C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A
D E CE M B E R 2 009 A Business Information Group Publication #40069240
Looking Inward Primary Insurance Market 2010 Outlook
Devil in the Details By David Gambrill
El Niño By Paul Kovacs
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VOL. 76, NO.12, DECEMBER 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca
Primary Insurance Market Outlook 2010
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Canada's property and casualty primary insurers are taking a long, hard look in the mirror, asking themselves what they can do to change themselves in order to adapt to the challenging financial environment around them.
FEATURES
14
24
20 Assigning Fault
50 Small Broker IT
Accurate fault determinations are essential for preventing moral hazard in first-party recovery of auto claims.
Many small brokers are still muddling through with paper-based office processes, denying them the protection IT offers in preventing data loss and security breaches.
BY MARY KELLY AND ANNE KLEFFNER
BY DOUGLAS GROSFIELD
Devil in the Details
Climate Change
28 IBAO 2009
Ontario has come forward with its long-awaited auto insurance reform package. Insurers say they are now "halfway home" to returning to price stability in the province's auto lines.
Canada's P&C insurers are sharing a new tool for assessing municipal water damage and infrastructure risks with governments.
The IBAO's 2009 annual convention produced a 'highlight reel' of issues that provincial brokers have raised over the past year.
BY MARY LOU O'REILLY
BY DAVID GAMBRILL AND VANESSA MARIGA
BY DAVID GAMBRILL
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Non-Profit D&O
Thermal Imaging
Charities and non-profits are not immune to lawsuits, and brokers would do well to review D&O policies for this sector.
Once thought to be prohibitively expensive, thermal imaging is in fact coming down in price and can be used as a cost-effective form of loss control.
BY ROB BICKERTON
BY J.B. HAHN
4
Canadian Underwriter December 2009
42 El Niño This year’s El Niño occurrence may result in drier conditions in central parts of the country this winter, potentially decreasing auto collision claims, but also increasing wildfire and water damage claims in the West. BY PAUL KOVACS
54 Lessons Learned Insurers can learn a number of lessons from what happened during the 2008-09 financial crisis. BY TOM KORNYA
61 Reinsurance Revisited Canadian Underwriter experienced some technical glitches in the reproduction of its November 2009 cover story, and corrects the record accordingly.
62 Going Global Corporate risk managers have aligned with global insurance brokers and insurers to create effective and efficient global insurance programs BY CINDY GUYATT
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VOL. 76, NO.12, DECEMBER 2009
PROFILE
12 Mutual Understanding John Taylor experiences a sort of homecoming as he takes over as president of the Ontario Mutual Insurance Association (OMIA). BY VANESSA MARIGA
SPECIAL FOCUS
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Editorial
10 Marketplace 66 Moves & Views 68 Gallery
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796
Art Director Gerald Heydens Art Consultation Pylon.ca
Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793
Production Manager Gary White (416) 510-6760
Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800
Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549
Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788
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Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122
Print Production Manager Phyllis Wright
Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
President Bruce Creighton Vice President Alex Papanou
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. Š Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 12 Concorde Place., Suite 800, North York, ON, M3C 4J2 Subscription Rates: 2009 Canada 1 Year $35.95 plus applicable taxes 2 Years $56.95 plus applicable taxes Single Copies $10 plus applicable taxes Annual Statistical Issue (included with above subscription) or separately $38 plus applicable taxes Elsewhere 1 Year $42.00 2 Years $68.00 3 Years $95.00 Subscription Inquiries/Customer Service Gail Page (416) 442-5600 ext 3549 gpage@bizinfogroup.ca
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Canadian Underwriter December 2009
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EDITORIAL
Weather: The Mother of Invention
It seems as though the inclement weather has ushered in a fresh new breeze of innovation. David Gambrill, Editor david@canadianunderwriter.ca
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Canadian Underwriter December 2009
For the better part of a year, insurance companies have been hinting that some form of product innovation is required to offset the heavy losses insurers have been taking in the personal property lines — in particular, water damage losses. Innovation is required, insurers say, because most homeowners’ policies have been underwritten on the assumption that fire losses would be much more likely than water damage losses. Enter our brave new world, in which water damage has been the predominant means of damaging a house in Canada. Even though auto losses have hogged headlines over this past year — what, with all of the court cases, the glacial pace of government reform in Ontario and the absence of any working brakes on accident benefits (AB) claims payouts — homeowners’ property losses have been a major source of concern. In 2009 Q2, federally regulated insurers in Canada wrote Cdn $2.558 billion in net premium last year in the personal property (homeowners’) line. They also paid out Cdn$1.98 billion in net claims incurred, which would put the loss ratio in the neighbourhood of 77.4%. Last year, the loss ratio was 74.8%
Granted, that’s not as horrible as in the personal accident auto line, where loss ratios are breaking 100% (indicating business losses). Still, this is not a good time to have the home and commercial property lines showing signs of distress as well. Up until now, the industry has dropped a number of hints that “something must be done” about the losses in homeowner and commercial property lines. Until recently, it wasn’t really clear what that meant. All people really knew is that a “new way” of underwriting insurance was required to deal with water damage losses. Alas, “innovation” is a buzzword that means absolutely nothing unless something concrete is attached to it. And as is often the case in the insurance industry, nothing concrete is spelled out in great detail, for fear of giving away trade secrets. But some things are indeed starting to percolate up to the level of the public record. For example, the Insurance Bureau of Canada has introduced a municipal risk assessment tool that can help underwriters determine where municipal infrastructure and flooding is worst, and will thus aid in underwriting those risks.
Also, individual insurers are talking about writing more riskspecific home insurance policies. This kind of underwriting would better take into account water risks and reward for mitigation measures taken by the policyholder. Presumably the underwriting criteria would focus more on things like the location of the contents in the house (i.e are they in the basement?), how much the contents are worth, whether the municipal sewers in the area are up to snuff, etc. Another option, which came to light at the National Insurance Conference (NICC) in Ottawa, is the possibility of risk-transfer mechanisms based on the public markets. In a speech to the NICC, Canada’s solvency superintendent, Julie Dickson, said insurers have approached the solvency regulator to see if there would be any objection to transferring weather-related property risks to the capital markets. Dickson gave a qualified thumbs up, saying “innovation” must still meet the regulator’s tests for capital adequacy, but, in essence, OSFI was “open for business” to innovation. So it seems the inclement weather has ushered in a fresh new breeze of innovation.
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MARKETPLACE
Canadian Market INSURERS CONTINUE TO TAKE BEATING IN AUTO ACCIDENT BENEFIT LINES IN 2009 Q3 Canadian and foreign insurers licensed with the Office of the Superintendent of Financial Institutions (OSFI) continued to take a beating in the auto-personal accident category (which includes accident benefits), according to OSFI’s 2009 Q3 results. Canadian insurers saw their collective claims ratio in the auto personal accident segment jump from 98.84% as of the end of 2008 Q3 up to 120.48% as of the end of 2009 Q3. Foreign insurers licensed with OSFI fared even worse in OSFI’s auto-personal accident area, reporting a claims ratio of 185.10% in 2009 Q3 — a substantial increase from the 125.86% claims ratio reported in 2008 Q3.
CCIR REPORT SUGGESTS GAPS IN CREDIT SCORE DISCLOSURE Forty-two per cent of Canadian property and casualty companies that use creditbased insurance (CBI) scores — representing 17% of market share — do not disclose an adverse affect of the CBI scores to policy applicants or policyholders, according to a survey done for the Canadian Council of Insurance Regulators (CCIR). In addition, 68.4% of the
10 Canadian Underwriter December 2009
19 companies that used CBI scores indicated they do not disclose on their declaration pages whether a credit-based insurance score positively or negatively affects an applicant or policyholder’s premium. The Financial Services Commission of Ontario (FSCO) undertook the survey on behalf of the CCIR in April 2009. The full results of the survey are available on the CCIR Web site at: http://www.ccir-ccrra.org/ CCIR/index.htm
NOVEMBER A CRUEL MONTH FOR KINGSWAY November was a busy month for Kingsway Financial Services Inc. (KFS). On Nov. 17, 2009, Pennsylvania’s Department of Insurance announced it was taking legal action against KFS, alleging the insurer improperly disposed of its shares of Lincoln General Insurance Company in October 2009. Kingsway is vigorously opposing the regulator’s action in court. Kingsway announced in October 2009 that it had donated its indirect interest in troubled Lincoln General, now in run-off, to 20 different charities. Each charity received 5% of Kingsway stock plus a cheque in the amount of US$20,000, according to the state regulator. The regulator said the company failed to notify it of its disposal of the Lincoln shares, while Kingsway said such notification is not required.
Kingsway’s share prices fell 40% on the day of the Pennsylvania regulator’s announcement, to just under $2. Meanwhile, A.M. Best downgraded Kingsway’s financial strength rating from a ‘B’ to a ‘B-’ on Nov. 24, one day after Kingsway announced it would be disposing of its majority interest in Jevco Insurance Company.
SUMMER STORMS LEAD TO A 2009 Q3 LOSS AT INTACT Thanks in part to an unusual number of summer storms, Intact Financial Corporation (TSX: IFC) reported a net loss of Cdn$8 million in 2009 Q3, compared to a profit of Cdn$57.3 million in the same period last year. “While the pace of growth of our direct written premiums has been most encouraging, the high costs of property damage associated with the unusual number of summer storms resulted in one of our worst underwriting results since the 1998 ice storm,” Intact Financial Corporation president and CEO Charles Brindamour said in a company release. “Despite the disappointing impact of these events, our underlying home insurance results continued to improve and our auto insurance business performed well both during the quarter and throughout 2009.” The company reported a 2009 Q3 underwriting loss of Cdn$53.2 million, down 185.9% from its underwriting profit of Cdn$61.9 million in 2008 Q3.
Claims INSURANCE COMPANIES MUST SHARE INFORMATION TO COUNTER ORGANIZED CRIME Insurance companies must recognize ‘red flags’ indicating the presence of organized crime and better co-ordinate communications between them when these signs arise, according to IBC investigator Kathy Metzger. Insurers must be vigilant in preventing organized crime, Metzger told a National Association of Subrogation Professionals’ seminar in Toronto on Nov. 12. This includes an awareness that one company’s “problem file” may in fact be part of a broader organized crime ring. Everyone is afraid of the privacy legislation PIPEDA, she said. However, the important thing to know is that if there are reasonable grounds to believe that there has been a contravention of law or a breach of contract — such as an insurance policy — then a company is able to communicate that information with an investigative body.
Risk Management INSURERS SLOW TO ESTABLISH CHIEF RISK OFFICER POSITION: OSFI Canada’s property and casualty industry has been lagging in the establishment of the Chief Risk Officer position and the processes that ac-
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company it, the Office of the Superintendent of Financial Institutions (OSFI) says. OSFI superintendent Julie Dickson made the observation while speaking at OSFI’s first risk management seminar for the property and casualty industry on Nov. 5 in Toronto. “While the property and casualty industry has perhaps been ahead of the other sectors in the management of specific risks, the establishment of the CRO position, and the processes that accompany it, which allow for quicker assessment of risk across an entire organization, have been slower to develop in the p&c industry to date,” she said. The concept of risk management is not new, and the property and casualty industry has many inherent known risks, she said. These include being highly price competitive, prone to cycles in which, at times, pricing can be too low to cover claims and having some business lines for which pricing and claims payment terms are highly regulated.
legislation found in B.C. and Alberta. John Beardwood, partner in Fasken Martineau DuMoulin LLP’s Toronto office, made the observation in an address to Insurance Bureau of Canada (IBC)’s Ninth Annual Regulatory Affairs Symposium, held in Toronto on Oct. 30.
Beardwood noted privacy legislation in B.C. and Alberta has a fairly simple set of exemptions. In B.C. and Alberta, for example, information obtained for the purposes of a reasonable investigation are exempt from the privacy legislation’s requirement that a person consents to the collection
of his or her information. Lawyers have lobbied to amend the federal privacy legislation to include these same exemptions, but the last federal election brought the possibility to a halt, Beardwood said. It’s not clear when or if those amendments will actually take place.
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Regulation HOPE FADING THAT FEDERAL PRIVACY LEGISLATION WILL BECOME MORE INVESTIGATION-FRIENDLY For insurance defence counsel, hope is receding that federal privacy legislation related to insurance investigations and surveillance will be aligned in the future with the comparatively more straightforward provincial privacy
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December 2009 Canadian Underwriter
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PROFILE
Mutual Understanding Vanessa Mariga Associate Editor
In his new role as OMIA president, John Taylor draws on his experiences growing up on a farm and in the insurance industry. For John Taylor, becoming president of the Ontario Mutual Insurance Association (OMIA) was a homecoming of sorts. Taylor is quite comfortable talking about the deep-rooted principles that underpin the work of the OMIA, including the tradition of neighbour helping neighbour. He paints a portrait of the association standing on the threshold of a major cultural shift that will undoubtedly affect the way in which the consumer purchases insurance (if this shift already hasn’t occurred). As he does so, he envisions the association drawing on its core principle over the next decade and allowing neighbour to help neighbour. The road won’t be an easy one, he admits. Mutual insur-
ers will have to make major investments in technology, and they will have to spend a great deal of effort pinpointing exactly what future consumers will demand of them. At the same time, mutual insurers are relatively small in scale, making them naturally more nimble to adapt and change with the times, he says.
ROOTED IN MUTUALS Taylor grew up in a family composed of third-generation farmers near Fergus, Ontario. When he was young, his father obtained his agent licence and sold insurance to supplement his income. Eventually Taylor’s father purchased his own mutual agency. “I grew up around both the farm and the insurance business,” Taylor says. “The insureds came to the house to pay the premium, and buying insurance was a very personal transaction around our place. I grew up around it. When it came time to decide what I wanted to do with myself, I wasn’t really sure that farming would be where I ended up.” Taylor went on to study business at Wilfred Laurier University, where he took part
12 Canadian Underwriter December 2009
in the co-op education program. The program, delivered in conjunction with the Insurance Institute, allowed him to get an insurance-related job as part of his work term. He was able to take Institute courses at the same time, accelerating his immersion into the insurance industry. By the time he graduated from school, he had already begun working with a small adjusting firm in Kitchener, Ont. Over the course of the next 22 years, the adjusting firm morphed, eventually being acquired by Crawford & Company. Taylor remained with the firm over the years, working his way from adjuster to vice president of human resources at Crawford. He only left the adjusting business earlier this year to assume his new role with OMIA. “I was familiar with the mutual insurance business, I knew a lot of people that worked for mutuals, I had done work for mutuals before and I had, through my family, a bit of a background with mutuals as well,” he says. “When the opportunity came to lead OMIA, it was something that really appealed to me.” Taylor takes on his new role
at an interesting juncture for the insurance industry. Events surrounding the financial crisis in 2008 “made every insurer look at the way that they do things, and investment income and underwriting results,” he says. “One of the lessons that we’re still learning from 2008 is that to be successful insurers, we all have to be successful underwriters. I think as mutuals, for us, that’s particularly important.” The mutuals’ relatively small scale creates an opportunity for mutual insurers to gain a complete understanding of both the policies they write and the insureds buying the policies, he continues. Nevertheless, mutual insurers need to focus on adapting to the changing demands of consumers. As technology changes, insurers will have to find ways to ensure they remain competitive and maintain their knowledge of how consumers want their insurance delivered. “I think as a small company it can be challenging to get your head around some of the things that need to get done," Taylor says. "By the same token, I think small companies can be very flexible. I
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think they can make changes because their management structure…is relatively straight forward. Decisions can be made quickly and acted on relatively quickly.” For mutuals, as with other companies, it’s important to challenge on an ongoing basis the assumptions about how
the consumer wants to buy insurance and how consumers perceive the product, Taylor says. “Particularly with mutuals, we tend to grow at a relatively constant, measured pace,” he adds. “The idea of integrating technology into a relatively conservative growth strategy is always interesting.”
