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October-November 2018
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• first notice FN Flooding costs could spike in Maritimes The financial costs of flooding in Canada’s maritimes could spike by 300 per cent by the end of the century if steps are not taken to address the effects of climate change. A study by researchers at the University of Waterloo looked at the Halifax, Nova Scotia area, a region hard hit by recent riverine flooding. The team, made up economists, geographers and political scientists, merged data on flood probability, climate change and financial payout information from the insurance/re-insurance market and used the information to develop a forecast. “Until recently there hasn’t been a lot of work exploring what increased flooding will cost, and who will get stuck with the bill,” says Andrea Minano, coordinator of the Canadian Coastal Resilience Forum (CCRF) and a researcher at Waterloo’s Faculty of Environment. “The increases in flood losses put into question the long-term insurability in the Halifax area, and highlight a broader problem facing many other areas in Canada
if no actions are taken to mitigate and adapt to climate change.” The research team ran models for two different climate change scenarios and found a significant difference between best and worst-cases. If no action is taken to stall climate change (4°C rise in global temperatures) the Halifax area could incur $67
AI may replace parts of adjusters’ jobs
Claims adjusters could soon have part of their work replaced by software that looks at photos and decides whether property is damaged, but there is still a need for humans in the process, one researcher predicts. When properties are damaged in a major catastrophe by a wind storm or flood, “typically it takes the insurance company a few weeks to send someone out to assess the damage to property,” said Aditya Kaul, lead analyst for research firm Tractica. To expedite the process, some P&C insurers are using drones to survey damage and take pictures. In some cases, they use computer software to automatically assess the damage in the pictures. This is also true for auto damage, Kaul explained. Using artificial intelligence, computer software can flag certain 4
Claims Canada
October-November 2018
million in damages in the event of a severe flood. If the temperature increase could be limited to 2°C, damages would be $10 million for the same event. “The difference in cost between both climate scenarios shows just how exponentially worse things can get without action,” says Minano. “It also shows governments need to plan for rare but high-impact flood events, warn citizens, and not build in high risk areas.” While this study focused on the Maritimes, it warns that nearly all of Canada has vulnerability to hazardous flooding. It calls for discussion about how much flood risk is acceptable to the community; and the need for controls on further exposure in these areas if the risk is deemed unacceptable. The full report, “Application of re/insurance models to estimate increases in flood risk due to climate change” can be found in the journal Geoenvironmental Disasters at http://tinyurl.com/CC-Uwaterloo. ●
By Greg Meckbach
things in images. Based on a photo, the software is designed to decide whether or not a piece of property is damaged. Some claims organizations “automate the process to a considerable degree, so rather than waiting a few weeks, you typically would get the decision on the claim in a few days,” Kaul said. “That would not be possible without artificial intelligence.” But for now, “someone has to sit and tag a lot of these images, train these models and a lot of effort needs to be put in [by humans],” Kaul said. In a few years’ time, AI models will come pre-trained to identify roof damage or flood damage. So it is possible that data service vendors or business software vendors would sell software that is “trained” to decide whether or not a photo shows flood or wind damage. In those cases, carriers and adjusters do not “have to go and train these models,” Kaul said. “These would be pre-trained with existing images.” Kaul does not know of any vendor providing this specific type of service, although he said there are thousands of “one-man garage shops” in the technology industry. “There is a gap in the market,” he said, but does not doubt there will soon be companies providing these pre-trained software algorithms. “I would say over the next three, four or five years, there will definitely be humans checking a lot of those decisions because the trust in AI is not that high…It is a business-critical decision, so it is going to be hard for an insurance company to completely trust AI,” he added. ● www.claimscanada.ca
• first notice FN BC wildfire damage “light” By Jason Contant
Although property damage as a result of the wildfires in British Columbia has been “light” so far this year, the industry must remain vigilant as this could change quickly, said Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR). Canada’s largest insurer, Intact Insurance, said they have seen “minimal claims activity to date,” related to recent B.C. wildfires. In August a 360-square-kilometre blaze destroyed more than 40 homes and properties in Telegraph Creek. The provincial government declared a state of emergency, as nearly 600 wildfires raged across the province. Smoky skies grounded multiple flights at Kelowna International Airport and air quality advisories were issued for multiple jurisdictions. As of August 19, an estimated 14,000 people have been evacuated from their homes, Canadian Press reported. Kimberley, B.C., which has more than 4,500 residents, was also on evacuation alert. Intact said it is monitoring the B.C. wildfire situation closely and “teams will be able to respond immediately to support customers if the situation worsens.” A spokesperson for Wawanesa Insurance said the company is “monitoring the situation daily and we will respond accordingly, but to date no deployment of our National Catastrophe Team has been necessary.” ●
New Brunswick flooding not a catastrophe By Jason Contant Spring flooding in New Brunswick may have been “historic” and “record-setting,” but it didn’t meet the $25-million threshold of a catastrophe event. Catastrophe Indices and Quantification (CatIQ) said the flooding was a “notable event,” meaning it caused between $10 million and $25 million in property damage. Amanda Dean, vice president of the Atlantic region for Insurance Bureau of Canada (IBC), said the flooding covered “quite an extensive piece of geography,” affecting homes and cottages. But although it was devastating for insureds, it wasn’t a huge claims event. Why not? Partially because New Brunswick is much less densely populated than major cities such as Toronto, which saw between 50 and 75 millimetres of rainfall in two to three hours across parts of the city on Aug. 7. Global News meteorologist Ross Hull said at the time that the normal amount of rainfall for the entire month of August is 78.1 mm. ● www.claimscanada.ca
