Canadian Underwriter March 2010 by Annex Business Media

C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A

$ M AR CH 2 0 1 0 A Business Information Group Publication #40069240

Holding the Bag BY DAVID GAMBRILL

The Proﬁtability of Risk BY RUUD BOSMAN

‘Accidental’ Disease? BY MICHAEL S. TEITELBAUM AND AMBERLEE SMALL

WHEN CONFRONTING DISASTER, HAVING ALL YOUR EGGS IN ONE

To learn more, visit fmglobal.com/insuranceevolved/safe

BASKET SHOULD MAKE YOU FEEL

Even in the best of times, it is rare to find an insurer willing to take on all of your commercial property risk. That is, however, exactly what FM Global does. Even in these times. Why is this important? Because it’s a reﬂection of our belief that we can help you prevent loss in the ﬁrst place. That’s why we’ve created a $100 million state-of-the-art research campus and employ more than 1,700 engineers around the world working to minimize your risk. In fact, for 175 years we’ve linked our underwriting to loss prevention engineering, culminating in a streamlined, efficient and stable insurance program. An approach that clearly distinguishes FM Global from insurers that do not base their underwriting on engineering assessments. Which is to say, all of them. We feel our clients are better protected when we assume all the risk ourselves. It’s a unique approach that makes all risk transparent, so there are virtually no surprises. Even when our clients do have losses, they tend to be smaller and less frequent. In our case, it’s all about understanding risk. Then assuming the responsibility for it. Underwriting through loss prevention engineering. That’s insurance evolved.

Insurance Evolved

VOL. 77, NO.3, MARCH 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Holding the Bag

Risk managers are starting to lead a political charge against common law rules of joint and several liability. These rules frequently place deep-pocketed municipalities on the hook to pay for up to 100% of damages awarded to plaintiffs, even if the defendant municipalities are found to be only 1% liable in cases involving multiple defendants. BY DAVID GAMBRILL

FEATURES

Risk's Bottom Line

Accidental Disease?

Companies focusing on better physical risk management will produce a more stable bottom line and greater shareholder value, an FM Global study has found.

Canada's highest court has confirmed that disease transmission is not necessarily an insurable ‘accident.’ BY MICHAEL S. TEITELBAUM AND AMBERLEE SMALL

BY RUUD BOSMAN

In a properly functioning insurance system, risk-sharing pools would either be smaller or completely unnecessary. BY BOB TISDALE

Canadian Underwriter March 2010

50 Risk Standards

The current state of the Canadian property and casualty marketplace has sellers' multiples climbing high, but is anyone in a position to buy?

The Canadian Standards Association (CSA) has adopted ISO 31000, a newly developed risk management standard.

BY JOEL BAKER

A recent Ontario arbitration has defence counsel re-evaluating tactics related to catastrophic impairment determinations. BY VANESSA MARIGA

BY ELIZABETH RANKIN AND DOUG MORTON

26 Bonds That Tie

58 Middle Market Risk

The catastrophe bond market appears to be flourishing right now in spite of financial conditions that would ordinarily dictate otherwise.

If middle-market companies see insurance strictly as a commodity, that's partly because few brokers and insurers are proposing valueadded risk management solutions tailored to the middle market.

BY ASHA ATTOH-OKINE AND RICHARD ATTANASIO

40 Third Wave

OIAA Conference Coverage Pool Maintenance

18 Seller's Market

As medical experts debate whether or not H1N1 has entirely passed through our system, companies' preparations for future pandemics are still in poor health. BY CRAIG HARRIS

BY CRAIG ROWE

Alexander Holburn Beaudin & Lang LLP Barry Spalding Burchells LLP Gasco Goodhue LLP Hughes Amys LLP McLennan Ross LLP Martin Whalen Hennebury Stamp Robertson Stromberg Pedersen LLP

VOL. 77, NO.3, MARCH 2010

PROFILE

12 Gateway to Excellence RIMS Canada Conference Co-Chairs David Buzzeo and Gwen Tassone are building a gateway to knowledge in Edmonton, Alberta in September 2010.

Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796

Art Director Gerald Heydens Art Consultation Pylon.ca

Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793

Production Manager Gary White (416) 510-6760

Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800

Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549

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Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122

Print Production Manager Phyllis Wright

BY DAVID GAMBRILL

SPECIAL FOCUS

Editorial

Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114

President Bruce Creighton Vice President Alex Papanou

10 Marketplace 60 Moves & Views 62 Gallery

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Canadian Underwriter March 2010

EDITORIAL

Show Trial jacta alea est! - Julius Caesar, 49 B.C.

Nova Scotia’s kangaroo court on the province’s auto insurance cap appears to be following the predetermined fate of a conviction.

David Gambrill, Editor david@canadianunderwriter.ca

Canadian Underwriter March 2010

Nova Scotia’s kangaroo court on the province's auto insurance cap appears to be following the predetermined fate of a conviction. Make no mistake, the NDP government is following due process. The government promised it would be reviewing the cap as part of its campaign platform. The premier was voted in with a mandate to review the cap. The government is seeking public consultation on a discussion paper about the cap. And yet, despite this fig leaf of public deliberation, one can't help but feel The Emporer is wearing no clothes when it comes to Nova Scotia's cap. Anything less than the severe watering down, if not the outright abolition, of the Nova Scotia cap seems a foregone conclusion. A few telling signs: First, the premier who promised the review is a personal injury lawyer and thus part of a profession that has a vested interest in removing the cap. Second, there was a very narrow window of opportunity for public input on the province's discussion paper. The paper was posted online in the middle of January 2010, and called for public input by Feb. 15, 2010. Third, Nova Scotia undertook its review of the cap's "fairness" in spite of — and maybe even because of — the conclusion by several appellate courts that the cap was constitutional (and hence did not discriminate against those to whom it applies). The Nova Scotia Appeal Court, for example, has already found

the province's cap did not discriminate against minor injury victims. And the Supreme Court of Canada essentially handed the Nova Scotia government a second reason not to proceed with a cap review, by denying an appeal of the Alberta Court of Appeal's determination that Alberta's cap was constitutional. And yet, the government not only proceeded with its review, it accelerated the process. Perhaps the most obvious sign of how this review is going to shake down can be found in the province's discussion paper itself. In Concerning the Cap on Pain and Suffering Awards for Minor Injuries, the province more or less concedes there is absolutely no cause for a review — that is, if you take seriously what Nova Scotia's cap is supposed to be doing (i.e. keeping insurance premium costs down for all of the province's consumers). "Since the introduction of the cap, there has been a measurable decrease in the average premiums for private passenger vehicles," the province's discussion paper reads. "Premiums have also been relatively stable." So why is the government reviewing the cap? "There are many factors that may have contributed to lower average premiums since 2003," the province says. "The precise impact of the cap, if any, is difficult to determine." Oh really? If it wasn't the cap, then what was responsible for the decrease in average premiums? We don't know, because the discussion paper doesn't say. Apparently, the government says, "over the past six years,

some automobile accident victims who have been injured and subject to the cap on pain and suffering awards have expressed concerns about fairness." Like who? And how many? Again, we don't know. The government provides no formal survey results, nor does it give any numbers defining the scope of this public disaffection. This is a widespread, burning public resentment, by the way, about which the Insurance Bureau of Canada (IBC) and the area's insurance brokers have heard nothing. It must have been an awfully quiet majority, since you'd think the insurance industry would have been the first to hear people complaining about it. And so it would appear that "the die is cast" (jacta alea est), as Julius Caesar said when he crossed the Rubicon river, thus putting himself at war with Caesar Pompey and the Senate of Rome. From this vantage point, there appears to be no turning back for the government of Nova Scotia, which is preparing to follow the destiny that it laid out in its own 2009 electoral script. Can we honestly say it will be a surprise to anyone in the insurance industry that a deductible in Nova Scotia will soon follow this so-called "review" of the cap? Since the outcome of this set drama piece appears to be entirely predictable, perhaps the insurance industry would be wise to start lobbying Nova Scotia's opposition parties now to replace the NDP's deductible with a cap the moment the Dexter Administration is voted out of office by angry citizens who have had their insurance premiums increased.

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Canadian Market PC FINANCIAL RE-LAUNCHES AS FULL SERVICE BROKERAGE Loblaw Companies Ltd. has launched PC Financial Insurance Broker Inc., a “largescale full service brokerage” for home and auto insurance. The service is available in Ontario and Alberta. Currently it represents the following markets: The Dominion of Canada General Insurance Company; Aviva Insurance Company of Canada; Elite Insurance Company; Pilot Insurance Company; Axa Insurance (Canada); Pembridge Insurance Company and Pafco Insurance Company. “The transition to a broker model for home and auto insurance will help customers receive the best product and value to suit their needs,” the company says in a press release.

NOVA SCOTIA AUTO INJURY CAP LEADS TO PREMIUM DECREASE OF 23% IN SIX YEARS: IBC Nova Scotia's $2,500 cap on minor auto injuries has led to an average auto insurance premium reduction of 23% between the time the cap was implemented in 2003 and August 2009, the Insurance Bureau of Canada (IBC) says in a submission to the government.

10 Canadian Underwriter March 2010

The IBC's submission is part of the Province of Nova Scotia's review of the cap legislation. The NDP government vowed to review the cap as part of its electroral mandate. IBC's submission reviews four potential alternatives to the cap, although it does not take a position on any one of them. They include: • increasing the cap amount and indexing it to inflation; • adding to the list of exceptions to the cap (for example, injuries to internal organs; concussions with a confirmed loss of consciousness lasting one or more hours in duration; or fractures to legs/feet and the dominant arm/hand); • moving to a “first party” or “pure no fault” system; or • introducing a deductible to replace the cap.

CANADIAN P&C INDUSTRY BOUNCES BACK FINANCIALLY: SCOR REPORT Financial results published in the SCOR Report 2009 suggest nine Canadian property and casualty insurers appear to be very much on the rebound after the 2008-09 market crash. The SCOR Report 2009 shows both the individual and collective performances of nine Canadian P&C insurers: Allstate Insurance Company of Canada, BCAA Insurance Corporation, CAA Insurance (Ontario), Desjardins Group, Industrial

Alliance, P.E.I. Mutual Insurance, Pafco Insurance Company, Pembridge Insurance Company and Sovereign General. Collectively, these insurers rebounded from a total net income of just $11.8 million in 2008 (down from $275.5 million in 2007), to a total collective net income of about $206 million in 2009. Additionally, the companies saw their underwriting results recover from a $51.5-million loss in 2008 to a $60.1-million underwriting profit in 2009. (This compares to the companies' collective $152.3-million profit in 2007.

Claims GLOBAL INSURED LOSSES IN 2009 LOWEST SINCE 2006 At $24 billion, global insured losses in 2009 were the lowest they have been since 2006, in part due to relatively low losses for weather events and a quiet hurricane season, according to Guy Carpenter. This is a large drop from $52.5 billion in 2008, the company reported in its 'Catastrophe Update,' posted online at GCCapitalIdeas.com. "2009 has seen an impressive recovery from last year's financial crisis and the uncertainty caused by losses from Hurricanes Gustav and Ike," the update said. "This recovery has been driven by the easing of financial markets

and low catastrophe activity." The largest source of loss in 2009 included weather-related events amounting to $21 billion. Man-made disasters triggered insured losses of $3 billion, Guy Carpenter reports.

FSCO ARBITRATORS HAVE NO LEGISLATIVE MEANS TO ASSESS CLAIMANTS' CAPACITY TO REPRESENT THEMSELVES A woman diagnosed with a borderline personality disorder may represent herself in an arbitration concerning auto insurance accident benefits, the Financial Services Commission of Ontario (FSCO) has ruled. In L.G. and Lombard General Insurance Company of Canada, FSCO arbitrator John Wilson considered whether the claimant in the case, L.G., was entitled to appear without legal representation in an accident benefits arbitration, even though Lombard produced evidence that she had been diagnosed with a "schizophrenic/borderline personality disorder." "Although the diagnosis does not determine capacity [of the claimant to represent herself], such information is not totally irrelevant," Wilson ruled. However, he went on to observe that some kind of medical-legal analysis would be required, and Lombard had not presented anything more than a diagnosis.

MARKETPLACE

"It goes without saying that there is not necessarily a direct relation between a diagnosis and capacity, since the effects of mental illness may be mitigated by treatment, may be in remission, or may not ultimately affect the reasoning capacity of an individual," he wrote. Wilson added that even though he thought L.G. would be "better served" by a representative, an arbitrator had no basis under the Insurance Act (or any other statutes) to enquire into the capacity of a party.)

and has taken steps to address that risk.” The legislative changes require foreign insurers who are insuring risks in British Columbia to 1) obtain a

business authorization issued by the FICOM, or 2) ensure the placement of their insurance is made through licensed insurance brokers. A bulletin with a complete

list of the changes and their potential effects on insurers can be found at: http://www.fic.gov.bc.ca/ responsibilities/insurance/ informationbulletins.htm.

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.