OMIA launched an initiative in 2008 to rebrand the association. “It was a new look and advertising approach in terms of making sure that our message was current and up-todate,” he continues. The association has also reexamined its approach to the traditional marketing channels. Taylor says the next phase of the initiative will be to look at alternative marketing channels, including online social media. “We’re pretty sure this new, mysterious [future] generation will be different than the current generation, but we’re not sure how it will be different,” he says. “A lot of times we have insured families for years and generations and we value that continuity. And we think our policyholders value that continuity. We want to make sure that the next generation of policyholders are lined up so that we can reach them when we need to.” OMIA is not just looking inward though, Taylor says. Although the vast majority of the trade association’s members are located in Ontario, many of the mutuals’ success stories come from across the country and around the world. By establish-
ing a Mutual Leadership Task Force, Taylor hopes to learn from those success stories in order to help OMIA to grow. The task force also involves the Farm Mutual Reinsurance Plan and the Canadian Association of Mutual Insurance Companies. “Along with OMIA, these organizations are opening up and leading the dialogue on the future of mutuality and promoting the best aspects of mutual insurance,” he says. “We think mutual insurance is the best way going, but we want to make sure that we’re looking at all of the global success stories and all of the things we can do together to keep that agenda moving forward.” He says a strong sense of collaboration and cooperation exists within the mutual insurer system. “When we have meetings as an association, it’s really gratifying to see members openly sharing good ideas and openly talking to one another and sharing experiences, when in fact they are competitors.” While no one is swapping trade secrets, “by the same token, they understand that if the mutuals all do well together, everyone does well individually as well.”
December 2009 Canadian Underwriter
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David Gambrill Editor
Ontario has announced its much-anticipated auto insurance reform package. The industry says it is now “halfway home” towards profitability in the Ontario auto product. Ontario finally announced its proposed changes to the auto reform product in November 2009. Overall, insurers are cautiously optimistic about what they see. Alas, much remains up in the air in terms of knowing how the package will be implemented in the summer of 2010. For this reason, almost every insurer interviewed for this story said “the devil is in the details” when it comes to assessing whether these reforms will help stem their rapidly expanding claims costs. The comments of Barbara Sulzenko-Laurie, vice president of policy at the Insurance Bureau of Canada (IBC), generally sum up the mood and remarks of many of the province’s biggest auto insurers. “This is an enormous reform,” she said. “A key area of excessive leakage of policyholders’ premiums to non-productive expenditure [in the area of minor injuries] has probably been ad-
14 Canadian Underwriter December 2009
dressed effectively.We’ll have to see when we get the regulations.” And so once again the insurance industry is in a position of wait-and-see. Meanwhile, as the reform process lingers on, insurers’ auto-personal accident claims costs continue to rise. Third-quarter results in 2009, as reported to the Office of the Superintendent of Financial Institutions (OSFI), show claims ratios of between 120% and 185% for Canadian insurers and foreign insurers, respectively, in the area of auto personal accidents. As a result, Ontario’s regulator allowed insurers to increase their rates by 6.2% in 2009 (when weighted by market share). For David Crozier, vice president of commercial insurance at The Economical Insurance Group, it’s a recipe for sustained negative press. “The public...does not fundamentally understand how long it takes for changes to work through our system — 12, 18, 24 months and potentially longer,” he said at a CEO panel arranged by the Conestoga Chapter of the Insurance Institute of Ontario. “So they are going to be met with continuing rate increases despite the fact [that they will say to themselves]:‘Wait a minute. Didn’t I just read in the paper this has been solved? “That’s going to be a challenge for all of us. If you marry this lack of awareness with a
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Devil in the Details
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fundamental distrust or dislike that many have for us…you can understand that we have a recipe for sustained negative press.”
BACKGROUND Ontario announced its reform package, including 41 recommendations for reform, approximately half a year after the province’s insurance regulator made its own recommendations in March 2009. At that time, the Financial Services Commission of Ontario (FSCO) package followed an extensive, nine-month consultation with all of the province’s major players in the auto insurance system, including insurers, trial lawyers, health care providers and consumers. For the most part, the government’s reforms closely follow FSCO’s recommendations. However, the government did throw in a few wrinkles that weren’t part of the original FSCO reforms. For the most part, insurers feel the new wrinkles represent an improvement over FSCO’s initial recommendations. Generally, insurers highlighted four key aspects of the reform, including: • a proposed interim cap of Cdn $3,500 on accident benefits related to minor injuries; • more consumer choice, by converting mandatory benefits into optional benefits; • a proposal to work out a new definition of catastrophic impairment; and • the need to make the government’s five-year review process more timely and responsive to insurer’s financial situations.
$3,500 CAP ON MINOR INJURIES First and foremost, insurers applauded the Ontario government for proposing a Cdn$3,500 cap on treatment costs related to minor injuries. “As an interim measure, those who suffer minor injuries in car accidents would receive Cdn$3,500 worth of treatment and assessments,” the government said in its announcement of the reforms. “This would be included as part of a person’s medical and rehabilitation accident benefits, whether they opt for the basic level or additional coverage. It would be focused on treatment out-
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comes and provide health care providers with numerous milestones that could be used to measure progress.” Elsewhere in its announcement, the province said it understands minor injuries to include “whiplash, sprains and strains,” although a more comprehensive guideline would be discussed with stakeholders in the future. Many insurers are cautiously optimistic about this aspect of the reform. Martin Beaulieu, senior vice president of personal lines for Intact Insurance, says he is encouraged by the proposal for the $3,500 limit. “What we are optimistic about in this package is that it will help contain costs on a going-forward basis,” he said. “It’s likely to reduce inflation in accident benefits costs. The cap on whiplash and minor strains and sprains, the $3,500 cap, is a strong signal that there’s a limit on the amount of resources to bring those people back to these activities if they are not [seriously] injured.” But the province says it plans to discuss with stakeholders the future contours of a ‘minor injury.’ That leaves many insurers guessing about what might happen to the cap in the future. “When you strip away all of the changes that the reform entails, there are going to be two key aspects that will determine whether it will be successful or not,” said Rocco Neglia, vice president of claims at The Economical Insurance Company. “One is, are we going to have a significant hard cap on the Cdn$3,500 costs for minor injuries? They’re calling it an interim [solution] until a more [permanent] solution is found. But whether it’s interim or final, the same issue applies: if we are able to limit minor injuries, which by definition, are strains and sprains, very minor stuff — there are no fractures involved, there are no organ issues involved — that will be a huge costing aspect of the legislation that will serve claims well. There’s no point in over-treating and over-assessing minor injuries. That’s to nobody’s benefit, really.” Sulzenko-Laurie says the point of the reform is to ensure that an injury receives an appropriate amount of
treatment. “What you want is an injury that requires $1,500 of treatment, assessment and therapy to get the $1,500 and not require $7,500,” she said. “I think that this was a very positive step that they took in this final version of the reform.”
MORE CONSUMER CHOICE For the government, the proposed reform package is intended to “provide consumers with more choice.” This would be done through “reducing the minimum coverage for medical and rehabilitation benefits, attendant care, deductibles on court awarded compensation and a direct compensation-property damage deductible. Consumers would have an option to increase any of these coverages.” Specifically, the government proposes to reduce the current Cdn$100,000 cap for medical and rehabilitation benefits for non-catastrophic claims down to Cdn$50,000. In doing so, the government, would introduce a new Cdn$100,000 optional medical and rehabilitation benefit, along with the existing Cdn$1-million optional benefit. Currently, housekeeping and home maintenance expenses are part of the mandatory accident benefits coverage provided by insurers. The government’s proposals would “make housekeeping and home maintenance expenses and caregiver benefits optional.” Ontario’s proposed reform package would also “provide an option to reduce the tort deductibles to $20,000 (not-at-fault accident victims) and $10,000 (family members under the Family Law Act), provided that the deductibles do not apply in the case of fatalities.” Theoretically, all of the above moves would give consumers flexibility in defining an auto insurance package that meets their budgets and needs, insurers say. It would also help control insurers’ claims costs. For example, people who did not require housekeeping or caregiving benefits would not be required to pay premiums to receive such coverage, as they do now. “We’re very happy to see benefits
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such as housekeeping and the caregiver allowance are now made optional, because these have been areas that have been subject to significant growth,” said Sulzenko-Laurie. “In housekeeping, the total claim amount in 2004 was Cdn$73 million. In 2008, it was Cdn$212 million. That was up 190% over the course of four years, so that was a big, big increase…. “Why should you have to buy caregiver benefits if you have no children that might require care, or an invalid or elderly person at home that requires care? If you aren’t in those circumstances, why should you be required to buy benefits to cover you in that eventuality? So it's an opportunity to have people design their insurance policy to conform to their needs.” However, it isn't clear yet to what degree insurers will be given flexibility to design packages that are specific to consumers’ needs. Insurers and brokers alike are wondering, for example, whether the government will mandate a standard $50,000 package beyond which consumers can “buy up” and add optional benefits as they see fit. Or will policyholders start with a version of a “Cadillac” package, from which consumers can opt out of benefits they don’t want or need (and presumably reduce their premium in doing so)? Ironically, in offering choice, the government might have further complicated – as opposed to simplified – the province’s auto insurance product, insurers note. A likely consequence is that insurers will be working very closely with their broker force as a result. “For consumers, they're going to have to keep a sharper eye on this,” says Irene Bianchi, vice president of claims and corporate services for RSA. “If their circumstances change, they are going to have to change their insurance to meet their circumstances. “For brokers, I think there is going to be a bigger onus in terms of being sure that their customers are aware [of the options], and they are actually getting the coverage that these people need. We're going to be working very closely with our brokers. We will be including
18 Canadian Underwriter December 2009
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them in our training that we are giving our accident benefit handlers, so that they know all the nuances and are very well-equipped at the end of the day to be allowed to find the right product for the customers.”
CATASTROPHIC IMPAIRMENT DEFINITION All of the aforementioned gains could be immediately erased depending on what the ultimate definition of a “catastrophic impairment” turns out to be, insurers note. The government says no more than it plans to “consult with the medical community to amend the definition of ‘catastrophic impairment’ and redefine the threshold for catastrophic brain injuries.” This would include expanding the definition of “catastrophic impairment” to include single-limb amputees, the release says further. The outcome of this consultation is of critical interest to insurers. “The definition of catastrophic is a huge one,” says Leonard Sharman of The Co-operators. “While it’s great to lower the medical and rehab benefits for the non-catastrophic impairments, if the definition [of a catastrophic impairment] is loosened, and more and more folks fall into the catastrophic category, that’s going to wipe out any savings from the limit change in a hurry. So a few of these areas that are yet to be determined are pretty big ones.” Lacking a clear sense of what the future definition might entail, actuaries will have a tough time crunching the numbers to determine the potential savings generated by the current reforms, said Bianchi. “I think until we have absolute clarity — say, with something they have in Quebec, where you basically have a ‘meat chart’ that says ‘this injury is worth this’ — we will continue to have those [costing] challenges,” she said. Bianchi adds that in those jurisdictions that do have such clear definitions — Quebec, the United States and Ireland, for example – “they do seem to be having a very stable insurance environment with very stable pricing.”
THE FIVE-YEAR REVIEW Sharman tactfully gives voice to the industry’s overall frustration with the glacial pace of the reforms. “There’s a lot of talk around further consultation… which is okay, but it is a bit surprising that they didn’t [do that already],” he said. “There’s [been] plenty of time for consultation already. I’m not quite sure these things were left to carry on.” Karin Ots, senior vice president of injury and casualty claims at Aviva Canada, has no problem with the government reviewing the auto product every five years. But this past process “didn’t start until the end of the five-year mark, despite the fact that some of these issues were noticeable 12 to 18 months into Bill 198 [introduced in 2003],” said Ots. “Costs were starting to escalate like crazy and…the situation became very dire, with insurers having to start taking rate and that sort of thing. I suspect that’s what the whole five-year review was supposed to avoid. I think there are likely better ways the government can set it up.” Like Ots, Beaulieu agrees in principle with the idea of a five-year review. But “if we want to avoid situations where we are reacting to a crisis, I think there will be a need to monitor the system on a more continuous basis and make adjustments as needed,” he said. To this end, Neglia said he would like to see an annual government “state of the union” report on the auto insurance product in Ontario. “We’re in a crisis, and if the regulator controls both the product and the price, you have to say to yourself: How did we get into this situation?” he says. “By mandating FSCO to provide an annual report that will outline the state of the union of the P&C private passenger auto industry, that report can be an impetus to take whatever action is necessary on an ongoing basis.” As Neglia conceives it, such a report might address crucial questions such as: How does the price of auto insurance compare to other staples in society? How are the costs associated with the auto insurance product manifesting themselves?
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At-Fault Claims:
The Good, the Bad and the Ugly
Mary Kelly
Associate Professor, Wilfrid Laurier University
Anne Kleffner
Associate Professor, University of Calgary
The first-party model for recovery in auto damage claims can lead to better relationships with consumers if at-fault assignment is waived, but at-fault determinations must remain accurate to avoid moral hazard. Two mechanisms exist for compensating not-atfault automobile property damage (PD) claims in Canada. Many provinces rely on a traditional third-party model, while Ontario, New Brunswick and Quebec use a first-party model, according to which insurers compensate their own insureds for not-at-fault vehicular damage. Insurers have advocated the use of first-party recovery for the following reasons. First, pricing is improved because insurance reflects the cost to repair the insured’s vehicle rather than the cost of repairing the average vehicle. Both administrative costs and time to settlement is reduced because there is less subrogation between insurers. Furthermore, from a business perspective, insurers
20 Canadian Underwriter December 2009
prefer to “look after� their own policyholders. We examine these and other implications of firstparty recovery below.
THE GOOD To examine whether claims settle faster and with lower adjustment expenses in a first-party model, we compared one year of both at-fault and notat-fault physical damage claims for a large insurer writing in Alberta and Ontario. For Ontario, we collected claims arising from direct compensation/property damage and collision coverages. For Alberta, we used claims arising from thirdparty PD liability and collision coverages. We find that it costs less to settle claims in Ontario.The average loss adjustment expense associated with a property damage claim was $82.32 in Alberta and $55.26 in Ontario. Additionally, claims settled faster in Ontario. In Alberta, the average number of days from the time the claim was reported until the first payment was 47 days, while in Ontario it was 31 days. In Alberta, it took 20 days from the date of the last payment until the claim closed and only six days in Ontario. These differences in settlement times are statistically significant. From an operational perspective,
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claimants benefit from a first-party recovery mechanism as they receive payments faster and insurers benefit if settlement costs are proportional to the length of time it takes to close a claim. We then examined the average payment made to claimants, adjusting for subrogation and salvage and difference in the cost of living between the two provinces.The average payment made to a claimant in Ontario was $3,531 and in Alberta, $3,464.The difference between these two amounts is not statistically significant, but there are significant differences in payments made to not-at-fault claimants. Not-at-fault claimants were compensated at a higher rate in Ontario. The average payment made in Ontario was $3,143 versus $2,903 in Alberta. Next we examined whether differences in compensation arose because accidents in Ontario were different than accidents in Alberta. We compared average payments to all claimants — both atfault and not-at-fault — in Ontario and Alberta for the seven most-frequentlyobserved accident types and found no obvious pattern. For some accidents, payments were statistically higher in Ontario; for others, payments were statistically higher in Alberta. In some instances, there was no difference. However, for each accident type, notat-fault claimants in Ontario received higher payments than not-at-fault claimants in Alberta. It seems that this difference in payments to not-at-fault claimants exists because of the nature of first-party versus third-party relationships. Requesting anonymity, one claims manager noted: “Honestly, we may be a little more liberal in Ontario dealing with our own customer on a not-at-fault loss than with a third-party in Alberta paying them for the not-at-fault loss.”