Hurricane claims processing slow: report A recent report in the National Real Estate Investor says property damage claims following hurricanes Harvey, Irma and Maria last year in the southern U.S. and Puerto Rico are being settled slowly. The sheer volume of claims is partly to blame for the slow pace, but the number of challenging claims, such as business interruption losses, is also high, the report noted. Hurricane Maria, which lashed Puerto Rico in September 2017, caused at least US$33.9 billion in damage, according to the territory’s government. By May this year the U.S. Federal Emergency Management Agency (FEMA) had paid $517 million in funds for structural repairs to homes, along with $402 million for personal property. Another $358 million was paid through homeowners’ insurance, the report said. ●
Storm surge coverage now available By Greg Meckbach
Fifteen years after Nova Scotia was hit by Hurricane Juan, a Canadian home insurer is offering storm surge coverage in all four Atlantic Canada provinces. Storm surge is a rise in sea level resulting from atmospheric pressure changes and wind associated with a storm. Home insurers started offering overland water coverage in 2015, but storm surge was generally excluded until this past May, when The Cooperators Group Ltd. announced it would cover storm surge in Nova Scotia. The Co-operators recently announced that storm surge is now available to its home insurance clients in New Brunswick, Prince Edward Island and Newfoundland and Labrador. “We are not aware of any insurer offering storm surge coverage as part of their package of water coverage for homeowners,” Rob Wesseling, president and CEO of the The Co-operators, said in an interview. A storm does not have to be a hurricane for The Co-operators storm surge coverage to apply. “It simply requires storm surge,” Wesseling said. Storm surges can even happen on inland lakes such as the Great Lakes. ● October-November 2018
Claims Canada
5
Cover Story
Dangerous curves ahead Can auto nomo us v ehic les ove rco m
Unpredictable technology plus unreliable humans and increasing costs illuminate the deficiencies of self-driving technology
road? on the stay and ges llen ha ec
By Emily Atkins
With names like Autopilot, Pilot Assist and Drive Pilot for various manufacturers’ autonomous driving systems, it’s no wonder the car-buying public might be led to believe these vehicles can drive themselves. But they’d be wrong – and probably sorry – if they were to let these systems ‘pilot’ unsupervised. Car crashes involving autonomous vehicles have gathered headlines lately. From a couple well-publicized Uber crashes to several Tesla collisions, these incidents attract attention. The novelty of ‘self-driving’ cars makes people hyper-aware of their slightest misstep. The attention is warranted. Autonomous vehicle technology, no matter how impressive, it still very much under development, and we are nowhere near being able to rely on cars to drive themselves safely on public roadways. And the humans behind the wheel aren’t much better. The whole reason we need self-driving cars is because we can’t be trusted not to become distracted, drowsy or dumb behind the wheel. Putting people together with semi-autonomous technology can be a recipe for disaster, as these well-publicized crashes have demonstrated. But ADAS (advanced driver assistance systems) have been around since the early 2000s, when adaptive cruise control and lane departure warning technologies were introduced. And since their introduction they have proven to be effective at preventing collisions, saving people from injury and death and reducing the instances of insurance claims. Cars and light trucks cannot get the top safety rating from the Insurance Institute for Highway Safety (IIHS) without forward collision prevention, while the U.S. and European Union are both requiring all vehicles to have autonomous emergency braking and forward collision warning systems by 2020. Their safety benefits are clear. But when the technologies are combined, with adaptive cruise control (ACC) and active lane-keeping, they achieve what’s known as Level 2 automation. The vehicles can perform some aspects of steering and acceleration/braking, but with the full expectation that the human driver remains in control of the rest of the driving tasks. Level 2 systems are getting more sophisticated and are gaining in popularity. But as more cars come equipped with these technologies, risks, challenges and costs are increasing to the point where some say they are increasing risks on the road. 6
Claims Canada
October-November 2018
www.claimscanada.ca
Dangerous curves ahead Recently, the IIHS, the U.S.-based automotive testing outfit funded by insurers, revealed the limitations of several of the more common assistive technologies on the road today. They have shared the results of new ADAS testing they are conducting to find out if the systems perform as advertised. In its research, the IIHS looked at the 2017 BMW 5-series with “Driving Assistant Plus,” the 2017 Mercedes-Benz E-Class with “Drive Pilot,” the 2018 Tesla Model 3 and 2016 Model S with “Autopilot” (software versions 8.1 and 7.1, respectively) and the 2018 Volvo S90 with “Pilot Assist”. The vehicles were chosen because they are some of the few that combine various technologies to create a near-autonomous driving experience. The Institute’s basic question was to discover if these systems behave the way a competent human driver would. Bottom line: they don’t. And the consequences range along a scale from annoying to dangerous, according to the research. IIHS engineers looked at adaptive cruise control (ACC) and active lane-keeping systems in a series of tests completed in their test facility and on the surrounding public roads. The cruise control tests looked at multiple scenarios, both on a track and in the real world. While all the vehicles were able to avoid hitting stationary targets with the ACC turned on, without it, the two Teslas tested did hit the target. All the cars successfully followed a lead vehicle that braked and accelerated, and also were able to brake in time to avoid a stationary target that came into view as a lead vehicle turned off the road. In the real world, however, the cars were less successful. The IIHS engineers found that each of the vehicles, except the Tesla Model 3, failed to react appropriately to a vehicle stopped in front. One of the engineers recounted how the E-Class Mercedes-Benz she was driving, with both ACC and lane-keeping turned on, momentarily detected a stopped pick-up truck in front of her, then lost track of it. The car continued at speed until she hit the brakes.