Regulation B.C. TAKES ITS OWN APPROACH TO PART XIII CHANGES British Columbia’s Financial Institutions Commission (FICOM) has made legislative changes in the wake of recent amendments to Part XIII of the Insurance Companies Act, saying it believes the Part XIII amendments place the public at risk. The B.C. regulator contends the changes made to Part XIII by the Office of the Superintendent of Financial Institutions “could allow foreign insurers to insure risks in this province without that business being regulated in Canada,” FICOM said in a release. “This province believes that this creates an increased risk to the public of this province

www.cunninghamlindsey.com

March 2010 Canadian Underwriter

PROFILE

Gateway to Understanding David Gambrill Editor

RIMS Canada Conference Co-Chairs David Buzzeo and Gwen Tassone are constructing a 'Gateway to Excellence' using five key building blocks. The RIMS Canada Conference is planning to transform The City of Edmonton from the ‘Gateway of the North’ into a ‘Gateway to Excellence’ in September 2010. The architects of the plan are RIMS Canada Conference Cochairs David Buzzeo, senior manager of risk management operations for Alberta Finance and Enterprise, and Gwen Tassone, the risk and insurance manager for the City of St. Albert legal services department. Together, they are organizing the 2010 RIMS Canada Conference, which will be held at the Shaw Conference Centre in Edmonton, Alberta from Sept. 26-29, 2010. Contacted for the purpose of a profile, Buzzeo and Tassone clearly preferred the spotlight to shine on their project, about which they are obviously enthused. “The way the economy has

12 Canadian Underwriter March 2010

been of late, and the impact that it had on the business world and risk managers from every part of the industry, we wanted to offer something that was very high in value and excellence, but for a good price,” says Tassone, whose career in risk management can be traced back to May 1999. “We’re really trying to push the value-added concept.” And thus the ‘Gateway to Excellence’ metaphor was born, adds Buzzeo, who started in the insurance industry as a claims adjuster in the early 1970s, and who transitioned into risk management in 2003. “Edmonton is known as the Gateway to the North,” Buzzeo says. “We have Gateway Boulevard in Edmonton. Edmonton has many references to gateways. Most importantly, this is a metaphor: it is a gateway to what we are trying to pass on, which are integrity, discovery, resources, ingenuity and success. Those are the five-stepping stones in our program.” The 2010 conference speakers and program will be organized around these five concepts. “So, for example, with ingenuity, [the speakers and seminars] are themed on innovation,” Buzzeo says. “This includes what’s new and innovative in our risk management industry.” What is new in the industry? “P3s: private/public partnerships,” Buzzeo replies. “There

are also new ideas with respect to risk financing. We are bringing in an actuary to talk about how we actuarially account for our potential liabilities in a self-insurance fund. There will also be a presentation on other ways we can transfer a risk, ART (alternative risk transfer).” Tassone elaborates on another one of the five themes. “Discovery, for example, ties in with technology,” she says. “We are having Leonard Brody, who is a futurist, as one of our plenary

The way the economy has been of late, we wanted to have something that was very high in value, but for a good price. speakers. Also on that same theme, we will have a technology centre in our Exhibit Hall, so that any of the new stock, programs or tools that could be available to assist risk managers in taking what they do a step further will be available for them to see and touch and use first-hand.” Buzzeo and Tassone say the plenary speakers have been chosen in an effort to generate discussion and debate. Certainly one of the conference’s thoughtprovoking plenary speakers, novelist and essayist Sir Salman Rushdie, knows something about

risk. Rushdie endured death threats and a fatw_ issued by Ayatollah Ruhollah Khomeini, the Supreme Leader of Iran, in February 1989. Khomeini issued the fatw_, calling for Rushdie’s assassination, on the basis of Rushdie’s controversial novel, The Satanic Verses. Rushdie’s fourth novel, The Satanic Verses, was inspired in part by the life of the Prophet Muhammad. Rushdie will be speaking on ‘The Ethos of Risk,’ Buzzeo says. Another controversial author, Jeff Rubin, is a plenary speaker. Rubin’s book, Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization, presents the argument that our entire global economy has been dependent thus far on an abundant supply of cheap oil. The thesis is bound to challenge risk managers in the heart of Canada’s oil-producing country in Alberta. Similarly close to home, CBC news anchor Peter Mansbridge will give an address on risks in Canada, including economic and political risks, Buzzeo says. The organizers are now negotiating an opportunity for the anticipated 650-700 delegates to meet and greet the plenary speakers. Buzzeo and Tassone say the conference’s education seminars will similarly follow a path less travelled. Twenty concurrent sessions are now planned, a number

PROFILE

that might reach 25 by the time the conference starts. The sessions will all be at the Shaw Conference Centre, although one will involve a “field trip” outside the centre in an effort to learn about risks related to water purification. As for the entertainment, well, other than a scheduled appearance by jazz saxophone player P.J. Perry, the rest is a surprise, says Buzzeo. “There is entertainment planned for Tuesday’s evening banquet that we are trying to keep under wraps because we want there to be a

surprise element to it,” he says. “It’s first-class, world-quality entertainment.” And so now that the RIMS Canada Conference has been profiled, as per Buzzeo and Tassone’s request, who is orchestrating it? Buzzeo’s career in the insurance industry started when she joined the Co-operative Fire & Casualty Company as a claims adjuster in 1973. Four years later, he went on to become the president and manager of Buzzeo & Associates Ltd., which pro-

vided claims services throughout the province of Alberta and the Northwest Territories. As of November 2000, Buzzeo & Associates Ltd. became a wholly owned subsidiary of Underwriters Adjustment Bureau (UAB) Ltd., where Buzzeo was a member of UAB’s senior management team. Buzzeo describes 2003 as a “pivotal point” in his life; that is when he made the transition into a risk management career. He joined Alberta Finance and Enterprise in 2003 as a senior manager of claims management,

sliding into the role of senior manager of risk management operations at Alberta Finance and Enterprise in 2006. Tassone’s career in insurance began with a brief stint as a client service representative (CSR) in personal lines at Houston Insurance Brokers in 1996 and Wrigley Insurance Services in 1998. Soon thereafter, she became an insurance and risk analyst at the University of Alberta in 1999. “I took the insurance and risk management program at Grant McEwen College in Edmonton,” she says. “I graduated from that program in 1999 and actually moved right into the risk management department at the University of Alberta.” From there, Tassone moved in 2001 to the City of St. Albert, where she was appointed to the newly created position of insurance and risk administrator. She has since remained at the City of St. Albert, where she has been the city’s risk and insurance manager since August 2005. Tassone has been involved with the work of the Northern Alberta Chapter of RIMS since 2000 and RIMS Canada Council and subcommittees in various capacities starting in 2005. Buzzeo has been a full member of RIMS Canada since 2003, when he joined the risk management division of Alberta Finance. Prior to that, as an adjuster, he was an associate member of RIMS.

March 2010 Canadian Underwriter

Companies with better physical risk management will produce more stable earnings and greater shareholder value, according to research conducted by FM Global. Ruud Bosman Vice Chairman, FM Global

As the economy recovers, companies should consider allocating additional resources to improving physical risk management. Not only will this action reduce property-related risks, it may lead to a more stable financial performance. This unexpected possibility is a key finding of FM Global’s latest research, which indicates a high statistical correlation between a company’s earnings and its risk management practices to prevent fires, natural hazards and other causes of property loss and business interruption. The correlation suggests companies with better physical risk management will produce more stable earnings. Since earnings are a key driver of shareholder value, strong physical risk management can also have a potential positive impact on stock price.

14 Canadian Underwriter March 2010

The striking statistical correlation was uncovered when FM Global commissioned Oxford Metrica, an independent strategic adviser to FORTUNE 500 companies, to conduct the research. It involved comparing and analyzing the physical risk management practices and financial performance of 520 large multinational companies with at least $1 billion in annual revenue. The findings? Companies with best practices in managing their property risks produced earnings on average that were 40% less volatile than companies with less advanced physical risk management. The findings also underscore the strategic value of strong physical risk management — benefits beyond property loss reduction that may direct enhanced financial performance. Oxford Metrica is no stranger to divining statistical relationships that have bearing on financial performance.The firm provided much-publicized, research-based intelligence on the Johnson & Johnson Tylenol poisoning cases in the 1980s. Its quantitative assessment correlated the impact of the crisis on the company’s brand, market capitalization and shareholder value. Other recent studies by the firm include an examination of airline crashes and their impact on

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Bolstering the Bottom Line

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an airline’s reputation and wide-ranging analyses for clients like Bank of New York Mellon, AIG and Ernst & Young. To assess the financial performance of the study’s subjects (all are clients of FM Global), researchers analyzed the companies’ annual stock returns, risk-adjusted stock returns, total variance of stock returns, the sensitivity of stock price to general market movements and variances in operating cash flow, interest rates and earnings. These were then compared to proprietary data on the physical risks, loss history and risk quality of those companies. As part of its loss prevention engineering services, FM Global rates commercial clients on a 1-100 scale for property risk management “best practices.” The rankings assist organizations to quantify, prioritize and benchmark physical risks for improvement. Higher scores signify superlative risk quality. Lower scores signify an increased risk of a major loss and disruption in business continuity.

Statistically, companies with strong physical risk management practices produced earnings that fluctuated by nearly 18% on average. Companies with weak physical risk management practices produced earnings that fluctuated by 31% on average, the research finds.

Such findings are significant. Given strong physical risk management practices, a more constant financial performance presents a competitive advantage over peers with less advanced physical risk management practices. Businesses with less earnings volatility also have a more predictable bottom line, allowing companies to focus more on strategic long-term planning. Companies with strong risk management practices have a higher level of confidence in the reliable performance of their physical assets. This in turn helps those organizations make smarter decisions. The statistical correlation between physical risk management and earnings stability is unprecedented. Nevertheless, FM Global’s quantitative research has long indicated the financial prudence of physical risk management best practices. Internal studies indicate, for example, that the average risk of a property loss is 20 times larger for companies with weak physical risk management practices than

for those with strong physical risk management practices. Additionally, a location deemed to practice weak physical risk management is more than twice as likely to experience a property loss and subsequent disruption in business practices.The cost of these losses on average is considerable—more than $3 million for a company with weak physical risk management practices, as opposed to $620,000 for a company that manages its physical risks well. In terms of specific causes of property loss, quantitative research reveals similar distressing findings. For instance, the average risk of a property loss caused by fire is 55 times greater for a company practicing weak physical risk management than for one with strong practices. The financial consequences also are much higher — more than $4.5 million in loss per location on average, compared with less than $720,000 on average for companies with strong practices. With regard to natural disasters like earthquakes, hurricanes, tornadoes and

Resources allocated to physical losses are judiciously invested. The statistical correlation between physical risk management best practices and more stable earnings and greater shareholder value presents evidence of a positive return on investment. other natural hazards, the risk of a property loss is 28 times larger for companies with weak physical risk management practices than for those with strong practices.The property loss costs follow suit — $3.4 million per loss on average for companies with weak practices, versus $478,000 for companies with strong practices. Clearly from a financial perspective, resources allocated toward reducing physical losses are judiciously invested.

The statistical correlation between physical risk management best practices and more stable earnings and greater shareholder value presents additional evidence of a positive return on investment. Such research findings can give corporate risk managers added clout to recommend increasing budgetary allocations for physical risk improvement. For some companies, reliability in the performance of their physical assets is a component of their reputation, and the way to improve this reliability is to invest in the physical safety and security of one’s plants. Overall, although economic conditions compel cost-cutting measures, restricting resources dedicated to physical risk management may be imprudent. The tactic may offer short-term financial relief, but it eventually may instigate earnings volatility and negative implications for shareholder value. If you have not done so already, perhaps it’s time to consider physical risk management as a key performance indicator.

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wicc

Seller's

Market

Joel Baker President, CEO, MSA Research Inc.

Excerpted from the Q3 2009 MSA/Baron Outlook Report released in January 2010. For more information,visit: www.msaresearch. com/outlook

Although a few companies have accumulated war chests suitable for entering Canada's M&A game, current multiples may be enough to chase potential buyers away.

acquirers have enough ammo. Right now, there are several well-armed groups but few reasonably priced prospects. Further, acquirers that have been traditionally less sensitive to the accretiveness of their acquisitions are generally in poorer financial shape right now than those that are attentive to the multiples.

It is no secret that Intact Financial Corporation (IFC-T) is on the prowl for acquisition targets. Other large groups, recovering from the battering they took in 2008, are also on the hunt. There are two questions: â&#x20AC;˘ Has the window for mergers and acquisitions (M&A) already closed for this part of the cycle? â&#x20AC;˘ If not, can acquirers stomach the multiples vendors are demanding?

Multiples will only come down if some insurers hit the wall and weaken to a degree that their owners will be willing to accept less for them. The most likely catalyst for this would be if the belated Ontario auto reforms fail in stabilizing that important market. In such an event, shareholders may finally throw in the towel. Smaller tuck-in or bolt-on acquisitions, such as The Co-operators takeover of the CUMIS Group Ltd. (driven mostly by the life/health side), or any acquisitions that result from the disintegration of the Kingsway Canada group, are always possible, as are international strategic M&As involving Canadian subsidiaries. Also possible are acquisitions affecting commercial writers with the advent of the newly resurgent Fairfax or increased appetite from

SHOULD I STAY OR SHOULD I GO NOW? Insurers on the fence about selling their books in Canada are struggling with weighing the benefits of slogging through a tough market and making it to better times, or selling now while the going is good. Mergers and acquisitions (M&As) typically happen either when targets are reasonably priced or

18 Canadian Underwriter March 2010

BOTTOMING OUT

pension plans such as the Ontario Teachers Pension Plan (OTPP). The OTPP already owns GCAN and has recently announced its intent to acquire AIG’s mortgage insurer, AIG United Guaranteed Mortgage Insurance Company of Canada. Another possibility is a merger between mutuals. There have been a few such mergers among smaller farm mutuals in recent months but not yet between sizable companies. Figure 1 below shows potential match-ups and their estimated combined market shares (the market shares are based on the entire market including

The window for meaningful stock company M&A is still open, but it won’t remain so for long. Lloyd’s and government insurers). As you can see from the chart, potential blockbuster, market-changing deals are few and involve companies in the top left quadrant. We marked combinations that are not possible with a ‘NP’ but many other ones are extremely unlikely as well.

It is also important to remember that pro-forma additions of market shares rarely materialize after acquisitions, since competitors do their best to raid books of business and brokers are inclined to diversify their markets. Thus the combined shares shown in the table below should be viewed as ‘optimistic.’ We believe the window for meaningful stock company M&A is still open, but it won’t remain so for long — especially if managers believe that a hardening market and increased profitability will be coming in late 2010 or 2011, driving valuations out of reach.