THE BAD In theory, fault assignment should be driven only by fault determination rules and not the recovery mechanism. In Ontario, the degree of fault is established by the Fault Determination Rules. In Alberta, most insurers are signatories to the In-
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surance Bureau of Canada (IBC)’s Agreement Respecting Standardization of Claim Forms and Practices, and Guidelines for the Settlement of Claims. The two documents are very similar, leading us to expect no systematic differences in fault assignment between the provinces. However, we find insurers in Ontario seem to assign fault less frequently. Strong incentives exist in a third-party recovery mechanism to assign fault accurately, since fault assignment affects the indemnification paid by each insurer. In addition, a built-in control exists because fault assignment requires the agreement of all the adjusters involved. Under a first-party recovery mechanism, however, if collision coverage has been purchased, the indemnification paid is the same (except for the collision deductible) for at-fault and not-
In theory, fault assignment should be driven only by fault determination rules and not the recovery mechanism for compensating auto claims. at-fault claims. Moral hazard arises because the adjuster has less of an incentive to assign fault correctly when the size of claim paid does not depend on correct fault assignment. When settling a claim for his own insured, it may be expedient for the adjuster to assume his insured is not-at-fault. Additionally, the adjuster might not assign fault correctly because settling in favour of one’s insured may reduce settlement costs and increase goodwill. There are many ways to test the impact of this moral hazard on risk classification. First, if this moral hazard exists, more drivers will be classified as lowrisk in first-party recovery than in thirdparty recovery jurisdictions. An analysis of the distribution of insureds by driving record class reveals that more drivers are classified as low-risk drivers in Ontario than in Alberta. However, road safety statistics also show that Alberta
has more reported collisions per registered vehicle than Ontario. Even if fault is assigned correctly in Ontario, there should be a greater proportion of lowrisk drivers.Thus this statistic cannot be used to provide conclusive evidence on fault assignment. Another way to examine fault assignment is to compare the proportions of PD claims classified as at-fault and notat-fault in both provinces. We received statistics from three large insurers. In Alberta, the percentage of PD claims coded as at-fault ranged from 54% to 62%. But in Ontario, the percentage of claims coded as at-fault ranged from 37% to 44%. This raises an interesting question: How can the frequency of atfault claims be less than 50%? Fault determination guidelines dictate that fault should be assigned in every auto accident. Drivers in a single-vehicle accident should be deemed at-fault. In multiple-vehicle accidents, fault assignment rules allow for at least one and up to all drivers to be assigned some degree of fault. And in both provinces, any level of fault assignment is coded as an at-fault accident.Thus, the ratio of at-fault claims to all claims should be greater than 50%. This provides compelling evidence that fault is not assigned properly in Ontario.
THE UGLY Assigning fault correctly in Ontario may not affect the cost of claims paid by insurers, but it has an impact on risk classification and pricing. When adjusters do not assign fault correctly, the classification that occurs via the experience rating component of the insurance premium becomes less effective. Some high-risk drivers will be misclassified as low-risk and overall there will be more pooling of risks within each driving record class. Because auto insurance coverage is not comparable between the two provinces, we cannot use price differences between provinces to measure the impact of misclassification. Instead, we have developed a stochastic model of experience rating. In both provinces, drivers are typically assigned to a driving record class
December 2009 Canadian Underwriter
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based on the number of years of at-faultclaims-free driving.Those in Class 0 have zero years of at-fault-claims-free driving; those in Class 1 have one year without an at-fault claim; and so on up to Class 6, which represents at least six consecutive years of no at-fault claims. In addition, we allow for Class 5*, the modified accident forgiveness state for Class 6 drivers who have an at-fault claim. All drivers in the model are assigned an accident rate drawn from an underlying statistical distribution. The parameters for this distribution are chosen to resemble observed accident frequencies in each driving record class. Therefore the overall frequency of at-fault claims is 3.5% — with Class 6 drivers having a frequency of less than 3% and Class 0 drivers having a much-higher frequency. The model is run twice.The first time, it is assumed that at-fault accidents are properly recorded.The second time, it is assumed that the adjuster misclassifies a claim 30% of the time. Thirty percent roughly matches the difference in at-fault claim rates between Ontario and Alberta. As a result of misclassification, drivers look better to the insurance company than they really are, since there are more Class 6 drivers than there should be. Driving record classification loses some predictive power: there is more heterogeneity within classes (there is greater dispersion of underlying accident probabilities) and the average accident frequencies in adjacent driving record classes are not as different as they should be. Misclassification results in more pooling of risk types, and rate class differentials are closer to one than if at-fault accidents were correctly classified. Insureds are more interested in the cost of insurance and not in rate class differentials. Insurers, on the other hand, are more interested in collecting enough premiums to cover losses and not in what a single insured pays.Therefore, we model the relationship between pure premiums required to cover losses and the level of misclassification.We use the same distribution of accident frequencies as above and set the severity per claim to $5,000. Also, we assume that all
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insureds carry collision coverage with a zero deductible; hence, under first-party recovery, fault assignment does not affect total claims paid. At-fault PD claims incorrectly coded as not-at fault are paid from first-party PD coverage and at-fault claims are paid from collision coverage. In the third-party recovery mechanism, all accidents are coded as at-fault and are paid under collision coverage. The total dollars paid by insurers are the same under both recovery mechanisms. By simulating two portfolios, one with at-fault accidents correctly recorded, and the other with at-fault accidents coded not-at-fault 30% of the time, we obtain the actuarially fair premiums to cover the PD claims (shown in Table 1). Table 1 DRIVING RECORD
ADJUSTER MISCLASSIFIES AT-FAULT CLAIMS 30% OF TIME
AT-FAULT CLAIMS CORRECTLY CLASSIFIED
6
$167
$164
5 & 5*
$223
$217
4
$281
$276
3
$284
$279
2
$287
$283
1
$289
$286
0
$291
$290
When claims are misclassified, all drivers pay more for insurance for two reasons. First, as a result of misclassification, fewer drivers are in the high-risk classes. Second, the difference in differentials across driving classes under misclassification is smaller than if fault were assigned correctly. Premiums collected from the high-risk classes are less than if adjusters correctly assigned fault. Because the premiums are higher than they should be, all drivers who have not been misclassified lose: they subsidize drivers who were misclassified. Lower settlement costs and maintaining goodwill provides justification for misclassification of at-fault claims, but not without cost. Although the total premium collected by insurers is the same, who contributes these dollars differ in the two scenarios.When fault is assigned correctly, premiums increase for drivers
who have at-fault accidents. When fault is not assigned correctly, insurers must use overall rate increases to cover losses. This should provide incentives for correct fault assignment.
OPPORTUNITIES FOR INSURERS Real benefits arise from first-party recovery for not-at-fault property damage. First party recovery is associated with lower settlement expenses and quicker settlement times. As such, first-party recovery could provide noticeable savings if adopted in other jurisdictions. Not expected was the higher compensation for not-at-fault claimants under firstparty recovery, suggesting that one’s own insurer is more generous in claims payment than a third-party insurer. Fault may not be correctly assigned in the first-party recovery mechanism: insureds are less likely to be found at fault. Although this may lead to happier insureds, it degrades the experience-rating component of the insurance premium. Experience rating becomes less effective in separating high and low risks. Moreover, our model shows this results in premiums that are marginally higher for all insureds. The mispricing result has interesting implications from a competitive standpoint. If an insurer were to become aware of an incentive to not assign fault, it could gain a competitive advantage by reducing misclassification. Although settlement costs may increase, the experience rating component would classify insureds correctly. This might lead to a reduction in premiums charged to properly classified drivers in all classes. In addition, economic theory suggests that correctly classifying insureds reduces moral hazard because the cost of insurance is aligned with each insureds’ true risk. On the other hand, misclassification is a relatively inexpensive way to “grease the squeaky wheel,” if indeed those insureds that are misclassified would otherwise give rise to the largest settlement costs. Overall, in practice, an examination of the good, bad and the ugly is necessary to ensure that insurers are using the best compensation mechanism for not-atfault property damage.
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Mary Lou O’Reilly
Vice President, Public Affairs and Marketing, Insurance Bureau of Canada
Courtesy of the nation’s insurers, towns and cities looking to make the best use of taxpayers’ dollars will soon have a credible, reliable tool to help guide them in infrastructure spending. The Insurance Bureau of Canada (IBC) has been pressing the issue of Canada’s aging water and sewer systems in recent years, particularly because of the threat of climate change and increased levels of heavy rainfall in key regions. However, many municipalities are overwhelmed by the sheer magnitude of the problem and the required investment. Should they invest in sewer systems? Wastewater treatment plants? Flood diversion plans? In short order, they will have at least one part of the answer. The insurance industry is in the process of developing a risk assessment tool that municipalities can use to pinpoint the most vulnerable areas of infrastructure and direct funds accordingly. Insurance companies will also have the tool to rate and price property risks accurately.
24 Canadian Underwriter December 2009
IBC’s Adaptation to Climate Change Committee recognizes that the world’s changing climate is trending towards an even higher frequency of heavy rainfall. The concentration of rainfall in massive downpours and violent storms has increased dramatically in recent years. Losses related to water damage are now the leading cause of personal lines property claims in Canada, costing the industry and policyholders about Cdn$1.5 billion per year. We don’t have to look far for recent examples. In 2006, one 15-minute downpour along the Don Valley Parkway in Toronto caused Cdn$500 million in property damage. In Hamilton, Ontario, 6,000 houses suffered water damage after two days of torrential rains late in July 2008. More recently, Environment Canada issued a warning on Nov. 14 for severe flooding and landslides across British Columbia’s south coast; more than 300 millimetres of rain was expected in three days — almost twice the average monthly downpour for November. Our cities’ and towns’ aging infrastructures are on the front lines of this climate change activity. If there is a heavy downpour or violent storm, many sewer and surface water systems simply cannot handle the amount of water. Flooding is the inevitable result.
Illustrations by Francis Blake/www.threeinabox.com
Tool for Adaptation
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The insurance industry is not the only group to notice this. In its own studies, the Federation of Canadian Municipalities has indicated there is a deficit of more than Cdn$12 billion in sewer and surface water infrastructure in Canada. So the question becomes: How do we tackle this deficit? We need to collect specific information to back up the need for infrastructure spending in critical areas.What needs to be fixed and where?
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What municipalities face the most imminent risk? For larger cities, which neighbourhoods require the most urgent attention? In short, we need better analytics and better data. This is why IBC’s Adaptation to Climate Change Committee is creating a municipal risk assessment tool designed to collect key data that will help both cities and towns in their infrastructure planning and allow the insurance industry to
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understand the risk of future claims.This latter point is important. Insurers currently have fairly good retrospective data upon which to base their pricing.They can rely on claims histories to tell them at least part of the risk story. However, another part of the story can be told through the use of prospective data. For example, houses that suffered water damage in Hamilton were not located in a traditional “hot spot” for these kinds of water damage claims. It would have been very difficult, if not impossible, to forecast this event based on retrospective data. The municipal risk assessment tool will address this “information gap” by collecting and analyzing key municipal data in the: • age and design of sewer and surface water systems; • maintenance and operation of those systems; • urban development policies that influence system capacity; and • topographical features like elevation and soil type, which affect risk and vary broadly within large urban centres. Collection of this data will allow the insurance industry to make a step change improvement in its ability to accurately rate and price property risks related to heavy rain and spring thaws. Companies will take the prospective data gleaned from the tool and combine it with their own retrospective data to get accurate risk ratings specific to their needs. Think of it as the ability to look forward, as well as back. The more accurate business rating tool will also mean companies can write business they may not have considered before, enhancing competition, making insurance more available and creating a more rational pricing system. However, the risk assessment tool is also a change management opportunity for cities and towns across Canada. The data insurers collect and analyze for rating purposes will be shared with municipalities and provincial governments. Information provided by this tool will allow government to prioritize their investments and deal with the greatest vulnerabilities first. It will give infrastructure spending a kick-start.
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That’s a tall order. Many may ask: How do we actually get a somewhat staid subject like infrastructure spending to become a hot topic for municipal chambers and government water coolers across the country? First, we have to show how it could work in actual communities. A pilot project for the risk assessment tool is in the approval process and Cdn$1 million in initial funding has been earmarked for the project.The federal government has provided half of these funds, a commitment that bodes well for buy-in from all levels of politicians. The pilot will cover 10-15 small and mid-size municipalities in Atlantic Canada, and also involve Hamilton to validate elements of the tool that are specific to larger urban centres. Regional industry workshops are being conducted to gather industry guidance and feedback on the current development of the tool, and future phases of the project. Given that Canada has more than 3,700 municipalities, the insurance industry will require ongoing discussions about the best ways to collect and disseminate the technical information once the tool has been validated with case studies. This initiative will have several stages, but the technical scoping work has already begun. With the risk assessment tool, the insurance industry is staking the high ground on the issue of adaptation to climate change. As it rolls out, it will clearly be a valuable way for insurers to better understand risk, improve pricing structures and treat customers fairly. The industry could have simply stopped at that. But by making the tool widely available to different levels of government, we are encouraging forward thinking and a responsible approach to the realities of climate change.Think of it as a gentle nudge to begin the urgent and massive work on infrastructure investment. Our industry is also providing datadriven, fact-based and objective measurement tools to quantify risk and suggest prudent strategies to address that risk. We are showing that we can be invaluable partners in addressing one of the most urgent issues of our era.
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The municipal risk assessment tool is a vital project for the insurance industry, governments and all Canadians. It is one crucial part of what has to be a comprehensive plan to adapt intelligently to the very real challenges of climate change. There is a role for all levels of government, industries and citizens to play in this adaptation — from representation at international meetings such as the UN Climate Change Conference in Copen-
hagen, to the use of powerful economic incentives to encourage change in consumer behaviour and individual responsibility (i.e. reducing water usage through things like rain barrels). This risk assessment tool will provide the data insurers need to understand risk and the information municipalities need to invest wisely with scarce resources. It also provides an excellent illustration of the old adage: ‘Think globally, but act locally.’
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pg24,26,27Climate v1_DG_VM
Hannover Rückversicherung AG Canadian Branch – Facultative Office 150 York Street – Suite 1008 Toronto, ON M5H 3S5 Tel: 1 800 950-5888 Head of Office: Klaus Navarrete klaus.navarrete@hannover-re.com
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pg28,29,30IBAO Coverage_DG_VM
89th Annual Convention of the Insurance Brokers Association of Ontario (IBAO)
David Gambrill Editor
Vanessa Mariga Associate Editor
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Highlight Reel Credit scoring, technology, broker communications with consumers and ITV all dominated the highlight reel of the IBAO's annual convention in 2009. Credit scoring, technology, brokers' communications with consumers and the insurance-to-value (ITV) conundrum all found their way into the public discussions during the 89th annual convention of the Insurance Brokers Association of Ontario (IBAO) held in Toronto in October. In many ways, IBAO's seminars and panel discussions proved to be a kind “highlight reel” of many of the issues brokers have been raising throughout the year. Highlights included:
CREDIT SCORING The IBAO made its position on insurers' use of credit scoring crystal clear, when IBAO president Peter Bodgett, in his opening address, challenged the association's members to stand behind the IBAO in its bid to ban the use of insurance-based credit scoring outright in all lines.
28 Canadian Underwriter December 2009
Blodgett's speech acknowledged some of the IBAO's members have not yet fully endorsed the association's strong stance against credit scoring for the purpose of underwriting insurance. In Ontario, the use of credit scoring for underwriting purposes is currently banned in auto in auto lines, and the IBAO has called on regulators and legislators to extend the ban to homeowners' lines as well. “Our request in [May 2009] has now moved for asking for an outright ban on credit scoring, which I strongly support, and my hope is that our voice will be heard loud and clear,” Blodgett said. “We do, however, have some of our members who are opposed to our position. May I suggest it’s time to disregard insurer propaganda and get in the game.” Blodgett likened the IBAO’s battle against credit scoring to the brokers’ fight against banks on the issue of banks selling insurance on their Web sites. In both cases, brokers are “doing what we can to ensure that all Canadians are protected and treated fairly,” said Blodgett. “The use of credit is an evil that will do no more than increase cost for those who can least afford it and change our role from a professional advisor to a mere credit counselor.”
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Blodgett's use of the term “evil” drew a rebuke from one insurer at the IBAO's annual CEO panel. Insurers on the panel who supported the use of credit scoring said a ban would not actually resolve the issue, since insurers and brokers would be at an unfair advantage with direct writers and banks that have already had a head start in the use of credit scoring. Jean Francois Blais, president and CEO of Axa Canada, said as long as banks have access to consumers’ credit information, insurers — and thus the brokers who distribute their products — need to use credit information to remain competitive and maintain a level playing field. “Is it the proper solution to ban [the use of credit scoring] when the competition has it?” Blais asked the panel. “The reality as we see it is: if we ban it, don’t think it will go away. We are here to compete.”
