Canadian Underwriter April 2009 by Annex Business Media

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

APR IL 2 0 0 9 A Business Information Group Publication #40069240

Our name is Intact Insurance. It’s great to be home. Our name is Intact Insurance. For years you’ve known us as ING Insurance. We did a lot of good things together. We helped protect millions of customers. We succeeded together. As Intact Insurance we’re going to do a lot more. Because now, we are proudly Canadian-owned and led. It means we can truly be ourselves. We’re home. And it feels great. We have common ground, a whole nation’s worth. Our name is new, but we have an important heritage. We’ve been insuring millions of Canadians for over 200 years. That’s a lot of experience. Going forward, you can count on the comfort and continuity of our familiar strengths. You will continue to work with a leadership team that lives where you live. People who share the same sensibilities and interests. This changes everything. And it means we already have a lot in common. We will succeed, together. Like you, we know insurance isn’t about things. Insurance is about people. As our new name clearly reveals, we understand how emotional a claims experience can be, and how important it is to help make your customer intact again as soon as possible. Speed is important. But having as important. Providing an outstanding claims experience is what will make us different. It’s how we will succeed, together. We will do what’s right. The right way. When you choose Intact Insurance to protect your customers, you’re choosing a forward-looking insurance company, a leader. But just as important, you’re choosing a company that believes that fairness, respect and accountability are more than words, they’re a promise. Our name is Intact Insurance. We are here to stay. We are here for you.

Q93160_Broker Print ad_CDN_UNDR.indd 1

3/2/09 11:11:28 AM

VOL. 76, NO.4, APRIL 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

Financial Eclipse

Canada’s property and casualty insurance market is witnessing a rare alignment of a general market recession and a hardening insurance market. Thus far, the phenomenon has had little impact on pricing and coverage availability, although some subtle signs exist that suggest buyer’s habits have been affected, Canadian brokers observe. BY DAVID GAMBRILL

FEATURES

20 Back to Sales

50 Marketing Success

The insurance to value (ITV) issue threatens to turn brokers into appraisers when in fact brokers should be concentrating on the basics of selling insurance.

Brokerages should plan their marketing strategies with the same dedication and care they bring to planning other aspects of their operations.

ITV Solutions

Media Exposure

BY LORNE PERRY

Brokers have been working hard to develop a list of best practices for the industry to employ when evaluating the full and accurate value of a policyholder’s home.

The expansion of online media has expanded media liability along with it.

28 An Epic Story

BY BRENDA ROSE

BY MATTHEW DAVIES

BY DARCY WADDELL AND JOHN SILBERMAN

Broker Leadership AIG Credit Corp. Canada has pulled out of Canada’s premium finance market, leaving big shoes to fill for premium financing companies and insurance brokerages.

Two years ago brokerages, insurance companies and educational institutions talked about the need for broker succession planning. The result is a flurry of broker leadership programs and initiatives.

BY VANESSA MARIGA

BY DAVID GAMBRILL

Big Shoes

Applied Systems Epic is scheduled to enter into Canada this year, promising a broker management system that doesn’t require the need to install updates physically at each workstation.

42 Broker Performance, Part 2 Investing in plans, developing people strategies and implementing world-class practices can help take a brokerage to the next level.

BY CATHERINE TRIMBLE AND MICHELLE COLE-KENNEDY

58 What’s in a Name? Intact Insurance (formerly ING Insurance Company of Canada) says its new name describes the relationship between the insurer and its customers. BY DAVID GAMBRILL

62 Barring the Floodgates Brokerages thrive on the personal relationships their brokers establish with policyholders, so how do they hold on to these policyholders when their brokers leave? BY JOHN W. ELWICK

BY LORIE J. GUTHRIE PHAIR

April 2009 Canadian Underwriter

VOL. 76, NO.4, APRIL 2009

PROFILE

12 Twist of Fate Former broker association CEO Stephen Greene, a man who has dedicated his political life to an elected Senate, recalls the irony of receiving a call early this year from Prime Minister Stephen Harper to offer him an appointment to the Canadian Senate. BY VANESSA MARIGA

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 Michael Wells michael@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

SPECIAL FOCUS

Editorial

10 Marketplace 66 Moves & Views 68 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. ÂŠ Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 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

Canadian Underwriter April 2009

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

Finding a truly independent broker in Nova Scotia just got easier!

Introducing My Insurance Shopper™ A new way to find a broker and get a quote online. Learn why independent brokers are Nova Scotia’s first choice for insurance consumers. More choices, Insurance that fits and On your side advocacy. Visit www.MyInsuranceShopper.ca for Insurance that fits! Get the advantage of Nova Scotia’s truly independent brokers working for you. Look for a broker who proudly displays this symbol.

On your side.

Your Best Insurance is an Insurance Broker.

EDITORIAL

Deck Chairs on the Titanic

Based on huge loss ratios in 2008, the insurance industry expected to see fundamental reform in Ontario’s auto lines. They didn’t get it, so now consumers can expect to see their auto insurance premiums increase. David Gambrill, Editor david@canadianunderwriter.ca

Canadian Underwriter April 2009

Underwriting auto insurance accident benefits in Ontario is now officially a money-losing venture, according to almost all relevant sources, including the insurers’ trade organization, the Insurance Bureau of Canada (IBC), MSA Research and the federal solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI). This is a major concern for the property and casualty industry, because no less than a quarter of all of the premium in the country comes from underwriting Ontario auto insurance. Many insurers had high hopes that Ontario’s provincial regulator, the Financial Services Commission of Ontario (FSCO), would “fix” the Ontario auto product during the most recent round of its mandatory five-year review. The review took a little less than a year to complete. In the meantime, insurers’ loss ratios in auto insurance — particularly on the accident benefits side — took a beating. An insurers’ loss ratio is calculated using a simple formula: what insurers pay out in claims costs divided by the premium they collect. Figures more than 100% mean insurers are paying more in claims than they are collecting in premium (i.e. they are taking a loss). So how bad was 2007-08? On the accident benefits side (leaving out auto liability claims), between the last quarter of 2007 and the last quarter of 2008, auto insurers reported loss ratios of anywhere between 103% and 179%. Imagine your business paying out almost twice as much as it makes: it would quickly be

seeking a federal bailout. So what kind of bone did FSCO toss to insurers in its final recommendations to the province’s Minister of Finance? Well, it’s clear the regulator took a “balanced” approach to change, addressing many of the system’s key irritants to insurers, trial lawyers, health care professionals and consumers alike. The problem is, the system itself is flawed, and so re-calibrating it at this point is somewhat like re-shuffling deck chairs on the Titanic. At first glance, FSCO addressed many of the changes insurers sought on the accident benefits side of the equation. For example, the recommendations would: • cap out-of-control medical assessment costs (a $200 cap for filling out medical assessment forms, and a $2,000 cap on all other assessment costs); • limit the number of health care professionals in charge of a claimant’s treatment; • limit the availability of in-home assessment to seriously injured claimants only; and • convert mandatory benefits such as housekeeping, home maintenance and caregiving expenses to optional benefits. But what FSCO gave to insurers on the accident benefits side, they took away from insurers on the tort/auto liability side. Ontario has two regulating mechanisms designed to limit insurers’ tort — read: court — costs. They are deductibles on court awards and the verbal threshold. The deductibles in Ontario are currently $15,000 and $30,000; they apply to all

claims awards in court up to $100,000. For example, if a court awards $80,000 to a consumer in a claim against an insurer, a deductible would automatically be subtracted from the award. If the $30,000 deductible applied in the example above, the consumer’s award would be reduced to $50,000. The verbal threshold determines whether a case meets the definition of a serious and permanent impairment. Claims meeting this definition are not subject to the deductibles noted above. FSCO has recommended eliminating important language in the verbal threshold and lowering the deductibles to $10,000 and $20,000. Trial lawyers hail the move because it means their clients will get better “access to justice.” In other words, it will be easier to squeeze more money out of insurers on the tort side. But what it really means is that lawyers, their clients and every single driver in Canada who doesn’t need to make a claim will be paying higher auto insurance premiums. That’s because the reforms do nothing to take a dent out of insurers’ claims costs overall. FSCO did indeed “balance” the system. But from the insurers’ point of view, the system didn’t need balance — it needed major reform. That didn’t happen, so if these recommendations come to pass, consumers can expect to see their auto insurance rates increase (perhaps substantially) when insurers take their own road towards making the Ontario auto insurance system profitable again.

UNLEASH IMAGINATION

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

It's Time to Think Outside of the Bowl!

sigXP redefines the broker management system

sigXP brings you:

experience by zeroing in on the features and

• A Paperless Environment • A Powerful Search Engine

functions you use every day, and simplifying them.

• Automated Marketing Campaigns • Advanced Reporting with Modern Architecture • Superior Integration and Single Entry Solutions • The Ability to Manage Several Offices Using • Divisions and Departments

MARKETPLACE

Canadian Market ABOUT HALF OF CANADIAN P&C INSURERS POST UNDERWRITING LOSS IN 2008 More than half (55%) of the 141 insurance companies reporting 2008 year-end data to MSA Research posted an underwriting income loss for the year. Sixty-eight of the 141 companies reported a combined ratio of 100% or more. MSA Research has posted a summary of the 2008 yearend results on its Web site. The summary represents 93% of the Canadian property and casualty industry. The following is a sample of the 2008 year-end results of the Top 6 individual companies that reported more than Cdn$1 billion in net premiums written (in order of net premium written): Intact Insurance Company of Canada (formerly ING Insurance Company of Canada) Net Premium Written: Cdn$1.6 billion Underwriting Income: Cdn$26.8 million profit Net Income: Cdn$46.8 million Combined Ratio: 98.34% Wawanesa Mutual Insurance Company Net Premium Written: Cdn$1.6 billion Underwriting Income:

10 Canadian Underwriter April 2009

Cdn$79.8 million loss Net Income: Cdn$19 million Combined Ratio: 105.09% Economical Mutual Net Premium Written: Cdn$1.44 billion Underwriting Income: Cdn$163.5 million loss Net Income: Cdn$102 million loss Combined Ratio: 111.41% Aviva Insurance Company of Canada Net Premium Written: Cdn$1.4 billion Underwriting Income: Cdn$25.6 million loss Net Income: Cdn$99.3 million Combined Ratio: 101.96% Co-operators General Insurance Company Net Premium Written: Cdn$1.4 billion Underwriting Income: Cdn$74.5 million loss Net Income: Cdn$62 million Combined Ratio: 105.5% Nordic Insurance Company (ING Canada) Net Premium Written: Cdn$1.4 billion Underwriting Income: Cdn$22.8 million profit Net Income: Cdn$6.8 million Combined Ratio: 98.34%.

CANADIAN P&C INSURERS STRUGGLE WITH AUTO LINES IN 2008 Federally regulated Canadian and foreign property and casualty companies took a beating last year in auto lines, particu-

larly in the personal accident category, according to 2008 figures posted by the Office of the Superintendent of Financial Institutions (OSFI). OSFI figures show that in the auto personal accident category, which includes accident benefits, Canadian insurers collectively reported a claims ratio of 109% in 2008 (87.8% in 2007) — a figure that climbs as high as 166% for foreign insurers (149.7% in 2007). Claims ratios for auto liability, in contrast, increased modestly from 64% to 67.9% for Canadian property and casualty insurers between 2007 and 2008. For foreign insurers, the claims ratio for auto liability increased from roughly 69% to 78.7%. In the personal property area, claims ratios for Canadian property and casualty insurers jumped from 66.9% in 2007 to 75.77% in 2008, due in part to a record number of storms across Canada. For foreign insurers, claims ratios on the personal property side jumped from 66.2% to 75.1%. In commercial lines, claims ratios for Canadian insurers jumped from 57.8% to 68.3%. For foreign insurers, claims ratios increased from 45.5% in 2007 to 58.3% in 2008.

Regulation OSFI TO TIGHTEN FOCUS ON CAPITAL RESERVE ADEQUACY The Office of the Superintendent of Financial Institutions

(OSFI) is aiming to improve its capital adequacy measurement techniques for federally regulated institutions, including property and casualty insurers, as a key focus for the 2009-12 planning period. OSFI already started its work on the Minimum Capital Test (MCT) for the property and casualty industry in 2008, and it plans to continue it. Moving forward, OSFI says in its 2009-2010 Report on Plans and Priorities that it plans to develop and reach agreement on more risk sensitive measurement techniques and more forward-looking risk management techniques. “Capital provides a critical cushion for financial institutions which is always important, but especially during difficult economic times,” OSFI notes.

CANADIAN INSURERS RE-ENGINEERING THEIR ACTUARIAL DEPARTMENTS Canadian insurers are re-engineering their actuarial departments to improve performance while at the same time dealing with current regulatory challenges and increased accounting requirements, PricewaterhouseCoopers says. In its report, Adapting to a New Economic Reality, PwC notes that insurers are undertaking initiatives that focus on reducing complexity (in processes, controls, valuation models and spreadsheets) and increasing standardiza-

MARKETPLACE

tion, automation, process efficiency and effectiveness. Examples of general process improvements identified by insurers in the report include: • coordinating a closing calendar with the company’s overall timeframes and dependencies; • developing company policy that covers cut-off dates, calculation methodologies and process dependencies; • shifting non-critical activities outside the critical close cycle; • establishing guidelines for materiality and the use of estimates, as well as developing methods for continual monitoring of materiality; and • maximizing efficiency of controls over data accuracy and completeness (performing key controls as efficiently as possible, for example, and removing non-essential controls).

damages can be attributed to the earthquake that struck China in May, which caused damage to the economy amounting to US$124 billion, the study notes.

There were 137 natural catastrophes and 174 man-made disasters in 2008, with Asia suffering the most fatalities and the United States being hit hardest in terms of insured property losses.

High catastrophe claims in the United States were in part due to Hurricanes Ike and Gustav, in addition to thunderstorms in the first half of the year.

Your Right Choice for Quality Claims Solutions Leanne Coene Adjuster, Edmonton, Alberta

Reinsurance YEAR 2008 AMONG WORST FOR GLOBAL CAT LOSSES Year 2008 was one of the worst for catastrophe losses, according to Swiss Re, with global insurers paying out US$52.5 billion in property claims. The total impact on the economy caused by natural and man-made catastrophes around the world added up to US$269 billion, according to a new Swiss Re sigma study, Natural catastrophes and man-made disasters in 2008. Almost half of the total

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.

PROFILE

Twist of Fate Vanessa Mariga Associate Editor

Thanks to a recent Senate appointment, Canadian insurance brokers now have access to Senator Stephen Greene, a former executive director of the Insurance Brokers Association of Nova Scotia, who has dedicated his political life to achieving an elected Senate. Irony comes to mind when chatting with Senator Stephen Greene about his recent appointment to the Canadian Senate. Greene, a card-carrying Reform Party member (now a Conservative Party of Canada member) spent years rallying for an elected Senate. When he got the call from Prime Minister Stephen Harper in December 2008 with the offer of a Senate appointment, the two long-time acquaintances had a bit of a

12 Canadian Underwriter April 2009

chuckle over the irony of the situation. Greene, the executive director of the Insurance Brokers Association of Nova Scotia (IBANS) between 1999 and 2007, believes that whether he’s in the Senate for a long time or a short time — pending reforms — he sees the position as “an amazing opportunity to do something important for one’s country.” When Greene signed on to the Reform Party “a long, long time ago,” he never imagined, “not for one minute” that he would ever be appointed to the Senate, he says from his Halifax home. “When you have a Prime Minister coming from the exact same political tradition, the odds of this happening are so remote it’s unbelievable.” When Prime Minister Harper called Greene, he said: “Now, I know that I’m the last prime minister that you ever would have expected to offer you a senate seat, and I know that you’re the last person to ever be expected to be offered one,” Greene recalls, with a chuckle. “It was kind of an amazing discussion. I was amazed, but I was happy to say yes.”

BANK ACT BATTLE Greene has a diverse background. He has lived in various locations across the country and has worked in a number of different sectors, all of which give him a broad perspective that he brings to his new role. A Montreal native, he attended high school in southern Ontario, completed his undergraduate degree at McGill University (back in his hometown of Montreal) and obtained a Masters degree at Dalhousie in Halifax. He moved around a bit after school, with stints south of the border in Washington and Boston, but he always returned back to the East Coast. Nova Scotia adopted him, and he adopted it as his home, he says. Over the years, he has worked in private organizations, professional associations and for provincial and federal governments. His career path is peppered with political experience. He served as Preston Manning’s chief of staff from 1993-97. Most recently, before accepting the senate position, he was the principal secretary and deputy chief of staff to Nova Scotia premier Rodney MacDonald. Prior to joining IBANS in 1999, Greene worked for a

large private seafood company in Halifax as a lobbyist. This experience helped him to land the position as executive director of the provincial broker association — an organization that is no stranger to highly politicized issues. Sure enough, the association put Greene’s ability to step up

“Now, I know that I’m the last prime minister that you ever would have expected to offer you a Senate seat, and I know that you’re the last person to ever be expected to be offered one.” on a soapbox and sway politicians to good use. During his tenure at the helm of IBANS, Greene was extremely vocal in the Bank Act reforms, which ended with banks being told they are not allowed to retail insurance from within their branches. “I got involved in the Bank Act reforms very, very much,” he says. “I was on a number of

PROFILE

national broker committees and had an opportunity to meet with members of parliament, et cetera, and wrote a great many position papers on behalf of the industry.”

