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
M AR CH 2 0 0 9 A Business Information Group Publication #40062940
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VOL. 76, NO.3, MARCH 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca
Navigating the New Market
32
Risk managers are being asked during a turbulent market with increasing corporate exposures to pay the same price for insurance that they’ve always paid. This is in the context of a hardening commercial insurance market featuring higher prices and restricted coverage. How will risk managers navigate their way through these choppy waters? BY VANESSA MARIGA
FEATURES
14
42
22 Broker Performance
56 Why Mediations Fail
Great leaders establish the right culture at their brokerages for high performance and achievement
Perhaps the Number 1 reason why mediations fail is because insurers fail to bring sufficient authority to settle the claim.
BY LORIE J. GUTHRIE PHAIR
BY ALF KWINTER
Heroes
Director’s Role
26 Weathering the Storm
62 Arctic Exploration
Tumbling economic markets have called for the heroics of risk managers, who are trying to prevent exposures of the type that have sunk or seriously wounded major players in the financial sector.
The Supreme Court of Canada in BCE clarified the role of directors and officers in a corporate restructuring, and to what extent they need to accommodate shareholders’ rights in an oppression action.
Cat bond issuance declined during the latter half of 2008, but the decrease in activity had more to do with the availability of reinsurance capacity than it did market turmoil.
Catlin Group Limited is sponsoring an expedition to the North Pole to measure ice thickness and its effect on climate change.
BY JACK MAZAKIAN AND
BY DONALD MCGARVEY
BY CHI HUM
KEVIN MCMURRAY
18
50
46 Private Protection Private companies have as much to gain from directors’ and officers’ (D&O) insurance as publicly-traded companies do. BY ROB BICKERTON AND
Demand for Supply
Crumbling Infrastructure
Today’s most profitable companies are trying to protect supply chains that are lean, elegant — and fragile.
Canadian insurers are paying the price for almost 30 years of protracted neglect and the resultant collapse of the nation’s infrastructure.
BY PERRY BRAZEAU
BY PAUL KOVACS
4
Canadian Underwriter March 2009
GLENN WOODARD
BY MIKE HANSEN
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VOL. 76, NO.3, MARCH 2009
PROFILE
12 Navigating Risk Marilyn Leonard and Elizabeth (Betty) Clarke, co-chairs of the 2009 Risk and Insurance Management Society Canada Conference, say this year’s conference will be featuring a Maritime theme and a broad selection of educational seminars. BY DAVID GAMBRILL
Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800
Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796
Art Director Gerald Heydens
Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793 Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122 Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
Art Consultation Pylon.ca Production Manager Gary White (416) 510-6760 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou
SPECIAL FOCUS
8
Editorial
10 Marketplace 66 Moves & Views 68 Gallery
Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by Business Information Group, a division of BIG Magazines LP, a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. Business Information Group is located at 12 Concorde Place Suite 800, North York, ON, M3C 4J2. Phone: (416) 442-5600. Canadian Underwriter, USPS 022-494. US office publication: 2424 Niagara Falls Blvd., Niagara Falls, NY 14304-0357. Periodicals Postage Paid at Niagara Falls, NY, USA. US postmaster: Send address corrections to Canadian Underwriter, Po Box 1118, Niagara Falls, NY 14304. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. We acknowledge the financial support of the Government of Canada through the Canada Magazine Fund toward our editorial costs. 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: 2006 Canada 1 Year $ 34.95 + $ 2.45 GST = $ 37.40 2 Years $ 48.95 + $ 3.02 GST = $ 46.11 $ 62.95 + $ 4.41 GST = $ 67.36 3 Years Single Copies: $7.50 + .53 GST
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EDITORIAL
‘The Juice’ on Credit Scoring
There are some strange parallels between baseball’s steroids crisis and the credit scoring and insurance issue that recently blew up in the Canadian media. David Gambrill, Editor david@canadianunderwriter.ca
8
Canadian Underwriter March 2009
It may seem crazy to think it, but there are some strange parallels between baseball’s steroid crisis and the credit scoring and insurance issue that recently blew up in the Canadian media. First, both issues are basically about cheating; as such, they raise questions surrounding what the rules should be governing the practice. Second, and perhaps more importantly, both issues mask fundamental questions about the recent financial health of the industries involved, which should be of greater concern for all of the parties involved. The alleged use of credit scoring for the purpose of underwriting auto insurance — contrary to prohibitions in Ontario — went mainstream in February 2009, when daily media started receiving consumer complaints. Reacting to these reports, the Financial Services Commission of Ontario (FSCO) and the Registered Insurance Brokers of Ontario (RIBO), the province’s regulatory bodies for insurers and brokers, respectively, each issued bulletins reiterating that insurers in the province are prohibited from using a consumer’s credit information for the purpose of underwriting and quoting auto insurance premiums. Predictably, just as in the steroids scandal down south, the media are shouting “off with their heads” and trying to expose alleged “cheaters” — i.e. insurance companies that have allegedly used credit
scoring to pad their underwriting stats on the auto insurance side. And just as in the steroids scandal, rooting out and shaming the names of the cheaters is too narrow a focus. If the credit scoring issue has legs, it’s because credit scoring involves a lot of complicated systemic issues. The practice raises a lot of legitimate questions. If, for example, credit scoring is allowed for the purpose of underwriting home insurance lines, then why should it be prohibited for use in auto lines? You would think the rationale for using credit scoring would be equally valid for either insurance line — i.e. a consumer’s credit score indicates how cautious a policyholder may be with their money, thus giving insurers an idea of what kind of risk he or she might represent either as a homeowner or as a driver. The public policy concern is that insurers might decline to accept an auto risk based on a driver’s financial habits. This would practically amount to a de facto prohibition against low-income drivers with a poor or no credit rating. This is a problem when provinces have laws on the books requiring insurers to “take all comers” because insurance is a requirement for all drivers. As in baseball’s steroids scenario, regulators in the insurance industry are reacting to media reports by promising to enforce the existing rules. What they might consider doing instead is to lead the debate about whether the existing
rules make sense and are in fact enforceable. Should credit scoring be banned entirely, or should it be allowed in all or some insurance lines? Is this properly an Insurance Act matter, or does it come under the jurisdiction of Canada’s privacy legislation? The CCIR took this kind of initiative in a host of other debates, often employing a consultation paper to generate discussion. There’s no reason to think the same approach wouldn’t work here. The sad part about watching third baseman Alex Rodriguez confess to using steroids way back in 2003 is that his team, the New York Yankees, just spent half a billion dollars to sign up three star players during the off-season. (What insurer couldn’t use US$500 million in capital right now?) This raises fundamental questions about baseball’s long-term financial viability. And yet, the steroids issue has thus far hijacked any such discussion. In the Canadian insurance scene, at the same time the credit scoring issue is going public, shrinking capital test scores and ratings downgrades have raised questions about the declining financial fortunes of the industry as a whole. Existing credit scoring rules do need to be enforced. But the current financial health of the insurance industry (particularly in these tough economic times) should probably be the focus of regulators and the public right now, and less so the credit scoring issue.
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MARKETPLACE
Canadian Market ING INSURANCE COMPANY OF CANADA TO BECOME INTACT INSURANCE COMPANY ING Insurance Company of Canada has become Intact Insurance Company. Institutional and retail investors acquired ING Groep’s ownership interest in ING Canada in a Cdn$2.2-billion private placement and secondary offering. The deal transformed the subsidiary into an independent, Canadianlisted and widely-held company. ING Canada Inc., the holding company, will be renamed Intact Financial Corporation later in May, following the approval of the name change by its shareholders. Its TSX ticker will also be changed from IIC to IFC. ING Canada’s operations in 2008 generated Cdn$620 million in cash. At the end of the year, the company had Cdn$427.5 million in excess capital, a minimum capital test of 205% and no debt.
LINCOLN GENERAL CONTRIBUTES TO KINGSWAY'S 2008 LOSSES Kingsway Financial Services Inc. (TSX: KFS, NYSE: KFS) reported a 2008 Q4 loss of US$360.4 million and a loss of US$405.9 million for the entire year. “The disappointing results in 2008 reflect the impact of legacy operational problems,” said Shaun Jackson, president
10 Canadian Underwriter March 2009
and CEO. “The main factors contributing to the loss were the protracted problems at our largest subsidiary Lincoln General, losses on our securities portfolio and resulting valuation allowance on future tax assets and impairments to goodwill. Kingsway was also beset by the kind of investment declines reported generally throughout the industry. Kingsway said its 2008 Q4 investment income decreased by 24% in the quarter primarily due to lower short-term yields in Canada and the United States, as well as a reduction in the size of the company’s investment portfolio as a result of the repayment of bank debt and the sale of York Fire. Canadian operations, excluding York Fire, had a combined ratio of 108.4% compared with 95.4% a year ago.
FAIRFAX 2008 RESULTS SHOW RECORD INVESTMENT GAINS Fairfax Financial Holdings Limited (TSX and NYSE: FFH) reported profits of US$346.8 million in 2008 Q4 and US$1.5 billion for 2008, reflecting record investment gains of US$2.72 billion in 2008. Northbridge Financial Corporation, Fairfax’s Canadian commercial lines subsidiary, reported a profit of Cdn$46.7 million for 2008, marking a drop from a profit of Cdn$295 million in 2007. Northbridge’s combined ratio climbed to 107.3% in 2008 from 92.3% in 2007. For the year, Northbridge
reported an underwriting loss of Cdn$83.3 million, a decrease from the underwriting profit of Cdn$84.3 million reported in 2007. OdysseyRe, a reinsurance subsidiary of Fairfax, reported a net loss of US$450 million in 2008, compared to a net loss of US$350 million in 2007.
Claims NOVA SCOTIA CAP RULING, PART TWO The judge of the Supreme Court of Nova Scotia who dismissed the challenge to the province’s minor injury cap has issued a second part to his written decision. Justice Walter Goodfellow issued the second part of the Hartling et al. v Nova Scotia decision in anticipation that his Jan. 12, 2009 decision would be appealed in higher courts. In the second part of his decision, he finds that even if the province’s auto cap legislation did stereotype or discriminate against the injured — a moot point, since in the first part of his decision, he finds that it did not — such discrimination would have been saved under s. 1 of the Charter. The Feb. 2, 2009 decision addresses the issue of section 1 of the Charter of Rights and Freedoms. The Section 1 analysis, also called the Oakes test, consists of four branches. One of them is whether or not the negative
effect of a Charter breach is outweighed by the positive effects of the legislation. Goodfellow noted the following, positive effects of the legislation, among others: • reduced auto insurance rates; • the establishment of the province’s Insurance Review Board; and • allowing courts to impose structured settlements.
CROSS-BORDER ENVIRONMENTAL CLAIM TO BE HEARD IN CANADIAN AND U.S. COURTS A mining company in British Columbia suing its insurers for coverage in an environmental claim may have its case heard in both U.S. and Canadian courts, opening up the possibility of conflicting rulings in different jurisdictions. Teck Cominco Metals Ltd. sued its insurers in the United States for coverage related to environmental damage that is alleged to have occurred in the United States, downstream from Teck’s British Columbia smelter site. Teck asked both the B.C. Supreme Court and the B.C. Court of Appeal to stay the Canadian proceedings because, the company argued, the U.S. courts were the appropriate jurisdiction to hear the case. But in Teck Cominco Metals Ltd. v. Lloyd’s Underwriters, the Supreme Court of Canada ruled proceedings in B.C. related to the insurance coverage matter could con-
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MARKETPLACE
tinue despite the assertion of jurisdiction by the U.S. District Court of the State of Washington. B.C.’s Court Jurisdiction and Proceedings Transfer Act lists a number of relevant factors to consider when determining the jurisdiction in which a case should be heard. The assertion of jurisdiction by a foreign court “is not an overriding and determinative factor in the…analysis,” the Supreme Court ruled, effectively refusing to stay the Canadian proceedings.
Regulation
RIBO noted that the collection of a client’s credit information is covered by RIBO’s rules governing the province’s brokers. Information acquired over the course of a professional C relationship concerning the
business and affairs of a client must be kept in strict confidence by brokers, according to section 14.5 of the RIBO Code of Conduct. Section 14.5 also notes that, “the member shall not divulge
Your Right Choice for Quality Claims Solutions Margaret Martingano, Account Manager, Claims Management Services, Mississauga
RIBO ISSUES BULLETIN TO BROKERS ON CREDIT SCORING Ontario’s broker regulator has issued a bulletin to the province’s brokers, saying that although the rules prohibiting credit scoring for the purpose of underwriting insurance are primarily aimed at insurance companies, the issue nevertheless affects the day-to-day business activities of brokers. The Registered Insurance Brokers of Ontario (RIBO) addressed the credit-scoring issue in a bulletin that follows closely on the heels of a Financial Services Commission of Ontario (FSCO) bulletin on the same issue. FSCO recently reminded the province’s insurance companies that credit scoring is not allowed for the purpose of automobile insurance quoting and underwriting practices.
any such information unless authorized by the client to do so, required by law to do so or required to do so in conducting negotiations with underwriters or insurers on behalf of the client.”
At Cunningham Lindsey, we offer you more than just claims handling know-how. You’ll receive customized solutions unique to your claim or program requirements; online claims tracking and comprehensive management reporting; an expanded network of skilled adjusting professionals both here and abroad; and the highest level of service in the industry with performance reports to prove it. We’re working hard to make your choice for the right claims partner that much easier. Visit our website at www.cunninghamlindseycanada.com or email us at corpservices@cl-na.com.
