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
O CT O B E R 2 0 09 A Business Information Group Publication #40069240
Wild West of Credit Scoring BY DAVID GAMBRILL
The Missing Link BY BRENDA ROSE
Part XIII and Grandfathering BY J. BRIAN REEVE
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VOL. 76, NO.10, OCTOBER 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca FEATURES
20 Grandfathering OSFI says it will not be “grandfathering” business written prior to the implementation of Part XIII provisions in 2010. But in certain cases it’s arguable that grandfathering does exist on a practical basis for some types of business.
Wild West of Credit
BY J. BRIAN REEVE
46
32 Banks By setting up insurance offices next to their bank offices, or selling insurance on the Internet, banks do not appear to be following the spirit or intent of the Bank Act. BY JUSTIN MACGREGOR
66
58 Future Profitability
86 Rail Boom
Research done for the Insurance Brokers Association of Ontario suggests brokers are starting to see new customer segments.
Where will your brokerage be in 2015?
Canada’s rail industry is experiencing a bit of a renaissance, and so too might its claims and exposures.
BY RANDY CARROLL
It’s important to bind emotional content to a brand name, and RSA intends to do so by telling the industry’s ‘Moving Stories.’
26 Water and Construction How insurers and risk managers can help to prevent and/or mitigate water damage to construction projects.
Ontario Tornadoes
36 Land of Exclusion
An eyewitness account of August 2009 tornado damage in Ontario suggests roof nails are missing the mark.
Insurers adopted advisory language for CGL policy exclusions four years ago and some hot spots have emerged, especially in construction.
82 Legal Expense Insurance Long a fixture in Europe, insurance coverage for legal expenses is making its way into Canada.
BY DAVID GAMBRILL
16 Shifting Market
BY MIKE BROWN
BY GREGORY A. KOPP
Using credit to help price risk has been a feature of the Canadian property and casualty insurance landscape for at least 10 years, and most provincial regulations allow it. So why are consumers and brokers crying foul in 2008-09?
BY CRAIG HARRIS
42 IBC Dispatches Insurance Bureau of Canada (IBC) responds to Canadian Underwriter on the issues of auto injury caps and oil barrel leaks.
BY RENÉE DUREPOS
62 Moving Stories
BY BRAD COX
91 A.M. Best Briefing The pendulum of capital is “really swinging” in Canada’s reinsurance segment, but it appears to be more stable in the P&C sector.
BY ADRIAN HALL
72 Missing Link
BY VANESSA MARIGA
Brokers are working on a new project with insurers and vendors in search of elusive technology that will eliminate double data entry.
94 Kelowna Wildfires The Kelowna wildfires of 2009 were not nearly as destructive as the Kelowna wildfires of 2003. Here’s why...
BY BRENDA ROSE
BY VANESSA MARIGA
78 Soft Market Apparently a global financial collapse isn’t enough to trigger a hard market in Canadian commercial lines. BY DAVID GAMBRILL
BY MARY LOU O'REILLY AND BILL ADAMS
BY BARBARA HAYNES
October 2009 Canadian Underwriter
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VOL. 76, NO.10, OCTOBER 2009
PROFILE
12 Youth Movement Bryan Yetman, IBAO president elect, is a personification of what the broker channel says it needs right now — youth, business acumen, and tech savvy.
Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796
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BY DAVID GAMBRILL
SPECIAL FOCUS
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Moves & Views
100 Gallery
Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114
President Bruce Creighton Vice President Alex Papanou
Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by Business Information Group, a division of BIG Magazines LP, a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. Business Information Group is located at 12 Concorde Place Suite 800, North York, ON, M3C 4J2. Phone: (416) 442-5600. Canadian Underwriter, USPS 022-494. US office publication: 2424 Niagara Falls Blvd., Niagara Falls, NY 14304-0357. Periodicals Postage Paid at Niagara Falls, NY, USA. US postmaster: Send address corrections to Canadian Underwriter, Po Box 1118, Niagara Falls, NY 14304. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. Š Published monthly as a source of news, technical information and comment, and as a link between all segments of the insurance industry including brokers, agents, insurance and reinsurance companies, adjusters, risk managers and consultants. Privacy Notice From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 12 Concorde Place., Suite 800, North York, ON, M3C 4J2 Subscription Rates: 2009 Canada 1 Year $35.95 plus applicable taxes 2 Years $56.95 plus applicable taxes Single Copies $10 plus applicable taxes Annual Statistical Issue (included with above subscription) or separately $38 plus applicable taxes Elsewhere 1 Year $42.00 2 Years $68.00 3 Years $95.00 Subscription Inquiries/Customer Service Gail Page (416) 442-5600 ext 3549 gpage@bizinfogroup.ca
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Canadian Underwriter October 2009
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EDITORIAL
Not in Kansas Anymore
In a multi-media, interconnected, thrill-seeking world, people are almost “disappointed” to learn their houses were flooded or damaged by a mere thunderstorm. David Gambrill, Editor david@canadianunderwriter.ca
8
Canadian Underwriter October 2009
Figures from the Insurance Bureau of Canada (IBC) are not available as of press time, and so insured damage totals are not yet known for the series of 14 tornadoes that touched down in various parts of Ontario on Aug. 20, 2009. The current/previous record of Cdn$500 million in insured damages for an Ontario storm was set almost exactly three years earlier, in 2005. Those storms flooded areas of the GTA and hit Kitchener and Guelph. Tragically, the 2009 tornadoes killed an 11-year-old boy. Investigators on the scene from Environment Canada and researchers connected to the Institute for Catastrophic Loss Reduction (ICLR) expressed amazement more people didn’t die: the destruction happened at 7 p.m., right around dinner time, when many people would have been returning home after work. Are these killer tornadoes the product of global warming? Geoff Coulson, a warning preparedness meteorologist for Environment Canada, said his 25 years of experience with these kinds of natural disasters tells him no. Southwestern Ontario is, after all, located in an area prone to tornadoes. And folk tales to the contrary, tornadoes can hit cities with the same likelihood that they hit sparsely populated rural areas. So why does it feel like we are experiencing higher insured damage counts, even if the frequency of these tornadoes is anecdotally the same? After all,
the province may have established records for tornado and storm damage twice in the past three years — totalling at least Cdn$1 billion — if insured damage from the 2009 storms did indeed set a new damage mark. A variety of reasons are proposed. Coulson proposes the first. His argument is very similar, in fact, to the observations made by insurance companies watching demographic patterns along the eastern seaboard of the United States. He argues population density is increasing. According to this point of view, Florida, for example, could be getting the same number of hurricanes it’s always been getting, but the damages are higher each time, as more people insist on moving into a hurricane zone. Similarly in Ontario, the area north of Toronto known affectionately as “cottage country” is in the middle of boom times. Frank Magazine once liked to post real estate values of the so-called “piles” built and owned by glitterati in the Muskoka-Haliburton area. One look at these “summer homes” — some of which are more decadent than you will find in the city (or even the suburbs, for that matter) — suggests extraordinary loss exposure. A second reason has to do with the way tornadoes are currently identified. The Fujita scale is used to determine whether or not a tornado occurred, as well as its relative strength. Wind speeds in the Fujita scale are determined based on structural damage. In other words, if no damage is re-
ported, then it would be difficult to apply the Fujita scale to determine if a tornado occurred. Conversely, the more people who report tornado-based wind damage, the more it will seem to us that the number of tornadoes is increasing. Of course, living in a multi-media, interconnected, thrill-seeking world, many people almost seem “disappointed” to learn their houses were flooded or damaged by a mere thunderstorm, Coulson says. And the media tend to follow each other’s reports, augmenting the “storm-chaser” effect that inflates tornado reporting. Strangely, although more people are settling into a known tornado zone, and even though more people are reporting potential tornado damage to their properties, very few seem to be paying attention to whether their homes are built to withstand the storms. Tornadoes are furious in their intensity and will damage any and all kinds of homes. But eyewitnesses to the damage in Woodbridge and Maple, Ontario, where the tornadoes were most destructive, say a startling number of the homes lost their roofs over something as basic as improperly nailing the roofs to the walls. Clearly, the building codes need to be reviewed in light of the storms, and the insurance industry is poised with information to help. Preventing or mitigating the destructive effects of tornadoes is of the utmost importance.
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Canadian Market
alty industry was starting to rate communities on how well their building codes were enforced.
ROLE FOR CANADIAN P&C INSURANCE INDUSTRY IN ESTABLISHING, ENFORCING BUILDING CODES: ICLR
CANADIAN P&C PROFITS DECLINE IN 2009 Q2
An eyewitness inspection of damage done to homes following several tornadoes that hit Ontario on Aug. 20, 2009 has started a discussion about whether or not the Canadian property and casualty insurance has a role to play in raising awareness about Canadian building codes and the municipal enforcement of these codes. Paul Kovacs, executive director of ICLR, said the organization was talking about taking two possible directions. The first involved sharing research about tornado damage to help improve municipal building codes. "Our industry has been relatively not involved in talking about codes for some time now," he said. "How could we get more involved in sharing research from our industry's perspective with those who make decisions about the building code?" Secondly, Kovacs observed, Canada may consider following the lead of its counterparts in the U.S. property and casualty industry. In the United States, he said, the property and casu-
10 Canadian Underwriter October 2009
Federally regulated Canadian property and casualty insurers reported a decline in 2009 Q2 profits — sliding from a net income of Cdn$1.42 billion in 2008 Q2 to a profit of Cdn$1.07 billion during the same period this year. Recent figures posted by Canada’s federal solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), show Canadian P&C insurers’ net investment income declined from Cdn$1.72 billion in 2008 Q2 to Cdn$1.322 billion in 2009 Q2. Underwriting income similarly took a hit in 2009 Q2. Last year, in 2008 Q2, both Canadian and foreign-based property and casualty insurers reported a total underwriting profit of Cdn$137.96 million. That dipped down to Cdn$125.8 million in the second quarter of this year. The one relative constant, OSFI figures show, is net premiums written, which were roughly the same this year as they were last year. Overall, the industry reported writing Cdn$15.98 billion in net premium in 2009 Q2, slightly more than the Cdn$15.6 billion it wrote during the same period last year.
Reinsurance RESEARCH BY PARTNERRE SUGGESTS HIKES OF BETWEEN 4% AND 8% TO OFFSET LOW INTEREST RATES Internal research by PartnerRe suggests a reinsurer would have to increase its rates by 4.3% (for shortterm, property, non-proportional business) and 8.9% (for long-tail, motor, non-proportional business) just to account for lower interest rates and no other factors. PartnerRe presented its findings at 2009 Technical Seminar: Auto Casualty, held on Sept. 14 at the National Club in Toronto. Grace Lin, PartnerRe’s chief pricing actuary in Canada, presented a report of her findings, which took into account a number of operating assumptions based on the company’s data.
HIGH INFLATION A LONG-TAIL THREAT FOR (RE)INSURERS DURING NEXT 2-5 YEARS Higher inflation in a variety of forms is expected to develop into a threat to long-tail (re)insurers sometime over the next two to five years, a Guy Carpenter briefing says. Written by Guy Carpenter managing director David Lewin, the briefing warns that low interest rates right now are bound to result in monetary inflation sometime down the road. “Rising interest rates over the next two to five years will
probably result in monetary inflation, which in itself would make it more expensive for (re)insurers to pay claims,” the Guy Carpenter briefing says. The threat of inflation comes in a variety of forms and is not limited to monetary inflation, Guy Carpenter says. Other forms of inflation include inflation in legal costs, medical costs and inflated social expectations characterized by a belief that insurers must restore a victim to his or her state immediately prior to a loss occurrence.
Risk Management CANADA NEEDS ITS OWN MODEL FOR EMPLOYER PRACTICE LIABILITY (EPL) POLICIES The Canadian commercial marketplace requires standard policy wording for Employer Practice Liability (EPL) policies that are distinct from U.S. policies. The Risk Management Counsel of Canada delivered a seminar, Employer’s Dream: Insurer’s Nightmare! Employer’s Liability: The Need for a Canadian Model, at the RIMS Canada Conference in St. John’s, Newfoundland on Sept. 15. Jorge Segovia, a panel member and a partner at Cox and Palmer in St. John’s, noted two main differences between Canada and the United States that highlight the need for Canadian insur-
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ers to approach EPL coverage in a distinct manner. First is the definition of wrongful dismissal in Canada and in the United States. In the United States, a wrongful dismissal claim can arise if the termination involves some form of statutory breach such as discrimination. In Canada, wrongful dismissal is simply the fact that an employee that has been terminated has not been given reasonable notice or pay in lieu of notice. The second distinction has to do with punitive damages. In the United States, punitive damages are not covered by EPL policies because the size of the damages being awarded in the U.S. is quite high. In contrast, in Canada, where the awards are quite modest, most insurers agree to cover the damage awards.
Corporate Governance and Counter Party Exposure. Prior to Sept. 2008, the credit risk market was incredibly soft and ultra-competitive, with plenty of capacity and lots of new product launches
said panel-member Todd Pickett, a general agent with Coface Canada (Toronto). “Fast forward to 2008 Q3, and it’s now a very hard market with record losses,” he said. “Underwriting is definitely
conservative. We have done three major cuts in our capacity in the past 12 to 18 months and each time we have cut capacity by about 5% across the board, so capacity is definitely shrinking.”
Cunningham Lindsey offers expert claims handling for the most complex and specialized losses. To access our team of experts, write to us at corpservices@cl-na.com for a copy of our new Specialty Services Directory.
CREDIT RISK LOSS RATIOS CLIMB PAST THE 100% MARK Loss ratios for credit risk insurance climbed from between 20% and 30% prior to the financial crisis that began in 2008 Q3 to more than 100% currently, driving a hard market in the line, said Daniel Galvao, senior vice president of financial products at Marsh Canada Ltd. (Toronto). Galvao spoke at the RIMS Canada Conference being held in St. John’s, Newfoundland from Sept. 13-16. He was a panel member at the session, Credit Risk: Risk Management Implications on Managing Financial Volatility,
www.cunninghamlindsey.com
October 2009 Canadian Underwriter
11
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Scott Bosnell, Controller, Darling Insurance and Realty Limited
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PROFILE
Talkin’ ‘Bout the New Generation David Gambrill Editor
Bryan Yetman, president-elect of the Insurance Brokers Association of Ontario (IBAO), demonstrates characteristics highly sought by the broker channel. Demonstrating youth, business acumen and technological savvy, Bryan Yetman, 33, is a poster child for a new generation of insurance brokers. Yetman’s meteoric rise to president-elect of the Insurance Brokers Association of Ontario (IBAO) comes at a time when the insurance industry is looking to recruit new blood into the industry. The IBAO is also urging brokers to find ways to use technological know-how in an effort to engage young consumers using social network technologies such as Facebook, Twitter and the like. The trajectory of Yetman’s career path suggests an uncanny sense of good timing. He is taking up a leadership position at the IBAO precisely when his strengths are needed most. Yetman is now vice president of operations at First Durham Insurance & Financial Brokers
14 Canadian Underwriter October 2009
in Pickering, Ontario. In addition to his day job, he has worked hard, both as an IBAO Young Broker and as a member of The Insurance Institute of Canada’s Ambassador program, to recruit youth into the insurance industry. In doing so, he emphasizes the opportunities for youth in the insurance industry. One thing that makes it tough, he said, is that students are being asked to decide what they want to do earlier than ever — often between the ages of 16 and 18. In addition, they are making a momentous decision at a time when many of them have had little exposure to the insurance industry. As a result, many young people are unaware of the enormous growth potential the insurance industry offers. Yetman’s career thus far is an embodiment of the potential to fly through its ranks in short order. Yetman expresses the dilemma using the example of choosing between entering the insurance industry — what he calls a “necessary industry” that has a sizeable number of people on the cusp of leaving — and becoming a programmer at Google or Microsoft. Certainly the programmer position is popular, he says, but “there’s a million other kids in Canada that want to do the Microsoft stuff.” The choice illustrates the opportunities available in the insurance industry. “I’ve got a
number of friends that went to university in school for computers,” Yetman says. “Of them, one works in the computer business…. “With the insurance business, once you’re there, very few people leave. And once you start to familiarize yourself with the industry, the people in the business are fantastic. I argue that it’s the greatest career that anyone could ever want. “There’s so much opportunity. Not only is there an opportunity from an ownership standpoint, there’s a chance to move through that cycle quickly to get to a satisfying lifestyle, both from a financial standpoint and a contribution to your community. “It’s the best-kept secret — and that’s not good for us.” In terms of his own rise through the ranks of the industry, Yetman had perhaps a clearer sense of purpose as a teenager than many of his peers. “Unlike most, at a relatively early age, probably 16 or 17, I made a conscious decision that this was a business that I wanted to be in,” said Yetman, noting that his father had bought an insurance brokerage in 1986 (when Yetman was 11 years old). “The idea of taking something, setting a plan or a course, and leading that something to Point X [appealed to me],” he said. “And when I was that age, to me it didn’t matter
whether it was a pencil manufacturer or a popcorn stand. Just because there was a family [insurance] business there, it seemed like the most logical place to focus. Obviously having a bias — seeing what the industry involves, and seeing the commitment that my father had — that seemed like something I could live with.” But the route to his goal of getting into insurance hardly progressed in a straight line. It involved a tough decision to buck expectations, by switching from university to college. A few years after entering Carleton University’s commerce program in 1993, Yetman’s roommate’s friend, ‘Big Mike,’ informed Yetman of an opportunity to take a business insurance program at Algonquin College. Yetman struggled with the decision, but eventually decided to make the transfer, with Carleton’s help. Yetman said he “felt better about myself” and was “happier” after deciding to go to college. Nearing the end of school, Yetman found himself back working for his father’s brokerage, which had just finished a new acquisition. “I did the last school of term commuting back and forth from Ottawa,” he said. “My father had just made a purchase of a brokerage, and I was needed from a technology standpoint because they were going to have two locations. “So there was a need for
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some technological support. I wasn’t a technology guy, but being the only guy in the entire office who had that kind of understanding and knew how to plug a mouse in, I was the de facto technology expert.” Certainly Yetman has given a great deal of consideration to the best use of technology in promoting the broker proposition. “We need to do a better job to embrace and advance technology,” he said. “I wouldn’t say that we’ve resisted it in the past, but we haven’t done a hell of a lot to get out and actually try to jump on the back of it and ride it.”
There are two issues related to the best use of technology, he said. The first is the most efficient way for brokers to communicate with carriers. This raises the current dilemma with using various different insurer portals, which has resulted in an inefficient transfer of data between brokers and their various carriers, he says. The second is using technology to better communicate with consumers — particularly those who live in the online community more often than they live in the “bricks and mortar community.”