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Robin Spencer, president and CEO of Aviva Canada, similarly argued that banning credit scoring would disadvantage the broker channel — and insurers supporting brokers — because a ban on credit would take away a valuable underwriting tool that insurers and brokers can use to win back business from direct writers and banks. But remarks by panelist Charles Brindamour, president and CEO of Intact Insurance, sowed some confusion about whether the direct channel actually benefited from the use of credit scoring. In a question-and-answer session following the panel discussion, Brindamour was asked if the use of credit scoring for pricing favours one distribution model over another. He responded that if it were to be used, it would be to the broker model’s advantage. “The direct models don’t really allow for the use of credit when it comes to
pricing,” he said. “It doesn’t present an advantage for this channel in Ontario auto [where the use of credit scoring is banned].” Brindamour's remarks created some confusion, prompting IBAO CEO Randy Carroll to ask Brindamour to clarify whether the direct writers he monitored were using credit scoring. Brindamour confirmed the direct companies he monitored were not using credit scoring for the purpose of underwriting. “Then we don't need it,” Carroll said of credit scoring, which the IBAO wants prohibited in all lines of business. Kevin McNeil, president and CEO of Gore Mutual Insurance Company, said he believed enough underwriting factors are available for insurers to write profitable books of business. “When you couple the underwriting factors with predictive modelling, and the conversations that occur between the customer
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service representative and our underwriters, we don’t need credit in order to profitably underwrite and be successful as an insurer,” he said. George Cooke, president and CEO of The Dominion (which does not use credit scoring), said he felt the debate around credit scoring was caused by regulations that are “unclear and unenforced.”
TECHNOLOGY In his address to the convention, IBAO incoming president Bryan Yetman encouraged insurance brokers to adopt a much stronger Web presence. As the Internet increasingly becomes the dominant mode of communication for consumers (particularly younger consumers), brokers need to adapt their business strategies to take advantage of this trend, said Yetman. He noted the window of opportunity for the broker channel to use technology to its advantage would not be open forever. “Research suggests that whatever it is we do, we have less than a two-year window to develop and deliver a strategy,”Yetman said. “If we stand still, time will pass us by [and], as we know from other industries, those that adhere to the status quo get left behind.” Going somewhat against the grain,Yetman argued that the Internet — commonly presumed to be a way to forge an electronic link between consumers and direct writers — is in fact compatible with the business model of the broker channel. “Many profess that the Internet is eliminating the need for the intermediary,” said Yetman. “I, on the other hand, would argue exactly the opposite… “You see, the problem with information on the Internet is that there is simply too much of it. More often than not, consumers searching for answers are often left more confused and/or misinformed than when they began. “If anything, the Internet has created a much larger demand for the intermediary.” This dovetails nicely with the advicebased aspect of the broker business model,Yetman observed. “With so much out there to decipher, trends show that
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consumers continue to crave advicebased answers to their inquiries.” The broker's opportunity to engage the Web lies in his or her ability to “wade through the myriad of information, validate it and present it to [consumers] in a manner they can understand.”
BROKERS' COMMUNICATIONS WITH CLIENTS Brokers need to do more of the grassroots style of communication with their clients that made the channel so successful in the first place, the IBAO's proprietary research shows. IBAO CEO Randy Carroll and IBAO director of operations Paul Taylor both presented the research results at a convention seminar. IBAO received 1,500 responses to its survey, which found that 17% of the market has switched from the broker channel to another provider over the past three years. Brokers still hold the largest segment (43%) of the market. But brokers ought not to be complacent about communicating with their customers, Carroll and Taylor warned. The survey found a significant number of brokers were falling short of managing current demand from consumers. For example, 31% of respondents answered indifferently when asked if they were receiving “superior value” from their insurance broker. In a separate question, 18% of respondents were ambivalent when asked if they would recommend a broker to their family or friends. A key goal for brokers should be to reach out to these people with more frequent contact, Carroll and Taylor said. They pointed to survey results that showed broker customers like to be contacted at least twice a year, not including renewals or claims. The IBAO's survey results showed 62% of respondents wanted to be contacted occasionally, and 37% said they were contacted less than they would have preferred. Carroll and Taylor gave several examples of personally receiving information from direct writers and cable companies — sometimes as often as once a
week. And yet, some consumers only hear from their brokers once a year. They said brokers need to be seen in their communities, and they need to hear from their brokers by telephone.
INSURANCE TO VALUE (ITV) Would adherence to a single tool for estimating reconstruction costs help to resolve the insurance-to-value (ITV) issue? Industry sources estimate residential and commercial properties in Canada are underinsured by up to Cdn$11 billion. In large measure, this is due to the fact that reconstruction costs have been inaccurately valued for decades. Insurance company CEOs at the IBAO's CEO panel raised the role of cost calculators in this historical dilemma. George Cooke, president and CEO of The Dominion, got the ball rolling when he said: “The biggest problem, from my perspective, relates to the fact that you need to have one [cost calculator] tool in order to solve this [ITV] problem.” He said a hidden problem for insurers is that multiple cost estimation programs can be used to determine the reconstruction cost of a house, and yet a company can only set one rate. Thus, if the cost estimators differ wildly in their outcomes, that will make it more difficult to split the difference between variable property values to establish a single, accurate rate. “You don't set the rate for an [individual] estimator,” said Cooke, who added: “Maybe that would be part of the solution.” Charles Brindamour, president and CEO of Intact Insurance, countered that it would be impossible for an insurance company to impose a monopoly on a single cost calculator tool. He said his company was responding to the ITV issue by “trying to find guidelines that can be applied to the output of certain tools…” Kevin McNeil, president and CEO of Gore Mutual Insurance Company, said his company has dealt with the dilemma of brokers using different cost estimators by embracing all of them. “Whatever tools [brokers] are using, we accept,” he said.
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Looking Inward
32 Canadian Underwriter December 2009
There
is a song by a 1980-90s band called The The, in which the singer Matt Johnson advises: ‘If you can’t change the world, then change yourself.’ Besieged by world events that have substantially eaten into their profit margins, Canadian property and casualty insurers are starting to turn inwards and see what they might do to change their internal operations in order to adjust to their difficult financial environment. Canadian Underwriter asked direct market property and casualty insurers to identify and discuss what they thought to be the single most important issue facing the Canadian property and casualty industry looking forward into 2010. Their responses are set out below in alphabetical order. Not surprisingly, the answers were varied. They included deteriorating results in residential and property lines due to escalating water damage, technology to give consumers better access to the insurance product, Ontario auto reform, ongoing poor investment returns and a shaky market, among others. But one theme running throughout the answers is a sort of insurance Darwinism — i.e. only insurers that adapt to their environment will survive. As the market appears ready to turn from a soft market to a hard market, insurance companies appear to be looking inward — i.e. proposing ways to improve their own underwriting profits — as a means to adapt to tough market conditions, thus finding the way out of the box into which external circumstances have put them.
December 2009 Canadian Underwriter
33
COVER STORY
Looking Inward
1
Kathy Bardswick President, CEO, The Co-operators General Insurance Company
My biggest concern heading into 2010 remains the ever-increasing cost of weatherrelated losses. Weather patterns are changing, our losses are mounting and there is little reason to believe this trend will change anytime soon. Water damage has surpassed fire as the main cause of concern among property insurers in Canada. The increasing frequency and severity of storms is, of course, a long-term and very difficult challenge to address. One key, immediate call to action involves our preparedness and commitment to adaptation strategies. As our population density grows, more and more Canadians are living in areas known to be prone to destructive weather. We need to do a better job of ensuring appropriate development in these spots. Exacerbating the problem is our massive infrastructure deficit, which the Federation of Canadian Municipalities estimates to be Cdn$123 billion. Our aging sewer and stormwater infrastructure’s inability to handle the intense rainfall that is now commonplace is a major contributor to the Cdn$1.5 billion in water damage claims we collectively pay each year. The federal government’s stimulus package included some badly needed infrastructure investment, but it is a one-time deal: a prolonged commitment is necessary. This is not a new issue, yet it remains largely unheeded. Revising building codes to reflect the new reality of our weather, as well as our improved ability to construct safe, affordable buildings could go a long way toward protecting Canadians’ lives and property. Retrofitting existing buildings is also critical. These are major challenges, to be sure, and ones the industry will have to work on with all levels of government if progress is to be made.
2
Jean-Francois Blais President, CEO, AXA Canada
2010 will be another challenging year for companies and brokers. I see two main issues. First, it is time for insurers 34 Canadian Underwriter December 2009
1
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2010 will be defined not by any one of the many issues affecting our industry, but by our ability to evolve the way we do business and adapt to an increasingly complex marketplace. and brokers to focus collectively on raising our delivered standards of customer service to be in line with changing consumer demands. Second, the implementation of a new auto product in Ontario will put great pressure on companies and brokers to deliver a product that clearly gives consumers more choices. The most recent Ontario auto proposal puts forth numerous changes to enhance the consumer’s options and it puts some of the control of the cost of coverage in the hands of the insureds. With consumer choice comes increased responsibility for us, the insurance industry, to properly explain to consumers the choices they may now make. Brokers in Ontario will have an
opportunity to show their true value to their clients by giving advice on the new auto product, as well as enabling customers to make informed decisions. This ties in well with the first issue. Companies must adjust their service delivery goals to meet the changing customer demands. It is important to listen to existing and future customers so that we may build a high level of trust and ultimately raise the profile of our industry. For example, I believe the Internet and the broker channel need not be mutually exclusive. Our company is currently working together with its broker partners to bring to market a buy-on-line solution for consumers who choose to purchase their insurance through the Internet, and who want the benefit of a broker’s service, advice and support.
3
Charles Brindamour President, CEO, Intact Financial Corporation
As we enter a new decade, we should take a few moments to reflect on our journey of the past 10 years. Overall, the industry has struggled to manage its own business cycles effectively, its profitability has remained less-than-stellar and the regulatory framework, while evolving, continues to stifle innovation in a number of jurisdictions. More importantly, recent demographic trends, notably the aging of the Canadian population and the increasing contribution of immigration to our population growth, have resulted in rising expectations and new purchasing behaviours among consumers as they embrace new technologies. These developments are setting the stage for the agenda we should all be pursuing: keeping the customer at the centre of our business models and all of our activities. As consumers and their preferences change, our products, our services and the way they are offered and delivered must also change. To succeed in this new environment, we must provide customers with the best value proposition and an exceptional experience; nothing less. That’s the reason Intact is improving on its promise to get
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COVER STORY
Looking Inward customers back on track and promoting this message. That’s also why it provides brokers with a strong local presence, in addition to the technological and financial support brokers require to flourish in today’s and tomorrow’s marketplace. As industry conditions change, we feel most confident in our ability to build upon our growth of the past 10 years. We are also more convinced than ever that brokers, given their entrepreneurship, will succeed by also building upon their detailed knowledge of their customers and the quality of the advice they offer. As a result, 2010 will provide all of us the opportunity to strengthen the confidence that customers place in our industry.
4
Alister Campbell Chief Agent, CEO, Zurich Canada
Looking back at what I wrote last year, it’s amazing to me how much has happened in 12 months but how little the facts have changed. Industry results in personal, commercial auto, as well as residential and commercial property lines, are unacceptably poor. Long-tail liability lines look better, but this is illusory. Sustained low yields on fixedincome securities are most damaging on long-tail lines, so today’s apparent liability profits may be tempting new entrants to play, but the profits will not last and the final pillar of profitability for our industry will tumble soon enough. With industry returns on equity (ROE) already in the low single digits, it can’t take much more to force the turn. And while a blessedly benign U.S. catastrophe season and a recovery in global stock markets may create a temporary positive uptick in available capital, underwriting losses and low yields may, in the end, do what they always do — turn the market. What’s a winning property and casualty insurance company to do in the meantime? Do the boring things well! Price for exposure. Select risk with care. Focus on segments where there is true underwriting insight and 36 Canadian Underwriter December 2009
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The industry is facing enormous pressure on already under-priced portfolios as a result of the economic downturn, a decrease in investment income, auto reform and the impact of volatile weather. deliver distinct and differentiating value propositions that earn sustained customer loyalty. And what are winning brokers to do in the same time period? Do what winning brokers have always done. Select strategic underwriting partners with a strong balance sheet. So when things turn, as they will, brokers will have true underwriting partners rather than insurance company adversaries to work with to solve customer challenges.
5
George Cooke President, CEO, Dominion of Canada General Insurance Company
The past two years have been difficult, as our industry has experienced deteriorating underwriting results and challenging investment markets. While we
recognize the cyclical nature of insurance, previous cycles came when the economic climate was relatively good. Considering the impact of the recession and the influence of industry issues such as insurance-to-value, dislocation caused by aggressive customer profiling and severe weather events, we are in a truly difficult environment. At the end of 2009, the Canadian property and casualty marketplace is sitting at, or near, the bottom of the industry cycle. In past cycles, the answer to getting to higher ground would have been rate management, hard work, sound investments and patience. In those times, 2010 would simply be another year — a year in which we would hold our collective nose, and do more of the same to muscle through towards better times. This time, with most property and casualty companies operating in Canada having “de-risked” their investment portfolios, the profit response can only come from insurance operations. Operating targets established when companies could take advantage of economic turnaround through increased investment returns are no longer the appropriate standard. Companies have “deinvested” and hence operations must perform that much better. Ethical market conduct, strong management and active leadership at every level, and from all stakeholders within the Canadian property and casualty industry, will be instrumental in meeting the demands of 2010 and beyond. In short, 2010 will be defined not by any one of the many issues affecting our industry, but by our ability to evolve the way we do business and adapt to an increasingly complex marketplace — a marketplace with significant inflation looming on the horizon for 2012 and beyond.
6
Kevin McNeil President, CEO, Gore Mutual Insurance Company
We believe technology to be critical to brokers enhancing their value proposition for commercial clients.
COVER STORY
Looking Inward Technology will be a catalyst for brokers to provide a new business model that will improve margins, create efficiencies and strengthen relationships through enhanced service delivery. Other industries provide innovative technology platforms from which they serve clients. As clients increasingly become accustomed to paying bills online and receiving customized information that helps them research purchases online, the technology that enables them to do so becomes the new benchmark from which all service delivery is measured. Insurers must provide real-time, onceand-done solutions, paperless workflows and system integration so brokers can better serve their clients — quickly and accurately. When insurers fail to do this, the impact weakens brokers’ brands. As capital strength builds, we hope 2010 will be a year of technology advances with insurers making a commitment to building solutions for brokers. It’s time for property and casualty insurers to become leaders, not laggards, in developing innovative technology solutions.
7
Ellen Moore President, CEO, Chubb Insurance Company of Canada
Thriving in 2009 has not been without its challenges. Although economic indicators are more positive than this time a year ago, there is still much uncertainty for our business in 2010. We expect the market to remain challenging in 2010. Our industry’s profitability continues to decline while capacity remains abundant. A dynamic market with new companies and products is important for our industry. It is equally important that our industry be seen to provide consistent and sustainable support to the consumer. We remain committed to managing our business responsibly in the face of the potential risk of further price deterioration and profit erosion. The compression on margins coupled with deteriorating investment returns is a dangerous combination. We have seen how consecutive years of underwriting loss hurt our industry. 38 Canadian Underwriter December 2009
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Sustained low yields on fixed-income securities are most damaging on long-tail lines, so today’s apparent liability profits may be tempting new entrants to play, but the profits will not last and the final pillar of profitability for our industry will tumble soon enough. In addition to the usual pressure, I think 2010 will require greater focus. Climate change and weather related losses are high on the watch list and we have a number of potential distractions on the horizon — including IFRS conversion, Part XIII execution and the implementation of the HST. All that said, we are always excited about what a new year offers. Strong underwriting profit allows companies to be consistent in the segments they serve and be innovative.