A VOICE ON THE HILL The position the brokers took on the Bank Act created a firm foundation for them to weather the current economic turmoil, Greene suggests. “I think the position that the broker associations took with keeping the banks out of the insurance industry and to maintain the division between insurance and banking was a very important move, because it’s now proven through our experience in the past six or eight months that the regulations around financial services are very important,” he says. “You can’t have different parts of the financial services industry mucking around in other parts or else you’re going to get chaos.” The United States has allowed the intermingling of the insurance and banking sectors, and the result is a recession that Greene anticipates will be around for a very long time. This recession has quite a significant impact on Canadian brokers, he continues.

“On the one hand, I think their position as brokers is protected now,” he says. “I don’t think the banks — even if they want to, and even if they mount the most amazing lobby we’ve ever seen — will ever receive the government’s approval to allow them into the industry.”

At the same time, Greene notes, “buying insurance through a broker, although it’s the best way to buy it, also tends to be the most expensive way to buy it. And that poses some difficulty during a time when consumers are so focused on their bottom lines.” Should the banks launch

another formal lobby to retail insurance through their banking branches, Greene assures the independent broker channel that, as a senator, his experience with the insurance industry will most definitely influence his future involvement in the Senate. To date, however, Greene has yet to identify a specific cause to champion as a senator. He notes a key difference between senators and MPs is the “tremendous amount of independence” that senators enjoy. “They can launch investigations and develop a cause and so on,” he says, pointing to the example of Senator Michael Kirby, who during his tenure championed mental health issues and now sits as chair of the Mental Health Commission of Canada. “It’s a wonderful opportunity to bring everything that you’ve ever been a part of to bear on issues of the day,” he says. Greene says he’s been lucky enough to be selected to sit on the banking, trade and commerce committee, the same committee responsible for insurance issues. “One way of looking at it is that brokers will now have a voice in the Senate,” he says.

April 2009 Canadian Underwriter

Establishing ITV Best Practices Brokers looking at the insurance-to-value (ITV) issue have prepared a white paper that puts forward “best practices” for handling ITV in the future. Brenda Rose Firstbrook Cassie and Anderson

It seems no one in the Canadian insurance industry has a vessel that is fully waterproof in this particular whirlpool that is insurance to value (ITV). Many different currents have swirled around the ITV question — the estimation of replacement cost for rebuilding after a loss — and now threaten to twist the issue into a truly destructive vortex. Insurers, cornered between deteriorating property results and a hardening market, struggle to balance the need for accurate ITV against the potentially negative market reactions associated with

14 Canadian Underwriter April 2009

its achievement.Vendors of replacement cost calculator software, within their own competitive environment, have found themselves newly challenged to account for the figures that their tools generate.And brokers, working with their clients, are increasingly frustrated by conflicting information, time-consuming processes, sometimes illogical results and a general inability to provide clear answers when it comes to addressing consumer dissatisfaction. Economic fluctuations, especially amplified in certain regions, have served only to intensify the controversy. Last summer, brokers from across the country, meeting within the forum of the Insurance Brokers Association of Canada (IBAC), agreed action was required; one of IBAC’s standing committees was asked to consider the ITV issue in detail. The dialogue within that group formed the basis for a recently released discussion paper, now being shared with insurer partners and Insurance Bureau of Canada (IBC).

Illustration: Graham Roumieu

Opinion/Analysis

All things being equal, you have your favourite.

Whether it’s a pet, a place or a personal protection package, some one-of-a-kind combination of qualities creates a powerful bond and a special relationship. Out of many, one becomes your favourite. That’s the way it is with Peace Hills and the brokers whose

P EAC EH ILLSINS URANCE.COM

business we value – we work hard to be their favourite insurance provider, offering competitive rates, the best coverage and the fastest, friendliest service. But our favourite thing is providing all of it in one perfect package.

OUR POLICY IS WORKING FOR YOU

IBAC committee members realized that insurers are definitely interested in achieving premium adequacy for the risks they have assumed, but they are very often, especially with older portfolios, still labouring to calculate what their real total exposures are. Due to legacy computer systems and a protracted soft market, a lot of data held by insurers regarding existing risks may be incomplete or simply out of date. In those areas in which rebuilding costs have changed rapidly, the dislocation between insurers’ information and reality may be even greater. The challenge, however, is pinpointing which properties are not accurately valued and then finding a fair means to correct the problem. Brokers are not, and can never represent themselves to be, professional appraisers. It is, however, the broker’s responsibility to assist clients in finding their best possible protection. The conundrum for brokers is this: using the available tools, how do brokers know for certain what the correct number is? Recent changes in calculator software, both in the tools’ operation and in the figures they generate, have left some unsure about their use and lacking confidence in the results. All of the tools are promoted as producing an accurate replacement cost figure. At the same time, data from the same home, entered into different calculators, can produce radically different answers. Individual experts offer up different (sometimes contradictory) instructions for the application of features or options, even within the same tools. Insurers and brokers alike are frustrated by the inconsistencies and the difficulty of finding explanations for the discrepancies. The process of working through an ITV calculation can in itself be an arduous process, for which some customers may have limited patience.As well, clients may not always possess 100% accurate information even about their own homes, increasing the margin of error in a given calculation. Service problems can be further compounded if brokers’ competitors aren’t diligent about making sure the customer carries adequate limits; if that happens, brokers must work that

16 Canadian Underwriter April 2009

the end of its survey, IBAC’s committee concluded no one player within the insurance chain can or should shoulder sole responsibility for solving the ITV question. Given the variety of different factors driving the issue, insurers, software vendors, brokers and consumers all share some obligations. In accepting this realization, the broker group defined the following list of recommendations that together would involve all partners in contributing to some resolution.

Shorter versions of the existing calculator tools, provided they can be shown to be accurate, would be most beneficial in alleviating brokers’ and customers’ frustration with the lengthy amount of time currently required to perform an ITV calculation. much harder in their role to educate clients about the need for the right protection. As insurers act to rehabilitate their portfolios, the potential exists for further friction to arise if corrective programs are not discussed and agreed upon in advance. Brokers have found themselves frequently caught between insurers and consumers. Brokers are frustrated by requirements that narrow the brokers’ range of options for ITV tools, and by discounts that appear to favour one tool over another. In some areas, insurers’ direct approaches to clients, made without brokers’ explanations and agreement, have been perceived as eroding the client-broker relationship and compromising the trust and confidence vested there by customer. Ultimately, the entire industry’s image is tarnished when consumers experience — and start to resent — processes that seem inconsistent or illogical to them. At

1) The lead responsibility for ensuring that replacement cost is calculated will remain with the broker. Brokers’ primary loyalties are bound to the customers they represent. This first agency relationship assumes a mandate to ensure that the client is as well protected as possible; with respect to ITV, this means making certain a client’s property is evaluated, whether using a tool with information gathered from the client or through on-site appraisal. Within the framework of this relationship, evaluations need to be conducted with the advance knowledge and agreement of the broker. Further, the data collected, since it is identifiable personal information, forms part of the client’s accumulated file and belongs to the broker as the client’s representative. It is in all parties’ best interests, especially the client’s, for the industry to foster a fair and stable marketplace — one in which properties are insured for values reflecting the actual exposure, and rates commensurate with that risk are charged equitably across the market. Whether considering partial or total losses, insurers must be confident they have collected the proportionate premium for their exposures. Otherwise, risks that have been properly valued will subsidize the remainder of the portfolio. From the perspective of both the client and the broker, accurately assessing ITV is a requirement: even a Guaranteed Replacement Cost (GRC) endorsement is no substitute for adequate, full limits. 2) Consumers should sign evaluation forms attesting to the documented value of their property whenever possible. Frequently, consumers’ dissatisfaction

with the new replacement cost values applied to their homes stems from a lack of information. Informing customers and actively involving them in the ITV process is therefore a crucial element in addressing the present issues.These tasks fall easily within the scope of the broker’s primary relationship with the consumer. Creating a practice of direct customer participation, making them aware of the factors entailed and soliciting from them some personal commitment on the accuracy of the information provided could alleviate some resistance. 3) Insurance companies sanction the use of specific ITV calculators. This recommendation assumes, of course, that insurers would sanction only ITV calculators that have demonstrated accurate results. By essentially making public judgments on the calculators’ accuracy, the industry would encourage natural competition among the vendors. 4) Brokers will have free choice as to which calculator they will employ from among the selection of available, sanctioned tools. This concept goes hand-in-hand with the preceding recommendation. It is predicated on a marketplace in which software vendors compete not only on price, but the accuracy of their product. Further to this point, however, to ensure fairness to insurers and consistent treatment for consumers, brokers must also commit to using only one calculator with any given insurer. 5) Current evaluations are mandatory when submitting new business and letters of authority. To avoid misapprehensions on part of either customer or insurer, and to work on the overall industry challenge of updating values, this appears to be a logical best practice. Within their mandate to protect clients’ best interests, brokers will naturally review a customer’s needs when writing a new policy, even for a remarket or letter-of-authority. The ITV review creates an opportunity to focus directly on the real value provided by the insurance product, in the amount of protection it affords. Nevertheless, shorter versions of the existing calculator

18 Canadian Underwriter April 2009

should take into account additional investigations using actual loss data.

Ultimately, the entire industry’s image is tarnished when consumers experience — and start to resent — processes that seem inconsistent or illogical to them. tools, provided they can be shown to be accurate, would be most beneficial in alleviating brokers’ and customers’ frustration with the lengthy amount of time currently required to perform an ITV calculation. 6) Certain options within calculator software are accepted as required practices. To consistently give all partners, especially consumers, the most accurate estimations possible, it will be necessary to establish standard practices to be applied with all calculator tools. Some significant factors — such as including the cost of foundations, or the amounts allowed for contractor’s overhead — can be handled differently from tool to tool and may contribute to inconsistent outcomes. Sometimes the need to include some of these items may not be immediately apparent, or they may not always have been required during an original construction scenario. IBAC’s committee realized that further discussion would be required to clarify practices and determine what the standards should be. Such discussion

7) The minimum default period for submitting updated valuations to insurance companies will be every five years. Collectively, the industry needs to establish an objective of having reasonably current and consistent information in place for the vast majority of insured risks. Working towards this goal alone would do much to increase fairness and consistency, improving the odds that customers whose properties are insured at their correct replacement value don’t subsidize others. While the actual interval chosen would have to be agreed upon, above all the industry needs an ongoing strategy so that the present situation is not allowed to recur. 8) Establish a neutral forum in which stakeholders can evaluate the accuracy of ITV calculators. This recommendation draws on the observation that no single industry partner can solve the ITV issue without the participation, good faith and willingness of the others.This final suggestion can, and has already, prompted infinite discussion. Beyond objectively assessing ITV calculators, the forum could branch out into many shapes and roles, possibly including the formal endorsement of the standards or ‘best practices’ described above. The idea of creating yet another industry entity is perhaps the most ambitious and challenging, but at the same time, potentially the most rewarding concept proposed in the broker discussion paper. Because the ITV issue impacts virtually all levels and modes of distribution, and given the competitive nature of our business, absolute neutrality would be essential. All stakeholders would need to agree on their commitment to working through the forum; reaching that agreement alone may be difficult to accomplish. Nevertheless, the IBAC committee recognizes that the seriousness of the current situation might just be the motivation required to bring all players together, to harness a unique opportunity to improve our industry and ultimately better serve our collective customers.

STRONG FOUNDATION. BRIGHT FUTURE. Access your claims data anytime, anywhere, with Crawford’s CMS Claims Management System™ For more than 10 years, Crawford has oﬀered a state-of-the-art claims platform in CMS. Available across Canada and around the world, you now have real-time access to any claim, anywhere. This powerful and customized tool is continually improving with our clients’ ever-evolving needs in mind. Through Crawford’s secure, dedicated website, www.claimsmanagement.ca, your claims information will always be just a click away. Contact us today at info@crawco.ca.

www.crawfordandcompany.ca

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

Getting Back to

Selling Opinion/Analysis

Insurance The insurance to value (ITV) issue is threatening to get brokers involved in an appraisal role when in fact they should be concentrating on the basics of insurance sales.

Lorne Perry First Vice President, Insurance Brokers Association of B.C.

based calculation method, making it possible to incorporate ever-increasing levels of complexity to the process.Today’s calculators use component-based methodologies that assign a construction or reconstruction cost to every component of the dwelling; then they layer on quality factors such as standard or premium. There are now, depending on the software product, hundreds of potential data points that brokers can enter to come up with the insurance valuation of a home. It’s necessary to capture this data, vendors and insurers tell us, because in this Homeand-Garden-Channel, do-it-yourself era, house construction is increasingly complex; even subdivision housing includes architectural designs, custom features and unique building materials. But the volume of detail we are able to capture in these products is far beyond what most homeowners know about their home. So no matter how sophisticated the tool, the principle of ‘garbage in, garbage out’ prevails. For all the work involved, we’re no closer to getting accurate valuations; in fact, many underwriters are still applying a loading factor to compensate for the 30% or so underinsurance that has been acknowledged in the industry for the past 20 years. One has to ask: is it necessary or even appropriate to capture this much data for underwriting purposes, or is it just that computerization makes it possible? Several competitive products are now available to do these complex calculations. Entering the same data in each of these products will often yield wide-ranging results — sometimes by a difference of up to 50%.This has created an environ-

Here is a day in the life of an insurance broker: we provide advice on how to minimize risk, we empathize with and assist our clients who have suffered a loss and we negotiate with underwriters. And now a major part of our day is spent appraising houses and determining reconstruction values What? Yes, life on the front lines of insurance sales has become much more challenging over the past few years. The insurance industry has historically used the cost to rebuild a home as the basis for establishing a premium for the risk. At one time, the homeowner easily answered seven to 11 questions to provide a “ballpark” figure for replacement value and this served the industry well. A number of factors changed this. Technology, for starters.The computer replaced the old paper-

20 Canadian Underwriter April 2009

Insurance Risk Management

Zurich HelpP int

We provide claims handling specialists for those not-so-special moments. Zurich HelpPointTM is here when you need more than just insurance. That’s why the moment you need help, we engage a deeply experienced claims team with an understanding of your company and your speciﬁc needs. They can quickly assess the damage and start the recovery process right away. We understand that besides repairing physical damage, a quick response restores what you need just as much; your conﬁdence. For more details about Zurich HelpPointTM , visit www.zurich.com

Here to help your world. Because change happenz® and Zurich® are trademarks of Zurich Insurance Company.

ment in which it’s almost impossible to determine which valuation is most accurate at any given time. Many insurers use square-footage guidelines to test the calculator results for reasonableness, which begs the question: if underwriters know what minimum value they want per square foot, why can’t brokers just use that figure up-front and save a lot of time and aggravation? The terminology for housing features differs from product to product. Similarly, definitions vary between those used by the calculators and those used by the local construction industry. This adds a further obstacle to accurate valuations. Software vendors tell us they use local loss data and local construction data, with factors localized to the first three digits of postal codes. Frankly, I see little corroborating evidence for these assertions. The issue of brokers potentially using the tools for competitive advantage has been the subject of some discussion in B.C. But doing multiple valuation calculations and then using the lowest value for quoting and determining premium has the potential to underinsure the home and put Guaranteed Replacement Cost further at risk. Similarly, the potential exists for a calculator to be set to produce valuations consistently below competing products, giving a software vendor a short-term competitive advantage. Over the long term, however, it will diminish the vendor’s efficacy in producing credible insurance valuations. Local housing markets in some geographic areas are sufficiently dynamic that the back-end data in the calculators are always substantially behind the curve. Here in B.C., the busy activity of the residential construction industry for the past few years has outpaced the valuations, causing underwriter angst and pressure on brokers to renew valuations and bring them more in line with market pricing. Now that the housing market has cooled off and construction costs have stabilized, homeowners expect insurance valuation increases should be leveling off as well. Alas, that has not been the case.