Figure 1 Potential Target

8.2

GCAN/Teachers

8.2

Gore

8.4 8.3

CNA

8.4

AMA

8.4

GCNA

8.5

ACE

8.6

FM Global

8.8

SGI

Potential Acquirer

American Bankers

9.0

Travelers Group

9.1

RBC

9.3

Capitale

NP 10.1

10.8 10.1 10.0 9.6

Chubb

12.8 12.1 12.0 11.6 11.3 11.1 11.0 10.8 10.6 10.5 10.4 10.4 10.4 10.3 10.2 10.2

Allstate

Northbridge

AIG

Desjardins

12.0 11.8 11.6 NP

Zurich

Wawanesa

14.0 13.8 13.6 NP

Dominion

State Farm Group

AXA Canada Group

TD Assurance

17.2 7.6

RSA Canada

Economical

9.6 17.2 NP

Aviva Canada

Intact

Co-op Group

Combined Market Shares (In Canada) Based on Year-End 2008 Shares

8.1

Co-op Group

14.6 12.6 5.0

9.4

9.2

8.9 8.8

8.6

8.3

8.2

7.5

7.3

7.0

6.6

6.4

6.2

5.9

5.8

5.7

5.7 5.6

5.5

5.5 5.5

Economical

14.1 12.0 9.4

4.4

8.9

8.6

8.4 8.3

8.1

7.8

7.6

6.9

6.8

6.4

6.1

5.9

5.8

5.6

5.4

5.3

5.2

5.2 5.1

5.0

4.9 4.9

TD Assurance

14.0 12.0 NP

4.4

8.6

8.4

7.6

6.9

6.8

6.4

6.1

5.9

5.8

5.6

5.4

5.3

5.2

5.0

RSA Canada

13.8 11.8 NP

8.6

4.2

8.1

7.4

6.7

6.6

6.2

5.8

5.7

5.6

5.4

5.2

5.1

5.0

4.9 4.9

4.8

4.7

AXA Canada Group

13.6 11.6 NP

8.4

8.1

3.9

7.2

6.5

6.3

5.9

5.6

5.4

5.3

5.1

4.9

4.8

4.7

4.7 4.6

4.5

4.4

4.9

State Farm Group

13.5 11.5 8.8

8.3

8.1

7.8 3.9

7.5

7.3

7.1

6.4

6.3

5.9

5.5

5.4

5.3

5.1

4.8

4.7

4.6

4.6 4.6

4.5

4.4

4.4 4.4

Wawanesa

13.3 11.3 8.6

8.1

7.8

7.6 7.5

3.7

7.0

6.9

6.2

6.0

5.6

5.3

5.1

4.9

4.6

4.5

4.4

4.4 4.3

4.2

4.2 4.2

Desjardins

13.0 11.0 8.3

7.8

7.6

7.3 7.3

7.0

3.4

6.6

5.9

5.7

5.4

5.0

4.8

4.6

4.3

4.2

4.1

4.1 4.0

4.0

3.9

3.9 3.9

Northbridge

12.8 10.8 NP

7.6

7.4

7.2

3.2

5.7

5.6

5.2

4.9

4.7

4.6

4.4

4.2

4.1

4.0

3.9 3.9

3.8

3.7

Dominion

12.1 10.1 NP

6.9

6.7

6.5

5.7

2.5

4.9

4.5

4.2

4.0

3.9

3.7

3.5

3.4

3.3

3.3 3.2

3.1

3.0

AIG

12.0 10.0 NP

6.8

6.6

6.3

5.6

4.9

2.4

4.4

4.0

3.8

3.6

3.3

3.2

3.1

3.1 3.1

3.0

2.9

Zurich

11.6 9.6

6.4

6.2

5.9

5.2

4.5

4.4

2.0

3.6

3.5

3.4

3.2

3.0

2.9

2.8

2.7 2.7

2.6

2.5

Allstate

11.3 9.3

6.1

5.8

5.6

4.9

4.2

4.0

3.6

1.6

3.1

2.9

2.6

2.5

2.4

2.4 2.3

2.2

Chubb

11.1 9.1

5.9

5.7

5.4

4.7

4.0

3.8

3.5

3.1

1.5

2.9

2.7

2.4

2.3

2.2

2.2 2.1

2.1

2.0

Capitale

11.0 9.0

5.8

5.6

5.3

4.6

3.9

3.8

3.4

3.1

2.9

1.4

2.6

2.4

2.3

2.2

2.1 2.1

2.0

1.9

RBC

10.8 8.8

5.6

5.4

5.1

4.4

3.7

3.6

3.2

2.9

2.7

2.6

1.2

2.2

2.1

2.0

1.9 1.9

1.8

1.7

Travelers Group

10.6 8.6

5.4

5.2

4.9

4.2

3.5

3.3

3.0

2.6

2.4

2.2

1.0

1.8

1.7

1.7 1.6

1.6

1.5

SGI

10.5 8.5

5.3

5.1

4.8

4.1

3.4

3.3

2.9

2.5

2.4

2.3

2.1

1.8

0.9

1.7

1.6

1.6 1.6

1.5

1.4

American Bankers

10.4 8.4

5.2

5.0

4.8

4.0

3.3

3.2

2.8

2.5

2.3

2.2

2.0

1.8

1.7

0.8

1.6

1.6 1.5

1.4

1.3

FM Global

10.4 8.4

5.2

5.0

4.7

4.0

3.3

3.1

2.8

2.4

2.2

2.0

1.7

1.6

0.8

1.5 1.4

1.4

1.3

ACE

10.4 8.4

5.2

4.9

4.7

3.9

3.3

3.1

2.7

2.4

2.2

2.1

1.9

1.7

1.6

1.5

0.7 1.4

1.3

1.2

GCNA

10.3 8.3

5.1

4.9

4.6

3.9

3.2

3.1

2.7

2.3

2.1

1.9

1.6

1.5

1.4

1.4 0.7

1.3

1.2

CNA

10.2 8.2

5.0

4.8

4.5

3.8

3.1

3.0

2.6

2.2

2.1

2.0

1.8

1.6

1.5

1.4

1.3 1.3

0.6

1.1

AMA

10.2 8.2

5.0

4.7

4.5

3.8

3.1

2.9

2.5

2.2

2.0

1.8

1.5

1.4

1.3

1.3 1.2

1.1

0.6

1.1

Gore

10.1 8.1

5.5

4.9

4.7

4.5 4.4

4.2

3.9

3.7

3.0

2.9

2.5

2.2

2.0

1.9

1.7

1.5

1.4

1.3

1.3 1.2

1.1

0.5 1.0

GCAN/Teachers

10.1 8.1

4.9

4.7

4.4

3.7

3.0

2.9

2.5

2.2

2.0

1.9

1.7

1.5

1.4

1.3

1.2 1.2

1.1

Source: 2009 MSA Market Share Report. NP indicates 'Not Possible.' For example, stock companies cannot acquire mutuals.

20 Canadian Underwriter March 2010

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Opinion/Analysis

The Burden of RSPs

Recently, there has been some public debate about whether both the Facility Residual Market Mechanism (FARM) and Risk Sharing Pools (RSP) Bob Tisdale are necessary. Both are administered by the FacilPresident, Chief Operating Officer, ity Association (FA), but each has a completely different role in today’s marketplace. Pembridge Insurance My personal view is both are necessary. HowCompany ever, for the benefit of all automobile insurance consumers, RSPs are in serious need of reform. Since the first RSP was introduced in Canada nearly 20 years ago, RSPs have generated a combined loss of more than $1 billion. To offset these losses, the cost of premiums for consumers in the voluntary market has increased. The automobile insurance industry created the FA as the insurer of last resort. The FA provides legally required automobile insurance to all drivers, even those who are deemed too high a risk and uninsurable through the voluntary market. The FA administers the FARM and RSPs. Every insurer licensed to write automobile liability insurance where the FA operates is required to become a member.

THE FARM: HIGH RISK, WELL-RUN The main difference between the FARM and other insurance companies is that some FA member companies are contracted to act as ‘servicing

22 Canadian Underwriter March 2010

carriers’ to issue and endorse policies and adjust claims on behalf of the FA.The FA does not have its own resources to provide these services. Contracted companies are reimbursed from the FARM for losses paid, provided an allowance for adjusting claims and a fee for policy handling. All policies written by servicing carriers are subject to the filed rules, rates and classification of the FA. This ensures any customer in that jurisdiction, regardless of level of risk or claims history, can obtain the minimum insurance coverage required by law. Profits or losses are the responsibility of FA members who are the shareholders. The FARM has been well-managed by the FA for more than 30 years. It provides a necessary and highly specialized service both to the industry and society, by providing a mechanism to underwrite drivers who have nowhere else to turn and whose driving experience demonstrates that they represent an unaffordable risk to themselves and to others. Insurers in the voluntary market don’t necessarily employ the highly-specialized underwriting expertise to properly assess the risk presented by these drivers, nor do they have the claims expertise often required to protect everyone.

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Since its inception in 1977, the FARM has provided protection for the highest-risk drivers and generated a surplus of $335 million despite suffering some significant losses last decade. This has been achieved without including the cost of capital in its pricing model, meaning the FARM has generated a surplus without charging appropriately for the level of risk.

RSPs: RISK AVERSE, UNSUSTAINABLE LOSSES The Ontario and Alberta non-grid risk sharing pools were created to provide insurers in the voluntary market a place to ‘park’ risks for which they have a filed rule and rate, but for which they aren’t comfortable assuming the risk.This may be due to a variety of reasons, including: • other rating variables that can’t be used; • consistency in price and product offerings to consumers; • sound underwriting experience; or • other proprietary information. The consumer is unaware that they have been placed in a RSP and, because coverage can’t be denied, this can be seen as the only practical alternative. In this situation, the original insurer performs all underwriting and claims services; as in the FARM, any profits or losses are assumed by FA members. The Alberta grid pool and RSPs in Nova Scotia and New Brunswick were introduced to provide social pricing in the marketplace, meaning the total cost of insurance is shared across the entire driving population but not proportionately to risk. In the Maritimes, this model was intended to provide affordable market access to inexperienced drivers who, according to considerable industry data, present a higher risk than many other consumers. It can be argued that RSPs create both a consumer and company benefit. Consumers placed in a RSP benefit because they pay a lower premium than they would if insurers priced according to the true risk the consumer actually represents to them at that time (based on the insurers’ data and experience). Insurers benefit because they develop customer loyalty while bearing no re-

24 Canadian Underwriter March 2010

sponsibility when a risk is at its greatest. RSPs allow insurers to take the risk back when they think it’s more appealing and profitable. However, not all consumers benefit from this practice. In any social pricing model, better drivers subsidize those in RSPs by paying higher premiums. Financial results for RSPs across Canada are alarming and a cause for concern. The RSP in Ontario has lost close to $1 billion since 1993; of that, $260 million was lost in 2009 alone. Together both pools — grid and non-grid — in Alberta

have lost more than $180 million since 2004.The RSP in New Brunswick has lost $20 million since 2004. In Nova Scotia, the loss is $12 million since 2007. If an individual business sustained losses of this magnitude, its shareholders would demand significant change or the company would not survive. Since the first RSP was introduced in Canada in 1993, RSPs have generated a combined loss of $1.2 billion. The fact that these losses are spread among FA member companies should not make it any more acceptable. Consumers in the voluntary market have been forced to pay increased premiums to offset the losses arising out of an inability to charge the right rate for the right risk. It is clear that RSPs in Canada are broken.

IF IT’S BROKEN, HOW DO WE FIX IT? A well-functioning insurance system embraces fairness and strikes a balance between affordability and competitive-

ness. Both insurers and government regulators must play a critical role in ensuring these principles are in balance. Insurers should have the necessary tools to better segment risks — including the use of additional underwriting variables such as occupation, lifestyle and insurance scoring.The inclusion of these variables would enable insurers to properly evaluate a risk so they can determine a premium that is fair for each individual consumer. The inability to use proven underwriting variables in the interest of public policy objectives detracts from the insurer’s ability to fairly assess and price risk. Ultimately social pricing actually compromises affordability and market capacity through artificial subsidy of true risk. In a balanced market, insurers would be accountable for this risk, and RSPs would be smaller or unnecessary. Governments also play an important role in providing a regulatory environment that promotes fairness, affordability, accessibility and sustainability. Regulators can enable competition by allowing insurers to use proven underwriting variables when conducting full risk assessments, as well as by limiting social pricing as a means to achieve consumer protection strategies that might otherwise be addressed by a competitive marketplace. A 2006 comparative study of auto insurance among 10 Canadian provinces, 50 U.S. states and the United Kingdom published by the Fraser Institute found that across all jurisdictions, a lower burden of auto insurance regulation was statistically linked with lower and more affordable premium costs. Residual markets are almost non-existent in the state of Illinois and the United Kingdom, with very little premium subsidization. The numbers tell a very compelling story. Without significant reform, losses incurred by RSPs will continue to grow. Consumers and policymakers need to understand how risk sharing pools work, and their true cost. Most importantly, they need to understand that RSPs have a negative affect on the majority of consumers who are forced to pay more as a result. This topic requires greater debate.

The

Bonds Tie

Catastrophe bond issuance has increased since 2008, despite sufficient capacity and favourable terms from the traditional property reinsurance market, upheaval in the world financial markets, increased catastrophic activity and concerns over credit risk associated with catastrophe bond collateral accounts. The uptick in the insurancelinked securities (ILS) market demonstrates that insurance-linked products (cat bonds, industry loss warranties, sidecars and peak exposure exchange-traded contracts) remain a viable risk and capital management arsenal available to reinsurers/insurers.

dropped in 2008 to approximately $2.7 billion because of the global financial markets crisis; favourable reinsurance prices, as measured by average drop in property rate on line (ROL); and uncertainty among both issuers and ILS investors about the future direction of the cat bond market. Cat bond issuance is expected to be almost $3.4 billion in 2009, a 24.5% increase from 2008. Cat bond capital at risk, which peaked at about $14 billion at year-end 2007, stood at approximately $12 billion in 2008. It is expected to increase modestly to approximately $12.2 billion at year-end 2009. Activity in the sidecar arena was negligible in 2008 and 2009. Sidecars are playing the role expected — providing capital when markets are hard and returning capital to investors when prices decline. The Industry Loss Warranties (ILW) market has been very light, given that sellers of capacity have been outnumbering buyers recently.

