress made to date on creating a SEMCI broker solution for all transactions including the difficult policy change request
Brokers – Get satisfied! An alternative to making a claim IICRC certified professionals will provide an opinion with respect to cause and severity All initial site inspection estimates and appraisals will be provided at no cost On-site same day visit or within two hours of an emergency call
pd
s.c
a
Adding value to your customers while reducing claim frequency
Get Satisfied Brokers 8.125x10.81 1
Helping you get satisfied
24-HOUR NATIONAL RESPONSE CENTRE 800-661-5975
3/12/07 2:35:14 PM
pg78,80FrankCain_v1_DG_VM
Opinion/Analysis
By Frank Cain Michael Palermo & Associates Insurance Ltd.
10/7/08
1:09 AM
Page 84
p Ha py Days There was once a time when the public made claims that realistically mirrored the true value of the loss. But now the insurance product is too often used as a means to claim for any imaginable hurt, no matter how small. There was a time in the insurance industry when auto insurance consisted of seven rating groups — including farmers and the clergy — and yet everybody applying for insurance was able to fit in and be rated for premium.There was also a time when large claim settlements and court awards were unheard of — at least until as recently as the early 1970s, when an industrial accident claim was settled for an amount approaching Cdn$230,000. Prior to that claim event, one’s impression of life conjured the idea that being alive was idyllic;
84 Canadian Underwriter October 2008
that promoting the benefits of moderation, temperateness and tranquility would ultimately cause these qualities to infuse themselves into every element of living. It might be true to say the ’50s and early ’60s represented a certain era of idealism. At that time, looking forward 50 years into the future, one predicted cars that could levitate, travelling above the road; a computer system that would do the work of an underwriter and a typist (all hail the early IBM 305 RAMAC, the first commercial computer that used a hard disk drive — unless there were more than two changes to a policy within the annual term) and fins on a Cadillac that portended even more futuristic designs — like pods made of clear plastic, for example, that would become the standard of the auto industry, mimicking the cartoon Jetson’s family’s mode of travel. None of this actually happened, of course, notwithstanding our advancements in computerization. What did happen was a change in the way people lived or thought about living, and the
CFI INS Fp Ad
10/1/08
11:30 AM
Page 1
From out of the West comes an insurance group like no other! Our Service Standard Is: We Have a 48 Hour Turn-Around Policy • General Commercial Division Commercial Property & Liability
• Special Programs
• Livestock Division
• Farm Property Division
Animal Mortality
Farm/House Program Feed/Seed/Grain Mills
• Professional Liability Division
Oil & Gas Consultants COC Program Motor Truck Cargo
E&O CGL Property Combined
• Contingency Division Double Eagle Golf Products PS Plus Special Events Insurance
We Are 100% Canadian Owned & Canada Wide FOR A COMPLETE LIST OF ALL OUR DIVISIONS AND PRODUCTS, VISIT:
www.cfiunderwriters.ca Or call: 780-448-0100 Toll-free: 1-877-472-8678
Ontario Branch: 905-832-6912 Toll-free: 1-866-839-6912
CFI Underwriting Managers *
pg78,80FrankCain_v1_DG_VM
10/7/08
1:09 AM
increase in accidents and attendant claim awards (both in and out of court) for all manner of disasters, whenever and wherever they struck. It’s possible the end of World War II brought about a wave of self-satisfaction, feeding the concept that things could only get better. The early vagaries
Years ago, it was not necessary to cloak a claim in exaggerated damage dollars or an extravagance of pain and suffering. of life and its concession to the confinements of the war years no longer had a stranglehold on people; they were free to wear the proverbial rose-coloured glasses. This way of thinking might have lasted for a longer time had it not been for change that started to set in.The cultural shift could be attributed to any number of events: the police action of the Korean conflict, followed by the Vietnam war and other war-like activities throughout the world; the so-called ‘Flower Children’ of the ’60s; race riots; and a general and generous flaunting of authority engendered by the observation of the sheer lawlessness of war catapulting fringe elements into full-blown anti-authority mind sets. It was once expressed that in all the recorded history of the world, some 5,000 years, there is only a total of about 250 years when there has been no war. The corollary is that peace is liable to break out at any time.
INSURANCE: USES AND ABUSES Is it true, then, to say that the way of modern living and the state of the world within the last 40 years have had a lasting effect on the way people think? Drawing an analogy, could the insurance product in some way help
86 Canadian Underwriter October 2008
Page 86
to explain the contemporary tendency to make claims against one another as soon as disaster strikes? If the answer is ‘yes’, then insurance has fulfilled a remarkable responsibility, albeit for the wrong reasons (or nearly all of the wrong reasons). It is not insurance that is ‘wrong,’ but rather the use of it by those who find a satisfaction in claiming for a hurt, no matter how small. Based on its potential to be abused, insurance has been dissected to discover its soul, pulled into all manner of shape to prove its faith, tested for its legality, questioned for its intention and measured for its purpose as a saviour against catastrophe. It has come though all of this and more with a smile on its face. There was once a time when insurance acted as a guard against true and pure financial disaster. Its use was reserved for claims of provable calamity. It provided protection against medically factual debilitating injury and against other situations and circumstances that bore the mark of realism, based on incontrovertible truth of loss and/ or damage. In those times, it was not necessary to cloak a claim in exaggerated damage dollars, an extravagance of pain and suffering nor the fictitious permanency of its effect on one’s health. In fact, in those days, claimants were happy to get better. Whatever they received for their loss counted not as vindication against wrong-doers, but rather as a simple substitution without malice of a dollar spent for a dollar gained. Claimants in those days discarded the crutches, removed the bandages, ignored the scars and promised themselves to do better the next time. It did not take a lawyer, accountant, medical referee or a boardroom of dynamic directors to decide upon quality or quantum of dollars to be paid. Claims were a private matter between the insurer and the insured.They were paid as
direct compensation to policyholders, expensed calmly and ideally, with all concerns satisfactorily managed and controlled. The specter of loss dollars expanding in order to cover the costs created by a claim ballooning out of all recognizable proportion would have been viewed as bordering on malfeasance.The broken bones, lesions and the property damage have not changed over the years. But the manner in which they are accepted as trade-ins for dollars is a novelty. These days, dollars perpetuate within the insurance system as charge-backs, continuing as they do in an ever-upward spiral. Take, for example, the premium for a school bus in early 1970. A 72-passenger yellow school bus at that time could be insured for Cdn$90, while a new Chev sedan was no more than Cdn$150.