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PROFILE
Broadening the Horizon David Gambrill Editor
RIMS Canada Conference Co-chairs Marilyn Leonard and Betty Clarke promise to give delegates of this year’s conference in September a broad smorgasbord of knowledge Delegates attending the 2009 RIMS Canada Conference in St. John’s, Newfoundland this upcoming September will be witness to a spectrum of education topics as broad as the industry experience of the cochairs putting the education program together. RIMS Canada Conference co-chairs Marilyn Leonard and Elizabeth (Betty) Clarke together have a combined 50plus years of experience in the insurance and risk management field. Leonard began her professional life as an English teacher. She moved to the city in the mid-1970s and a friend who owned an insurance agency asked if she would be interested in doing some claims work. “Once I got there, I enjoyed the work, Leonard says. “I started to take courses towards my associateship and
12 Canadian Underwriter March 2009
my broker’s certificate just to pass the time." She became the supervisor of commercial insurance in less than 10 years, and then applied for a job with the provincial Treasury Board section as an insurance officer. In the interim, she was very involved with the Insurance Institute. “When the government job came around, I saw it as a great opportunity to take my insurance background and combine it with my educational background and that sort of gave me the edge for this job, because they needed somebody who not only could handle negotiating an insurance program, but also write Treasury Board papers and Cabinet papers.” Twelve years later, in 1999, when St. John’s last hosted the RIMS Canada Conference, Leonard moved on to join Aon Reed Stenhouse. She was hired to provide brokerage services to the large, risk-managed accounts in Aon’s office. Her client list included Newfoundland and Labrador Hydro, a Crown corporation where she works now and started working in early 2005. Clarke’s professional background in 1970s includes a stint working at a hospital. She saw an ad in the paper for a receptionist at Sovereign General, which was then known as The Merit Insurance Company. “I had to go do a test, a skill
test, and I did extremely well at the test, apparently, because they offered me a better position than was offered at the beginning,” Clarke says. “They were just looking for a receptionist and I ended up being an insurance renewal clerk right away.” She says she enjoyed the work so much that she accepted a position as the man-
“Right now, I think people want more in-depth knowledge from risk managers that have succeeded [in establishing ERM programs] — how they’ve done it, how they tried to get it started and how they implemented it.” ager of the Insurance Corporation of Newfoundland within a few years. She became the vice president of underwriting there, before accepting the additional role of vice president of administration with Anthony Insurance, the brokerage arm of the Insurance Corporation of Newfoundland. “I sort of had to wear two hats, because I had people who were doing sales and I was responsible for the sales
being up, but I was also responsible for sales being the type of sales we wanted — we didn’t want bad business coming through the door,” she says. While at Anthony Insurance, she frequently traveled to meet her contacts with Anthony Insurance in Toronto. She eventually moved to Toronto in 1999. She started contract work with Baird MacGregor Insurance Brokers, which eventually became full-time work at their Mississauga office. She then joined HKMB, where as an account manager she assisted transportation companies with risk management tips. “That’s where I decided that risk management would be my next step,” she says. Itching to get back home to Newfoundland, she took a risk manager role at Fishery Products International in 2003. At the behest of fellow RIMS colleague Craig Rowe, who is now the president and CEO of the risk management company Clear Risk, Clarke took on her current role as risk manager and business continuity coordinator at the City of St. John’s. Both Leonard and Clarke came to RIMS by way of their careers. Leonard was heavily involved in the 1999 RIMS Canada Conference in St. John’s as a program chair. She later had a five-year hiatus from RIMS and re-joined when she went
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PROFILE
to Newfoundland Hydro in 2005. As for Clarke, she is the immediate past president of the Newfoundland chapter of RIMS, as well as president of the national education committee of RIMS. She is
ing the appearance that the boat is sailing into various scenic ports and locations. The theme of the conference is “Charting the Course: Navigating Your Risk.” The conference will feature
RIMS],” Clarke says. “You can have 100 risk managers and probably every one of them is doing something different. It depends on what your goals are, what your company does and all that kind of stuff.”
currently on the executive of the RIMS Canada Council. Not surprisingly, the 2009 RIMS Canada Conference on the eastern coast will have a nautical theme. The gala will be held in a conference centre with a capacity of more than 1,200 people. The room for the gala is being prepared to make delegates feel like they are on a cruise ship, with screens around the room giv-
four plenary sessions and 25 concurrent sessions within a period of two and a half days. Leonard described the concurrent session count as being “on the high side.” But one thing the co-chairs wanted to accomplish was a broad smattering of topics that would appeal to all walks of risk managers. “There are a lot of different perspectives [represented by
Reflecting RIMS’ diversity as an organization, the 2009 conference will address many industry fields and hot-button topics. They are expected to include practical tips on how to build an enterprise risk management (ERM) program, risk management in the oil and gas sectors, loss control, customer liability in the retail sectors, technology for risk managers, marine issues,
business continuity, climate change, corruption and fraud, manufacturing and public entities such as municipalities. The key is that the breadth should be accompanied by depth. The idea is to focus the content of the education sessions so that they offer specific, concrete ideas for application by risk managers. Leonard says the ERM session is an example. “Enterprise risk management, that’s been kicking around for a number of years,” Leonard noted. “A lot of risk managers now have been on the fringe of getting this started and working on it, trying to sell it to their bosses. Right now, I think people want more in-depth knowledge from risk managers that have succeeded — how they've done it, how they tried to get it started and how they implemented it.…I think we need to have some seasoned risk managers share their experience and answer those questions.” Not to say the conference will be all work and no play. Local entertainment has been planned to appear throughout the conference and all hands will be on deck to hear from keynote speakers such as retired chief of defence staff Richard Hillier, journalist Gwynne Dyer, local university professor (and murder mystery novelist) Elliot Leyton and journalist Rex Murphy.
March 2009 Canadian Underwriter
13
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My Heroes Have Always Been
With the financial crisis upon us, risk managers have an opportunity to play the role of a hero within their organizations. When financial markets took a tailspin in 2008 Q4, the flood of bad news was fast and furious. Conditions for the collapse, however, were years Jack Mazakian in the making and their impact will likely be felt Executive Vice President, for years.What does that mean for a risk manageLeader, Regional ment and insurance program renewing today? A Financial Institutions hotter, brighter spotlight — and included with Practice, that, opportunities to shine. Willis Canada Inc. At the recent annual Association of Insurance and Risk Managers dinner in London, Joe Plumeri, chairman and CEO of Willis Group Holdings Limited, said: “In the current economic environment, risk managers will emerge as heroes.” Given the natural tendency to search for villains in the wake of trouble, some were surprised to hear talk of heroism. The point is that the importance of risk managers to their companies is likely to become clearer than ever. A strong risk Kevin McMurray management focus will assist senior executives in Senior Vice President, identifying risks and accessing insurance capital at Manager, Corporate an efficient cost to the business.The perception of Risk Services, the value insurance professionals collectively Willis Canada Inc. bring to the business community can be expected to grow in risk-averse times.
THE NEW QUIET REVOLUTION The impact of the current economic recession on the Canadian insurance marketplace was first felt in the latter half of 2008. At that point, Canadian
14 Canadian Underwriter March 2009
insurance companies were presented with many challenges, most outside of their control.The list of challenges remains long: limited access to credit, deteriorating investment returns, the uncertainty of reinsurance contracts, talent retention issues, increased claim costs and the influence of foreign parents over local management. Given that the current financial crisis affects the normal course of operations for the global banking industry, it is becoming increasingly difficult for insurance companies to access the capital needed to fund operations. When investment returns deteriorated during the last half of 2008, the debt loads carried by insurance companies swelled. These factors contributed to a weakening of balance sheets for even the largest of market players, forcing some to seek relief from governments. The global reinsurance industry has been able to maintain its capital base in the midst of this global financial crisis, but reinsurers recognize the financial market climate has changed. Many Jan. 1, 2009 renewals saw meaningful increases: primary carriers faced challenges to their capital base that led to a revived interest in reinsurance, thus reversing a decline in demand in preceding years.The fact that many Canadian insurance operations are reliant upon treaties arranged outside of Canada contributes to a lack of control and thus uncertainty. As the economy continues to deteriorate, we will see an increase in both the frequency and severity of claims. Historically, claims increases are centered on workers’ compensation and employee benefits. The financial market turmoil and resulting recession has also inspired many
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executive risks claims, as investors and stakeholders turn to the courts in search of some redress for investment losses. The downturn has revealed fraudulent activities that may otherwise have gone unnoticed. The Madoff case is one very visible example. From an operational management perspective, insurance companies, just like companies in any other industry, face increased challenges in trying to retain and reward good people while at the same time tightening expense belts. In Canada, many such management issues are driven by executive edicts at the foreign-owned parent. Taken together, these factors have brought a measured change to many of our domestic underwriters and markets. This quiet revolution has meant a resurgence of conservative underwriting, including greater limit management and more attention to overall portfolio risk. In times of falling investment yields, carriers need to bring back profitable underwriting operations. As of now, the local marketplace is stable, with underwriters attempting to at least maintain premium levels.We would expect, however, that if the recession continues and loss ratios rise, while at the same time investment yields remain inadequate, upward pressure on rates will take hold in the third and fourth quarters of 2009. In any event, the era of automatic reductions at renewal is over.
PORTFOLIO MANAGEMENT The need to protect existing capital at a time when access to new capital is limited will force insurance companies to pay more attention to portfolio management. Expect underwriters to examine more closely where they deploy their capacity; in some instances, they may decide to reduce their current positions through limit management. As in any transitional market cycle, the risk manager as the primary insurance buyer will need to be more engaged in the marketing process. Buying patterns will evolve. Better information, communication and cooperation will be required of all parties involved in the insurance relationship. Risk managers must take the lead by clearly communicating
16 Canadian Underwriter March 2009
the goals, objectives and expectations of their organization to both underwriting markets and intermediary partners. The key emerging themes are: • Cost containment • Timing • Communication • Differentiation • Relationships • Security • Options As budgetary pressures reduce any previous flexibility on premium costs, insurance buyers will consider higher deductibles or self-insured retentions (or both) and may re-examine limits of liability. Risk managers will look into the increasingly popular strategy of rationalizing property values — e.g., asking whether insuring to replacement costs is necessary if a property is fully depreciated and no plans exist to replace it. Risk managers are also looking more readily at benchmarking data to compare their programs to those of their peer group. As more attention is given to the entire risk management and insurance process, seasoned risk managers will start the renewal process earlier than usual.This is a good opportunity for risk managers to review their goals and expectations with their broker partners, a smart move that is best made well in advance! Faced with the higher expectations of their business partners, risk managers will need to improve communication by opening lines of communication internally as well as externally. Internally, risk managers would be well advised to sit down with senior executives as the buying process evolves to help ensure that corporate expectations are understood and managed. At the other end of the relationship, the risk manager should develop positive dialogue with desired markets in partnership with their broker. We would encourage risk managers to ensure that communications with underwriters are not just an annual event but conducted throughout the year. Differentiation is another pivotal responsibility. It is incumbent upon the risk manager to properly position their organization in the most positive light and highlight the differences from their peers. A positive, clearly differentiated risk profile helps the professional insurance broker, as partner, focus on the ele-
ments that underwriters will need in order to complete their risk analysis. The more in-depth, comprehensive and attractive the profile, the more appreciative and thorough the underwriter can be, and the better the results for the buyer. Ultimately an insurance program is the result of a partnership of professionals. The effectiveness of the partnership between the risk manager, insurance underwriters and the broker partner is critical in bringing all the components of an insurance program together. In times of market uncertainty, we rely upon the strength of our relationships to assist in smoothing the path as the market struggles to find its footing. With the recent global financial turmoil, some of the largest insurance companies have come under scrutiny from rating agencies; financial positions are being more closely examined.The unfortunate reality is that consideration of the market security of your counterparties is now a mandatory element of any renewal process. If this transitional market is the precursor to a hard market cycle, the risk manager will likely consider captives and other alternative risk transfer mechanisms. Although insurance transfer to traditional markets was economically advantageous in recent years, other options will appear more attractive as a more adverse market takes shape.The goal of the risk manager is to retain ownership and control of the mechanisms for risk transfer or finance and not become a victim of rapidly changing market forces. Adversity and change offer opportunity. Risk managers today are a critical part of the management teams of their organizations, as the executive suite looks to strengthen the risk management function, remove vulnerability and eliminate potential surprises. Do not underestimate the role of the risk manager in providing much-needed guidance through these changing times. Turning again to the words of Joe Plumeri, “…we need to see the opportunities in the adversity and make a parade out of a financial riot…”We believe that risk managers should be among those leading the parade..
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The Strongest Link Although it may be enjoying widespread popularin conference rooms and today’s conference Perry R. Brazeau ity calls, the expression “supply chain” is problemSenior Vice President, atic in the sense that its original meaning seems Manager, Canada Division to wane just slightly with each utterance, as with FM Global a familiar word that’s been repeated until it sounds nonsensical. It doesn’t help that literature on the subject is often mired in jargon. Indeed, the very words “supply chain” inspire wordplay. The image the term creates in one’s mind makes it difficult to resist. Who doesn’t respond to a visual of the weak link, that one overlooked supplier whose shoddy business practices or weak approach to risk management could prove to be the undoing of a supply chain already stretched to its breaking point? Of course you don’t need to be told, using whatever words you choose, that supply chain risk is a pressing issue any more than you need to be told that globalization is kind of a big deal. Today’s most profitable companies are often those that operate with little or no excess in the system. They include companies with supply chains as lean and elastic as a Giacometti sculpture — and just as fragile.
18 Canadian Underwriter March 2009
Rather than simply making the case that this type of risk deserves your attention, I’d like to offer several thoughts on how to identify, analyze and mitigate it.
SUPPLIER IDENTIFICATION AND PRIORITIZATION Your company may have a few suppliers or perhaps hundreds. How will a disruption along that chain, somewhere in that constellation of participants, affect the profitability of your business? To understand your potential vulnerabilities, you must first understand your supplier network — how each supplier is connected not only to your operations, but also to other suppliers. The first step is to identify key suppliers. This requires you to undertake a thorough analysis of your revenue streams and focus on the most significant of these in terms of current income as well as future strategic growth. Keep in mind that a product’s profitability is a better indicator than the size of the revenue stream alone. After you determine key suppliers that drive selected revenue streams, you’ll want to evaluate alternative sourcing options for each supplier. Using that information, you can winnow the list of suppliers down to those that are multiple-, single- and sole-sourced. Supply chain analysis can grow onerous quickly, and so multiple- and single-sourced suppliers with confirmed, adequate alternatives — i.e. those that do not raise notable concerns — can be exempted from further analysis. The goal is to evaluate only the suppli-
Illustration © Greg Stevenson/www.i2iart.com
Today’s most profitable companies include those with supply chains as lean and elastic as a Giacometti sculpture — and just as fragile.