Gary Owcar President, Chief Operating Officer, CNA Canada
The sluggish economy, combined with a soft insurance market, makes this a very challenging time for all of us in the insurance industry. Exposures are down across the board and new business and renewals are as competitive as ever. Needless to say, these pressures affect carriers and brokers alike. Individually, none of us can change the economic or insurance market conditions. But collaboratively, we can minimize volatility and sustain underwriting integrity. CNA Canada is committed to being a consistent and stable market for brokers and strives to provide superior service to them, as well as to mutual clients. CNA recognizes strong broker partnerships are more important than ever. We believe in building these relationships by creating win-win-win solutions for the underwriter, the broker and the insured. CNA’s strategies are built around achieving the following five objectives: • Grow the top and bottom lines; • Build strong broker relationships; • Deliver superior service internally and externally; • Build our human capital; and • Build a culture of collaboration through communication. CNA has also been working on a strategy to develop deeper expertise in a range of industry segments. By deepening our expertise in these industries, CNA will be better positioned to collaborate with our brokers, understand customer risks and add more value to the insurance transaction. We believe this approach will help us and our partners stay on course and manage through this cycle.
9
Rowan Saunders President, CEO, RSA Group Canada
A progressive and focused strategy that fits the changing dynamics of the marketplace will set apart the leaders in 2010. As I reflect on what I see in the market, I see a real divergence between compa-
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COVER STORY
Looking Inward nies with strong strategies in place, and those with either a misaligned market strategy or poor execution. It is becoming increasingly evident that some strategies are simply under-delivering. For some companies, that means CORs well in excess of 100%. I expect there will be a re-thinking or at least a re-direction of some strategies that will add fuel to a market already in transition. Only five short years ago, the industry found itself in a similar scenario. It is true now as it was then: only insurers with a strong and focused strategy, one that meets the differing needs of consumers and their brokers, will be able to support and lead in the marketplace. The industry is facing enormous pressure on already under-priced portfolios as a result of the economic downturn, a decrease in investment income, auto reform and the impact of volatile weather. There will of course be different views on how to manage through this environment. Companies that have invested or are investing in their people now are positioned to succeed in this environment with highly skilled, engaged employees who have deep technical expertise. They are able to confidently step into the market, capitalizing on opportunities that arise as some scramble to recover and re-direct their strategies. While we expect 2010 to continue to be a challenging environment due to the transitioning phase of the insurance cycle, we believe now is not the time to “hunker down” but to support and grow with your brokers and customers.
10
Robin Spencer President, CEO, Aviva Canada
As I am soon heading back to the United Kingdom, I would like to begin by thanking the entire Aviva Canada team and our broker partners for their support over the past five years. If we flashback to 2004, consumer confidence was weak, a new product had just been released in Ontario with rate rollbacks and industry results were starting to improve given large price increases in commercial lines and 40 Canadian Underwriter December 2009
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stabilizing Ontario auto results. And there was much discussion about changes in distribution and consolidation in the industry. Sound familiar? While we have made progress in improving our industry image, there is more to do. It is imperative that we continue to work together on solving industry issues. We need to deliver stronger insurance products and be able to explain to consumers what we do and why changes are necessary. We have to be proactive at identifying emerging issues and deal with them quickly and head on. If we don’t, others will do this for us — and we won’t like the outcome. Aviva has transformed itself over this period. It has a single brand across Canada. It has a clear strategy focused on broker distribution, in addition to a corporate culture recognized as best in class. Its new CEO, Maurice Tulloch, is an exceptional leader with huge talent. The Aviva team looks forward to working with brokers across the country throughout 2010, continuing to build our respective businesses and serve our clients in an exceptional way.
11
Bob Tisdale President, Chief Operating Officer, Pembridge Insurance Company
Over the past 20 years, Canada’s population has grown by 30%; in 2009, it is estimated to be at 34 million peo-
ple. Small, single-family homes with unfinished basements have been replaced by much larger homes, many with fully finished basements built to maximize living space. High-quality finishes such as hardwood floors, home theatre systems and other expensive electronics and furniture have replaced old hockey equipment and other ‘junk’ that was often stored in basements. Now when a big storm hits, aging storm drains and sewer systems are stretched to the limit, resulting in significant damage for the homeowner. In the case of more densely populated communities, the necessary infrastructure isn’t in place to handle these storms effectively, resulting in a considerable increase in sewer back-up and other water-related claims. This newer trend, coupled with an increase in mould-related losses, has contributed to a significantly increasing loss ratio. We are also faced with an insurance-to-value problem: the cost to repair a home and replace its contents is often seriously underestimated, costing insurers millions of dollars in premium. Personal property insurance originated as a product offering consumers protection in the event of a fire in their home. Over time, this coverage has evolved considerably from its original intent; now it provides comprehensive protection for a customer’s home and personal belongings. Insurers can’t predict when or where storms or other weather-related events will occur. The industry must now do three things to address this issue: • make risk mitigation a priority, by educating consumers about the importance of taking preventative measures to protect their home; • develop and adopt best practices to ensure dwellings are insured to value; and • encourage all levels of government to make the necessary infrastructure investments to better protect homeowners and mitigate future economic losses in their communities.
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El Niño:
Four Lessons for Canadian Insurers
Paul Kovacs
Executive Director, Institute for Catastrophic Loss Reduction
El Niño is expected to shift Canada’s weather patterns in Winter 2009 and into 2010. Insurers may experience a few months of reduced vehicle collision claims, and the risk of water damage claims may fall temporarily in some regions like Ontario. Unfortunately, this may be partially offset by the increased risk of wildfire damage, and an increased risk of water and wind damage in the Greater Vancouver Area and over much of Vancouver Island. Ultimately insurers should plan for longer-term trends to reassert themselves when the El Niño subsides, trends that have brought more than four decades of rising water and wind damage claims across most of the country. The sea surface temperature in the eastern Pacific Ocean has warmed by three degrees since January 2009. In the past 50 years, there have been only five other years when the Pacific Ocean warmed as much and as quickly. This warming has brought El Niño conditions that are expected to strengthen through the winter. The specific changes we will experience in Canada are uncertain. Nevertheless, the five strongest El Niño events over the past 50 years have brought warmer winters across south central Canada and drier winters for some regions (including southern Ontario), with an important exception being a significant increase in rainfall over the Greater Vancouver Area and most of Vancouver Island. Large losses can occur at any time. Indeed, the 1998 Ice Storm and 1997 Porcupine Hills winter grass fires struck in the midst of a strong El Niño event.The Kelowna wildfire and Hurricane Juan struck in 2003, following a moderate El
42 Canadian Underwriter December 2009
Niño winter. Despite these large insured loss events, averaged over the past 40 years, there have been fewer severe weather events in El Niño years in most regions of Canada than in non-El Niño years.
WHAT IS EL NIÑO? The prevailing trade winds typically push warm surface waters across the Pacific Ocean from Peru toward Tahiti. Every two to seven years, on average, the winds falter for several months, resulting in the warm waters shifting from the western Pacific to the east. Scientists describe this phenomenon as the El Niño Southern Oscillation, or El Niño. Mechanisms that drive the oscillation remain a matter of research, but for more than 300 years this has been a quasi-regular feature disrupting global weather. The impact of El Niño is strongest in South America, South Asia and Australia, but anomalous weather events can occur around the globe. Effects on the weather vary with each event, but developing countries are especially affected if they border on the Pacific Ocean and are dependent on agriculture and fishing. Current conditions are not as extreme as they were during the El Niño event of 1997-98, and have attracted less attention. Nevertheless, the weather in 2010 should differ from that experienced over the past two years.
HOW WILL EL NIÑO AFFECT CANADIANS? The impact of the current event is unknown.The experience of the five strongest El Niño events over the past 50 years, adjusted for the effect of
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climate change, provides a sense of what we may experience this winter and into next year. The most evident impact will be a warming of many urban centres across the country.The greatest warming, likely approaching three degrees this winter, will be in the Winnipeg area. Warming of more than one degree may be evident in Toronto, Montreal, Ottawa, Edmonton and Calgary, relative to typical winter conditions. Near-normal average winter temperatures are likely in coastal communities like Vancouver and Halifax. Past El Niño events brought somewhat drier winters across southern Ontario and the interior of British Columbia. Near-normal conditions were evident on average in Montreal, Ottawa, Edmonton and Calgary. However, there was significantly increased rainfall in Vancouver and most of Vancouver Island. Changes in Canada’s winter weather patterns are due to the forcing of the Polar Jet stream further north.The impacts are larger and more consistent over time in locations closer to the Pacific Ocean, and smaller and more variable in locations closer to the Atlantic Ocean.
HOW WILL EL NIÑO AFFECT INSURANCE CLAIMS? A largely unmeasured benefit of El Niño for Canadians and Canadian insurance companies has been a reduction in winter vehicle collisions, particularly in western Canada and Ontario. The prospect of warmer and perhaps drier winters in many urban centres this winter and spring may bring a temporary reduction in collisions. The impact of El Niño on the risk of water and wind damage claims is difficult to assess. El Niño may bring a somewhat drier winter in southern Ontario. However, the risk of unusual winter storm events in Southern British Columbia may increase, including severe wind gusts causing property damage. The largest water and wind damage claims typically coincide with severe summer storms.The influence of El Niño over the risk of summer storm damage is uncertain because: 1) research is ongoing to
44 Canadian Underwriter December 2009
help understand what links may present between El Niño and storm activity; and 2) it is unclear whether or not El Niño will still be active at that time. Warmer and drier winters are expected to increase the risk of wildfires. Some increase in the risk of grass and forest fire is likely across most of the country. An increase in the number of wildland fires would increase the risk of fire damage extending into the urban interface and destroying property. Atlantic Canada and Quebec are the regions in Canada least likely to be affected because they are located a great distance away from the Pacific Ocean. However, the strongest measured El Niño event struck in the winter of 199798, coinciding with the Ice Storm in eastern Ontario and Quebec, the most destructive storm in Canadian history. The severity of the Ice Storm was only partially related to the strength of El Niño, but the 1998 event does provide a warning that it remains difficult to anticipate severe weather risks in Canada. El Niño causes unusually strong upper winds that disrupt the development of Atlantic hurricanes. Indeed over the period since 1925, research by Roger Pielke and Christopher Landsea found that the risk of Atlantic hurricanes making landfall in North America is two or three times greater in non-El Nino years than in El Niño years. This was evident during 2009 with the welcome decline in hurricane activity. Further monitoring is required to determine if the current El Nino is sustained long enough to continue to suppress the risk of hurricane damage through the 2010 season. How long this El Niño will persist is uncertain. We don’t yet know what the event’s ultimate strength and specific consequences will be. But there is a strong consensus that unusual weather patterns will prevail through the winter and into 2010.
FOUR LESSONS FOR INSURERS 1. Each El Niño event is unique, but a review of the historical experience suggests insurers should expect a modest overall reduction in damage claims dur-
ing El Niño events like the present oscillation. In particular, vehicle collisions should decline in urban centres that experience warmer and drier winters. 2. Large events can occur at any time, and have occurred during El Niño events. Nevertheless, the risk of large losses is reduced during El Niño events. The Ice Storm, winter grass fires in southern Alberta, summer forest fires in central British Columbia and Hurricane Juan all struck following an El Niño winter. However, the majority of Canadian severe weather loss events occur during non-El Niño years. It is important that insurers recognize significant risk remains, even if there is some evidence that El Niño somewhat reduces the risk of severe weather events. 3. El Niño events are complex and climate patterns can change quickly. Indeed, the results of a dozen climate models assessed by the International Research Institute forecast that the current El Niño may triple in strength over the next two or three months — or it might decline to only half of its current strength. The El Niño Southern Oscillation remains subject to extensive research and uncertainty. Insurers should confidently anticipate that a moderate El Niño will affect the risk of claims damage this winter, but considerable uncertainty is present for this summer and fall. 4. Most importantly, the impact El Niño on insurance claims in 2010 will not change the longer-term trends that have been increasing the risk of property damage. In particular: • change in the climate is bringing more large storm events across most of Canada; • our public infrastructure is collapsing in most communities and unable to provide the historic level of service; and • rapid growth in urban centres and lifestyle changes resulting in finished basements have been increasing water and wind damage claims for more than four decades. Insurers should continue to advance their efforts to actively manage this coverage and champion risk reduction.
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Charities and non-profit organizations are not immune to lawsuits, and underwriters and brokers would do well to review D&O policies for this sector. Rob Bickerton Senior Underwriter, The Guarantee Company of North America
Canada’s non-profit organizations (NPOs) are as diverse as the country’s population.The boards of these NPOs are also diverse. Small NPOs may have board members with little or no prior board experience, while the members of larger NPO boards tend to hold positions on multiple boards. In both cases, liability exposure is a real and growing concern. NPOs, big and small alike, deserve the attention of brokers and underwriters. Many Canadians are involved to some extent with a charity or non-profit organization. A 2004 Volunteer Canada Survey1 notes that 36% of Canadian volunteers serve on boards and committees. The following statistics2 illustrate the significant impact of the non-profit sector on Canada’s economy: • 2 million people employed; • 2 billion hours contributed on a voluntary basis (the equivalent of 1 million full-time jobs), and annual spending of about Cdn$120 billion;
46 Canadian Underwriter December 2009
• more than 160,000 non-profit organizations are in operation (half of which are charities); and • about 85% of the population contributes financially to Canadian charities — almost 6 million Canadians claim charitable tax credits for making approximately Cdn$9 billion in donations each year. Charities are a large component of the broader non-profit sector in Canada.Tax-receipted donations, payments through lotteries, membership dues and other sources reportedly add up to roughly $40 billion a year. As important as charities are, recent scandals have tarnished the image of some charities and opened the door to increased litigation against the boards of directors.The degree of skepticism of the donating public tends to vary proportionately to the frequency and severity of the scandals in the news. Since their benevolent activities are generally motivated by altruism and compassion, charities are frequently thought to be relatively immune from lawsuits. Clearly this is no longer the case. Liability can emerge based on the organization’s internal and/or external activities. Employment practice claims account for as much as 90% of legal actions against non-profit directors and officers (D&Os). Such claims may include allegations of wrongful dismissal, failure to promote, failure
Illustration by Francis Blake/www.threeinabox.com
For a Good Cause
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to grant tenure or discrimination. It therefore comes as no surprise that a major driver of D&O premium is whether or not the organization has paid staff members.3 Other sources of liability exposure include:4 • conduct of fundraising activities; • payment of wages and deduction of taxes for employees; • breach of statute (e.g. anti-money laundering laws); • insolvency; • breaches of fiduciary duty and duty of care; • negligent supervision, screening or hiring of employees and volunteers; • additional obligations and higher standards of care as trustees; and • failure to meet requirements for tax-exempt status as a nonprofit. Charities and their boards of directors can be held directly accountable for misuse of funds, or indirectly accountable by virtue of partnerships with charities under investigation for alleged wrongdoing. Underwriters and brokers would do well to keep abreast of news items concerning NPOs and charities. With news travelling so fast in an increasingly litigious society, word of a scandal in one charity will often cause donors and stakeholders to question the charities with which they are currently associated. All it takes is for one court decision by a litigant to set off a series of similar suits. Whether or not the suit is successful may be insignificant considering that defence costs alone can reach very high amounts. In today’s economic climate, NPOs are faced with an ever-diminishing level of financial support from government and, at the same time, an ever-increasing burden of rules and regulations.The donating public is becoming increasingly savvy and more and more interested in making sure the donation is used to the maximum and best use.
GOVERNMENT OVERSIGHT? The Charities Directorate, a division of Canada Revenue Agency, is the primary federal regulator in Canada. However, it has been labeled as “virtually powerless to deal with problem charities.”5 This begs the question as to the implications of an ineffective public watchdog. I sug-
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gest that the absence of an effective regulatory regime makes it more likely that a charity will get away with abuse and that these problems will grow bigger and bigger until eventually being discovered by a donor or other member of the public. Without the ability to detect problems early on, the litigation against the board of directors of organizations in such cases could be very serious and result in larger claims made against the D&O policies.
PERCEPTION SHAPES REALITY Many tend to view NPOs as having less risk than a for-profit company. This perception may actually increase the risk of NPOs. Seen as low risk, NPOs may be under less pressure to initiate internal control and governance processes. In other words, the perception drives a reality.