There was a time when insurance acted as a guard against true and pure financial disaster. These were not suppressed premiums. They were not premiums that failed actuarial tests. They were not premiums deliberately set as a stunt to encourage new business. They were the premiums of the day, encouragingly offered and happily accepted. If there had been even the least amount of suspicion that the level of premium would eventually destitute the class or the insurer’s treasury, it did not come close to a thought, embryonic or otherwise. The system that has developed of claiming far beyond the real value of loss or damage is symptomatic of a public that has been hand-led into a realm of aggrandizement of fact and artificial reasoning. No claim should be worth more than its intrinsic value.
CAIW/AB/CUW
10/1/08
4:25 PM
Page 1
Congratulations to Insurance Award Winners in Brandon June 2008: Insurance Information Week Award Sponsored by Aviva Insurance: Nova Scotia Insurance Women’s Association Essay Contest Award Sponsored by Wawanesa Insurance Company: Robin Payeur - Manitoba Insurance Women Assocation Public Speaking Contest Award Sponsored by ING Insurance: Cheryl Morton – Toronto Insurance Women’s Association. Travelers Education Award Sponsored by Travelers Insurance: Toronto Insurance Women’s Association. Cowan Insurance Award Sponsored by Cowan Insurance Brokers: Manitoba Association of Insurance Women
CAIW would like to say a very special THANK YOU to the Sponsors & Donors of our 2008 Convention held June 11-15, 2008 in Brandon, Manitoba. Our events are only successful through this generous support: ING Insurance Company of Canada Wawanesa Insurance Company Manitoba Public Insurance Company Belron Canada Kenneth Swan of Origina and Cause Inc. Custom Software Solutions Inc. Modern Earth Web Design Compu Quote Insurance Institute of Canada Hamilton District Insurance Association Crawford Adjusters Canada Insurance Professionals of Calgary London Insurance Professionals Association SGI Canada Red River Valley Mutual Insurance Company Portage La Prairie Mutual Insurance Company First On Site Restoration Swiss Reinsurance Company of Canada Nova Scotia Insurance Women’s Association Peace Hills General Insurance Company The Dominion of Canada Aviva Insurance Company of Canada Saskatchewan Mutual Insurance Company
Grain Insurance & Guarantee Company Dick Agencies Insurance Brokers AMI – Autoglas Maintenance Inc. Insurance Women of Western Manitoba Manitoba Association of Insurance Professionals Encon Corporate Marketing CGI Adjusters Inc. Federated Insurance Company of Canada Montreal Association of Insurance Women Toronto Insurance Women’s Association Westprotect Insurance Agency Ltd. Boiler Inspection and Insurance Company Standard Insurance Brokers Ltd. Northwestern Ontario Insurance Professionals Insurance Brokers’s Association of Manitoba Barker Agencies Western Financial Group James Dube Spraggs Adjusters Ltd. Trans Canada Insurance Marketing Four Corners Associates Westman Claims Adjusters Ltd. Edmonton Insurance Association Fillmore Riley We sincerely apologize if we missed you in our “Thank You” for your generous support list.
The 2008-2009 CAIW Executive and Directors
w
We look forward to seeing you June 3 – 7 2009 in Toronto, Ontario
pg88,91Avanade_v1_DG_VM
10/7/08
1:11 AM
Page 88
The Intelligence
of Using
B.I. Stephane Frechette
Business Intelligence (BI) is a technological tool that allows insurers to do things with their data that are typically very expensive and are therefore overlooked as a means to increase competitive advantage
BI Capability Specialist, In the face of uncontrollable market factors such as extensive consolidation, heightened competiPrincipal Consultant, tion and an unpredictable economy, insurance Avanade Canada companies must look for new ways and new tools to help them adapt. Insurers need to be agile and able to anticipate customer needs to maintain a competitive edge. Amid this market turmoil and the continued drive for success, one thing
88 Canadian Underwriter October 2008
remains constant: insurers are custodians of massive amounts of valuable customer data. Having the means to turn this data into a strategic business advantage is the key to creating improved customer service and developing new products that meet their needs. Enter business intelligence (BI). BI refers to sets of technology tools that can help insurers do things with their data that are typically very expensive and are therefore overlooked as a means to increase a companyâ&#x20AC;&#x2122;s competitive advantage. BI allows for better capture, management, analysis and extraction of the hidden value of corporate data. It provides a deeper level of insight into raw data in its various forms and locations.With a better understanding of customer demands, BI turns what would otherwise be a risky guessing game into strategic, informed decision-making about tailored products that meet the needs of the market. With that in mind, consider the challenge faced by agents and insurers every day. The business landscape is diverse and business owners expect policies to be specialized. Understanding the finer points of a prospective customerâ&#x20AC;&#x2122;s business can be a daunting task for any agent, and can be the difference between gaining or losing a client. For example, nearly 98% of Canadian businesses are classified as small- to mid-sized. Segmenting this large group according to the type of business, personal attributes, profit potential, and even attitudinal information that will help shape a sales pitch, is an essential first step in drawing up a suitable policy.