“These systems…are not capable of driving like a human,” said David Aylor, manager of active safety testing at IIHS, in an interview. “We’re not at the point where these are full autonomous systems – so it’s important that drivers remain engaged, keep their hands on the wheel – because these systems don’t work in all scenarios and they are not a replacement for a human driver.” Aylor said the IIHS research points out failings of the systems in three main areas: curves, hills and stopped vehicles. In tests using the rolling Virginia terrain surrounding the Institute’s facility, researchers found that cars can lose sight of the painted lines that guide the lane-keeping functions on steep hills and curves of certain radii. “These systems are using forward-looking cameras, and as you approach a hill the lines disappear over the crest, and so that can be a challenge for a forward-looking camera. And then curves – some vehicles have more capability to manage tighter curves than others.”
Broken trust This IIHS research was motivated partly because of comments they received from drivers who found that their semiautonomous cars did not behave as expected. “When the system doesn’t operate like the driver is expecting, it really leads to a lack of trust. And so we’re not quite sure of the safety benefit, but if systems are annoying to drivers, if drivers don’t trust systems, they’re going to turn them off,” Aylor said. The problem is that nobody really knows what we should realistically expect from these systems. With semi-autonomous systems in control there’s no baseline data available, said Adam Campbell, a senior associate, human factors, at -30- Forensic Engineering, in an interview. “To determine what a vehicle with autonomous technology should be doing in a certain situation requires an understanding what it does under the most ideal conditions…That sort of baseline data on what it’s expected to do is not really available to us right now.”
How active lane-keeping systems performed in IIHS road tests on 3 curves and 3 hills Number of times vehicles
went over line
BMW 5 series
on curves
on hills
touched line
on curves
on hills
system disengaged
on curves
on hills
stayed within lane
on curves
on hills
3 6 1 1 9 7 3 0
Mercedes-Benz E-Class 2 1 5 1 1 1 9 15 Tesla Model 3
0 0 0 1 0 0 18 17
Tesla Models S
1
Volvo s90
8 2 0 1 0 4 9 9
12
0
1
0
0
17
5
Source: IIHS
www.claimscanada.ca
October-November 2018
Claims Canada
7
Cover Story The human factor
Insurance implications
If the intended behaviour of the ADAS-equipped vehicle remains in a black box, what about the human side of the equation? How humans behave behind the wheel of a conventional car is well documented: “If you had two human drivers operating nonautonomous vehicles that hit each other, the establishment of who could have done what to avoid the collision or could not have done to avoid the collision is premised on human-based research,” Campbell said. “What we know of how drivers respond to certain situations has been very thoroughly documented in research over the last 30 years.” That data is available to objectively say what we expect humans to be able to do in different situations behind the wheel of a car. But when you combine the semi-autonomous systems with human driving, what happens? First, people don’t always use or appreciate the technology. According to recent research by LexisNexus, car buyers mostly stumble across the advanced features in their vehicles. In fact, 85 per cent did not seek out a car with ADAS. And for those who have and use the systems, 40 per cent maintain that they do not fully trust them. Similarly, 36 per cent of ADAS-equipped car owners have disabled or plan to disable some of the autonomous features, while 24 per cent of owners with three or more ADAS features on their cars have disabled some or all of them. Second, some people trust the technology too much and let these Level 2 vehicles drive themselves. This is how several of the well-publicized Tesla crashes have occurred; the driver is watching a movie or sleeping while the car cruises down the highway – it’s all good until something unexpected happens. There are even aftermarket technologies available to disable the reminder buzzers and warnings that are triggered when your hands have been off the wheel too long. “The closer you get to a vehicle that can drive itself, the more dangerous it gets,” said Jamie Catania, president of -30-Forensic Engineering, in an interview. “The vehicle that can almost drive itself is probably the most dangerous, because everybody believes it’s so amazing and can do so much. Yet it’s that one time in maybe 100 trips when it can’t figure out what to do that causes problems.” The third effect of interaction with semi-autonomous cars will be a decline in driver skills. Adam Campbell believes driving ability will be keyed very closely to the technologies on that driver’s particular vehicle. “New drivers aren’t going to be developing that full array of skills needed to safely operate a vehicle that’s not under the control of autonomous technology,” he said. That means when they need to rent a car, or drive a car with unfamiliar technology they’ll be “at a disadvantage and so will everyone else around them on the road.” As well, Campbell said, because there’s no standardization across manufacturers, the operation of each vehicle will require a steep learning curve.