22 Canadian Underwriter April 2009

For brokers, it’s all about the customer. We’ve invested in the operational systems, gone to the training seminars and read the bulletins, and we’re still seeing our homeowner business walk out the door.We’re not serving our clientele well when we spend our valuable face time with them — a 20-minute exercise at the minimum (I defy those who insist it only takes three to five minutes to perform an insurance valuation) — talking about carpet, drywall, roof components and the percentage of finished basement. Then we have to talk them down off the

Brokers want to get back to talking about coverage and risk management. We need to get back to the dozen or so questions that will determine the general size and scope of the homeowner’s risk. ceiling with an explanation about the impact of a changing economy on their premium – an explanation that most view with skepticism at best. Brokers want to get back to talking about coverages and risk management. B.C. brokers have been vocal in our concerns about ITV because we believe any solutions will require a coordinated effort by all stakeholders.We simply have to eliminate the friction and frustration at point of sale. We should seriously consider whether or not component-based valuation is even the right method for calculating insurance value. Or perhaps more accurately, is the broker’s office the right place for long-form, component-based calculation? Would another method, such as squarefootage calculation, be just as effective? In his column published in the February 2009 issue of Canadian Underwriter, E2Value chairman and CEO Todd Rissel compared the insurance industry to a 1972 Chevy coping with the immense horsepower of a brand new engine (ITV software). I would suggest instead that the insurance industry is a modern, fuel-

efficient car that ITV software vendors are trying to equip with a truck, train or plane engine. They have taken technology designed for other applications and are telling us it’s the right product for the insurance industry at point of sale. I see mounting evidence that this is not the case. Whatever the industry determines to be the right technology for insurance valuations, we need to get back to the half-dozen or dozen questions that will determine the general size and scope of the risk. We need to do this within this calendar year; in the interim, we need to agree to do business in a way that does not cause our customers any more irritation. That’s why, a few months ago, B.C. brokers floated the idea of a moratorium on doing home evaluations for renewal policies.We’ve heard and we understand the reasons why underwriters are reluctant to support the idea. They argue this does not educate the customer about the need for updated valuations; it just postpones the inevitable discussion with the client about valuation. But a short-term moratorium on renewals would help us retain our good, loyal clients.As one broker told me, if we had a moratorium, his staff would be doing cartwheels around the office. It would give us the time and the motivation to come up with workable alternatives. For decades, brokers have worked individually and through their associations to keep insurance transactions positive and customer-centric. We’ve resisted or mitigated attempts to attach other functions to the insurance transaction. We have been proud of our successes in this area. It’s one reason why we’re able to look our customers in the eyes each day and say with all sincerity: “I’m here for you.” But we’ve somehow allowed a cumbersome, inaccurate, inefficient and problematic process to creep into the transaction for homeowners’ insurance. We’re at a critical juncture in the history of brokering. How we resolve this ITV issue will have an immense impact on the operational efficiency of our brokerages and on our relationship with our customers. We have to get it right. We have to get back to selling insurance.

Cashing in on the

Credit Crunch Associate Editor

AIG Credit Corp. Canada has withdrawn from the nation’s premium financing market, leaving an opportunity to fill some pretty big shoes. The first quarter of 2009 has proved to be tumultuous, to say the least. A credit crunch and a deep recession have left virtually no sector of the economy unscathed — with the oil and gas, construction and manufacturing sectors taking the biggest hits. If that wasn’t bad enough, experts predict the commercial property and casualty market in Canada will likely harden over the next 12 months. As companies plan for the bumpy ride ahead, the management of cash flow becomes top of mind. As a result, third-party premium finance companies in the Canadian market are reporting an increasing demand for their services. Therein lies the rub: in the midst of increasing demand for the financing services during a credit crunch, one of the biggest players — if not the biggest player — in the Canadian premium financing market, AIG Credit Corp. Canada, made an abrupt announcement in February that they are winding down their Canadian premium financing business. Within 24 hours of its announcement, AIG no longer originated loans in Canada and began to scale down to a one-office operation in order to honour existing contracts before permanently closing its doors in a year. Brokers say the impact of AIG’s withdrawal from the premium financing market will likely not be felt for another nine or 12 months, when it’s

24 Canadian Underwriter April 2009

time to renew the business currently placed with AIG Credit.They say the void left by AIG’s exit will likely be filled by existing players in the premium finance market; several of these players told Canadian Underwriter they are confident they will be able to pick up the slack despite the increased cost of credit. And now, an increasing number of brokers are giving consideration to getting in on the game themselves.

BROKER REACTION Brenda Rose, vice president of Firstbrook, Cassie and Anderson Ltd., says two things are currently occurring in the Canadian marketplace. “The first is that AIG Credit is out of the picture, so the other providers — and there are several in the Canadian marketplace — are likely seeing an increase in business,” she says. “The second thing is that, with tightened credit, premium finance rates are generally going upwards just because of the cost of funding is increasing overall. Credit is tight in the entire market, not just in the insurance market.” Dan Danyluk, CEO of the Insurance Brokers Association of Canada, says he has not heard of brokers having any major problems finding a home for clients that opt to finance their premium payments. “But one of the challenges is that when a finance company withdraws from the marketplace, there isn’t an immediate reaction because there are loans in force, so it actually

Illustration: Graham Roumieu

Vanessa Mariga

B ERKLEY CANADA

Responsive Creative Secure Commercial General Liability Umbrella and Excess Liability Professional Liability Life Sciences Liability Liability for Technology Companies Surety Operations Other Specialty Casualty Lines Michael S. McLachlan President Gerald A. Wolfe Senior Vice President Casualty Operations Peter Primdahl Senior Vice President Technology and Specialty Lines Ralph Golberg Vice President, Surety Operations David Alexander AVP, Professional Liability Brian Yoshikuni Vice President, Claims

A wholly owned subsidiary of:

Berkley Insurance Company AM Best Rating A+ (Superior)

1 First Canadian Place

Standard & Poors Rating A+ (Strong)

Toronto, On M5X 1C8

100 King Street West, Suite 2610 Tel: 416-304-1178 info@berkleycanada.com

A BERKLEY COMPANY

www.wrberkley.com

takes about 12 months before the total impact is felt.” Premium financing has been “a good bit of business” in Canada for many years, Danyluk says. But where we will see a problem in the future, he adds, “is if there is a sudden hardening of the marketplace, and we haven’t seen that yet.”

BOWING OUT AND STEPPING UP Paul Zarookian, president of AIG Credit Corp., says the company made the decision to stop originating new business and wind down Canadian operations because premium financing is not considered core to AIG. At a time when the organization is “totally focused on paying the U.S. government back for its loans, it has identified working on its major lines of business as its singular focus,” he says. Zarookian did not comment on AIG’s market share in the premium financing area, saying only that AIG Credit financed any carrier with a financial strength rating of B+ or better. Bob Willis, vice president and national sales manager at CAFO, estimates roughly between 15% and 20% of the commercial property and casualty marketplace (excluding the large cap accounts) is financed in Canada. Roughly half of those are mid-market size accounts, he continues, or “just above the mom-and-pop sized accounts but below the risk management accounts.” Ben Sillem, vice president of operations at Broker Builder Corp., estimates that between a quarter and a third of the supply of third-party premium financing in Canada came through AIG Credit Corp. Given the credit crunch that’s bearing down on the economy, Sillem says, other third party financing companies may be struggling to maintain the capacity needed to supply the market should the banks decide to withdraw credit facilities. “Banks will re-evaluate the type of lending and arrangements that businesses are getting and that’s the case for insurance companies and finance companies,” he says. “It’s a basic limitation in this environment that we’re in.” On the other hand, Darrell Blenus, president of IFS Premium Finance Services Inc., remains confident third-party

26 Canadian Underwriter April 2009

premium financing market will maintain an adequate amount of supply to meet demand. “As long as the banks are satisfied that we are going to be able to lend the money out at a reasonable rate of return,” business should continue as usual, he says. Wes Franklin, director of operations at PenCross Financing Inc., agrees, adding that at the same time, he predicts players that have merely been dabbling in the market over the past three or four years will likely withdraw. Franklin further observes that during the height of the soft market, a lot of specialty business, such as premium financing was being pushed through the regular markets, where it became available to the “regular market financing, such as whatever the bank was extending to them as credit or the insurance company was passing onto its customers.” “Let’s face it, [premium financing of specialty lines] was not [the banks’ or insurers’] business to begin with,” he continues. “The market is going through a rough time.There’s more focus on writing these classes of business properly so that the underwriter at the end of the day isn’t expecting huge losses. As a result, a lot of stuff that was going to regular market was being undersold, with losses piling up, and insurers are saying:‘We’re not doing that anymore,’ and so it goes back over to the specialty market.”

PICKING UP THE SLACK Even prior to AIG Credit’s withdrawal from the marketplace, third party financers were seeing an uptick in demand, Willis says. “Commercial clients are having difficulty getting credit through their traditional lending facilities. As a result, they are much more interested in looking for alternatives. The premium financing loan is an easier one for them to get, and it doesn’t impair their other facilities.” The demand is being seen across all account sizes, he continues, though the demand is greater in some industries than others. “In Southwestern Ontario, companies that have been relatively stable over the years and maybe haven’t been using premium financing are now

having difficulties accessing credit themselves, and they are having difficulties managing cash flow because of the changes in the auto sector.” Contractors servicing the pulp and paper industry, as well as organizations in the oil and gas sectors, are other examples of industries exploring their premium financing options. Basic economic principles suggest this is good news for those in the premium financing business. In fact, Sillem has noticed an increasing number of brokers wanting to get a piece of the pie. As the economy really started to “head south” in late 2008, the number of brokers interested in starting a financing business slowed dramatically, despite the increasing demand from their clients for the service. “They got scared and they didn’t want to do anything,” he says. “Now, in the past month, they seem to be saying that doing nothing is not an option; with AIG Credit being gone, that’s the real kick-off to get them to explore the option themselves.” Ontario is the only jurisdiction with a regulation for the start-up of a premium financing operation, he says. RIBO (Registered Insurance Brokers of Ontario) states that brokers will need a secondary business exemption, and they need to set up a separate entity through which to do the financing. In other words, the financing operation can be owned by the brokerage, but it can’t run through the brokerage. In terms of the capital needed to start such an operation, Sillem says a brokerage will need to multiply the anticipated volume of business by 1/3 to determine the capital/credit facility required to support the premium finance efforts. In times of tight credit, the transparency and simplicity of brokerages will be attractive to lenders. “Banks are rather friendly towards lending to a broker because a brokerage is a known, conservatively-run business,” he says. “The banks know when they’re lending to them what a brokerage has or doesn’t have. There aren’t a bunch of funky things going on in the background. A brokerage is what a brokerage is.”

Noel Walpole, President and Chief Executive Officer, The Economical Insurance Group

The Economical Insurance Group is a proud sponsor of the IBAO's 2009 offsite program “Relationship Building with All Four Generations of Clients.” This program will run in 8 cities across Ontario starting May 5, 2009

An Epic Tale Applied Systems’ Epic promises the ability to update a broker management system without the need to install updates physically at each work station Darcy Waddell Manager of Product Strategy, Applied Systems

John Silberman Manager of Product Design, Applied Systems

What should you expect from an automated broker management system touted as different from all the rest and built on a completely new technology platform? It might take some thinking to get beyond the familiar “save-time, be-more-profitable” messages that broker management system vendors famously proclaim. Brokers and carriers are being prepared to receive a technology that is intended to surpass conventional industry expectations, largely because brokers and agents practically custom-ordered it. Introduced in the United States in November 2008, Applied Systems Epic is scheduled to enter the Canada marketplace later this year. What’s new and different about Applied Systems Epic, and what will it mean for CRMs, brokerage owners and IT personnel? The Epic system is designed to scale both technically and functionally. Simply stated, its benefit is this: as your insurance business grows, Epic grows with you. As a result, you’re looking at less total cost of ownership for your broker management system. Businesses owners tell us they need solutions that contribute to measurable levels of success. For information technology solutions to contribute,

28 Canadian Underwriter April 2009

they must scale technically (how many users can I have on this system, and can the database handle my business’s unique needs?) and functionally (does the system support the business functions I need to support my business as I expand?).

EPIC TECHNOLOGY Although the Canada insurance marketplace has seen SQL server-based systems, they have so far been implemented as traditional client-server based applications. In other words, as updates and new versions are released, someone in the brokerage needs to touch not only the server but also each client workstation for installation. This process has associated costs: someone has to be paid to load the update or new release; in addition, a cost is attached to the lost opportunity of not being able to access productivity-saving or revenue-generating sooner. Epic is also SQL server-based, but its totally different approach lies in its Internet application. Brokers running Epic can keep their systems current without the added expense associated with installing updates and new versions on each machine. Epic’s zero-touch updates mean that once the system administrator has made an update or new release available, that same update or new release will be pushed to users automatically, without someone having to go physically to each workstation. No more weekend or after-hours software upgrade projects. Using this procedure, brokers quickly get the updates and new releases they need to optimize workflows and business processes. All of this is done without sacrificing features or capabilities,

Epic’s Account Locate screen allows you to quickly find a client using various search criteria, including account/business name, phone number, lookup code, policy number and several others.

a major problem with browser-based solutions. At its core, Epic is a series of system services layered on top of one another to form the system architecture.This modularity allows Applied Systems to update or make adjustments to individual system services in a more isolated fashion, lending greater flexibility to our customers because we can deliver enhancements immediately. “Administrating the system is almost non-existent because updates are done for me and done based on the need,” says Rhonda Smith, personal lines producer for Epic beta agency North Wyoming Insurance in Buffalo,Wyoming. “If the user doesn’t access a portion of the system, that user doesn’t need that update. It’s easy because Epic pushes out the update, and I don’t have to go to each workstation and manually do that update. It’s so much easier.”

USER INTERFACE

The Client Detail screen contains important client information such as servicing contacts, original entry dates, updates and many more necessary details.

Within any industry, one main complaint about automation is the necessity to resize screens to see complete information, or having to scroll to view the full picture. For a brokerage, screen resizing is more than just a nuisance: it deters productivity. Employees who process and service insurance transactions need the ability to enter data and research information quickly without resizing screens or scrolling. By paying attention to screen layout, the amount and type of fields on the screen and giving users the ability to choose what fields appear on key screens, Epic is designed to be more intuitive and easier to navigate than other systems.

FEATURES DELIVER NEW EFFICIENCIES

Epic allows you to distribute CSIO forms, reports and any other documentation to clients and other contacts by printing, emailing or faxing in one simple-to-use workflow.

30 Canadian Underwriter April 2009

During Epic’s four-year development period, Applied Systems listened to agents and brokers who told us what they wanted and needed in a management system on a day-to-day basis. We developed the system architecture to support those features and capabilities, attempting to provide for the needs of all brokerages, no matter what their size or level of business complexity.

Epic’s features are designed to help brokers service accounts most efficiently. For example, a new application called ‘Distribution Manager’ allows brokers to communicate with clients, prospects and business associates in the way they prefer, by fax, email or mailed letter. In addition, Epic can do the following: • Locate accounts quickly when searching by contact, phone, policy number or under the category ‘doing business as,’ among other data fields, even when the account’s name is hyphenated; • Access complete information.With two clicks, brokers can see all of the attachments related to a policy or activity (for a claim, certificate, invoice, etc.). Brokers can do the same across related items. For example, from a claim, they can see all activities or attachments related to just that claim. From a policy, they can see all certificates or transactions related to just that policy. • Search all notes on an activity. No matter how many notes exist, you can quickly find a specific note entry based on a date, name or specific topic. • Correlate general ledger and client transactions. Brokers can quickly search for the client’s cheque number to see if it was deposited, exactly where the cheque was applied and more. • Change invoice recipients. Brokers can accommodate an exceptional occurrence when an invoice needs to go to someone different, by simply choosing the right name from a list of contacts on the account. • Effective date confirmation. Confirm what coverages were in effect for an insured based on a given date, even when endorsements come in out of sequence. Epic allows brokers to see exactly what coverages were in effect as of the date they enter. A software developer toolkit (SDK) allows brokerages with other applications to integrate data with Epic. The SDK further reduces re-keying — another productivity boost — without compromising data security or integrity.

CANADA MARKETPLACE As the launch of Epic in Canada approaches, Applied Systems is following

Brokers running Epic can keep their systems current without the added expense associated with installing updates and new versions on each machine. CSIO standards promoting multi-carrier interface for Canadian brokers. Also, it is important to be mindful of language-

based regulations as screens and output are provided for brokers doing business in French. U.S. agents using Epic report the system is, indeed, working as a solution. Gnade Insurance Group in Frankfort, Illinois, was the first Epic beta agency to go live, in July 2008. Says Bryan Gnade, agency principal and manager: “It looks the way a system should look with today’s technology. We feel this is the management system of the future.”

CONTRACT SURETY Our experience in Contract Surety Bonding leads to solid and longterm relationships between brokers and contractors. Since the construction industry is the major user of contract surety – we have the following products to offer:

• Bid Bonds • Surety’s Consent • Performance Bonds • Labour & Material Payment Bonds • Maintenance Bonds • Supply Bonds • Lien Bond/Release of • Lien Bond The Guarantee Company of North America is Canada’s leading specialty insurer. We take pride in providing specialized products via the independent broker distribution network.

We Have…Time For You! OTHER PRODUCTS WE OFFER: • • • •

Professional Claims Services Committed to the Independent Brokers Commercial Lines (No Contract or Premium Volume required) Personal Lines (Contract Required)

gcna.com

April 2009 Canadian Underwriter

Financial Eclipse Signs of a hardening insurance market are aligning almost perfectly with the fallout from the meltdown RI WKH Ã&#x20AC;QDQFLDO PDUNHWV D UDUH HYHQW LQ WKH &DQDGLDQ LQVXUDQFH ODQGVFDSH 7KLV Ã&#x20AC;QDQFLDO HFOLSVH RI WKH LQVXUDQFH PDUNHW UDLVHV TXHVWLRQV DERXW SULFLQJ DYDLODELOLW\ DQG FDSDFLW\ DW D WLPH ZKHQ FRQVXPHUV DUH looking for ways to pinch their pennies. BY DAVID GAMBRILL EDITOR

32 Canadian Underwriter April 2009

Speaking

metaphorically, observers are witnessing a rare form of ‘solar eclipse’ in the Canadian insurance industry: an ailing economy has aligned almost perfectly with a hardening insurance market. This rare event raises obvious questions about the pricing, availability and capacity of insurance in the nation’s home, auto and commercial insurance markets. It also raises questions about consumer insurance buying habits: will consumers, for example, opt for higher deductibles to keep their premium prices low? Will they scrimp on or forgo some forms of insurance? Or will they move to new insurers or stay with their existing ones? Canadian brokers are well-placed to answer these types of questions. And they note that, despite the panicked tone of media headlines throughout the country, and despite the nightmarish ﬁnancial results carriers posted in 2008 Q4, the Canadian property and casualty insurance industry is proceeding apace in an orderly fashion. Yes, insurance rates are increasing slightly. But brokers note this has more to do with insurers making up for their increasing claims costs and not because of their terrible 2008 Q4 results. No, there are no availability or capacity issues of which brokers are aware — at least not for the foreseeable future. But yes, consumers’ insurance buying habits are changing somewhat. Particularly in some commercial insurance lines, brokers are starting to see signs of ways in which the economic downturn might affect the industry over the long-term.