WWW SERVICEMASTER CA
)XOO 3J 'LVDVWHU $G LQGG
30
CU Seminar ad Oct 2008
9/9/08
9:52 AM
Page 1
Putting the pieces together.
Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
Nationally
CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country: Newfoundland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 1 PEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 5 Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 6 New Brunswick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 7 IIO – Cambrian Shield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 10 IIO – Georgian Bay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 11 IIO – Northwestern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 12 IIO – Southwestern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 13 IIO – Ottawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 14 Manitoba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 18 Saskatchewan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 19 Southern Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 20 Northern Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 26 British Columbia – Vancouver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 27 British Columbia – Victoria Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 28
Toronto PROedge Seminar: Insurance Trends Through Financial Eyes . . . . . . . . . . . . November 12 PROedge Seminar: Directors’and Officers’Insurance . . . . . . . . . . . . . . . . . . . November 25
London PROedge Seminar: Leading Insurance Cases of 2007–2008 . . . . . . . . . . . . November 13
CIP Society Events Hamilton - 6 Degrees of Insurance Industry (Industry Reunion) . . . . . . . . . November 6 London - London Knights vs Owen Sound Attack . . . . . . . . . . . . . . . . . . . . . November 7 London - Corporate Challenge - Palasad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TBA Kitchener (St. Jacobs) - Night at the theatre - “Forever Plaid” . . . . . . . . . . November 12 London - London Knights vs Belleville Bulls . . . . . . . . . . . . . . . . . . . . . . . . December 12
Career Connections “Feed the Minds of Youth” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 5
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
pg88,91Avanade_v1_DG_VM
10/7/08
1:11 AM
In the absence of BI tools, an agent might be forced to rely on several people to search manually for data in a number of places on the corporate network. If they manage to source the requested information and its quality is good, the
Sales teams can use BI to assess new business performance and quickly correct their course if and when losses are incurred. next step would be to manually analyze it in an attempt to derive insights that may help to determine risks or opportunities to up-sell. Instead of employing a fast, automated, easy-to-understand BI solution — one that features a single point of reference — an agent may find himself or herself slowly fumbling their way through a tedious patchwork of systems that may or may not reveal useful information. Not only is this labourintensive guesswork a significant risk to the insurer, but it’s usually enough to make a customer take their business to a more informed agent.
WHERE DOES THE DATA COME FROM? In simple terms, information drives the insurance industry. Data is the basis for market reports, customer profiling, research and product profitability. It also allows for statistical analysis, aligning budgets and is a core part of compliance regulation. Years of corporate mergers and acquisitions have created increasingly complex “melting pots” of corporate cultures and consequently a mix of IT systems and the data that reside within them.This complexity creates “silos,” or self-contained pools of difficult-to-access data, making the completion of these important tasks very difficult, costly and time-consuming (not to mention inaccurate). As a result, the ability of insurance company product developers
Page 91
and outside agents to do their jobs falls short of what the market demands. Navigating these challenges in order to develop better- tailored customer products requires new technology tools. BI is the key to unlocking these complicated problems. Rather than a stumbling block, data management becomes the foundation for any insurer.
UNDERSTANDING CUSTOMERS BETTER Customer service within the insurance industry has traditionally been viewed as an area in need of improvement. In fact, only 56% of the 18 Canadian property and casualty executives interviewed by Financial Insights researchers listed it as a top concern. As demographics shift, gaining insight into customer needs must be a priority if agents expect to acquire new customers, cross-sell, up-sell or simply retain the customers they already have.Thankfully, the road to a more customer-centric business model can be a short one. Smart, tailored insurance products can dramatically improve customers’ perceptions of quality and service delivery. BI’s integrated technology gives agents a more comprehensive picture of their customers. More importantly, it allows agents to respond to customer requests and queries quickly. Using the time BI can save, agents can spend more time with their clients. In addition, new products will become more profitable as go-to-market costs decrease.
INFORMATION = AGILITY Streamlining processes, efficiency gains and faster response time are not the only goals when using BI to address the problems of inherited, disparate legacy systems. It’s also about mining information to maximize all opportunities and potential returns. More detailed and accurate data give employees the tools to identify and respond to market trends. For example,
comprehensive detail presented through the use of BI will allow underwriters to assess risk distribution easily and according to multiple variables such as geographic area and age demographics. Actuaries, claims departments and even marketing teams can take advantage of standardized reports and data measurement, giving them the flexibility to react to and even predict changes in the marketplace. Forward-thinking companies have been very effective in identifying how BI technology can improve their business. With hundreds of thousands of transactions per month and several terabytes of data to manage, insurers have leveraged BI products as a strategy for arming employees with precise detail to be more self-sufficient and accurate decisionmakers. Sales and marketing teams can use BI to assess new business performance and quickly correct their course if and when losses are incurred.
In the absence of BI tools, an agent might be forced to rely on several people to search manually for data in a number of places on the corporate network. Insurance is not a one-size-fits-all matter. Customer interaction and policy writing, product development, risk assessment and remaining competitive in the face of tough economic headwinds means insurers have to make smarter decisions about putting their data to work for them. The day of the unmanageable and inaccessible pool of data is long gone. BI technology represents a quicker path to creating competitive and strategic informational assets, amounting to time saved, intelligence gained, employees empowered and customers satisfied.These business imperatives can make the biggest difference between business gained or lost.
August 2008 Canadian Underwriter 91
pg92,93M&V _v2_DG_VM
10/7/08
1:13 AM
Page 92
MOVES & VIEWS
UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
The most recent Canadian Underwriter online poll posed the question: Should guaranteed replacement cost coverage be discontinued? Only 32.62% of the 282 respondents believe that it should be discontinued, while 67.38% say no, keep GRC coverage around.