If the medium is the message, the medium is changing. “There’s a potential of using technology to advertise where people actually are,” he said. “You used to advertise on the radio, because that’s where people were. Then you advertised on TV, because that’s where people were. “It’s now migrating away from [TV], because people who were actually watching TV aren’t watching commercials. Product placement is big, but we can’t really place a product. It’s tough to put an insurance policy on ‘Desperate Housewives.’ Maybe we could put some BIPPER blankets in there. But we need to get in there, into that [Internet] space.” Yetman notes brokers are working in that direction. IBAO’s use of Google analytics and the promotion of myinsuranceshopper.com are two examples. There are naysayers who claim online social networking sites technology are eroding the personal relationships that underpin brokers’ relationships with their clients. But Yetman sees potential in the Internet, not doom and gloom. “I’ve always felt that the younger people of today, and I’m on the leading edge of that, are a little bit more cynical when you see an ad for a large corporation on TV,” he said. “On the Internet these days, when you get into the social networking aspects of life, it puts [brokers] at an
advantage, because there’s so much misinformation on the Internet. It’s up to us [as brokers] to take that information, translate it, and put it out to people in that space…If you’re doing it right, [people in the online community] actually become the bearers of your message. “The advisor has become so much more important in that space. People are looking for a trusted source of information. I think we need to take a long hard look at really getting in there.” Yetman got into the IBAO community at the ripe old age of 25. After a number of years of hard work, he remembers a situation that demonstrates the power of good mentors. “I’ll never forget I was lost one day,” he recalls. “I was at an industry function, and I saw Ken Orr. [Orr is a past president of the Insurance Brokers Association of Canada (IBAC), and his professional background includes work as the chairman of the IBAO.] At that point, I had met him one time and said maybe three words to him. “I don’t know if he could sense I was lost, or if that’s the kind of guy he is, but he said ‘How are you doing?’ He took me over and brought me into the circle, introduced me to everybody. Talk about an empowering experience for a young broker. That one really meant a lot to me. Those are the kinds of people I relate myself to.” And, apparently, emulate.
October 2009 Canadian Underwriter
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One Does Not Fit All
Opinion/Analysis
Brokers need to respond to changing Ontario market dynamics.
brokers. It is imperative that we fully understand the potential impact of each of these market forces and respond swiftly and definitively.
MARKET FRAGMENTATION
Randy Carroll
CEO, Insurance Brokers Association of Ontario
Earlier in 2009, the IBAO commissioned Navicom Inc. to manage an in-depth market study that focused on the buying behaviours of consumers that purchase personal lines insurance from nonbroker distribution channels. The results from this study are compelling on several levels. Most critically, we have validated our concerns that the Ontario personal lines insurance market is starting to fragment.This means new and different insurance purchase criteria that we observe now are changing how consumers make insurance decisions. Furthermore, new segments that have emerged identify different insurance buying criteria that may not be well served-by the traditional broker value proposition, and we have to educate ourselves in order to adapt. Finally, we know “market inertia” is playing a significant role in shaping Ontario’s insurance market dynamics and has the potential to work both “for and against” Ontario
16 Canadian Underwriter October 2009
Market fragmentation exists when different market segments use different criteria by which they choose their insurance solutions. Market fragmentation means brokers are facing new customer segments that did not previously exist. These segments include customers who are new to the market, as well as current broker customers who are starting to see the market in a new way.The onset of market fragmentation has significant implications for Ontario brokers. For brokers, simply getting better at what many brokers already do well is not enough to help them win back some of the new customer segments who are not necessarily dissatisfied, but are increasingly aware of insurance options elsewhere. The same goes for attempting to attract certain new customers coming into the market who are looking at the various alternatives for purchasing insurance and possibly not seeing what they want
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Color: 4C
Production: Victor
Scale: 100%
Spot Colors: NA
Traffic: Shawn
Apprvls: BM
Pub/Notes:
Publication Name 1 U.S. Infrastructure 2 Rough Notes 2 Canadian Underwriter
CD
Live
Trim
Bleed
184mm x 260mm
213mm x 276mm
223mm x 286mm
7 5/8” X 10 3/8”
8-1/8” x 10-7/8”
8-1/4” x 11-1/8”
7” x 10”
8 1/8” x 10 7/8”
8 3/8” x 11 1/8”
3 American agent and Broker
7” x 10”
7 7/8’ x 10 7/8”
8 1/8” x 11 1/8”
3 National Underwriter
7” x 10”
7 7/8” x 10 7/8”
8 1/8” x 11 1/8”
Prod
Date: 9.21.09
Oper: JA
Job #: PS12245
Notes: CHR09004_followAd_commonA
Round: 1
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in the traditional broker value proposition. Brokers need to change their approach of working in their business and start working on their business.
CHANGING CONSUMER EXPECTATIONS If brokers are to continue to be perceived as offering superior value to the market, they need to ensure they are actually keeping up with market demands. Many brokers are working towards embracing technology in order to compete with the banks and direct sellers. But they are challenged by insurers that are either ignorant about the brokers’ workflow or just don’t care. Introducing workflows like portals that require dualentry, paper-based applications and automated renewal processes that require intervention are cause for concern. In addition, consumers are changing their communication model and increasingly people don’t want to be limited to doing business from nine to five. Telephone tag is inefficient and annoying, and “snail mail” is slow and tends to get ignored. The new reality is that for some segments of the population, traditional communication tactics are no longer effective. Looking forward, brokers need to contemplate changes in their business model that will enable them to adapt to the changing demand. We need to work with our brokers and encourage them to get more actively involved in championing changes to internal processes. We need to be mindful that these investments need to be made not just in technology and process improvement, but also more fundamentally as it relates to our brand. Our brand needs to be refreshed and be flexible enough to mean different things to different people. We need to ensure we can reach out across market segments and be as relevant to the 19year-old who’s moving out and looking for tenants insurance as we can to the 35-year-old parent who has “no time for insurance,” as we are to the
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65-year-old who’s been a customer for 40 years.
MARKET INERTIA Now add to this mix the complicating factor of market inertia. We know from a variety of different market intelligence sources that a significant driving force in the Ontario insurance market today is inertia. High school physics explains the concept of inertia through part of Newton’s Law, which states: “a body at rest tends to stay at rest, unless forces are applied.” So at one level, the biggest ‘plus’ brokers have going for them today is inertia. If people don’t see enough meaningful difference, they’re less inclined to change.
Brokers need to change their approach of working in their business and start working on their business. Force, however, is being applied by large organizations such as big banks and direct insurers, many of which are investing significantly in their personal lines insurance business. It’s hard for consumers not to notice competitive advertising in newspapers,TV, radio and of course the Internet. Banks in particular have massive reach. And even though they technically can’t sell insurance in their branches, we have seen recent examples in which they are now reaching out to their millions of customers with their personal lines insurance message. This is an example of market force being applied to the state of inertia. Brokers might not see the effect right away, but over time they will — which is a good enough reason to apply an effective counter force. Failure to take appropriate actions now will allow market forces to create an accelerating desire for change. So the potential exists for inertia to stop working in favour of brokers, and now the other part of Newton’s Law
comes into play: “a body in motion tends to stay in motion, unless forces are applied.” Once broker clients begin to look at alternative insurance options, they become exposed to different value propositions and at some point they may decide to switch. It’s not because customers think brokers are doing a bad job. It’s because they don’t fully appreciate or regularly experience the value of what brokers are doing for them. So brokers need to do more than simply continue what they’re doing, in the same way they are doing things today. They need to do a better job of reaching out to their existing consumer. When existing clients leave, we need to understand that many of them were not dissatisfied. They left because they were no longer engaged with the brokers’ value proposition. So if brokers want to stop the erosion of their market share, it is up to them, the IBAO and other key industry stakeholders to apply their own forces as a counter strategy.
COMMITMENT TO CHANGE Ultimately, brokers and the IBAO need to be up to the challenge of better understanding how consumers perceive the broker value proposition.We need to sit down collectively and dissect the unique value that brokers bring to the entire marketplace, not just segments of the market. Our value proposition needs to appeal to current broker customers, customers who might leave or those who are just coming into the marketplace. Brokers don’t need to be all things to all people, but they do need to be more things to more people. The best news is that brokers and their insurance company partners, in conjunction with the IBAO, absolutely have the necessary resources to effect the change that will ensure future success. But it’s time to start applying these resources in new and innovative ways. It’s a new reality in 2009 and now is the time for strong and decisive action. Fortunately for all of our key stakeholders, we are up to the task.
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Grandfathering Issues Under Part XIII
J. Brian Reeve Partner, Cassels Brock & Blackwell LLP
One of the most complex and potentially confusing areas about the implementation of the changes to the Part XIII of the Insurance Companies Act (which governs the operations of foreign insurance companies in Canada) is whether any grandfathering for business written prior to Jan. 1, 2010 will occur. The Office of the Superintendent of the Financial Institutions (OSFI) indicated in its Implementation Instructions for Part XIII in December 2008 that no grandfathering for past business would be provided. However, it is arguable that grandfathering does exist on a practical basis with respect to certain types of business — and it clearly does not exist for others. In order to review the regulatory and practical effects of the implementation of Part XIII, it is necessary to separately review insurance and reinsurance. An important distinction exists between the treatment of insurance and reinsurance under Part XIII. OSFI only regulates the reinsurer and
20 Canadian Underwriter October 2009
not the policyholder in an insurance transaction. However, OSFI normally regulates both the cedant as well as the reinsurer in a reinsurance transaction. Since OSFI regulates both parties to a reinsurance transaction, it can impose a different set of rules and expectations than it can for an insurance transaction.
INSURANCE Fact Situation The Canadian branch of a foreign insurance company has written a book of direct commercial business for a number of years. It does not intend to apply to OSFI for a release of any vested assets with respect to business previously reported to OSFI and written prior to Jan. 1, 2010.
Illustrations by Greg Hargreaves/www.threeinabox.com
Will the implementation of amendments to Part XIII of the Insurance Companies Act allow for the grandfathering of business before Jan.1, 2010?
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Regulatory Status In its Aug. 15, 2007 letter, OSFI stated that in order to ease the transition, it would presume all risks reported on the books of a Canadian branch as at Jan. 1, 2010 to have been insured in Canada unless OSFI otherwise comes to the view that they were not. Some policies written by a Canadian branch of a foreign insurance company and reported to OSFI will be considered to still be licensed business provided that they are written prior to Jan. 1, 2010, with no additional action being necessary by either the Canadian branch or by policyholders. However, if OSFI otherwise comes to the view that the policy was not insured in Canada, it may insist that the risk be removed from the books. Philipe-Antoine Sarrazin, director of legislation and policy initiatives at OSFI, has commented on this issue as follows: “This mechanism was put in place on the basis that more assets vested are better than less,” he said. “OSFI did not specify the circumstances where it could arrive at a different view. The presumption can certainly be used in cases where there is no evidence of where the policy was insured. However, where it can easily be established that a policy was not insured in Canada, an insurer should not use the presumption since OSFI could readily challenge this finding.” On a practical basis, grandfathering can exist with respect to insurance written by the Canadian branches of foreign insurance companies that has previously been reported to OSFI and treated as licensed business, to the extent that it cannot really be established where the policy was insured from. It can be very difficult for individual policyholders to make a determination as to whether the applicable insurer had “insured in Canada” their risks. They would also not be in a position to be able to negotiate with the insurer for alternative security such as a letter of credit or a different form of trust account. The situation becomes even more complicated in situations where personal lines business is involved and a large number of policies may have been issued. 22 Canadian Underwriter October 2009
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Legal Status If an insurance policy is determined by a court not to have been “insured in Canada,” then the policyholder will not have access to the vested assets of the Canadian branch. This will only be a practical issue in the event of the liquidation of a Canadian branch. In this situation, a court would be required to make a determination under the Winding up and Restructuring Act as to whether or not policyholders are eligible to participate in the distribution of the vested assets of a Canadian branch. Required Action Prior to 2010 The Canadian branch of a foreign insurance company will still have an obligation to review its business written prior to Jan. 1, 2010 to: • identify policies that clearly have not been insured in Canada and apply to OSFI to have them removed from its books;
It is arguable that grandfathering does exist on a practical basis with respect to certain types of business — and not others. • use the Aug. 15, 2007 presumption to leave on its books other risks previously reported under the location of risks regime, and for which it has little information as to where they were insured; • determine if it has written other business that has been “insured in Canada” and not previously reported to OSFI due to the location of the risk being outside Canada. Under such circumstances, it would be necessary to vest additional assets to cover the liabilities with respect to such unreported business.
REINSURANCE Fact Situation A Canadian licensed insurance company cedes reinsurance to the Canadian branch of a foreign reinsurer. It has not received any notice from the reinsurer that an application will be made to OSFI for a release of vested assets with respect to business previously reported to OSFI and written prior to Jan. 1, 2010.
Regulatory Status Business ceded prior to Jan. 1, 2010 may continue to be considered to be licensed reinsurance provided the cedant has a reasonable belief, based on a due inquiry and a review of its records, that the reinsurance had in fact been “insured in Canada.”The Canadian branch of the foreign reinsurer will be required to make a similar determination of the status of its business written prior to Jan. 1, 2010. Information that could be used to form the cedant’s reasonable belief might include a review of underwriting files to determine where the offer or acceptance of the coverage occurred, as well as where the premiums for the reinsurance were paid. If a cedant in good faith forms a reasonable belief that reinsurance was “insured in Canada,” then it is likely OSFI will not dispute this determination unless the reinsurer treats this same policy differently. In cases of disagreements between cedant and reinsurer, OSFI could attempt to dictate proper treatment of the policy. It will also be necessary for the auditors of the cedant to agree with this determination. Responding to this issue, Sarrazin said: “It is for this reason that OSFI issued a Note to Cedants recommending that, where their risks were reinsured outside Canada or where uncertainty remains on the location of the reinsurance, a cedant should not take a credit unless it holds funds as specified in the capital/asset adequacy guidelines.” Legal Status If it is determined by a court that the reinsurance was not “insured in Canada,” then no access to the vested assets of the Canadian assets of the reinsurer will be available. This will only be a practical issue in the event of the liquidation of the Canadian branch of a foreign reinsurer. Required Action Prior to 2010 A foreign reinsurer will be required to review the business reported to OSFI by its Canadian branch prior to Jan. 1, 2010 in order to determine if its was “insured in Canada.” If part or all of the business was not “insured in Canada,” then the
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foreign reinsurer can make an application to OSFI for a release of the applicable vested assets. A foreign reinsurer will also be required to review its business written prior to Jan. 1, 2010 to determine whether any part of it was insured in Canada but not previously reported to OSFI due to the location of the risks being outside of Canada. In that event, it would also be necessary to report these risks and vest additional assets to cover these liabilities.
PRACTICAL ISSUES REGARDING REINSURANCE Here are some practical issues related to reinsurance under Part XIII: • It appears cedants and reinsurers would be required to go back a number of years and review every reinsurance agreement that may still be applicable to their business in run-off that was written prior to Jan. 1, 2010.
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• It would be necessary for a cedant to do this review with respect to each reinsurer with which it has previously dealt. This could potentially cover a large number of reinsurance agreements. • There could be a significant amount of work required to review each individual reinsurance agreement in order to make a determination as to whether it was “insured in Canada.” • The documentation necessary to confirm whether a reinsurance agreement was “insured in Canada” may no longer exist or may not be easily available (this would be particularly true for older reinsurance agreements or for lines of business that are in run-off). Cedants and reinsurers might feel a bit overwhelmed by the potential amount of work required to be done prior to the implementation of Part XIII. However, it will likely not be adequate for a cedant to rely merely on the fact that it has not received a notice from a reinsurer that
intends to apply to OSFI for a release of vested assets.
A SUGGESTED PROCEDURE The following is a practical procedure that can be followed by cedants, insurance brokers and reinsurers to assist in ensuring compliance with Part XIII: 1. The cedant (or its reinsurance broker) would contact the reinsurer and request confirmation regarding the status of reinsurance ceded prior to Jan. 1, 2010. 2. The reinsurer would provide a letter to the cedant that would confirm the following: (a) the reinsurer does not intend to request a release of its vested assets from OSFI with respect to the applicable business; (b) the reinsurer believes to the best of its knowledge that it has insured in Canada the risks based on due inquiry (and states which of the indicia it considers to have occurred in Canada) and
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that a review of its records does not indicate otherwise. If a cedant receives a letter from a reinsurer that confirms both of these points, it should then be able to rely on the letter and continue to take credit for the reinsurance. It should not be necessary for the cedant to take additional steps to determine whether the business model of the reinsurer in fact complied with the requirements of Part XIII unless it has actual knowledge of facts that would suggest its business was not “insured in Canada.” In the event that a reinsurer refuses to provide a confirmation letter, it would then be necessary for the cedant to make its own determination as to whether there was reasonable basis for believing that the reinsurance has been “insured in Canada.” Under such circumstances, it would be necessary for the cedant to review its own records in order to determine whether the reinsurance
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agreement had been “insured in Canada.” If a cedant reached a conclusion that a reinsurance agreement was not “insured in Canada,” then it would no longer be able to take credit for the reinsurance. It would then be necessary for the cedant to make a demand for additional security from the reinsurer.
SUMMARY The effect of the Part XIII changes on business written prior to Jan. 1, 2010 will vary depending upon whether insurance or reinsurance is involved. The Part XIII issues are complex; legal advice should be obtained if there is uncertainty regarding the status of any particular business. It is also important to recognize there may be a slight distinction between regulatory status and legal status after Part XIII is implemented. The fact that OSFI will allow a particular policy or reinsurance agreement to continue to be treated
as being licensed does not guarantee that it will be considered to be “insured in Canada” by a court.The reality is that Part XIII will not change the legal nature of a contract. A policy or reinsurance agreement was either “insured in Canada” or it was not. Part XIII changes and OSFI’s Advisory on the Insuring in Canada of Risks attempt to provide guidance with respect to whether a contract was “insured in Canada.” However, ultimately it will be up to the courts to make a final determination of the status of a contract if it is necessary. The grandfathering aspects of Part XIII have resulted in a complex and challenging set of issues. However, as a result, there should be a higher level of certainty about whether the protection provided by vested assets that are maintained in Canada will be available in the event the obligations under a particular policy or reinsurance agreement are unable to be met.
When you’re not FirstOnSite, who is?
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Wash i n g A w a y Construction Damage Mike Brown
Vice President, Senior Underwriter, Engineering, Swiss Re
Insurers and risk managers can help prevent water damage to new construction projects. The potential for water damage plays a major role in underwriting assessments for new construction and engineering projects. However, in addition to known perils — such as storms washing away roads and bridges — water damage from unforeseen sources has the potential to cause unanticipated damages and drive material claims related to damage to parts of the project that would otherwise be protected. Many of these potential damages can be avoided through risk management measures that can greatly reduce the unknown risk associated with these projects and reduce total losses. Although difficult to quantify separately, various sources estimate total losses attributable or partially attributable to water damage to be equal to or more than 25% of all construction claims globally.
WATER DAMAGE Unforeseen water damage can arise from design flaws, weak reinforcements and a lack of protection on worksites during construction. It can cause millions of dollars in damage that is not accounted for in normal underwriting assessments. Some high profile examples include: A faulty fitting in a high-rise office block caused a pipe to leak, resulting in more than US$2 million of damage to ductwork, plasterwork, wiring and other systems in a building in downtown Toronto. Trenchwork flooding during construction of an oil pipeline in Australia caused multiple inci-
26 Canadian Underwriter October 2009
dences of collapse, filling the pipe with mud and causing further damage to the coated surface. Total claims were in excess of US$25 million. Long-term rainfall on a United Kingdom road project — which involved long earthworks and large stretches of roadway built on clay — caused multiple landslips and a subsequent collapse of the road. This resulted in more than US$25 million in damage.