INCREASED ILS ACTIVITY

COLLATERAL ACCOUNT DEVELOPMENTS

Cat bond issuance totalled $4.7 billion in 2006 — a record at that time — representing a 136% increase over 2005’s activity. Cat bond issuance in 2007 was approximately $7 billion, surpassing 2006’s issuance by 49%. Cat bond issuance

Notable changes to collateral accounts during 2009 include the use of various types of collateral structures: • tri-party repurchase agreements; • total return swaps with Federal Deposit Insurance

The insurance-linked securities (ILS) market heated up last year despite factors that could have led to the dousing of the market. Asha Attoh-Okine Managing Senior Financial Analyst, Insurance Linked Securities Group, A.M. Best

Richard Attanasio Vice President, Personal Lines, Property/Casualty Division, A.M. Best

t a Th

26 Canadian Underwriter March 2010

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Corporation (FDIC)-guaranteed bank debt; • customized puttable floating rate notes [According to Wikipedia, the holder of a puttable bond has the right, but not the obligation, to demand early repayment of the principal. A floating rate bond has both a variable interest rate that is equal to a money market reference rate, like London Interbank Offered Rate (LIBOR), or federal funds rate, as well as a rate that remains constant.]; and • investment restrictions to highly rated U.S. Treasury money market funds. The diversity of collateral structures is an added measure to limit the impact on the market of credit risk due to a single collateral approach. The collateral account is one of the key parameters in cat bond transactions and thus does impact the ratings of catastrophe bonds.The demise of Lehman Brothers Holdings Inc., one of the total return swap counterparties in 2008, has heightened awareness of asset quality and duration of securities in the collateral account. Recent improvements in the quality of assets in the collateral account have provided a measure of assurance for market participants.

PRIMARY INSURERS ISSUE LARGE PERCENTAGE OF CAT BONDS The majority of the 2009 issues were sponsored by experienced reinsurers/insurers that accounted for approximately 96% of risk capital issued. There was only one first-time issuer, Re Ltd., sponsored by Assurant Inc. Primary insurance companies were fairly represented, with seven such sponsors making up 49.4% of risk capital issued.Ten reinsurers accounted for a 42% share of the risk capital issued. The dominance by experienced sponsors is is explained in part by the learning curve and initial high cost confronting newcomers to this market space. Cat bonds with an industry loss trigger accounted for the lion’s share of the risk capital issued; these represented approximately $1.5 billion, or 44.1%, of the total. All of the industry loss trigger

28 Canadian Underwriter March 2010

transactions were associated with U.S. hurricane and earthquake perils, using loss information from Property Claim Services. Indemnity and parametric triggers accounted for roughly 24.3% and 18% of the risk capital, respectively. Three cat bond transactions, Successor II Ltd. and Successor X Ltd. by Swiss Re, and Ianus Capital by Munich Re, were based on multiple triggers.

ASSESSING THE RISKS The assessment of risk associated with cat bonds usually is based on risk analysis output from catastrophe models by the leading peril modellers (AIR Worldwide Corp., EQECAT Inc. and Risk Management Solutions Inc.). Generally,

Historically, Canadian property and casualty insurers have not used catastrophe bonds. This is likely attributed to both adequate reinsurance capacity and lower weather-related risk when compared to other regions. ratings are assigned based on attachment probability and/or expected loss. Industry losses generated by Hurricane Katrina in 2005 and Hurricane Ike in 2008 far exceeded model estimates by peril modellers. This brought unwelcome attention to the peril modellers. Some experts began to question whether the rare, improbable “black swan” event is applicable to managing losses associated with peak exposures. More than 75%, or $2.6 billion, of cat bond issuance in 2009 was based on non-indemnity triggers, which exacerbate the issue of basis risk for the ceding companies. Basis risk is the risk of an imperfect hedge. In the context of catastrophe-related insurance-linked securities, it generally is the risk that a cat bond will not trigger even though the sponsor of the bond has suffered a loss

for which coverage is being sought. Whatever instruments are used to manage assets in the collateral account — total return swap agreements, bank deposit agreements or tri-party repurchase agreements — A.M. Best expects a prudent risk management process to be the norm and to include proper reporting and replacement procedures, timely valuation mechanisms by third parties and increased transparency. Historically, Canadian property and casualty insurers historically have not used catastrophe bonds as part of their overall catastrophe risk management programs. This is likely attributed to both adequate reinsurance capacity and lower weather-related risk when compared to other regions. Should reinsurance market capacity change considerably, companies in the Canadian market may be more inclined to consider catastrophe bonds. A.M. Best determines how much reinsurance credit should be given in the Best’s Capital Adequacy Ratio analysis based on its evaluation of basis risk associated with non-indemnity cat bonds. This is an important element in assigning financial strength ratings. Before giving reinsurance credit, A.M. Best requires a review of all the executed documents associated with the non-indemnity cat bond transaction. Given the fact that basis risk can change significantly from year to year, a sponsor of non-indemnity cat bonds should monitor the underlying book of business on an annual basis. At a minimum, A.M. Best expects monitoring to include growth of exposure, demographic trends and property values. A yearly calculation of basis risk for a multi-year, non-indemnity cat bond is prudent, given that changes in the book of business occur over time. For transactions employing indemnity triggers, A.M. Best also reviews related documentation to gain a complete understanding of the transaction structure and to become comfortable with the reinsurance credit taken by the sponsor.

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Holding the Bag Risk managers are looking to change a centuries-old legal principle that calls on ‘deep pocket’ defendants like municipalities — parties that may only be marginally responsible for injuries or damage to a victim — to foot the entire legal bill if other co-defendants can’t pay their share of damages to plaintiffs. BY DAVID GAMBRILL

30 Canadian Underwriter March 2010

fundamental principle in Canadian common law is that if someone is hurt or wronged, then the victim should be compensated for the damages or injuries they have suffered. Also longstanding is the notion of “joint and several liability.” Basically, this means wrongdoers are on the hook to compensate their victims fully, be it collectively (i.e. “jointly”) or individually (“severally”). A crass way of expressing the law of joint and several liability is this: Any “deep pocket” wrongdoer will have to pay individually on behalf of any other wrongdoer who can’t. While this seems eminently fair to the victim, is the joint and several liability principle fair to the deep pocket defendants? No, say risk managers buying insurance for municipalities, arguably among the deepest pockets today. Municipalities are regarded as “deep pockets” because of their ability to draw their funds from all of us, the taxpayers. How deep are those pockets, really? As court awards and settlements start clocking in at tens of millions of dollars, municipal risk managers across the country are sounding the alarm. Joint and several liability rules, they say, are placing a disproportionate share of the burden on Canadian municipalities to pay huge damage awards for which the municipalities themselves are only marginally responsible. These rules are contained in common law jurisdictions across Canada. In Ontario at least, municipal risk managers refer to joint and several liability as “the 1% rule.” That is to say, even if a municipality is found to be only 1% responsible for a victim’s injuries, it may nevertheless be on the hook to pay for 100% of the damages, assuming one or more of the other defendants can’t pay.

March 2010 Canadian Underwriter

COVER STORY

Holding the Bag How the 1% rule works A real-world example is shared by lawyer Bernice Bowley, who has done municipal defence work for 17 years. She is at the law firm of Filmore Riley in Manitoba, one of 11 common law jurisdictions in Canada with the “joint and several” language contained in its contributory negligence legislation. In addition to Ontario and Manitoba, other jurisdictions with the joint and several rule in its books include B.C., Alberta, New Brunswick, P.E.I., Nova Scotia, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut. “I’ve got a case right now that’s going to trial where there was a fellow who built the [worst] house possible,” Bowley says. “My client, the municipal inspection entity, missed some of the decisions he made, and didn’t make him re-do [what he did], so my client is second in line [of defendants alleged to be liable]. “Another couple buys this house. Problems start to happen, so they cover it up, put drywall everywhere and sell it to this fourth couple. This fourth couple now sues. The cover-up people have no money. The builder who builds it in the first place has gone bankrupt. And so here I am with my municipal client, and we are going to be holding the bag. In Manitoba at least, it’s sort of treated as a fact of life, however unfortunate it is.” In Bowley’s case, the plaintiffs are looking for $335,000. “My view of things is that if not for our Joint Tortfeasors and Contributory Negligence Act, my client would pay about $50,000. In the end…the plaintiff is not going to be able to satisfy his judgment against the bankrupt builder or the [first homebuyers], who don’t have any money. And so at the end of the line, my client is going to be on the hook for the full $335,000. “That’s very routine in municipal cases and I do a lot of that kind of work.” Joint and several liability cuts across any number of municipal exposures. It not only applies to faulty bridge and home construction scenarios, it can also manifest itself in lawsuits related to motor vehicle accident claims, road safety, 32 Canadian Underwriter March 2010

public transportation safety, building inspections and facility and event safety. Frank Cowan and Company, a municipal insurance company based in Princeton, Ontario, has started to construct a database allowing it to track the scope of joint and several liability cases. Thus far, the insurer calculates that joint and several liability features in about one in every 15 of its municipal liability cases.

Even if a municipality is found to be only 1% responsible for a victim’s injuries, it may nevertheless be on the hook to pay for 100% of the damages, assuming one or more of the other defendants can’t pay. The origins of joint and several liability Joint and several liability, an import from British case law, was codiﬁed in Canada’s common law provinces and territories in the mid-1940s. But litigation counsel David Boghosian of Boghosian + Associates in Toronto argues the principle long preceded this legal codiﬁcation. Boghosian did extensive legal research for a September 2009 paper on joint and several liability by the Association of Municipalities of Ontario (AMO), entitled The Case for Joint

and Several Liability Reform in Ontario. During his research, Boghosian found joint and several liability appearing in case law dating back to the 14th Century. “We found something pretty shocking, which was that joint and several liability entered the law through the back door, accidentally, because of a confluence of arcane rules of pleading, which prevented the [the ability of a plaintiff to sue more than one defendant for any given action],” Boghosian said. “This concept, which is called the Theory of the Indivisibility of Liability, stayed in the law well into the 1800s. “The Theory of the Indivisibility of Liability has long since been discarded. It basically means there’s only one cause of action arising from any particular harm to a plaintiff. You have one shot to sue somebody for it, and you can’t sue multiple parties. You’ve got to pick a party. What these various rules of pleadings and tort [‘tort’ is legalese, meaning ‘a wrong’] meant was that a plaintiff basically had to pick the party from which it thought it would be most likely collect, and against which it thought it would get some liability.” Ultimately the law changed, allowing plaintiffs to sue multiple defendants. But the idea that a single defendant with deep pockets was on the hook to compensate the plaintiff remained in the law, codified in the form of joint and several liability. “There was never any discussion in the law of the utility or benefits of joint liability,” Boghosian said of his review of the case law. “Basically it just fell into the law accidentally, through the back door, and has never really been reviewed on a first-principles basis — from a policy standpoint— to see if the various criticisms of joint and several liability outweigh the benefits.” The chief benefit of joint and several liability is that it makes plaintiffs “whole” after a loss, fully compensating innocent victims for their injuries or damages, Boghosian says. “The downside [is] fundamentally the unfairness to a defendant, who is only at fault to a minor degree, but ends up having to pay the whole amount.”

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COVER STORY

Holding the Bag Implications for Municipal Insurers Joint and several liability may have made more sense during the turn of the 20th Century, when damage awards were comparatively manageable in scope, and governments played a more minimalist role than they do now. But after the 1930s, the era in which John Maynard Keynes advocated for governments to play a stronger role in many spheres of modern-day society, municipalities were exposed to liability like never before. In addition, damage awards have increased exponentially. Most recently, in Ontario, plaintiff Katherine-Paige MacNeil received an $18-million damage award when she was severely injured in a 2002 car accident. Derek Sarluis, vice president of claims at Frank Cowan and Company, compares the 2009 decision in the MacNeil case to a 1999 case, Osborne v. County of Bruce et al., and notes the inflation between the two. “I know that the Osborne case 10 years ago came in at about $10 million [$8.3 million in damages, plus legal costs], so you have an escalation of $8 million over 10 years,” he noted. “This is in an environment when ordinary inflation has been running at either zero, or certainly less than 1% per year over the last number of years.” It is difficult to get a statistical handle on the loss experience in municipal insurance, since there isn’t really a financial reporting category specifically related to municipal liability claims. Because of the wide range of municipal exposures, municipal liability claims cut across traditional reporting categories of insurance lines — including home, auto and commercial lines of business. Federally-regulated Canadian insurers reported escalating claims ratios in the general category of ‘liability’ (which includes municipal liability), between 2007 Q3 (53.67%) and 2009 Q3 (61.59%). Increasing claims payments typically result in higher premium payments. And “in the entire insurance world, more and more municipalities are getting hit with huge [premium] increases,” said Pat Vanini, executive director of AMO. “One that comes to mind is 34 Canadian Underwriter March 2010

down in Essex County. Their renewal policy for 2010 had almost a 48% increase, which translated into close to $200,000. There’s a bill for you.” How much of that bill is due to joint and several liability is open to question. One problem facing municipal insurers is that, because of joint and several liability, municipalities can get pulled into a wide variety of lawsuits — and they

There was never any discussion in the law of WKH XWLOLW\ RU EHQHÀWV RI joint liability. Basically it just fell into the law accidentally, through the back door, and has never really been UHYLHZHG RQ D ÀUVW principles basis. can end up paying a disproportionate share of the damages, even though they might be only marginally at fault. “People always know the city is there with insurance,” says Don Marshall, director of risk management at the City of Edmonton. “So if you are 1% at fault and the other party in the incident has no insurance, then basically you have to pick up the entire judgment. It’s quite an exposure, because the municipality

has so many exposures. We have recreational centres, police departments, roadways — the number of exposures is fairly widespread. The result is that municipal insurance is very difficult to price, says John Nolan, vice president of commercial lines underwriting at Aviva Canada. “It’s an exposure that’s very difficult to assess, because quite often it isn’t the primary responsibility of the municipality where the suit emanates from,” he said. “They get pulled into the suit and have to respond. It’s very hard to assess the exposure when you are underwriting the risk. Therefore, it’s extremely difficult to pricefix the coverage. If an account is large enough, you would experience-rate the account.” Theoretically at least, the municipalities should be able to collect back what they pay from the other defendants found to be responsible. But that’s a lot easier said than done. “You have the ability, I guess, to pay the judgment and then try to seek contribution from the other party [responsible for the damage or injury],” says Marshall. “But quite often that’s impossible, because: 1) you don’t know who it is, or 2) they have no resources to begin with. A lot of people who do this stuff, they don’t have insurance, because basically they can’t afford insurance. So even though you sue them for contribution, it’s like getting blood from a stone.” Implications for Risk Managers As municipal insurance premiums increase, risk managers who buy the insurance for municipalities have been reluctant to subject their organizations to unnecessary exposure. Joint and several liability affects risk managers in two areas, says Sonia Coward, manager of risk management and insurance for the Region of Durham. “The first is in insurance and the placement of insurance,” she says. “When you go out to market, the insurers are keenly aware of joint and several liability. [Insurers are aware that] municipalities are the deep pockets. We’re going to get brought into any sort of action,