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ers presenting the greatest risk to your organization. Suppliers should then be prioritized, ranked according to their financial impact on your organization. For example, what products or services would not be sold in the event of a supplier loss? One way to determine priority is to use annual business income value, calculated by subtracting variable costs from the related product line revenues. What product does your company make? What components go into it? Where are they being sourced? The answers to these questions can help identify “pinch points,” helping you to put together plausible scenarios for a disruption at your facility or that of your suppliers. Threatening to impede the identification of key suppliers is the sometimes tenuous link between risk management and procurement. Be aware that in some companies, procurement is out there establishing a supply chain; it is not necessarily keeping a line of sight to your risk management issues.Today’s risk manager must be prepared to forge new relationships, or strengthen existing ones, with corporate procurement to clarify the financial implications of individual supply chain exposures.
SUPPLIER ANALYSIS Once you’ve identified key suppliers, the next step is to develop an awareness of the fundamental threats to those suppliers and manage the associated risk. This requires a deeper understanding of the supplier’s business operations and its ability to recover from a major disruption. It’s possible, of course, that the supplier will be highly resilient to a disruption, perhaps owing to a solid business continuity plan, thus presenting a smaller risk than initially thought. For example, a supplier thought to be the sole source of a critical component may in fact have the ability to produce that component at one or more additional locations. These alternate operations may be owned by the supplier or contracted elsewhere. Provided access to a supplier location can be obtained, the goal is to understand the key facilities or processes needed to produce the supplier’s products or services.
20 Canadian Underwriter March 2009
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You will have many questions. Is the supplier’s production based on a single location or multiple locations? What are the physical threats to these locations? How long will it take for the supplier’s business to recover from a disaster? Can the loss be mitigated through alternative locations or producers? Does the supplier have a comprehensive business continuity plan?
It’s prudent to remind oneself that although current geopolitical, regulatory, financial and other risks tend to dominate the news headlines, supplier property risk remains a potential blind spot for many companies. The good news is that, if your company follows strict property loss prevention standards in its own facilities, it can choose to do business with like-minded suppliers. If your business is important enough to a supplier, that supplier might even allow you to audit its facilities. Or the supplier may agree to make risk improvements to achieve preferred-supplier status. Current business trends indicate suppliers are becoming much more willing to share information; this may hinge, however, on the amount of influence your company has on a given supplier.
Expanding the supply base for alternatives is just one — and often very expensive — risk-mitigation strategy. Others call for: • increased inventory levels (of raw material or finished goods); • internal production capabilities; • a merger with, acquisition of or increased equity investment in the supplier to better ensure control over supply and reduce potential threats; • business continuity planning requirements for all suppliers; • substitute products and services; or • redesigned products, allowing for greater supplier flexibility. If risk cannot be sufficiently reduced, you might explore risk-transfer options, but make sure you’ve sorted through the extent of coverage you need. Do extensions of coverage go beyond the suppliers’ or customers’ locations to outside influences that could shut them down? Take, for example, a fire that burns up a power generator not located at your facility or your supplier’s. Let’s say the fire causes a service interruption at your supplier’s location, and that interruption affects your business. Will your insurer cover that loss? Something else to consider: Do you have coverage if a port or rail line gets shut down? Getting products from point A to point B is essential to making the supply chain work. Rerouting can become very expensive. Be aware as infrastructures continue to get older and weaker, this scenario may become more commonplace.
RISK MITIGATION Supply chain risk can be mitigated in several ways: through risk improvement efforts, by switching to suppliers with less risk exposure or by spreading the financial impact across multiple suppliers. Cultivating alternative sourcing arrangements, where possible, is typically the best way to mitigate supply chain risk. Recall, however, that a sole-source supplier with a highly protected facility and effective business continuity management practices may not represent a significant risk. Businesses are trending toward leaner, more streamlined supply chains.This means not only fewer suppliers and more sole-sourcing, but also closer working relationships.
DUE DILIGENCE IN TODAY’S ECONOMIC CLIMATE It’s prudent to remind oneself that although current geopolitical, regulatory, financial and other risks tend to dominate the news headlines, supplier property risk remains a potential blind spot for many companies. This is despite the fact that enhancing the physical risk quality of a supply chain builds resiliency. Given the increasing scrutiny risk managers receive from boards of directors and audit committees in today’s dismal global economy, perhaps there’s no better time to ensure your company is keeping the arteries of its supply chain clear and profitable.
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Driving High Performance Improving your Brokerage, Part 1
There are a number of key building blocks for getting the best out of your brokerage, and it all starts with establishing the right culture throughout the organization. Lorie J. Guthrie Phair
Principal, LePhair Associates Ltd.
The second installment of this two-part series will appear in April 2009.
How do you become a high performing brokerage with a strong sales culture? You can’t hire it. You can’t outsource it and you can’t create it on a part-time basis. Building a high-performance business with a strong sales culture is not easy. It takes focus, discipline and strong organizational skills. And it needs to be embedded at all levels of an organization. Let’s review some key building blocks:
Do a reality check on the leadership at your brokerage One of the hallmarks of great leadership is effective delegation. The dictionary defines delegate as: “To give a task to somebody else with responsibility to act on your behalf. To give somebody else the power to act, make decisions or allocate resources on your behalf.” Note the reference to “on your behalf.” Regardless of who carries the responsibility for a task or function, the business owner/leader is ultimately accountable for the outcome. Delegation is very different than abdication. If business owners are at a stage when they are not the best leaders for the company, they should consider other options, including promoting or hiring leadership talent with deemed authority and responsibility for decisionmaking. Nothing can undermine an employee’s commitment and engagement to a company more than ineffective or absentee leadership.
ESTABLISH GREAT LEADERSHIP Many books have been written on this topic alone and they all agree on one key point: a company’s culture is established at the top. Great leadership is essential in setting the performance standards and expectations for the organization and its people. Great leaders establish guiding principals and values for their organization that govern behaviour and foster an environment of accountability and responsibility — and they walk the talk.This is true no matter the size of the company.
22 Canadian Underwriter March 2009
Do a reality check on the company Depending on your ambitions, goals and the size of your company, this can be as simple as an internal size-up, a more thorough operations review or an in-depth company performance audit. The successful completion of an audit, while challenging, could place your brokerage in an elite status and provide a competitive advantage over your peers. Furthermore, consider a confidential employee survey to gauge what’s really happening
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internally. Take a realistic look at where you are with the business to date, what the strengths, issues and opportunities are, and whether or not you have the right skill set of people, the right business partners and the right client solutions to get you where you’re going.
CREATE THE BUSINESS PLAN High-performing companies have a long-term vision, are committed to regBUILDING BLOCKS TO A HIGH-PERFORMING BROKERAGE Measure, manage and communicate by implementing the following steps: A. Establish great leadership. B. Do a reality check. C. Create the business plan and revisit and update it annually. D. Establish standardized procedures E. Develop the client management strategy F. Invest in the marketing plan G. Develop the people strategy H. Implement world class sales practices I. Review and monitor financials
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ular planning and, most importantly, they execute on the plan. They consistently assess where they are against key milestones and take appropriate action. The strategic planning process does not have to be onerous.The most important thing is to take the first step. The process and the plan can always be refined along the way and should be reviewed and updated annually regardless. Ensure the planning process outcomes present clear goals, action items and accountabilities. Most importantly, follow through with execution and implementation. Include your key people in the process. Professional, committed employees want to be actively engaged in the goals of the company. Establish key measurements for your company and regularly assess company performance against them. Tie the plan back to the financials and measure and monitor regularly.
ESTABLISH STANDARDIZED PROCEDURES High-performing companies run a tight ship.They use current technologies, making sure that all back-office activities fully
support front-end sales and service activities.They establish how things are to be done at their organizations; these processes are then documented, form the basis for training and provide a backdrop for measuring performance. These procedures become part of an organization’s brand, since they are designed to ensure the consistent delivery of high standards of service and a consistent sales approach that ties in with the businesses’ value position. One of the biggest challenges a brokerage faces is that the client experience is completely different depending on the brokerage representative with whom a client interacts. This is especially challenging in larger organizations with multiple branches. When tight procedures have been established in all areas of a company, and consistent training is undertaken on those procedures, the client can expect the same high level of service throughout the company. There should be documented steps for every process at the company — ie. how the claims reporting process works, the six questions
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to ask every prospect, the sales process at a company, the materials the company sends to all of its prospects and the renewal process for personal lines clients, etc. etc. Store these policies in an operations guide that is continuously updated and improved as new ideas and issues present. Use regular company meetings or workshops as a forum to create how things are to be done at the company. These are great forums to get all staff
Great leaders establish guiding principals and values for their organization that govern behaviour and foster an environment of accountability and responsibility — and they walk the talk. proactively engaged in resolving issues and taking ownership of problems. Regular internal company workshops allow everyone at an organization the opportu-
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nity to plan, test, establish policies and even role-play for every aspect of their business, including each stage of a sales or service process. It creates a system for company-wide implementation and helps the company bond together as a team.
DEVELOP YOUR CLIENT MANAGEMENT STRATEGY High-performing organizations have a unique, clearly articulated and well-understood value proposition. Everyone at the organization is clear on the features and benefits of their firm in meeting the needs of clients. Good service is merely the price of entry today, because clients want more. High-performing organizations know how to demonstrate “value.” In turn, they receive loyalty and more importantly commitment from their clients. They also understand that every client has the right to be somebody’s “A” client, even if they might not necessarily be their targeted “A” client. Successful businesses know their preferred clients and prospects; they have clear relationship management strategies, service
plans and appropriate products to meet their clients’ needs. It costs six times more to get a new client than to cross-sell or up-sell a current client. Maximize this return on relationship for each client; segment the book of business so everyone knows who the A, B, and C clients are and who the target clients should be.There should be documented service plans for every level of client, including when and how to make contact or “touch the client” and how to handle various procedures such as renewals. Client service plans should be established up front with new clients and reviewed annually. The roles of each individual involved in managing the client relationship should also be incorporated into the service plans. In the brokerage model, clients establish a relationship of trust with the individual through whom they arrange their insurance program. Producers should not abdicate this client relationship and should be clear about their ongoing role so as to avoid the client’s perception of “bait and switch.”
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2/25/09 9:53:29 AM
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Cat Bonds:
Weathering the Storm Favourable reinsurance rates, rather than market instability, explain why cat bond issuance declined in 2008.
Chi Hum
Global Head of Distribution, GC Securities
The catastrophe bond market resisted the pull of the broad financial market turmoil in 2008, but it did not emerge completely unscathed. Issuance activity dropped precipitously, and spreads in the secondary market widened. Investors and issuers both expressed concern about counterparty credit risk.Yet despite a few moments of anxiety, we’re now looking back on a market that has persevered and is currently regaining its footing. There may have been a few scratches, but catastrophe bonds continued to demonstrate their viability as risk transfer tools. For the catastrophe bond market, 2008 was a quiet issuance year. Following records set in 2007, the risk capital issued fell 62%, and the number
26 Canadian Underwriter March 2009
of issuances dropped by 52%. Most activity occurred in the first half of the year, when issuances kept pace with 2006. But the market fell silent by September. Reinsurance market conditions, rather than financial market turmoil, contributed to the decline in catastrophe bond issuances in the first half of 2008. Traditional reinsurance capacity was more than sufficient to address cedent risk transfer needs, reducing the appetite for alternative forms of coverage. Further, reinsurance rates were already low and were expected to continue falling throughout the year. At the Jan. 1, 2008 renewal, the Guy Carpenter World Rate on Line (ROL) Index fell 9% year-over-year, and it continued to gain downward momentum through the July 1, 2008 renewal. The pace of business was nonetheless brisk. Issuers ultimately brought US$2.7 billion in new capacity to market through 13 transactions (11 of them in the first half of the year), making 2008
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$7,500.0 $7,250.0 $7,000.0 $6,750.0 $6,500.0 $6,250.0 $6,000.0 $5,750.0 $5,500.0 $5,250.0 $5,000.0 $4,750.0 $4,500.0 $4,250.0 $4,000.0 $3,750.0 $3,500.0 $3,250.0 $3,000.0 $2,750.0 $2,500.0 $2,250.0 $2,000.0 $1,750.0 $1,500.0 $1,250.0 $1,000.0 $ 750.0 $ 500.0 $ 250.0 $ -
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$1,219.5
$1,199.1
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$1,729.8
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$1,139.0 $846.1
$984.8
$2,686.6
$1,142.8
$966.9
$633.0
1997
1998
1999
2000
2001
2002
2003
Risk Capital ($MM)
¤
2004
2005
2006
2007
29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
Number of issuances
Risk Capital Issued ($MM)
Annual Number of Cat Bond Transactions and Issue Size
2008
Number
Source: GC Securities Proprietary Database
the third busiest year in history — and still well above the 12-year annual issuance average of US$2.1 billion. The dynamic changed, however, during the second half of the year. Consistent with previous years, the third quarter was light; the difference came in the fourth quarter. Potential sponsors became cautious after the financial market events of mid-September. As the Jan. 1, 2009 renewal approached, the uncertainty of where traditional reinsurance rates were headed led many issuers to defer their plans to the first quarter of the new year. Thus the last quarter of 2008 was silent, unlike the same period in 2007, in which seven catastrophe bonds brought US$1.9 billion in new capacity to market. Although only part of the drop in issuance activity can be attributed to the meltdown in global financial markets, the issue of counterparty credit risk arose directly as a result of the loss of a major financial institution. Four catastrophe
28 Canadian Underwriter March 2009
bonds lost their total return swap (TRS) counterparty, causing both investors and issuers to pause and wait for the implications of this development to become clear.