IMPLICATIONS FOR CANADIAN CONSTRUCTION PROJECTS Meltwater Sudden warming in the spring has a dramatic effect, since the frozen ground beneath doesn’t allow for natural drainage; this can multiply the damaging effects of excess water. After a severe winter, the ground is often frozen and impermeable, preventing normal water drainage that prevents flooding. Once the winter snow starts to melt, the water can only flow over the surface, eroding the surface to a greater degree than many heavy rainstorms. Damage to slopes can be reduced with good project management. This includes protecting the works from the possibility of overflowing riverbeds and ensuring the site is kept clear of snow. Often the water causing floods originates a long distance from the site, so care is needed. Pipelines dug in trenches over a long distance are susceptible to flooding of all sorts. They need to be protected by minimizing the length of the trench kept open and ensuring that nearby water sources are kept under control. A good ongoing risk management regime by the insurer can provide valuable information regarding the site management and the protective measures being taken. It can allow corrective
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measures to be taken by the contractor prior to an incident (preferably), or impose policy conditions.
Hydro-electric project and flash flooding in British Colombia In mountainous regions, snowmelt can cause moraine outbursts and flash flooding. Many new hydroelectric projects are underway in British Columbia, including Ashlu Creek Hydro, Forest Kerr Hydro and Zeballos Lake Hydro.These projects are located in the mountains and take the water needed from streams flowing off the hill.The projects are constructed by diverting the stream with a small temporary dam away from the construction site, where the main dam and power station are built. Designs are made according to careful studies of rainfall information, so that a good factor of safety can be built in and the project properly protected. One particularly unforeseen danger related to meltwater looms in glacial lake outburst floods (GLOFs). Often the streams are fed from lakes higher in the mountains; these lakes are in turn supplied with water from melting snow and ice. When the spring thaw starts, the parent glacier can crack and fall into the lake. The lake then bursts its banks and flows down the path of the stream at high speed. Subsequently, a wall of water, mud, rock and debris destroys everything in its path straight through the construction site. Even if the site is undamaged by the impact, it can be filled with mud. Additional costs resulting from these GLOFs can be in the multiple millions of dollars. These dangers can be partially avoided by ensuring the slopes are protected and stabilized during the construction phase. This can be done using artificial protections such as geo-textiles and rock bolting, or through natural means such as grass and trees. Prevention measures are worthwhile expenditures: the cost of delays can run into millions of dollars as the ground is re-stabilized and the project redesigned. Prevention measures can involve the controlled draining of the glacial lake prior to any works being exposed to the flood.This can be relatively 28 Canadian Underwriter October 2009
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inexpensive and provide a valuable protection to the lifecycle of the dam.
Hidden dangers in large structures Condo and office tower blocks are highly susceptible to damage from burst pipes. Burst pipes on construction sites, pipe failure due to faulty workmanship and frost at a building’s top levels can all cause water to flow through building ducts, potentially causing damage to other floors of the site. One notable example of water damage occurred in an office tower with an airconditioning, heating and water-handling plant on the roof. One of the pipes in the system was poorly connected and the joint burst, allowing a slow leak of water. The water from the ruptured pipe flowed along the service ducts through the building across each floor on all 40 stories of the building. Damage to the building was minor, but the damage to the electrical system was extensive. Every wire connection had to be remade and every piece of wire replaced.Thousands of miles of wiring had to be renewed. The resultant loss was several millions of dollars. These losses could be avoided using a modified design that makes sure drainage paths avoid internal service ducts. Separation of electrical conduits from the air-handling and waterpipe work can be modest in cost and allows for easier building maintenance. Similarly, ensuring that ponding water is drained away from critical items is common sense. Unfortunately this is not always part of today’s cost-conscious construction planning. Sprinkler failure, due to vandalism, is another potential cause of water damage. But do you turn the water supply off to prevent water damage and thereby accept a higher fire risk? Sprinklers are easy targets for vandals. They are easily triggered — hitting them with a hammer or applying heat will set them off — and they are difficult to turn off without accessing the main water supply. Damage can be very high, especially in buildings close to completion with plasterboard ceilings and wiring. The difficulty in solving this problem is that disconnecting the sprinklers from the water
supply will potentially cause delays in putting out a fire, increase fire damage and/or risk worker safety. Such incidents can often be avoided through project planning and careful time planning at construction sites to avoid exposure during peak flood periods. Possible prevention techniques include constructing the project outside of rainy periods, ensuring adequate protections and pumps are available and ensuring awareness of these dangers on the site to empower the work force to protect the project.
SOLUTIONS Enhanced site management can alleviate most of the problems caused by water. The awareness of the problems at all levels of construction site management can prevent the damage occurring — or at least help reduce the effect of the water. Good security can prevent vandalism, culverts can be kept clear of debris and awareness of weather conditions can help prevent major flooding. Good initial surveying can help show where hidden water may lie. Proper design and planning can ensure that only minimal areas are exposed to the effects of the water.The risk surveyor can assist when visiting the site by highlighting these problem areas and ensuring that the project management has action plans ready to go in the event of a water emergency. Regular site visits by insurance surveyors can check on implementation. Plus, robust risk management practices — as proposed by societies such as the British Tunelling Society and industries such as the petrochemical industry — can help to reduce exposures. There is no way to completely eliminate unforeseen water damage during construction. But enhanced site management, strict time planning and an awareness of the water’s lurking danger can help reduce and eliminate some of the potential damages. The underwriter’s job is to ensure the consequences of water damage are properly addressed.This can be done by allowing for it in the price, or by choice of deductible level. More powerfully, an underwriter can work with the contractor to instill a good risk management regime.
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Millions of Canadians rely on us for their security.
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And we rely on you to deliver it. All across this vast and beautiful country, the majority of Canadians depend on their Insurance Broker to advise them on their insurance needs; and that all-important sense of security. None of this would be possible without the services of insurance carriers of the highest calibre. The Insurance Brokers Association of Canada and our members are proud to count so many of the country’s renowned and trustworthy insurance companies as our friends and business partners. It is comforting indeed to be working with insurers that share a common commitment to the customer, providing the coverage they need, the value they seek and the service they deserve. It is with heartfelt thanks that brokers right across Canada pay tribute to the insurers we unhesitatingly recommend to clients, secure in the knowledge of their professionalism, cooperation and efficiency. Thanks to such partnerships, millions of Canadians rest assured that they, their families and all they possess, remain safe and secure. Your Best Insurance is an Insurance Broker
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Justin MacGregor
President, Insurance Brokers Association of Canada
The Bank Act allows banks to sell insurance only under exceptional circumstances outlined in the law, but recent activities suggest banks aren’t interested in the intent of the law. The last few months have proved to be quite busy on the public square, with discussions going back and forth on the issue of banks and insurance. As the ultimate consumer advocate, we brokers are a little surprised at some of the erroneous and factually dishonest comments that have been made on this issue. I’d like to take a few paragraphs to set the record straight. People, mainly from the banking sector, have thrown around such phrases as “we abide by the spirit and intent of the legislation” when it comes to Canada’s banks promoting insurance products online, in adjacent insurance offices and in the bank branch.Well, I think it would be worth-
32 Canadian Underwriter October 2009
while to remind ourselves about the actual spirit and intent of the legislation. Section 416 of the Bank Act states: “A bank shall not undertake the business of insurance except to the extent permitted by this act or the regulations.” From this section, we take away the principle that a bank shall not undertake the business of insurance, followed by certain specific exceptions. The intent and spirit of the law is clear. It is outlined in simple terms in this section. Now let’s examine the activities being undertaken by banks and see whether they fall under this principle. First, the Insurance Brokers Association of Canada (IBAC) has information that leads brokers to believe that banks are promoting auto and home insurance policies in their branches. Clearly this goes against the principle outlined above, since the Bank Act contains a specific prohibition against such activity (Section 416.2). Secondly, banks are building insurance offices adjacent to bank branches, causing consumers to believe they are one. At the same time, this activity creates the impression that the insurance office and branch are separate and distinct, so that
Illustrations by Greg Hargreaves/www.threeinabox.com
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regulators are led to believe the Bank Act prohibition noted above does not apply. This also goes against this principle. Thirdly, banks are promoting insurance on their bank Web sites, along with promotions on their ATMs. These also go against the principle that banks are not to undertake the business of insurance except in exceptional circumstances defined by law.
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How is anyone to believe that these activities are in line with this section of the act? The banking community in Canada has recently made curious comments on this. Chris Hodgson, head of Canadian banking for Scotiabank, said in a Globe & Mail story published on Aug. 19, 2009: “I think at some point it’s inevitable that broader financial institutions will be
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34 Canadian Underwriter October 2009
involved in insurance in a broader way. It’s coming, it’s just a question of timing.” I’m astounded to see that bankers in Canada have crystal balls that predict the future when it comes to legislation. Nor did I know that they now drafted and passed legislation, and not the elected Parliament of Canada. Statements like Mr. Hodgson’s show bankers’ complete ignorance of the current legislation and contempt for the legislative process of the Canadian Parliament. Their actions suggest a cavalier attitude towards concepts such as the rule of law.
We believe government should take this responsibility seriously and put in place a regime that will not allow activities that are contrary to the intent of the law to continue. Consumers are at a major disadvantage when insurance products are peddled at the point at which credit is granted. Parliament realized this many years ago and put this principle in legislation. It is now time for this intent to be properly enforced.
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Page 12
Land of
Exclusions
Craig Harris Freelance Writer
Four years ago, insurers adopted advisory exclusion wordings for commercial general liability policies (CGL). Since then, some contentious hotspots have emerged. Insurance Bureau of Canada (IBC) published a wide-ranging series of advisory wordings for exclusions to commercial general liability (CGL) policies in 2005. For the first time since 1986, 23 changes were made to clarify coverage intent, standardize individual endorsement wordings and address legal changes in the Canadian environment. Historically, the CGL policy has been designed to indemnify a business (insured) facing claims by a third party that allege damage to tangible property or bodily injury resulting from an occurrence such as an accident or mishap, including negligence by the insured. In some legal cases prior to 2005, particularly in certain industries like construction, court interpretations were potentially stretching the coverage net of the CGL policy.
36 Canadian Underwriter October 2009
There are no specific statistics or surveys on the level of adoption by commercial insurers, but IBC senior counsel Mario Fiorino says the association “is generally content with the take-up” of the advisory wordings. “We feel that they have clarified underwriting intent in several important areas,” he says. “The changes, we think, are accomplishing the underwriting objectives.” Specifically, the advisory wordings addressed several developments and legal interpretations by Canadian courts, such as the “continuous” or “triple” trigger theory and the scope of contractual liability. But they also codified certain exclusions that had come to be prevalent in the CGL policy via individual endorsements, such as sexual abuse, asbestos, data, mould/fungi, nuclear, terrorism and war. In addition, the wordings imposed a new “general aggregate” limit designed to reduce the potential amount payable by the CGL insurer in situations in which there is a frequency of claims within one policy period. Some observers, such as Christopher Dunn, a partner with Dutton Brock and an expert on CGL policies in Canada, agree the wordings have, so far at least, withstood legal tests. He notes that prior exclusions made by endorsement, such as mould and the specification that electronic data is not tangible property, have already been tested
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Page 13
in favour of insurer wordings, or not challenged at all. However, Dunn cautions that even four years is not long enough to gauge whether recommended exclusionary wordings are bulletproof. “If you look at an occurrence that happened in 2005 or 2006, it can easily take four to five years for a case to wind its way through the courts,” he says. “This is in many ways like trying to turn an ocean freighter on a dime. And then once it finally starts to turn, you realize there are all these other rocks in your path.” In particular, Dunn argues two “big areas” addressed by the IBC wordings may yet yield future litigation — the continuous trigger theory and the scope of contractual liability. On the first issue, courts in Canada have tried to define “trigger theories” to demonstrate when losses actually occur in a CGL policy. In all, there are four trigger theories: exposure, manifestation, continuous (or triple) and injury-in-fact.
requiring the replacement of the foundations at considerable cost. In its revisions, IBC inserted wordings to preclude coverage for known losses that occurred prior to the policy period. Wordings were also added to explain when bodily injury or physical damage is deemed to have been known to have occurred.The goal was to overcome the trend of the courts to expand the time period covered by a continuous trigger theory, according to IBC documents. Dunn says although this revised language could withstand a court test, “it will not likely have the effect insurers desire of negating coverage as soon as the damage becomes known to the in-
TRIPLE TRIGGER THEORY
sured.” He argues the so-called “Montrose provision” will apply only if there is property damage or bodily injury known to the insured of a sufficient magnitude to trigger a reporting obligation under any current or prior liability policy. In other words, any knowledge of such a loss would have to be clear, significant and obvious. “The insured would not likely be denied coverage for losses that it was aware of, unless a court finds that such damage was sufficient to have met the policy requirement that it should have been reported under the CGL policy to the insurer,” Dunn says.
Of these, the continuous or triple trigger theory has caused insurers the most concern. From a legal perspective, it holds that from the time the damage occurred — and continued to occur — to the time the damage became manifest, any and all policies in effect during that range of time would apply to the loss. The clear result of this legal interpretation is that many CGL policies, and insurers, could potentially be on the hook for one claim. In one major case, Alie et al v. Bertrand & Frère, Lafarge Canada (2002). the Ontario Court of Appeal held that, depending on the policy wording, coverage under a CGL policy could still be triggered even though the damage was sustained to some extent before the policy period began. One of the longest and most costly trials in Canada, the case lasted more than 15 months and included arguments from lawyers representing 23 affected insurers. It involved the longterm deterioration of concrete foundations due to improper concrete mix,
38 Canadian Underwriter October 2009
Two big areas addressed by IBC wordings may yet field future litigation — the continuous trigger theory and the scope of contractual liability.
CONTRACTUAL LIABILITY The second notable area of the amended CGL exclusion wordings, according to Dunn, is the revision regarding contractual liability. In recent years, insurers have witnessed a trend of smaller clients assuming the liability of bigger firms through legal contracts and hold harmless agreements. Insurers may believe they are insuring only the business inter-
ests of a small contractor for example, but a legal contract with its suppliers may result in much broader liability and scope of coverage. Dunn cites the example of a cable installer doing work on behalf of a large cable company. A contract may place liability on the installer for any damages, even if the cable company itself was negligent. To respond, IBC changed the contractual liability coverage language to exclude coverage for the “sole negligence” of the indemnified party (or additional insured). It also modified the definition of “insured contract.” The goal was to exclude what Dunn calls the “gratuitous assumption of liability by the insured.” For Dunn, this revised wording would likely be upheld in court, although it has yet to be tested. “Where the insured is in whole or in part liable for the loss, an underwriter can accept and properly price the risk,” he says. “Where the assumption of liability by the insured is gratuitous (without fault), this is not capable of being priced, as the underwriter is effectively insuring the operations of the third party.”
CGL AND CONSTRUCTION The construction industry has tended to be a lightning rod for litigation. Several recent cases involving the role of subcontractors — which is not directly related to the IBC exclusion wordings — have created some concern for insurers. At issue is how far courts are willing to expand the definition of “subcontractor” to provide coverage for work done that may otherwise have been excluded under a CGL policy. In AXA Insurance (Canada) v.Ani-Wall Concrete Forming Inc. (2008), builders sued Ani-Wall because defective concrete resulted in the need for removal and replacement of footings and foundations. Dominion Concrete supplied the concrete to Ani-Wall. AXA acknowledged the damage to the houses constituted property damage within the meaning of the CGL policy, but it held that the loss was excluded under the common
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“Your Work” exclusion. Ani-Wall argued that Dominion Concrete was not a supplier, but a subcontractor and thus was covered under the subcontractor exception to the “Your Work” exclusion. The Ontario Court of Appeal found in favour of Ani-Wall. “The definition of ‘supplier’ versus ‘subcontractor’ is a critical difference,” Dunn says. “In AXA v. Ani-Wall, the court stretched the definition of subcontractor as far as it can reasonably be stretched... The concern is that they may go further in the future. If mere suppliers are found to fall within the exception as subcontractors, this would dramatically expand the scope of the insurer’s exposure.” Interestingly, in a similar case in Western Canada, the British Columbia Court of Appeal came to the exact opposite conclusion. In Progressive Homes Limited v. Lombard General Insurance Company of Canada (2009), the issue at hand involved determining whether a general contractor should be afforded coverage for damage to a leaky building. In addition to its CGL policy, the insured, Progressive Homes, had purchased a Broad Form Property damage endorsement to expand coverage after completion of the project.The endorsement indicated only that the policy would not cover work performed by the named insured. It did not mention subcontractors, whose work would presumably be covered under the endorsement. In a 2-1 ruling, the B.C. Court of Appeal held that there was no defence coverage to a general contactor for a subcontractor’s work.
OTHER ENDORSEMENTS Of course, the construction industry is just one of many that rely on coverage and interpretation of the CGL policy. From retailers to transportation firms to manufacturers, the CGL is the most commonly purchased form of commercial insurance protection. Given the widespread scope of the policy, one potential exclusion conspicuous by its absence in the 2005 IBC advisory wordings relates to flu pandemic.
40 Canadian Underwriter October 2009
Page 14
Even with the experience of SARS in Toronto in 2003 (which resulted in insignificant claims activity), the IBC did not create an advisory pandemic exclusionary wording. Now with the threat of H1N1 and a potentially busy flu season, there is still no reason to jump the gun on any pandemic exclusion wording, according to the IBC’s Fiorino. “The CGL policy will respond to bodily injury or property damage, but the general feeling is that there will not be widespread claims (due to flu pandemic),” says Fiorino. “That does not mean there will not be creative pleadings to try to trigger the duty to defend or indemnify.”
Insurers are likely to closely scrutinize the alleged causal connection between a claimed infection or exposure and the actions of the insured. While it is unlikely that a virus or flu would result in “damage to tangible property,” a pandemic could lead to coverage claims under the bodily injury wording of the CGL policy, according to Dunn. “The CGL responds to bodily injury caused by an ‘occurrence,’ which is defined as an ‘accident,’” Dunn says. “Anything unexpected or unintended from the standpoint of the insured qualifies as an accident. Even courting a risk may still qualify as fortuitous. It is hard to imagine how an insured could allow a flu to spread almost intentionally or with such a degree of certainty that it would not be seen as ‘unexpected or unintended.’ As such, there are few scenarios where one could see the CGL not responding to an allegation of negligence or breach of duty resulting in the spread of or exposure to a pandemic unless specific exclusionary language is developed and instituted.” According to the Marsh 2009 Risk Alert report, H1N1 Influenza: Preparing for and Responding to a Pandemic, “the standard
(CGL) policy typically responds to bodily injury, sickness, or death allegedly caused by the insured. Insurers are, therefore, likely to closely scrutinize the alleged causal connection between a claimed infection or exposure and the actions of the insured. Because insurers take the position that the policy extends only to actual injuries, they are also likely to look closely at the nature of injuries alleged by third parties and may reject claims based on fear of exposure, exposure without actual symptoms, or other mental or emotional injuries.” A proposed new advisory wording for a pandemic endorsement is, in fact, waiting in the wings as of press time. A pandemic endorsement proposed by the Toronto Insurance Conference (TIC) and backed by the Insurance Brokers Association of Canada (IBAC) is now before the board of the Insurance Bureau of Canada (IBC). As proposed, the pandemic endorsement would take effect during a declared emergency and extend the term of an expiring policy or suspend the cancellation notice period for a policy pending cancellation. The proposed extension of an expiring policy may be of varying length, depending on the length of the emergency, but can be up to a maximum of 120 days (90 days, plus up to 30 days’ time allowed for the resumption of business). The endorsement includes advisory wording, meaning that even if IBC’s board adopts the endorsement, it would be left up to individual insurance companies to decide whether or not they would adopt the same wording.The proposed endorsement would not apply automatically to any property and casualty insurance policies. Apart from potential pandemic triggers, time will tell how the IBC CGL policy advisory wordings will be interpreted to clarify underwriting intent and scope of coverage. Ultimately, it is the courts that will provide insurers — and clients — with guidelines on what is and what is not included in the CGL policy.”