NO 67.38%
YES 32.62%
2
Mark Yakabuski has resigned as president and CEO of Insurance Bureau of Canada (IBC). “Having established a strong strategic course for the organization as president and CEO, he is leaving after 15 years of service to IBC in order to pursue new challenges,” IBC said in a public statement. Yakabuski became president and CEO of IBC after his predecessor, Stanley Griffin, retired at the end of 2007. He joined the bureau in 1993, in its newly established policy development division in Toronto. He was named IBC’s
92 Canadian Underwriter October 2008
director of government relations in 1995 and was sent to Ottawa to open IBC’s first office in the nation’s capital. Randy Bundus, IBC’s vice president, general counsel and corporate secretary, has been appointed acting president. IBC says the recruitment process to replace IBC its president is already underway.
3
Felicity Alexander will be retiring this year after 24 years as the Insurance Brokers Association of Canada’s office manager and manager of member services. At IBAC’s 2008 annual general meeting in Halifax, Alexander received praise for her 24 years of dedication and volunteer service to Canada’s independent broker channel. At a Shore Club dinner in Halifax, the association’s current and past executives gathered onstage to perform a type of swan song for Alexander, a rendition of the song ‘Wind Beneath My Wings.’ Alexander referred to the song’s lyrics once when describing her role at IBAC to members of the association’s senior executive members. “I am the wind beneath your wings,” she said, in an effort to deflect attention away from the praise she was receiving from IBAC’s CEO for her out-
3 standing work over the years with IBAC.
4
Jim Haskins has been appointed Aviva Canada Inc.’s executive vice president of claims and procurement. He has more than 17 years of experience in the property and casualty industry. Most recently, Haskins was the senior vice president of the claims division of The Hartford Financial Services Group, based out of Hartford, Connecticut. Prior to joining The Hartford, he held increasingly senior roles in regional claims operations for Progressive Insurance.
5
The Shumka Group has new corporate identities for itself and its three operating companies, SCM Adjusters Canada Ltd., Forensic Investigations Canada (FIC) and Risk Management Services (RMS). Two new company names have been announced: the parent company, previously known as The Shumka Group, will now be known as SCM Insurance Services (SCM). The operating company, SCM Adjusters Canada Ltd., will become
4 ClaimsPro (IndemniPro in Quebec). The names of the other two operating entities, FIC and RMS, remain unchanged. “Recent events have provided us with a unique opportunity to review our operations and refresh the branding for all our companies with a more unified look and feel,” said Larry Shumka, president and CEO of SCM.
6
Steve Starna has been appointed branch manager in the Montreal office of Environmental Solutions Remediation Services (ESRS). He has experience as a geologist and project manager for Phase II environmental site assessments, site remediation projects and groundwater monitoring programs that range in scope from a few thousand dollars to more than half a million dollars. ESRS has also opened a new Brockville, Ontario office, which will be managed by Terry Congram. Transferring from the Ottawa office, Congram has been a member of ESRS since January of 2004. Congram has extensive governmental, corporate manage-
pg92,93M&V _v2_DG_VM
10/7/08
1:14 AM
Page 93
MOVES & VIEWS
the additional role of CEO following the resignation of Roger Egan for undisclosed reasons.
9a
9b
11
9
10a
10b
ment and investigative experience. He also manages a wide range of environmental remediation projects, including transportation and residential petroleum hydrocarbon spills, mould and asbestos abatement.
branch manager for Cunningham Lindsey Canada Claims Services Ltd.'s operation in Owen Sound, Ontario. Glass has more than 28 years of experience in the insurance industry. Most recently, he has been an assistant claims manager for a major insurer.
7
Cunningham Lindsey Canada Claims Services Ltd. has opened an office in Kelowna, B.C. and has appointed Scott Jordan as district manager. Jordan has spent 10 years with the Insurance Corporation of British Columbia as a special investigations unit officer and special constable for the province. He has worked for two large adjusting firms in B.C. as a senior claims adjuster, adjuster in charge, and most recently as regional branch director for the Okanagan and Interior. Brian Glass has been appointed
8
Glenn Penny has been appointed vice president of claims at Kingsway Financial Services Inc. In the newly created role, Penny will be responsible for the oversight of claims functions, including building claims capabilities and common practices throughout the Kingsway Group. Penny has 24 years of claims experience, most recently as vice president of claims with a major Canadian personal and other specialty lines insurer.
11
John Chippindale [9a], has joined HKMB Hub International in the role of vice chair. Most recently he served as Integro (Canada) Ltd’s former managing director and president. Prior to joining Integro (Canada) in 2005, Chippindale was Marsh’s Canadian chairman. Also, Pierre Simoneau [9b] has rejoined Hub International Limited as president and CEO of Hub Quebec. Simoneau was previously with Hub for two years as senior vice president of operations of Hub Quebec before taking a brief hiatus.
10
Robert Dunn [10a] has been appointed chairman of Integro (Canada) Ltd. He is currently the managing principal and office leader for the firm's Montreal office. Mark Rankin [10b], managing principal, has been named president of Integro (Canada) Ltd. and office leader for Toronto. Integro's Vancouver office will report to him as well. Peter Garvey, president of Integro Insurance Brokers, has assumed
Catlin Group Limited has appointed Michael Hansen as president of Catlin Canada Inc. He will be based in Catlin’s Calgary office. Hansen most recently served as vice president and Western regional manager for Catlin Canada in Calgary. He also serves as co-leader of Catlin’s Aerospace Business Group, which includes Catlin’s aviation insurance operations worldwide. He succeeds Michael Willis, who has served as president of Catlin Canada in Toronto since its formation in 2005.