Autonomous vehicles are also contributing to increased costs, both for owners and insurers. While insurers have been offering discounts for cars equipped with collision avoidance systems, “the cost of sensors and monitors have increased to enhance overall safety, but these higher costs have not yet been offset by claims reductions,” said Henry Hamm, personal insurance broker proposition director at RSA Canada. The cost of insuring a Tesla Model 3 in the U.S. is a case in point: AAA predicted a 30 per cent hike in premiums last year. The IIHS’s Russ Rader told TheTruthAboutCars.com: “Teslas get into a lot of crashes and are costly to repair afterward. Consumers will pay for that when they go to insure one.” “A windshield repair on a vehicle with ADAS now requires calibration to ensure the ADAS technology operates to manufacturer specifications, which is associated with more repair time and a higher cost, and in turn impacts premiums,” Hamm said. “Failure to adhere to repair to these standards, opens up potential liability issues for repair firms.” As well, he noted that the cost of automobile repairs is increasing significantly. Some models have seen a 20 per cent increase in the number of parts in a front end in the last two model years, which drives costs up significantly. Cars today boast more safety features, and more expensive parts, proximity sensors, cameras, radar etc. but, “the potential safety benefits are not been reflected in lower crash frequencies. As a result, physical damage coverage is showing an industry-wide deteriorating loss ratio trend,” Hamm added.
8
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October-November 2018
The automakers’ role FFor their part, the car makers are investing heavily in research to figure out how to make the car-human relationship smoother. “Autonomous vehicle manufacturers are funding a lot of research to figure out what people are expected to do on the road given typical roadway conditions – just driving normally and also responding to hazards on the road,” Campbell said. “The reason for that is that they want to build technology that responds at least as well as humans to do to establish trust in the technology.” But automakers are not sharing data. Even the IIHS did not have access to the onboard sensor data in its tests, Aylor said, relying instead on video and external sensors to track the cars’ behaviour. Campbell notes that this is “mostly because the research is proprietary and the claims that are made against autonomous vehicle manufacturers often get settled quite quickly because they know if these things proceed to trial, their golden nugget of technology and the foundational research on it will be exposed to competing companies.” Concrete measures to improve safety include a wide variety of in-car sensors and systems designed to ensure the driver remains alert and in control. “Auto makers are realizing the peril that comes with the false sense of security that ADAS currently provides drivwww.claimscanada.ca
ers,” said Hamm. “For instance, Cadillac has installed sensors that can detect when a driver takes his or her eyes off the road, and will alert the driver to pay attention. There is still the risk of over-reliance on these safety features that may not make the appropriate response in unique circumstances.” And Cadillac’s not alone. MercedesBenz Canada spokeswoman JoAnne Caza emphasizes that the luxury carmaker spends “a lot of time training the sales consultants and delivery specialists so they can explain the technology to their customers. We also have high quality online media content (e.g. YouTube videos), and detailed information in the owner’s manuals.” Likewise, Tesla takes pains to explain to its buyers that they must be aware and in control at all times. Right now, “designers are struggling with trade-offs inherent in automated assistance,” said David Zuby, IIHS chief research officer. “If they limit functionality to keep drivers engaged, they risk a backlash that the systems are too rudimentary. If the systems seem too capable, then drivers may not give them the attention required to use them safely.”
are important for drivers to purchase when they’re buying a new vehicle.” Jamie Catania sees it as a chicken-andegg problem: “These technologies probably make people worse drivers ‘cause they’re less vigilant to the task and they’re less attentive and they’re relying on tech more. But it probably hasn’t come a moment too soon given the way people are prone to drive anyway. It’s probably rescued a lot of 18 year olds from horrible collisions already.”
Fortunately, researchers are making steady progress in teaching ADAS to be smarter and more like a human, and new money is being made available to fund the work. However, for the near term road users, car buyers, insurers and accident investigators will have a lot of complexity to sort through in assessing risk. The process of buying, driving and insuring a car is quickly losing its simplicity and becoming a confusing mess. •
Not all accountants are MDD Forensic Accountants.