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Holding the Bag

$ Essex County’s renewal policy for 2010 had almost a 48% increase, which translated into close to $200,000. There’s a bill for you. whether it’s an auto accident, building construction, all of the common types of claims for which municipalities are brought in.” This in turn will affect the insurance coverage and pricing offered to municipalities. Boghosian observes that many Ontario municipalities self-insure and/or carry high retention limits. “Toronto, for example, has a $5-million retention,” he says. “And therefore any judgment against it under $5 million comes out of the coffers for the taxpayers. Mississauga has a $1-million retention. Brampton has a $500,000 retention. So any claim under those thresholds come out of the general revenue of those municipalities. It is having an effect on the bottom line. If you are spending money paying claims, you’re going to be able to afford fewer services.” And consequently this will affect the relationship between municipalities and the people they serve, Coward says. “A second area in which [joint and several liability] affects risk management is in a situation in which your parks guys or other facility operators want to have an event or run a street fair. They will come 36 Canadian Underwriter March 2010

to you and say: ‘Give us an opinion, give us a risk management opinion on that.’ “Well, you have to consider joint and several liability at that point. Because of all of the rules in place, often you’ve become the ‘No’ person, saying you wouldn’t recommend this because of these reasons. Often you have to get your indemnity in place with someone who wants a street party or fair, and they have to get their insurance in place — all of these requirements make it more and more difﬁcult for the services to be offered to residents of your municipality.” Vanini realizes municipalities are perceived to have deep pockets because they can raise revenues for taxation or divert expenditures from one area to another. But “at the end of the day, tax increases typically should be returning some value to the taxpayer in terms of improvement and service, not just to pay a deferred wage or a deferral on the inability of someone else to pay,” she says. Once again, she references the $200,000 liability premium increase in Essex County: “At a time when we are trying to create jobs, $200,000 in

Essex County probably would generate a couple of child care units. At least you can say that money has a direct return value to the property taxpayer.” Political Action Risk managers are now starting to go public with their concerns. “I don’t think any risk manager in Canada believes injured parties should not get compensated,” Coward says. “We all believe that you should be compensated if you’ve been hurt. The difference without joint and several is that you take responsibility for that percentage for which you were negligent. Municipalities are great for putting all of the policies and procedures in place. We’re very good at following these procedures and making sure that they are done properly. Unfortunately, it’s very easy for a judge to ﬁnd the small weakness. If they ﬁnd that you are 1% or 10% liable, we’re willing to accept that, because that is where the error is.” Risk managers and municipal lawyers note that 40 out of 50 states in the United States do not have joint and several liability in their contributory

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COVER STORY

Holding the Bag negligence laws. In fact, proportional models of contributory negligence now seen in the United States represent the best alternative for some risk managers. “I know in some jurisdictions in the United States, they have a proportional liability,” says Marshall. “So, for example, if a municipality is only 5% at fault — irrespective of the presence of other insurance — that’s the most that they would pay, 5%.” But proportional models may represent the toughest sell to government legislators, Boghosian says. Witness British Columbia’s 2002 Civil Liability Review: at that time, the Ofﬁce of the Ombudsman in the Province of British Columbia recommended against limiting the application of joint and several liability. The ombudsman acknowledged the B.C. attorney general’s concern that the joint and several rules might create an “unfair burden” on solvent defendants. Nevertheless, “eliminating this ‘burden’ may leave those who suffer injury without much potential for redress in certain cases,” the ombudsman wrote in its 2002 submission to the review. The ombudsman was responding to a ministry of the attorney general consultation paper on the subject. “Certainly the concern of the attorney general is legitimate, but caution should be exercised before going to a system of strict apportionment of liability on the basis of contribution to the damage,” the ombudsman wrote. Vanini notes AMO recently brought up the issue of joint and several liability with Ontario Minister of Municipal Affairs and Housing Jim Bradley at AMO’s annual general meeting. She said Bradley responded to a question from the audience by describing joint and several liability as “a complicated issue.” “We know that,” Vanini said in a subsequent interview with Canadian Underwriter. “But you shouldn’t shy away from good public policy because it’s complicated.” Vanini was pleased Bradley said he would be interested in spending more time discussing the issue with AMO. “It’s not necessarily a commitment to do things, but it’s an opportunity to sit 38 Canadian Underwriter March 2010

down and discuss and examine matters in greater detail,” she says. The Law Reform Commission of Ontario is also investigating joint and several liability, although in the limited context of how it relates to the Business Corporations Act. Canada’s federal government undertook a similar review in 1995, when auditors expressed concern about escalating insurance rates in

A lot of people who do this stuff don’t have insurance, because basically they can’t afford insurance. So even though the municipality sues them for contribution, it’s like getting blood from a stone. the context of securities lawsuits against them. The federal government review led to a qualiﬁed version of proportionate liability being adopted in the Canadian Business Corporations Act. But the changes were adopted only in federal legislation, not necessarily provincial legislation. And they do not apply to the federal Insurance Act. B.C. has implemented a form of proportional liability, although the language of “joint and several” liability still appears in S. 4(2)(a) of British Columbia’s Negligence Act.

Saskatchewan’s Contributory Negligence Act contains a reference to the “apportionment of uncollectible contributions.” According to this principle: “If the court is satisfied that the contribution of a person found at fault cannot be collected, the court shall, after determining the degree in which each person is at fault, make an order apportioning the contribution that cannot be collected among the other persons found at fault, proportionate to the degrees in which they have respectively found to have been at fault.” In other words, if five parties were found to be equally at fault in a $100,000 judgment and one defendant can’t pay, the uncollected $20,000 portion would be distributed equally distributed among the remaining four parties. In one respect, that would prevent a “deep pocket” defendant from having to eat the entire $20,000 in unpaid costs. But in another way, Saskatchewan’s re-apportionment rule is “not much different in some ways to the way it is now,” Bowley says. “If you’ve got two defendants, and one you can’t collect from, that means the other one is fully on the hook for the rest of it.” There are other, non-proportional models, AMO’s paper notes. For example, some models dictate that a party must be responsible for a certain threshold amount before joint and several liability applies. “I think there are some jurisdictions in the United States in which you have to be over 50% at fault before you have to pay,” Marshall notes. Some models have a 30% threshold before joint and several liability applies, Boghosian adds. Ultimately, Vanini says, reflecting the views of many of Canada’s risk managers, it’s not the model that’s important, so much as the change from the status quo. “We’re not necessarily married to one particular option,” she says. “I think what we are married to is that this [1% rule] isn’t working. We need a much more reasoned approach and something that gives a bit more clarity. If we’re at fault, we’re at fault. But if we’re not at fault, the idea of holding a property taxpayer tax rate up to the challenge just doesn’t seem right.”

Wa ve

d r i h Catching the T Craig Harris Freelance Writer

Companies and organizations need to watch for a potential “third wave” of the H1N1 pandemic. Employee absenteeism, far more than any insurance coverage issues or claims, has been the biggest impact of the flu pandemic to date. With the spike of H1N1 virus cases in October and November 2009 largely subsiding, and the classification of influenza indicators moved to low, public awareness and media monitoring of the virus has shifted to the back burner. While there is still some disagreement about the possibility of a “third wave” of H1N1, the emerging consensus is that many countries, including Canada, have weathered the worst of the pandemic. In Canada, as of mid-February, there were a total of 8,596 hospitalized cases, including 426 deaths from the H1N1 virus, according to the Public Health Agency of Canada (PHAC). This is far below Health Canada’s previous estimates

40 Canadian Underwriter March 2010

of a pandemic flu resulting in 11,000-58,000 deaths. Globally, the World Health Organization announced in early February that more than 212 countries have reported confirmed cases of pandemic influenza H1N1 2009, including at least 15,292 deaths. In late January, PHAC indicated the second wave of pandemic H1NI had tapered off. There is still speculation that another round of the swine flu could yet hit for the late winter and early spring period (technically until April), but many public health experts believe the effect will be minimal due to widespread vaccination. “We think the vaccine had an effect on curtailing that second wave very abruptly,” Dr. David Williams, Ontario’s associate chief medical officer of health told the CBC in early February. “And of course we are optimistic it will avoid a whole third wave. I would say if there is any third wave, or further activity for H1N1 in the coming months, it’s likely to be very much smaller than we’ve seen in the past.”

EMPLOYEE ABSENTEEISM The surge in flu virus activity in November spawned the most obvious effect on companies and organizations: employee absenteeism. A Statistics Canada study released in November

showed that 1.5-million employed people reported they were absent from work in November 2009 as a result of the H1N1 flu.The total number of hours lost for working Canadians during that period was just under 30 million. Stats Canada says the impact of H1N1 and seasonal flu on hours worked was comparable to that of the Ontario-U.S. power outage in August 2003. The spike in employee absences in November acts as a reminder of what could happen if a truly virulent pandemic flu strain were to strike. And many say companies and organizations in Canada are still unprepared in their business continuity and emergency response procedures. “Despite the daily reminders that H1N1 may result in widespread illness … and the experience of the SARS epidemic of 2003 still fresh in our minds, most businesses are not fully prepared with a business continuity plan,” says Len Crispino, president and CEO of the Ontario Chamber of Commerce. In a survey conducted by the Chamber, less than 50% of respondents had a pandemic plan in place to protect their operations from any possible business disruption. This is fairly consistent with other studies. In what is believed to be the largest and most comprehensive survey of pandemic flu preparedness, Mercer Consulting polled more than 450 companies spanning 38 countries and 26 industries in 2006. It found that while 70% of businesses surveyed believed a pandemic would damage profitability, only 47% had a business continuity plan in place and just 17% had budgeted for pandemic preparedness. In a more recent survey conducted in May 2009, Mercer found that, among more than 400 mid-size and large organizations worldwide, nearly half of employers said they did not have an HR policy in place regarding health-related emergencies and pandemics. The corresponding emphasis on the need for business continuity planning has eclipsed concerns about insurance coverage issues related to the pandemic.

While some reports from Marsh, Aon and Munich Re, as well as several legal firms, have alluded to potential coverage under commercial general liability, business interruption and professional liability policies, there are few signs of claims activity in Canada related to H1N1. Insurers contacted for this article reported no claims related to commercial insurance coverage. Insurance Bureau of

Canada (IBC) spokesperson Pete Karageorgos says the trade association does not track claims activity for the industry, but an advisory wording for a pandemic flu endorsement, approved by IBC board of directors in September 2009, would extend the term of expiring policies (or policies pending cancellation) for a specified period of time if a state of emergency were declared. No such

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“declared emergency” was made in Canada, aside from that of the Manitoba First Nations assembly of chiefs in June 2009, during the first two waves of the H1N1 pandemic to trigger any potential endorsements.

MAINTAINING BUSINESS AS USUAL Instead, the prime area of focus for H1N1 has been on the importance of business continuity planning. Several larger brokers, such as Marsh and Aon, have published H1N1 flu reports and emergency planning measures. In Canada, AXA and Cowan Group have also issued tips and recommendations for business continuity plans These reports emphasize the need for a business continuity plan that takes into account the unique characteristics of this type of “disaster” — lengthy period of infection (likely in waves), employee absenteeism, macroeconomic downturn, service supply chain interruption and travel restrictions. Many sources of information outline day-to-day challenges that companies have faced, and will continue to face, in any pandemic flu scenario. In particular, health care experts predict employee absenteeism rates of 25-30% (or higher). Widespread infection rates could mean the virus spreads to every part of the country, and many regions of the world, as seen with H1N1, making off-site operations or the moving of office locations difficult. Health care and government departments could be extremely burdened in the event of a pandemic, leading to a decrease in the provision of services. In addition, a company’s supply chain of service providers may also be affected, leading to potential disruptions in delivery of products and services. “The hardest hit companies in any industry are likely to be those with worldwide operations, global supply chains and/or international customers,” according to the Marsh influenza report. Marsh lists several areas of operational

42 Canadian Underwriter March 2010

concern facing the business sector: • Can the company operate with 25% or greater absenteeism for prolonged periods? What are management policies for supporting quarantined staff? • Can the company have employees work remotely? What infrastructure is needed? • How does the company know that supply resources are not contaminated? • How will clients be assured that products are not contaminated? • Will there be a disruption to the company’s supply chains? • What are the procedures to protect or decontaminate facilities and heating, ventilation, air conditioning systems, electronic equipment and other materials? • What assurance procedures exist to

Stats Canada says the impact of H1N1 and seasonal flu on hours worked was comparable to that of the Ontario-U.S. power outage in August 2003. inform employees they are safe at work? • What policies exist to promote hygiene and ensure non-transmission at work? • At what point does the company prohibit staff from travelling to certain regions? • What escalation procedures exist to get additional resources? • Is there a trained crisis-management team that includes on-call staff? The question of supply chains is a particular area that requires greater focus. While some firms have completed internal business continuity plans, “too many companies lack a basic knowledge of their suppliers,” according to an Aon white paper on pandemic flu. “There is no point in identifying alternative suppliers of a particular item if they are based in the same region as the original supplier.” It is difficult to gauge the level of preparedness among businesses, even within the Canadian property and casu-

alty insurance industry itself. A survey of property and casualty companies in 2006 by the Office of Superintendent of Financial Institutions (OSFI) showed an uneven level of preparedness and business continuity planning. “The general indications are that companies are at varying degrees of preparedness,” says Penny Lee, managing director of OSFI’s financial institutions group. “Many are incorporating the threat of a potential pandemic in their business continuity plans and many are considering the potential that a pandemic can occur in waves. However, some either have not or are only now looking are reviewing pandemic plans of their external service providers.” Companies looking to start a pandemic flu business continuity plan should consider four key steps, according to Ralph Dunham, business continuity management practice leader for Marsh Canada. These questions include: • Is there an existing business continuity plan (BCP) with recovery procedures for critical locations and business functions? • Has your organization completed a recent in-depth BCP review? • Do existing recovery processes consider significant staff reductions and loss of support resources over an extended period of time? • Have your recovery plans been adequately tested? The H1N1 flu pandemic was not nearly as lethal as many had projected. And some have commented that the swine flu scare was over-hyped by the media and government — particularly if there is no “third wave” this spring. But, somewhere in between alarmism and apathy is the realistic response that global pandemic flu outbreaks have occurred in the past, and, according to health care experts, will certainly occur in the future. Companies and organizations can either hope it won’t disrupt their operations or make comprehensive business continuity plans to address the threat of a widespread pandemic.