April 2009 Canadian Underwriter

COVER STORY

Financial Eclipse Nightmare on Bay Street Over the past two and a half years, between 2006 and the early part of 2008, Canadaâ&#x20AC;&#x2122;s property and casualty industry experienced boom times. In 2006-07 in particular, natural catastrophes were few and far between, pricing was low and capital was aplenty. MSA Research president Joel Baker noted in a June 2008 seminar that at that time, the Canadian P&C industry had about Cdn$11 billion in excess capacity, enough to underwrite a replica of Canada and fuel a soft insurance market until 2012. Three months later, the U.S. housing market collapsed, triggered by a number of defaulted loans and credit derivatives based on those loans. The collapse of the U.S. housing and credit markets took down a number of the worldâ&#x20AC;&#x2122;s markets along with them. The worldâ&#x20AC;&#x2122;s largest ďŹ nancial services company, the American International Group (AIG), which harbours the worldâ&#x20AC;&#x2122;s largest insurance operations, was spared bankruptcy only by the largesse of the U.S. government, which now owns 79% of the company and doled out more than US$170 billion in bailout money. Canada, which sets very high capital standards thanks to a policy established by the federal solvency regulator, the OfďŹ ce of the Superintendent of Financial Institutions (OSFI), seemed to be spared the worst of any bankruptcy concerns. But the ďŹ nancial repercussions of what happened in the United States wreaked havoc on Canadian property and casualty companiesâ&#x20AC;&#x2122; investment portfolios and consequently their net incomes. Early this year, at the graduation ceremony of this yearsâ&#x20AC;&#x2122; Chartered Insurance Professionals in Toronto, two Canadian insurance company CEOs talked about the markedly declining 2008 Q3 results. One noted to the other that the full impact of the credit crisis on Canadian insurers would not even be revealed until the 2008 Q4 results. True to his word, in 2008 Q4, federally regulated insurers in Canada reported proďŹ ts in 2008 that were only half of what they were in 2007. Insurers reporting to OSFI reported a net income totalling slightly more than Cdn$2.2 billion in 2008, 34 Canadian Underwriter April 2009

down considerably from the Cdn$4.9 billion proďŹ ts in 2007. OSFI ďŹ gures show the industryâ&#x20AC;&#x2122;s collective net investment income dropped from just over Cdn$4 billion in 2007 to slightly more than Cdn$2.7 billion in 2008. MSA Research results, which account for 93% of the Canadian property and casualty industry based on premium volume, show more than half (55%) of 141

â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s almost counterLQWXLWLYH ZKHQ \RX see what appears to be capital draining out of WKH ZRUOG HFRQRP\ EXW the fact of the matter is that generally property and casualty companies DURXQG WKH ZRUOG KDYH been pretty solid.â&#x20AC;? Canadian insurance companies reported an underwriting loss in 2008. Putting this loss in perspective, as of the end of 2008 Q3, the industry reported an underwriting proďŹ t of Cdn$271.1 million. By the end of 2008, the underwriting loss for the year stood at Cdn$752 million, suggesting that in just one quarter, 2008 Q4, the industry saw Cdn$1.02 billion of underwriting income evaporate. Synchronicity At the same time insurers experienced huge losses in the fourth quarter last year, consumers were feeling the pinch of the economic meltdown. The March 2009 edition of Swiss Reâ&#x20AC;&#x2122;s monthly Canadian economic update provides the statistical backdrop for the insurersâ&#x20AC;&#x2122;

woes. â&#x20AC;&#x153;The Canadian economic recession deepened with real (Gross Domestic Product) GDP falling a sharp 3.4% in the fourth quarter, after a gain of 0.9% in the third quarter of 2008,â&#x20AC;? Swiss Re notes. It also observed the extent of the nationâ&#x20AC;&#x2122;s serious job losses: â&#x20AC;&#x153;Jobs declined for a fourth consecutive month in February with jobs falling by 82,600, largely driven by a decline in construction of 43,200, the largest monthly decline on record, and despite a 24,700 rise in manufacturing jobs. Consequently, the unemployment rate jumped to 7.7%, its highest since 2003.â&#x20AC;? So with consumers looking for ways to pinch pennies on insurance, and insurers looking to increase their rates to make up for underwriting losses (due to claims costs and investment losses), there is a strange alignment of forces in the Canadian insurance market. As many brokers and CEOs observe, normally an insurance cycle lags behind the countryâ&#x20AC;&#x2122;s economic cycle. But in Canada right now, the insurance market is showing some signs of hardening, which typically entails higher pricing and stricter underwriting requirements that often lead to availability issues. This is happening at precisely the same time consumers are suffering the worst effects of job losses and economic recession, and are therefore looking for any means to keep their premium payments down. So what happens in the Canadian market when an irresistible force meets an immovable object? Thus far, nothing, Canadaâ&#x20AC;&#x2122;s brokers observe. Allâ&#x20AC;&#x2122;s Quiet on the Northern Front â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re still going along pretty stable,â&#x20AC;? reports Linda Dawe, the CEO of the Insurance Brokers Association of New Brunswick. â&#x20AC;&#x153;Not to say something wonâ&#x20AC;&#x2122;t change down the road. Maybe a little tightening in homeownersâ&#x20AC;&#x2122; rates, and of course auto rates are regulated and closely watched by the New Brunswick Insurance Board. Weâ&#x20AC;&#x2122;re not going to see much change there, I donâ&#x20AC;&#x2122;t think. And in commercial lines, so far no brokers have brought to my attention that there are concerns yet.â&#x20AC;? Daweâ&#x20AC;&#x2122;s comments summarize the prevailing consensus among

COVER STORY

Financial Eclipse brokers throughout Canada. Itâ&#x20AC;&#x2122;s not to say that rates arenâ&#x20AC;&#x2122;t hardening, but many say the commercial market continues to be soft overall. As for adjustments made to homeownersâ&#x20AC;&#x2122; and auto rates, they are more reďŹ&#x201A;ective of insurersâ&#x20AC;&#x2122; claims experiences (claims costs are up in personal lines generally) and less the impact of the economic downturn. Of course if the United States is your standard of comparison, Canada appears to be in great shape. For example, in Michigan, where consumers are losing their jobs because of the instability of the auto manufacturing sector, people are trying to save money any way they can â&#x20AC;&#x201D; including withdrawing from purchasing auto insurance. â&#x20AC;&#x153;I can tell you for sure weâ&#x20AC;&#x2122;re not getting hit as hard here in Ontario business as they are getting hit south of the border,â&#x20AC;? observes Randy Carroll, the CEO of the Insurance Brokers Association of Ontario (IBAO). â&#x20AC;&#x153;[IBAO President] Peter Blodgett and I came back from a Michigan agentsâ&#x20AC;&#x2122; conference, and the amount of consumers in Michigan that have opted out of the system is staggeringly high. In Michigan alone, they have estimated that 17% have opted out on average. Just taking no insurance. They estimated that in the city of Detroit alone, it was in excess of 55%. When they said that, I looked at Peter and said â&#x20AC;&#x2DC;Iâ&#x20AC;&#x2122;m glad we ďŹ&#x201A;ew.â&#x20AC;&#x2122; Itâ&#x20AC;&#x2122;s not signiďŹ cant here, and we havenâ&#x20AC;&#x2122;t heard too many rumblings [of that happening].â&#x20AC;? Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC), says despite the current global recession, most countries in the world are still experiencing a soft market. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s almost counter-intuitive when you see what appears to be capital draining out of the world economy, but the fact of the matter is that generally property and casualty companies around the world have been pretty solid,â&#x20AC;? he says. Danyluk cites many reasons for the apparent lack of any pricing, availability or capacity issues in spite of insurersâ&#x20AC;&#x2122; apparent fourth-quarter money woes. Among them, he cites strong prudential regulation by OSFI, a pro-active approach by Canadaâ&#x20AC;&#x2122;s guarantee fund, the Property 36 Canadian Underwriter April 2009

and Casualty Insurance Corporation of Canada (PACICC) and insurers better segmenting their markets now than in the past. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re not seeing, at least I have not heard, a lot of issues about availability yet,â&#x20AC;? he says. â&#x20AC;&#x153;I think thatâ&#x20AC;&#x2122;s probably due in part to the fact that, on the commercial side, there has been some segmentation. Over the last several years, insurers have worked very hard

â&#x20AC;&#x153;When I speak to P\ FOLHQWV SHRSOH JHQHULFDOO\ VD\ Âś:HOO youâ&#x20AC;&#x2122;re in the insurance EXVLQHVV HYHU\ERG\ has to buy insurance.â&#x20AC;&#x2122; :HOO WKDW >HFRQRPLF downturn] doesnâ&#x20AC;&#x2122;t affect us until our clients start going bankrupt. $QHFGRWDOO\ ZHÂˇYH VHHQ some of that.â&#x20AC;? to identify those lines of business and those areas where they have particular expertise and underwriting know-how, and theyâ&#x20AC;&#x2122;ve tried to stick to their knitting. We have not seen the same number of [insurers] trying to do everything for everybody.â&#x20AC;? Storm Clouds on the Horizon Like many others, Ken Myers, ďŹ rst vice president of the Insurance Brokers Association of Nova Scotia, is quick to point out: â&#x20AC;&#x153;I think itâ&#x20AC;&#x2122;s too early to tell as far as [how the economic downturn is] affecting brokers.â&#x20AC;? Still, he observes bro-

kersâ&#x20AC;&#x2122; clients do mistakenly believe the economy doesnâ&#x20AC;&#x2122;t signiďŹ cantly affect the business of insurance. â&#x20AC;&#x153;When I speak to my clients, people generically say: â&#x20AC;&#x2DC;Well, youâ&#x20AC;&#x2122;re in the insurance business, everybody has to buy insurance,â&#x20AC;&#x2122;â&#x20AC;? Myers says. â&#x20AC;&#x153;Well, that [economic downturn] doesnâ&#x20AC;&#x2122;t affect us â&#x20AC;&#x201D; until our clients start going bankrupt. Anecdotally, weâ&#x20AC;&#x2122;ve seen some of that. Weâ&#x20AC;&#x2122;ve seen some businesses that no longer operate. In my practice, we do a lot of corporate commercial business, so weâ&#x20AC;&#x2122;re seeing lots of companies whose revenues have dropped. You would see this more in Ontario, particularly with companies that operate cross-border. In 2008, their revenues went down because of the Canadian dollar, so whatâ&#x20AC;&#x2122;s going to happen in 2009, who knows?â&#x20AC;? Brokers often cite commercial lines as the proverbial canary in the coal mine, an early warning system of how the economic downturn is affecting the Canadian insurance marketplace. Brenda Rose of FirstBrook Cassie and Anderson is a past president of the Toronto Insurance Conference, an association representing commercial insurance brokers in Canada. She says the economyâ&#x20AC;&#x2122;s effect on the insurance marketplace is linked to the fact that commercial insurance consumers pay for liability insurance based on their receipts for the year. â&#x20AC;&#x153;So if the estimate for the customerâ&#x20AC;&#x2122;s receipts for the upcoming year is down, then the premium will be down as well, assuming the rates are the same as last year,â&#x20AC;? Rose points out. â&#x20AC;&#x153;Some businesses carry less stock as well. You just see an overall shrinkage of values, not because anybody has decided to cut back, but because you just donâ&#x20AC;&#x2122;t have as much stock to insure. Thatâ&#x20AC;&#x2122;s the way that it works in liability as well. Youâ&#x20AC;&#x2122;re just not doing as much business if you donâ&#x20AC;&#x2122;t have as much exposure.â&#x20AC;? Post-economic meltdown, Rose says she is also seeing a lot of activity in the area of trade credit insurance. Businesses carrying trade credit insurance use it as an alternative to arranging pre-payment or cash-on-delivery terms with their clients. With trade credit insurance covering them in case of a default, businesses

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.

COVER STORY

Financial Eclipse can afford to let clients generate income from sales to pay for the product or service the business offers. â&#x20AC;&#x153;There is a lot of interest, a lot of people buying trade credit who previously wouldnâ&#x20AC;&#x2122;t have thought it was necessary,â&#x20AC;? Rose says. But consistent with a recent report by Marsh on this phenomenon in the United States, Rose notes insurers in Canada offering this form of insurance are being careful now in their underwriting, based on the new economy. â&#x20AC;&#x153;The risk [associated with underwriting trade credit insurance] is higher, not because there is increased demand, that is one factor, but becauseâ&#x20AC;Śthere is a good chance there is an increased danger of suffering a loss,â&#x20AC;? she says. â&#x20AC;&#x153;And so certainly underwriters are being very cautious. Some of the name companies who write that business are being very careful in their underwriting of it.â&#x20AC;? Johanne Lamanque, executive director of Quebec broker association Regroupement des cabinets de courtage dâ&#x20AC;&#x2122;assurance du Quebec (RCCAQ), says the economic downturn has also caused a ripple effect in the area of insurance premium ďŹ nancing as well. AIGâ&#x20AC;&#x2122;s economic situation caused it to withdraw abruptly from the premium ďŹ nancing market in Canada (see story on Page 24), leaving the ďŹ eld open for two or three of its competitors in Quebec. Although there have been no availability issues in the market caused by AIGâ&#x20AC;&#x2122;s departure, the event did cause Quebecâ&#x20AC;&#x2122;s brokers to operate a little differently than before, Lamanque notes. â&#x20AC;&#x153;At the moment, a few brokers are seeing that companies are more strict on the conditions to ďŹ nance commercial insurance premiums,â&#x20AC;? she says, noting that Quebecâ&#x20AC;&#x2122;s brokers have picked up the slack. â&#x20AC;&#x153;Some businesses cannot be ďŹ nanced to pay their premium. For example, we have a car dealer that pays a premium of $50,000 a year. Usually you will have that premium ďŹ nanced by one of these [premium ďŹ nancing] companies. If they do not ďŹ nance that industry anymore because of the downturn, the insurance brokers have to pay the insurance premium to the insurance company in 60 days. Itâ&#x20AC;&#x2122;s an indirect effect [of the economic downturn], but 38 Canadian Underwriter April 2009

itâ&#x20AC;&#x2122;s disturbing. One day we will have a problem with that. Itâ&#x20AC;&#x2122;s particular to big accounts in commercial business.â&#x20AC;? All of the brokers interviewed for this story say these observations should be placed in proper context. The commercial insurance market in Canada remains soft, Danyluk notes, and Rose says there is still a great deal of competition for commercial accounts, suggest-

â&#x20AC;&#x153;This is problematic if personal lines rates go up at a time when people are experiencing job loss. It puts pressure RQ JRYHUQPHQW WR UHJXODWH DQG LWÂˇV really important for them to regulate responsibly.â&#x20AC;? ing low rates are hardly a thing of the past. Carroll notes that in Ontario, although commercial insurers have shown signs of being more selective about the risks they will write, there are currently no availability issues in the commercial insurance market. Having said that, Carroll and others note the economic downturn might be playing a role in masking the effects of an anticipated hardening commercial insurance market. â&#x20AC;&#x153;I was talking to a broker last night,â&#x20AC;?

Carroll recalled. â&#x20AC;&#x153;I asked how are things going on the commercial side and she said itâ&#x20AC;&#x2122;s like companies are trying to take rate, but itâ&#x20AC;&#x2122;s a phantom rate. I said, â&#x20AC;&#x2DC;What do you mean by that?â&#x20AC;&#x2122; She said companies are trying to get more selective. They are taking rate where they think that they can take rate, but the consumers seem a lot more selective in terms of what coverages they require; they are more willing to self-insure to a certain degree. So what weâ&#x20AC;&#x2122;re doing in part on the one hand, with insurers trying to build up, the consumers are taking that rate away because of the economic downturn, by removing cover business and/or increasing deductibles to offset any potential rate increases.â&#x20AC;&#x2122;â&#x20AC;? Or as Rose puts it: â&#x20AC;&#x153;If commercial businesses are shrinking, you have less to insure, so rate increases are less apparent, because the two somewhat offset each other.â&#x20AC;? But while this may be true, it all might ultimately come out in the wash. â&#x20AC;&#x153;Theoretically, you would think if the actuaries are doing their jobs, it should work itself out,â&#x20AC;? says Blake Craig of the Insurance Brokers Association of P.E.I. Craig observes that even if insurersâ&#x20AC;&#x2122; commercial rate increases are offset by their clientsâ&#x20AC;&#x2122; withdrawal from certain coverages, insureds are â&#x20AC;&#x153;absorbing more of the claim,â&#x20AC;? and thus reducing insurersâ&#x20AC;&#x2122; claims costs. â&#x20AC;&#x153;That would be my spin on it,â&#x20AC;? Craig says. Rose notes that during this economic recession, commercial brokers are under increased pressure to make sure clients are aware of the impact of reducing their coverage for certain risks. Commercial clients should have more on their minds than simply seeking out the cheapest insurance prices during tough economic times, she says. Personal Lines â&#x20AC;&#x2DC;Stabilizingâ&#x20AC;&#x2122; Commercial pricing has been softer than in personal lines for some time, so how has the downturn in the economy affected pricing, availability and consumersâ&#x20AC;&#x2122; buying habits in the home and auto insurance lines? â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t see at this stage thereâ&#x20AC;&#x2122;s much in our economy thatâ&#x20AC;&#x2122;s going to affect rates,â&#x20AC;?