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pg42,44Letters v1_DG_VM
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Caps and Consumer Understanding Letter to the Editor
Mary Lou O’Reilly
Vice President, Public Affairs & Marketing, Insurance Bureau of Canada
42 Canadian Underwriter October 2009
I read with interest your editorial proposing that IBC go directly to consumers for their views on the cap and reducing claims costs. (‘Are Caps Off the Endangered Species List?’ Canadian Underwriter, July 2009.) We couldn’t agree more and have been doing just that. In a nutshell, we have confirmed that consumers like what they’ve got when they know what they’ve got. IBC commissioned POLARA in March 2009 to survey Nova Scotians and New Brunswickers about their perceptions of auto insurance and the cap on pain and suffering payouts. The results confirmed that consumers are confused
about the auto insurance product. Specifically, they are in the dark about how the cap on minor injury payouts works. Often they think it applies to more than it actually does. By extension, and not surprisingly, support for the cap is low. However, the survey also found that once consumers understood how the cap works, acceptance of it increased by more than 15 percentage points. Support increases further when consumers are aware of the cost savings associated with the cap. Specifically, support for the cap was 76% in Nova Scotia and 74% in New Brunswick for consumers who knew that losing the cap
would cost at least Cdn$200 more in premiums. So, yes, we know where consumers stand on this issue, and the appropriate industry response is clear — increased consumer education. IBC has done much of this work already, including submitting dozens of letters and op-eds to newspapers, meeting with journalists directly to ensure they understand the cap and adding user-friendly videos to our Web site. We will continue to enhance these efforts. We remain committed to communicate credible and accurate information to the public. After all, consumers will benefit when they know all the facts.
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Regulating Oil Tank Spills
Letter to the Editor
Bill Adams
Vice-President, Atlantic, Insurance Bureau of Canada
Michael Freill’s proposal that we reduce oil spills by offering homeowners premium reductions on their insurance policies rather than through government regulation sounds good in theory. (‘Oil Change,’ Michael Freill, Canadian Underwriter, August 2009) The reality, unfortunately, is that the math just doesn’t add up for
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44 Canadian Underwriter October 2009
those buying the policies. Only a small percentage of the premium dollar is allocated for claims resulting from oil leaks and spills from tanks. Any discount insurers could offer for replacing or risk-proofing older oil tanks would be negligible compared to the cost of the upgrades or purchase of a new tank. The discount simply would not provide a financial incentive significant enough to encourage homeowners to improve the safety of their oil tanks. This is why Insurance Bureau of Canada (IBC) maintains that government regulation is the right approach. It should be noted that IBC rarely advocates for increased regulation — on any issue — because it is usually not the most effective solution. But in the case of maintaining oil tank quality, a certain degree of government enforcement appears to be the best way to make a difference. Prince Edward Island is the first and, so far, only Atlantic province to enact legislation in an effort to reduce leaks and spills from oil tanks. Though critical of the concept of government regulation, Freill offers several insights that the P.E.I. data has brought to light. For example, the data helps to identify the best style and material of a tank, as well as the ideal lifespan after which a tank should be replaced. If there are other ways that the regulations can be improved, IBC is happy to work with the government to make the system better. Regardless, P.E.I. should be praised for taking leadership on this issue. Freill calls on the industry to collect oil leak claims data. In fact, IBC has been collecting industry data for all four of the Atlantic provinces since the beginning of 2008. When we have compiled sufficient data to reach statistically meaningful results, we will use the findings to help governments implement or fine-tune regulation to ensure oil tank integrity. It is true that insurance-driven financial incentives can be a motivator for home improvements. In the case of oil tanks, however, the industry can have the greatest impact by working with governments to implement regulation that will help homeowners reduce the risk of storing heating fuel.
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Wild West of Credit Scoring Canadian property and casualty insurers have been using consumers’ credit scores to help underwrite risks in commercial, home and auto lines for more than a decade. Most provincial regulations have little to say about the matter. So why are consumers realizing only now that insurers in Canada are using credit scores as a ratings variable to price premiums? And how should these concerns be addressed? By DAVID GAMBRILL
46 Canadian Underwriter October 2009
Canadian
property and casualty insurance companies have been using credit-based insurance scores to help underwrite home, commercial and auto policies for at least the past 10 years, but you would never know it after a consumer outcry related to its use in 2008-09. Insurance companies are only now coming to grips with the lack of consumer awareness around credit scores, which are basically numbers representing a consumer’s ability to pay bills and manage debt. Credit scoring is widely accepted as a highly predictive underwriting tool, since statistics show that the better the credit score, the less frequently a consumer is likely to make a claim. For the most part, provincial insurance regulators have let the practice go, with a few notable exceptions. Ontario prohibits the use of credit scoring for underwriting auto lines only. In Alberta, the regulator does not allow an insurer to use credit scoring in auto lines unless the consumer explicitly grants consent to its use. If an Alberta insurer insists on seeing a credit score before underwriting an auto risk, the regulator would deem that insurer to be engaged in an “unfair practice.� So for all intent and purposes, credit scoring in Alberta is prohibited in auto lines without the consumer consenting to it. In Nova Scotia, the regulator is looking into the possibility of banning the use of credit in auto lines, although it is consulting with other jurisdictions before it comes to its final decision (as of now, no such prohibition exists). The rest of the provinces canvassed are looking at the issue, but no prohibitions exist against using credit scoring in home, auto or commercial lines. Federal privacy legislation governs the collection of the data, although this legislation speaks more to whether the consumer knows his or her personal data is being collected, as opposed to what insurers are doing with it.
October 2009 Canadian Underwriter
47
PERSONAL INSURANCE | COMMERCIAL INSURANCE
THEY WERE FORCED TO FLEE WITH JUST THE CLOTHES THEY HAD ON.
It was a bright and sunny day on April 30th in Halifax, Nova Scotia, so it was easy to see the thick, black smoke coming from a nearby forest fire.
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By nightfall the flames had crept up close, too close, to neighbouring homes. Some 500 families, like Isabella, Holly, little Lauren and their parents, were forced to bundle a few things together and abandon their homes. Like everyone else, the girls had no idea what the next day would bring. What it brought was a remarkable and uplifting response from RSA’s Atlantic team, a group of whom were conducting business some 1200km away when the fire started. They saw the drama unfolding on an airport TV.
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At first light, a team of Underwriting, Sales and Claims met up to put together and execute a plan. We quickly made the decision to waive all deductibles, despite not knowing the full scale of loss.
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When the smoke cleared the family found their house relatively unscathed by the fire. Cue sighs of relief from them, and a few from us too.
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Wild West of Credit Scoring So in terms of using credit scoring as a means to underwrite insurance risk, it’s been a veritable ‘Wild West’ in Canada since at least 1997-98 (earlier in Quebec). So why all of a sudden are Canadians becoming aware of what’s going on? Five years ago, the Insurance Brokers Association of B.C. (IBABC) posted a report on its Web site calling for an industry-wide discussion on the use of credit scoring for the purpose of insurance underwriting. At that time, the use of credit scoring in the United States had been widely debated, and IBABC suggested that the topic be discussed in Canada as well. At that time, the call for an industry debate about credit scoring met with resounding silence. In late 2008, the Insurance Brokers Association of Ontario (IBAO) expressed concern about evidence that suggested insurers were using credit scores to rate risk in auto lines, contrary to the province’s prohibition. Public concerns raised a crescendo in early 2009, when daily media started reporting stories of people who were unaware that insurers were using their credit scores for the purpose of underwriting their home insurance as well. Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), issued a bulletin in February 2009 re-iterating its prohibition against the use of credit in auto lines. On Apr. 24 FSCO followed up with another bulletin, stating it was “pleased to report that almost all insurers have indicated they understand the [February 2009] bulletin, and already conform to the practices outlined in the bulletin, or plan to do so in the near future.” FSCO went on to say it was continuing “…to actively review this issue. Statements from automobile insurance industry participants that suggest the review is complete, or that FSCO has determined that specific insurance companies are in conformance with the bulletin, are incorrect and should be disregarded.” Concerned about what was happening, Ontario insurance brokers held a press conference in May 2009 calling for a total prohibition on the use of credit scoring in homeowners’ lines 50 Canadian Underwriter October 2009
as well. One month later, IBABC announced it had asked the B.C. legislature for a change to the provincial laws that would prohibit credit scoring for underwriting purposes, period. Needless to say, insurance companies do not agree with the broker associations’ calls for prohibition. For their part, insurance companies argue
All of the models tend to say the same thing: the higher the credit score, the lower the loss frequency. the use of credit scoring requires clear (self-regulated) market conduct guidelines, greater transparency, fairness and consumer education — not bans. They note consumers with good credit scores — representing a majority of consumers, in fact — stand to gain premium discounts because they are a good risk for insurers. Sniffing smoke in the air, the ‘sheriffs’ in town, the provincial regulators, are starting to round up a posse. Credit scoring was a hot item of debate at the Spring 2009 meeting of the Canadian Council of Insurance Regulators (CCIR). Word is that FSCO has recently completed a study of when, where and how credit scoring is being used. As of press time, however, the results of that study had not yet been posted on the CCIR Web site. According to sources, publication of the report is imminent. So the debate about credit scoring has
finally moseyed along to the Canadian frontier and the outcome remains uncertain. One thing is for sure: This town sure is talkin’ again, what with the presence of this credit scoring ‘stranger’ in our midst…. Who is that Masked Man? A credit score or report is a history of how consistently a consumer pays his or her financial obligations. “On a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send…credit reporting agencies specific and factual information about their financial relationship with you — when you opened up your account, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit, etc.,” says a report by B2B Credit Chex Inc., a company that provides a number of advisory services related to credit. In Canada, two agencies collect such credit information: Equifax and TransUnion Canada. Using this information, these agencies produce credit reports for use by financial institutions, which basically want to know whether a consumer is a good risk to pay back a prospective loan. The credit reports include a “credit score,” a threedigit number generated by a statistical formula (or algorithm). Equifax and TransUnion Canada use a scale from 300 to 900 — a score of 300 suggests a poor credit risk and 900 is an excellent credit risk. B2B notes that the proprietary formula used to establish the score includes: • a person’s payment history (whether or not they have paid their bills on time), • amounts owed (including current credit limits), • length of time on file (how long a person had has credit accounts), • new credit (indicates how often the person has sought credit, determined by the number of credit inquiries that have been made) and • the type of credit (be it car loans, lines of credit or credit card balances). Speaking at a July 30, 2009 seminar
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Wild West of Credit Scoring organized by the Insurance Institute of Ontario’s Hamilton chapter, Bruno Santia, vice president of B2B, says 98% of all the credit granters in Canada report financial transactions on a monthly basis to Equifax and TransUnion Canada. “Ninety-eight per cent [transaction reporting coverage] in a country where we are the highest users of credit or debit-type transactions,” Santia observed. “Do you think they know us? Do you think they can track us by the second as to where we’ve been? Yet less than 15% of people are aware of what [their] score is.” Credit scores are strictly about payment history and are not, strictly speaking, a measure of a policyholder’s insurance risk. But credit scores do play a part in something called a “credit-based insurance score,” which was developed by Fair Isaac Corporation (FICO) and introduced to the United States in 2003. Based in the United States, Fair Isaac designed and developed the credit scoring models used by Equifax in Canada. Credit-based insurance scores have been part of the Canadian insurance landscape since 1997-98. “The real purpose of those [creditbased insurance scores] was to see if we could identify something within the individual consumer’s credit report that correlated statistically with whether or not they were likely to have losses in the future, or whether they were likely going to be larger losses,” says Lamont Boyd, the director of product management for FICO. Predictive Power That correlation has apparently been found. “One of the reasons why we introduced credit-based insurance scores is because it is extremely predictive,” Boyd said. “It is something that the insurance industry, from which I came many, many years ago, had never really considered effectively. It just added another piece of information to the overall underwriting or pricing decision. “It was never intended to, and does not replace all of the other pricing factors that should be considered. It’s just one more tool in the arsenal for 52 Canadian Underwriter October 2009
the insurance company underwriter to make the best possible decision based on the exposure that’s presented to them.” FICO’s conclusions have been replicated using a variety of different in-house models, insurers say. “They all tend to use a lot of the same variables and just weight them differently,” Troy Duhot,
financial obligations, they also tend to be responsible with respect to their insurance obligations as well.” Consumers arguing that insurers are using credit numbers that don’t correlate to risk are likely to be told that that ship has already sailed. Not even insurance brokers in favour of prohibiting credit are making this argument. “My perspective is that we are past the debate of whether it is predictive or not,” says Martin Beaulieu, senior vice president of personal lines at Intact Insurance, reflecting a general consensus within the industry on this aspect of credit scoring. “I think that everybody, even those who are against the use of it, will acknowledge that this is predictive. Where we’re at now is, now that we know it’s predictive, how are we going to use it such that consumers can say, ‘This is the right way to do it.’”
Credit scoring was never intended to, and does not replace all of the other pricing factors that should be considered. It’s just one more tool in the arsenal for the insurance company underwriter to make the best possible decision based on the exposure that’s presented to them.
Transparency and Education One of the biggest problems for insurers right now is that consumers don’t know much about the underwriting process. They don’t know much about the ratings factors used to calculate their risk, and so they don’t understand how their premium is derived. That, in turn, brokers argue, makes it difficult to explain to consumers why two similar risks might be priced differently, based on a consumer’s credit score. “The reason brokers are having some difficulty with [the use of credit] is that generally credit isn’t a transparent process,” said Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC). “So what happens is that, built into the underwriting process, will be some action triggered by a credit score. Because a lot of credit systems are proprietary, the underwriters themselves — the first-line underwriters that you are dealing with [at an insurance company] — can’t explain to [the broker] what the issue is. So the first concern we have is that any underwriting criteria should have some level of transparency. As an industry, we’ve said that consumers ought to know why they are being rated the way they are, what the risk assessment is, so they can mitigate their
senior vice president of EGI Insurance Services, said. “All of the models tend to say the same thing: the higher the credit score, the lower the loss frequency.” Why are those scores so powerfully predictive? “We don’t know if it’s a measurement of responsibility,” Boyd said. “We don’t have behavioural psychologists that tell us that. But it seems to me, and it seems to others that have looked at this, that when a person is decided to be responsible or conscious with respect to their
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Wild West of Credit Scoring risk and take some personal responsibility to improve their situation and that means that they need to know.” In fact, insurers are also arguing in favour of more transparency, for several reasons. One is a public policy reason. Simply put, most consumers have a good credit score, and that would make them a low risk for losses and hence eligible for premium discounts. Intact has done a study, for instance, that suggests 75% of policyholders have a good or decent credit score, only 10% have a poor credit score and the rest are somewhere in between. When citing numbers, most P&C industry representatives in Canada point to the results of a July 2007 report to the U.S. Congress by the U.S. Federal Trade Commission. The report, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, reveals that “if credit-based insurance scores are used, more consumers (59%) would be predicted to have a decrease in their premiums than an increase (41%).” “If you’ve got a good credit score, you are going to get as good a rate, if not lower,” Duhot says. “The problem with [credit scoring] from a public policy standpoint is that the people who will get a better rate today will not complain [to regulators] that they’re not getting better rates. It’s the people who get the worse rate who are going to become extremely vocal, even if they are vocal minority.” Unfortunately, those who are vocal in opposition are often relying on misconceptions about the reasons for their being disadvantaged, insurers say. Leonard Sharman of The Co-operators was in the front lines dealing with the public when the company announced in July 2009 that it was introducing credit scoring as a rating variable. “It’s been a bit of an eyeopening experience going through this personally, realizing how little consumers understand about the product,” Sharman said. “I mean, we knew that already, but it really hits home when this whole issue came to light…. A bit of surprise to us was [to see] how much of a concern there was from consumers…who didn’t realize that this was a fairly widespread practice already in the industry.” 54 Canadian Underwriter October 2009
There is a great deal of public suspicion around credit being used in a discriminatory fashion. Sharman, for example, said he had to dispel a widespread popular misconception that low income is correlated with a poor credit score. Duhot has seen this, too. “The big misconception is that everyone is saying, ‘Oh my gosh, the people who
The reason brokers are having some difficulty with the use of credit is that generally credit isn’t a transparent process. Some action might be triggered by a credit score. Because a lot of credit systems are proprietary, the underwriters themselves can’t explain to [the broker] what the issue is. make a lot of money have a good credit score.’” Duhot said. “There have been numerous studies to show that that is not true. Your credit score is a function of how you use the money you have, not how much money you have. As long as someone is… on time paying their bills, they handle their money the right way, they are going to have a good score.” Sharman said The Co-operators took great pains to research this issue before adopting credit scoring as a rating variable. “We did a lot of…our own internal
studies and we wanted to be comfortable that it wasn’t discriminatory in any way,” he said. “We checked internally [to see whether there was a correlation between] credit scores versus incomes as best as we could, and that showed that there was no correlation between your credit score and your actual income…. That made us comfortable that it wasn’t discriminatory against lowincome people.” In fact, credit scores might be better for the consumer than other rating variables precisely because the consumer can do something about it, insurers say. “You can influence your credit score,” said Bob Fitzgerald, executive vice president and chief operating officer of Aviva. “You can’t change your age, and it’s pretty damn difficult to change your sex, but you can absolutely pay your bills and live within your means and move up your credit score.” That leads Fitzgerald and other insurers to advocate for improved consumer education around credit scoring. “We think there should be a public dialogue to get the facts out, because there are a lot of myths about credit,” Fitzgerald said. “[We need] education in terms of the public, politically and distribution education — i.e. brokers — because I’m not sure if you asked or polled a bunch of brokers if they would have the in-depth knowledge that maybe some of the company guys have.” On Bans and Market Conduct Which brings us to the broker associations’ requests to the regulators to ban the practice. No insurer said as much, but it’s probably safe to assume many insurers feel a ban to eliminate problems related to credit is akin to burning down the house to get the flies out of the living room. For many insurers, the ideal world would be to start the public education piece first. Fitzgerald says public education was a key factor in reversing a referendum vote about credit scoring in Oregon, which initially looked to be going the way of a ban until consumers were told credit scoring would actually lead to more premium decreases than increases.