The conundrum If ADAS-equipped cars are not smart enough to be trusted, and drivers are not smart enough to know when trust is appropriate, and these vehicles are causing repair and insurance costs to increase, why are we still hurtling down the road to full autonomy? Because the Holy Grail is technology where “every vehicle is communicating with every other vehicle and the roadway and everyone else, so that everyone knows exactly where everyone else is, what they’re going to do,” Campbell said. “Even coming halfway to realizing that reality will hopefully a be a better place than we are right now in terms of overall roadway safety.” IIHS’s Aylor agrees with the prognosis: “I don’t think we’re close, at this point in time. I think the task of driving is much more difficult than most people realize. So, while we’re not at full autonomy, there are a lot of advanced, driver assistance systems that show benefit either in police reported crashes, or insurance related crashes, that www.claimscanada.ca
With over 40 offices on 5 continents, over 30 language fluencies, 18 distinct professional designations and a work history that spans more than 130 countries and 800 industries, we are truly world-class experts with a global reach. To work with a member of our respected team contact any one of our Canadian offices or visit us at mdd.com.
VA N C O U V E R • C A L G A R Y • E D M O N T O N • W I N N I P E G • L O N D O N H A M I LT O N • T O R O N T O • K I N G S T O N • O T T A W A • M O N T R E A L • H A L I F A X
October-November 2018
Claims Canada
9
Economic losses in fatal accident claims BY BRENDAN CAPE
Economic loss calculations in fatal and non-fatal accident claims share certain similarities, but as outlined in this article, there are a number of key differences to consider. In a non-fatal accident claim, economic loss calculations are intended to restore the injured person to the financial position they would have enjoyed had the accident not occurred. In particular, the injured person is normally compensated for both their lost earnings and the additional costs (e.g. medical expenses, housekeeping, caregiving, etc.) they are expected to incur as a result of an accident. In a fatal accident claim, by contrast, economic loss calculations are intended to restore the deceased person’s surviving dependent family members to the financial position they would have otherwise enjoyed had the fatality not occurred. Accordingly, the losses sustained by the surviving family members following a fatal accident are conceptually different from the losses sustained by an injured person after a non-fatal accident. Forensic accountants are often retained in both fatal and non-fatal accident claims to quantify both the past losses and the present value of the future losses based on the available information, which may include opinions provided by medical and/or vocational experts. This article explores four key topics: 1. Loss of Earnings (Non-Fatal Accidents) 2. Dependency on Earnings (Fatal Accidents) 3. Other Economic Losses (Medical costs, household services, etc.) 4. Lump-Sum Awards for Future Losses 1. LOSS OF EARNINGS (Non-Fatal Accidents) In a non-fatal accident claim, an injured person is compensated for their loss of pre-tax earnings capacity, which is a comparison between: (a) The projected future earnings in the absence of the accident; and (b) The projected future earnings as a consequence of the accident. Future losses of earnings are discounted to their mortality-adjusted present value, and may be further discounted to consider other risks such as disability and/or unemployment. For example:
Annual Pre-Tax Projected Earnings Annual (Without Pre-Tax Accident) Earnings (Without Accident) Annual Pre-Tax Projected Earnings Annual (GivenPre-Tax Accident) Earnings (Given Accident) e-Tax Earnings Loss Capacity of Pre-Tax Earnings Capacity Adjusted Present Mortality-Adjusted Value Factor (Age Present 54-65) Value Factor (Age 54-65) oss of Earnings Future Loss of Earnings
10 Claims Canada
October-November 2018
$92,000 27,000 $65,000 10.556 $686,140
2. DEPENDENCY ON EARNINGS (Fatal Accidents) In a fatal accident claim, it is the surviving dependent family members who claim for their losses of dependency on the deceased’s after-tax earnings. The dependents are not compensated for the full value of the deceased’s earnings since a portion those earnings would have been consumed personally by the deceased had the incident not occurred. There are three major components of a dependency loss calculation: ➢ Projected Annual After-Tax Income Unlike a personal injury case, appropriate deductions must be made for the income taxes, CPP contributions and EI premiums which the deceased would have otherwise paid. ➢ Dependency Period In the case of a spouse, the dependency period normally extends to the deceased’s assumed retirement date, while minor children are often considered to be dependent while they are anticipated to live at home or remain in school. ➢ Dependency Rate A dependency rate is a percentage applied to the deceased’s projected after-tax income throughout the dependency period and is intended to reflect each survivor’s level of dependency on the deceased’s after-tax income. As household expenditures are affected in different ways by the loss of a contributing family member, it is theoretically possible to calculate dependency rates specific to each individual situation. However, since many households do not maintain detailed accounting records, dependency rates are often derived from the spending patterns of typical households. Based on statistics for Canadian families with one income-earner, it has been estimated that a surviving spouse has a dependency rate of 72 per cent and that each of the first four dependent children adds approximately four per cent to the dependency rate. In the case of a single-income household with no dependent children, the application of a 72 per cent dependency rate implies that the deceased would have spent 28 per cent of his or her income on himself or herself, and this technique is known as the ‘Sole Dependency Approach’. However, when a second income-earner is introduced to the household, the situation becomes more complex and a lower dependency rate or different methodology may be warranted. The following table compares the Sole-Dependency Approach for a single-earner household to the Cross-Dependency $92,000 Approach that calculates a dependency loss based on the com27,000 bined income of both spouses and then deducts the surviving $65,000 spouse’s income: 10.556 However, when the deceased’s income is significantly low$686,140 er than the surviving spouse’s income, applying the crosswww.claimscanada.ca