THE ROLE OF INSURANCE In issuing a Director and Officer Liability policy to an NPO, the insurer is helping to maintain the integrity of the sector. Insurance is vital to attract qualified and experienced directors and officers. Without insurance in place, many would not consider sitting on a Board. A quality board symbolizes integrity and credibility to the donating public and makes them more likely to contribute their time or their money. As with any prudent risk management program, the first and most important step in mitigating risk is to exercise good governance and due diligence. Pro-active insurers will have to evolve on several fronts to meet the changing needs of NPO boards. Amendments to policy wordings are not the only factor to be considered. Wording enhancements in the current market include non-rescindable coverage for insured persons (Non rescindable Side A), severability of exclusions and application, worldwide coverage, entity coverage and full employment practices coverage along with non-cancellable contracts. In considering the nature of the NPO board and the risk at hand, more insurers may begin offering multi-year policies. In any event, brokers and underwriters should work together to ensure under-
standing of the coverage afforded by the policy. Comparing coverage based on glossy highlight sheets alone is not a replacement for detailed analysis of the policies. Return on investment is often associated with for-profit company analysis. I suggest the test is equally useful when analyzing the health and stewardship of a charity from an underwriting perspective. Administrative costs as a percentage of the charity’s revenues6 provides a high level indication of its financial stewardship. As the environment for charities becomes increasingly exposed to serious litigation in the wake of scandals, underwriters may find this a useful way to quantitatively assess stewardship of the organization. Typical limits range from Cdn$1 million up to Cdn$5 million with some larger organizations carrying as much as Cdn$10 million or more on a primary or primary/excess basis. The increased litigiousness of the population combined with the effect of scandals may also drive requests for higher limits.
CONCLUSION The risk to a director and officer of a non-profit organization is substantial. Some of that risk can be mitigated and significantly reduced by enhancing governance processes. Insurance also plays a key role in protecting the boards of directors of NPOs. In shielding the directors, insurance helps to maintain the integrity of the non-profit sector and maintain the trust of the donating public. 1 “The 2004 Canada Survey on Giving”, Volunteering and Participating (AON Reed Stenhouse). 2 “Assessing Not For Profit Boards”, Innovative Research Group Inc., October 2009 3 “See you in court: emotions run high when a charity gets sued” – The Non-Profit Times, July 15, 2007 4 Director Liability Protection for Non Profit Organizations, AON Financial Services Group, Shelley Lloyd, J.D, Legal and Research Practice, Aon Financial Services Group 5 Charity Scams Bust Public Trust, Toronto Star, June 2, 2007 – by Kevin Donovan 6 “A Basic Introduction to Analyzing a Charity”, Charity Intelligence Canada
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Small is
Beautiful Many smaller brokerages are still operating on a paper basis, losing out on the benefits of IT that could help prevent data loss and security breaches. Douglas Grosfield
President and CEO, Xylotek Solutions
Any business — even the smallest family-based business — should protect itself as though it was a large company. Insurance brokerages are no different. Unfortunately, most of them don’t.This is especially true when it comes to technology. Large insurance companies require IT systems to feature a high level of complexity.These companies are involved in the entire process of defining risk, determining insurance rates, claims management and managing investments as part of a heavily regulated industry. This means compliance is both mandatory and key to their success. In contrast, many small, independently-owned brokerages, which exist in almost every town in Canada, are still immersed in paper-based processes. This is probably because this is how they have always done it. But the end result is a huge potential for security lapses and catastrophic data loss.
50 Canadian Underwriter December 2009
SMALLER BROKERAGE IT SYSTEMS The processes associated with IT systems in smaller brokerages can be inefficient, resulting in frustration for employees and customers alike. Another common problem is that when brokerages grow through mergers and acquisitions, they often take over little pockets and islands of technology that differ (sometimes radically) from what is used at head office. Getting disparate systems to work together in a cohesive, efficient IT environment, with the appropriate levels of security, is a big problem in any industry. It can easily wind up as a management headache for the broker. For example, the servers and data are at head office, but the branch office locations must have fast, simple and reliable access to those systems and all of that information.The business depends on it.When information traverses the Internet, security and compliance concerns have to be addressed. Let’s say an insurance brokerage grows through the mergers and acquisitions route, without having the necessary technology and security in place.Well, the whole business can be compromised. It’s no stretch to fathom what could happen if the wrong people get hold of such information. Here is an example.
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Small brokerages may accept credit card payments from their clients. When they submit a batch of transactions to the bank without that information being encrypted and protected, those credit card numbers could be easily captured by anyone — and this happens. In fact, it happens more often than you think (in any industry), but most of the time we just don’t hear about it. Many brokerages have failed to invest in the appropriate technology necessary to protect their systems and data from all the risks that are inherent in the hightech world. This is the high-tech world we all do business in every day. How do you resolve this? A one-hour assessment by a reputable IT provider will identify areas of concern throughout your environment.This can be done by means of a conversation, observation or a survey with some very simple questions. For instance, do you have antivirus and anti-spyware software? Do you have your entire IT environment backed up correctly? Do you have an appropriate and tested disaster recovery plan in place? Do you have a business-class firewall properly configured to ensure the security of your Internet connections? Do you allow people to work from home or other locations outside the office? If so, do you have simple methods for them to do so with adequate encryption of data and meaningful password protection? If the answer to any of these questions is no, you may have a problem. Many people and organizations are under-insured and not protecting themselves appropriately from these risks. Similarly, smaller insurance brokerages are not protecting themselves appropriately when it comes to their IT practices. However, when selecting an outside IT provider, it is wise to exercise caution.The last thing you want from an IT consultant is to be oversold and underserviced. Unfortunately, this sort of thing is endemic in the IT industry.You should ask any IT provider how they have used technology to solve a business problem in your industry.
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CASE STUDY: ZEHR INSURANCE Zehr Insurance, a general insurance broker based in New Hamburg, Ontario, is a family business that grew by word of mouth and by acquiring other brokerages. The head office has remained in New Hamburg. However, the expansion has involved multiple office locations requiring a connection to head office. Several years ago, Zehr Insurance wanted to upgrade its IT infrastructure from a Microsoft NT server — including the network and an array of branch-office, modem communications systems — to a more current, supportable environment. A decision was made to have an IT firm upgrade the Zehr Insurance systems to the latest Microsoft Windows Server version. This would facilitate branch office access to corporate applications, and enable more timely and efficient communications with the new email system. The idea was to have all this work conducted during off-hours, evenings and weekends, resulting in minimal disruption to the business. The conversion took place and a nightmare ensued. System downtime occurred so frequently that it seemed the system was down more often than it was up. Saying this had an impact on client service is an understatement. As a firm with multiple locations connected remotely to head office, Zehr Insurance had already spent months, and a lot of money, on this IT transition. But once it was done, the firm experienced serious problems with the system crashing repeatedly, not to mention issues with stability, availability, slow network performance and poor security. In addition, there were severe problems with branch connectivity, which is catastrophic for an insurance broker. In this business, software can affect 90% of everything you do. It’s not good when branches lose data and agents can neither access customer data nor connect to head office. Zehr needed a fix, and fast. President John Zehr called us in as a third-party IT provider to perform an
analysis and prepare a situation report. The news wasn’t good. They needed a complete IT overhaul.The brokerage used hardware it didn’t need, was missing hardware it did need and didn’t have fault tolerance in an area so critical as the server hard drives. This was clearly unacceptable. In addition, there were multiple, small uninterruptible power supplies (UPS) instead of a single UPS correctly sized for their requirements, restricting the ability to centrally protect, manage, and monitor server equipment. As for fault tolerance, they were missing redundancy in server power supplies and network connections. If that wasn’t enough, all the software had to be reconfigured. Taking our advice as its IT consultant, Zehr Insurance cleaned everything up over a busy weekend after meticulous project planning and design.Today Zehr has a stable, reliable and secure system in place at head office, and in all branch locations. That means a full head office network, integrated services, an insurance broker management system, Microsoft products — including Exchange for email, centralized contacts and collaborative tools — and branch offices that are seamlessly connected to the head office. In short, it is an enterprise-class service, which means a high-performance system that is fully secure. To this day, Zehr Insurance maintains a biweekly maintenance program. The servers, network equipment and client systems are updated regularly. Any calls for support are addressed as needed. The company has 35 employees who are free to work from anywhere, requiring seamless connectivity just as if they are at their desks. Now they can do that. Licensing is managed, firewalls and virus protection are in place, recovery is assured in the event of a disaster and Zehr management can focus on running the business. The best thing about this is that IT is now viewed as an enabler, not a source of pain, cost, and irritation.
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Light at the End The tumultuous financial markets of the past year have taught Canadian P&C insurers some valuable lessons for moving forward in good financial health. Tom Kornya
Partner, Canadian Insurance Practice, Ernst & Young LLP
The financial crisis and the resultant economic recession are chilling reminders that insurance companies are exposed to risks well beyond insurance policies. These tumultuous times have taught us that extreme risk events can catch even well-prepared executives and companies offguard. Although the insurance sector was less directly affected by the financial crisis than other financial services businesses, most insurers were still surprised by the depth of the downturn. Property and casualty (P&C) insurers did not suffer major loss events in comparison to those in the life and health sector. From June 2008 to June 2009, Standard and Poor’s life and health insurance index decreased by 52.1%, while its P&C insurance index decreased only 33.6%. Regardless, all companies that want to remain in the lead over the long term must learn from the financial crisis and the market changes that have resulted. Applying these lessons to future
54 Canadian Underwriter December 2009
of the Tunnel
plans will enable insurers to navigate the months ahead, and thrive when the upturn takes hold. Insurers should consider five key strategies to manage and protect their business:
Secure a capital buffer beyond what’s predicted Some insurers suffered severely during the financial crisis because they were unable to anticipate and manage the sheer magnitude of the event. The lack of a safety net for many insurance companies emphasized the need for wide-ranging, up-front planning and capital management strategies to work through each stress event. What’s more, firms that relied on consolidated, enterprise-wide measures of risk and capital now recognize that capital available in local subsidiaries in good times may not be accessible when a crisis hits. It’s time to reassess modelling and hedging strategies and develop sound mitigation processes. Properly used, economic risk and capital measures are powerful tools that can help insurers understand their financial position and develop effective risk management strategies. Planning and developing strategies up front is a first step. Once this is done, companies should build a capital cushion by establishing and maintaining auxiliary capital over and above the
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amounts predicted by economic capital models. Capital preservation, measurement and reallocation to other businesses are crucial to securing stability. Insurers should also keep adequate “flexible” capital at all times to maintain rating agency and regulatory requirements, and eliminate further erosion of financial stability.
Build an enterprise-wide approach for managing risk Insurers with the right asset-protection mechanisms in place emerged among the strongest in the downturn. Others can learn from this successful strategy by building an actionable, measurable risk management plan that can handle the expected and the unexpected. Insurers should ask themselves tough questions: • Do we understand the risks facing our company? • Do we have a comprehensive risk framework in place? • Do we have duplicative or overlapping risk functions? • Are the risks we take aligned to our business strategies and objectives? • Are we taking the right risks to achieve a competitive advantage? Companies should then move risk management out of its silo and into the wider business strategy. Organizations in all sectors sometimes tend to make decisions in isolation, which can lead to unfortunate surprises later on. Business units must keep the risk component in mind when making strategic and operational decisions. The chief risk officer must be involved in decisions to increase or decrease risk exposures. He or she should ensure a balance of power between the risk takers and those charged with independently monitoring risk. Solid risk management now needs to stretch further than ever before, and cover off risks that haven’t yet shown up on the radar. That means embracing stress testing and scenario planning to manage these broad threats effectively. Scenarios help decision-makers anticipate change by taking into account many future options simultaneously. Solid risk 56 Canadian Underwriter December 2009
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management plans will address numerous scenarios to visualize the most important external uncertainties.
Re-evaluate the business’s size and shape from the top down It’s increasingly difficult for traditional, vertically integrated companies to respond effectively in this type of market. In many cases, long-term success will depend on companies seizing the opportunity to build leaner, more flexible and adaptable organizations now — or else risk being unprepared to compete in the post-recession world. Insurers should ask themselves whether or not their current operating model — the combination of people, organization, processes and systems — is best suited to the current business environment. Is it flexible and scalable for market upturns? Is it truly aligned with the strategic objectives of the business? This is about more than mere cost savings. Although it is easy to take costs out of a business, it is harder to keep them from creeping back in. Progressive companies succeed by adopting sustainable cost reduction that focuses on the softer issues like value (delivering the best options will generate the greatest savings and build momentum for the future), pace (companies can effect change by balancing measurable results with immediate wins) and culture (it’s important to change the mindset around how money is being spent and embed cost management into all aspects of the business). Of course, balancing cost cutting with the need for human capital is crucial. Insurance organizations have always relied on human capital as a critical component of a successful business strategy. Even in the most difficult economic times, insurers need to ensure they don’t lose their best people to better-situated competitors. Insurers must always have the big picture in mind. Strengthen your organization by focusing on market share Insurance companies can emerge stronger from the downturn by capitalizing on opportunities to extend their
market reach and take market share away from their competitors. Insurers that fared better in the downturn are emerging with strong balance sheets. As the economy improves and market volatility decreases, insurers may be able to buy businesses others are shedding at reduced prices. By taking the opportunity to divest non-core businesses, they can reinvest in areas of expertise. Sellers need to raise capital and exit underperforming businesses — this is the impetus for the increased number of insurance properties for sale. One company’s need to downsize could be another’s chance to expand.
Capitalize on new market and product opportunities Insurance companies expect to emerge stronger from the downturn by capitalizing on market opportunities. These could come in many forms. Insurers can expand into new geographic markets. Changing demographics mean many companies are looking to Latin America, the Middle East and Eastern Europe for growth. These emerging markets represent an opportunity for insurance companies to launch new products, expand their customer base and build a better infrastructure. Success lies in choosing the right strategy and mode of market entry, along with the right local partners, products and reliable distribution channels. In addition to potential regulatory constraints, there are cultural, language and religious barriers to overcome. Enhancing product lines is another viable option. Consumer attitudes have changed, creating significant opportunities to redesign and offer new products that meet their needs. For example, consumers’ increasing demands for tradeoffs between guarantees, fees and risks are pushing insurance companies to design products with more features. As a result, clients often need more advice on the complex features of insurance products, and may be less willing or able to make their own informed decisions.This creates another opportunity for insurers to meet changing needs and evolve their offerings.
WICC Announces Two New National Sponsors at the Platinum Level
www.wicc.ca
WICC is delighted to announce two recent additions at the Platinum Level to its National Sponsorship Program.
Former Lou Dunn Award recipient, Cunningham Lindsey, is pleased to become a WICC Platinum Sponsor and to continue its support of the outstanding efforts this organization has made in the fight against cancer. “The work that WICC and its many volunteers and supporters have accomplished in the crusade to cure cancer is exceptional,” said company president and ceo Rob Seal. “Through their fundraising and promotional efforts WICC has made tremendous strides in increasing the awareness for cancer research funding within the P&C industry in Canada and it is our hope that our sponsorship will help them move one step closer to their ultimate goal of making cancer history!” Cunningham Lindsey is a leading independent insurance claims services company providing a wide range of loss adjusting services through its 475 employees in 72 offices across Canada and its global operating platform of over 6,800 employees in more than 65 countries worldwide. www.cunninghamlindsey.com
Berkley Canada is proud to become a new Platinum Sponsor of Women in Insurance Cancer Crusade (WICC), an organization making a significant contribution to eradicating cancer and improving the quality of life for the women, men, and children living with this disease. We are especially pleased to join the collective efforts of the dedicated sponsors and volunteers within the insurance community. Berkley Canada Inc. was formed in 2008 to underwrite on behalf of the Canadian branch of Berkley Insurance Company, a 100% owned subsidiary of W.R. Berkley Corporation. With a team of experienced professionals and an in-depth understanding of the particular needs of our customers, we offer a broad portfolio of competitively priced specialty casualty products. We are strongly committed to providing fast and comprehensive service to our broker community. www.berkleycanada.com
These two companies are now a part of a very special group of WICC National Sponsors at the Platinum Level. WICC is extremely thankful to this group of organizations which share the vision and desire to put an end to cancer! WICC National Sponsors at the Platinum Level also include:
Design compliments of
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Seeing-Eye Technology Infrared technology is an increasingly economical means to detect potential risks and identify risk control measures. J.B. Hahn
Risk Control Analyst, The Economical Insurance Group
Property and casualty insurers continue to use the services of risk control to protect their policyholders’ properties and business operations, and tools such as infrared thermography have gained traction, supporting the development of longterm risk management strategies. Positive results from infrared thermography used in the farm insurance sector over the past 10 years have helped insurers recognize the benefits of expanding its use into various applications in commercial insurance. Traditionally, the high cost of infrared technology has deterred commercial insurers from wanting to incorporate it into their risk control program.Today, with improved technology leading to a decrease in the purchase cost, insurers are now positioned to incorporate thermography into their risk management program as a predictive maintenance tool to support and protect their clients.