Traditional reinsurance capacity was more than sufficient to address cedent risk transfer needs, reducing the appetite for alternative forms of coverage. Initially, some investors and issuers were unsettled by the markdown of these four bonds. They were concerned about a potentially significant credit risk and (perhaps worse) moral hazard in the catastrophe bond market. As the dust settled, though, investors and issuers saw the market did not suffer from an underlying flaw. Instead, the value of improved transparency and tightened collateral
requirements were realized; these measures are being addressed in future solutions. The secondary market for catastrophe bonds, on the other hand, had record amounts traded during 2008 Q3. Turmoil in the financial markets caused multi-strategy hedge funds to divest their catastrophe bond holdings in order to meet the liquidity calls created by market losses and investor redemptions. Essentially, the catastrophe bond asset class was among the few asset classes to maintain its value through the general capital markets dislocation of 2008. Secondary trades were done at significant discounts; they represented a profitable opportunity for investors in the catastrophe bond market with cash to invest. Substantial non-correlation is the principal reason for catastrophe bond performance in the midst of the global financial catastrophe. Since these vehicles were first issued in the mid-1990s, many have touted them as being generally
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30 Canadian Underwriter March 2009
uncorrelated with broader capital market risks. After all, catastrophe bonds are linked to physical events such as hurricanes and earthquakes rather than an issuer’s default risk, interest rate risk or currency risk. Consequently, one would assume that catastrophe bonds would not follow broader credit markets into a downturn. However, since this is still a securities structure, some elements remain — such as the collateral and funding mechanisms — that carry some degree of capital market risk. As a result, unlike other credit risk-related asset classes, it is likely the catastrophe bond asset class will actually emerge with improved utility for both sponsors and investors. As the catastrophe bond continues to mature, issuers are likely to advance their thinking from the basic features and benefits of this risk transfer tool (i.e. non-correlation and targeted risk transfer) by integrating them into broader risk
Essentially, the catastrophe bond asset class was among the few asset classes to maintain its value through the general capital markets dislocation of 2008. and capital management plans. The decision to issue a catastrophe bond rather than buy traditional reinsurance will be influenced by more than just the availability of capital and the difficulty of placing a particular program. Of course the ongoing financial catastrophe will play a role in the evolution of the catastrophe bond market, and the future remains unclear.Traditional reinsurance capacity is expected to contract; we continue to wait for full-year financial results for publicly traded (re)insurers to be reported.The revelations to begin in the middle of March will indicate the potential severity of the crisis for the issuers for the coming year. But the catastrophe bond market has remained resilient — a fact that is likely to shape portfolio management practices in 2009 and further into 2010.
Correction In the January 2009 edition of Canadian Underwriter, an editing error resulted in an incorrect statement appearing in Gregory P. Bailey’s article “When in Doubt, Send it Out.” Under the subparagraph entitled “Lessons from Echelon,” the first paragraph was re-worded to say that Ontario Superior Court Justice Thea Herman “upheld” a decision by FSCO arbitrator Guy Jones. This is incorrect. This was a private arbitration. FSCO does not adjudicate priority disputes. Canadian Underwriter apologizes for the error, and especially to the author, Gregory P. Bailey.
Navigating the New Market Potential risk exposures for companies facing an economic downturn seem to be increasing at the very same time that a hard insurance market is imminent. Higher premiums and restricted coverage come with the hard market, making it harder for risk managers to find the insurance coverage they want or need when their own companies are tightening their belts financially. So how are risk managers planning to guide their corporate ships through this turbulent market? By Vanessa Mariga Associate Editor
32 Canadian Underwriter March 2009
In
a rare historical moment, the hardening of Canada’s insurance market is happening at roughly the same time as a downward turn in Canada’s economic market. For risk managers, this raises the obvious question of what to do when they must cover more potential risk exposures at the same or lower price, when insurance prices are increasing and coverage availability is decreasing. The current conditions have some risk managers preparing to head into renewals and bracing themselves for what some are calling “the perfect storm.” Statistics Canada reports that the country’s gross domestic product sank 3.4% in the fourth quarter of 2008 — the largest decline since the 1991 recession. As the current recession plods along, it appears no industry or market will make it through unscathed. Companies across all sectors are in the process of trimming operating costs in an effort to maximize efficiency.
March 2009 Canadian Underwriter
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COVER STORY
Navigating the New Market At the same time, murmurs of a longawaited hard market are transforming from rumours to actual signs of increased rates. This hard market will be different, though, in the sense that risk managers won’t necessarily see a severe spike in rates, industry experts are predicting. Instead, they are likely to witness an incremental increase in rates throughout 2009, which will undoubtedly affect renewals moving forward into 2010. The much-anticipated revival of the hard market, whenever it happens (if it hasn’t happened already), is a sword dangling over the heads of the Canadian risk management community. As risk managers prepare to navigate their way through this financial storm, many have been told by their boardrooms to cut spending and increase the risk retained by the company. The end result is to increase the companies’ loss prevention efforts. What decisions does this force a risk manager to make? In a climate that can best be described as uncertain, how do they determine which carriers will remain standing after this financial storm blows through? What other enterprise risks are created by the financial turmoil? What parts of their risk management programs should be contracted and which should expand? Hard market seeping in When exactly the hard market will be in full swing is still up for debate. Many industry experts suggest that, unlike the hard markets of 2001 and 2005 (ushered in by 9/11 and Hurricane Katrina, respectively), commercial insurance rates won’t necessarily spike. Instead, they will more likely creep higher in a gradual fashion, with certain lines showing signs of hardening sooner than others. In its January 2009 report, The Hard Market is Coming (But Don’t Hold Your Breath), Advisen Ltd. suggests the average rate levels for commercial insurance are expected to level off in 2009 Q2, and will begin to creep higher beginning in 2009 Q4 or 2010 Q1. Advisen further predicts the deteriorating global economy could delay the 34 Canadian Underwriter March 2009
hardening of the commercial insurance market until the end of the year. That’s because the deepening global recession might suppress the demand for insurance, thereby causing carriers to lower rates to keep their market share. But when that hard market does arrive, it might be more prolonged than in past cycles Advisen says.
“My concern is the pressure that insurers will be under in the next 12 to 24 months due to the financial markets, the economy or other factors. To what degree do those factors precipitate a hard insurance market cycle or affect the viability of the insurers?” In Marsh’s Insurance Market Report 2009, researchers found insurance market conditions were generally favourable in 2008. But as the year wore on, the rate of premium decreases slowed. Ultimately, they started to increase in notable lines, such as trade credit. “The signs of an impending hard market abound,” the report says. “Yet the financial crisis is making it difficult to see just how it will evolve and likely that it will look and feel different than previous hard markets once it arrives.”
In the report’s executive summary, Marsh CEO Brian Duperreault refers to the coming hard market as “an invisible hard market.” Because of the “countervailing winds of the financial storm, it may not look that way at first. It’s going to evolve differently than any hard market we’ve experienced in the past 50 years. And that represents a management challenge for the industry in 2009.” Here in Canada, Paul Martin, president and COO of KRG Insurance Group, notes small business accounts are already experiencing slight increases, one sign of a changing market. “In the $1,000 to $10,000 package policies, we have actually seen a slight premium increase,” he notes. He suggests this could be explained by the fact that rates were “extremely low after the last soft market, and there has been a lot of emphasis put on small businesses insuring to value.” Mid-market accounts, he continues, which are generally worth between $10,000 and a few hundred thousand dollars, have experienced a fair amount of stability over the past six months. Premiums in this class have been renewed as-is for most insureds, although there needs to be a rate increase in these lines, he adds. And in larger, multi-national accounts, “I still see tremendous pressure to reduce premiums,” Martin says. “Because our economy is not developing a large amount of new opportunities, there’s an increased battle for supply. And it’s better to go after a larger account than it is to go after 10 smaller accounts, so I see a tremendous amount of pressure from competition to push rates down.” Dan Beaudry, executive vice president and regional marketing officer at Willis Canada Inc., agrees with Martin that for the most part, commercial lines are relatively stable at the moment. He suggests, though, that on a case-by-case basis, rates are beginning to increase — particularly for those carriers with a poor loss experience or large catastrophe exposures. He notes the stress on rates in personal auto lines is now transcending into commercial auto lines. As well, Canada has seen a drop in capacity for
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Navigating the New Market financial institution business professional lines, including directors and officers and errors and omissions coverage. Anticipation Although the waters seem relatively calm on the rate front, risk managers say they do not expect it to last. “I think everybody is waiting to see what is happening in the market, what’s happening to others [during their renewals] and how others are faring out there,” says Inga Michaluk, director of risk management for the Minto Group in Ottawa. As of press time, Michaluk is in the midst of renewals and she expects to pay higher premiums across the board. “I do expect to see markets hardening but I do believe that the impact will be felt later in 2009.” Nowell Seaman, manager of risk management and insurance at the University of Saskatchewan, shares this view. He says his January renewals went pretty smoothly, but he acknowledges that it won’t likely be the same in a year’s time. “I think we have to consider that in our budget planning for the coming year and have some anticipation that we’ll likely see some hardening,” he says. “At this point, I’m not anticipating a dramatic hardening or a dramatic loss in capacity. I hope that I’m right.” As risk managers keep a close eye on rates, the financial crisis presents an entirely new set of uncertainties, says Joe Restoule, leader of risk management at Nova Chemicals and president of the Risk and Insurance Management Society. There are definitely struggling markets that tend to be very competitive in both pricing and terms, he says. “The reason why they’re being competitive is that they need to maintain their market share. The big thing for risk managers is that they must weigh the future of this [pricing competition] against the future of these markets. It creates a bit of a dilemma, because you’re being offered a great rate and competitive terms, but you know that some of these firms have had difficult financial times.” The major quarterly losses and credit default swap exposures of three or four (re)insurers have dominated headlines 36 Canadian Underwriter March 2009
over the past year, Restoule observes. But it’s difficult to tell which other (re) insurers may be “lurking in the dark” and not being completely upfront with financial woes, burying them deep in the jargon of quarterly reports. This creates an added challenge in solidifying a risk transfer program, he says.
“Given the pressure put on the customer to reduce costs and a market that is leveling off, [companies] might be forced to make different buying decisions. Some [options] might be higher deductibles, lower limits or the decision not to buy certain coverages that are considered nice-to-haves, but not need-to-haves.” Jump ship? During these times of uncertainty, risk managers must exercise particular caution when deciding where to place their business. “We’re monitoring our insurers much more closely,” Seaman says. “My concern in this respect is the pressure that insurers will be under in the next 12 to 24 months due to the financial markets, the economy or other
factors. To what degree do those factors precipitate a hard insurance market cycle or affect the viability of the insurers?” It has to be a constant monitoring process, adds Restoule. This involves following the financial reporting in the trade press, rating agency reports or actions, conversations with brokers and in some cases direct conversations with carriers. “If you don’t have a dialogue, and you don’t know what they [the insurers] are planning for the future, are you making the right decision?” he asks. “Do you have enough information? Typically in these one-on-ones, they will tell you about their road to recovery or their long-term vision.” Linda Stojcevski, director of global risk management at Magna International, agrees the increased monitoring of carriers has become one the larger challenges that the current economic climate presents.“The biggest challenge is just making sure that our risk is spread and placed with markets that are financially strong,” she says. “The other step is making sure that we’re well diversified and that we’re not aggregating with any one market.” Once a risk manager has considered the solvency of a carrier, he or she may want to consider the insurer’s strategy as well. “Speak with insurers who just do insurance, rather than those markets that do insurance but have other financial services activities — those are the things that have really weakened the balance sheet,” Restoule adds. Risk managers admit to being fairly loyal to their insurers, but in tough times like these, every decision needs to be scrutinized, Michaluk says. “You like to stay with the insurers that have served you well, and obviously you are doublechecking that their financial status is up to standard,” she says. “And if one or the other isn’t up to standard, then you have to go back and figure out what risk they are on and can you recommend that they stay on. The last thing you want to do is recommend a company that will be in trouble or gone by the end of the year.” Pushing the panic button and jumping ship may create more issues than staying put though, says Terry Henderson,
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COVER STORY
Navigating the New Market
“Given the downturn in the economy, are you going to be producing a big net income? And if not, do you want to buy that [business interruption] coverage, or maybe do you just want to buy [coverage for] fixed or continuing expenses?” global risk manager at ShawCor Ltd. Certainly a risk manager needs to pay close attention and obtain as much knowledge as possible, but longevity and relationships still need to be taken into consideration. “It gives one pause to think, if this was a small carrier that wasn’t deeply intertwined into our business a decision to go or stay would be relatively easy,” Henderson says. “But the effects of just pushing the panic button can be very high for everyone and not necessarily appropriate behaviour.” Large global insurers have networks with a global reach that bring value to multinational organizations, he continues. “We have been with all of our panel of insurers for a considerable amount of time. We have regular contact with them. They treat us fairly and we have negotiated in good faith for many years.” The policy wordings and premium levels that have been negotiated over the years have value, he continues. “As long as the claims are going to get paid.” Rising rates, rising deductibles and increased loss prevention Once a risk manager completes his or her due diligence and feels confident their selected carriers will weather the 38 Canadian Underwriter March 2009
economic downturn, they still need to maximize their risk transfer program. These days, chances are that this will be done on a tighter budget. Restoule says that he’s heard from many RIMS members that they’re receiving boardroom directives that the company “won’t pay more than last year.” As budgets shrink and premium rates begin to creep skyward, it appears deductibles are also creeping upwards and companies are assuming more of the risk themselves. Beaudry says this will be interesting to watch in 2009. “Given the pressure put on the customer to reduce costs and a market that is leveling off, [companies] might be forced to make different buying decisions,” he says. “Some [options] might be higher deductibles, lower limits or the decision not to buy certain coverages that are considered nice-to-haves, but not needto-haves.” One example of a “nice-to-have” form of coverage is business interruption coverage, Restoule says. “Given the downturn in the economy, are you going to be producing a big net income?” he asks. “And if not, do you want to buy that coverage, or maybe do you just want to buy fixed or continuing expenses?”