Deceased’s Annual After-Tax Income Deceased’s Annual Annual After-Tax After-Tax Income Income Deceased’s Dependency Rate Dependency Rate Rate Dependency Less: Survivor’s Annual After-Tax Income Less: Survivor’s Survivor’s Annual After-Tax Income Income Projected Annual Dependency Loss Less: Annual After-Tax Projected Annual Annual Dependency Dependency Loss Loss Projected
Sole-Dependency Sole-Dependency Approach Sole-Dependency Approach $70,000 Approach $70,000 (N/A) $70,000 (N/A) $70,000 (N/A) $70,000 72 per cent $70,000 72 per per cent $ 50,400 72 cent $ 50,400 N/A) $ 50,400 N/A) $50,400 N/A) $50,400 $50,400
Cross-Dependency Cross-Dependency Approach Cross-Dependency Approach $70,000 Approach $70,000 30,000 $70,000 30,000 $100,000 30,000 $100,000 72 per cent $100,000 per cent cent $7272,400 72 per $ 72,400 (30,000) $ 72,400 (30,000) $42,000 (30,000) $42,000 $42,000
FNOL
AudaTarget
dependency approach can lead to the anomalous conclusion that the surviving spouse has become financially “better off” following the loss of their lower-income spouse: Deceased’s Annual After-Tax Income Deceased’s AnnualAfter-Tax After-TaxIncome Income Survivor’s Annual Deceased’s Annual After-Tax Income Survivor’s Annual After-Tax Income Survivor’s Annual After-Tax Income
Dependency Rate Dependency Rate Rate Dependency Less: Survivor’s Annual After-Tax Income Less: Survivor’s Survivor’s Annual After-Tax Income Income Projected Annual Dependency Loss Less: Annual After-Tax Projected Annual Dependency Loss Projected Annual Dependency Loss
Sole-Dependency Approach Sole-Dependency Sole-Dependency Approach Approach $40,000 $40,000 (N/A) $40,000 (N/A) (N/A) $40,000 $40,000 72 per cent $40,000 72 per per cent $28,800 72 cent $28,800 N/A) $28,800 N/A) $28,800 N/A) $28,800 $28,800
Cross-Dependency Approach Cross-Dependency Cross-Dependency Approach Approach $40,000 $40,000 110,000 $40,000 110,000 110,000 $150,000 $150,000 72 per cent $150,000 72 per per cent cent $108,00 72 $108,00 (110,000) $108,00 (110,000) $(2,000) (110,000) $(2,000) $(2,000)
For this reason, when a household has more than one income earner, the sole-dependency approach is often modified to 50 per cent or 60 per cent to reflect the surviving spouse’s lower of level of dependency on the deceased’s income. This is known as the ‘Modified SoleDependency Approach’ and is often used instead of the Cross-Dependency Approach. Dependency losses are often based on the deceased’s employment and/or self-employment income, without reference to investment income since the underlying investments are often inherited by the surviving dependents. However, there are a number of specific situations which warrant further consideration, such as when the deceased was a member of pension plan or was the owner of a corporation or income-producing property. 3. OTHER ECONOMIC LOSSES (Medical Costs & Household Services) In non-fatal accident cases, injured individuals sometimes sustain economic losses beyond their loss of earnings, such as medical costs and/or the inability to continue providing household services. While fatal accident cases do not normally involve medical costs, the surviving members of a household may still have lost the household services which the deceased had provided prior to the accident. When future medical costs are anticipated, they are often projected by medical experts based on the injured person’s impairment, while household services costs are normally projected based on the cost of replacing those services. 4. LUMP-SUM AWARDS FOR FUTURE LOSSES In both fatal and non-fatal accident claims, once the future loss amounts are determined for both earnings and other losses, the future amounts are then converted to a single lump-sum amount that reflects the discount rates prescribed for future economic losses and the mortality risk of the person who is injured or deceased, and in certain cases may include other risk factors such as disability and/or unemployment. In fatal accident claims, it is also necessary to consider the mortality risk for each surviving dependent family member throughout their periods of dependency. Accordingly, the future loss multiples applicable to dependency losses in fatal accident claims are typically lower than the multiples applied to income losses in non-fatal accident claims.
SUMMARY While economic loss calculations in fatal accident claims are similar in certain respects to non-fatal accident claims, it is important to understand the conceptual differences when assessing an economic loss claim in a fatal accident setting. • Brendan Cape, CPA, CMA, CFF, CBV, is a Senior Manager in the Toronto office of Meaden & Moore International. www.claimscanada.ca
Damage Report Medium Heavy
YEAR: 2013 MODEL: Veloster MAKE: Hyundai VIN #:...XXXXXX
Ron’s Repairs
Otto’s Autos
Manny’s Mechs
NCR 102%
NCR 94%
NCR 115%
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Pilot studies project 3% to 5% savings on gross appraisal value. Call 1.416.498.3777 or visit audatex.ca/audatarget to learn more.