Three main commercial applications benefit from the use of thermography: • electrical systems; • mechanical systems; and • moisture detection. The first two applications above support the identification of hazards linked to electrical and mechanical systems, which are the backbone of any commercial or industrial operation.The third application allows for moisture detection, which helps to avoid a host of issues and costly repairs.
Electrical systems Insurance industry statistics report that 25% to 30% of all large fire losses are caused by electrical faults. Hot spots generated by loose electrical connections, unbalanced loads, overloading of electrical circuits, deteriorated electrical insulation and other potential problems associated with energized components can lead to increased maintenance costs, equipment failure, unscheduled service, injury and fire. Infrared technology provides the insured with a nondestructive test method to detect electrical concerns, often in the early stages, leading to less costly fixes for the client and reduction in loss potential.
HOW DOES AN INFRARED CAMERA WORK? An infrared camera measures the amount of radiation emitted by the target surface. It converts this radiation into a two-dimensional thermographic image related to the temperature distribution at the surface.
58 Canadian Underwriter December 2009
Mechanical systems Motor failures during operation can lead to expensive repair costs and downtime.The infrared camera helps detect motor bearing defects,
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motor shaft misalignment and other motor-related problems before breakdown actually occurs. Early detection often leads to minor repairs to correct the issue, which can be scheduled during operational downtimes, minimizing interruption within the operation.
Moisture detection Roof material that absorbs water has a different surface temperature than a section of dry roof material due to the thermal properties of water. Since water retains heat longer than most roofing materials, new applications such as roof and building envelope infrared inspections can be used in the commercial industry to detect roof leaks without taking any of the roofing material apart. Research by energy departments has identified that 95% of the roof material in flat roof leaks does not need to be replaced.This supports the notion that using infrared technology can generate cost savings in pre- and post-claims inspections. In addition to entering a building through the roof, moisture can enter a building through the building envelope, building foundation, windows, doors and exterior siding. This can ruin insulation, cause corrosion and lead to structural collapse. Prior to infrared inspections, the only way to identify and locate hidden water issues was through destructive investigations that relied on tearing out walls, ceilings and roofs. Mould The presence of moisture also leads to mould growth. Mould has raised a number of health concerns over the last number of years, resulting in extensive cleanups and costly claim payouts for insurance companies.Through the use of infrared technology, early moisture detection can help reduce or prevent this growing problem.
ADDITIONAL APPLICATIONS Infrared technology can also be used to detect heat and cold air loss due to missing, damaged and/or wet insulation. Insulation defects might arise from vermin and rodent problems, plumbing or roof leaks. In some areas, insulation may not be installed. Infrared inspection helps property owners narrow in on problem
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areas through a non-destructive analysis. Thermographic inspections can serve as a key component to a risk control program.They can also prove valuable to the claims process, by providing fast, reliable and accurate building diagnosis. The infrared camera can be used in post-catastrophe fire and flood investigations; they can also be used to identify and resolve chronic leak, moisture and mould problems. It’s difficult to argue the proven effectiveness of infrared inspections as a pre-
dictive maintenance tool when assessing a wide range of commercial electrical and mechanical systems, as well as commercial structures. The technology quickly, accurately and safely locates problems prior to failure, minimizing long-term repair costs, down time and potential losses. Incorporating this tool into an insurer’s risk management program is a proactive approach in the protection of the insured’s property and bottom line.
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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
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
AIG Commercial Insurance Company of Canada "THE STRENGTH to BE THERE". www.aig.com Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com/ Catlin Canada Underwriting Ambition. www.catlincanada.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 RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com
CONSTRUCTION CONSULTANTS MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca
DAMAGE COST CONSULTANTS SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca
CLAIMS ADJUSTING FIRMS
EMPLOYMENT ONLINE
Crawford & Company (Canada) Inc. 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 Identifying, Investigating, Resolving...for over a quarter century! www.quelmec.ca SCM Adjusters Canada Ltd. Committed to providing leadingedge claims management services. www.scm.ca
I-HIRE.CA Canada's Insurance Career Destination www.i-hire.ca
60 Canadian Underwriter December 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 Walters Forensic Engineering Inc. Providing scientific answers to complex engineering incidents. www.waltersforensic.com
GRAPHIC COMMUNICATIONS Informco Inc. Integrated Graphic Communications Specialists. www.informco.com
Tritech Financial Systems Inc. Provider of an enterprise solution to P&C insurance companies and their agents and brokers in 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
INSURANCE LAW The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca
INSURANCE SOFTWARE APPLICATIONS Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
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
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C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A
A Business Information Group Publication #40069240
Suspended Animation REINSURANCE 2010 OUTLOOK
Excess Baggage BY CRAIG HARRIS
Fire Following Bill 6 BY ANDRÉ FREDETTE
Canadian Underwriter incorrectly published material attributed to PartnerRe chief agent Francis Blumberg in the cover story of its November 2009 reinsurance edition.
Francis Blumberg Chief Agent, PartnerRe
Caroline Kane
Senior Vice President, Chief Agent in Canada, Toa Reinsurance Company of America
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Reinsurance 2010 Outlook Revisited
Correction/Apology NOVEMBER 2009
12:16 PM
Blumberg’s correct submission (reproduced below) was submitted for publication in Canadian Underwriter’s 2009 November reinsurance edition. Due to an error in Canadian Underwriter’s publication process, Blumberg’s submission for the 2009 edition was in fact substituted with his submission for the 2008
reinsurance cover story. Canadian Underwriter is embarrassed by this error and fully regrets making it. We offer our deepest apologies to Francis Blumberg for any confusion, and for any inconvenience he may have experienced arising from our mistake. Also, in the same cover story,
a submission by Caroline Kane, senior vice president and chief agent in Canada for the Toa Reinsurance Company of America, was regrettably omitted. We reproduce Caroline Kane’s submission here in its entirety, along with sincerest apologies to her as well for our error and oversight.
The re/insurance industry offers products and services that help others manage their risks. The past 18 months have demonstrated that no matter how well we try to understand the risks, there will always be some risks or a correlation of risks we do not anticipate or get quite right. Re/insurers can hold additional amounts of capital or include additional margins within their pricing, but a potentially discomforting level of uncertainty will always remain. As we approach the end of 2009, investment results are improving, but claims are still increasing. It’s important
to have a long-term view of risk. Under-pricing risk is not sustainable and ultimately does not benefit either reinsurer or insurer. Therefore, as rates continue to soften below technical price, we need to look at the risk factors that we do understand, such as the risk-free rate and loss trends. Risk-free rate is an important pricing measure. It is essentially the yield that we will earn on the premium that we receive before we pay out claims. The higher the yield (and the longer the duration), the lower the required premium
and vice versa. The return on risk-free investments has decreased dramatically over the last 12 months and will remain this way for the foreseeable future. Equally, increased loss trends are emerging in many lines of business; with every passing year, we have better data and additional knowledge about the expected claims costs. If we ignore the tangible facts that we do know, such as interest rates and loss trends, we might end up in another costly exercise. This would be a pity given the Canadian re/insurance industry has fared better than others in the most recent crisis.
The Canadian insurance industry has seen underwriting profits diminish in almost all lines of business over the past two years. This can be attributed to several factors including inadequate pricing for the risk exposure and the increasing cost of inflation. While reinsurers generally exercised more underwriting discipline over the past few years than the primary market, reinsurers’ results have also deteriorated. It is important that reinsur-
ers maintain underwriting discipline and focus on effective capital management in order to support the long-term viability of the Canadian reinsurance market. While inflation is of concern to the industry as a whole, it is of increasing concern to reinsurers providing excess-of-loss protection on long-tail business. Most auto/casualty treaty programs are placed on an excess-of-loss basis in the Canadian market with fixed
retentions and limits; in other words, non-indexed covers. This means reinsurers must effectively price the product today, even though most losses will not be paid until several or more years in the future. Thus social, medical and legal inflation must be factored into the cost of writing long-tail business. While inflation is not something new facing reinsurers, it is exacerbated by current economic conditions and low investment returns.
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Going
Cindy Guyatt
Canadian Country Manager, Chief Agent, XL Insurance Company Limited in Toronto
Corporate risk managers have aligned with global insurance brokers and insurers to create global insurance programs designed to harmonize the differences between local cultures, currencies and regulations. Companies are selling their goods and services across the globe, investing in their own production facilities in various places and forming new kinds of partnerships with suppliers, producers, distributors and innovators located around the world. Although the opportunities for businesses to grow globally continue to arise, there are still many challenges in assuring that global growth remains profitable growth. Cultural differences, currency issues, accounting standards and, of course, regulatory and jurisdictional differences all pose challenges; for risk managers, they can prompt liability concerns and insurance questions.
62 Canadian Underwriter December 2009
Just as there is no universal language, there is no universal consensus around how to define insurance terms. Each country has its own local standards and insurers comply with these insurance rules and regulations. This has typically meant that coverage provided by each policy, part of a global insurance program, could vary widely from country to country and from insurance company to insurance company. For risk managers, trying to coordinate these diverse insurance contracts can create an administratively burdensome task. This is why many corporate risk managers have aligned with global insurance brokers and insurers to establish global partnerships to create effective and efficient global insurance programs. An effective global program requires the ability to think globally and act locally. A global program structure can also help with policy issuance, premium collection, currency management and the tracking of payments to the various parties involved. In the simplest solution, a broker will approach one carrier with a global network to provide 100% capacity, issue local policies and coordinate
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invoicing, premium payment and local claims servicing with the local broker representative and the client’s local subsidiaries.Typically, global insurance programs are built around a master policy issued in the territory of the insured’s parent company. This is supported by multiple policies in local countries to cover local exposures and ensure regulatory and premium tax compliance. The insurer would issue a master policy that would provide the broadest coverage available to the program; it would be the primary policy to respond to any locations situated domestically and furnish excess coverages where permissible over the local policies. A number of global extensions can be applied to the master policy to enhance the breadth of the global insurance program coverages, including:
Increased tax liability If the insurer has to pay a loss in a country other than where the loss occurred, this clause provides for the adjustment of the loss to reflect the possible differences in tax rates between the two countries. Tax treatment of profits If the tax rate on a business interruption claim is higher than the tax rate on what the earnings would have been had no loss occurred, then the coverage will adjust the loss payment accordingly. Coinsurance deficiency This clause reimburses the insured for any coinsurance penalty incurred under the local admitted policy. Currency devaluation This clause covers the deficiency in the amount of loss payable under the local admitted policy solely as the result of the
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In the simplest solution, a broker will approach one carrier with a global network to provide 100% capacity, issue local policies and coordinate invoicing, premium payment and local claims servicing with the local broker representative and the client’s local subsidiaries. official government devaluation of the currency in which the admitted policy is written.
Difference in conditions/limits This coverage wraps around any locally admitted policy when the coverage in the master policy is broader in terms of coverage or limits. For international property programs, DIC/DIL coverage generally provides insurance on a broader perils basis than policies available locally. For example, when a business purchases property insurance locally to cover one of its international sites, the local subsidiary may have insured the building for $10 million in coverage for a building that at the time of the loss is determined to be worth $15 million. In the event of a total loss, the local insurer would pay its policy limit of $10 million. A DIC/DIL policy may then cover the additional $5 million not covered by the local contract. For some large multinational companies, their global insurance programs require significant limits and one
insurer may not be enough. They may require a panel of insurance and/or reinsurance companies to provide the capacity required to complete the placement of their insurance program. Another important aspect of a global insurance program is the fronting of the local policies. Most global program insurers have their own network of owned offices around the world. But for those countries where they do not have their own operations, they will make an agreement with well-known local insurance companies to issue a policy on their behalf as part of the client’s global insurance program. The fronting insurer will often require participation on the risk situated in their country; this can add quite a bit of complexity to what might have seemed to be a relatively simple notion — especially when more than one carrier participates in a quota share program. The global program obstacle course that many large international companies are required to maneuver requires training and cooperation. However, the risk manager does not have to run this course unaided. Global insurers and brokers that have focused on building the networks provide the compliance assistance and resources necessary to service the multinational client’s global insurance requirements. In fact, the placement of a global insurance program requires local service with access to a global network that includes strong underwriting capabilities and expertise in the various insurance jurisdictions. Additionally, risk engineering and loss prevention capabilities as well as effective claims management are required and should be maintained on a single global platform, including the delivery of management information. For instance, a global risk engineering team
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CU Seminar ad December 09
11/11/09
10:58 AM
Page 1
Putting the pieces together.
Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
CIP Society Events and Seminars
National Convocations
London – Knights vs Sarnia Sting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .December 31
Quebec City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 10
Kelowna – PROedge Seminar: Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . .January 12
IIO – Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 28
Toronto – Fellows Night . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 14
IIO – Kawartha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 5
St. John’s – Bowling Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 22
IIO – Hamilton/Niagara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 18
Toronto – Annual Trends Breakfast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 26
IIO – Conestoga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 25
Burnaby – PROedge Seminar: Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . .January 29
Montreal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .March 11
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
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using on-the-ground engineering expertise in any given location will be more familiar with local building codes, fire prevention codes and standards. Likewise, the claims management process for global programs relies on the skill of claims adjusters in their local market to service claims on a global basis. In some cases, this may mean recovering losses from a terrorism pool or other government fund. Despite these challenges and the departure of several carriers from the global program market, qualified international insurers can work with these international clients to create a coordinated, centralized global insurance and risk management program. Building an effective and efficient global insurance program is challenging, requiring a commitment of resources from the client, broker and insurer to deliver and service a program successfully. Many factors drive the global insurance industry’s’ ability to serve multinational clients’ needs effectively. They include:
Knowledge, time and financial commitment Knowledge, time and financial commitment are required to establish and maintain a licensed global network of offices and fronting partners that can successfully handle local relationships with clients, brokers, claims adjusters, regulatory bodies, work councils and tax authorities. In addition, given the vast range of regulatory, business and cultural standards, the management of the collaborative spirit is required. Financial strength and adequate credit risk management Credit risk arising from fronting for companies that are unlicensed insurers in many countries may place significant financial demands on global insurers. In order to meet global fronting needs, it is important that lead insurers are fairly
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compensated for the cost of both their global network services and these potential credit exposure issues. This process carries credit and liquidity risk that may require additional capital to satisfy rating agency requirements.
One single, consolidated financial reporting system Since statutory accounting principles vary significantly from country to country, global insurers have to harmonize different statutory practices in one system.
Global programs rely heavily on sophisticated information technology and management systems to properly address and report on policy issuance, premium payment, claims handling and administration. Sophisticated technology Global programs also rely heavily on sophisticated information technology and management information systems to properly address and report on policy issuance, premium payment, claims handling and administration.The delivery of management information to clients and brokers is key to an effective and efficient global insurance program. Consistent and timely delivery of program data enables the risk manager to manage his/her management’s need for status updates regarding many issues affecting the integrity of their global program anywhere in the world. Clients, brokers and insurers have worked hard to create IT platforms capable of sharing this information through Web-based applications. Online reporting on policy issuance, premium payment, captive ces-
sions, claims notifications and payment status, among other things, is now one of the more important aspects of a successful global insurance program. This requires an integrated global IT platform with accurate data that can be sliced and diced to meet clients’ information needs. The demand for compliant global insurance programs is growing due to so many corporations operating in most major industrialized countries, in addition to many of the emerging market territories. The few insurers able to respond to these evolving needs must also deal with helping these clients secure coverage in countries that have traditionally been closed to outsiders or closely regulated by the government. These markets have begun to move towards a more open approach, but it is important to recognize the potential impact on a global insurance program placement. This is just one example of why it is critical for clients, brokers and insurers to keep abreast of developments in these emerging markets to avoid any surprises in time of need. In those countries where insurance markets are now opening to broader competition, many international insurers have made great strides in establishing their own operations to better serve their international clients. A successful global insurance program is a partnership between the client, the broker and the insurer. An open exchange of knowledge and experience with the objective of protecting a corporation’s assets wherever they may be on the planet must be the underlying motivation of this partnership. The delivery of an integrated global insurance program relies on the ability to share in real time risk management, policy issuance, premium payment and claims information. The ability of a global insurer to deliver this service and support with excellence is a critical differentiator.