These kinds of coverages may end up being a casualty of insurers exercising a much more stringent underwriting process, Beaudry adds. Underwriters are taking a second look at the “frills” afforded on a client-by-client basis, he says. “Certainly if there have been some losses in that particular extension of coverage, then you could see that potentially going away or potentially being re-underwritten. An example of that would be product defect or product recall coverages for specific industries where they are not commonly available.” But after coming through the most recent hard market less than a decade ago, the risk transfer program is already as efficient as possible, with little to no coverage that could be considered nonessential, Seaman says. “If we have to make adjustments for budgetary reasons, we would consider increasing our retention levels before considering lowering our catastrophe limits.” Decreasing coverage and higher deductibles will place pressure on the organization – specifically the risk management department – to ensure that loss prevention programs and claims handling departments are beefier than during soft market times. “Loss prevention is a
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Navigating the New Market big priority,” Michaluk says. “We need to try to avoid having claims to start off with, which will in the long run affect premiums.” Internal education programs raise awareness and internal inspection programs help to ensure that situations do not evolve into claims, she continues. “Normally we’ll do a dozen inspections at random during the year. Now we say: ‘Let’s do the inspections sooner than later.’” Should a loss occur, claims service becomes paramount: it is important to ensure claims do not evolve into pricey lawsuits, she adds. Construction and capital projects certainly need to be managed, and Seaman says his workplace has focused on improving its capacity to prevent and respond to crises. “We’re taking it further than disaster response,” he says. “We’re doing everything we can to identify and prevent crises. Violence in the workplace is always a concern, but we’re looking at more counseling or services and a better threat assessment process.” Even simple steps help, he said. This might include having a third party examine boiler and heating systems, or double-checking that the organization is carrying the right amount of insurance. A complicated matter It seems logical for companies to retain more risk in an effort to curb spending. But not everything is logical in this credit-depressed era. For example, Restoule says he’s heard of companies increasing their risk transfer
40 Canadian Underwriter March 2009
program during the financial crisis, so that they maintain access to much-needed capital. Typically for large corporations that retain large portions of their own net risk, if there are losses, they access capital to pay for it because they can not afford to cover it from their existing cash flow. “You would go to your credit lines or your banks, but I don’t think that’s the case anymore,” Restoule says. “The banks are now insisting on solid risk transfer programs and these banks are completely risk-averse these days. There’s little flexibility with them in loan covenants. It’s a double-edged sword.” In addition, the financial turmoil has created a new breed of enterprise risks across all sectors of the economy. For instance, the tightening of capital flow has resulted in a heightened regulatory risk, Seaman says. “Specifically, [the risk is associated with] the required contributions that we must make under regulatory requirements in order to make sure that the regulators can verify that we have adequate funding in defined benefit pension funds,” he says. “When the markets operate the way they do, you can end up having to make very significant contributions to bring those up to the appropriate regulatory level.” In the short term, some organizations may elect to rely on operating contingency funds and controlling expenditures. Capital projects can be deferred, some equipment replacement can be safely deferred, unnecessary travel can be eliminated and vacant spots don’t have
to be filled immediately. These measures “won’t save the world, but will help to reduce expenditures,” Seaman says. Uncertainty about the length and depth of the recession has risk management departments on edge, Seaman says. He recommends having an integrated team at the company examining all possible actions that might mitigate the long-term impact of a number of different scenarios. “It’s not unlike business continuity,” he says. “What are the critical operations and what are the less critical that you can adjust? You would have to go there. You can’t cut out critical operations, so the question is how can you continue to deliver them and cut out expense?” Setting yourself apart Whatever measures are taken, be they streamlining expenditures or increasing loss prevention, they should be brought to the table come renewal time in order to secure the best possible coverage at a reasonable rate, Beaudry says. “Differentiate yourself from your peer group,” he says. “If your risk profile is better than your peer group, really emphasize that. There’s still an appetite for risk out there and there’s still capacity. Where insureds might fare better than others is when they differentiate themselves from their peer group in terms of having a better risk profile.” Anything that allows an underwriter to become more comfortable with a risk will generate better results, he says. “It’s a definite tight rope for risk managers, now more than ever,” Restoule says.
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In BCE Inc., the Supreme Court of Canada weighs in on directors’ responsibilities to all parties associated with a corporate restructuring. Donald McGarvey
Legal Counsel, McLennan Ross LLP McLennan Ross LLP is a member firm of the ARC Group Canada
The Supreme Court of Canada (SCC) has released its reasons in BCE Inc. v. 1976 Debentureholders et al. (BCE Inc.), providing clarification into the duties and obligations of the corporate directors. In BCE Inc., the court seized upon not only the opportunity to provide an overview of some of the fundamentals of directors duties, it also provided guidance into the tests for oppression under Section 241 of the Canadian Business Corporations Act (CBCA) and the test under Section 192 of the CBCA for court approval of a change to a company’s corporate structure. The decision has been described as one of the most significant business cases of 2008 and has reverberated throughout the insurance industry, the legal community and the halls of corporate Canada. For those insurers writing directors and officers (D&O) liability coverage, the BCE decision
42 Canadian Underwriter March 2009
will be of great significance, to both underwriters and specialty claims personnel. By examining the decision-making practices followed by the directors of a prospective insured, and determining whether they are of such a nature and quality as to attract potential liability under the CBCA or the companion provincial legislation, underwriters will now be better equipped to assess the risks they face. Furthermore, BCE Inc. gives more clarity to the area of D&O liability, allowing specialty claims personnel to better understand and appreciate whether the oppression claim being faced by their insured is valid and, in particular, whether the directors have fairly and fully met their duty to act in the “best interests of the company.”
BACKGROUND The facts of BCE Inc. are now fairly well known. BCE found itself under pressure due to technological, regulatory and competitive changes; eventually, after securing legal and financial advice, the board of directors decided to allow competing bids to be made for its outstanding shares through an auction process. Three competing bids were made. Each required
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Defining Directors’ Duties
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Bell Canada, a wholly owned subsidiary of BCE Inc., to incur substantial debt. The BCE board accepted an offer valued at $52 billion, representing a 40% premium on the trading price of BCE shares at the relevant time. BCE Inc.’s board members believed the offer was in the best interests of BCE and its shareholders. Although an overwhelming 97.93% of BCE’s shareholders approved the offer, the plan of arrangement was strongly opposed by a group of financial and other institutions that held debentures issued by Bell Canada.The debenture holders argued that the actions of the board in accepting the offer were oppressive: if the sale proceeded, they observed, the short-term trading value of the debentures would decline by an average of 20% and could lose investment grade status.The debenture holders brought an oppression action under section 241 of the CBCA.They suggested the tests found in section 192 of the CBCA, requiring court approval for a change in corporate structure, could not be met, thereby precluding the takeover. The trial judge agreed with BCE, finding that the company was at liberty to proceed with the transaction.The Quebec Court of Appeal, on the other hand, found that the actions of the board were oppressive. BCE Inc.’s directors ought to have considered a plan of arrangement that not only provided a satisfactory price to the shareholders, but also avoided an adverse effect on the debenture holders, the appellate court ruled.
A DIRECTOR’S DUTIES The Supreme Court of Canada set the stage for its decision by providing an overview of directors’ duties generally. An essential component of a corporation is its capital stock, divided into fractional parts known as “the shares.”While the corporation is ongoing, shares confirm no right into its underlying assets. A share is not an isolated piece of property but a bundle of interrelated rights and liabilities. These rights include the right to a proportionate part of the assets of the corporation upon wind-up, and the right to oversee the management of the corporation by its board of directors by way of votes at shareholder meetings.
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The directors are subject to two duties: a fiduciary duty to the corporation and a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. The fiduciary duty of directors to the corporation, and particularly the fair treatment component of this duty, is fundamental to the reasonable expectations of the stakeholders claiming an oppression remedy. The fiduciary duty of directors to act
in the best interests of the corporation is mandatory. Although the interests of shareholders and other stakeholders are often coextensive with the interests of the corporation, if they conflict, the director’s duty is clearly to the corporation first.1 In considering the best interests of the corporation, the directors may look to the interests of the shareholders, employees, creditors, consumers, governments and the environment, among
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others, to inform their decisions. The courts should give appropriate deference to the business judgement of directors, so long as the business judgement of the directors lies within a range of reasonable alternatives. If, when determining the best interests of the company, the directors are faced with conflicting interests among stakeholders, the duty of directors cannot be confined to particular rules governing which stakeholders get priority in every case; rather, it is the function of business judgment to determine what is in the best interests of the corporation.2
THE BCE INC. DECISION The Oppression Claim In examining whether the directors’ decision to accept the purchaser’s proposal was oppressive to the debenture holders, the court was faced with determining what was just and equitable as measured against the reasonable expectations of the affected parties. In this case, the interests of the shareholders, who would realize a 40% premium on the share price, conflicted with the interests of the debenture holders. In assessing these conflicting interests, the Supreme Court stated that the directors must resolve the conflict in accordance with their fiduciary duty to act in the best interests of the corporation. They must treat individual stakeholders affected by the corporate actions equitably and fairly. In all of the circumstances, they must treat affected stakeholders in a fair manner and in accordance with the corporation’s duties as a responsible corporate citizen. If it’s impossible to please all stakeholders, as in this case, the court looked at each of the competing bids for BCE and noted that all bids required Bell Canada to assume additional debt. The court afforded deference, according to the Business Judgment Rule, to the business decisions of the directors. Perhaps more significantly, it was noted the debenture holders did not establish that they had a reasonable expectation that the directors of BCE would protect their economic interests by putting 44 Canadian Underwriter March 2009
The decision has been described as one of the most significant business cases of 2008 and has reverberated throughout the insurance industry, the legal community and the halls of corporate Canada. forth a plan of arrangement that would maintain the investment grade status of their debentures.The court found leveraged buy-outs were not unusual or unforeseeable and the debenture holders could have negotiated protections in their debentures but did not do so. The court therefore found the corporation’s best interests arguably favored acceptance of the purchaser’s offer and the debenture holders’ claim for oppression failed.
The Section 192 Approval Process The debenture holders also argued the sale should not be approved because it unfairly changed the corporate structure of BCE Inc. The approval process under section 192 of the CBCA assesses whether the proposed transaction, viewed objectively, is fair and reasonable. “Its purpose is to permit changes in corporate structure to be made while
ensuring that individuals whose rights are affected may be treated fairly, and its spirit is to achieve a fair balance between conflicting interests.” Having regard to the purpose of section 192, which applies to security holders whose legal rights stand to be affected by the proposal, the court found that the proposed transaction affected only the economic interests of the debenture holders and not their legal rights, since the legal rights found in the debentures were not altered. The debenture holders were not found to constitute an affected class under section 192. Therefore, recognizing that there is no such thing as a perfect arrangement, the court found that the arrangement was fair and reasonable in all of the circumstances and would not disturb or veto what was agreed to by almost 98% of the shareholders simply because the trading value of the debentures could be affected.
ANECDOTAL COMMENTS A couple of anecdotal comments are worthy of mention. First, the Supreme Court of Canada acted with uncommon dispatch in this case, granting leave to BCE to appeal in early June 2008, hearing argument on June 17, 2008 and rendering its decision without reasons on June 20, 2008. Reasons were finally delivered for their decision on Dec. 19, 2008. Second, and as an interesting footnote to the saga of the $52-billion leveraged buyout of BCE, only a few weeks prior to the Court’s reasons being delivered, BCE was unable to meet solvency requirements and the transaction collapsed and died. However, the Supreme Court of Canada’s decision in BCE Inc. remains a leading case in the often-confusing jurisprudence on directors’ duties and obligations. 1 This clarifies the SCC’s decision in Peoples Department Stores (Trustee of) v. Wise, [2004] 3 S.C.R. 461) 2 The court thereby rejected the Revlon line of cases (Delaware) and the suggestion that shareholder interests should always prevail over those of other stakeholders, such as creditors, in a hostile takeover situation.
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Private Protection in
Turbulent Times Private companies stand to gain as much from directors and officers liability insurance as publicly-traded companies do. Rob Bickerton
Senior Underwriter, Corporate Risk Division, The Guarantee Company of North America
Glenn Woodard
Manager, Corporate Risk Division, The Guarantee Company of North America
Directors and Officers (D&O) liability insurance is purhased by companies to shield the personal assets of the directors and officers against claims. In some cases, the coverage also shields the corporation itself from claims. It is a much better known coverage for publicly traded companies to protect them from claims such as securities violations, insider trading, shareholder and investor suits, corporate fraud, etc. But brokers and insureds would do well to realize that private companies might benefit just as much as public companies do from D&O liability coverage. Private companies include a broad range of businesses and business structures. Examples of large private companies include insurance brokerages, investment advisors and many other professional, service and manufacturing enterprises. Small private companies are also prevalent, including firms such as computer consultancies or local clothing manufacturers. The size of the D&O liability insurance market for private companies is smaller than that for public companies. It is, however, worthy of attention by brokers and insurers alike. As it stands, only a minority of private companies purchase D&O coverage. Statistics from the United States indicate that 50,000 to 70,000 private companies purchase D&O, generating premium volume of approximately US$2 billion. Given that there are more than 1.6 billion private companies in the U.S. market place, it would appear that only approximately 4.4% of private companies actually purchase this coverage.