COVER STORY
Wild West of Credit Scoring Such a public dialogue would include a discussion with politicians and regulators about how the practice might be conducted transparently, fairly and ethically, before prohibitions are even considered, much less adopted. Fitzgerald agrees the use of credit should be regulated in some fashion. “We do think it needs to be used in a controlled way,” he said. There should be “a level playing field” and “the industry should self-regulate through a Code of Conduct.” But pointing to incidents of questionable market conduct, and emphasizing their role as consumer advocates, representatives of the IBAO and IBABC say the discussion should be taking place in a kind of “safe zone,” in which consumers are protected by prohibitions banning the use of credit. Once the industry and its regulators have reached agreement on how to proceed, restrictions can be revised or dropped as needed. In arguing for the most severe restriction, an outright prohibition, some brokers say insurers are using credit scoring in vastly disparate ways. In a bulletin to brokers, one insurer, for example, calls for a 20% increase on ‘B-rated,’ secondtier credit risks. In response, another insurer discusses the need to “protect itself” by implementing a 25% surcharge on property policies transferred by the above insurer. Still another insurer says it will accept risks transferred from the first insurer only if the applicant has a source of income or is gainfully employed and has received an A-tier credit rating from the first insurer. Basically, the insurers above are trying to protect themselves from being “selected against,” which means taking on poor risks transferred from other companies. Brokers feel consumers need to be protected in light of these kinds of actions. “I can tell you from our perspective that a prohibition is the only way it’s going to work, because you can’t police the insurers adequately,” says Randy Carroll, CEO of the IBAO. “If you take a look at what’s happening at least in Ontario, it’s rampant in regards to insurers using credit where they shouldn’t be using credit today. I think insurers had an opportunity, way 56 Canadian Underwriter October 2009
back when, to [establish] a case that they may want to take the voluntary approach versus what we’re asking for, which is a complete prohibition.” Better to have a prohibition in place during the discussions about credit, adds IBAO’s president-elect Bryan Yetman. “I think if the progression is a ban, discussion, reconsideration or re-
Now that we know credit is predictive, how are we going to use it such that consumers can say, ‘This is the right way to do it.’ positioning, that’s probably a far safer approach than, ‘Let’s just continue to do what we’ve done in the past.’ What we’re seeing now is extremely silly things taking place in the marketplace in really only nine short months. There’s no point of having the discussion after 12 months [without a ban], because those who have been discriminated against will have been discriminated against, and those who are advantaged will continue to be advantaged.” Chuck Byrne, CEO of IBABC, also thinks a ban is the best way to go, adding the following qualifier: “Being pragmatic, obviously if the prohibition isn’t about to come, then we have to seriously look at some kind of market conduct approach that will stabilize [its use] across the industry for the sake of the consumer,” he says. Carroll agrees. “Market conduct is probably one of our biggest issues today.” Not all broker associations are alike, it
should be noted. Some say they might favour a type of solution that has some resonance with insurers — namely, rules around the use of credit that would ensure policyholders are treated fairly and not left uninsured as the result of a poor credit score. For insurers, some form of selfregulation would be preferred. To this end, Beaulieu and Fitzgerald both note the Insurance Bureau of Canada (IBC) already has a committee preparing a Code of Conduct around the use of credit scoring. “At the moment, the industry is looking at, working on defining guidelines as to what is the proper use [of credit scoring] and being proactive as to how to behave as an industry rather than having someone else come in to tell us how to do it,” Beaulieu says. Based in Georgia, Duhot summarizes some existing regulatory models in the United States. “It’s pretty easy from a regulatory standpoint,” he says. “In a lot of states, if you’re rating on it, you have to file it. You have to file the credit model you’re using. Anybody that wanted to see how his or her score was calculated could quickly see that. In addition to that, there are requirements when we put (an inquiry) on a line of credit that the agent and broker let the consumer know before they go to credit. When it’s run, there’s a document print-off that’s given to the insured that has partial data, what the credit score is, and it tells them how to contact the different bureaus to dispute it if they disagree with it. They’re designed so that people don’t run it without telling the consumer, first of all. And second, there’s a dispute mechanism in place.” The above model is likely one of many that will likely be discussed in Canada over the next year. No one is expecting a rapid-fire solution to the credit scoring issue. Thus far, Canadian regulators appear to be trying to research the extent and type of its use. Certainly the idea of a ban has made the issue a “lightning rod issue,” as one insurer describes it. And thus the discussions in this town have begun. The outcome of this arrival of ‘High Noon’ awaits.
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Where Will You Be in
2015?
Renée Durepos Vice President, Operations, Keal Technology
Where would you like your brokerage to be five years from now? Do you have a clear, concise vision and plan to get there? If not, you have a significant opportunity to define your business objectives, create a plan, align your staff to enforce a shared vision and reap the rewards. Above all, ensure your technology works within this plan. According to The Insurance Institute of Canada, the number of brokerages and employees combined is more than 58,000. We are fortunate to see many brokers across this great country. Although they are all different in size and operational jurisdictions, they share common values, goals and business challenges. Basically, four pillars carry a successful brokerage: human resources; sales and marketing; technology; and finance and administration. Without an equivalent amount of attention, time, and energy devoted to each area, a brokerage cannot prosper in the long term.
HUMAN RESOURCES Having a strong team to grow the business and service clients is paramount. Theoretically, the more experienced the team, the greater its strength. However, with more experience comes increased resistance to change the way “we’ve always done it.” Gord Stanton, controller at McDougall Insurance Brokers, explains further: “We are always looking for ways to reduce costs, especially the areas in which we have more control,” he says. “We can become somewhat complacent in our job processes and routines
58 Canadian Underwriter October 2009
and as such are required to occasionally stop and review what we do, why we do it,and how we can do it better.” Identifying opportunities to evolve, work smarter and manage change within the team is essential, but very difficult. Brokers can do this independently or seek the guidance of specialists/consultants. It is important that this gets done. Experience shows that successful brokers do the following: • redefine job descriptions to fit today’s competitive landscape and alignment to the brokerage’s business plan; • consistently measure daily, weekly and monthly outputs; • invest in training to ensure their teams are equipped to support the brokerage’s quest for success; and • have a quality assurance program to ensure clients and prospects are serviced as intended. (Working backwards from this intention helps to define training objectives.)
SALES AND MARKETING Although often regarded as an expense — one that typically gets slashed first, without solid marketing initiatives to drive sales efforts — a brokerage cannot achieve the ultimate long-term goal of profitable survival. Central to the selling strategy is the plan behind the strategy. Brokerages must define what their ideal client looks like. Every level of the broker-
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age should be aware of and involved in this process in order to reap the benefits. To illustrate further, a brokerage must know who its A, B or C clients are. Each level of the brokerage must then strategize and follow-through on its service plans for these clients. Marketing strategies and initiatives are equally important to a brokerage’s unique value proposition and sales strategy. Brokerages need to market and package their uniqueness constantly in an effort to build top-of-mind awareness and grow business. A cocktail consisting of several elements of the marketing mix should be explored. These elements include: print and electronic advertising; direct mail; radio; television; billboard; public relations; and highlighting commitment to the community using corporate literature — including a Web site — client testimonials and so on. Whatever medium you select, your strategies and initiatives should be proactively planned, executed and measured to gauge return on investment. Technology plays a critical role to track and measure marketing campaigns. A secure, integrated tracking tool within a broker management system (BMS) is essential, and should offer the ability to: • import and export prospects and/or customers from one database; • create target lists based on user-defined criteria and track the activity and the results of working that list; • generate automatic, fully customizable letters that contain client and policy specific information, as well create mailing labels and/or address envelopes directly; • run campaigns that automatically generate recurring suspense actions to designated users and provide reporting capabilities to analyze opportunities; and • track marketing costs by campaign.
TECHNOLOGY Technology has to be adapted to the realities of the Canadian marketplace. Brokers in Canada are heavily involved in servicing their clients, whether it is taking client enquiries, change requests,
60 Canadian Underwriter October 2009
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filing claims for their insured’s or simply collecting premiums. Operating in a paperless environment is one important factor responsible for bringing efficiency, cost reduction and improved quality of service to property and casualty lines. Gartner Inc. research indicates that up to 90% of corporate memory is on paper, and 10.5% of these documents get lost or misfiled. Augmenting this observation, the average company will spend $20 in labour to locate one document, $120 to find one misplaced document and even up to $220 to recreate one lost document (if even possible). A paper-free environment is a solution that a brokerage cannot afford to overlook. According to a ComputerWorld Canada article, printing and print-related processes like document handling, storage (physical space) and processing costs approximately 6% of a company’s income.This sobering figure does not take into account business continuity in the case of a natural disaster or E&O exposure for misplaced, lost or damaged documents. Recall the tornadoes recently in southern Ontario: if your brokerage was unexpectedly destroyed, could you survive without access to your filing cabinets? Unless you have faced these kinds of situations before, it’s easy not to think about the worst-case scenario and, as a result, get caught off guard. To operate in a paperless environment, brokers simply scan and then shred necessary documents via integrated document scanning and management systems, and then store the digital version in their BMS. Better still, brokers can eliminate paper from even coming in the office. Using technology to operate efficiently means freeing time for employees to focus on sales. To achieve this, the BMS must be a fully integrated solution, encompass the entire business and powerful enough to support unlimited growth. In addition, it should offer single-entry, multiple-insurer, real-time uploads and downloads. Further support-
ing the various needs of each Canadian broker, the system should be secure, but written with open architecture to allow for easy integrations with third-party vendors like VoIP telephony solutions and other applications operating within the brokerage. Of course, daily, tested data back-ups are equally essential.
FINANCE AND ADMINISTRATION Healthy margins are necessary for longterm survival. Quite simply, this is the return on investment for the broker. Without adequate returns, brokerages will be sold and owners will be better off investing somewhere else. We see successful brokers’ net income before taxes, interest and amortization (NIBITA) operate with a minimum 20% margin of re-occurring revenues or commissions. Non re-occurring revenues usually come in at an average of 7% in addition to the above. Berris Mangan Chartered Accountants conducts annual surveys on broker profitability. In a recent April 2008 article, Mike Berris, co-founder of Berris Mangan, reported that less than 10% of brokers actually achieve these margins. The study also notes the most profitable firms enjoyed 30% margins when proper systems were in place that allowed staff to focus on sales. In order to arrive at the above, brokers have to limit their percentage of employees’ salaries to 50-55% of the commission dollar.This includes benefits and bonuses. Owner’s salaries have to be normalized. Operating expenses should be limited to 20-25%. Budgeting is an essential piece of the company’s business plan. It needs to be followed in a disciplined manner. Brokers have access to qualified consultants like Cookson Walker and Berris Mangan to help assist with and support them through this vital process. Numerous opportunities exist for brokers to increase revenues. One example is to establish a premium finance department or company, or even venture in financial services (an option the banks presently offer).
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Moving Stories For an insurance brand to be successful, consumers must have some sort of emotional connection to that brand. Adrian Hall
Director, Corporate Marketing and Communications, RSA
As both insurance companies and brokers battle for market share in an increasingly competitive industry, the ability to connect emotionally with customers is vitally important. We are all familiar with brands. We use them to make buying decisions on a daily basis. We all have an opinion about them, too. Is a BMW better than a Ford? Is Pepsi better than Coke? What’s clear is that it’s not just the logo or the colour of the packaging that matters. It’s the emotion and the experience of the brand that goes with it. More companies are now seeing the value of establishing an emotional link between their customers and their brands. Companies that have been successful at creating that connection with their customers and stakeholders have learned that they not only benefit from stronger results, but they are able to command a premium in their chosen markets. Of course that emotional link may be easier to establish when the brand is a vehicle or a soft drink — products the general public can easily recognize and to which they can relate. Insurance, for the most part, tends to take place behind the scenes. Insurance Bureau of Canada (IBC) recognizes this. In a message published on its pub-
62 Canadian Underwriter October 2009
lic Web site, IBC says: “The insurance industry works behind the scenes to help home, car and business owners pursue their ambitions and build their dreams. While we carry on with our daily activities, insurance professionals measure risk, settle claims, provide reinsurance and pay taxes. We may not think about insurance very often, but it is there, providing the oxygen that sustains our economy, making investments possible and assisting us when we need help.” The fact is, what we do is hard to see. No doubt, this creates a disconnect between the customer and the brand. And yet what we do is emotional. We keep customers moving when they need it most. There is a need for that emotional connection to be emphasized. We know what we do can bring significant value to the public. As an industry, we help people replace what is lost and get back to their lives. We offer expertise, advice and security, all of which can lead to strong emotions for customers. Research has shown an emotive brand is something consumers are willing to pay for. The New York Times recently reported that although “Mcdonald’s and Burger King engaged in a dollar menu death-spiral price war, Starbucks has customers paying nearly $5 for a cup of coffee.” Starbucks has managed to take the customer’s mind off price by focusing on value, time and delivery. They have also emotionally connected with customers by creating the perception that every time someone visits a
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Since the complete derailment of credit markets occurred in mid September, “the guiding principle for managers and business owners worldwide has been to gather up whatever cash they can find, and then do their damndest to keep as much of it as possible for as long as possible.” The Economist, 11/22, p17. This dismal economic environment has led to a marked increase in demand for premium finance loans. Small businesses, desperate to conserve current capital and existing credit facilities, are actively seeking out ways to help distribute the cost of their insurance over time. Even customers which were in cash rich, growing industries just months ago are highly motivated to use premium financing to ensure adequate insurance is obtained and expenses deferred. During the second half of 2008 we have seen substantial demand increases across industries and geographic regions of Canada. This is also the case in the US. Demand for premium financing is up as much as 30% to 40% from just the beginning of 2008. Complementing the dramatic demand increases is the rapid reduction in lending rates from Chartered banks. Accessing a line of credit to fund an in house premium finance (IHPF) program is a great way to generate additional revenue on existing business without tying up any brokerage capital. Most facilities used for IHPF are based on bank’s Prime Business rate. This rate has been reduced substantially throughout 2008 as a result of deteriorating economic conditions. The rate was as high as 5.75% in January 2008 and has moved down to 3.00% as of January 20, 2009.
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substantial cost that results from disengaging them.” For a brand to be meaningful to the public, it must act on its promises. Brands are personalities; if they portray one thing in their advertisements but then act another way, customers will spot it instantly. It’s a sure way to destroy that emotional connection or prevent it from forming in the first place. Famous and effective brands use
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all their resources to reinforce the personality of that brand. The key is how to reach and connect with those customers and establish that emotional link. The average person is inundated with thousands of messages a day, and so the main challenge for brands is to be able to cut through all of that background noise. This motivation lies at the heart of the next stage in the evolution of RSA’s brand proposition of ‘Keeping You Moving.’ The creative vehicle we have chosen to express that proposition is called Moving Stories. It’s our way of bringing to life the personality and emotion of what we do, by telling dramatic, real-life stories of our commitment to keep people moving when they need it most. The stories show our collective experiences with individuals, companies and brokers. Whether it’s the claims adjuster who knocked on doors in the middle of the night to support the customers whose homes were hit by the recent series of tornadoes in Ontario, or the employee who used her own money to get a customer’s vehicle unhooked from a tow truck, we are sharing the stories that capture the emotion behind what we do as a company. From the epic to the everyday, these stories highlight the company’s ability, but also clearly demonstrate the restorative power of insurance. RSA’s brand strategy has been unique in that we have launched from the inside out. Our goal was to engage employees first, to make our brand come alive from within. Our employees are our brand and it was key that our customers and brokers saw that. We have adopted the same approach with Moving Stories, by capturing and sharing these stories internally first — to excite and motivate our employees, and have them on board — before going external. We are now at a stage where we want to share these stories externally, with an unveiling planned for this month. We have also set up a Moving Stories Web site where these stories can be viewed at www.rsabroker.ca.
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An eyewitness account of the damage tornadoes did recently in the Vaughan area of Ontario, just north of Toronto, suggests roof nails are still missing the mark. Gregory A. Kopp Professor, Canada Research Chair in Wind Engineering, Faculty of Engineering, University of Western Ontario
Multiple tornadoes ripped across Southern Ontario on Aug. 20, 2009, resulting in the tragic death of a young boy in Durham and significant damage to hundreds of homes in Vaughan, just north of Toronto. Damage was widespread, hitting cars, crops, utility poles and many types of buildings. The damage in Vaughan was concentrated in two neighbourhoods, one near Hwy 7 and Martin Grove Rd (in an area called Woodbridge), and the other near Jane St and Teston Rd (in an area called Maple). Many discussions and opinions about construction quality have taken place, as always seems to happen after such events. Much of the information being put forward is incorrect, or at least misleading. In particular, the focus has been on
66 Canadian Underwriter October 2009
the construction methods used for the walls — i.e. brick versus wood. It’s as if the story of the Three Little Pigs has become the focus of our attention. And yet when the Wolf blows, some particular things happen, but the issue is not how the walls are made. In the Woodbridge area, the houses were of masonry construction with block and brick walls. These are strong walls. In the Maple area, the houses were wood-framed and clad with either brick or stone facades and they seemed to be weaker. In fact, the method of wall construction has little to do with the performance and damage observed in these storms. Rather, the main issue has to do with how the roofs are constructed — most importantly, how the roofs are connected to the walls. When we joined Environment Canada to examine the storm sites, we observed the vast majority of the damage was due to roof failures such as sheathing (plywood sheets nailed to the trusses) and toe-nailed, roof-to-wall connections coming off. Damage caused by debris also played a role, as discussed below. The more severe Barrie tornado in 1985 showed that deaths often occur when walls collapse; this occurs when roofs
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are removed. So, while it is perhaps true that double-brick walls offer more protection when the roof is off, this was not an issue in the instance of the Vaughanarea tornadoes (although there were a handful of locations where walls failed following roof failure). As a matter of fact, double-brick walls collapse, too. We saw a few of these in Woodbridge. Fortunately, no one was hurt there. When wind blows on a house, or any other structure, it causes uplift on the roof. To understand the effects of this, imagine holding the house upside down and shaking it. One can immediately see the nail connections become the issue (see ‘All about the nails,’ Canadian Underwriter, January 2009). The primary role of the nail connections is to hold the roof in place. If the roof is not connected to the walls, only the weight of the roof holds it down. Since our roofs are made of wood, they tend to be light, offering little resistance to the forces induced by the wind unless they are well-fastened. The photograph below (See Figure 1) shows one example of a failure because the roof was not connected to the walls; rather, in this pitched roof construction, the structural members of the roof were placed in slots in the blocks.The red arrow points to where one of the connections should be, but, in fact, there is nothing holding the lumber to the interior wall. In Vaughan, we also saw many roofs that had been properly connected,
Figure 1
68 Canadian Underwriter October 2009
Page 13
The method of wall construction has little to do with the performance and damage observed in these storms. The main issue has to do with how the roofs are connected to the walls. and yet failed.This was a severe windstorm. The other major issue in windstorms, particularly for tornadoes, is wind-borne debris.When upwind structures or parts of structures fail, the wind carries these elements.They can travel a long way and with high speed. In a suburban neighbourhood, a high probability exists that
these elements will subsequently hit down-wind houses. If debris happens to collide with a window or a garage door, the window or garage door will likely fail, allowing wind and rain to enter the building. Although the rain itself causes a lot of damage, the wind entering the building pressurizes it like a balloon, adding to the uplift on the roof and increasing the forces the nails must resist. At this point, roofs often fail. We saw a lot of evidence of debris impact in both neighbourhoods. Many windows and garage doors were broken by debris. We saw many 2x6 and 2x8 pieces of wood penetrate roofs and windows like spears. (See Figure 2 on Page 70.) This is why you are always advised to stay away from windows in tornadoes and head for the basement. Wind-borne debris is very dangerous, as shown by the tragic events in Durham, and should be mitigated as much as possible. A primary way to do so is to ensure that the roof structure remains intact. Reducing the possibility of shingle and vinyl siding failures also helps. In this latter regard, it was good that the houses in Vaughan were brickclad, so that vinyl-siding was not an issue. Also, the brick material meant relatively little debris penetrated the walls. We saw many black marks on walls where shingles had hit the bricks. Figure 3 on Page 70 shows an example of the type of roof failure induced by wind-borne debris. Here, the second
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floor windows were broken, leading to severe internal pressurization, causing the subsequent failure of the roof.Thus, when failures occur in one house, it can lead to failures in neighbouring houses because of the wind-borne debris. In Maple, debris caused a lot of damage. It broke many second floor windows and garage doors. The garage door failures led to garage roofs coming off in several instances, while window failures led to roof failures. The solution for the problem of roof failures for winds as severe as occurred
Page 14
in these F2 tornadoes, is actually rather inexpensive — hurricane straps. These are readily available, easy to install in new construction, less prone to errors in installation and, best of all, inexpensive. At most, they would add a few hundred dollars to the cost of a new house. As part of the ‘3 Little Pigs’ project at our Insurance Research Lab for Better Homes (IRLBH) at the University of Western Ontario, we are currently testing such technology in order to find optimal solutions that minimize costs and maximize safety for both new homes and
existing ones. If the houses in Vaughan had been built with this technology, we believe the overall losses would have been significantly reduced. Examples of such construction exist in Ontario. Two houses have been recently constructed following the Institute for Catastrophic Loss Reduction’s “Designed for Safer Living” program. These are in Fort Erie and Sudbury (with a third in P.E.I.). All were built in partnership with The Cooperators. We hope more houses get built this way, thereby taming the Big, Bad Wolf.