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Randolph Charles Gibbens, who was insured pursuant to an accident insurance policy issued by Co-operators Life Insurance Co., had unprotected sex with three women and acquired genital herpes. This, in turn, caused transverse myelitis, a rare complication of herpes that resulted in total paralysis from his mid-abdomen down. He claimed compensation under the policy, which provided coverage for losses “resulting

44 Canadian Underwriter March 2010

directly and independently of all other causes from bodily injuries occasioned solely through external, violent and accidental means, without negligence…”

THE TRIAL AND APPEAL B.C. Supreme Court Justice Frank Cole, the trial judge, found that the transverse myelitis did not arise “naturally.” Rather, it arose from an external factor or “unlooked-for mishap,” being the introduction of the HSV-2 virus into the insured’s body by a sexual partner. Citing the decision in Martin v. American International Assurance Life Co., Cole held that becoming a paraplegic as a result of having unprotected sexual intercourse was “unexpected.” As such, it qualified as an “accident.” In Martin, a doctor who was on a program of gradual withdrawal for addiction to morphine and Demerol died from a self-administered Demerol overdose.The evidence showed the concentration of Demerol in Martin’s body was at the low end for an overdose. It was held that his death resulted from miscalculating how much Demerol his body could tolerate. The fact that Martin’s death was

Illustration by Greg Hargreaves/www.threeinabox.com

Michael S. Teitelbaum

The Supreme Court of Canada unanimously confirms that accident insurance is not the same thing as comprehensive health insurance.

“unexpected” was given significant weight in determining that it qualified as an “accident.” In the B.C. Court of Appeal, B.C. Appeal Court Justice Mary Newbury rejected the idea that the decision in Martin meant the question of whether an event was an “accident” could be determined solely by considering whether it was “unexpected.” According to Newbury, the Martin decision said it was equally important that the words “accident” and “accidental” be construed in accordance with their ordinary meaning. While this situation was close to the line, she found the introduction of the virus by a sexual partner was sufficiently “accidental” in the ordinary meaning of that term. She upheld the trial judge’s decision, while stating that if she was wrong in her view of Martin, then, in her opinion, it was obvious that the injury was unexpected.

ANALYSIS BY THE SUPREME COURT OF CANADA Supreme Court of Canada Justice Ian Binnie, in delivering the Supreme Court’s decision, found that the causal chain that led to Gibbens’ paraplegia was sex that transmitted herpes, which led to transverse myelitis. Binnie observed that transverse myelitis is an unexpected consequence of genital herpes that occurs rarel. But it is a normal incident or consequence of the disease and, therefore, proceeded from natural causes. Citing the definition of “accident” from The Law Relating to Accident Insurance (2nd ed. 1932) by A.W.Welford, which has been accepted as authoritative by the Supreme Court of Canada in Smith v. British Pacific Life Insurance Co. [1965], the Supreme Court stated: “The word ‘accident’ involves the idea of something fortuitous and unex-

pected, as opposed to something proceeding from natural causes; and injury caused by accident is to be regarded as the antithesis to bodily infirmity caused by disease in the ordinary course of events.” At Paragraph 37 of his judgment, Binnie observes that “Welford defines accident as much by what it is not, i.e. ‘bodily infirmity caused by disease in the ordinary course of events,’ as by what it is, i.e. ‘something fortuitous and unexpected.’” In agreeing with Newbury, Binnie rejected the proposition that Martin did away with the need to consider the “accidental” means if the resulting death or disease was “unexpected.” Binnie wrote that although the court in Martin was able to infer accidental means from the circumstances of the death, there is no necessary equivalence between

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protect against certain defined risks. Care should be taken not to convert, for example, an accident policy into a general health, disability or life insurance policy. Accident insurance is relatively cheap compared to the more comprehensive forms of insurance.” Binnie also observed that the British Columbia Court of Appeal’s decision effectively made the insurer liable for all sexually transmitted diseases, which would have considerable impact on liability for infectious diseases generally. In this regard, in accordance with the

“unexpected” and “accident.” The expectations of the insured, while relevant, must be viewed in the context of the surrounding circumstances. By way of illustration, at Paragraph 45 of his judgment, Binnie gave the following analogies in differentiating between the terms: “If a man, sitting at a bus station, is hit by a bus that has careened out of control, that is unquestionably an accident — but it is not an accident by virtue of the fact that the man did not expect it.” Elsewhere, at Paragraph 43 of the judgment, Binnie says: “At the same time, a claimant who can establish that death was unexpected does not thereby, without more, establish a valid accident. Otherwise, every bad happening, natural or unnatural, whether caused by disease in the ordinary course of events or other-

If a man, sitting at a bus station, is hit by a bus that has careened out of control, that is unquestionably an accident — but it is not an accident by virtue of the fact that the man did not expect it. wise, would be classified as an accident. Take the case of an insured who is sitting on a couch in front of her television set when suddenly she suffers a stroke and dies. The tragedy is totally unexpected. Yet, there is no accident involved in any ordinary manner of speech.” Binnie distinguished Martin on the basis that it was not a disease case; therefore, it was not necessary to address the traditional distinction between “disease” and “accident.” “Diseases are transferred from person to person through natural processes such as coughing or sneezing in someone’s presence ‘in the ordinary course of events,’” Binnie wrote. “The viruses thus

46 Canadian Underwriter March 2010

Binnie also observed that the British Columbia Court of Appeal’s decision effectively made the insurer liable for all sexually transmitted diseases, which would have considerable impact on liability for infectious diseases generally.

transmitted may, in some situations, prove to have calamitous and unexpected consequences. Yet, if such transmissions are viewed with hindsight, to be classified as accidents, then an accident policy becomes a comprehensive health policy.” Binnie also observed that while a century and a half of insurance litigation has failed to produce a bright line definition of the word “accident,” it should be interpreted based on the ordinary understanding of the average person applying for insurance. While jurisprudence has assigned a generous meaning to the word “accident,” generosity has its limitations as a principle of contractual interpretation. The court held:“Insurance is written to

Supreme Court of Canada’s decision in Consolidated-Bathurst Export Ltd.v.Mutual Boiler and Machinery Insurance Co., the exercise of interpretation should avoid an unrealistic result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Binnie stated: “In my view, … the policy here excludes bodily injury from processes that occur naturally within the body in the ordinary course of events and, as well, from diseases that are transmitted in the ordinary way without any associated mishap or trauma except the spread (or inception) of the disease itself.” Citing the cases of Sinclair v. Maritime Passengers’Assurance Co. and Wyman v.Dominion of Canada General Insurance Co., the court stated that, traditionally, the key to finding liability under an accident policy has been to identify a “mishap or untoward event” to which the disease or

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death can be attributed. Unless the bodily injury arose from a mishap of some sort, there can generally be no liability under an accident policy. Citing Sinclair, Binnie observed that in determining whether the injury can be considered an “accident,” the entire chain of events must be looked at, and not just the means or the end result, as affirmed in Martin.

COMMENT The distinction between “accident” and “disease” can be difficult to make in practice, because it requires the determination of whether the acquisition of a disease occurred due to an “unlooked for mishap” or “untoward event.” The challenge is to relate the different types of risks and coverages in a way that makes commercial sense in the context of how the insuring agreement is worded and the parties’ reasonable expectations. Examples of this difficulty can be found in two recent Ontario decisions. Toronto Professional Firefighters’Association v. Toronto (City) involved a claim for accident coverage brought on behalf of a firefighter who died of renal failure caused by contact with toxic substances over his 20 years of fighting fires. On appeal to the Ontario Divisional Court, it was found that the firefighter’s renal cancer was caused by “exposure to toxic substances . . . when the dangers were unknown and the safety equipment was unsafe.” As such, this was a case where the “unlooked for mishap or occurrence” caused the disease, as opposed to the disease spreading in the ordinary course of events. Coverage was available. In the Ontario Court of Appeal’s 2007 decision in Kolbuc v.ACE INA Insurance, the insured, a plasterer who contracted the West Nile virus from a mosquito bite, was rendered a paraplegic and recovered compensation under an accident policy. In Gibbens, the Supreme Court

48 Canadian Underwriter March 2010

The effect of Gibbens is to reemphasize that each case will turn on its unique facts and evidence as to whether the injury was caused by an “unlookedfor mishap.” indirectly questioned the correctness of this decision, noting that various forms of bacteria and viruses constantly make their way into our bodies. For example, malaria is transmitted by mosquitoes. One would not say that inhabitants of warm climates are “accident-prone” to contracting malaria and, because of a failure to smack a mosquito, have a valid claim under an accident policy. Binnie wrote: “In my view, … such a conclu-

sion would stretch the boundaries of an accident policy beyond the snapping point and convert it into a comprehensive insurance policy for infectious diseases contrary to the expressed intent of the parties and their reasonable expectations.” Clearly there is a very fine line between certain cases and, as the court observes, value judgements based on the parties’ reasonable expectations must be made. As a further illustration of what would be a covered versus uncovered accident, Binnie wrote in Paragraphs 49-50 of his judgment that insureds would understand that a heart patient who goes out for a walk and is startled by the sound of a car horn and experiences an incapacitating cardiac arrest would not be covered under an accident policy. But a disease or physical infirmity produced by an event that occurred by accidental means — for example, a heart condition that arises as one of the elements of injuries suffered in a car crash — would be covered. The effect of Gibbens is to re-emphasize that each case will turn on its unique facts and evidence as to whether the injury was caused by an “unlooked-for mishap.” It also re-illustrates the importance of the wording of the policy. Depending on the comprehensiveness of coverage an insured wants, or that an insurer wishes or is prepared to provide, the various alternatives in the marketplace must be canvassed. 1 Unless otherwise provided for under the policy. For example, the diseases enumerated under the "critical diseases" provision of an accident insurance policy. 2 At Paragraph 51, the court also addressed the onus of proof. It found that it always rests with the insured to show that the injury results from an accident. However, once a prima facie case is made, the tactical burden shifts to the insurer to show the disease occurred in the ordinary course of events.

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Success

Creating a

Common Language Elizabeth Rankin The Canadian Standards Project Manager, CSA Standards

Doug Morton Director, Life Sciences & Business Management, CSA Standards

Association has adopted ISO 31000, a newly developed risk management standard. In these times of global trade, innovation, economic crisis and threats to public safety and security, the need for a common understanding of risk management is critical. Risk can have some positive results, such as medical breakthroughs, technological innovation or successful new ventures. But when risk is not fully understood, communicated and managed, it can lead to negative consequences such as business failures, harmful side effects from medical interventions, industrial accidents, environmental disasters and, most recently, financial crisis. A common understanding of risk management by internal and external stakeholders is essential to the long-term success of an organization. The International Organization on Standardization (ISO) developed ISO 31000 Risk Management — Principles and Guidelines in 2009, with input from stakeholders based in countries worldwide. Canada played an active role in its development. International experts agree that risk management is not a standalone activity. Effective risk management must be integrated into the governance and operational processes of organizations. ISO 31000 provides principles and guidelines for the development and implementation of

50 Canadian Underwriter March 2010

an effective risk management framework, as well as a process for helping organizations to achieve integration and improve their ability to manage risk. Here in Canada, CSA Standards has released ISO 31000 as a national standard. CAN/CSA ISO 31000 Risk Management — Principles and Guidelines provides principles, a framework and a process for managing risk in a transparent, systematic and credible manner. ISO 31000 defines “risk” as “the effect of uncertainty on objectives.” The standard will help users manage risks through careful consideration and awareness of both vulnerabilities and opportunities arising from potential and existing risk sources. ISO 31000 can also help Canadian organizations implement and continuously improve a risk management framework as an integral component of their governance and management systems.

A COMMON LANGUAGE Additionally, ISO 31000 provides a common language that will help with risk communication to an organization’s internal and external stakeholders. It describes 11 principles for effective risk management, helping organizations — including insurance companies — understand the elements needed to build a solid foundation for their risk management framework. These elements include: • establishing a mandate and commitment; • designing the framework;

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Design compliments of

• establishing a policy and accountability; • integration into organizational processes; • identification of resources; • establishing communication and reporting mechanisms; and • implementing, monitoring and continually improving the framework. The standard also provides guidance on how to carry out the process of managing risk, through communication and consultation. This includes: • establishing the external and internal context in which the organization and the risk management process operates; • defining risk criteria; • assessing and treating risk; • monitoring risk; and • recording the process. ISO 31000 can also be integrated with management systems — such as environmental, or occupational health and safety — and with other risk management processes such as the Committee of Sponsoring Organizations (COSO) or Ontario Public Service Inspections, Investigations and Enforcement (OPS II&E).

ADOPTING STANDARDS Effective implementation of ISO 31000 can help enhance existing risk management programs or processes through integration, addressing areas that may have significant gaps. For an organization with no formal risk management program, ISO 31000 provides the necessary building blocks to help develop an effective risk management framework and process. ISO 31000 is not intended as a certification standard. It is a guidance standard to help organizations manage risk effectively. It is not specific to any country, industry or sector and can be used by any public, private or community enterprise, association, group or individual. ISO 31000 provides generic guidance that can be applied to both public and private sectors. It is not a one-size-fits-all standard. Rather, it emphasizes tailoring its principles to the specific needs of organizations (and even nations), so that

each can develop its own guidance when deemed necessary. Adopting the ISO 31000 standard can enable Canadian organizations to compare their practices with an internationally-recognized benchmark, providing them with useful principles for effective risk management.