COVER STORY

Financial Eclipse says Dawe, again reflecting the general consensus among many brokers. “There hasn’t been any discussion that I’ve been privy to that says we are going to see any significant increase in rates. We’ve seen a little bit of tightening here on rates, maybe a little bit closer underwriting, but nothing dramatic at this time.” Auto and homeowners insurance rates were expected to increase even before the economy took a turn for the worse, Lamanque notes. “At the end of 2008, even before the announcement of the economic crisis, we were seeing that an increase (in personal property lines) was coming,” she says. “I would say the crisis has accelerated the process, but we were in that process even before the crisis.” Whether or not the economic downturn has affected insurance consumers’ buying patterns seems to be up for grabs, depending upon where you live. “Personal lines insurance, from what I understand from our member brokers, has been really slow for new business, which tells us that people aren’t shopping,” says John Penney, president of the Insurance Brokers Association of Newfoundland. “They are not buying those things that would cause them to go out and look for more insurance, toys [like vehicles] or whatever. But our retention has been very high. It means people are perceived to be somewhat satisfied with their current providers.” Ontario is the flip side of the Newfoundland experience, Carroll notes. “On the auto/property side, there’s a lot of business moving these days,” he observes. “Consumers are seeing increased premiums and as a result they are shopping. There’s a lot more shopping happening on the auto and property side over the past three to four months. They are increasing deductibles, taking some coverages off in regard to their collision coverages (autos that might be a little older, for example). There is a change of direction in terms of let’s see what I can do as a consumer to lower that premium.” Measure of Stability Changes to the Canadian insurance market based on the shift in Canada’s 40 Canadian Underwriter April 2009

economic fortunes are not expected until later this year or next year. But despite the absence of anything to report now, there is a palpable sense that brokers are waiting for the other shoe to drop. Carroll says the IBAO’s economist is predicting that whatever happened in January of this year is due to repeat for the rest of 2009. That’s not comforting news for those reading Swiss Re’s monthly economic forecast in January 2009, when the reinsurer reported 34,400 job losses and a 0.1% drop overall in the GDP. And certainly Canadian insurers, although still

well capitalized, cannot afford to keep sustaining losses of the type reported in 2008 Q4 without eventually altering consumers’ insurance rates. “This is problematic if personal lines rates go up at a time when people are experiencing job loss,” Danyluk notes. “It puts pressure on government to regulate, and it’s really important for them to regulate responsibly. Regulators have to worry about the consumer, but also recognize that if these [insurance] businesses are going to be there for a long time, they have to have sustainable premiums. “The longer I’m in this job, the more I realize, there are less and less villains. I have empathy for the tough job regulators have to do, the tough job politicians have to do and the tough job that insur-

ers have to do. The challenge as a broker is, all of these folks’ actions at times impact the way we look after our clients and that can be frustrating.” Certainly brokers are taking a keen interest in insurers’ financial results, and how these results might play out in terms of capacity or availability issues for consumers down the road. As many brokers in Ontario note, AIG maintained a double-A credit rating a short time before its financial products segment got the rest of the organization into a financial predicament. It should be reaffirmed here that AIG’s property and casualty operations were not affected in terms of capacity and remain on solid financial footing, according to regulatory agencies. But the event clearly has brokers and consumers nervous. A well-heeled U.S. client insured with AIG recently called up his Canadian broker and said he no longer wished to be insured with AIG. “That’s not even something we would have contemplated six months ago,” the broker observed. And so, if there’s no other difference the sour economy has made to the Canadian insurance market, it has got brokers talking openly about the best financial indicators for determining the health of the country’s insurance markets. “The solvency of insurers is a great concern,” Carroll says. “On the personal lines and commercial side, the majority of problems we’re hearing from our brokers is with regard to the solvency of insurance companies and we are trying to get a good understanding of what is a good standard test. What can we rely on in regards to data in which we can be confident?” Myers agrees that the recent confluence of an economic downturn and an evolving hardening of the insurance market has brought the solvency issue into high relief. “We’ve really taken it [solvency] for granted,” Myers says of conditions over the past five years. “I think brokers generally are going to have to examine that more closely, as to what we have to do to examine how healthy the insurers are that we represent. We’ve got to make sure the insurers we deal with are as healthy as we believe they are.”

value: n. the full worth of something. Consider the cost of the premium against the coverage and factor in the cost of efforts to make a claim. Chubb Insurance better defines its policies. When you have better defined coverage, you gain better value in insurance.

If you seek value for your clients, 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.

Improving your Brokerage, Part 2

Building Blocks Marketing plans should be highly strategic, organized and coordinated. They should focus on benefits, not just features.

Lorie J. Guthrie Phair Principal, LePhair Associates Ltd.

This is the second installment of a two-part series.The first installment appeared in March 2009.

In the first part of this two-part series, we discussed the need to establish a culture of success throughout the organization. We then looked at a series of building blocks required to make this happen: Establishing Great Leadership, Creating a Business Plan, Standardizing Procedures and Developing a Client Management Strategy. This second part looks at a number of other key building blocks for producing a high performance brokerage.

to consistently brand their value proposition. Even testimonial letters are forms of marketing; sales people can use them effectively for appropriate positioning. Depending on the size of the company, they may have to choose which methods will make the greatest impact; regardless, they must all work together with the same consistent message, look and theme. Marketing plans should be highly strategic, organized and coordinated. They should focus on benefits, not just features. Become a market expert, not just a product expert. You will attract many more buyers if you are offering something of value rather than simply trying to sell them an insurance product.

DEVELOP YOUR PEOPLE STRATEGY

Business is all about people. High-performing companies know that if they have committed and Every aspect of business needs to be run with pre- engaged employees, they are more likely to have committed and engaged clients. cision and that includes marketBUILDING BLOCKS TO A The â&#x20AC;&#x153;people strategyâ&#x20AC;? of a broing. Once a brokerage is clear HIGH-PERFORMING BROKERAGE kerage should include regular talabout its unique value proposition, once it has established Measure, manage and communicate ent audits to assess the skills of by implementing the following steps: the current compliment of people processes, procedures and a clear Establish great leadership. versus what may be needed down customer service strategy, it A. B. Do a reality check. the road. Ongoing recruitment is needs to consistently market and C. Create the business plan and and update it annually. essential, along with a willingpackage this offering. High per- D. revisit Establish standardized procedures ness to invest in new hires that formers often embrace many E. Develop the client management might possess the right behavforms of marketing, including F. strategy Invest in the marketing plan iours even if they do not yet posadvertising, direct mail, corpo- G. Develop the people strategy sess the right skills. Use approprirate literature, public relations, H. Implement world class sales practices ate assessment tools and success personal contact, education- I. Review and monitor financials profiles with new and existing based marketing and the Internet

INVEST IN THE MARKETING PLAN

42 Canadian Underwriter April 2009

staff to bring objectivity to the hiring and succession planning process. Ongoing training and skill development should be a key initiative and investment in your brokerage. It should be mandatory for everyone in the company. Continuous training becomes habitforming: it is the only way new skills are learned and put into practice.When staff is well-trained, both technically and procedurally, the company as a whole is far more productive and proactive. Ongo-

ing training also assists in the development of new and improved procedures, and brings clarity to expected performance standards.

IMPLEMENT WORLD-CLASS SALES PRACTICES In high-performing entrepreneurial organizations, everyone’s in the game. Everyone is responsible for either driving or contributing to results.These expectations are established early on; they are

continuously reinforced with all new employees. Each person in the organization is aware of his or her own contribution and impact on new business, client retention and ongoing client service. Organizations with exceptional ongoing sales and high “return-on-relationship” results recognize that the entire organization needs to be in the game, not just those designated as responsible for new sales. Ultimately, companies with these attributes, consistently achieve above average results because they are focused on the things that provide the greatest return.They operate productively, everyone is aligned and accountable for results and high standards of consistent client service is the norm.The bottom line then takes care of itself. Needless to say, when developing a high-performing brokerage with an embedded sales culture, world-class sales practices are critical. There should be documented company procedures and ongoing training for your company’s specific sales processes, along with specific skills training for individuals. A key component of a company’s recruitment strategy should be directed towards finding, assessing, retaining and developing top performers that are right the company’s culture. The brokerage’s annual plan should include very specific sales objectives and goals. And when we refer to marketing and the company’s competitive advantages, not only should key employees understand what they are, the sales force should be absolutely indoctrinated on them.This is the company’s brand, after all.

REVIEW AND MONITOR FINANCIALS The financial picture is the ultimate measurement, the backbone of any business. High-performing companies recognize “cash is king” and that good financial management and oversight is paramount. Budget and manage cash flow appropriately and know your company’s key performance indicators, both operating and financial. Review and benchmark them monthly against industry standards, take action where necessary and keep your staff informed on results at a level that’s appropriate. 44 Canadian Underwriter April 2009

Unlocking Profits In Your Business

6.0 40%

Since the complete derailment of credit markets occurred in mid September, “the guiding principle for managers and business owners worldwide has been to gather up whatever cash they can find, and then do their damndest to keep as much of it as possible for as long as possible.” The Economist, 11/22, p17. This dismal economic environment has led to a marked increase in demand for premium finance loans. Small businesses, desperate to conserve current capital and existing credit facilities, are actively seeking out ways to help distribute the cost of their insurance over time. Even customers which were in cash rich, growing industries just months ago are highly motivated to use premium financing to ensure adequate insurance is obtained and expenses deferred. During the second half of 2008 we have seen substantial demand increases across industries and geographic regions of Canada. This is also the case in the US. Demand for premium financing is up as much as 30% to 40% from just the beginning of 2008. Complementing the dramatic demand increases is the rapid reduction in lending rates from Chartered banks. Accessing a line of credit to fund an in house premium finance (IHPF) program is a great way to generate additional revenue on existing business without tying up any brokerage capital. Most facilities used for IHPF are based on bank’s Prime Business rate. This rate has been reduced substantially throughout 2008 as a result of deteriorating economic conditions. The rate was as high as 5.75% in January 2008 and has moved down to 3.00% as of January 20, 2009.

10%

IHPF OPPORTUNITY

Business Rate

“Lenders are offering little new credit, and charging substantial premiums for it. Many companies have put expansion plans on hold. Banks are completely closed. Canadian Business, 11/24, p102.

20%

PF Demand Growth

30%

he economic malaise seems to be everywhere, .....contributing.to emotional exhaustion. The evening news and daily papers are full of doom and gloom. Over several months, credit has gone from a steady flowing river, to a dried up gulch.

Prime

When a Perfect Storm Creates Opportunity:

5.5

5.0

4.5

4.0

4.5

0% 3.5

2 0 0 8 01 02

03 04

05 06 07 08

P rime Business Rate

09 10 11

PF Demand

S o u r c e : B a n k o f C a n a d a ( w w w. b a n k o f c a n a d a . c a )

Expense obligations associated with running an in house premium finance program could not be more advantageous.

Business borrowing costs have lowered from Jan to Dec 2008 by 40%. This historic low interest rate environment is anticipated to last throughout 2009 and well into 2010. In uncertain times, sharpening your business focus around your existing customer base may be more prudent, and financially rewarding, than looking outside at risky acquisitions or other major expenditures. Establishing an in house premium finance program provides your brokerage with the opportunity to unlock profits existing in your business. Offer your best insureds exactly what they’re after in these difficult times. An in house premium finance program allows your brokerage to generate an additional 50% or more revenue on existing customers while making insurance purchases for your best clients even easier.

Contact Broker Builder today to learn more about converting receivables into revenues. Call 877-266-0691 or email bsillem@brokerbuilder.ca. Visit www.brokerbuilder.ca or www.premiumfinanceaccounts.com to learn more about this timely opportunity.

Media Expansion :

The dramatic growth of Internet communication has greatly broadened potential errors and omissions (E&O) litigation exposures. Matthew Davies Senior Underwriting Specialist, Canadian Manager for Professional and Media Liability, Chubb Insurance Company of Canada

Liability risk within the traditional print and broadcasting media sectors may be well understood and increasingly well managed by the media industry as it develops, but the “Big Bang” of information technology development since the late 1990s has created new and ambiguous litigation exposures. In today’s technology age, virtually anyone with a cell phone that boasts built-in camera and Internet connectivity features is a potential media reporter. The ever-expanding innovation of new wireless, multi-media devices such as iPods, PSPs and cell phones — enabling users to download data/images from the Internet and upload to another Web site in a matter of seconds — illustrates the evolving liability exposures facing all enterprises hosting an online presence.

46 Canadian Underwriter April 2009

As a result, the dramatic growth and need for Internet interaction by traditional media producers and nearly every other commercial enterprise has greatly broadened potential errors and omissions (E&O) litigation exposures. This danger has been amplified by recent online site trends allowing for direct posting of commentary by customers and the public as a whole. This includes everything from product reviews on a retailer’s Web site through to personal derogatory opinions expressed against an individual or organization.These types of posts create a potential defamation exposure for the Web site host.You can add to this complexity the growing popularity of “blogs,” which are personal, editorializedtype commentaries hosted on Web sites. Overall, the online move toward interactive exchange between Web site hosts and their audiences has vastly expanded the possible media liability exposure for both traditional and nontraditional information content distributors. The potential media liability exposure is not only restricted to the owners of Web sites or platform hosts: it includes third-party content managers or providers such as advertising and news

Illustration: Graham Roumieu

Opening the Door to Liability

your eyes

Seeing the world through

/a g]c` PcaW\Saa U`]ea a] R] g]c` `WaYa

AV]cZR\Â¸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]`ZRÂ¸a QV]WQS T]` `WaY [O\OUS[S\b BVS QV]WQS T]` g]c

eee O]\ Q][

agencies.The precise nature of media liability lawsuits can be difficult to predict; the issue of legal jurisdiction further compounds this ambiguity.The Internet is global and the exchange and hosting of information does not adhere to geographic or political borders.

MEDIA LIABILITY COVERAGE E&O media liability exposures currently recognized by the courts include (among others): • defamation; • invasion of privacy; • plagiarism; • misappropriation; and • copyright and trademark infringement. The legal profession would suggest this is probably just the “tip of the iceberg” in terms of future liability charges. Even if an enterprise is innocent of the allegations made in a libel lawsuit, it could still possibly incur expenses running into millions of dollars in defence and “economic settlement” costs. Perhaps the most alarming aspect of the sudden advancement in media technology — and the associated increase in liability exposure — is that few enterprises or content providers appear to be aware that their general liability insurance policies are unlikely to provide coverage in such circumstances. In situations in which general liability policies do provide such coverage, it is usually very limited; personal injury coverage is typically on a named-policy basis. Not many insurers have been keen to dip their toes into the murky waters of media liability and have therefore sought to limit their exposure. Media liability coverage is therefore a speciality line and a limited number of carriers offering such cover internationally.

BROKER PERSPECTIVE One advantage of the Internet is that it provides companies and content providers with a larger and broader audience than traditional media channels such as print, radio and television, observes Alan Hollingsworth, partner and practice leader of entertainment and media at HKMB Hub International. “The

48 Canadian Underwriter April 2009

surge in online media continues to raise the bar from a competitive standpoint, and what we as brokers are seeing among our clients is increased focus on creativity,” he notes. “The downside, unfortunately, is that this creativity push, combined with a larger audience, widens the potential liability exposures facing a client.” Hollingsworth says few Internet Web site hosts and third-party content providers appear aware of the possible media liability to which they may be exposed. However, after 10 minutes of discussion on the subject, most clients’ eyes are left wide open with realization. “The [role] of the broker is to find out exactly what the potential exposures of an enterprise might be, from hosting events and entertainment activities to Web site involvement. Media liability is an evolving exposure.”

Although market awareness of media liability exposures is limited thus far, "Web site hosts are definitely increasing pressure on third-party content providers to have media liability coverage before awarding contracts,” Hollingsworth says. This move began in the United States, but is starting to become a more common practice in Canada. “We expect such contract requirements will increase in coming years.” The lower level of awareness of media liability exposure in Canada has much to do with the fact that the country appears to be less litigious, Hollingsworth notes. Litigation related to the media is still very much in the infancy stage. “How-

ever, it is definitely becoming more of an issue,” he adds. Furthermore, “a Web site host or content provider based in Canada might feel more comfortable in a less litigious environment, but unlike most other forms of media, the Internet is open to a worldwide audience, so there’s worldwide exposure to media liability,” Hollingsworth adds.