Figure 2
Figure 3
70 Canadian Underwriter October 2009
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The
Missing
Link
IBAC is working with vendors and insurers to find technology that will eliminate, once and for all, double data entry.
Brenda Rose
Vice President, Partner, Firstbrook Cassie & Anderson
“Nothing in this world is certain,” declared Benjamin Franklin, “but death and taxes.” If Mr. Franklin had been an insurance broker at any point in the past few decades, he would no doubt have added “double data entry” to his list of unavoidable afflictions. Broker surveys across the country consistently show insurer stand-alone Web sites remain a major source of broker frustration. Although insurer portals do provide a quick fix designed to issue a policy or an endorsement quickly, the disadvantages to brokers of using the ‘do-it-yourself’ technology far outweigh the benefits. Best practices for brokers dictate that all details for all transactions — new policies, renewal instructions, changes or even cancellations — must be recorded immediately in the broker management system (BMS), for a multitude of practical and risk management reasons. When the broker is also required to convey that same information
72 Canadian Underwriter October 2009
into an insurer’s network, and if there is no automated means to move that data, then a manual double entry workflow is forced upon the broker. This additional work siphons time and resources away from client interaction and service. Duplicating clerical work also means a doubled exposure to errors or omissions. The burden is further magnified by the fact that brokers work with a number of insurers, each of which employs a different system. Given that each individual insurer’s site displays different interfaces, uses separate passwords and involves dissimilar workflows, a broker must have all staff trained on a multitude of systems — either that, or else dedicate particular staff to each company. The broker risks further bottlenecks with the latter option, however, when their own dedicated staff takes vacation or sick leave. In addition, often there are unanswered questions regarding long-term responsibilities that are not addressed in broker-company contracts. For example, if the broker and insurer end their business relationship, what assurances exist that information will still be accessible? The broker risks becoming dependent on the insurer to perform routine system operations and security, ongoing maintenance and training and ultimately the long-term preservation of business records. Based on consumers’ expectations of rapid service delivery, brokers are already challenged to match the instant turn-around service of call centres and yet still deliver on their own multi-layered value of choice and individual customization.
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Current economic realities have commonly reduced brokerage staff resources; more than ever, brokers must make customer service the priority. It is simply no longer possible to accept added layers of work, especially when technologies exist to eliminate redundancies. The Insurance Brokers Association of Canada (IBAC) has long asserted that independent insurance brokers should not be obligated to use stand-alone insurer Web sites. It has formulated an official position to that effect. IBAC’s ultimate objective is to see a true SEMCI-based transaction model (Single-Entry MultiCompany Interface) in general use in Canada. Ideally, brokers should enter information directly into their own broker management systems and transmit the identical details to their insurer partners.The pressing need to improve data exchange between broker and insurer systems is evident. Recently, IBAC has taken their fundamental assertions further, articulating how brokers would prefer to transfer information between broker and insurer systems without duplicated effort. Figure 1 provides a graphic illustration of the workflow endorsed by the national association. This is a representation of the brokers’ ideal process for all policy transactions, including new business, endorsements, renewals, cancellations, inquiries and claims. Fundamental to the design are some basic principles developed by consensus from broker association members, namely: • transactions must originate from and return to a broker’s management system; • all data transmissions must strictly adhere to CSIO standards; • workflows must avoid connection to and a broker’s use of an insurer’s Web portal; and • variations dictated by any unique characteristics of individual insurer systems are to be addressed on the insurer’s side of transmissions, rather than programmed into broker management software. A limited number of broker management software systems are commonly used in Canada; in contrast, a complex variety of software is found among in-
74 Canadian Underwriter October 2009
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surers. Not all those systems are fully compliant with current CSIO XML standards. As a result, they require proprietary translations to accept and use information sent in standard formats.With such a large number of variables among insurers, however, customizing broker software to accommodate each insurer’s unique features becomes highly complicated and resource-consuming. For the brokers at IBAC, it appears more practical, then, to construct the variations or specific programming necessitated by an insurer system on that insurer’s side of data exchanges. IBAC set out in November 2008 to
specific, CSIO-compliant XML Policy Change transaction from within their respective broker systems and electronically transmit it to a specified location. For this first test only, the destination was an interim ‘placeholder’ mailbox provided by CSIO, delivered by simple SMTP email. It was recognized, however, that a later question to be addressed would be to ensure a more secure means of transmission. CSIO, the governing body for standards for the broker channel within the Canadian property and casualty industry, played a crucial role from the outset. In addition to providing direction on the
Figure 1
Internet
XML message received by a company system’s web service (preferred)
“batch” AL/3 response (alternative) CSIOnet
explore ways to improve efficiencies and test the practical application of their concepts through a pilot project with the industry’s leading BMS vendors. Quite simply, the purpose of the ongoing venture is to benefit both brokers and insurers through a more efficient method of exchanging electronic information between systems, and satisfying the basic criteria listed above. The precise challenge of the pilot project’s initial phase is to verify the vendors’ ability to generate one standard,
use of the chosen XML standards, it served as the final authority to approve or disqualify test transmissions. There was a lot of discussion about which particular type of transaction would be used for testing. In the end, the committee chose to use a policy change transaction, to help manage one of the greatest problems faced by the industry. While some types of transactions generate new revenue to offset processing expenses, endorsements are generally revenue-neutral, with return premiums
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Congratulations to Insurance Award Winners Toronto, Ontario June 2009: Cowan Insurance Group Award Sponsored by: Cowan Insurance Group Winner: Manitoba Association of Insurance Professionals Essay Contest Award Sponsored by Wawanesa Mutual Insurance Company Winner: Pam de Boer, FCIP, CRM, Toronto Insurance Women’s Association Insurance Information Campaign Award Sponsored by: AVIVA Insurance Company of Canada Winner: Nova Scotia Insurance Women’s Association Public Speaking Contest Award Sponsored by INTACT Insurance Winner: Dawn-Marie Nokleby, Edmonton Insurance Association Travelers Education Award Sponsored by Travelers Insurance: Winner: Toronto Insurance Women’s Association. Insurance Woman of the Year Award Sponsored by: Canadian Association of Insurance Women Winner: Deborah Johnson, Nova Scotia Insurance Women’s Association
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The Guarantee Company of North America Hamilton District Insurance Association Jacqueline Skelton Kingsway General Insurnace Company London Insurance Professionals’ Association Manitoba Association of Insurance Professional Risk Management Services (SCM Group) Swiss Re Travelers Insurance Vanler Insurance (McLarens) XL Insurance Zive Insurance Limited AKA New Media Avis Budget Group Belron Canada Inc. Compu-Quote Custom Software Solutions Inc.
Disaster Kleenup Canada Encon Group Inc. First General Services Canada Fortify Solutions K & K Canada MEA Forensics Steamatic Canada Group Winmar Aviva Insurance Company of Canada Cadillac Career Centre Insurance Association of Western Manitoba LMS Prolink Ltd. Pinchin Environmental Northwestern Ontario Insurance Professionals Nova Scotia Insurance Women’s Association We sincerely apologize if we missed you in our “Thank You” for your generous support list.
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averaging out to equal additional charges. Nevertheless, providing clients the option of adjusting their coverage is an essential service, regardless of the costs. Finding a way to better automate this labour-intensive work would result in substantial economies for both insurers and brokers. Certainly the group had not set themselves an easy task. Natural human tendencies and the inertia of established practices always produce resistance to change. The vendors, too, took on this assignment in addition to the real, ongoing commitments and business necessities within their own organizations. Nevertheless, the individual vendors worked diligently and managed the challenges. Some of the participants chose to engage third-party integrators to assist with the execution of XML translations. The working group compared notes at intervals via conference calls and in conjunction with some of the broker association conventions. Staff at CSIO an-
Page 14
swered questions about how the existing standards can be used, and ultimately evaluated the submitted transactions. By September 2009, IBAC was very pleased to confirm that a majority of the broker management system vendors had successfully generated the standard CSIO XML policy change transaction as defined for this project. CSIO approved the final transmissions submitted by: • Keal Technology (sigXP); • Policy Works, Inc. (Policy Works); • Custom Software Solutions, Inc. (TBW); and • Zycomp Systems Inc. (Power Broker) In addition, CIM-Data (VCIM) is still working on and has committed to completing this phase of the pilot project shortly, pending only completion of some sub-contracted XML translation work.The sixth vendor, Applied Systems (TAM, Epic), was unable to allocate development resources during this phase, but has continued to participate fully in the working group discussions.
All project stakeholders have demonstrated a strong willingness to continue on to further stages. The next phase will involve the other side of the test transmission, that is, the reception and integration of the standard CSIO transaction by insurer systems. The committee is currently discussing potential insurer partners for this phase, while several insurers have already expressed keen interest in joining the effort. Given so many key players working together in cooperation, our achievements thus far have been huge. The use of standard, automated communication liberates stakeholders to compete and distinguish themselves to customers through the content of their products and the quality of their service. And perhaps with greater awareness, further discussion and more exploration, some of the inefficiencies the industry now sees as unavoidable might just begin to be obsolete.
Disaster Restoration Services
October 2009 Canadian Underwriter
77
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?
What Happened to the Hard Market David Gambrill Editor
Apparently, a global financial market crash isn’t enough to trigger a hard market in Canada’s commercial lines segment. 2009 may well be remembered as the year the commercial soft market stood still. During the last quarter of 2008, the full fury of imploding stock markets affected Canada’s property and casualty market, causing the net investment income of Canada’s federally regulated insurers to plunge from just over Cdn$4 billion in 2007 to Cdn$2.7 billion, the result linked to the U.S. credit market meltdown.Those losses continued in 2009 Q1, with the industry reporting to MSA Research investment gains of Cdn$401.67 million, down 39% from investment gains of Cdn$661.7 million in 2008 Q1. Given a projected loss in premiums written as companies tightened their economic belts and attempted to do “more with less” in their insurance portfolios, and given no sign of substantial rate increases in insurance segments showing higher and higher loss ratios — auto and homeowners, for example — several industry observers felt a hardening market in commercial lines in Canada would be imminent. Only it didn’t happen. “So where is the hard market?” as MSA Research asks in its MSA/Baron Outlook 2009 Q1 report. Many theories abound, but the role Canada’s regulatory system played in “softening” the blow
78 Canadian Underwriter October 2009
of the global credit crunch north of the 49th parallel is frequently cited as a factor in creating a stable financial environment — one in which a soft commercial market might thrive. As a general rule, Michael Boire of HKMB/Hub International observes, Canada’s insurance market has been stable, despite the market turmoil elsewhere. “The Canadian market has always been pretty profitable compared to other economies throughout the world,” he says. “We still seem to be less hit than other economies, so it’s not a bad place to continue to do business.” Such stability is attributable in part to the “bang-up job” Canadian regulators have done in making sure insurance companies have adequate assets to meet policyholders’ needs, says Justin MacGregor, executive vice president of Martin Merry and Reid. Ltd. “I know there have been attempts to have the regulators relax their stringency, but I think the proof of the pudding is in the eating,” MacGregor says. “Largely in the whole rest of the world, insurance companies were watching their investment portfolios being savaged by the markets.The insurance companies have taken some pretty hefty write-downs in Canada as well, but not to the point where it’s made them gasp in desperation because their risk portfolios have been completely decimated. I think that regulation has helped maintain a stable market.” The stable market has in turn attracted new market entrants, including W.R. Berkley Corporation, a big insurance player in the United States
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market, and Axis Canada Inc., which was authorized to write business in Canada in 2008. “Canada has always been somewhat like Australia,” observes Michael McLachlan, president of Berkley Underwriting Managers Canada Ltd. “It has a very competitive environment, because it’s an attractive place to do business.” For Berkley, the move to Canada follows a global strategy to have operations in every major insurance hub in the world, McLachlan says. For others, Canada was an attractive place to park their capital when U.S. rating agencies expressed concern about exposures south of the border. “A few years ago, a lot of these U.S. companies — or originally they were Bermuda companies, and then they got licensed onshore in the States — were forced to move capital out of the U.S. because of the rating agencies saying to them, ‘You need to reduce your exposure to catastrophe.’ So they looked around the world and said, ‘Okay, so where can we set something up that isn’t cat-exposed; that there is still respect for the letter of the law; that has potential for profitability; and they speak the same language, mostly, as we do? Hey, what about Canada? Good place.” Berkley and others are bringing substantial capital to bear in a market that is already extremely competitive and overcapitalized. MSA Research and other commercial brokers say that although Canadian commercial lines insurers have shown some rate discipline — some brokers cited examples in which insurers walked away from some cut-rate business — competition for business is nonetheless fierce. “AIG is fighting to hold onto volumes,” MSA Research’s 2009 Q1 report notes. “The London market (Lloyd’s) is continuing to be aggressive and multi-line writers are seeking refuge from their personal lines woes in commercial.” (Both Lloyd’s and Arch could not be reached for comment as of press time. AIG declined comment.) “Insurers are trying to come back with as-is renewals and, at the end of the day,
80 Canadian Underwriter October 2009
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a new company that wants to write the business will take it away from them,” says Boire, president elect of the Toronto Insurance Conference (TIC), an association of Canadian commercial brokers. “And they’re all hungry.” Indeed, MSA notes that at the end of 2008, there was almost Cdn$8 billion of excess capital in the Canadian property and casualty sector. “This excess $8 billion can support [Cdn]$16 billion of NPW [net premiums written] or more,” the Q1-2009 MSA Baron/Outlook Report notes. “This is enough to write another replica of Canada, excluding Ontario.” Everyone talks about a hardening market in Canada being likely sometime down the road as part of a “traditional
Insurers are trying to come back with as-is renewals and, at the end of the day, a new company that wants to write the business will take it away from them. market cycle,” and many say such a hard market is needed. But if it isn’t going to happen as the result of a financial crisis — and indeed, the 2009 Q2 results of many Canadian insurers are showing signs of a rebound from the dire days of 2008 Q4 — then what will trigger it? “The one thing that’s different in Canada than in the United States is automobile,” observes McLachlan. “So if the big players start to lose money in automobile — and that will depend on the [reaction] of the Government of Ontario — well then they tend to kind of draw back. And they say, ‘Okay, maybe we shouldn’t be writing some of this commercial lines business that we’ve been dabbling in for the past few years,’ and then that market hardens up as a result of it.” But even here, insurance regulation has contributed to a relative degree of commercial market stability. MacGregor notes that although regulators generally don’t want to raise consumers’ auto insurance rates, Ontario’s insurance
industry regulator, the Financial Services Commission of Ontario (FSCO), has responded to an epidemic of increasing loss ratios in the auto product. In 2009 Q1, for example, FSCO approved an average rate increase of 5.86%, with the CAA Insurance Company (Ontario) receiving the largest rate increase of 12.1%. This may not be anywhere close to the 14-16% most insurers need to stave off their losses, MacGregor notes, but it has had an indirect impact on commercial rates, keeping the commercial market soft. “When we go into the up and down cycles of the hard and soft markets, quite often they’re actually not [driven] by commercial lines losses, they’re treated by personal lines losses,” MacGregor says. “Auto is one of the largest [personal lines] segments of insurance in the country. So if auto insurance is losing money… they’ve got to find a way to make money. And if auto rates are regulated, and insurance companies are only going to be allowed 2% or 3% rate increases when actually they’re losing 1416%, what do they do? They are going to have to put up rates in the other areas [i.e. commercial lines] to counterbalance that. And since those other areas form a smaller proportion of the overall market price, they have to act even more dramatically [in commercial lines] to counteract the inadequate reaction in segments that caused the problem — the automobile segment.” But given FSCO’s approval of rate increases more in the order of 5-7%, there is less pressure on insurance companies to make up the difference by increasing their commercial lines rates, MacGregor says. Both MacGregor and MSA note that reinsurance rates have started to increase, but this in itself is not enough to cause the primary markets to do the same. So it will be awhile yet before commercial rates start to harden, observers note. Barring major catastrophe losses in what has been a quiet hurricane season thus far, McLachlan says, the soft market in Canadian commercial lines is expected to continue for at least another 12 months.
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pg82,84Legal v1_DG_VM
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Barbara Haynes CEO, DAS Canada
Legal expense insurance is a proven quantity in Europe, but has been relatively untapped in Canada — until now. Everyone, no matter how rich or important, is subject to the rule of law, but the costs of accessing the justice system can be prohibitively expensive for the vast majority of the population. As quoted in Maclean’s earlier this year: “Many Canadians find themselves too wealthy to qualify for legal aid, but not wealthy enough to afford a lawyer.” Often people are deterred from taking legal action because of the financial risk, stress
82 Canadian Underwriter October 2009
and uncertainty associated with the process. Legal expense insurance (LEI) can eliminate the stress and uncertainty and also provide an affordable way to access the justice system. LEI provides coverage to help individuals and companies alike cover the expense of taking legal action or defending their rights if they have a dispute with another party, by providing insurance designed to meet these costs. It is largely undeveloped in Canada, although it is not a new concept. In Europe, the birthplace of LEI in the 1920s, a large percentage of the population holds at least one policy.The European LEI market had a value of about Cdn$11.1 billion, according to the European Insurance and Reinsurance Federation (CEA). Canada, in contrast,
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pg82,84Legal v1_DG_VM
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currently has about Cdn$32.1 million. So why has this type of insurance not taken off in Canada, even though there are similarities with the legal systems in countries such as Canada and the United Kingdom? There are a number of probable reasons — including the size of Canada and its proportionately smaller population, different federal and provincial legislations, less interest in this specialized line of business shown by most of the large property and casualty insurers, which tend to be generalists, and the frequent misconception that Canada follows the US legal system. The regulator of the legal profession in Quebec, the Barreau du Quebec, has been an active supporter for some time of LEI. In Ontario, Malcolm Heins, CEO of the Law Society of Upper Canada, recently said: “The Law Society believes that legal expense insurance is a useful insurance product, because it has the potential of making legal services more accessible and affordable for people who don’t qualify for legal aid.The Law Society’s access to justice committee is currently investigating with insurers the potential to make a more comprehensive legal expense insurance product available in Ontario.”