12
Plant Hope Adjusters has opened an eighth office in the Atlantic region, this one in Grand Falls, New Brunswick. Lise Frenette, whose career has spanned 22 years, has been appointed branch manager of the new office. Stephen LeBlanc, who began his adjusting career in 1981 and has been with Plant Hope for 10 years, has been appointed branch manager of the Fredericton office. Luc Aucoin, whose loss adjusting career began in 1998, has joined the Moncton office. Kelly Roberts started his independent adjusting career in 1993 and has teamed up Ray Aucoin in the Bathurst office.
October 2008 Canadian Underwriter
93
pg94-106Gallery_v1_DG_VM
10/7/08
GALLERY
More than 350 members of the Honourable Order of the Blue Goose flocked to Niagara Falls, Ontario in July to attend the 102nd Annual Grand Nest Convention. Ganders from International Ponds gathered to celebrate the 100th Anniversary of the Ontario Pond at the event. “This is an exciting time for Blue Goose,” said Jack Fitch, 2008’s Most Loyal Grand Gander. “Our Honourable Order is gaining momentum in its second century. We have seen new Ponds form and have welcomed members from Australia into our Order.”
94
Canadian Underwriter October 2008
2:46 AM
Page 94
pg94-106Gallery_v1_DG_VM
10/7/08
2:46 AM
Page 95
GALLERY
Mr. Jean-Claude Pagé, President and Chief Executive Officer, Optimum General Inc., is pleased to announce the following appointments: Martin Carrier, as Executive Vice-President for Optimum General, will oversee Branch and Insurance Operations and Business Development. Martin, who has been with the Optimum Group since 1997, has held a number of senior positions at Head office as well as in our Vancouver office. He is a Fellow of the Casualty Actuarial Society and of the Canadian Institute of Actuaries. His extensive knowledge of both national challenges and regional issues will undeniably help to reach our growth and profitability goals. Paul Tremblay, as Senior Vice-President, Finance and Actuarial Services for Optimum General, will head the accounting, finance and actuarial services departments. Paul is a seasoned professional of the Insurance industry and has been with the Optimum Group since 1999, holding a number of senior positions within the actuarial and finance fields. His competence and experience will continue to be a definite asset to our management team.
Stéphane Bibeau, as Vice-President, Branch Operations and Information Technology for Optimum General, will oversee Branch Operations in Quebec and will be in charge of Information Technology. Stéphane has a legal background and an MBA as well as a vast experience in business and management. He understands well the stakes associated with Information Technology and the importance of continuing to expand our offer relating to electronic exchanges with brokers. We look forward to Stéphane’s contribution to the achievement of our future successes. Optimum General Inc. is a Canadian company that underwrites property and casualty insurance primarily in Canada through three subsidiaries: Optimum West Insurance Company (British Columbia, Alberta, Yukon), Optimum Insurance Company Inc. (Quebec, Ontario, Manitoba, Saskatchewan, Northwest Territories, Nunavut) and Optimum Farm Insurance Inc. (Quebec). The distribution of those subsidiaries’ products is ensured by a large network of independent insurance brokers. Optimum General Inc. is a member company of Optimum Group, a Canadian-owned international financial group also active in life insurance, life reinsurance, actuarial consulting and asset management.
A Canadian insurer with a personal touch October 2008 Canadian Underwriter
95
pg94-106Gallery_v1_DG_VM
10/7/08
GALLERY
The Insurance Brokers Association of Canada (IBAC) held its 2008 annual general meeting at the Lord Nelson Hotel in Halifax, Nova Scotia. The social program on Sept. 19 started with a traditional pub fare lunch at the Middle Deck restaurant, followed by an afternoon Harbour Cruise under sunny skies aboard the Tall Ship Silva. After reaching shore, the group boarded a bus and headed out to the Shore Club for a traditional lobster meal. Prior to eating the lobsters, several IBAC representatives were handpicked to participate in the lobster races, with proceeds of the betting going to the Terry Fox Foundation. Using poles provided by the restaurant, IBAC representatives banged the bottom of a water tank as a means to move the lobsters from one end of the tank to the other. Disqualifications abounded, as IBAC vice president Andrew Walker actually picked up fellow contestant Jane Stack, IBAC director Garry Stack’s wife, on the word ‘Go’ and moved her out of harm’s way.
96
Canadian Underwriter October 2008
2:50 AM
Page 96
pg94-106Gallery_v1_DG_VM
10/7/08
10:23 AM
Page 97
APPOINTMENT
GALLERY
David H. Laidley
Mary Theresa McLeod
Warren Moysey, Chairman of the Board of Directors, Aviva Canada Inc. is pleased to announce the appointments of David H. Laidley, Mary Theresa McLeod and Michael M. Shaw as Directors of the company, effective immediately. Mr. Laidley, FCA, is a former chairman of Deloitte & Touche LLP and has a broad background in accounting, auditing and business. He was appointed Chairman Emeritus when he completed his term as Chairman of Deloitte & Touche LLP in 2006, and is currently the Chairman of Deloitte's global captive indemnity insurer, headquartered in Bermuda. He is a member of the Order of Chartered Accountants of Quebec and currently sits on the Board of the Bank of Canada. Ms. McLeod, B.A., M.B.A., C.F.A., is an investment banking professional specializing in public utility finance. She has been a Commissioner for the Ontario Securities Commission for seven years, and was founder and president of the McLeod Capital Corporation. She held senior investment banking positions with ScotiaMcLeod Inc., Merrill Lynch Canada Inc. and Pitfield, MacKay, Ross & Company Ltd. She holds Board positions with Wescast Industries Inc. and is a member of the Independent Review Committee of Investors Group Financial Services Ltd.