October-November 2018
Claims Canada 11
Restoration Myth-Busting:
Three-day drying Part 3
BY KRIS RZESNOSKI
If you have followed my last two articles, there was a focus on the science of restoration vs. the believed capability of the industry. If you’re a broker and you’re trying to reduce your loss ratio, there is no better place to start than finding an insurer who knows that reducing dollars on claims starts with effective mitigation. I’m not surprised any more by carriers who focus on shiny objects and miss the opportunity for real savings by passing on partners who can deliver real results. This article will show you a successful mitigation process, the results, and what it means to the customer. More importantly, I’ll outline how it allows the win (customer)-win (insurer)-win (contractor) scenario.
Rebuild Cycle Time: Mitigation Reduces Cycles
Reconstruction should be a last tool in a restorer's toolbox. There’s no doubt that this is the area that contributes the heaviest expense, longest cycle times, and leads to poor customer service experiences. Unlike a renovation, the insured never planned this event and they haven’t prepared to have strangers in their space. General contractors typically have six or more weeks of lead time for scheduling construction work on new jobs. Restorers are expected to provide fast service and close claims quickly, but there is an inherent problem with this model. A four- to seven-day restoration job can turn into a four- to 12-week reconstruction job. It doesn’t take much for emergency mitigation jobs to pile up and create a backlog of rebuild work. When the insured has a water loss and the restorer is aggressive with its mitigation services, there is an immediate savings and wins felt by all. Claims costs in Canada and the U.S. continue to increase even though program rules are being put in place and applied to the contractor. Why is this? The rules that have been adopted are leading to contaminated homes and litigation because they are improperly mitigated.
Tale of Twin Houses: Real World Cost Savings In 2009-2010, while working in Vancouver, British Columbia, I was presented with a challenging vendor manager. Two professionals with a lot of swagger in their step came to my office to do a preferred vendor review. They took the average emergency mitigation costs of our company and compared it to our competitors. I am all for trying to place analytics on claims, but numbers must have context and understanding. I reviewed a graph that illustrated these costs. I still see this practice being used today. The vendor manager paced the boardroom and read me the riot act as our average cost of an emergency was $9,800, while the average cost of our competition was $7,500. “We have a major problem,” she said. “What do you plan to do about getting your costs down?” 12 Claims Canada
October-November 2018
www.claimscanada.ca
The first question I asked was, “How many large losses did we do versus our competitors?” I was told this was irrelevant because it evens out – these are averages. While this is true for larger sample sizes on the insurance side, it is not true for a contractor. The better you are as a contractor, the larger scale work you get – your sample size definitely impacts your average. I next asked, “How did we compare on our rebuild numbers for the same jobs? What was our average rebuild cost versus our competitors?” We were told if the mitigation costs were not reduced we would be losing our place on the program, we should focus on cost savings and we’ll stay in the program. Luckily, we got a case where two eightyear-old row-houses right next to each other flooded. They were identical in every way. Same floors, floor plans, and materials. There was more water in claim #1 compared to claim #2, but not enough to dramatically offset the comparison. On Claim #1 we used an aggressive drying plan that our carrier partner thought was a great idea to reduce overall costs. On Claim #2 we followed the instructions to lower our mitigation costs to get our average costs down.
Claim #1: We extracted
the water, built containment for the cabinets and aggressively dried the structure for seven days. We applied specialty equipment, technology and techniques on this job. We dried the structure for approximately $7,000. The building was restored for a little less than $1,200. The insurance company saved over $9,000 in costs, weeks of ALE, and reduced the amount of time the insured was displaced from their home. It took an additional three days to repair one side of a cabinet and toe kicks, and one day to repair and paint the baseboard. Within two weeks this job was wrapped up and invoiced. The total cost of claim #1 was approximately $8,200.
Claim #2: Completed with the carrier who was managing our www.claimscanada.ca
average mitigation costs; they received a different service. We extracted the water, ripped out the hardwoods, and removed the cabinets, baseboard, and drywall to two feet up. We dried what structure was left for three days, but with less equipment than we did in Claim #1. We did everything possible to reduce our mitigation billings. The invoice for the mitigation was under $3,800. All of the contents also had to be packed, listed, and stored with site protection to reduce the dust in the unaffected part of the house. The cost of repairs and contents were nearly $14,000. We had a delay with the flooring that took an additional 14 days to get figured out. Total cost of Claim #2 was approximately $17,800. Want to know what the profitability to the jobs were? Surprisingly, you would find that the jobs made the contractor about the same amount of money: Claim #1 - $5,300 in 10 days Claim #2 - $5,600 in 49 days
So how does this story end? Claim #1: The insurance company was super happy with the results of our drying methods. The technicians worked hard to mitigate the job properly and the cost savings flowed to the bottom line. Claim #2: The insurance company was also super happy with how we substantially reduced our mitigation bill. Not only did get to remain in the program, they increased our market share.