WHAT IS LEGAL EXPENSE INSURANCE? Unlike conventional insurance, LEI does not make a direct payment for a claim. Instead, the insurance covers the legal costs involved in pursuing or defending a claim. Such costs include legal fees (lawyers’ and court fees), disbursements (including costs for experts, medical reports, etc.) and include adverse costs that can potentially be awarded against the policyholder in the event a case is lost. Policies also include access to legal advice that in many instances may be sufficient to guide the individual or organization through the complexities of the legal system and gain a better understanding of their rights.
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In Europe, the largest volume of claims under personal and business policies emanate from employment issues. There’s no reason to believe the story will be different in Canada. It is often more beneficial for both parties to try and reach a settlement rather than go to court, which can be both stressful and time-consuming. The majority of legal disputes can in fact be settled by negotiation, which can be the fastest and most effective way of resolving a dispute.
WHO NEEDS THIS TYPE OF INSURANCE? In general, everyone who owns or rents property, drives a car or operates a business needs LEI. For individuals, coverage can include disputes arising from the ownership or operation of a vehicle, employment issues, property problems such as boundary disputes, tax issues, identity theft, legal defense and lost income from attending court or being
called for jury duty. Premium costs are not expensive and can be less than the cost of an hour or two of a lawyer’s time. For businesses, the relentless increase of volume in business legislation, combined with a new willingness to take legal action against companies, can make things difficult or costly for any businesses without an in-house legal counsel or even internal HR staff. An LEI policy can include coverage for employment disputes, statutory license protection, tax issues, supplier disputes, for property protection including boundary issues and employee lost income as a result of court attendance or jury duty. In this fast-changing business world, a good LEI policy is essential if a company is to protect itself against the potential legal costs it may face. In Europe, not surprisingly, the largest volume of claims under both personal and business policies emanate from employment issues. There’s no reason to believe the story will be different in Canada.
LEI IN ACTION Here’s an example of how the coverage might work in practice. ABC Laboratories dismisses an employee for misuse of his computer.The company alleges the employee had been attempting to use functions that were not part of his authorized role. The LEI insurer helps ABC Labs through the disciplinary process (providing advice and letter templates). The employee is given appropriate warnings and the functions are removed from his computer. Later, the company discovers the employee had restored the functions and continued to use them. ABC dismisses the employee.The employee subsequently claims unfair dismissal, alleging the company did not correctly follow its disciplinary procedures. The LEI insurer appoints a lawyer to act on ABC’s behalf and the matter proceeds to employment tribunal, where ABC is successful.
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Rail
Boom Rail travel has enjoyed a new renaissance and so, too, might potential rail dangers. A renaissance in train transportation is underway in Canada. Once the predominant means of moving goods and people, rail fell on hard times with the rising popularity of cars, trucks and Brad Cox airplanes during the 20th century. However, over Senior General Adjuster, the past decade, railways have flourished, thanks Global Technical to their relative fuel efficiency and low emissions Services, compared to other types of surface transportation. Crawford & Company But while rail is increasing in popularity, so too (Canada) Inc. is the risk of a potential accident. And rail accidents do present their own peculiar challenges for adjusters investigating a rail claim.
RAIL RENAISSANCE The Railway Association of Canada (RAC) represents virtually all railways in Canada — from national carriers to regional, inter-city, commuter and tourist lines. According to RAC’s 2007 Railway Trends publication, the industry’s revenues increased by more than 37% from 1997 to 2006, with freight being the largest contributor. Because the Canadian and American rail systems are fully integrated, shipping to and from the United States played a large part in this expansion. Whether goods originate offshore, in the United States or in Canada, however, the environmental impact of transporting them is a growing concern. “Rail moves a tonne of freight 168 kilometres
86 Canadian Underwriter October 2009
on just one litre of fuel,” said Mike Lowenger, RAC’s vice president of operations and regulatory affairs, in the Globe and Mail supplement. “By comparison, a truck uses as much as six times more energy.” Rail also produces lower emissions. Despite transporting 4.3 million carloads of freight and containers as well as 65 million passengers every year, trains generate only three per cent of surface transport emissions, according to RAC.
POTENTIAL FOR DISASTER While rail offers many benefits, the danger of accidents is significant. These heavy projectiles travel at high speeds through densely populated areas or pristine natural environments; accidents can be catastrophic, especially when they involve toxic cargo. Probably the best-known disaster is the 1979 Mississauga train derailment, when a 106-car freight train carrying propane, styrene, toluene, caustic soda and chlorine went off the tracks and exploded. Facing the prospect of a cloud of deadly chlorine gas, authorities evacuated 200,000 people, the largest peacetime evacuation in North America before Hurricane Katrina. According to the Transportation Safety Board of Canada, the total number of reported rail accidents was 1,282 in 2007, down from 1,378 in 2006 but up from 1,247 in 2005. These figures represent all occurrences from minor to serious, but there were 86 fatalities and 54 serious injuries in 2007 alone. Also in that year, there were eight main track collisions, 156 main track derailments, 27 fires or explosions and 209 accidents at crossings.
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The no-fault insurance system of the auto and trucking sector does not apply to railways, so establishing liability can be crucial in the event of an accident. If one party suffered damages, it can recover from the at-fault party.
REGULATORY OVERSIGHT Railways with inter-provincial or Canada-U.S. operations, such as CN, CP and VIA, are regulated by federal law. Others operating entirely within a single province are governed by provincial laws. In the 1990s, many new intraprovincial, short-line freight railways came into existence as CN and CP sold off their smaller operations. The 1989 Railway Safety Act (RSA) is the most important federal statute regulating railways. It gives responsibility to Transport Canada for overseeing railway safety, separating this role from those of the Canadian Transportation Agency (responsible for economic regulation and dispute resolution) and the Transportation Safety Board, which performs accident investigations. Most provinces have incorporated some or all aspects of the RSA into their own legislation, ensuring that the same rules apply to provincial railways. Under the RSA, railway companies must be responsible and accountable for the safety of their own operations, while the regulator must retain the power to protect people, property and the environment by ensuring that the railways operate safely within a national framework. Amendments in 1999 added the objective of environmental protection, requiring railways to implement safety management systems. As part of this change, the primary emphasis of Transport Canada related to compliance monitoring moved from detailed technical inspections to auditing the implementation of company safety management systems. This shift places much of the onus for safety on the industry by mandating that every company must develop and implement a safety plan. Furthermore, each employee in any service connected with movements, handling of main track switches and protection of track work must
88 Canadian Underwriter October 2009
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carry a copy of the Canadian Rail Operating Rules and pass a test on these rules at least every three years.This 100-plus-page book outlines every detail of railway operation.
ACCIDENT INVESTIGATION The police, whether local, provincial or RCMP, are normally among the first officials to arrive at the site.Their initial responsibilities are to ensure the safety of people and property, secure the site and document evidence. If an accident involves fatalities, a representative of the provincial or territorial coroner or a medical examiner is sent to the site.The coroner’s responsibilities include conducting autopsies where necessary and determining the cause of death. When a serious rail accident occurs, the Transportation Safety Board (TSB) may choose to investigate the incident to determine cause and contributing factors, and may release a report. The TSB also maintains an accident reporting system for all modes of transportation to aid in analysis. The TSB will be provided with a report of an incident from the involved railway, and in some cases this may be the extent of their investigation. The TSB is more likely to conduct an independent investigation if a matter of public safety is involved. On occasion, there may be other organizations present at accident sites. For example, officials from Environment Canada and their provincial counterparts may be on hand to help determine the presence of, or to contain, any environmental damage. Because of the importance of establishing liability, adjusters are also called in to investigate — especially if an incident involves a collision with another train on the tracks or a car, truck or pedestrian at a crossing. The national railways usually have their own in-house departments, but the smaller operations often use independent adjusters. The complexities of rail accidents require a thorough and well-documented investigation: • Create scale drawings, take photographs and record precise measurements. If, as is often the case, a level
crossing is involved, diagram the road and track configuration. • Check the presence and operation of warning devices. Are there lights and/or gates? The lights are tested on a regular basis, so obtain records from the railway’s signals and communications department. Sometimes a “signal bungalow” is on site, and it may contain a recorder that can produce a printout of the signals’ operation. • Obtain the railway’s operating timetable, which indicates how fast the train should be travelling throughout its journey and provides special instructions that may be required for specific stretches of track. • Confirm whether the operators were following the operating timetable correctly by obtaining information from the train’s event recorder. These “black boxes” are similar to those used on airplanes and in many new cars. The devices used on trains don’t record conversations, but they do record track speed, distance, time, brake-pipe pressure, brake activation time and throttle position. They also indicate whether the headlight was on and whether and when the engine whistle and the bell were being sounded. • When potentially dangerous loads are involved, get a copy of the shipper’s material safety data sheet to determine the exact nature of the cargo. • Ascertain whether the engineer and conductor have passed the appropriate medical tests and have up-to-date certification on the Canadian Rail Operating Rules. • Interview the train operators to learn how the train was working and gain their perception of how the trip was going. Interview other involved parties, bystanders and people living in the vicinity. • Obtain a copy of the police report, the TSB report (if one is produced), the coroner’s report in the case of fatalities, and any other documentation available from public authorities. • In the case of a derailment not caused by a collision, review the configuration of cars, the state of wheels and tracks, the condition of the surrounding terrain and recent weather conditions.”
pg89 Shannon
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’ um s
l a Capit l u d Pen A.M. Best Company 2009 Insurance Market Briefing — Canada
Vanessa Mariga Associate Editor
In Canada’s reinsurance sector, “the pendulum is really swinging” when it comes to capitalization, although the nation’s property and casualty insurance industry remains well capitalized despite worrisome losses. Although Canada’s property and casualty industry remains well-capitalized, skyrocketing personal accident loss ratios in the auto product and increasing property losses still pose a challenge for insurers. On Sept. 10, A.M. Best Company held its 2009 Insurance Market Briefing — Canada in Toronto. During a series of panel discussions, the rating agency laid out hurdles that it says the industry still needs to overcome, despite reassurances from many experts that the economy is nearing the end of a deep recession.
PROPERTY AND CASUALTY PANEL Overall, Canada’s property and casualty market is stable, despite underwriting and investment losses, said Joseph Burtone, assistant vice president at AM Best. The industry’s BCAR (Best’s Capital Adequacy Ratio) was 221.8 at the end of 2007, and this figure dropped to 200 by the end of 2008. “But this is still well in excess of the minimum 175 required for an A++ rating,” Burtone observed.
“This tells us that despite the drop in capital, there is still an excess in the system.” The industry has less net income, he said, noting that by June 2009, the net income was 28% lower than the net income of June 2008. He put the statistics into context, noting that the years leading up to the financial crisis were banner years. But still, he said, “we knew previous years of profitability were unsustainable.” Injury loss ratios are one of the main drivers of the losses, the panel suggested. In fact, it’s quite likely Canada’s personal accident loss and LAE (loss adjustment expense) ratio will reach 120% by the end of 2009, said Charles Huber, senior financial analyst with AM Best Company. The combined ratio (COR) for Canada’s property and casualty industry in the calendar year 2008 was 101%, Huber noted. For the accident year 2008, it was 105.7%. “The reduction down for the calendar year to 101% was because of a Cdn$3-billion reserve release from prior accident years,” he said. “This would equate to 110% or more on the combined ratio for the accident year if those reserves had not been released from prior accident years.” Increasing loss ratios, particularly in Ontario auto, are driving the CORs, he continued. The loss and LAE ratio was 70.8% for the entire industry in 2008. In the first half of 2009, it was 69.9% he said. In auto, on the other hand, the loss and LAE ratio stood at 116% at the end of 2008.Through the first half of 2009, that ratio increased to 118.7%.
October 2009 Canadian Underwriter
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“This is not just Ontario, it is across the country,” Huber qualified. “But in Ontario, it is probably higher.” Huber said he anticipated the loss and LAE ratio to go up by another point or two, so that the ratio would hit 120% by the end of the year. “We are greatly hoping that a permanent stabilizing solution comes down the pipe because this may affect companies’ ratings,” he said. As of press time, the Ontario Minister of Finance had not yet released a muchawaited response to a series of recommendations for auto reform released earlier this year by the Ontario insurance regulator, the Financial Services Commission of Ontario (FSCO). Overall, “we believe that the market is stable,” Burtone said. “In prior years, companies kept a lot of capital in the operating units and now we’re at a crossroads in the industry.” Nevertheless, he said, “we believe that at this point, [even] with the challenges the industry faces, the capital should be able to withstand any of these challenges and the industry should maintain a stable outlook.” The rating agency expects return rates to decline, but also expects them to remain profitable, he continued. “Underwriting will continue to be challenged with volatility in the auto sector,” Burtone said. “There is uncertainty around the regulations in Ontario, there are legal challenges to the minor injury caps [in other parts of the country], and it seems that commercial pricing hasn’t really broken that price floor yet, but it has to happen at some point. “When you’re running a loss ratio around 70% and expenses are taking up around 30%, in order to remain profitable, someone will have to pull that first gun out of the holster at some point.”
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At the beginning of 2009, Canada’s reinsurance market was very focused on capitalization preservation, DeRose told delegates at the A.M. Best market briefing. “The capital markets were dried up,” he said. “People were really concerned about financial flexibility.That’s easing somewhat.” Companies have really started to build capitalization from their earnings and from the low catastrophe losses they’ve incurred, he added. “Now they are focussing on ways to deploy it.”
But managers of reinsurance operations need to be wary of releasing loss reserves to soften deteriorating accident year results, DeRose cautioned. “The big culprit is inflation,” he said. “You need to make sure that you’re pricing [for] factors that might be five years off,” he said. “If you are using reserve releases to offset pricing, by the time that you hit five years off, there may be problems… We’re keeping a close eye on it.”
For ORIMS 50th Anniversary Gala and plan to spend a most elegantly appointed evening on Thursday May 27th, 2010 at the Liberty Grand Ballroom ... in grand style!
REINSURANCE MARKET REVIEW When it comes to capitalization of the Canadian reinsurance market, the “pendulum is really swinging,” said Robert DeRose, vice president of AM Best Company’s U.S. reinsurance and Bermuda market segment.
www.ontario.rims.org
October 2009 Canadian Underwriter
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Fighting Fires with Fire Vanessa Mariga Associate Editor
The Kelowna wildfires of 2009 were seemingly not as severe in terms of insured losses as the devastating fires of 2003. What changed? Damage arising from the 2009 wildfires in B.C. was not nearly as severe as the insured losses caused by fires that ravaged the Kelowna area in 2003, a fact that some in the industry are attributing to a combination of lessons learned and co-operation from Mother Nature. In late July and early August of 2009, fires swept through the Kelowna area of B.C., forcing more than 11,000 residents to evacuate their homes. For B.C. residents, it was an example of “déjà vu all over again.” In 2003, the worst summer on record for forest fires in B.C., hot, dry weather resulted in 2,500 wildfire starts over a vast area, mostly in the interior of the province. The 2003 fires destroyed more than 334 homes and many businesses and forced the evacuation of more than 45,000 people, according to the British Columbia 2003 Firestorm Provincial Review. The total cost of insured damages reached approximately Cdn$200 million, said the IBC. This year, however, the claims and damage tally is a different story. Only four homes were destroyed in the 2009 fires, says Lindsay Olson, IBC’s vice president, British Columbia, Saskatchewan and Manitoba. “If there were going to be any claims, it would be [a result of] the mass evacuation coverage for the homeowners,” she says. “But the limits under
94 Canadian Underwriter October 2009
most policies are as such that even that total would not be very large either.” As a result, IBC did not survey insurers to determine the exact cost. So, what was so different this year from six years ago? Greg Thierman, manager of Crawford & Company (Canada)’s Kelowna branch, says that while the 2009 fires did come very close to densely populated areas, the efforts of firefighters, the public and a bit of co-operation from Mother Nature prevented the fires from spreading into residential areas. “I think that the public and governments have learned from the 2003 fires,” Thierman says. How so? Following the 2003 fires, the provincial government commissioned Gary Filmon, Manitoba’s former premier, to conduct a review and write a report, Firestorm 2003, that contained at least 46 recommendations. One was to use ‘structural protection units’ or mobile units that can be put into place and are capable or protecting entire rows of houses, Thierman says. Also, public awareness campaigns have led B.C. residents to undertake risk mitigation measures such as cutting back trees and dead branches, and keeping properties free and clear of debris piles and pine needles that would serve as fuel for a fire. Currently, municipal and provincial governments are talking about creating fireguards around towns. Forests that extend into developed areas, for example, would be cut back roughly 500 metres or so. “It would give us a line to actually fight the fires,”Thierman says. “If the wind’s blowing and embers are taking off, at least we would have that 500 metres or so for that particular area as a bit of a buffer zone.”
INSURANCE MEDIA GROUP INSURANCE – we have it covered. Canadian Underwriter’s Insurance Media Group is committed to providing the most timely and relevant news, information and resources to insurance professionals from all segments of the industry, providing marketers with a range of specialized and highly effective marketing communications opportunties.
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UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
YES 52.08%
NO 47.92%
1
In the most recent canadianunderwriter.ca poll, we asked readers: ‘Could risk managers have done anything to prevent the events leading to the global financial crisis?’ In a very close vote, 52.08% responded ‘yes’ and 47.92% of respondents said ‘no.’
2
The Economical Insurance Group (TEIG) has become a development partner of the RMS insurance-to-value data validation service. The company has committed Cdn$150,000 towards the research and development of the ITV utility. In addition, the company will work closely with RMS during the developmental phases of the project. “We believe the RMS solution will provide brokers with a practical, common-sense approach that will dramatically enhance accuracy in regards to insuring to value,” Noel
96 Canadian Underwriter October 2009
Walpole, president and CEO of TEIG, said in a release. “Clearly, no one in Canada has as much data on regional construction features and the accurate cost of claim amounts of total loss reconstruction than RMS.” TEIG is the first insurance company partner to come forward to support RMS in the development of the new project, the release notes.
3
Zurich in Canada has appointed Bob Fellows as senior vice president of distribution, marketing and communications for Zurich’s business in Canada. Fellows has 30 years of experience working in the Canadian insurance industry. In his distribution role, he will be responsible for driving Canada’s distribution strategy. In particular, he will be called upon to accelerate the progress of the Canada Top 50 Broker Program. In his marketing role, Fellows will be accountable for continuing to build on Zurich’s HelpPoint brand positioning in the Canadian market. Fellows joins Zurich after working for eight years at St. Paul Fire and Marine (Travelers Canada), where he served as president and chief agent.