Michael Shaw
Mr. Shaw, B.Comm, is Managing Director, Global Enterprises & ATCO Ltd. Corporate Development. His 29-year business career with ATCO Group - a worldwide organization of companies active in power generation, utilities and global enterprises - has included a number of executive-level positions, including President of ATCO Structures, ATCO Midstream, and ATCO Frontec. Mr. Shaw serves on the Board of Directors of Chariot Carriers Inc. and Great Western Brewing Company Limited. He is also a member of the World Presidents' Organization. Both Mr. Laidley and Ms. McLeod will join the Audit and Investment Committees of Aviva Canada's Board. Mr. Shaw will join the Conduct Review Committee. Aviva Canada Inc. is one of the leading Property and Casualty insurance groups in Canada, providing home, automobile and business insurance to more than three million customers. Our group of companies has more than 3,300 employees, 40 locations and more than 3,000 independent broker partners. Aviva Canada products and services are delivered across the country under the following brands: Aviva, Aviva Pilot, Aviva Traders, Aviva Elite, Aviva Scottish & York and through S&Y Insurance Company. Aviva Canada Inc. is a wholly-owned subsidiary of UK-based Aviva plc, the world's fifth largest insurance group. Please visit our web site at avivacanada.com and our innovative web tool at changeinsurance.ca.
October 2008 Canadian Underwriter
97
pg94-106Gallery_v1_DG_VM
10/7/08
GALLERY
The Canadian Independent Adjusters’ Association (CIAA) held its annual general meeting in Prince Edward Island Sept. 11-14, 2008. Delegates golfed, attended the Ballad of Stompin’ Tom in Charlottetown, had a lobster and steak dinner at the Stanhope Bay and Beach Resort and took a trip to the historical Dalvay by the Sea, where Reno Daigle was inaugurated as president of the association. “It is with pleasure that I pass to you the gong of office,” CIAA immediate past president Fred Plant said, handing over the presidential reins. “Wear it with pride — I did.” During his term as president, Daigle will work to bring continuing education to all provinces (currently only some provinces require licensed adjusters to complete credit hours). In addition, he will work to address a shortage of adjusters within the industry.
98
Canadian Underwriter October 2008
10:24 AM
Page 98
pg94-106Gallery_v1_DG_VM
GALLERY
10/7/08
10:24 AM
Page 99
APPOINTMENT
Jim Haskins Robin Spencer, President and CEO of Aviva Canada Inc. is pleased to announce the appointment of Jim Haskins to the position of Executive Vice President, Claims and Procurement, effective September 22. Mr. Haskins will lead the national claims and procurement operations, including the development of strategies and initiatives that deliver an innovative and differentiated claims experience to Aviva customers. Mr. Haskins possesses strong strategic and leadership skills, customer focus and operations management experience. He joins Aviva Canada after 17 years in the P & C business of two major U.S. insurance companies. Most recently, he held the position of Senior Vice President, Claims Excellence with The Hartford Financial Services Group, based out of Hartford, Connecticut. In this role, he was accountable for leading claims service transformation initiatives designed to drive continuous improvement and build competitive advantage for The Hartford. Prior to joining The Hartford, Jim held increasingly senior roles in regional claims operations for Progressive Insurance. While there, he played a leadership role in the launch of their innovative claims concierge service model. Mr. Haskins holds a Bachelor of Science degree from Auburn University in Montgomery, Alabama.
Aviva Canada Inc. is one of the leading Property and Casualty insurance groups in Canada, providing home, automobile and business insurance to more than three million customers. Our group of companies has more than 3,300 employees, 40 locations and more than 3,000 independent broker partners. Aviva Canada products and services are delivered across the country under the following brands: Aviva, Aviva Pilot, Aviva Traders, Aviva Elite, Aviva Scottish & York and through S&Y Insurance Company. Aviva Canada Inc. is a wholly-owned subsidiary of UKbased Aviva plc, the world's fifth largest insurance group. Please visit our web site at avivacanada.com and our innovative web tool at changeinsurance.ca.
October 2008 Canadian Underwriter
99
pg94-106Gallery_v1_DG_VM
10/7/08
2:50 AM
APPOINTMENT
Ken Rayner
C U L E INSURANCE CANADIAN UNDERWRITERS FOR LICENCED ESTABLISHMENTS INC.
The owners of CULE Insurance are pleased to announce the appointment of Ken Rayner CIP as President of CULE. Ken brings many years of experience in the property and casualty business to this new position. Holding such senior positions as president of Omega General Insurance Company and Regional President of SIAA Canada. CULE Insurance is a Managing General Agent offering insurance coverage to the hospitality industry. The owners of CULE have been actively involved in the hospitality industry as owners and professionals since 1976. Their personal experience with hospitality establishmentâ&#x20AC;&#x2122;s unique risks and insurance requirements give CULE an inside advantage in developing a product and process dedicated to the distinctive needs of this sector. CULE has an exclusive arrangement with a leading Canadian insurer offering the security of 100% Canadian licensed paper and can insure establishments with up to 100% liquor sales. To find out more about CULE Insurance (Canadian Underwriters for Licenced Establishments Inc.) or to see if you qualify to represent CULE, please contact Ken at 416-384-1616 or ken@culeinsurance.com
Page 100
GALLERY
The Canadian Insurance Claims Managers Association (CICMA) established its executive at its annual general meeting Sept. 12-15 in St. Johnâ&#x20AC;&#x2122;s, Newfoundland. The newly inaugurated executive for 2008-2009 includes past president Ron Bouwmeister, Aviva Canada (Toronto, Ont.); president Ralph Best, Munn Insurance (St. John's, Nfld.); vice president Linda Brunette, Allstate Insurance (Montreal, Que.); treasurer Lyndon Frieson, Red River Valley Mutual Insurance (Altona, Man.); and secretary John Saragosa, Federated (Mississauga, Ont.).