46 Canadian Underwriter March 2009
Private companies and brokers often under-appreciate D&O liability exposures. By providing this liability coverage to their clients, brokers can use the product not only to increase their premium volume, but also increase client retention by showing the client a true appreciation for their risk exposures and a desire to help address them. Private companies and their directors and officers are no more insulated from liability exposures than are public companies.The Professional Liability Underwriters Society (PLUS) notes the typical claims situations faced by private company directors and officers include those launched by employees (more than 50% of all claims made against D&Os); government actions (based, for example, on claims due to tax irregularities and misrepresentations, or claims that directors and officers have violated pollution laws); competitors claiming encroachment on their business; creditors claiming misrepresentation of financial information and bad faith negotiation; liability from mergers and acquisitions; customer claims such as discrimination and harassment. Statutory liability is also a particularly important risk for Canadian private companies. Governance issues related to income tax deductions from employee wages, corporate remittances for GST and CPP and employment insurance1 are all important exposures that can be addressed with properly constructed D&O policies. The D&O policy can represent a large component of the total insurance handled by the broker. Premiums usually start as low as Cdn$2,500 for a Cdn$1-million liability policy and can reach into the six figures for the largest private companies. But no matter what the size of the premium is, the D&O policy helps solidify the broker’s relationship with that insured. It shows the insured that the broker appreciates his or her client’s risks; it also adds to the policies and bonds the client has already placed with that broker. For the director or officer of a private company, the decision to purchase this coverage is both
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made easier and more difficult in the current economic environment. Making it an easier decision is the potential impact of an uncovered claim against the directors and officers and the desire to be shielded from that exposure. Making it more difficult is the need for cash preservation and fiscal prudence in this unprecedented economic downturn. According to Deloitte & Touche’s financial advisory practice, “Canada’s
economy generally mirrors major U.S. trends with a 12-18 month lag in areas like housing. However, our valleys tend not to dip as low. That means Canadian businesses will continue to be affected by the U.S. meltdown, just not as drastically.� But, the outlook is not all rosy. As the market continues to de-leverage, global loan rates continue to decline. Lending will, as a result, become more expensive for both borrowers and lenders. Some
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credit-worthy borrowers may benefit, but average businesses face a period of belt-tightening. Private companies are not immune to the impact of market turbulence. Publicly traded companies enjoy a fairly clear process when valuing their equity and debt as a result of market transparency and regulatory guidelines. For private companies, the picture is much less clear. If private companies do not clearly valuate their assets, their debt-to-equity ratios may be compromised. The current financial crisis has both increased the cost of credit and constrained its availability. Private companies must therefore be particularly focused on managing and preserving cash flow. Even if the company itself is well positioned financially, its customers may not be. For instance, the inability of U.S. and foreign customers to pay their bills can put pressure on a company’s bottom line. So although the domestic situation in Canada may be relatively positive, global customers facing their own challenges can be detrimental to Canadian corporations. The life-blood of many private companies is sufficient cash flow. In times like these, when credit is at a premium and hard to obtain at affordable rates, many private companies could experience a financial crisis if cash is burned faster than it is generated. Even if not directly affected by poor access to credit itself, the private company could very well see its suppliers or customers affected by the paucity of credit and therefore suffer an indirect impact.The strain on the bottom line could provide the trigger for a D&O claim. It could also, as mentioned above, cause a company to delay or suspend the purchase of D& O insurance.
CONCLUSION For an insurance broker, helping clients help themselves means aiding in the identification and mitigation of all of the potential risks the client faces. Liability of directors and officers is one of the biggest risks out there. Increase your brokerage’s book of business while building lasting client relationships: talk to private company clients about directors and officers coverage.
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Canadian insurers are paying the price of almost 30 years of protracted neglect and the resultant collapse of Canada’s public infrastructure. Paul Kovacs
Executive Director, Institute for Catastrophic Loss Reduction
Our public infrastructure is in trouble. Sanitary sewers regularly back-up. Potholes damage vehicles. Several communities are colour-coding hydrants to warn firefighters about low water pressure. Severe storms temporarily close businesses due to power outages. Almost 30 years of protracted neglect and the resulting collapse of our public infrastructure has important consequences for society and Canada’s insurers.
THE SCOPE OF THE PROBLEM We do not know the true extent of the problem, but a consensus is emerging that decisive action is urgently needed. The Federation of Canadian Municipalities is Canada’s champion pressing for infrastructure renewal. The federation has proposed the creation of a comprehensive, national inventory of our public infrastructure, but this has
50 Canadian Underwriter March 2009
yet to be established. A national inventory would provide detailed data concerning the size, scale and location of the problem. Statistics Canada provides some information describing aspects of our public infrastructure. These data confirm that Canadians made a significant investment in our public infrastructure over a 25-year period from the early 1950s until the late 1970s. However, this has been followed by a protracted period of reduced spending. Measured as a share of overall economic activity, infrastructure spending over the past 30 years fell to less than half the earlier pace. Moreover, most spending focused on serving new communities, driven by the doubling of the Canadian population over the last 40 years. For many decades, there has been little spending on maintenance, repair or replacement of our aging systems. Several recent studies have sought to estimate the scope of the problem. A 2003 study by the Canada West Foundation estimated that our public infrastructure deficit was Cdn$125 billion. Another study published in 2003 by Professors Mirza and Haider of McGill also estimated that
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the public infrastructure deficit in Canada was Cdn$125 billion. This was the investment required to re-establish a system of sewers, roads and other public infrastructure that operates as effectively as we experienced in the 1950s, 1960s and 1970s. A more recent and comprehensive 2007 study by the Federation of Canadian Municipalities estimated that the deficit in municipal infrastructure increased from $12 billion in 1985 to $123 billion in 2007, a ten-fold increase in just 22 years. Municipal governments manage half (52%) of Canada’s public infrastructure, so these new data suggest the national public infrastructure deficit is much larger than the estimate in two earlier studies. I believe that it may now exceed Cdn$250 billion. One additional study, The Technology Road Map, estimates we have used up 80% of the total service life of our public infrastructure, and that 60% of our infrastructure is more than 40 years old. A report for the City of Montreal indicates 33% of its water distribution pipes reached the end of their service lives in 2002; another 34% will do so by 2020. Available data for other large and older communities show a similar risk profile. Accordingly, Mirza and Haider estimate the public infrastructure deficit may more than triple by 2020, growing to $400 billion.
WATER AND STORM WATER INFRASTRUCTURE Canada’s insurers have reported a marked increase in sewer back-up and other water damage claims over the past decade. Water damage has emerged as the leading claims cost for many companies, surpassing the longstanding focus of property insurance — fire and theft. The Canadian Water Network identified a water infrastructure deficit of Cdn$39 billion in 2003, with an additional Cdn$90 billion needed to replace and upgrade this infrastructure. The Canadian Water and Wastewater Association estimates that Canada needed to invest Cdn$89 billion to upgrade existing infra-
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— some of it is more than 100 years old — and in urgent need of replacement. Our aging infrastructure is adding to the risk of fire losses.
FINDING SOLUTIONS
Insurers must actively underwrite the fire, vehicle damage, business interruption, sewer backup and other water damage risks to reflect our knowledge of the state of the local infrastructure. structure and build new water and sewer systems between 1997 and 2012. The growth in recent years in sewer back-up and other water damage claims incurred by Canada’s insurers is correlated to the marked deterioration in public infrastructure. Increased property damage has been most evident in older communities where systems are long overdue for replacement. We are approaching a tipping point at which further delay to address our infrastructure deficit will seriously increase the risk of property damage and harm our quality of life. The Ontario Association of Fire Chiefs warns, for example, that aging infrastructure puts lives and property at risk. The association notes that 20-40% of the water supply currently leaks from older pipes. As a result, several communities have begun colour-coding their hydrants to warn firefighters about areas where there may not be sufficient water pressure. In some areas, more than half of the water network is more than 50 years old
The problem is money. Municipal governments provide half of the public infrastructure in Canada, including more than 80% of the water and wastewater systems, and yet local governments account for less than 10% of the Canadian tax base. Over the past decade, the public policy debate about resolving the increasingly evident consequences of our deteriorating public infrastructure has focused largely on financing issues. To what extent should the federal and provincial governments pay for systems managed, owned and operated by municipal governments and their agencies? The infrastructure financing debate is further complicated by the discussion of other sources of funding — including public-private partnerships and beneficiary-pay mechanisms. And so, despite the consensus that there is a serious problem that urgently needs to be addressed, discussion is continuing about who should pay. Some of the consequences of the collapse in our public infrastructure are highly visible, such as potholes in the roads and longer commute times. These issues are subject to ongoing public debate; typically there are established action plans seeking to manage the problem. In contrast, many public infrastructure systems are largely invisible, like water and waste water systems. Periods of crisis, like a severe storm event, temporarily focus attention on the growing inadequacy of our public infrastructure, but these systems typically are not subject to ongoing public or political attention. In recent years, there has been an increase in infrastructure spending by municipal, provincial and the federal governments. Initially, this was only sufficient to slow the prolonged trend of cutbacks. Recently, however, there is a sense that such spending may be sufficient to make some reduction in the infrastructure deficit.
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Infrastructure spending was a key element of the federal government’s 2009 budget. This builds on previous announcements in most provinces and by most communities. These increases are welcome, and are clearly a step in the right direction. Nevertheless, the increases remain modest relative to the size of the challenge. Moreover, the federal spending announcement was offered as temporary stimulus rather than a permanent increase.We are not yet on a path to resolve our public infrastructure crisis.
IMPLICATIONS FOR INSURERS There are at least three lessons for Canada’s insurers that stem from this assessment of our aging public infrastructure. First, insurers must actively underwrite the fire, vehicle damage, business interruption, sewer backup and other water damage risks to reflect our knowledge of the state of the local infrastructure. Second, our industry needs to be outspoken in support of elected officials that choose to address the public infrastructure deficit. And third, we need to champion loss prevention and mitigation by policyholders.
Underwriting water damage risks Water damage claims have increased over the past decade due to deteriorating public infrastructure, the growing frequency and intensity of severe storms and our increasing urban population.The risk of a damage claim has changed and will continue to change. Some communities are actively addressing their infrastructure problems so the risk of loss is falling; this information should be used when determining rates and coverage conditions. Other communities, however, are exposing citizens to an increasing risk through the absence of sufficient actions to maintain or replace existing systems. In these communities, the role of insurance is to reflect the risk of loss in the cost and conditions of coverage. Water damage claims have grown so much over the past decade that they now require underwriting attention equal to that in place for the risk of fire and theft claims. Moreover, aging public infrastructure affects the risk of loss from fire, damage 54 Canadian Underwriter March 2009
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to vehicles, business interruption and other insured perils — a change in risk that should be reflected in insurance practices.
Advocating for change The insurance industry also needs to be proactive in pressing for government action to address the public infrastructure deficit. The Insurance Bureau of Canada (IBC) has made this a priority, speaking on the industry’s behalf in national and provincial forums. The IBC’s efforts could be bolstered if insurers, brokers and other industry professionals become involved, particularly at the local level. This should include speaking in support of community leaders that choose to ac-
and demonstrate by our actions that insurance practices reward communities that actively reduce the risk of damage, while increasing costs in communities with a higher risk exposure.
CHAMPIONING LOSS MITIGATION The insurance industry has a proud tradition of promoting loss prevention and mitigation. Complementary to the urgent need for public infrastructure investments is the need for the active participation of property owners in risk management. Sanitary backwater valves, sump pumps, disconnected downspouts and positive lot grading are some of the elements property owners should address to reduce the risk of sewer back-up and other water damage. Incentives and public education are some of the ways insurers can promote loss control by policyholders. Community by-laws and insurers working directly with municipal officials are further means to champion loss control. The insurance industry actively partners with government agencies involved in road safety, fire prevention and crime prevention. A similar relationship should be established with public agencies responsible for managing the risk of basement flooding.
CONCLUSION
The insurance industry actively partners with government agencies involved in road safety, fire prevention and crime prevention. A similar relationship should be established for managing the risk of basement flooding. tively address public infrastructure problems. Unfortunately, there will also be situations in which insurers may choose to confront communities where poor municipal practices contribute to significant damage events. The primary role for the insurance industry is to align pricing and other practices with local conditions. Industry leaders should speak with pride
Thirty years of neglect has compromised the capacity of our public infrastructure. In many communities, this has increased the risk of damage to insured property, including the risk of fire, vehicle damage, business interruption, sewer backup and other water damage. Although the political will to address this problem is emerging, it is unlikely that governments will invest the amount needed to resolve this issue over the next 10-15 years. Canada’s insurers should actively underwrite the risk of loss that is resulting from changes in the state of our public infrastructure, support communities that take action to enhance their systems and champion loss prevention and mitigation by policyholders through incentives and public education. The growing risk of damage due to failure of our public infrastructure is an exposure that needs to be actively managed.
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Why
Mediations Fail
Opinion/Analysis
Alf Kwinter
Founding Partner, Singer, Kwinter
Perhaps the Number 1 reason why mediations fail is the insurer’s failure to bring sufficient authority to settle the claim.
canvass their thoughts, with the aim of inserting my own experiences around their responses. I have decided not to name these people. Given my advancing years, I would probably forget someone, resulting in hurt feelings.You know who you are, and for your help, many thanks.
Ask any mediator who mediates personal injury and insurance claims his or her success rate and you will invariably get a response in the high 90% range.Yet, despite this high success rate, numerous mediations fail.Why? How can this process be made more effective? I was invited to address these questions in a short piece for this publication that caters for the most part to the insurance industry. Great,I thought. This is my chance to finally tell those nice people on the other side of the table what I think of them. But although that might have been a very cathartic exercise, it wouldn’t be terribly instructive. Instead, I turned to my mediator friends to
INSUFFICIENT AUTHORITY
56 Canadian Underwriter March 2009
According to the mediators to whom I talked, the unanimous Number 1 reason why mediations fail is the insurer’s failure to bring sufficient authority to settle the claim. I strongly concur. During one period, I attended 12 mediations, all with excellent mediators, yet only one-third of them settled. When I mentioned this to my friends at the insurance bar, the answer was invariably: “Of course they failed Kwinter, you want too much money.” Although that no doubt is the opinion of every insurer I face, the fact is that for most if not all of the failed mediations, the insurers provided their
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counsel with insufficient authority to settle the case. Why is this happening? One veteran mediator put it this way: “The insurer falls in love with their case.” Another said: “They bring their best scenario or 80% of their best scenario to the mediation and won’t go beyond that.” All too often, the “final offer” I have received is in fact very close to the insurer’s best-case scenario. Insurers have to know that if that is going to be their position at the conclusion of the mediation, the case likely will not settle. In authorizing an amount to settle a claim, insurers must take a realistic look at the claim. I find that in some cases, defence counsel are embarrassed at how low the final offer is, letting me know (usually through the mediator) that it is out of their hands. As one mediator suggested, “insurers should spend more time listening to their lawyers.”
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WHO NEEDS LUNCH? Here I would like to insert one of my own “pet peeves.” If the insurer has clearly not brought enough money to the table and the case cannot settle, why should plaintiff’s counsel have to wait until 4:00 or 5:00 p.m. to make this disappointing discovery? Why can’t I know at 11:00 a.m., or even earlier, that there is simply not enough money there to settle the case? The mediator can be effective in shortening the proceeding if the authority issue is revealed to the mediator earlier, which it often is not. Sure, some of those lunches are great, but if the case can’t settle, who needs lunch?