Conclusion? The compounding effects of bad policies and bad process lead to a negative bottom line and poor claims ratios. Driving efficiency through best practices and adhering to accepted standards of care leads to the project being completed safely and while reducing your claims costs. In my next article I’ll explain the impact of equipment on materials and how materials can react in the drying environment. •
Knowledge And Experience That Has You Covered
Philip Turner TORONTO
Alain Viger MONTREAL
Kevin Copeland CALGARY
Edward Robinson VANCOUVER
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October-November 2018
Claims Canada 13
• on the scene OTS Bryant Vernon joins Aviva Canada as the new chief claims officer. Having recently moved to Canada from the United States, Bryant brings diverse and extensive claims management experience from companies such as Liberty Mutual and Solera. Before joining Aviva Canada in May 2018, Bryant was global head of data science and services at Solera where he helped insurance carriers improve profitability. He is passionate about claims and is committed to transforming the customer journey at Aviva. ●
30 Forensic Engineering has made two senior management appointments. Jamie Catania has been promoted to president and Greg MacLeod has been appointed chief financial officer. With more than 25 years of senior l evel experience in the field of forensic engineering, Jamie will continue to Jamie Catania bring a deep understanding of the industry, a dedication to clients and strong leadership to the firm. During his tenure at 30 Forensic Engineering as vice-president, forensic consulting, he has assembled and managed a large and sophisticated multi-disciplinary team of forensic specialists, while providing regulatory guidance to Greg MacLeod the practice of forensic engineering in the larger community and building a platform for future professionals as an educator at the post-graduate engineering level. Greg joined the 30 Forensic management team in September 2017 to guide the firm through an ownership transition and re-capitalization and he is remaining with the company to oversee strategy and planning. For over 30 years, Greg has held senior leadership positions in many sectors – manufacturing, financial, real estate and business services – and including several years as a Canadian partner with a major global accounting firm, where he led significant business reorganization engagements in Canada and worldwide. ●
Sharon Anderson has been appointed account executive for Cira Health Solutions. She will serve the company’s BC-based clientele from the office in Vancouver. Sharon has 17 years of experience in customer relations and business development. Beginning her career as director of an elite academy, she leverages a background in operations management, marketing, and business development that has taken her from Ontario to Vancouver. Her business development experience includes the hospitality, recreation, and medical industries. A dedication to health management and an extensive background in service and development, complement and enhance her role with Cira Health Solutions. ● 14 Claims Canada
October-November 2018
Terri McColman joins the head office team at DKI Canada as the company’s new commercial accounts manager. Terri brings over 20 years of national and local business development with the past five-plus years in the restoration industry as a commercial development manager with a strong focus on strategic business Terri McColman development and partnerships. In her new role Terri will be responsible for developing the commercial services sector along with supporting the continued growth of the P&C market and broker community. ●
Joelle Reid, B.A., C.Tech has joined Pario Engineering & Environmental Sciences LP. Joelle joins Pario after spending many years in positions in the environmental, health and safety field within the insurance industry. During her career, she has been involved with the investigation of close to 300 claims. Her areas of expertise include: water and mold damage claims; designated substances surveys; abatement protocol preparation; spill remediation and restoration claims; and smoke migration and remediation claims. Joelle is a graduate of York University and holds a specialized Honours Bachelor of Arts (B.A.) degree in Environmental and Health Studies. Following her time at York, she went on to receive a graduate certificate from Seneca College in Urban Land Regeneration, specializing in engineering technology. ●
Jeff Stinson has joined the ClaimsPro team in Peterborough, Ontario, as branch manager. Jeff will succeed Christina Welton, who continues to lead the front desk operations for ClaimsPro’s international London Open Market Direct Priority Service. Jeff brings over 20 years of adjuster experience to his new role. Most recently he was a senior adjuster with a large international independent adjusting firm. Before that, Jeff spent most of his career with a large national insurer based in Guelph, Ontario. He has extensive experience in automotive bodily injury, accident benefits, and property claims. Jeff will report directly to the vice-president for Eastern Ontario, Dan Buch. ● On Side Restoration Services Ltd. has moved in Surrey, British Columbia to a new, larger, and more modern facility located in the Port Kells neighbourhood. Peter Duhault, branch manager for the Surrey and Abbotsford branches said the new locations “will allow us to service a large geographic area encompassing Surrey, Delta, District of Langley, Pit Meadows and Maple Ridge.” The new building has an expanded carpentry/millwork shop, and a comprehensive contents division including fire-line and ozone chamber, as well as an expanded storage area. “We now also have a dust-free paint room making us capable in providing higher quality trim, doors and specialty custom finishings. It’s really a wonderful new space for our management and operations team to convene and reach out to the public as needed,” Duhault added. ● www.claimscanada.ca
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