For an organization with no formal risk management program, ISO 31000 provides the necessary building blocks to help develop an effective risk management framework and process. In evaluating whether to adopt ISO 31000 as a National Standard of Canada, the CSA Technical Committee on Risk Management undertook a detailed gap analysis and consulted with Canadian stakeholders. ISO 31000 was compared with other risk management standards using 29 criteria considered necessary for effective risk management, some of which include: • terminology; • purpose; • risk communication; • stakeholder involvement; • guidance on risk quantification; • measurement of performance; • evaluation of success; • quality assurance; • positive risk; and • applicability to small and medium sized enterprises. Overall, they found other risk management standards addressed risk well at an operational level, but not necessarily at the organizational level. CSA found various gaps in other standards that could be addressed through implementation of ISO 31000 and supplemental guidance for Canadian businesses. ISO 31000 is different in that its intended audience is not only the risk practitioners that deal with risk daily, but also the board of directors and senior level of management within an organization.

Consultation with stakeholders found there was a strong appetite for guidance that explained how to manage risk, and not just what should be involved. Stakeholders were looking for guidance on how to integrate risk management into governance structures, how to undertake activities to establish the context, how to implement risk management with the business planning cycle, how to understand the difference between risk identification and setting risk criteria, understanding how to measure positive risk and how to audit risk management. CSA Standards developed CSA Q850 Risk Management: Guidelines for Decision-Makers in 1997. This standard established a sixstep process for managing risk with an emphasis on communication and consultation. This has carried forward into other risk management standards. To help Canadian organizations comply with ISO 31000, CSA Standards is now developing a new edition of an existing Canadian standard (Q850) that will replace the 1997 edition. CSA Q850-10 Risk Management will provide more detailed guidance on factors that should be considered in each step of implementing ISO 31000. These updates to CSA risk management standards will relate to the general needs of Canadian business operating in Canada and abroad, specifically addressing the integration of risk management with governance, understanding risk appetite, undertaking stakeholder analysis and environmental scans, performance indicators, risk communication, implementing risk management processes, risk treatment and attributes of risk maturity. Used together, ISO 31000 and Q850 will help provide a unique solution for organizations looking to establish a reliable basis for decision making and planning, improving stakeholder trust and confidence and increasing the likelihood of achieving objectives — all the while minimizing the potential for negative consequences. The ultimate goal is to help improve the sustainability of organizations in Canada and abroad.

March 2010 Canadian Underwriter

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Changing the Game Plan

Vanessa Mariga

Given changes to Ontario's Rules of Civil Procedure, in addition to recent decisions by Ontario courts and arbitrators on the issue of catastrophic impairments, insurers are advised to revisit their legal strategies.

Associate Editor

Ontario insurers will be re-visiting their defence strategies in accident benefit claim disputes based on the province's recent changes to the Rules of Civil Procedure and court and arbitration decisions, said Kadey B.J. Schultz of Hughes Amys LLP. Schultz spoke on recent court decisions and changes to legislation affecting AB claims at the Ontario Insurance Adjusters’ Association conference in Toronto on Feb. 3.

CHANGES TO CIVIL PROCEDURE Prior to the January 2010 changes to the Rules of Civil Procedure, the monetary jurisdiction of small claims courts in Ontario was $10,000. The new amendments raised that to $25,000.

The expanded jurisdiction may make the Small Claims Court a more appealing venue for plaintiff lawyers and paralegals to take an accident benefits dispute, Schultz said. Prior to Jan. 1, many typical AB disputes would be heard by arbitrators at the Financial Services Commission of Ontario (FSCO), or under the Simplified Procedure in the Superior Court of Justice. “I suspect if we tried to gather some empirical evidence concerning specific firms — paralegal and plaintiff firms — we may see the majority of the claims handled by those specific firms are under $25,000,” Schultz said. “We now have a whole new opportunity for litigation. Paralegal and plaintiff firms are going to choose not to go to FSCO, where they have an educated decision maker on the subject of AB — both substantive and procedural. They may avoid the Superior Court of Justice, either under the Simplified Procedure (which has an increased monetary jurisdiction of $100,000 since Jan. 1) or through the normal course. Rather, they are likely to choose to proceed in the Small Claims Court.” But the Small Claims Court is not necessarily best-suited for handling the complexities of an

March 2010 Canadian Underwriter

Illustration by Greg Hargreaves/www.threeinabox.com

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accident benefits dispute, Schultz suggested. "In the Small Claims Court, we have nothing like a pre-hearing or serious pre-trial conference. Nor do we have an arbitrator or an experienced judge. We have, for the most part, deputy judges who work a few days a month in the Small Claims Court, and may rarely or never have dealt with a motor vehicle file before — let alone one with accident benefits issues.” To succeed in the Small Claims Court, Schultz suggested defence counsel should view the situation as a sort of teaching opportunity. “We’re going to have to get the decision-maker up to a certain level of understanding the subject matter to to move forward — particularly because the case law right now, unfortunately, is so against insurers that the only thing we can often win on is a technical argument," she says. “So we need to be up to speed on the technical arguments, and then we need to empower our decision makers.”

propriate interpretation and application of the American Medical Association Guides for determining catastrophic impairment. Rather, we are encouraged to accept that the application of the AMA Guides is a legal test, subject to Ontario law. Schultz said “while the SABS says that we will use the 4th edition of the Guides to interpret catastrophic impairment, that doesn’t mean the lawmakers in Ontario are bound by the original intent and purposes of the AMA Guides.”This, Schultz submits, has created an opportu-

CATASTROPHIC IMPAIRMENT When it comes to defending catastrophic impairment disputes, Schultz suggested that in many cases insurers should focus their legal efforts on disputing the entitlement to benefits instead of on challenging the actual catastrophic impairment designation. “The bar for qualifying for catastrophic impairment is getting easier and easier and easier with every decision that comes out of FSCO,” Schultz said, explaining why defence counsel might want to shy away from challenging the designation. She noted in Aviva and Pastore, a recent FSCO arbitration, the claimant had suffered one single Class 4 mental and behavioural impairment, while her physical and psychological injuries fell well below the 55% threshold for a person to be classified as catastrophically impaired by combining ss. 2(1.1)(f) and (g) of the SABS. In that decision, Schultz further observed, the FSCO director delegate imparted to the insurance industry at large to reconsider bringing in American experts to comment on the intent, ap-

The Pastore decision encourages us to step back and think strategically: do you want to be fighting the catastrophic impairment designation, or do you want to be fighting the entitlement to the specific benefit? nity for incongruence, misunderstanding and a resultant significant increase in catastrophic claims. There are significant costs associated with bringing up “the intelligentzia” from south of the border, Schultz continued, and these costs, together with other expected litigation expenses, need to be weighed against the idea of accepting catastrophic impairment but then disputing entitlement to benefits. Of course, this is more easily applied to medical and rehabilitation benefit disputes than attendant care. “The Pastore decision encourages us to

step back and think strategically: do we want to be fighting the catastrophic impairment designation, or do we want to be fighting the entitlement to the specific benefit?” A recent Ontario Court of Appeal case highlights the potential success of fighting entitlement instead, she said. In Heath v. Economical Mutual Insurance Company, David Heath was involved in a motor vehicle accident that resulted in chronic pain. He made an application for non-earner benefits and the trial judge awarded the benefit. On appeal, the court overturned the lower court’s decision. “For non-earner benefits, we know that you have to have a complete inability to carry out your pre-accident activities of normal life,” Schultz said. “In this case, it was found that, based on the chronic pain and the pain arguments, Mr. Heath did not qualify for a nonearner benefit. That is significant.” Since the Heath decision, FSCO made a similar ruling in Mangallon and TTC Insurance Company. In this case, the applicant, Jasmin Mangallon, claimed a non-earner benefit after the rear doors of a TTC bus closed on her while she was attempting to board. As a result, Mangallon claimed, she experienced headaches, dizziness, whole body pain and depression that resulted in a significant deterioration in her ability to lead a normal life. The FSCO arbitrator ruled that accident-related pain, suffering or disability that interferes with daily living, or that makes daily living difficult, may not be sufficient for a person to qualify for a non-earner benefit — even though it might entitle a person to damages for pain and suffering in a tort action. “For many reasons, this is a very sad case," Schultz told delegates. "However, it rules in the favour of the insurer, supporting that the chronic pain argument may not result in a finding of a complete inability to carry out your pre-accident activities. We’re getting [decisions that support this] from the Court of Appeal and FSCO, which is a good thing. My suggestion to you: fight not the catastrophic designation, fight the benefit."

March 2010 Canadian Underwriter

Winning Over

the Mid-Market

Opinion/Analysis

What can insurers and brokers do to win over mid-market companies? The answer lies in providing risk management solutions tailored to the unique needs of smaller companies. Craig Rowe President, CEO, ClearRisk Inc.

The mid-market segment — a coveted segment in the insurance marketplace — can pose a bit of an enigma for brokers and carriers alike. Although firms in this segment face many of the same risk management challenges and issues as their larger counterparts, the resources available to the mid-market segment are fewer and risk management solutions are typically designed for super-sized firms. Finding solutions tailored to the mid-market segment can be tricky. In order to capture this unique market, questions need to be asked. What do mid-market companies want from their insurance providers? What can insurers and brokers do to win in this market? How much is really known about this particular segment? What do firms in this segment need, but maybe don’t even realize that they need? What motivates them to buy and to stick? And what can the insurance market do to attract and retain these companies?

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The answer to many of these questions, I believe, is risk management. How far have small- and medium-sized businesses travelled down the risk management road? Data is scarce, if non-existent. I suspect one reason for the lack of data is the fact that many of the firms in this size segment just aren’t implementing risk management programs. In an informal online survey, I recently posed three questions on LinkedIn: • Do mid-market companies want or need risk management? • Should insurance brokers be doing more risk management for their clients? • Is insurance a commodity, or are insureds looking for added value? These questions get to the heart of the matter, which is: Do mid-market companies want help managing risk, or do they just want cheap insurance? Summarizing the responses, the mid-market companies surveyed would employ more formal risk management if they understood it better, if the return on investment was clear and if they were capable of doing it without distracting from core business. Respondents said they would like their insurance brokers to help them see the value in risk management and find solutions. As for insurance as a commodity, the mid-market generally

sees it as such, but only because they haven’t witnessed any additional value. Aside from not being aware of risk management and its value, the mid-market traditionally has not been offered a lot of options. Mid-market companies have the same issues with risk as large companies (just on a smaller scale), yet the solutions available don’t scale down to fit. Large companies hire risk management departments and buy enterprise software, but what solutions do midmarket companies have? Very large insurers and brokers have the internal resources to add value, but are they using them for the mid-market? In my experience, most of the in-house

alternative to the current focus, which is to try and make the high-end solutions fit. As well, insureds need incentives. They need to be able to see a direct cause and effect between managing risk and seeing returns. Brokers have the biggest role to play. By working with clients towards risk improvement, as opposed to risk transfer, brokers will educate their clients,

and add value and build relationships. If mid-market companies employ more risk management and formalize it, they will improve their cost of risk and profitability over time. If brokers step up to help them achieve this, they will attract and retain clients and be more profitable. In turn, insurers will create a more profitable book of business. Everyone wins!

WHEN DISASTER STRIKES

Mid-market companies generally see insurance as a commodity, but only because they haven’t been offered the added value of risk management. risk management and loss control consulting and software is designed and priced for the upper end of the market. Many regional brokerages have little or no in-house risk management or loss control consultants or software. So what are insurers and brokers to do? I have long contended that small- and medium-sized businesses don’t understand risk and risk management well enough to know that they are already using it. Everything they do for quality control — all of the measures taken to improve service, reduce downtime, increase efficiency and prevent losses — represents a type of risk management. Two things missing from this mid-market approach are awareness and solutions. Who better to fill these gaps than the insurance industry? Insurers generally don’t have hands-on contact with mid-market clients. But they can provide tools and resources to brokers, and many do. I think a greater emphasis needs to be placed on innovation in finding and creating solutions made to fit the mid-market. This is an

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MOVES & VIEWS

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Cunningham Lindsey Canada announced a series of appointments and the expansion of its Ontario operations. Tracy Drew [1a] has been appointed director of sales for Cunningham Lindsey Canada, where she will be expanding the firm’s customer base across the country and increasing awareness of specialized claim solutions. Drew has more than 25 years experience in the insurance industry. She has worked as an adjuster and as a business development representative specializing in public entities. Brad Arnold [1b] will be joining the company as branch manager of the Clinton and Stratford, Ontario offices. A graduate of Fanshawe College, Arnold holds a CIP and FCIP. He has worked as an underwriter for an insurance company and has been a field adjuster for the last 10 years. Also, Cunningham Lindsey Canada has expanded its Ontario operations, opening a new office in Cornwall. Diane Lefebvre [1c] will serve as branch manager. She was most recently an adjuster at CLC’s Ottawa location. Lefebvre brings more than a decade of claims experience to the role.

Daryl Doiron has rejoined McLarens Canada as a senior

60 Canadian Underwriter March 2010

adjuster in the Edmonton, Alberta office. Doiron has 25 years of experience in claims adjusting, specializing in major casualty and property claims, as well as in complete liability management. Lisa Foster has been appointed marketing and communications manager with McLarens. Foster will be responsible for advancing McLarens’ strategic plan. This involves developing and executing marketing and communications initiatives to all internal and external stakeholders, as well as promoting the McLarens brand.

Trevor Hibbs has joined CULE Insurance as vice president of business development. Hibbs’ extensive marketing background will allow him to expand the CULE portfolio across Canada in conjunction with provincial broker connections.

Quebec-based CEP Forensic Engineering Inc. has opened a Toronto office. Heading up the new location is Michael Fulcher [4], an electrical engineer with 30 years of experience with Hydro One and OPG in power equipment maintenance and operations. Fulcher also has considerable experience in the foren-

sic field, specializing in large industrial losses, utility claims and product liability. Initially the Toronto office will focus on electrical related losses; support in other engineering fields will be supplied from Quebec offices as required. Eventually, the Toronto office is expected to be self-sufficient in all major forensic fields. CEP has transferred Mike Rushton from its Laval office to its Ottawa office as a fire investigator. The transfer is part of CEP’s strategy to expand its Ontario operations.