4
The Insurance Brokers Association of Alberta (IBAA) launched a bricks and mor-
3 tar education centre at its new office in Edmonton. “With our own education centre, the IBAA can cost effectively maximize our team’s resources and offer more programs to our members,” said Ginny Bannerman, IBAA’s CEO. In 2008, IBAA provided its members with 1,489 hours of classroom instruction, a number expected to increase. One new program is a ‘Lunch & Learn’ series, in which participants attend monthly seminars during the lunch hour. The association is also producing an online video training series for both the personal and commercial insurance areas.
5
Manitoba-based brokerages Horizon Insurance and Ryan Gateway Insurance Brokers have announced a merger of operations. A release describes the merger as “the coming together of the oldest and the largest local insurance brokers in Manitoba.” Ryan Gateway Insurance Bro-
6 kers has provided service to 25,000 clients since it was founded in Winnipeg in 1903. Horizon will have 18 locations in Manitoba as a result of the merger. It will feature a newly expanded 11,0000-square-foot head office and employ more than 180 people. Horizon will be doing more than Cdn$50 million in home and business insurance, as well as handling more than 75,000 Autopac registrations annually. Bryan Alsop, president of Ryan Gateway Insurance, will join Horizon’s board of directors. Horizon president Michael Leipsic cited steady change in the marketplace as the main reason for bringing the two companies together. “Customers now expect us to bring a higher level of product expertise as well as the ability to present to them with greater opportunities to meet their needs. We want to be seen as a trusted advisor, and a merger like this will allow us to provide that unprecedented level of personalized service.”
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partners.” The consolidation of Kingsway’s Canadian operations is expected to contribute to a reduction of the company’s operating expenses.
10
6
JEVCO Insurance Company will assume the assets and liabilities of Kingsway General Insurance Company (KGIC), effective Oct. 1, 2009, subject to regulatory approval. Both KGIC and JEVCO are subsidiaries of Kingsway Financial Services Inc. (Kingsway). JEVCO will be Kingsway's marketing brand in Canada. All new and renewal business will be written on JEVCO paper as of Oct. 1, the company noted in a statement. Serge Lavoie [6] will continue as president and CEO of the combined Canadian company. “We believe that JEVCO's 20-year track record of profitability gives us a strong foundation for achieving greater financial stability in our Canadian business portfolio,” Colin Simpson, president and CEO of Kingsway, said in the statement. “The consolidation of Kingsway’s Canadian business is a key component of our business plan to rebuild Kingsway's reputation and deliver greater value to our shareholders and business
7
Western Financial Group has agreed to acquire all issued and outstanding shares of Winnipeg-based Hayhurst Elias Dudek (HED) Inc. and its subsidiaries, including Securican General Insurance Company. The transaction has been approved by all applicable regulatory bodies and was scheduled to close on or before Sept. 30, 2009. Western Financial Group currently owns 49% of HED and has been a minority shareholder for almost three years. HED is one of Canada’s largest independent insurance brokerages. Its head office is in Winnipeg and it also has a service office in Laval, Quebec. The brokerage specializes in commercial insurance and employee benefit products specifically designed for Canadian independent businesses and government entities that are aligned with associations or buying groups. Securican is an underwriter of pet health insurance through its own brand name, PetSecure, as well as a number of white label agreements with national brand name companies. In announcing the deal,
Western Financial noted it owned a network of more than 100 insurance brokerages in Western Canada. “While Western [Financial]’s focus has been in the West, we welcome and embrace HED’s cross-Canada business model of serving client group member firms’ needs across the country — including not only the West, Ontario and Quebec, but reaching all the way to Atlantic Canada,” the company said in a statement.
8
Douglas A. Coll has been appointed chief commercial officer of Aon Consulting Canada. Coll started in the newly created role on Sept. 8 in Toronto. The chief commercial officer is focused on generating revenue growth, according to an Aon release. Coll will lead sales and business development across Canada, working closely with business development colleagues and the leadership team, Aon said. Most recently Coll was vice president of sales and relationship management with PriceWaterhouseCoopers LLP.
9
The Co-operators and the University of Guelph have launched The Co-operators Centre for Business and Social Entrepreneurship. The centre, dedicated to preparing new business leaders committed
to community engagement and sustainability, will be supported over the next five years by a Cdn$400,000 contribution from The Cooperators. “Business students and faculty will work with social purpose organizations on a broad range of collaborative initiatives that have tangible benefits for everyone involved,” according to The Co-operators. “Along the way, students will gain management and economic experience, create and launch new ventures and develop a sense of social responsibility and leadership. There will also be opportunities for faculty and graduate student research.
10
Friends and colleagues of the late Ciaran Shannon can now make donations or purchase tickets online for a tribute evening being held on Oct. 23, 2009 in Toronto to raise funds for the education of his children. Details of and tickets for the event can now be purchased for $25 online at ciaranshannoncanadatribute.com. Those wishing to donate directly to the fund can do so through the site, as well. Corporate sponsorships, silent auction prize donations and any help offered would be much appreciated.
October 2009 Canadian Underwriter
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Belfor Restoration held its 5th Annual invitational at Sleepy Hollow Golf & Country Club in Stouffville, Ontario, on Aug. 13. More than 80 golfers attended and enjoyed lovely weather and great food. Funds raised during the event went to fight breast cancer.
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100 Canadian Underwriter October 2009
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Catlin Canada treated clients to an afternoon lunch on Aug. 21 in the executive suites of the Rexall Centre at York University to watch matches of the Rogers Cup.
Joe Durante Director of Risk Solutions
RSA is pleased to announce the appointment of Joe Durante as Director of Risk Solutions. Joe joins RSA with a wealth of insurance experience spanning 30 years. He previously worked for Executive Risk Services where he was responsible for the creation of their casualty business including the development of strategy and acquisition of capacity. Prior to that, Joe spent more than 20 years running various areas of AIG’s commercial casualty business, most recently he was VP of Excess Casualty. Over the years Joe has built a strong reputation for his casualty expertise in the broker channel. Joe will lead RSA in becoming a leader in the risk managed market.
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Delegates and guests attended the 25th annual Canadian Independent Adjusters’ Association (CIAA) Annual Conference in Montreal, Quebec. Attendees played a day of golf, enjoyed dinner at Le Cabaret du Roy in Old Montreal and sailed on a boat cruise through the harbour. Hockey legends Rejean Houle and Yvan Cournoyer started off Saturday’s education sessions with keynote speeches. Afterwards, local lawyers discussed the courts’ interpretations of liability and property policies, and member adjusters explained their experiences with unusual claims. The conference came to a close with the president’s banquet and ball, when Patti Kernaghan, president of Kernaghan Adjusters, took the helm as the association’s newest president.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Robert Fellows
Alister Campbell, President and CEO of Zurich Canada, is pleased to announce the appointment of Robert (Bob) J. Fellows to the position of Senior Vice President, Distribution, Marketing and Communications for Zurich Canada. Mr. Fellows is well-known in Canada’s commercial insurance industry, having held a number of senior management roles at some of Canada’s most respected insurers. Most recently, Bob spent eight years as President and Chief Agent of St. Paul Fire and Marine (Travelers Canada). As head of Distribution, Bob will continue to execute and evolve Zurich’s targeted broker relationship strategy, an area in which he has deep experience and proven expertise. He will also be responsible for continuing to build on Zurich’s HelpPoint™ brand positioning in the Canadian market and for supporting the development of compelling customer value propositions in all of Zurich’s target segments. Zurich Financial Services Group is an insurance-based financial services provider and the insurer of choice for many of Canada’s leading companies as well as the majority of Fortune 100 global companies. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latin America and other markets. Zurich’s 60,000 employees serve customers in more than 170 countries.
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Graham R. Haigh, BA, FCIP, CAIB The Wawanesa Mutual Insurance Company announces the recent appointment of Graham R. Haigh, BA, FCIP, CAIB as Vice President, British Columbia. Mr. Haigh joins Wawanesa with over 15 years of Property & Casualty insurance experience. His most recent position was that of General Manager, BC Region for another property and casualty insurer. During his career, Mr. Haigh has had managerial responsibilities in the areas of claims, underwriting, administration and systems. Mr. Haigh, who holds a Bachelor of Arts degree from Simon Fraser University, has earned his Fellowship, Chartered Insurance Professional (FCIP) designation and his Canadian Accredited Insurance Broker (CAIB) designation. He is past president of The Insurance Institute of British Columbia. The Wawanesa, established in 1896, is a Canadian-owned leader in the insurance industry. The Company conducts business throughout Canada, California and Oregon and has combined assets of over $4 billion and annual premiums exceeding $1.8 billion.
104 Canadian Underwriter October 2009
The 2009 RIMS Canada Conference started with a bang with the official launch party of ClearRisk. On Sept. 11, ClearRisk founder and president Craig Rowe hosted a celebration of the new enterprise at the Martini Bar in the heart of the famed George Street in downtown St. John’s. Partygoers were treated to local delicacies and danced the night away.
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See all photos from this event at www.canadianunderwriter.ca/gallery
Julie Bolton
Alister Campbell, President and CEO of Zurich Canada, is pleased to announce the appointment of Julie Bolton to the position of Vice President, Risk Services for Zurich Canada. Ms. Bolton joined Zurich in 2006 as Regional Manager of Ontario and Western Canada, leading her team as they helped numerous companies improve their safety records through the identification and implementation of risk management strategies. In her new position as head of Risk Services at Zurich Canada, Julie will ensure Zurich’s best-in-class risk identification and analysis continues to set the standard of risk services excellence in Canada. Increasingly, Zurich’s Risk Services capabilities are embedded in unique customer value propositions that differentiate Zurich - and the brokers who recommend Zurich – in the Canadian marketplace. Julie will be accountable for further developing Zurich Risk Services as a true competitive advantage Julie has over 12 years of experience in manufacturing environments and holds a B.S., Mechanical Engineering from Worcester Polytechnic Institute in Massachusetts and an M.S., Civil Engineering from Tufts University, also in Massachusetts. Zurich Financial Services Group is an insurance-based financial services provider and the insurer of choice for many of Canada’s leading companies as well as the majority of Fortune 100 global companies. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latin America and other markets. Zurich’s 60,000 employees serve customers in more than 170 countries.
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Granite Global Solutions held its first annual RIMS Canada conference event at Mexicali Rosa’s in St. John’s. Hosted by the member companies — McLarens Canada, King-Reed Investigation Services and Sibley & Associates — the Saturday afternoon event allowed delegates the opportunity to rev up for the conference with some camaraderie and live music.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Josie Pachis
Alister Campbell, President and CEO of Zurich Canada, is pleased to announce the appointment of Josie Pachis to the position of Vice President,Claims for Zurich Canada.
Quelmec Loss Adjusters hosted an evening of cocktails and dinner during the Risk and Insurance Management Society Canada conference in St. John’s, Nfld. The Cellar Restaurant opened its doors on Sept. 12 for a night of good food and good company.
With a specialization in casualty claims and broad management experience, Josie has spent almost 25 years helping customers successfully resolve insurance claims. She has been a valued member of Zurich’s claims management team since 2002. Josie’s passion for customer service excellence, her commitment to continually enhance Zurich’s claims offering and her ability to collaborate and motivate staff make her ideally suited to lead Zurich’s Canadian claims operation. As head of Claims, Josie will play a key role in delivering on Zurich’s promise to deliver Zurich HelpPoint™, which is Zurich’s commitment to put customers at the heart of all we do. From a claims perspective, Zurich HelpPoint translates into offering fast, fair and easy claims solutions that deliver when customers need us most. Increasingly, Zurich’s claims capabilities are embedded in unique customer value propositions that differentiate Zurich - and the brokers who recommend Zurich - in the Canadian marketplace. Josie will be accountable for further developing Zurich Claims as a true competitive advantage. Zurich Financial Services Group is an insurance-based financial services provider and the insurer of choice for many of Canada’s leading companies as well as the majority of Fortune 100 global companies. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latin America and other markets. Zurich’s 60,000 employees serve customers in more than 170 countries.
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Cunningham Lindsey Canada hosted delegates of the RIMS Canada Conference at the Yellow Belly Pub in St. John’s on Sept. 12. Guests enjoyed the chance to socialize, a great dinner, and were treated to a performance by the St. Pat’s Irish step dance troop, the oldest dance group in Atlantic Canada.
Canadian Underwriter is Tweeting! Follow us on Twitter: www.twitter.com/ CdnUnderwriter
108 Canadian Underwriter October 2009
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Josie Pachis
Alister Campbell, President and CEO of Zurich Canada, is pleased to announce the appointment of Josie Pachis to the position of Vice President,Claims for Zurich Canada. With a specialization in casualty claims and broad management experience, Josie has spent almost 25 years helping customers successfully resolve insurance claims. She has been a valued member of Zurich’s claims management team since 2002. Josie’s passion for customer service excellence, her commitment to continually enhance Zurich’s claims offering and her ability to collaborate and motivate staff make her ideally suited to lead Zurich’s Canadian claims operation. As head of Claims, Josie will play a key role in delivering on Zurich’s promise to deliver Zurich HelpPoint™, which is Zurich’s commitment to put customers at the heart of all we do. From a claims perspective, Zurich HelpPoint translates into offering fast, fair and easy claims solutions that deliver when customers need us most. Increasingly, Zurich’s claims capabilities are embedded in unique customer value propositions that differentiate Zurich - and the brokers who recommend Zurich - in the Canadian marketplace. Josie will be accountable for further developing Zurich Claims as a true competitive advantage. Zurich Financial Services Group is an insurance-based financial services provider and the insurer of choice for many of Canada’s leading companies as well as the majority of Fortune 100 global companies. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latin America and other markets. Zurich’s 60,000 employees serve customers in more than 170 countries.
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SCM Insurance Services treated guests on Sept. 12 at Bianca’s in St. John’s to a true Newfoundland evening of hospitality. RIMS Canada delegates danced the night away to local tunes (with solos by Donna Shumka on the spoons), traditional food and, of course, a proper ‘screeching in’ for those brave enough to pucker up to a cod.
ADVERTISERS’ INDEX ACE INA Insurance A.M. Best Applied Systems Canada Inc. Assured Automotive Aviva Canada Inc. Berkley Underwriting Managers Canada, Ltd. Best Doctors Broker Builder Corp. CAIW Canadian Litigation Councel Canadian Underwriter Insurance Media Group canadianunderwriter.ca CG&B Group Chartis Chesterfield Canada Inc. Chubb Insurance Ciaran Shannon Canada Tribute Compu-Quote, Inc. Crawford & Company (Canada) Inc. Creechurch International Underwriters Limited CULE Insurance Cunningham Lindsey Canada Custom Software Solutions, Inc. e2Value Inc. 110 Canadian Underwriter October 2009
9 45 5 69 115 (IBC) 51 87 63 76 83 95 108 34 17 79 39, 81 89 19 35 61 57 11 75 53
Fortify Network Solutions FirstOnSite Restoration The Guarantee Company of North America Great American Insurance Group 55, 73 instouch.com Insurance Brokers Association of Canada (IBAC) Insurance Institute of Canada Intact Insurance Keal Technology McLarens Canada NKPR ORIMS Paul Davis Systems (PDS) Peace Hills Insurance PolicyWorks RIBO RSA - Royal & Sun Alliance Insurance Company of Canada ServiceMaster of Canada Limited STRONE Restoration Professionals Swiss Reinsurance Company Canada Tritech WINMAR XL Insurance Zurich Canada
100 24, 25 33 98, 99 30, 31 6, 7, 37, 59, 90 2 (IFC) 12, 13 41 85 93 64 43 27 44 1a, 1b, 48, 49 41 71 21 65 67 23 29
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Frank Capozzolo
Alister Campbell, President and CEO of Zurich Canada, and Urs Uhlmann, Senior Vice President, Zurich Global Corporate are pleased to announce the appointment of Frank Capozzolo to the position of Vice President, Relationship Leader, Zurich’s Global Corporate Division, Quebec. Frank brings a wealth of experience to Zurich as a corporate insurance and risk management professional who has worked for global companies in a range of industries; most recently as Director of Insurance for the former Alcan Inc. Coupled with his experience with Quebec based insurers, Frank is exceptionally well suited to act as Zurich’s primary point of contact to Canada’s largest and most complex companies. Frank will be based in Montreal and will be responsible for delivering all the solutions and capabilities that Zurich has to offer to our Quebec-based corporate customers, including a full range of traditional and innovative products, multinational insurance solutions, customized risk assessments and support, and customized claims solutions. Frank holds a Bachelor of Science from McGill University as well as a CMA and ARM certification. Zurich Financial Services Group is an insurance-based financial services provider and the insurer of choice for many of Canada’s leading corporations as well as the majority of Fortune 100 global companies. Founded in 1872, Zurich has a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latin America and other markets. Zurich’s 60,000 employees serve customers in more than 170 countries.
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Joyce Chalanchuk, SA, CI CAIW President 2009 - 2010 The Canadian Association of Insurance Women (CAIW) would like to announce the appointment of Joyce Chalanchuk, BA, CIP as President for the 2009-2010 term. Joyce is employed with Wawanesa Mutual Insurance Company as a Senior Telephone Adjuster In Wawanesa, Manitoba. She has attained the Chartered Insurance Professional (CIP) designation. Joyce was one of the founding members of her local association, the Insurance Women's Association of Western Manitoba,in 1988 and continues to be an active member. She has served on the Board of the Canadian Association of Insurance Women since 2002. CAIW is a non-profit association with 10 associations across Canada and over 800 members. The Association strives to provide opportunities for members to improve themselves both professionally and personally through networking and continuing education.
www.caiw-acfa.com 112 Canadian Underwriter October 2009
The 2009 RIMS Canada Casino Night, hosted by GCAN Insurance Company, was out of this world. The event was held at St. John’s Geo Centre, where full colour planets of our solar system hung in the centre’s three-storey reception hall. Guests could set the stakes as high as the stars at the cards table or just enjoy a relaxing evening with colleagues.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Klaus Navarrete FCIP, CRM Act
Hannover Re, is pleased to announce the appointment of Klaus Navarrete as Acting Head of Canadian Branch Facultative Office. Mr. Navarrete will be responsible for the Canadian Facultative Property & Casualty operations. Mr. Navarrete joined Hannover Re in 2006, and most recently held the position of Assistant Vice President Casualty. He holds his FCIP and brings over 20 years of diverse insurance experience to his new position. Hannover Re, with gross premium of around EUR 9 billion, is one of the leading reinsurance groups in the world. It transact all lines of of non-life and life and health reinsurance. It maintains business relations with more than 5,000 insurance companies in about 150 countries. Its wordwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with total staff of around 1,900.
www.hannover-re.com
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Crawford & Company (Canada) hosted approximately 150 RIMS Canada delegates on Sept. 12 at the Masonic temple in St. John’s. Attendees were charmed by ‘Ruby’ a local comedienne, and were ‘screeched in’ as honourary Newfoundlanders.
114 Canadian Underwriter October
2009
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