UNITED STATES v. CANADA “In the United States, several legislative protections limit the exposure of Web site owners, hosts and third-party platform providers or managers against media liability that simply do not exist in kind in Canada,” says Ken Goldstein, assistant vice president and worldwide media liability manager at Chubb & Son, a division of Federal Insurance Company. These include: • Communications Decency Act (CDA), which addresses whether bloggers are shielded from liability resulting from information that third parties post. Liability is determined on the basis of whether or not a blogger engages in an acceptable amount and type of editing that does not cross the threshold of becoming an “information content provider.” In essence, under the CDA, Web site owners or platform providers are generally protected if they allow the public to post material but do not engage in any form of editing. In such instances, the liability would fall on the member of the public or the third-party posting the defamatory content. However, in situations in which the Web site owner or platform provider monitors and edits content that is ultimately deemed to be defamatory, then the Web site or content provider is responsible for those edits. • The Digital Millennium Copyright Act (DMCA) limits the liability of online providers in terms of copyright infringement by their users.This “safe harbour” applies if the Web site or platform provider did not knowingly post the infringing material and also acts expeditiously to remove the material after having been given appropriate notice. A current case before the courts, Viacom v.

YouTube and Google, will determine whether or not the latter two organizations knew users were posting material that infringed Viacomâ&#x20AC;&#x2122;s copyright. The U.S. legal system also places the burden in defamation cases on the â&#x20AC;&#x153;injured partyâ&#x20AC;? to prove a â&#x20AC;&#x153;false statement of fact.â&#x20AC;? In cases involving public officials and figures (such as actors), the party presenting a defamation lawsuit has to prove actual malice on the part of the media (i.e. that the media acted with knowledge of falsity or with reckless disregard of truth). Neither of these higher standards exists in Canada, Goldstein observes. â&#x20AC;&#x153;The lack of legislative protection in terms of media liability is a real problem in Canada,â&#x20AC;? comments Lorne Honickman, a partner at Toronto-based legal firm McCague, Peacock, Borlack, McInnis & Lloyd. The blog feature of Web sites is currently shrouded in the most legal ambiguity. In general, however, nobody in Canada is protected against copyright

Honickman notes that although most corporate Web sites have some form of content disclaimer, such disclaimers become ineffective once an injured party gives notice and immediate action is not taken to remove the material.

A COMPLEX FUTURE

infringement if they have been given notice of the infraction. â&#x20AC;&#x153;The issue of â&#x20AC;&#x2DC;hyper-linkingâ&#x20AC;&#x2122; is another contentious area of Internet media liability that has yet to find legal direction in Canada,â&#x20AC;? Honickman notes. â&#x20AC;&#x153;There are a lot of lawsuits out there at the moment. And the world of the Internet is evolving day by day.â&#x20AC;?

8)0 $"3&4

about

TRAVEL INSURANCE?

The Internet is without borders. It is under no specific jurisdiction. Audiences are worldwide, and Canada simply does not afford the legislative protection against media liability that the United States and most European countries do. Web site disclaimers do not offer a â&#x20AC;&#x153;get out of jail free card.â&#x20AC;?You simply cannot reliably disclaim yourself from negligence. Media liability exposure is not new, but the forms of exposure are becoming more dynamic as technology advances. Almost every enterprise engaged in Web site activity faces potential exposure and should look to assess their increasing risks and secure appropriate liability coverage.

8& %0 IN FACT ITâ&#x20AC;&#x2122;S

everything WE DO. With an expert on-site staff providing personalized emergency assistance, customized underwriting services, innovative product development, targeted marketing, and prompt claims fulďŹ llment, weâ&#x20AC;&#x2122;re your travel insurance specialists. $BOEJ

BODF M *TVSW 5

FMDIPTO B X ."(%* 3*"% O $MBJNT BOE 1SPEVDU 17 years in the travel and ďŹ nancial services industry.

April 2009 Canadian Underwriter

Marketing Your Brokerage Effective marketing requires a plan, just like your other business processes.

Catherine Trimble Business Development, Pathway Partners Ltd.

Are you on target for brokerage growth this year? Where is your marketing plan taking your company? Who’s your best customer? What’s your marketing budget this year? What are the key messages for your prospects and customers? Your brokerage marketing plan should answer all of the above questions and more.A well-developed marketing plan is your best solution for brokerage growth, retention and customer satisfaction. And yet, it is often one of the leastconsidered aspects of an insurance brokerage’s overall business strategy. Of course some offices think about it, but with the daily grind of doing your work, it is frequently a forgotten area.

MARKET ENVIRONMENT ANALYSIS

Michelle Cole-Kennedy Managing Partner, Pathway Partners Ltd.

In order to make fact-based decisions regarding marketing strategy and design-effective, costefficient programs, you must possess a detailed, objective understanding of your business and the market in which you operate. Marketing analysis can be structured into three areas: customer analysis, company analysis, and competitor analysis (the so-called “3Cs” analysis). Research into these areas can assist with both the strategic planning process and market planning. Remember: the more effort you put into research, the more effective your marketing plan will be. Market research will help determine what people want, need or believe. It can also involve discovering how they act. Once this research is completed, it can be used to help determine how to best market your products.

50 Canadian Underwriter April 2009

SELECTING A MARKETING TARGET The focus of customer analysis is to develop a method for market segmentation, breaking down the market into various groups of like customers. Market segmentation is the division of the market or population into subgroups with similar motivations and needs. Develop your detailed profiles for each market segment, focusing on any number of variables that may differ among the segments: demographic, psychographic, geographic, behavioral, needs-benefit and other factors that may contribute to your customer groups (church, soccer, hockey, dairy farmer, retail shop, line of business, etc). For example, many brokers are targeting the 50-plus age category as part of their marketing plan. This is a simple yet effective option you can use. However, many brokerages are neglecting to take into account students and/or the the increasing number of young people with high disposable income and electronics that will make your head spin. Who is targeting this area of the market? Not many at all.

ESTABLISHING A MARKETING STRATEGY Once the research is complete, the strategy can be established. The marketing strategy provides the goals for your marketing plans. It tells you where you want to go from here.The marketing plan, in contrast, is the specific road map that’s going to get you there. A marketing strategy should be focussed on the key concept that customer satisfaction is the main goal.The strategy allows you to concentrate your limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. In establishing your marketing strategy, keep in mind who in your brokerage will be cham-

pioning your marketing efforts. Keep this person at the forefront of all planning.

MARKETING MIX This is the creative side of the marketing process, taking into account the costs associated with the strategy. It is really just the selection of the ways to communicate or deliver your key messages and call to action to your target market. This usually involves planning across the “4Ps” of marketing: product, promotion, place (i.e. sales and distribution channels) and pricing.The implementation choices across the 4Ps are often referred to as the marketing mix, meaning the mix of elements you will employ to “go to market” and execute the marketing strategy. The overall goal of the marketing mix is to consistently deliver a compelling value proposition that reinforces the firm’s chosen positioning, build customer loyalty and brand equity among target customers and achieve the firm’s marketing and financial objectives. In the broker’s world, products are basically already developed and priced.The broker’s role is to match the products — and in some cases, services — to our customers. To that end, our use of promotion and place are employed more in the marketing mix and factor heavily in our marketing plans. For simple marketing plans, do it in-house. If you are going to take it to the extra limit, then hire a professional. Whatever approach you use, make sure you are not paying more for the marketing effort that is needed. Your plan should not be so ambitious that it fails before it starts. Don’t forget to keep it simple. Review your promotional options with your local broker’s association, since the association may have already preapproved co-marketing opportunities with insurance companies.

THE VALUE PROPOSITION The Broker Unique Selling Proposition (USP) is the message you want your customers to receive about your product or service. It represents the heart of your marketing plan. The key features of USP are as follows:

52 Canadian Underwriter April 2009

• brokers simplify the insurance transaction process; • brokers provide consumer choice; • brokers ensure the coverage the consumer needs is the coverage the consumer gets; • brokers are there in a time of crisis; • claims advocacy; • brokers talk in plain language; • local presence; and • brokers are Canadian.

BROKERAGE TOOL BOX Technology Tools • By leveraging technology (learn Excel and BMS reports), marketing objectives can be clearly defined in quantitative terms (hard numbers) and return on investment (ROI) can be easily calculated, providing greater efficiencies to your marketing operations. • Understand what tools are available with, as well as the limitations of your broker management system. Learn and use any and all marketing components (integrated workflows). • Clean up your data, so it is more accurate and useful. To this end, you may look into data audits, data standards and data quality. • Use available fields in your broker management system or create an MS Word document to detail each customer’s profile and attach it to their customer record. • Report and create lists on the profiles/market segments to the best of your BMS capabilities. This will help identify the appropriate market segment for each customer and prospect you have. Research Tools: • Create key customer fact books, outlining their purchases, preferences, opportunities, needs, likes, dislikes and threats. Your key customers are the 20% of your customers who drive 80% of your revenue. • Create key competitor fact books, including their key advertizing spend, key messages, key customers to target, customers lost, staff and critical issues (moving, succession issues, staff retention, etc.) • Create key insurer fact books that outline insurers’ strategic goals, the assis-

tance they provide, their record on product innovation, key contacts, solvency, their financial strength rating, ownership and their competitive situation locally.

Survey Tools: • Use survey companies and tools to gain customer understanding and research. • Research firms offering predictive intelligence technologies can provide consumer research for the insurance industry, and can also potentially provide benchmarks and insights. • Online tools such as Survey Monkey can be used to engage in consumer research. Sample survey questions might include: 1. Who are the customers? 2. Where are they located and how can they be contacted? 3. What quantity and quality do they want? 4. When is the best time to sell? 5. What do they like or dislike about our service? 6. Would longer hours of operation be beneficial to you?

THE MARKETING PLAN The content of marketing plans varies from firm to firm. It commonly includes: • an executive summary; • a situation analysis summarizing facts and insights gained from market research and marketing analysis; • the company’s mission statement or long-term strategic vision; • a statement of the company’s key objectives, often subdivided into marketing objectives and financial objectives; • the company’s marketing strategy, which specifies the target segments to be pursued and the competitive positioning to be achieved; • implementation choices for each element of the marketing mix (the 4Ps); • a budget; and • measurement and results reporting. Once you’ve established your marketing plan, remember it needs to be a living, breathing document. Establishing a marketing plan goes a long way towards helping you stay focused and on track to market your products and services effectively.

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.

Leading the Pack Editor

Brokers are benefiting from a flurry of activity related to leadership training. Industry-wide discussions about broker succession two years ago have planted seeds that are now starting to blossom in the form of emerging broker leadership training programs. Everywhere one looks, a new program is being developed or introduced that offers specialized training for young brokers — in particular, young brokers who are demonstrating the talent and ambition required to take over as the principal of a brokerage. “There is an older Baby Boomer generation that is in senior management sector now, so there’s definitely a huge issue with succession planning,” observes Carey-Ann Oestreicher of the Insurance Institute of Canada. “I think that a lot of people [in the brokerage community] are more in tune with that and thinking it’s not that far down the road anymore, and that they need to be thinking about succession planning. People are definitely putting a huge focus on that from what we’ve seen. Even with the people participating in the [Institute’s Chartered Insurance Professional] courses, you can definitely hear in their feedback an interest in taking their knowledge to the next level — management level thinking, how to lead a brokerage or take a senior account executive position at one of the big brokerages.”

54 Canadian Underwriter April 2009

The broker community’s need for this knowledge is well-documented. In May 2008, the Institute published results of a large demographic study it conducted that specifically related to Canada’s property and casualty insurance industry.The study found “the research justifies the industry’s concerns about recruitment, retention and succession planning in the broker and adjuster communities.” Specifically, the study learned that “for brokers and agents, [the study] demonstrates that onethird could retire within the next 10 years; significantly more could retire if they are in the management cadre.” Recognizing the need for leadership training, the industry’s response has been specific and targeted. Insurance companies, broker associations and the institute all recognize that leadership training means much more than simply re-hashing the nuts and bolts of good sales technique.

INSURANCE COMPANY PROGRAMS “Brokers today are continually getting bigger, and the leadership now needs a much different skill set,” observes Shawn DeSantis, senior vice president of personal and commercial insurance at RSA. “It’s human resources, it’s finance, it’s pure motivational leadership, it’s strategy, it’s sales. So these brokers are moving out from what started as a sales business into a much more sophisticated business, and therefore their leadership needs to get more sophisticated.”

Illustration: Graham Roumieu

David Gambrill

Drawing on his own executive development training two years ago at Oxford University, DeSantis has worked to establish the ‘Making Partner’ program at RSA. Launched in 2008, the program partners with Queen’s University to offer specialized classes in leadership to brokers (it’s not exclusive to RSA brokers). Brokers consistently cite the program as among the most comprehensive leadership training programs available. This year, a group of 17 ambitious and motivated brokers, participants in the Making Partner program, were brought together for three days at the Donald Gordon Conference Centre at Queen's University.While there, they took full-day classes on topics such as financial planning, leadership and business strategy. In the business planning strategy session, for example, the students were asked to consider what differentiates one product (the course instructor used the example of a camera) from another, and ponder whether it was possible to create an insurance product that a competitor could not easily imitate.The question led to an interesting discussion about the nature of the insurance product, which one broker in the class described as a “grudge buy” for consumers. How, one broker asked, could you get consumers as excited about buying insurance as they would be about buying something tangible like a camera? DeSantis said the 17 people pondering such questions each received the endorsement of their brokerage principals, who wrote letters in support of the young brokers they viewed as the most likely to succeed them. The students selected for the program were drawn from across Canada and generally have a minimum of 10 years of professional experience. RSA has made a five-year commitment to the Making Partner Program and expects to educate about 250 future broker principals during this time. Intact Insurance (formerly ING Insurance Company of Canada) offers a threeand-a-half-day program called the Executive Leadership Program. The program brings together the company’s partners and executives with like-minded, entre-

56 Canadian Underwriter April 2009

preneurial brokers to gain insights into what kinds of strategies brokers might employ. An atmosphere of candor is encouraged, says Stephanie Zee, Intact’s vice president of sales and business development. She says the “refreshing” openness is critical to establishing a network among future broker leaders, as well as to building a body of specific knowledge that individual participants can relate to their own experiences. DeSantis says sophisticated leadership training programs for brokers definitely benefit from the substantial financial resources available from global insurance companies like RSA. But this is not to imply that broker associations are sitting by idly, waiting for insurance companies to offer brokers leadership courses.

BROKER PROGRAMS Dan Danyluk, the president of the Insurance Brokers Association of Canada (IBAC) said his association has been looking at the broker succession issue for a number of years. Like the insurers, brokers recognized they needed a more sophisticated skill set to lead than simply to become good producers.This realization took the form of a business strategy program launched two years ago, developed by brokers for brokers, called the Canadian Professional Insurance Brokers program. “We do a great job right across the country of doing technical training,” Danyluk says of existing training courses for brokers. “If you want to know what to with wood stoves, there’s training. If you want to know what to do in insuring condominiums, there are courses. What we really moved to is that how do we make sure that, as members of the profession, our personal skills are stronger. That’s why you’ve seen the development of some of the leadership initiatives.” Currently, IBAC is probing the opportunity to establish an MBA-level of training for brokers in business strategy and strategic engagement. The Insurance Brokers of Ontario (IBAO) has just recently launched its own form of young broker training in the art of leadership, called the Future

Leaders Program. Randy Carroll, the CEO of IBAO said the program developed in 2007 in response to the association canvassing both brokers and companies in Ontario, asking them what skills young brokers will need to become broker principals in the future. The program’s promotional literature promises to help brokers develop effective communication skills intended to grow the business, develop positive working relationships within their brokerages, motivate others and define them as leaders within the office and the industry.The program offers one-on-one coaching throughout the term of enrollment. “From a provincial base, what we heard from our members was: ‘We’ve got all of these things we’ve done with perpetuation: you’ve told us how to put a perpetuation strategy in place, what we need to do to look at succession, you’ve got the financial piece, the human element, you’ve talked about the family — but you haven’t really done anything for us to help educate our future potential leaders,’” Carroll says. “We invested $100,000 to date to come up with what we think is a very vibrant, well-thoughtout and detailed approach to leadership as it relates to the insurance industry.”

INSURANCE INSTITUTE PROGRAM It’s not surprising that the Insurance Institute, which helped to quantify the demographics that suggest the need for all of this leadership training, incorporated a leadership course into its Chartered Insurance Professional (CIP) curriculum four years ago. “What the Insurance Institute offers within the CIP program [is] the Broker Professional Series” Oestreicher says. “In particular, there is a course, C-132, which covers practical issues in broker management.That course looks at assisting brokers in developing expertise leading to senior roles. The curriculum includes topics applicable to senior accounting executives, partners and broker-owner planning — all of the different things like HR issues, sales, financial management, succession planning and professional liability.”

this summer join

WICC at Relay For Life the Canadian Cancer Society’s biggest event at Esther Shiner Stadium in North York on June 19, 2009 WICC invites everyone in the insurance industry to participate in a Relay For Life event this June. Join the WICC HQ event at Esther Shiner Stadium, or ﬁnd one closer to home at wicc.ca. There are already 110 community sites designated by the Canadian Cancer Society in Ontario, with 65,000 people expected to participate. More than a fundraiser, Relay For Life is a unique, inspirational, outdoor community event that brings family and friends together overnight for 12 hours of fun and fundraising to beat cancer.

Help WICC realize its goal of 100 Ontario this summer.

teams participating throughout

For more information and to register your team(s) go to wicc.ca

WICC formed in 1996 to mobilize the Canadian insurance industry in the ﬁght against cancer. Over $4 million has been raised across Canada to support cancer research projects since inception.