ClearRisk Inc. is now providing insurance brokers with online risk management solutions

designed to attract and retain clients, creating a better book of business and cost-effectively increasing profitability. “Our Web-based software products were developed to help regional insurance brokers provide services comparable to those offered by large multinational brokers,” ClearRisk CEO Craig Rowe said in a release. “Using ClearRisk Manager, brokers can affordably — and with little or no risk management training — provide their clients with risk management plans, risk maps, risk management resources, software and more.” More information

MOVES & VIEWS

8 can be found at: www.clearrisk.com

The Insurance Brokers Association of Ontario (IBAO) has launched a social media campaign featuring a new blog, Twitter account and Facebook ‘Fan’ page. IBAO’s goal with the campaign is to further develop and empower its community of brokers to better educate consumers and media on insurance-related issues and coverage tips. The social networking initiative is to keep stakeholders informed of upcoming initiatives, press releases and community events. The campaign will also further develop as the year progresses, with new forms of social media strategies gradually being introduced. “We are so excited to dive into the dynamic world of social media,” said IBAO CEO Randy Carroll. “This initiative will allow the association to reach out on a whole new level to our membership, consumer community and

10 the media.” The blog can be found at: www.ibao.org/blog ‘Tweets’ can be followed at: www.Twitter.com/ibaontario

The Economical Insurance Group (TEIG) will donate $25,000 to the disaster relief efforts underway in Haiti. “TEIG’s philosophy has always been ‘Neighbours helping neighbours,’” said Noel Walpole, TEIG’s president and CEO. “Right now the people of Haiti need good neighbours. TEIG joins millions of Canadians in sending our support, thoughts and prayers to all those who have been affected by the devastation.”

Insurance Bureau of Canada (IBC) has rebranded itself. The new logo prominently features a dark red maple leaf and identifies IBC as a national trade organization and “Canada’s trusted voice in insurance.” Within the maple leaf are three rays,

intended to represent Canada’s private home, car and business insurers. A press release says the three rays symbolize IBC’s “lasting commitment to issues that matter both to the industry and to consumers.” Overall, the release adds, “the transformation symbolizes IBC’s renewed commitment to focus on relationships with governments and key stakeholders, foster goodwill with consumers and position IBC with Canadians as the trusted voice of the property and casualty insurance industry.”

Crawford & Company (Canada) Inc. is introducing its Crawford Contractor Connection service to the Canadian property and casualty marketplace. Crawford Contractor Connection is intended to provide insurers with an efficient, high-quality, managed repair vendor network for residential and commercial property claims programs. “Contractor recruitment, estimate reviews, assignment monitoring, re-inspections, issue resolution and contract administration are all handled by Contractor Connection to increase efficiency and reduce customer indemnity costs,” explained Pat Van Bakel, senior vice president

of claims operations at Crawford & Company (Canada).

Marie McNamee has been appointed to the newly created position of marketing manager at STRONE. In her new role, she will be instrumental in developing and executing STRONE’s corporate and regional branch marketing strategies. She will be focussing on relationship management, branding and industry-positioning initiatives. McNamee has 25 years of experience in the property and casualty industry. Most recently, she served as senior manager, marketing and communications for a Canadian insurer.

The CG&B Group Inc. has acquired Robertson & Robertson Yacht Insurance Ltd.This brings CG&B into the yacht insurance business, expanding their current product and service line. Robertson & Robertson Yacht Insurance Ltd. provides customized insurance coverage to meet the needs of individual boat owners. The Robertson & Robertson operation will be integrated into CG&B’s Markham, Ontario office and continue to operate under the Robertson & Robertson Yacht Insurance Ltd. name.

March 2010 Canadian Underwriter

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The 1st Convention (Motorcycle) Ride took place in 2008 in conjunction with the 2008 Atlantic Alliance. In this inaugural ride, nine hardy souls together made the trek to Cape Breton in the Fall, raising $2,500 for WICC (Women in Insurance Cancer Crusade). The ride spawned interest

Canadian Underwriter March 2010

and riders throughout the insurance communities in New Brunswick and Nova Scotia. In early October 2009, tyinginto the 2009 Atlantic IBANS/IBANB Conference, 19 Atlantic insurance community riders, along with six passengers, once again braved the elements and rode to Halifax, Nova Scotia to take part in the Change the Tide Convention Ride. The rumble and roar of this motley crew of otherwise upstanding members of their communities, was heard throughout the downtown core of Halifax. The gang gathered early in the morning and set off together to ride the scenic south shore of Nova Scotia to Lunenburg. Riders once again collected pledges on behalf of WICC. One creative rider, Greg Dunlap of Wilson Insurance in Fredericton, New Brunswick, challenged his co-workers to raise a target amount of money. If they did, he promised to wear a dress to work. Well, they did — and he did (pictured). At the IBANS/IBANB Conference President’s Dinner, the riders were proud to present Nancy Thorne — the Atlantic WICC representative and owner of Carnaghan Taylor Fowler Insurance of Saint John, New Brunswick — with pledges worth $9,434. The convention committee then quickly pledged additional funds. Soon, different tables at the dinner were openly challenging each other; by the end of the evening, the total amount pledged to WICC exceeded $22,000! The ride is looking to grow for the 2010 Atlantic Alliance this year in St. John’s Newfoundland.

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WICC Alberta held its Gold Flame Awards Lunch on Jan. 21 at the BMO Center at Stampede Park. More than 320 people helped celebrate the 10th anniversary and $1 million in donations. Guest speaker Mary Commo talked about being a five-year cancer survivor. Dr. Keith Jirik of the University of Calgary updated everyone on how he used his WICC sponsorship funds to purchase a microscope valuable to his research project. Local TV personality Sandra Jansen emceed the event, and Dr. Robert Buckman had them rolling in the aisles with laughter.

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Crawford Cares has donated more than $80,000 to Women in Insurance Cancer Crusade (WICC). Crawford & Company (Canada) CEO John Sharoun presented a cheque for $80,661.95 during a luncheon hosted in honour of WICC on Feb. 9. In the past,

Crawford employees have annually raised between $50,000 and $55,000. This year, the donations increased exponentially to more than $80,000. "This year, more than any other year, our employees completely embraced WICC and Crawford Cares," Steve

Anderson, senior vice president of corporate markets and administration, said in a release. "They jumped in whole-heartedly and participated in various fundraisers, payroll deductions, the Relay for Life and other activities. I really don't think we can

express how proud we are of our staff and all of the efforts they consistently make for this wonderful cause." Crawford Cares has raised more than $330,000 for WICC since Crawford Cares was established in January 2004. "Crawford employees threw their hats into the ring and raised the bar this year," Sharoun said during the cheque presentation. "The addition of the Relay for Life event really boosted our employees' enthusiasm and fundraising efforts. We had a wonderful time staying up all night, honouring friends and loved ones. For that event alone, employees and Crawford branches across Canada raised more than $25,000."

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The insurance and risk management community sent skiers to Mont Tremblant, Quebec on Feb. 1 and 2 for a major fundraiser, the Ronald McDonald House Charities Ski Challenge. The event, which is popular for its social as well as its sporting component, brings together a few hundred participants from businesses of all kinds to take part in a dinner and friendly dual slalom races on the slopes of Mont Tremblant. The funds raised go to the Manoir Ronald McDonald House near Sainte-Justine hospital in Montreal. The Manoir provides lodging for parents so they can be close to their kids 64

Canadian Underwriter March 2010

undergoing medical treatment at the hospital. The ski challenge at Tremblant is one of RMHC’s longest-running and most successful fundraisers. Cedric Gyles, senior vice president at Aon Reed Stenhouse, arranged the insurance community’s involvement to receive its very own title, “Group d’assurances." He received podium recognition from the president of McDonald’s Canada, thanking Gyles for his years of devoted service to RMHC. Hometown Flight Champions were: Tom McCann, Liberty International Underwriters; Grant Gold, McCague Borlack LLP and Scott Francis, Aon Reed Stenhouse.

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More than 300 professionals representing the insurance claims and collision repair industries attended the Canadian Collision Industry Forum (CCIF) meeting on Jan. 23, 2010 in Toronto. Speakers included Tony Canadé (Assured Automotive), CCIF chairman; Mike Bryan, CCIF administrator; Marc Brazeau, Automotive Industries Association (AIA); John Edelen, I-CAR; Dale Finch, National Automotive Trades Association (NATA); Mark Nantais, Canadian Vehicle Manufacturers Association (CVMA), David Adams, Association of International Automobile Manufacturers (AIAM), Leanne Blackborrow, Skills Canada; Donald Cooper, The Donald Cooper Corporation; Doug Kirk and Keith Malik, AkzoNobel Car Refinishes, Europe; Neil Martin, Ministry of Labour; and Steve Fletcher, Automotive Recyclers of Canada.

Back again to our series of “Did You Know” facts and figures about the Ontario Chapter of RIMS. This time, we thought we would share with you all of the past winners of the Donald M. Stuart Award. This prestigious award recognizes outstanding contributions to Risk Management in Canada. Our Chapter established this award in 1979 in honour of one of our founders and most dedicated members. And the winners were ... ••••••••••••••••••••••••••••••••••••••••••

1979 Douglas A. Barlow

1995 Keith R. Gibson

1980 Carol A. Caswell

1996 Robert Patzelt

1981 Benjamin M. Eisenstat

1997 Barry Shakespeare

1982 Harold Quinn

1998 William (Bill) H. McGannon

1983 Ladis J. Vegh

1999 Wayne Hickey

1984 Reginald A. Pitchford

2000 Robert Wheeler

1985 Gord Hird

2001 Susan Meltzer

1986 Dan Sullivan

2002 Richard Whitehouse

1987 George Wilkinson

2003 John Rislahti

1988 Lloyd Hackett

2004 Joe Restoule

1989 J. Allan Swift

2005 Nancy Chambers

1990 Tony Bridger & Marc Darby

2006 Kim Hunton

1991 Gary Vamplew

2007 Nowell Seaman

1992 William S. Tully

2008 George Simpson

1993 J.A. Yvon Menard

2009 Janice McGraw

1994 John Harris

www.ontario.rims.org

March 2010 Canadian Underwriter

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More than 150 exhibitors from across Canada showcased the latest and greatest in the industry at the Ontario Insurance Adjusters' Association (OIAA)'s Professional Development & Claims Conference in Toronto on Feb. 3, 2010. The event featured a trade show and seminars covering a wide variety of timely claims topics. Celebrity chef David Adjey, best known for his presence on the Food Network television show Restaurant Makeover, was the luncheon keynote speaker. During the lunch, the OIAA presented a cheque for $6,110 to the Big Brothers and Big Sisters of Canada.

Canadian Underwriter March 2010

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March 2010 Canadian Underwriter

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More than 300 guests — the biggest turnout to date — attended the 4th Annual Post CICMA/CIAA Joint Conference Cocktail, themed ‘Angels and Devils.’ The event, hosted by Giffin Koerth Forensics and Blouin Dunn LLP, was held at the Loose Moose Tap & Grill in Toronto on Feb. 2, 2010. The event provided an opportunity for claims industry stakeholders to connect with colleagues and friends.

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March 2010 Canadian Underwriter

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Celebrating its 50th anniversary in 2010, the Toronto Insurance Women’s Association (TIWA) Wine and Cheese event was held on Feb. 4 at a new venue this year — the Atlantis Pavilions, Ontario Place. More than 1,200 guests attended the event themed "One City. Many Nations." The event featured networking opportunities and numerous prize draws.

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continued on page 72 & 73... March 2010 Canadian Underwriter

GALLERY ...TIWA Wine and Cheese, continued from page 71.

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Lloyd Hackett In Memoriam

Lloyd Hackett

Lloyd and Marilyn Hackett at their 60th wedding anniversary party on August 24, 2009.

Appearing on the cover of the September 1968 cover of Canadian Risk Management magazine (published by Canadian Underwriter), Lloyd Hackett represents Toronto at the inaugural meeting of the Canadian Association of Risk Managers.

Canadian Underwriter March 2010

Profiled on the cover of Canadian Underwriter April 1996, as first Canadian Director of Legislative, Risk Management and Public Affairs, Lloyd Hackett stood on guard for full Canadian involvement in the Risk and Insurance Management Society Inc.

Longstanding RIMS, RIMS Canada and ORIMS member Lloyd Hackett passed away in his sleep at the Oakville-Trafalgar Memorial Hospital in the early hours of Wednesday, Jan. 20, 2010. He is lovingly remembered by Marilyn, his wife of 60 years, his daughter Susan, his sons Dave and Larry (deceased) and his grandson Sean. He was awarded the Knolly Shield for top FIIC graduate in 1956. For many years, he was the risk manager for the Ford Motor Company and then for the T. Eaton Company (Eaton's). He was always a respected and valued insurance expert and resource to Lady Eaton and the entire Eaton Family. Hackett and Don Stuart were founding and long serving members of The United Church of Canada’s national insurance committee. On retiring from Eaton’s, Hackett was appointed the first Canadian director of RIMS' legislative, risk management and public affairs section. Hackett served for many years on the Ontario Risk and Insurance Management Society (ORIMS) board. He was president of ORIMS in 1971-72. He achieved legendary status by directing and chairing for decades the ORIMS legislation committee. He was a founding member of the Canadian chapters committee of the RIMS legislation committee. In addition, he represented risk managers and the corporate consumer industry to the Canadian Council of Super-

intendants of Insurance at their annual conferences. He appeared on panel discussions, and at mid-year meetings with the national, provincial and territory regulators of the insurance Industry. For many years, Hackett represented the risk management industry on the Toronto Board of Trade Insurance Committee and other industry associations. Hackett is a lifetime emeritus member of ORIMS. He received the Don Stuart Award (Canadian Risk Manager of the Year) and has received RIMS' prestigious international RIMS Richard Bland Award, which honoured his outstanding lifetime contributions to the field of legislation and governmental relations. Tributes to Hackett observe that he lived every day to the fullest, and found the best in everyone and in every situation. He tackled major challenges with energy, creativity, knowledge and determination. He helped to shape legislation and helped colleagues in the industry to understand its application. Hackett contributed to important causes and supported everyone who sought his help with pleasure. He researched issues with enthusiasm and found practical solutions to problems. Lloyd’s exemplary contributions to risk management and the insurance industry will be long remembered. Truly a gentleman and a scholar, a wise soul and a good friend to all, he will be missed.

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