See all of our Insurance Industry Event Photos Online within the ONLINE PHOTO GALLERY at
canadianunderwriter.ca/gallery
Sound Insurance Services Inc. seeking Producers with book of business; Ownership with favourable purchase options. Brokerage purchase or affiliation with purchase Option also available. Simply Contact Gil Constantini, CCIB 416-756-3334 x 401 or 1-888-756-3334 x 401; Email: gilc@soundinsurance.ca
www.culeinsurance.com
100 Canadian Underwriter October 2008
ALL INQUIRIES KEPT STRICTLY CONFIDENTIAL
pg94-106Gallery_v1_DG_VM
10/7/08
2:53 AM
Page 101
GALLERY
Appointment Notice
With fall just around the corner and temperatures dropping, the Insurance Brokers Association of Ontario (IBAO) donated 50 of its magenta fleece blankets to the Toronto YWCA. Earlier this summer, IBAO donated its fleece blankets to other women’s centres, including Torontobased Nellie’s Shelter and Ottawa-based Amethyst Women’s Addiction Centre.The donation was made in conjunction with
an IBAO consumer awareness day held at the corner of Yonge and Eglinton Streets. “While coordinating our awareness efforts for My Insurance Shopper, we thought, ‘Why not use this opportunity to give back to the community and create awareness for worthy local causes?’” says IBAO CEO Randy Carroll. “The YWCA was a perfect fit."
Colin Smith, B.Math oel Walpole, President and CEO of The Economical Insurance Group is pleased to announce the appointment of Colin Smith, B.Math, to the position of Vice President and Chief Information Officer. With over 17 years of executive experience, Colin brings a wealth of skill in business planning, project management, operations and information technology. Previously, Colin was the Chief Executive Officer and Chief Operating Officer with Insurance Search Bureau of Canada (ISB). Prior to this, Colin was the Vice President, ClaimsPath Operations for Castek Software, accountable for delivering insurance-business processing solutions. Colin was also a Founder and Vice President, Product Development for Vital Innovations.
N
Farmers’ Mutual Insurance Company (Lindsay) hosted its 6th annual charity golf tournament on July 16. Each year the organization raises funds for a local charity, and this event was no exception. The team was pleased to present a cheque for $30,500 to the Boys and Girls Club of Kawartha Lakes and Big Brothers Big Sisters of Kawartha Lakes.
See all of our Insurance Industry Event Photos Online within the ONLINE PHOTO GALLERY at
The Economical Insurance Group is one of the largest property and casualty insurers in Canada with more than $1.9 billion in annual premium volume and $4.3 billion in assets. Based in Waterloo, Ontario, this Canadian-owned and operated company services customers’ needs through branches and service offices across Canada and in the United States.
canadianunderwriter.ca/gallery
October 2008 Canadian Underwriter 101
pg94-106Gallery_v1_DG_VM
10/7/08
10:25 AM
ING Canada
Page 102
GALLERY
The members and friends of Toronto Insurance Women’s Association (TIWA) gave summer a stylish send-off with its TIWA Summer Boat Cruise on Aug. 28. Guests enjoyed a full dinner aboard the Miss Toronto, followed by dancing to tunes spun by a DJ while the crew cruised Lake Ontario. Ahoy!
Dr. Susan Black Mr. Marc Pontbriand, Executive Vice President of ING Canada, is pleased to announce the appointment of Dr. Susan Black as Senior Vice President, Strategic Planning and Chief Human Resources Officer of ING Canada. Prior to establishing her consulting practice advising financial services institutions and professional services firms in developing inclusive workplaces, Dr. Black was President of Catalyst Canada, the country’s leading research and advisory organization dedicated to the advancement of women in business and professions. Dr. Black is well known within the financial services community, having held a number of investment and corporate banking positions and acted as a management consultant on strategy development. In her new function, Dr. Black will lead ING Canada’s overall strategy and planning activities as well as the development of human resource strategies, policies and programs that fur ther strengthen our talent management initiatives. A graduate of Yale University and the Harvard Business School, Dr. Black also holds a Ph.D. in Organizational Behaviour from the Schulich School of Business at York University. ING Canada (TSX : IIC) is the largest provider of proper ty and casualty insurance in the countr y, of fering automobile, proper ty and liability insurance to individuals and businesses through ING Insurance, Grey Power and belairdirect.
102 Canadian Underwriter October 2008
pg94-106Gallery_v1_DG_VM
10/7/08
10:26 AM
Page 103
GALLERY
Appointment Notice
The Canadian Insurance Claims Managers Association (CICMA) held its annual golf tournament on June 11 at the Kleinburg Golf Club. Two hundred-and-sixty golfers raised Cdn$14,000 for Camp Oochigeas. Camp Oochigeas offers children affected by childhood cancer a wonderful camp experience.
Katherine Kipper, BA orge Arruda, Senior Vice President, Operations of The Economical Insurance Group is pleased to announce the appointment of Katherine Kipper, BA, to the position of Vice President, Marketing and Communications. Katherine has over 12 years of experience in the industry. She joined The Group in 1996 and has held positions of increasing responsibility. Most recently Katherine has led the combined Sales and Marketing team. As the Vice President, Marketing and Communications, Katherine will have overall responsibility for The Group's marketing and communications strategy to drive business, raise brand awareness and promote The Group's products and services. She will also lead The Group's research and development of new products in collaboration with the Strategic Business Units.