LATE DELIVERY OF REPORTS Take heart insurers, you need not take all the heat. Another main reason why cases do not settle is the plaintiff bar’s late delivery of reports. Of course, the defence also delivers late reports from time to
time, however, what is contained in those reports hardly ever catches us by surprise. It is not difficult to see how this problem can result in there being insufficient authority to settle. Insurers require time to review, digest and, if necessary, respond to reports. One mediator says reports should be served 60-90 days before a mediation, and never fewer than 30 days before the mediation date. Since reports can significantly affect the final result, if those reports are served shortly before (or even at) the mediation, proceeding with the mediation will likely be a waste of everyone’s time and money. In such instances, the mediation should probably be cancelled and adjourned to a date that will give the defence sufficient time to respond to the reports. If the plaintiff has served the reports late, then plaintiff’s counsel can hardly complain if the mediation is cancelled. On the other hand, it is a waste of everyone’s time if
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the mediation proceeds with the defence making offers that fail to take these reports into account.
PREPARATION AND INTENTION TO SETTLE When I attend a mediation, I prepare my client. I explain the process and warn the client about the “dance” we may well go through, lest my client storm out of the room on hearing the initial offer. If my client presents well, then I let him or her do some of the talking. I know this is likely the first time the insurer’s representative has seen or heard my client (other than perhaps on a surveillance tape) and I know my client is being assessed as to how he or she will come across before a judge or jury. I go to mediation with the intention of settling the case. I believe most defence counsel do as well.There are, however, situations in which one of the parties uses the mediation process as a type of discovery to assess the strengths and weaknesses of the other side’s case. The idea may be to assess the best offer at that time, without having any real intention of bringing the matter to a conclusion. I particularly suspect this in situations in which the defence is simply not prepared, or when the final of-
“In authorizing an amount to settle a claim, insurers must take a realistic look at the claim. I find that in some cases, defence counsel are embarrassed at how low the final offer is, letting me know (usually through the mediator) that it is out of their hands.” fer is ridiculously low. In those situations, I usually ask my defence colleague why we did not conduct the mediation by telephone, thus saving everyone time and money.This is particularly frustrating on those occasions when the defence has insisted on a particular mediator who was booked a year in advance. The mediator, feeling embarrassed, usually ends the session apologizing to my client and I, and sometimes asks the defence to cover the entire cost of the useless mediation. If you have no real intention of settling the case, just tell me. Don’t book a mediation a year from now. Attempts to intimidate the plaintiff I do not see this as often as I did in the past, but some defence counsel, in their opening statements, have attempted to intimidate the plaintiff, warning the plaintiff what awaits him or her if the case should proceed to trial and why the plaintiff should settle the case here and now. When the plaintiff owns property, some defence counsel go as far as including the title search to the plaintiff’s property in the defence me-
March 2009 Canadian Underwriter
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diation memo. I do not consider these tactics to be effective. In many cases, the plaintiff is angered by the defence’s comments. Often the plaintiff already feels terribly aggrieved, not only because of the injuries he or she has suffered but also because so much has been lost and the case has taken so long just to get to mediation. In these situations, to be attacked by an aggressive defence counsel anxious to “perform” in front of the insurer client is in my experience very counter-productive. Often this will strengthen the client’s resolve for a higher number, making settlement all the more difficult. In my experience, very few clients have been scared into a settlement. I received a number of other helpful hints from my mediator friends on how to make mediations more effective.These include: • When making an opening statement,
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“To be attacked by an aggressive defence counsel... is in my experience very counterproductive. Often this will strengthen the client’s resolve for a higher number, making settlement all the more difficult.” keep your comments focused, logical and brief. Do not simply read from or repeat what is in your mediation memo. • Do not include bulk hospital records in your mediation memo. Extract and highlight the most relevant and pertinent portions. • Advise the mediator early on if there is a limits issue.
• When making opening offers, stay in the ballpark. An extreme position from one side will invite an extreme position from the other. An extreme position can result in a party leaving and a lost opportunity to settle the case. CONCLUSION The good news is that mediations do work. Gone (for the most part) are the days when most files were settled at the courtroom door, just before the jury was selected. The process works extremely well thanks in large part to the fact that — at least in the area in which I practice — we do have an excellent group of highly skilled and effective mediators from which to choose. And, lest I forget my colleagues on the other side of the table, we do have an outstanding defence bar, its only shortfall being that it never pays me enough money.
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Mike Hansen President, Catlin Canada
Journey to the Top of the Earth 62 Canadian Underwriter March 2009
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Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
Toronto
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PROedge seminar: Finance for the Non-Financial Professional . . . . . . . . .April 7 Event – Symposium 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .April 25
Detroit Red Wings vs Chicago Blackhawks – bus trip to Detroit . . . . . . . .April 11
Conestoga British Columbia Vancouver Seminar: Finance for the Non-Financial Professional . . . . . .March 25 Vancouver: 7th Annual CIP Society Golf Tournament . . . . . . . . . . . . . . . . .May 27
Toronto Maple Leafs vs Buffalo Sabres – bus trip to Buffalo . . . . . . . . . .March 27 Detroit Red Wings vs Chicago Blackhawks – bus trip to Detroit . . . . . . . .April 11 CIP Society Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 21
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Halifax
PROedge seminar: Occupiers’Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .April 16 PROedge seminar: Third Party Downtime Claims . . . . . . . . . . . . . . . . . . . .May 21
Event – Spring Fling at the Waterfront Warehouse . . . . . . . . . . . . . . . . . . .April 23
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
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It’s not often an insurance/reinsurance company is offered the opportunity to sponsor an expedition with consequences that could be described as ‘crucial’ to the future of the Earth’s population. However Catlin Group Limited, the parent company of Catlin Canada, is the title sponsor of just such an endeavour. The Catlin Arctic Survey is as tough as science gets. The expedition will travel 1,300 kilometres on foot to the North Pole, swim across the leads between ice floes and endure temperatures as low as -50 C to take 13-million measurements of Arctic ice. Using these measurements, scientists will be able to measure the thickness and density of the permanent ice surrounding the North Pole.
WHY? Despite the technological advances of the 20th century, we still only have estimates of the thickness of the sea ice cover on the Arctic Ocean. And insurance underwriters, who are used to basing their decisions on as many facts as possible, find this disturbing.Thus the Catlin Arctic Survey team will help to measure precisely the thickness and density of the polar ice cap at the North Pole.This will enable the program’s elite group of science partners — including WWF International, the U.S. Navy and NASA — to determine with a greater degree of accuracy how long the ice cap will remain. Currently its predicted meltdown date is anywhere between four to 100 years from now. Knowing the accurate rate of meltdown will help researchers and underwriters predict how — and how quickly — climate change might be affecting damage claims related to severe weather events.
THE EXPEDITION On Feb. 22, 2009, a three-person team led by famed Arctic explorer Pen Hadow started to travel on foot, beginning at the edge of the permanent sea ice off the Canadian coast. The group plans to trek across 1,200 kilometres of disintegrating and shifting polar pack ice to reach the North Pole in late May. During their jour-
ney, the team will experience temperatures as low as -50 C (with windchills as low as -90 C). They aim to cover about 18 kilometres a day, pulling sledges weighing up to 100 kilograms. The Catlin Arctic Survey will use a specially developed, portable, ice-penetrating radar.This radar device, slightly bigger than a breadbox, will be dragged behind the ‘sledges’ that carry the explorers’ equipment. It will take a detailed measurement of both the snow and ice layers every 10 centimetres along the route. Groundbreaking satellite communications equipment, developed specifically for this project, will allow the survey team to transmit their unfolding story directly from the ice to a global audience. Data obtained by the Catlin Arctic Survey will then be published in a report to be presented by WWF International to the United Nations Climate Change Conference of Parties, to be held in Copenhagen in November 2009. This conference will reassess the Kyoto Protocols.
INVESTIGATING CLIMATE CHANGE Catlin is sponsoring the expedition because the implications of global warming for the insurance industry and policyholders are stark: the effects of climate change could affect a wide range of insurable events. “The potential effects of global warming will have a direct impact on Catlin’s business,” said Stephen Catlin, CEO of Catlin Group Limited. “The Catlin Arctic Survey will produce vital information that can be used by all those who must plan for the potential effects of global warming.” The Catlin Arctic Survey, of course, provides Catlin with numerous marketing opportunities similar to those provided to insurers sponsoring sporting events or artistic exhibitions and performances. Be that as it may, Catlin is most interested in the scientific data provided by the Catlin Arctic Survey, which will serve to increase the insurance industry’s and global understanding of the impact of climate change. This information will not only be useful to underwriters but also to the risk management and claims community. Catlin Canada’s risk and claims services manager April Savchuk comments: “The
increasing probabilities faced of falling victim to the phenomenon of adverse climate change clearly demonstrates our vulnerabilities when ‘negotiating’ with Mother Nature. Exaggerated changes in climate can result in the usual variety of distinct physical events and losses, but the added burden on business — including how to best manage contingencies associated with the events — is unprecedented. The only way to better manage this is to become intimate with its cause and effect.” Insurers worldwide are taking a greater interest in climate change, studying the causes of changing climatic conditions, as well as conducting research into the potential impact of climate change on the insurance industry and its policyholders. Scientists, sponsored in part by insurers, are currently researching whether or not the recent increase in Atlantic tropical storms and hurricanes are the result of climate change or other cyclical weather patterns that have emerged in the past. Other researchers are broadening their scope to cover the less obvious. Last autumn, for example, Munich Reinsurance Co. sponsored a seminar in Princeton, New Jersey that focused on which companies could potentially be held liable for causing climate change — and whether liability insurers could be exposed to potential claims. In London, England, more than 40 leading companies and organizations in the insurance industry (including Catlin) have joined an initiative called ‘ClimateWise.’ Each company, including Lloyd’s of London and major insurance brokers, has committed to take action to reduce the risk of climate change and report publicly on their performance. “Our sponsorship of the Catlin Arctic Survey was generated in part by our participation in ClimateWise,” said Mike Hansen, president of Catlin Canada. “Companies that join ClimateWise make a commitment to take steps to analyze and reduce the risks associated with climate change,. We believe the Catlin Arctic Survey will make a great contribution to climate change research.” The journey can be followed online at: www.catlinarcticsurvey.com
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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
The Insurance Brokers Association of Ontario (IBAO) has launched its Future Leaders Program, designed specifically to develop competencies required by aspiring brokerage owners or leaders. The content of the program is based on direct input from the Young Broker Council members, successful broker principals and insurance companies. The 18-month-long program is divided into two parts: self assessment and communication. Key competencies to be developed include self-knowledge and selfawareness; customer-focused communication; motivating others; business acumen; hiring and staffing; self-development; strategic ability; and leadership practices. To learn more visit www.ibao.org.
2
Steven Stieber has received the Ontario Bar Association’s 2009 Award for Excellence in Insurance Law. Stieber is being recognized for his outstanding achievements in the practice of insurance law and his contributions to the legal profession over many years. He is currently partner in the Toronto law
66 Canadian Underwriter March 2009
firm of Stieber Berlach LLP. His practice is concentrated in the area of professional liability, directors’ and officers’ liability, general liability and property coverage, municipal liability, products liability, class actions, environmental liability and toxic torts. “It seems only fitting that someone who is so highly regarded by his peers in the insurance bar be the recipient of this year’s award,” said John Aikins, chair of the OBA’s insurance law section.
3
Scott Creighton [3a], former owner of brokerage Creighton & Company in Mississauga Ont., has teamed with business associate Ron Mitchell [3b] to launch Insuretemps Inc., a recruitment firm for the Greater Toronto Area insurance brokerage industry. The business model is twofold, Creighton says. First, to satisfy requirements for timely and qualified temporary and contract staffing solutions, Insuretemps is assembling a team of licenced industry professionals seeking a more flexible work experience at this stage of their career. The second ob-
3a jective is to fill the gap left by the dearth of good, young, aggressive commercial and personal lines sales and support people, Creighton says. “Insuretemps is a lowoverhead operation; as such, we can offer the industry real value at a time when every budget line is under extreme scrutiny.”
4
To assist corporations dealing with the complex issues of the global economic crisis, Canpro Global has unveiled a suite of risk mitigation services. Five specialized subsidiaries have been created: Canpro Investigations, Canpro Risk Solutions, Canpro Training Resources, Canpro Human Resources and Canpro Labour Risk Management. The suite of services will offer tools, strategies and expert consultants to identify, quantify and man-
3b age exposure to risk. Canpro Global previously operated under the following brands: Canpro Pacific Services Inc., Shepp Johnman Investigations, FBIG Incorporated and Bison Security Group.
5
Saskatchewan Government Insurance (SGI) is providing funding for traffic safety research to University of Regina graduate students. SGI is donating Cdn$100,000 over four years to renew the SGI Graduate Student Traffic Safety Research Scholarship at the university. The scholarship is intended to create opportunities for graduate students to produce thesis-based research on engineering or human factor issues related to traffic safety, SGI notes. “The research produced by the scholarship recipients is shared with SGI, providing the Crown Corporation with
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6a
7 valuable tools and insight into traffic safety issues in Saskatchewan,” said Dr. Rod Kelln, dean of the faculty of graduate studies and research. The scholarship has been used in a study of traffic-weather relationships and highway traffic peaking due to statutory holidays.
6
Collision Solutions Network (CSN) has appointed Jay Hayward [6a] to manager of operations and network performance. In his new role, he will focus on all operational issues, network compliance, performance,
6b profitability and training. Larry French [6b] has been appointed national director of sales. French will continue to assist with the execution of CSN’s strategic sales and growth plans across Canada. He will be a key contact in the company’s ongoing insurance relations portfolio.