Design compliments of

ING Insurance emerges Intact David Gambrill Editor

ING’s new name, Intact Insurance, expresses what the company does for its clients: it brings consumers intact after a loss. When ING Groep announced in February 2009 that it would be selling its shares in ING Canada to public shareholders, ING Insurance Company of Canada subsequently re-branded itself to reflect its new, independent identity. Intact Insurance Company of Canada is the new name of ING Canada’s insurance operations. In May, the holding company ING Canada is expected to adopt the new name of Intact Financial Corporation, pending shareholders’ approval. Why Intact, brokers selling the insurer’s product might ask (and have asked)? Louis Gagnon, president of Intact Insurance Company, said the name was selected because it reflected the basic story of what his insurance company does for its clients: It brings them intact during a difficult period in their lives.

58 Canadian Underwriter April 2009

“The first thing we wanted the name to represent is not what we are, but what we do for clients, really — the customers,” Gagnon said in a sit-down interview with Canadian Underwriter. “That was our objective:What kind of name that people can relate to in general?” Gagnon said the Intact name was selected in part because brokers and clients would find it easy to remember the story behind the name. How so? For brokers and consumers, the word “intact” reflects the basic relationship between the insurer and the consumer. “We said:‘Let’s try to find a name that [suggests the story] of customers having a good time in their life, then they have a claim, they have a bad time in their life, so let’s try to make sure that during that bad time, we take care of them and bring them intact, continue their lives as they were before,’” Gagnon said. “That’s the basic thinking behind where that comes from.” Gagnon said it took about two to three months of painstaking internal meetings to come up with the name. And he expects that by May 2009, the company will have succeeded in changing over to

Putting the pieces together.

Events and Seminars Calendar You work hard to protect your clientsâ&#x20AC;&#x2122; property. Now, itâ&#x20AC;&#x2122;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.

Toronto

Edmonton

PROedge seminar: Class Action Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . April 30 PROedge seminar: Facility Association: Trends and Implications . . . . . . . . May 13

PROedge seminar: Third Party Downtime Claims . . . . . . . . . . . . . . . . . . . . May 21 PROedge seminar: The Anatomy of D & O Liability Insurance . . . . . . . . . . . June 2

British Columbia

Conestoga

Vancouver: 7th Annual CIP Society Golf Tournament . . . . . . . . . . . . . . . . . May 27

CIP Society Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 21

Hamilton

Quebec

PROedge seminar: Mock Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 7

CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 1

Southwestern Ontario

Ottawa

CIP Society Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 13

PROedge Spring Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 18

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

INSURANCE INTERNET DIRECTORY

ACCOUNTANTS Williams & Partners Inc. Forensic and Investigative Accountants. www.williamsandpartners.com

ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org

edge claims management services. www.scm.ca

COLLISION SERVICES CertifiedFirst Network Consider it done.™ www.certifiedfirst.com

CONSULTING FIRMS Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

CONSTRUCTION CONSULTANTS MKA Canada, Inc. www.mkainc.ca

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

CLAIMS ADJUSTING FIRMS Crawford Adjusters Canada One Globe, One Company www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters The Preferred Adjusting Solution. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors www.mclarens.ca Quelmec Loss Adjusters dentifying, Investigating, Resolving...for over a quarter century! www.quelmec.ca SCM Adjusters Canada Ltd. Committed to providing leading-

60 Canadian Underwriter April 2009

ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com

"THE STRENGTH to BE THERE". www.aig.com Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com/ FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Kingsway General Insurance Company The Specialty Insurer www.kingsway-general.com Royal & Sun Alliance Insurance Company of Canada Forward thinking since 1710. www.royalsunalliance.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

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

GRAPHIC COMMUNICATIONS

INSURANCE SOFTWARE APPLICATIONS

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

Keal Technologies Complete technology solutions for insurance brokers. www.keal.com Tritech Financial Systems Inc. Provider of an enterprise solution to P&C insurance companies and their agents and brokers in Canada

INSURANCE COMPANIES AIG Commercial Insurance Company of Canada

and USA www.trifin.com

PREMIUM FINANCING Third Eye Solutions Inc. Provides Internet-enabled premium financing/payment plan software solutions. www.thirdeyesolutions.com

REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Munich Reinsurance Company of Canada Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com

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

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

SPECIALTY INSURANCE Firstbrook Cassie & Anderson Ltd. Your Source For Camp Insurance www.nbrown.com William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

its new name throughout 85% of its operations. Brokers will have received communications from Intact by the time this article is published.At press time, Gagnon was going to a national road show to talk to brokers about the change in identity. But while ING Insurance Company of Canada is no more, Intact Insurance will not look or act appreciably differently from its predecessor.The structure of the organization has not changed at all, its capital base remains as independent as it has been for the past four years, and certainly the growth strategy of the company remains the same. As of press time, the company was the subject of media speculation that it was poised to make a major acquisition, although potential targets were unverifiable. Certainly Intact is not shying away from the fact that it is looking to grow. “We have a very strong balance sheet right now, very strong,” said Gagnon, whose company was among the few to make an underwriting profit in 2008 (Cdn$26.7 million), according to MSA Research. “We have excess capital. We don’t have any debt on our balance, so we are more on the buyer’s side for sure. There are going to be, we think, some opportunities in the future to do some acquisitions, and I think we’re in a very good position to do that.” Gilles Gratton, vice president of corporate communications for Intact Insurance, said the company now carries a sizeable war chest to make a deal. “Basically if you look at the financial situation of the organization right now, we have the capability to do a $1.1 billion acquisition right now.” Gagnon says the acquisition strategy is unimpeded by the shrinking credit available in Canada to finance a significant merger. “Strong players, strong companies are always going to be in good position in any kind of market,” he says. “I think we’re a strong player.” Eight major institutional investors bought up the initial offering of shares, and 440 other investors followed up by acquiring the rest. Individually, no investor owns more than 7% of the company; investors must disclose publicly if

“We have excess capital. We don’t have any debt on our balance, so we are on the buyer’s side for sure.” they own more than 10% of the shares. Pension funds and mutual funds must publicly disclose their holdings in annual

or quarterly financial statements. And if those shareholders should sell their holdings, could Intact be the target, rather than the initiator, of M&A activity? Gagnon, for one, doesn’t think so. “I don’t see any people having that much cash [to buy Intact], $3.5 billion probably,” he says. “I think our operations are excellent and that prevents us from doing that (selling).”

Bright ideas for insurance professionals... For all your insurance information needs there is one website you can call home... .ca

Your online source for: • Daily Breaking Insurance News • Full Current Print Edition of Canadian Underwriter magazine online • Full Archived issues of Canadian Underwriter dating back to 1999 • Full Searchable database of news + archives by keyword(s) • Insurance Careers • Interactive Insurance Events Calendar • Insurance Marketer Database online • Industry Photo Gallery • Insurance Links • Free 2x Weekly Headline E-News Alert

www.canadianunderwriter.ca

April 2009 Canadian Underwriter

Don’t Let the Door Hit You on the Way Out Protecting your business with a restrictive covenant

John W. Elwick Partner, Alexander Holburn Beaudin & Lang LLP

Alexander Holburn is a member firm of Arc Group Canada

In the insurance industry, a brokerage relies on personal relationships and contacts as the foundation of its business. Anything that might jeopardize that foundation needs protection. As a result, brokerages often require their brokers to enter into an employment agreement with them. Usual terms to include in such an agreement are restrictive covenants, preventing the broker from competing with the employer or from soliciting the employer’s business on termination of the broker’s employment. A brokerage recognizes that in representing its business to clients, brokers often develop a close personal relationship; for all intents and purposes, the broker is seen as the one taking care of the client’s insurance needs. These clients will often be inclined to follow this broker upon his or her departure from the brokerage. In addition to protecting a brokerage from losing business to ex-employees, restrictive covenants also protect a brokerage from a former owner who has sold his business to the brokerage and then establishes a competing brokerage. But the focus of this article will be on restrictive covenants as they apply to an employer/employee relationship.

62 Canadian Underwriter April 2009

Restrictive covenants in employment agreements take a couple of forms. They might be covenants not to compete for a particular period of time and in a particular area. Or they might include provisions not to solicit clients of a business for a particular period of time and in a particular area. Whatever form the covenant takes, the problem with this defensive strategy for protecting a brokerage business is that unless the restrictive covenant is carefully drafted and the circumstances are such that a restrictive covenant is appropriate, it will likely be found to be unenforceable.

LEGAL PRINCIPLES All restraints of trade are contrary to public policy, which mandates that parties have the freedom to contract. The public has a general interest in free and open competition. Thus the courts generally look upon restrictive covenants with suspicion. However, there are exceptions: if, for example, a restraint is reasonable in the context of the interests of the parties concerned and in the public interest, it will be upheld. Restrictive covenants are construed more strictly against an employer than against a seller, and they are more often construed in favour of a purchaser under a contract for the sale of a business. Competing interests are involved when it comes to restrictive covenants in an employer/employee

relationship.The employer has a need to protect its business while an employee has a right to earn a living.The courts are often called upon to determine the dividing line as to what is reasonable and what is not. Of the different restrictive covenants, the covenant preventing or restricting competition receives the closest judicial scrutiny.The following questions are usually canvassed when analysing the validity of such a covenant:

Does the employer have a proprietary interest requiring protection? An employer has the right to protect its business. This includes restricting or eliminating the solicitation of clients by former employees or preventing such employees from acquiring a business opportunity that is rightfully the employer’s. It may also preclude former employees from working in a competing business for a period of time under certain circumstances. Is a restraint reasonable in time and space? The length of time to protect an interest cannot be overly long or cover too broad an area. Is the activity to be restricted defined in terms that are too broad? An employer must be precise in the activity it seeks to restrain. It cannot set out a broad restriction preventing an employee from participating in a business that competes generally with that of the employer. Is the restrictive covenant reasonable with respect to the public interest? A court must look at the overall principle of restraint of trade to determine if the restrictive covenant is reasonable. Several important cases in recent years involve restrictive covenants specific to the insurance brokerage business. The most recent case was a Supreme Court of Canada decision about the geographic area covered by a restrictive covenant,

Shafron v. KRG Insurance Brokerage (Western) Inc.1 This article will review two decisions by Courts of Appeal and the KRG decision to determine how the courts apply general principles governing restrictive covenants. It will conclude by offering drafting suggestions on what should be included in restrictive covenants applicable to an insurance brokerage business.

CASE AUTHORITIES The case of Valley First Financial Services Ltd. v.Trach et al2 involved an employee who left his employment at an insurance brokerage business to start one of his own. Although the court found the employer did have a proprietary interest in the clients being solicited and the time and area restrictions were reasonable, the restrictive covenant was still held to be

Team Team work... Work... Experience

Expertise

Endurance

CG&B are experts in the business of CG&B minimizing all offers a complete line of asset protection your risks for your brokerage including: • Errors & Omissions Insurance • Corporate Identity Theft • Employment Practices Liability • Directors & Officers Liability

The Insurance Broker’s Insurance Broker

Call 800.267.6670 or see us online at www.cgbgroup.com We are the Professional Liability Program Administrator for IBAO and IBAN.

April 2009 Canadian Underwriter

unreasonable. The court concluded the terms “financial services” and “general insurance,” which described the field of services and solicitation for which competition was restricted, were too broad. The employee had only worked in the employer’s group benefits area, whereas the services set out in the restrictive covenant covered a very broad range.The employee never provided some of the restricted services while employed at Valley First. A more recent decision on restrictive covenants in the insurance context is the case of H.L. Staebler Company Limited v. Alan et al,3 a June 2008 decision by the Ontario Court of Appeal. It is an important decision, in that the brokerage, Staebler, applied for leave to the Supreme Court of Canada after it lost before the Court of Appeal. Leave to appeal was denied on Feb. 19, 2009, thereby making the case a strong precedent in this area of the law. Staebler involved two insurance brokers who resigned and began working for a competing brokerage.As a result of being solicited by these brokers, a substantial number of Staebler clients transferred their business to the competing brokerage. The two brokers had signed an employment contract with Staebler containing a clause that covered restrictions on termination of employment. This clause read as follows: “In the event of termination of your employment with the company, you undertake that you will not, for a period of two consecutive years following the said termination, conduct business with any clients or customers of H.L. Staebler Company Limited that were handled or serviced by you at the date of your termination.” The trial judge found that although the clause prohibited the former employees from conducting business with those clients of Staebler which they handled, it did not stop them from acting as insurance brokers selling insurance with a competing insurance brokerage. The judge concluded the restriction was reasonable because it did not prevent employees from obtaining new employment; moreover, this new employment was not contingent on them bringing

64 Canadian Underwriter April 2009

clients with them to their new employer. He further held that the restrictive covenant’s two-year time period fell within the industry norm. The Ontario Court of Appeal overturned the trial judge’s decision. In determining whether the covenant restricting competition was reasonable, the Appeal Court referred to the leading Supreme Court of Canada decision Elsley Estate v.J.G.Collins Insurance Agencies Ltd.4. The Supreme Court ruled non-competition clauses were justifiable only in exceptional circumstances, such as where a non-solicitation clause would not be sufficient to protect an employer’s business interests. The appellate court in Staebler considered the questions outlined previously in this article. Staebler’s proprietary interest was a given. As to the limitation in the clause, although the covenant had a twoyear time limit, it had no geographical limit. In interpreting the breadth of the

The activity to be restricted must be specific and clear ... The services being restricted can not be described, for example, as “general insurance.” clause, the court found these employees could not conduct business with former clients no matter where the employees were located, even if it was elsewhere in Canada. In addition, the appellate court found the prohibition against doing “business” with Staebler’s clients and customers was too broad. The decision notes that if the employees had left the field of commercial insurance and undertaken any other services for these clients, this clause could still have application.Thus, based on the lack of a geographic limit and the blanket prohibition on conducting business, the appellate court held that the restrictive covenant was unenforceable. Finally the court considered whether the covenant was unenforceable as being against competition generally, and not limited to just preventing solicitation of

clients of the former employer. Here the court found that it was the industry norm for employees of brokerages to have close personal relationships with brokerage clients with whom they dealt. It concluded those relationships were not exclusive and these employees had no special knowledge of or influence over the Staebler business.This is in contrast to the Supreme Court’s decision in Elsley, in which the employee in question had control of the employer’s business. In finding the non-compete clause to be unreasonable, the Ontario Court of Appeal referred back to the Valley First decision and noted suitably restricted non-solicitation clauses would likely be found reasonable for sales people in the insurance brokerage industry, whereas non-competition clauses would not be suitable in such circumstances. The last case, the KRG decision, involved a fairly discrete issue arising out of an employment agreement. There was a clause in the agreement headed “noncompetition” that prohibited the employee, Morley Shafron, from becoming employed after termination with another insurance brokerage for a period of three years and within a designated area. KRG’s action was dismissed at trial: the judge found the description of the designated area — “Metropolitan City of Vancouver” — to be unclear and thus the restrictive covenant was unreasonable. The B.C. Court of Appeal reversed this decision, interpreting the area to include the City of Vancouver and certain contiguous municipalities. But the Supreme Court restored the trial decision, finding that in order for a restrictive covenant to be enforceable, its terms had to be unambiguous. In KRG, the ambiguity could not be resolved and thus the restrictive covenant was on its face unreasonable and unenforceable.

SUGGESTIONS These cases demonstrate that great care must be taken in drafting restrictive covenants in employment contracts to protect the business of an insurance brokerage. The following points should be kept in mind:

• Be specific on the area to be covered. It should not be overly broad. • As for time periods, two years is the maximum. The trial judge in the Staebler case concluded that the practice in the insurance brokerage business of a client becoming comfortable dealing with a new broker was approximately two years. • The activity to be restricted must be specific and clear. As illustrated in the above cases, the services being restricted cannot be described, for example, as “general insurance.” In fact, in the Staebler case, although the restricted activity was fairly specific to clients serviced by the brokers, the Ontario Court of Appeal found a way around that by postulating that if the brokers had left the field of commercial insurance in which they were servicing the clients, they would still be prohibited from dealing with them for other insurance services because of the wording of the restrictive covenant. This underlines the requirement for being specific.

• Unless there are exceptional circumstances, a restrictive covenant that seeks to limit competition is likely unenforceable in most instances; a non-solicitation clause should be used instead. The only type of exceptional circumstance that would appear to apply would be if the employee were a fiduciary and a senior employee controlling the overall business of the brokerage.

FINAL COMMENTS In the context of a standard broker departure from a brokerage — i.e. the broker’s departure is followed by the departure of some of his or her clients from the brokerage — a non-solicitation clause is often toothless because of the nature of the connection brokers have with their clients. As a result of this broker/client relationship, it is likely that a broker would not have to engage in any form of solicitation to have clients join the broker on departure, damaging the business of the brokerage in the bargain.

There is still a place, however, for noncompetition clauses to apply to employment agreements prepared by insurance brokerages for their protection. The non-competition clause in Staebler was close to being workable, but it was marred by having no geographical limit. In addition, the Court of Appeal ruled a prohibition against doing business with a particular group of clients in the restraining period was too broad. If the services provided to the client by the broker are specifically defined, it is arguable that such a non-competition clause would be found to be reasonable in the future. Just to be safe, however, a non-solicitation clause should always be included in employment agreements with brokers. 1 2009 SCC 6, [2009] B.C.W.L.D. 700 (“KRG”) 2 2004 BCCA 312, 30 B.C.L.R. (4th) 73 (C.A.) (“Valley First”) 3 2008 ONCA 576, 2008 C.L.L.C. 210-034 (C.A.), leave to appeal refused 2009 CarswellOnt 816 (S.C.C.) (“Staebler”) 4 [1978] S.C.R. 916 (“Elsley”)

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.