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MOVES & VIEWS UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
Maurice Tulloch [1a] is the new president and CEO of Aviva Canada, effective Jan. 1, 2010. He replaces Robin Spencer, current president and CEO, who is returning to the United Kingdom to assume the role of chief risk officer for Aviva plc. In addition to being part of Aviva Canada’s executive committee, Tulloch was previously executive vice president of broker distribution (Ontario) and specialty distribution. Tulloch has been with Aviva since 1992, holding increasingly senior management positions during that time. “I look forward to building on the momentum we have within the Canadian property and casualty market, as well as working with the independent broker channel and our entire Canadian workforce,” Tulloch said. Greg Somerville [1b] will become executive vice president with sole responsibility for the broker business in Canada, a role formerly split in Canada by region.
2
Ironshore Inc. expanded its London platform to serve specialty insurance lines markets in Canada. Michael C. Wills has been appointed CEO of Ironshore Canada Limited. The company underwrites specialty insurance coverages across the entire range of Ironshore business
66 Canadian Underwriter December 2009
lines, including property, casualty, liability, marine, energy and environmental risk. Wills most recently served as president of Catlin Canada Inc. “Mike’s recognized incountry expertise and knowledge of the Canadian marketplace, combined with his proven drive and leadership acumen, make him the ideal executive to build the Ironshore platform in Canada,” said Mark Wheeler, chairman of Ironshore Canada Ltd. “Canada is an attractive insurance market due to its stable economic climate.” Ironshore Canada will be based in Toronto, with plans to expand geographically throughout the country in response to the needs of its distribution relationships, a company release said.
3
Berkley Canada is the newest national sponsor at the platinum level of the Women in Insurance Cancer Crusade (WICC), representing a commitment of Cdn$45,000 over three years. Berkley Canada is proud to be a sponsor of WICC, an organization making a significant contribution to eradicating cancer and improving the quality of life for the women, men and children living with this disease, the company said. “We are especially pleased to join the collective efforts of the dedicated sponsors and volunteers within the insurance com-
1a
1b
munity,” it added.
4
RMS officially unveiled its new insurance-to-value (ITV) indexing technology at the MarS Innovation Centre in Toronto on Nov. 23. Dubbed 'iClarify,' the RMS indexing tool has been developed to help resolve the ITV issue. Currently, Canadian insurance companies and brokers do not have the data elements necessary to generate updated valuations on their in-force policies. iClarify is designed to achieve an adequacy rate of between 10% and 15%. SCM Risk Management Services and the Insurance Brokers Association of Ontario formed a partnership in August 2009 to develop and introduce an ITV software solution for Ontario insurance brokers and their clients. The Economical is a funding partner for the RMS indexing tool, a key part of SCM’s software solution. In the weeks ahead, through iClarify, Ontario brokers will be able to access streetscape photographs, overview satellite images, claims history (from CGI)
5 and neighbourhood profile data of Canadian homes. Using this data, brokers will be able to validate input from consumers regarding construction type, square footage, year built, interior and exterior finishes, etc. Brokers will also see a “confidence value” assigned to the replacement cost value indicated for the property. The confidence value is based on how much information is available in aid of valuing the home.
5
Andrew Hernandez [5] has been appointed executive general adjuster and district manager for the Vancouver Metro, Fraser Valley and Victoria, BC regions of Cunningham Lindsey. Hernandez has more than 22 years of insurance adjusting experience. He was most
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7 recently a senior general adjuster for an international adjusting firm and has previously been chief operations officer for a national adjusting firm. “Andrew has extensive experience handling large and complex losses involving commercial property, commercial and product liability, environmental and boiler and machinery claims,” said Gary Dalton, senior vice president and executive director of Cunningham Lindsey. “He has handled multi-million dollar claims in the mining industry and acted as control adjuster on several large accounts.”
6
Insurance Bureau of Canada (IBC) has hired Ralph Palumbo as vice president for Ontario. Also, Jim Rivait, vice president for Alberta and the North, has left IBC to pursue other opportunities. The bureau has created a new senior vice president policy and research position. Palumbo is a former government relations consultant, government relations director and adjudicator and legal coun-
10 sel. He will work alongside IBC’s recently appointed manager for Ontario, Tess Romain. IBC’s search for a new Alberta vice president is underway, as is the search for the new senior vice president of policy and research. The new position will enhance the policy and economic capacities that underpin IBC’s government relations efforts.
7
Trillium Management Services Inc., founded by former Kingsway Financial Services Inc. president Bill Star, has reached a definitive agreement to acquire Geneva Insurance Company Inc. of Indianapolis, Indiana. Geneva provides personal automobile insurance with a concentration on nonstandard auto insurance in Indiana. Its products provide insurance coverage for liability to others for bodily injury and property damage, and for physical damage to an insured’s vehicle from collision and various other perils. Subject to regulatory approval, Geneva and Trillium expect the sale to close in December 2009. “We are extremely
pleased with the acquisition of Geneva Insurance Company,” said Bill Star, president and CEO of Trillium. “This transaction is consistent with Trillium’s niche business strategy of acquiring auto insurers with good underwriting results that write business in desirable geographic areas.”
8
McLarens Canada has acquired Binns & Associates Adjusters Ltd. in Edmonton, Alberta. “We welcome Delores Thorbourne, president of Binns & Associates, and her entire team to the McLarens family,” said Michael Holden, president and CEO of McLarens. “Servicing our customers in northern Alberta is an important part of our strategy and this acquisition strengthens our capabilities in this vital part of Canada.” Binns & Associates will continue to operate under its current name and serve the needs of clients from their office.
9
Global conservation organization WWF and insurer RSA have announced an international partnership focussing on researching insurance risks of environmental change. As part of the three-year global partnership, RSA is supporting major conservation projects around the world, including support of WWFCanada’s national marine
conservation program. Climate change is opening up new areas of the Arctic to resource extraction, commercial shipping and fishing, and placing increasing pressure on conservation of marine ecosystems along Canadian coastlines, RSA said in a release. As part of the partnership, RSA is sponsoring WWF-Canada to research and map sensitive areas to help understand and mitigate risks and promote the use of resources in a more sustainable way.
10
After almost 17 years of sharing the management responsibilities for both the Insurance Councils of Saskatchewan (ICS) and the Insurance Brokers’ Association of Saskatchewan (IBAS), Ernie Gaschler [10] will now begin devoting his entire time and energy to the activities of IBAS. Gaschler is currently the executive director of IBAS. “The ICS wishes to express its appreciation for the leadership he provided to the Insurance Councils during this period and for his dedication to the regulatory process,” the ICS said in a bulletin posted on its Web site. Ron Fullan will succeed Gaschler as the new executive director of the ICS, effective Jan. 1, 2010. Fullan has more than 25 years of progressive and senior experience in the financial services and insurance industries.
December 2009 Canadian Underwriter
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Winmar Toronto/Brampton and No Problem Movers held its first annual mix-and-mingle boat cruise on Sept. 17. Guests set sail aboard the Obsession III for a four-hour tour around the Toronto harbour. Proceeds from the event went to local charities, including a Cdn$700 donation to the AIDS Committee of Toronto.
ADVERTISERS’ INDEX ACE INA Insurance Applied Systems Canada Inc. Belron Canada CAIW canadianunderwriter.ca Chartis CICMA/CIAA Ontario Joint Conference CNA Cunningham Lindsey Canada e2Value Inc. The Economical Insurance Group FM Global The Guarantee Company of North America Great American Insurance Group GroupOne Underwriters Hannover Re i-hire.ca instouch.com Insurance Institute of Canada Intact Insurance McLarens Canada OIAA Claims Conference Ontario Insurance Directory (2010) ORIMS The Sovereign General Insurance Company WICC WINMAR XL Insurance Zurich Canada 68
Canadian Underwriter December 2009
9 17 19 70 71 23 51 29 11 45 39 2, 3 (IFC) 26 37 5, 7 27 59, 69 55 25, 47, 64 31, 84 (OBC) 43 53 77 79 41 57 49 15 35
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Members of the SinclairCockburn Financial Group and their insurance partners laced up their bowling shoes to ‘strike’ up funds for the Rouge Valley Health System Foundation. The SCFG Charity Committee held a ‘Bowlarama’ on Oct. 8 that raised Cdn$6,800. The money will go towards purchasing a Vital Signs monitor for Rouge Valley Ajax-Pickering Hospital.
Insurance Professionals Know Where to Look for Their Next Career Move.
FOUND MY JOB AT
Get the job. Done. TM
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Joyce Chalanchuk, BA, CIP CAIW President 2009 - 2010 The Canadian Association of Insurance Women (CAIW) would like to announce the appointment of Joyce Chalanchuk, BA, CIP as President for the 2009-2010 term. Joyce is employed with Wawanesa Mutual Insurance Company as a Senior Telephone Adjuster in Wawanesa, Manitoba. She has attained the Chartered Insurance Professional (CIP) designation. Joyce was one of the founding members of her local association, the Insurance Women's Association of Western Manitoba,in 1988 and continues to be an active member. She has served on the Board of the Canadian Association of Insurance Women since 2002. CAIW is a non-profit association with 10 associations across Canada and over 800 members. The Association strives to provide opportunities for members to improve themselves both professionally and personally through networking and continuing education.
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Women in Insurance Cancer Crusade (WICC)’s Quebec chapter held its first annual fundraising gala on Sept. 24, drawing more than 220 insurance industry professionals. Attendees enjoyed a silent auction, dinner and entertainment. The highlight of the evening came when WICC Quebec proudly presented a cheque of Cdn$24,048.64 to the Canadian Cancer Society. The donation brought the chapter’s total contribution to Cdn$47,000 for 2009 (see bottom photo).
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Crawford & Company (Canada) Inc. held a reception on Oct. 28 for more than 150 clients and members of the Quebec insurance industry at Auberge St. Gabriel in Old Montreal. Members of Crawford’s executive management team welcomed guests and introduced the new members of Crawford’s Quebec team.
Canadian Underwriter is Tweeting! Follow us on Twitter: www.twitter.com/ CdnUnderwriter
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More than 100 guests attended Gilbertson Davis Emerson LLP’s Annual Fall Reception. Guests at the Sept. 24 event were treated to great music by a live band and excellent food at the company’s offices in Toronto.
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Jazz crooner Carol McCartney entertained a crowd of insurance industry professionals at La Maquette Restaurant in Toronto. The ‘Evening of Jazz’ was presented by McLarens Canada, Sibley, King Reed and Beard Winter LLP.
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Berkley Canada Inc. held a reception in October at the Design Exchange in Toronto to celebrate the official launch of Berkley Canada. President Michael McLachlan and other members of the executive team were on hand to greet the more than 150 guests who attended.
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The Commonwealth Insurance Company allowed guests to indulge in the grand tradition of Ladies High Tea. Held at the King Edward in downtown Toronto, guests took a break from their busy days to sip tea, chat and enjoy finger sandwiches and pastries.
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The 2nd Annual Wish Upon a Star Golf Tournament, in support of the Starlight Starbright Children’s Foundation, was held at Deer Creek Golf and Country Club on Oct. 7, 2009. Event sponsors included Formula One Collision, Paul Davis Systems, Diamond Auto Bids & Disposal, Enterprise, Discount Car and Truck Rental and HUB International Ontario. The day was filled with fun and laughter, dinner, raffles and a live auction. The highlight of the event occurred when Starlight Starbright Children’s Foundation received a donation in the amount of Cdn$27,000.
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www.businessinformationgroup.ca/Magazines December 2009 Canadian Underwriter
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More than 60 delegates attended The ARC Group Canada’s 4th Annual Seminar on ‘Environmental Risks.’ The day included a presentation by Rodney Taylor, insurance broker at AON Environmental Services Group, Douglas Hallett of Hallett Environmental and Technology Group Inc. and John Cherrie of Cherrie Griffith Professional Insurance Services. A cocktail reception at the St. Andrews Club and Conference Centre in Toronto followed the presentations and panel discussion.
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For ORIMS 50th Anniversary Gala and plan to spend a most elegantly appointed evening on Thursday May 27th, 2010 at the Liberty Grand Ballroom ... in grand style!
www.ontario.rims.org
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Thousands of delegates and attendees visited with more than 75 exhibitors at the 89th Annual Insurance Brokers Association of Ontario (IBAO) Convention and Exposition, held Oct. 20-23 at the Fairmont Royal York Hotel in Toronto. The Guarantee Company of North America won ‘The Best Booth Award.’
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1 Insurance Brokers Association of Ontario (IBAO) took the time during its 89th Annual Convention to recognize the achievements of some of its outstanding members. Dina Pugliese, host of Breakfast Television, served as the MC for the Second Annual Awards Gala. Award winners included: Wallace E. Memorial Award. IBAO chair Rodney Hancock (1-left), who announced he was ending his term as IBAO chair, thus concluding 13 years of service to the association. A photo slideshow and a heartfelt speech by IBAO president Peter Blodgett (1-right) commemorated
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Hancock’s achievements. Affiliate Achievement Award: Ottawa Insurance Brokers Association (OIBA). OIBA president Gregg Luesby (2) accepted the award on behalf of the association. Brokerage of the Year: Sinclair-Cockburn Financial Group. Jim Grieve (3), owner of SCFG, accepted the award on behalf of the brokerage. Young Broker of the Year: Traci Boland (4) of Ontario West Insurance and chair of the Young Broker Council. Broker of the Year: Judy Bell (5), office manager at Beyond Insurance in Whitby, Ontario.
Insurance brokers and vendors partners across Canada: Signed up Helped spread the word Supported ideas Took the time to help make a positive change in their community All of the above Thank you to all our brokerage and vendor partner employees that supported the $500,000 Aviva Community Fund competition. With your help, the competition inspired more than 1,500 ideas for positive change from communities across Canada. Visit www.AvivaCommunityFund.org today to explore all the suggestions and follow the announcements about finalists and winners!
Aviva Community Fund
Supporting what’s important to you www.avivacommunityfund.org For complete competition details and the full Terms and Conditions, please visit www.AvivaCommunityFund.org Aviva is a trademark of Aviva plc and used under licence.
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Insurance is not about things.
Insurance is about people. When something goes wrong, people want things to go right as soon as possible. It’s why when the unexpected occurs, you can rest easy knowing your customers can call us 24 / 7 and within 30 minutes of their call, we will start the process of getting them back to normal. But going beyond to get your customers back on track is about more than speed. It’s also about reliability. It’s why if your customer’s car needs repair after a collision, we’ll guarantee the workmanship done by our Rely Network® for as long as they own their car. Thinking like a customer, and always thinking ahead. It’s how we want to help you grow your business. Because when you succeed, we succeed.
HOME • AUTO • BUSINESS intactinsurance.com Certain conditions, restrictions and exclusions may apply. Services are not available in Saskatchewan or Newfoundland. The BIP logo is a registered trademark of the Insurance Brokers Association of Canada (IBAC) used with permission. All other trademarks are properties of Intact Financial Corporation used under license. © 2009, Intact Insurance Company. All rights reserved.
INTQ93450_Phase2_Broker_CDN_UNDRWRTR_BACK_v2.indd 1
11/18/09 10:00:18 AM
g w p brand engineering
46 spadina avenue, suite 200, toronto, on canada m5v 2h8 t: 416.593.4000 / f: 4001
Client: INTACT INSURANCE
File Name: INTQ93450_Phase2_Broker_CDN_UNDRWRTR_BACK_v2
Project Manager: Jeremy
Creative Team:
Publication(s)/Description: INTQ93450_Phase2_Broker_CDN_UNDERWRITER BACK COVER Ad #:
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