7
Jacques Aigrain has resigned as CEO of Swiss Re, and Stefan Lippe [7] has been appointed by the reinsurer’s board of directors as his successor. Lippe most recently served as deputy CEO and chief operating officer. “Having taken measures to reinforce the Group’s capital strength and further de-risk its investment portfolio, the interests of Swiss Re are now best served by a change in the executive leadership,” Aigrain said in a statement. Lippe has been with Swiss
Re for 25 years. He led the reinsurer’s property and casualty and life and health underwriting activities in 2005. He assumed the role of chief operating officer in September 2008 and was appointed deputy CEO. “I am clear about the challenges that Swiss Re needs to address,” Lippe said. “Our core (re)insurance portfolio is sound… I look forward to working closely with the board, the executive team and the employees of Swiss Re in my new capacity.”
8
Drivers in British Columbia will soon have a new driver’s licence that is harder to alter, forge or obtain under different identities. The announcement comes as part of the B.C. government’s effort to prevent identity theft and other criminal activity, according to a provincial government news release. “Driver’s licences are widely trusted as ID and, when tampered with, can cost people, businesses and financial institutions millions of dollars each year,” solicitor general John van Dongen said in the release. “The cutting edge features we are introducing,
like facial recognition technology, will greatly enhance the integrity of these cards as identification.” New documents began to be issued in March 2009.
9
RRJ Insurance Group/KRG Insurance Brokers have added Schofield-Aker Limited to the group. Earlier in January 2009, RRJ Insurance Group and KRG Insurance Group merged, with the companies continuing to operate under their respective names. “The addition of Mario Cervoni and his team will focus on developing business in the Oshawa and Durham region where they have continued to form great relationships within the community,” said Abraham Baboujian and Jennifer James, co-CEOs of RRJ Insurance Group. RRJ Insurance Group also acquired Whetter Oaklin Insurance Brokers Inc. and Frost Insurance Brokers Limited, both based in Lindsay, Ont. earlier this year. “Both of these firms and their staff have very long and well-established reputations in the Lindsay community, and we welcome them to the RRJ Insurance Group,” Baboujian and James said.
March 2009 Canadian Underwriter 67
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Nearly 100 members, regional presidents and supporters of the Risk and Insurance Management Society (RIMS) gathered in New York City to celebrate the inauguration of RIMS 2009 president Joseph Restoule. Held at the prestigious Harvard Club on Jan. 8, 2009, attendants toasted the incoming president and celebrated the accomplishments of immediate past president Janice Ochenkowski. “She has been a mentor, a coach and a wonderful friend over the past year,” Restoule said of Ochenkowski. “She rallied the team around her, showed unwavering dedication to the elevation of the society and has been a true leader.” Restoule listed Ochenkowski’s achievements over her term, including the development of a risk management maturity model, several professional development initiatives, the launch of a virtual conference and her work to reach out to and work with international risk management associations in Japan, Europe, Latin America and Australia.
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Bright ideas for insurance professionals... For all your insurance information needs there is one website you can call home... .ca
Your online source for: • Daily Breaking Insurance News • Full Current Print Edition of Canadian Underwriter magazine online • Full Archived issues of Canadian Underwriter dating back to 1999 • Full Searchable database of news + archives by keyword(s) • Insurance Careers • Interactive Insurance Events Calendar • Insurance Marketer Database online • Industry Photo Gallery • Insurance Links • Free 2x Weekly Headline E-News Alert
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Insurance industry guests from the CICMA/CIAA Joint Conference escaped the winter chill at the 3rd annual CICMA/CIAA Joint Conference Cocktail Party. The event, hosted by Blouin, Dunn and Giffin Koerth, was held at the Loose Moose Tap & Grill immediately following the Feb 3 conference.
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More than 150 exhibitors from across Canada showcased the latest and greatest in the industry at the Ontario Insurance Adjusters’ Association (OIAA)’s Professional Development & Claims Conference in Toronto. In addition to the trade show, seminars covered a variety of topics including a legal update on accident benefits, how to become a great recruiter and chronic pain and associated disorders. Ron MacLean of Hockey Night in Canada fame was the luncheon keynote speaker. He shared with delegates memorable moments from his broadcasting career. During the lunch, the OIAA presented a cheque for [Cdn]$6,845 to the Big Brothers and Big Sisters of Canada.
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OIAA Cont'd on page 75
Insurance and Risk Management in Commercial Leases Dawn Michaeloff
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pg 74 Quarter Century March
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Announcing the
QUARTER CENTURY CLUB 50th Annual Reception Wednesday, May 6th, 2009 Hilton International Toronto (Richmond Street at University Avenue) Reception – 12:00 p.m. • Photograph – 12:30 p.m. • Lunch – 1:00 p.m.
Quarter Century Club: “Nearly 25 Years Claims Service The Only Requirement” Cost - $65.00 (Retirees $50.00)
50th Annual Reception Committee: John Cherrie Stewart Ponton Ford Blow
Send Contact Info and Cheque Payable to (or VISA, provide exp. date):
Featuring… ‘The Roasting of Debbie Robinson’
Stewart Ponton Quarter Century Club c/o McLarens Canada 5915 Airport Road, Suite 300 Mississauga, Ontario L4V 1T1 Phone: 416-252-4431 Fax: 905-671-9505
For Registration Form email Ford Blow: fblow@cl-na.com
Annual Quarter Century Club Reception Group Photo
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ADVERTISERS’ INDEX ACE INA Insurance Aon Reed Stenhouse Applied Systems Canada, Inc. The ARC Group Canada Inc. Aviva Canada Inc. Berkley Underwriting Managers Canada, Ltd. Blouin, Dunn LLP canadianunderwriter.ca Canada Law Book Canadian Litigation Councel Chubb Insurance CNA Canada Crawford & Company (Canada) Inc. Cunningham Lindsey Canada FirstOnSite Restoration FM Global Great American Insurance Group The Guarantee Company of North America IBAO i-hire.ca insuretemps inc. Intact Insurance Company Insurance Institute of Canada Kingsway General Insurance Company Liberty International Underwriters MINT Canadian Specialty National Insurance Conference of Canada (NICC) Optimum General Inc. Quarter Century Club RIMS Canada Conference 2009 – St. John’s RMS – SCM Risk Management Services Travelers Wawanesa Insurance WICC WINMAR Zurich Canada
9 35 5 48 30 15 31 69 73 21 41, 83 (IBC) 57 17 11 24, 25 2, 3 (IFC) 45, 61 43 29 60 79 84 (OBC) 7, 49, 64 19 27 51 63 59 74 55 39 47 23 58 53 37
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The Toronto Insurance Women's Association (TIWA) hosted its annual wine and cheese reception on Feb. 12. Well over 1,000 guests indulged in fine culinary offerings, enjoyed livemusic and raised their wine glasses with fellow industry peers at this year's reception, held at the Metro Toronto Convention Centre–Constitution Hall.
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Bill Hanlon Senior Estimator
Masterclean Contracting & Cleaning is proud to announce that Bill Hanlon, Senior Estimator has successfully completed the requirements for RIA’s Certified Restorer (CR) certification and acknowledge Bill’s diligence and mastery of the certification. The CR program is an intensive study in damage repair offered to experienced contractors and restorers. The CR is considered the premiere certification within the insurance & restoration industry. Masterclean services the Greater Toronto area north to Midland as well as Oakville to Oshawa. Since 1971, the Masterclean team is a trusted emergency service provider for damage due to floods, fire, smoke, wind and any other property damage issues. We offer 24 hour emergency services that are second to none. Customer service is our number one priority.
1-800-361-6900 Cont'd on page 78 March 2009 Canadian Underwriter
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pg 79 Insuretemps Mar09Ad_v4
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The G.T.A. Brokers Total Recruitment Resource At we focus on satisfying the Greater Toronto Area (G.T.A.) insurance brokerage industry’s contract and full-time recruiting needs. As former brokers with 25 years in the industry, we understand your staffing challenges. One of our greatest frustrations was identifying and securing suitable candidates when we needed them. is your answer to this ongoing challenge.
Associates: If you are a self-starter, have a desire to broaden your career and are R.I.B.O. can licensed, provide a wide range of rewarding opportunities. offers: • • • • • • •
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offers: • a private database of insurance professionals • extensive industry network advantage – we can quickly identify and place the right person for you in a time efficient manner • you pay for what you get competitive hourly rates based on level of requirement and experience. No hidden fees or extra costs • full time recruitment - we offer the most competitive placement fees (10%) in the industry
Contact us today! Scott Creighton screighton@insuretemps.ca Ron Mitchell rmitchell@insuretemps.ca Tel: 905.755.9090
www.insuretemps.ca
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INSURANCE INTERNET DIRECTORY
ACCOUNTANTS
COLLISION SERVICES
Williams & Partners Inc. Forensic and Investigative Accountants. www.williamsandpartners.com
CertifiedFirst Network Consider it done.™ www.certifiedfirst.com
CONSULTING FIRMS ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org
CLAIMS ADJUSTING FIRMS Crawford Adjusters Canada One Globe, One Company www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters The Preferred Adjusting Solution. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors www.mclarens.ca SCM Adjusters Canada Ltd. Committed to providing leadingedge claims management services. www.scm.ca
80 Canadian Underwriter March 2009
Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
CONSTRUCTION CONSULTANTS MKA Canada, Inc. www.mkainc.ca
EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination www.i-hire.ca
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
Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com/ FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Kingsway General Insurance Company The Specialty Insurer www.kingsway-general.com Royal & Sun Alliance Insurance Company of Canada Forward thinking since 1710. www.royalsunalliance.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com
INSURANCE LAW The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management www.thearcgroup.ca
GRAPHIC COMMUNICATIONS
INSURANCE SOFTWARE APPLICATIONS
Informco Inc. Integrated Graphic Communications Specialists. www.informco.com
Keal Technologies Complete technology solutions for insurance brokers. www.keal.com Tritech Financial Systems Inc. Provider of an enterprise solution to P&C insurance companies and their agents and brokers in Canada and USA www.trifin.com
INSURANCE COMPANIES AIG Commercial Insurance Company of Canada "THE STRENGTH to BE THERE". www.aig.com
PREMIUM FINANCING Third Eye Solutions Inc. Provides Internet-enabled premium financing/payment plan software solutions. www.thirdeyesolutions.com
REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Munich Reinsurance Company of Canada Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com
RESTORATION SERVICES Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca
RISK MANAGEMENT The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management www.thearcgroup.ca
SPECIALTY INSURANCE Firstbrook Cassie & Anderson Ltd. Your Source For Camp Insurance www.nbrown.com William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com
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Crawford & Company (Canada) Inc. donated $50,000 to Women in Insurance Cancer Crusade (WICC) on behalf of its employees. The latest donation, provided during a celebration breakfast at the Fairmont Royal York Hotel on Feb. 10, brings Crawford’s five-year total to $250,000. “Five years ago, when we first launched our charitable
Members of the Insurance Brokers of Toronto & Region gathered for a February 2009 Luncheon in Markham, Ontario. Bob Tisdale, president of Pembridge Insurance Company, offered his insights about how to survive during a hardening market and economic turmoil.
initiative, Crawford Cares, and began our journey with WICC, we never dreamed that we would reach a quarter of a million dollars so quickly,” John Sharoun, CEO of Crawford & Company (Canada) Inc., said. “I couldn’t be more proud of our staff and all of the efforts they consistently make for their communities and this wonderful cause.”
The 2009 William H. McGannon Foundation board convened in Toronto to plan upcoming initiatives. The members of the board are (from left to right):
CARSTAR Automotive Canada presented a cheque at its Repentigny, Quebec location worth $10,000 to Melanie N. (last name unvailable), the grand prize winner of the first ever Hit Us With Your Best Shot photo contest. She took top prize for the winning photo of her best “game face.” For each photo that was entered in
the contest, CARSTAR donated $5.00 to the Canadian Cystic Fibrosis Foundation. Secondary winners from each province received a $500 prize. Some of these winners (last names unavailable) included: Andrew L. (London, ON), Andrew N. (Dawson Creek, B.C.) and Logan K. (Calgary, AB).
Ashley Monahan (Treasurer), Niver Rubenyan (Director), George Simpson (Secretary and Director), Bill McGannon, Joe Restoule (President and Director),
Diane Wolfson (Director), Wayne Hickey (Director), Joe Hardy (Vice President and Director), Mark Roberton (Director)
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Hannover Re cheered its clients and friends during its post-renewal party in Toronto on Feb. 2, at Fionn MacCool’s in Toronto. Attendants enjoyed an evening of German food and beer. A guten abend was had by all.
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pg 83 Chubb Profit
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profit: n. the net amount of revenue remaining after expenses. Add to expenses the cost of your time. Chubb Insurance better defines its policies. That saves you time and money. It provides more certainty in coverage and more efficient claims service.
If profit is how your results are defined, Chubb is your recommendation.
Chubb Defines Insurance
www.chubbinsurance.com Chubb Insurance refers to Chubb Insurance Company of Canada. The precise coverage offered is subject to the terms, conditions and exclusions of the policy as issued.
Our name is Intact Insurance. It’s great to be home. Our name is Intact Insurance. For years you’ve known us as ING Insurance. We did a lot of good things together. We helped protect millions of customers. We succeeded together. As Intact Insurance we’re going to do a lot more. Because now, we are proudly Canadian-owned and led. It means we can truly be ourselves. We’re home. And it feels great. We have common ground, a whole nation’s worth. Our name is new, but we have an important heritage. We’ve been insuring millions of Canadians for over 200 years. That’s a lot of experience. Going forward, you can count on the comfort and continuity of our familiar strengths. You will continue to work with a leadership team that lives where you live. People who share the same sensibilities and interests. This changes everything. And it means we already have a lot in common. We will succeed, together. Like you, we know insurance isn’t about things. Insurance is about people. As our new name clearly reveals, we understand how emotional a claims experience can be, and how important it is to help make your customer intact again as soon as possible. Speed is important. But having as important. Providing an outstanding claims experience is what will make us different. It’s how we will succeed, together. We will do what’s right. The right way. When you choose Intact Insurance to protect your customers, you’re choosing a forward-looking insurance company, a leader. But just as important, you’re choosing a company that believes that fairness, respect and accountability are more than words, they’re a promise. Our name is Intact Insurance. We are here to stay. We are here for you.
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