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

The most recent CanadianUnderwriter.ca poll asked: Should Canadian insurers be looking into the possibility of providing overland flood coverage under a basic homeowner’s policy? As of press time, 68.33% of the 120 respondents said “yes” and 31.67% said “no.”

YES 68.33%

NO 31.67%

Danielle Boulet has been appointed chair of the Canadian Council of Insurance Regulators (CCIR). Boulet, superintendent of solvency for the Autorité des marchés financiers (AMF), served as CCIR vice-chair for the past two years. “It is with enthusiasm that I step into this role with a commitment to move forward with the objectives set out in CCIR’s Strategic Plan, so that we

66 Canadian Underwriter April 2009

can pursue the development and implementation of harmonized regulation and enhance consumer protection, a task that is particularly essential given the current economic environment,” Boulet says in a release. “It is critical for an organization such as CCIR to help strengthen financial market stability and foster efficient market growth. We must adapt to an everchanging industry to ensure greater protection of consumers of insurance products and services.”

The Ontario Pond of the Honorable Order of the Blue Goose has launched a redesign of its Web site. The new site has many new features, including the 100th Anniversary magazine available as a PDF (found on the About US page); all Past Most Loyal Ganders for the last 100 years (on the Membership page); a slide show, downloadable 3D software and individual photos (available on the Gallery page); and upand-coming events with either PDF or Word documents for RSVPing (on the Events page). To explore the newly redesigned site, visit www.bluegooseontario.org

Brokers can now download Lombard Canada Ltd.’s Business Choice renewal policy directly into Keal Technology’s commercial management system (CMS), comXPTM, using Commercial LINCQ. The commercial integration product is the first of its kind in Canada, according to a Keal Technology release. The integration is designed to eliminate duplicate entry, allowing brokers more time to focus on customer service and growing business.

The Insurance Brokers Association of Ontario (IBAO) is renewing its sponsorship agreement with professional golfer Richard Scott. The 25-year-old Kingsville, Ontario native went professional in 2006 after winning three Canadian Men’s Amateur Golf Championships. He become only the

5 sixth player in more than 100 years to win three titles. Scott tied for 12th spot during the first stage of the PGA Qualifying School held in McKinney, Texas. He just missed the cut for the final round, finishing with a score of 280, eight under par, tying him for 21st — one spot shy of qualifying. “We are thrilled to continue this great partnership,” said IBAO CEO Randy Carroll. “Richard has joined our brokers at many charitable events and continues to support our ongoing partnership with OSAID. He’s a wonderful role model for students across the province and we wish him great success this season.”

A new broker organization in Quebec dedicated to advancing the particular concerns of independent brokers, La fédération des courtiers d’assurance indépendants du Québec (FCAIQ),

MOVES & VIEWS

together on various confidential subjects pertaining to their unique status and their future.” The organization also says its activities do not reflect on the relationship between independent brokers and insurance carriers.

9 has launched a recruiting campaign. “In view of the fact that the status of the fully independent brokerage firm has been in regression for many years, the FCAIQ is being formed to promote consumer awareness and better distinguish the independent insurance brokerage firms,” the non-profit organization says on its Web site. The FCAIQ says many aspects of its activities would be of general interest to all types of brokerage firms. “Therefore, the Federation considers the RCCAQ (Regroupement des cabinets de courtage d’assurance du Québec) as an essential partner for all brokerage firms and intends to evolve in collaboration with them,” the Web site says. But the FCAIQ maintains it is different from the RCCAQ because “RCCAQ’s global organization does not allow brokerage firms, which are fully independent, to debate

Aviva Canada has teamed up with Thinkfirst Canada to deliver Aviva Brain Day in Grade 5 classrooms across the country. Aviva Brain Day, which promotes brain and spinal cord injury prevention, is a half-day of hands-on sessions teaching students how their brains and spinal cords work; what happens when they are damaged; and how they can protect themselves and their friends from injury. “Preventing up to 88% of brain injuries, a bike helmet is really like insurance for your brain,” said Aviva Canada CEO Robin Spencer.

The Insurance Bureau of Canada (IBC) is teaming up with an Ontario municipality to determine whether or not rain barrels can help keep basements dry during intense rainstorms. More than 1,000 free barrels will be made available to homeowners in Wingham, Ontario

through the IBC/Wingham Rain Barrel Pilot Project, conducted by IBC and the Township of North Huron. The Township of North Huron has installed a weather station tracking device to monitor the intensity and temperature of rainfall around the clock. In addition, the station will be used to determine whether or not the use of rain barrels reduces the number of sewer back-ups and overflows linked to each rainfall. Because rain barrels contribute to water conservation, the pilot will also keep track of reductions in the use of treated water, IBC says.

Captain John Hosty has been appointed director for the new health, safety, environmental training and emergency response branch for Environmental Solutions Remediation Services. Hosty will be responsible for the development and implementation of a broad range of health and safety and environmental response training and emergency response planning services. They include: hazardous materials handling; regulatory compliance; spill and emergency response; and confined space management.

Guy Carpenter & Company LLC, a global risk and reinsurance specialist, has agreed to acquire John B. Collins Associates Inc. (Collins), a privately held company and the seventh largest reinsurance intermediary in the world. Established in 1987, Collins is a privately held company that places reinsurance coverage for companies in the property and casualty, life, and accident and health insurance markets. Collins has several specialty areas: professional liability, workers' compensation, commercial earthquake, Florida property catastrophe, programs, industry loss warranties and governmental programs. “I am very excited by the prospect of acquiring an organization with such an impressive track record of growth,” Guy Carpenter president and CEO Peter Zaffino says. Following the closing of the transaction, Collins will serve as vice chairman of Guy Carpenter and Patrick Denzer, CEO of Collins, will serve as chairman of Guy Carpenter Americas. The transaction is expected to close early in 2009 Q2, following receipt of regulatory approvals and satisfaction of other closing conditions.

April 2009 Canadian Underwriter

GALLERY

The CIP Society honoured the newest GTA Fellowship graduates at this yearâ&#x20AC;&#x2122;s Fellows Night held on Feb. 5, 2009. New Fellows were recognized for their outstanding achievement in completing their FCIP. Lyna Newman, FCIP, CRM, consultant and retired vice president of human resources and operations for KRG Insurance Group, was also honoured with the 2008 GTA Fellow of Distinction Award. Newman has taught courses, served as an examinations marker and chaired the faculty subcommittee for the Insurance Institute of Ontario. Currently, she participates on the CIP Society national council and is chair of the ethics subcommittee. She has also served as the executive director for the board of directors for the Women in Insurance Cancer Crusade [WICC] Ontario.

Canadian Underwriter April 2009

GALLERY

Throwing Fish, Rock â&#x20AC;&#x2DC;nâ&#x20AC;&#x2122; Roll, 22,000 Coffee Houses and Hundreds of Insurance Communicators...

IMCA Annual Meeting & Showcase Awards 4FBUUMF 8BTIJOHUPO t +VOF o +VMZ

For more information or to register, go to:

www.imcanet.com or call Temie Seibert at

Youâ&#x20AC;&#x2122;ll be able to: t t t t

Learn new ideas for improving insurance communications Share experiences about what works â&#x20AC;&#x201C; and what doesnâ&#x20AC;&#x2122;t Keep up with new technologies, strategies, and tactics Gain recognition for your great creative work

Featured speakers include: t Julie Rochman, President & CEO, Insurance Institute for Highway Safety t Regis Coccia, Editor, Business Insurance t Dr. Robert Ulmer, University of Arkansas; Tim Sellnow, University of Kentucky

April 2009 Canadian Underwriter 69

GALLERY

The fourth annual HKMB HUB Hockey Challenge for Charity took place on Mar. 11 at the Air Canada Centre. Almost 40 players gathered for a friendly game of hockey, with Team Claims beating Team Underwriters 9-4. The event raised Cdn$9,400 for the United Way and Cdn$222 for WICC [Women in Insurance Cancer Crusade].

“Get all the right connections!”

2009

Ontario Insurance Directory This outstanding directory is your personal address and telephone book dedicated solely to the Ontario Insurance Industry… find the company contacts you need immediately! Used on a daily basis by all segments of the Industry — the O.I.D. is the Undisputed Source for Insurance professionals to make contact with companies quickly and easily. (The 2009 edition will be published & distributed in December, 2008)

THE COIL BOUND O.I.D. CONTAINS: • 300+ pages of information • 2,200+ company listings G G

Completely Updated for 2009– over 10,000 changes!

G G

Insurance Companies / Wholesalers Brokers Independent Adjusters Appraisers

G G G G

• 130+ advertisers • 12 key sections to advertise in:

Rehabilitation Services Restoration Services Lawyers / Dispute Resolution Engineers / Accountants

G G G G

Bodyshops / Collision Repair Automotive Recyclers Insurance Industry Associations Industry Suppliers Guide

Call now to order 1-800-668-2374 Or order online @ www.canadianunderwriter.ca

Canadian Underwriter April 2009

GALLERY

The seventh annual GK (KOVA) Cup was help on Mar. 26 at Moss Park arena. More than 20 players came out for a friendly game that saw the It’s Our Faults, coached by Laurel Dimaso of Masterclean, beat out the No Faults, coached by Sandy MacSpayden of Direct IME, 9-7. Mark Howey, Mark Fabbroni and Rob Parkinson were the stars of the game. A reception was held immediately following the game at P.J. O’Brien’s, where Tom Moran was awarded the Herbie Sportsmanship Award. Scott Broad received the Horse’s Ass Award.

2009 CAIW ANNUAL CONVENTION Hosted by the Toronto Insurance Women's Association

Date: June 3 to 7, 2009 Theme: Journey to Toronto: One city, many nations Location: Delta Chelsea Hotel, 33 Gerrard Street West, Toronto, ON M5G 1Z4 Speakers for CAIW Convention Education Day - June 5th, 2009 Glenn McGillivray of the Institute for Catastrophic Loss Reduction (ICLR), will report loss statistics and trends over recent years, as well as projections based on the rate of climate change and other factors that relate to disaster losses.

Mary Lou O'Reilly IBC's Vice-President, Public Affairs and marketing with assistance from Agota Gabor from the Gabor Group. Mary Lou, with the assistance of Agota Gabor will provide insight on how to answer those tough consumer questions, or how to dispel a common myth, with an interactive role play session designed to give attendees the communications tools necessary to communicate, with confidence, the value that the P&C insurance industry brings to the lives of Canadians.

Jean Jacques Henchoz, Managing Director Swiss Reinsurance Company Ltd Global Reinsurance Market Outlook

Charles Sabourin, C.I.P./P.A.A. General Manager Steamatic Canada, Inc. Charles will be speaking on Risk control techniques to avoid certain losses and tips on what to do if a loss does occur.

Contact: Gail Peter Tel: 416-350-4629 Fax: 416-369-7163 Email: gailpeter@sympatico.ca

Tracy Moore, Host of CityLine on CityTV. Tracy will be speaking on Motivation

www.caiw-acfa.com April 2009 Canadian Underwriter 71

GALLERY

The first St Baldrick's Shaving the Way to Conquer Kid’s Cancer event took place in New York in 2000, when three (re)insurance executives turned their traditional St Patrick’s Day into a fundraising event for childhood cancer. They planned to raise money by shaving their heads in solidarity with children suffering from cancer. They challenged 17 of their friends and colleagues to raise $1,000 each for shaving their heads; in total, they raised more than $100,000. The first St Baldrick’s event in Toronto took place at PJ O’Brien’s in 2008. This year about 150 people attended, raising about Cdn$35,000. All the money raised from the event goes to the Childhood Cancer Foundation here in Toronto.

ADVERTISERS’ INDEX ACE INA Insurance Aon Reed Stenhouse Applied Systems Canada, Inc. Berkley Underwriting Managers Canada, Ltd. Best Doctors Broker Builder Corp. CAIW canadianunderwriter.ca CG&B Group Chubb Insurance CNA Canada Compu-Quote Inc. Crawford & Company (Canada) Inc. Cunningham Lindsey Canada e2Value Inc. Great American Insurance Group The Guarantee Company of North America IBAO i-hire.ca IMCA Intact Insurance Company Insurance Institute of Canada Keal Technology Kingsway General Insurance Company MyInsuranceShopper.ca Ontario Insurance Directory Paul Davis Systems Peace Hills Insurance PolicyWorks RIMS Canada Conference 2009 – St. John’s TIC Travel Insurance Wawanesa Insurance WICC Zurich Canada 72

Canadian Underwriter April 2009

7 47 35 25 75 45 71 61 63 41, 53 65 51 19 11 43 37 31 23 73 69 2 (IFC) 17, 27, 59 8, 9 29 5 70 44 15 39 55 49 76 (OBC) 57 21

GALLERY

Brokers, clients and friends gathered for the launch of Chubb Insurance Company of Canada’s MediaGuard, an errors and omissions liability insurance policy. The event was held at the Canadian Film Centre. Participants enjoyed a short film produced by the centre, as well as a multi-media presentation about the new product. The policy provides third-party liability protection against exposures such as defamation, invasion of privacy, copyright and trademark infringement, misappropriation and advertising errors and omissions.

YOUR JOB POSTING GOES 3X FURTHER WITH i-hire.ca

NEW FOR 2009

50% OFF Price of all Job Postings!

i-hire.ca

canadianunderwriter.ca

Your job posting on i-hire.ca will reach thousands of qualified candidates actively seeking jobs in the Insurance Industry. i-hire.ca is fast-becoming the destination for Canada’s insurance professionals.

Your job posting on i-hire.ca will automatically appear on the official website of Canadian Underwriter magazine, canadianunderwriter.ca, where you will reach an additional 20,000+ unique visitors per month.

3 canadianunderwriter.ca Email Newsletter In addition, your job posting will be emailed to over 10,000 insurance professionals who subscribe to canadian-underwriter.ca’s twice-weekly email newsletter, called “Headline News”.

1 job posting, 3 times the exposure

www.i-hire.ca EMPLOYERS

50% OFF POSTING PRICE! April 2009 Canadian Underwriter 73

GALLERY

Summit Collision CARSTAR, Mascotek CARSTAR Collision and CARSTAR Collision on St. Clair held a wine and cheese reception for their insurance industry clients and friends on Mar. 5 at The Royal Ontario Museum (ROM) in The RBC Glass Room in Toronto. Guests enjoyed present-day edibles and must-see treasures from the past on a guided tour of the museum.

Canadian Underwriter April 2009

“Everyone, without exception, should have the benefit of the experience and knowledge of the best doctors in the world. I’m so grateful my son did.” Julie (Will’s mother), Boucherville, Quebec

“When I was first diagnosed, I didn’t know what to think or where to turn. But the Best Doctors report was like a safety valve – I could go back to it and re-read it to help re-assure me when I got anxious.” Will, Boucherville, Quebec

If your diagnosis was serious, wouldn’t you want some of the world’s best medical minds reviewing your case, without having to leave home? ®

Best Doctors helps your clients’ employees ensure they are receiving the right diagnosis and treatment options by connecting them and their treating physicians with the Best Doctors network of 50,000 world-renowned specialists, without having to leave home. Best Doctors services are designed to support the health care system– not to replace it.

While working collaboratively with treating doctors and specialists, Best Doctors empowers employees through knowledge, guidance and one-on-one support. The results speak for themselves. Historically Best Doctors has changed a diagnosis 22% of the time and modified 61% of treatment plans. Employees return to work and the enjoyment of daily living sooner.

Absenteeism is reduced and disability costs lowered. More and more employees are asking their employers to request this benefit from their insurance providers. No wonder there are almost 4,000,000 members in Canada alone. To learn how Best Doctors can benefit your clients, contact us directly.

For more information call 1-877-419-BEST (2378) or visit bestdoctorscanada.com

Best Doctors Canada One Queen Street East Suite 2000 Toronto ON M5C 2W5 | bestdoctorscanada.com | 416.504.8555 | 1.877.419.2378

BEST DOCTORS and other trademarks shown are trademarks of Best Doctors, Inc. Used under license.

Docket #: Description of Ad: Client:

BD030 Canadian Underwriter Best Doctors

BEST DOCTORS CANADA

Contact: DEBORAH SHULMAN

Trim Size: Live Area: Bleed Size: eMail: dotdab@gmail.com

8.125 x 10.875 FP n/a n/a Phone: 416.775 2497

Read Will’s full story on our website.

Publication: Cdn Underwriter FILE COLOURS:

DUE

MARCH 15, 2009

C M Y K

Satisfy your appetite for new business with our

Chef’s Specialty Insurance Package An insurance product served specifically to Restaurant Owners. This package automatically covers Buildings, Contents and Commercial General Liability. Top Chef’s Specialty Insurance Package highlights: • Spoilage • 2 Million Liability • Reduced Rates For Less Than 40% Liquor Sales Top Chef’s Specialty Enhancement Endorsement highlights: (Endorsement is an optional purchase)

•B usiness Income – Profits Including Reported Tips • Food Contamination Coverage • Wine Valuation Coverage

www.wawanesa.com

Auto – Home – Business – Farm – Life and Group