Photos courtesy of MEA Forensic Engineering and Science
J
The Economical Insurance Group is one of the largest property and casualty insurers in Canada with more than $1.9 billion in annual premium volume and $4.3 billion in assets. Based in Waterloo, Ontario, this Canadian-owned and operated company services customersâ&#x20AC;&#x2122; needs through branches and service offices across Canada and in the United States.
October 2008 Canadian Underwriter 103
pg94-106Gallery_v1_DG_VM
10/7/08
2:53 AM
Page 104
GALLERY
Deborah R. Johnson, FCIP, CRM CAIW President 2008 – 2009
Members of the Ontario Insurance Adjusters’ Association (OIAA) took to Deer Creek Golf & Banquet Facility in Ajax, Ontario on June 6 for the OIAA Open Annual Golf Tournament. Four-hundred golfers teed up to raise nearly Cdn$6,700 for the Big Brothers Big Sisters of Canada.
The Canadian Association of Insurance Women (CAIW) would like to announce the appointment of Deborah R. Johnson, FCIP,CRM as President for the 2008-2009 term. Deborah is employed with Zive Insurance Limited, Halifax, as Commercial Lines Manager. She is a Past President of the Insurance Institute of Nova Scotia and a past member of the Board of Governors of the Insurance Institute of Canada. She has attained the Fellow Chartered Insurance Professional (FCIP) and Canadian Risk Management (CRM) designations. Deborah has been actively involved in her local Association, the Nova Scotia Insurance Women’s Association, since 1981 and has served on the Board of the Canadian Association of Insurance Women since 2002.
www.caiw-acfa.com 104 Canadian Underwriter October 2008
Photos courtesy of MEA Forensic Engineering and Science
CAIW is a non-profit association with 10 chapters across Canada and over 800 members. The association strives to provide excellent opportunities for their members to better themselves both professionally and personally through networking and continuing education.
pg94-106Gallery_v1_DG_VM
10/7/08
2:57 AM
Page 105
GALLERY
Members of Toronto's insurance community got together on Sept. 25 for Insurance Industry Kicks for United Way. The friendly game of soccer, played at BMO Field at Exhibition Place, was followed by an in-stadium barbeque. Nearly $17,000 was raised from the inaugural soccer event, and donated to the United Way of Greater Toronto.
Appointment Notice
David Fitzpatrick, BA orge Arruda, Senior Vice President, Operations of The Economical Insurance Group is pleased to announce the appointment of David Fitzpatrick, BA, to the position of Vice President, Sales and Distribution. David has over 25 years of experience, the majority having been gained in the general insurance industry. David joined The Group in 1995, and has previously held positions as the Vice President, Human Resources, Vice President, Field Operations and Vice President, Corporate Services. David brings considerable skill and knowledge to this new role. As the Vice President, Sales and Distribution, David will have responsibility for the development of new business and overall responsibility for the relationship with the Independent Broker force.
J
The Economical Insurance Group is one of the largest property and casualty insurers in Canada with more than $1.9 billion in annual premium volume and $4.3 billion in assets. Based in Waterloo, Ontario, this Canadian-owned and operated company services customersâ&#x20AC;&#x2122; needs through branches and service offices across Canada and in the United States.
October 2008 Canadian Underwriter 105
pg94-106Gallery_v1_DG_VM
10/7/08
2:57 AM
Page 106
GALLERY
Members of the Canadian insurance industry convened at the Sheraton Centre Hotel in Toronto on Sept. 17 to partake in the A.M. Best Company’s 2nd Annual Review and Preview Canada Conference. Speakers touched on all aspects of the market, including overviews of the state of the property and casualty market in Canada, investment overviews, rating outlooks and reinsurance updates. The content-rich conference was followed by a cocktail reception, where delegates were able to mix and mingle and discuss the day’s event.
Commercial Lines Underwriting Assistant Hannover Re, one of the five largest reinsurance groups in the world, whose worldwide network consists of more than 100 subsidiaries as well as branches and representative offices in 18 countries is presently seeking a Commercial Lines Underwriting Assistant for its Downtown Toronto Office. We offer a comprehensive/competitive benefit package. Job Description:
Assisting both the Property and Casualty Underwriters with processing, certificates and endorsements, including data entry and photocopying, preparing monthly accounting reports, renewal lists and resolving accounting differences. Other duties as assigned with the intention of developing your skills to their fullest potential. Qualifications: • • • •
• • •
College or University diploma/degree. Computer proficiency in Microsoft Word and Excel. Excellent communication skills, both written and verbal. Strong organisational skills with the ability to multi-task and take initiative to manage priorities while maintaining a flexible and positive attitude. Proven analytical skills with a high degree of accuracy and detail. Reinsurance experience an asset. French language skills, both written and verbal would be an asset.
Those interested in joining our small team should submit their cover letter and resume outlining their qualifications, in confidence to: “The Human Resource Department” at Hannover Re, 150 York Street, Unit #1008, Toronto, Ontario M5H 3S5. Alternately by email to hanremail@hanover-re.com
We thank all applicants in advance or their interest, however, only those under consideration will be contacted.
106 Canadian Underwriter October 2008
CHB 14204 Broker wealth
1/25/07
3:39 PM
Page 1
wealth: n. valuable possessions or resources. Insurance protects the wealth your clients have accumulated. The more wealth, the greater the need for protection against risk. Clients trust you to recommend the best policy to manage that risk. Chubb Insurance better defines its insurance to reduce risk and protect wealth.
If your clientâ&#x20AC;&#x2122;s wealth is worth protecting, Chubb is your recommendation.
Chubb Defines Insurance
www.chubbinsurance.com Chubb Insurance refers to Chubb Insurance Company of Canada. The precise coverage offered is subject to the terms, conditions and exclusions of the policy as issued.