Canadian Underwriter August 2017 by Annex Business Media

C A N A D Aâ€™ 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

AUGUST 2017 PM#40063170

Going All Out? BY ANGELA STELMAKOWICH

Promised Wetland BY BLAIR FELTMATE & NATALIA MOUDRAK

Front-Line Bottom Line BY JENNIFER JOHNSON

Your trust. It’s our most valuable asset. We listen carefully to your needs. We respond quickly. And you can count on us for straightforward answers. At Allied World, we earn your trust. That’s something to build on.

www.awac.com

Insurance & Reinsurance. Straight up. This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, AG (“Allied World”) or by Allied World Syndicate 2232. All of Allied World’s rated insurance subsidiaries currently carry an A.M. Best rating of “A (Excellent)” and our Lloyd’s Syndicate is rated “A+ (Strong)” by Standard & Poor’s and “AA- (Very Strong)” by Fitch Ratings. Coverage is only offered through licensed agents and surplus lines brokers. Actual coverage may vary and is subject to policy language as issued. Risk Management services are provided or arranged through AWAC Services Company, a member company of Allied World. © Allied World Assurance Company Holdings, AG. All rights reserved. August 2017.

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8/4/17 9:35 AM

CANADIAN UNDERWRITER

VOL. 84, NO. 8, AUGUST 2017 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY NEWCOM BUSINESS MEDIA INC.

www.canadianunderwriter.ca FEATURES

COVER STORY

Outsourcing Risks Wetlands and Flooding Wetlands, left as they are, should be seen as an unexpected gift in Canada’s efforts to reduce costs from urban and rural flooding.

BY BLAIR FELTMATE & NATALIA MOUDRAK

Arguments for using outsourcing seem to be rightly moving down the well-trodden path of cost reduction to where quality, performance and customer service are the focus. But what risks can moving out potentially bring in? BY ANGELA STELMAKOWICH

FEATURES

Liability Exclusion A recent court ruling looked at a rarely litigated exclusion in liability policies. But analysis must go beyond if an insured’s conduct is intentional.

BY NADIA MACPHEE

Tall Wood Structures

Cyber Insurance

Front-Line Management

Proposals in Ontario and federally to allow for taller wood buildings has attracted supporters and detractors. Each has their own view about if risks will also go higher.

Cyber insurance seems poised to go it alone. Growth of the line is taking shape as a stand-alone offering, but what are the benefits and risks of such a move?

Changing risk management to the front line can help organizations. They need to start viewing disruption for what it can be: a chance to change how risk is managed.

BY GREG MECKBACH

BY FRED ESLAMI

BY JENNIFER JOHNSON

Ransomware Motivation Ransomware attacks are transforming in step with new motivations. Businesses must ensure they have protections and insurance in place.

39 45

BY GRAEME NEWMAN

22 Earthquake Risk Quake is gaining profile among everyone from governments to policyholders about the risk and the need to be prepared.

Ethics Series

Product Recall Risk

Insurance Analytics

The quick fix of terminating a producer suspected of unethical behaviour by simply cutting a cheque could have lingering effects for the business in question and, possibly, for other brokerages.

Product recalls can have a significant impact on a business. Brokers must keep abreast of associated risks to help clients develop product recall plans to suit their needs and exposures.

Determining how best to employ internal and external data is key to gaining forward-looking insights. Knowing what to do with data to meet customer needs will likely prove the end-game.

BY THE CIP SOCIETY

BY CAMERON BRADY

BY JASON CONTANT & GREG MECKBACH

JUSTIN MORESCO

August 2017 Canadian Underwriter

(416) 510-6793 Twitter: @CU_Harmeet @InsuranceMedia Gary White the industry, providing marketers with aTwitter: range of specialized (416) 510-6800 astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca hsingh@canadianunderwriter.ca -6793 Twitter: @InsuranceMedia Editor (416) 510-6800 (416) 442-5600 ext. 3652 ve marketing communications opportunities. the industry, marketers with a rangeService of specialized (416) 510-6760 (416) 510-6793 Twitter:providing @InsuranceMedia Associate Editor Subscriptions/Customer National (416) 510-6800 communications ckbach Art Director and highly effective marketing opportunities. Twitter: @CU_Harmeet Editor (416) 510-6800 Greg Meckbach Art Director h@canadianunderwriter.ca Gail Page Gerald Heydens and highly effective marketing Associate442-5600 Editor communications opportunities. ckbach (416) ext. 3652 Claims Art Director Associate Publisher gmeckbach@canadianunderwriter.ca Gerald HeydensSubscriptions/Customer Service CU_Greg Greg Meckbach Art Director gpage@bizinfogroup.ca h@canadianunderwriter.ca Gerald Heydens Art Consultation Twitter: @CU_Greg Paul Aquino -6796 gmeckbach@canadianunderwriter.ca Gerald HeydensGail Page Art Consultation Manual CU_Greg Sascha Hass (416) 510-6796 Associate Publisher (416) 510-5187 Art Consultation Twitter: @CU_Greg Sascha Hass gpage@bizinfogroup.ca paul@canadianunderwriter.ca Art Consultation -6796 tor InsuranceMarketer.com VOL. 84, NO. 8, AUGUST 2017 Paul Aquino Sascha Hass Canadian Underwriter’s Insurance Media Group is committed (416) 510-6796 Production Manager Online Editor Singh Sascha Hass Canadian Underwriter’s InsuranceManager Media Group 510-5187 is committed Twitter: @InsuranceCanuk Production (416) Circulation Manager tor Gary White Harmeet Singh to providing most timely and relevant news, information paul@canadianunderwriter.ca anadianunderwriter.ca Production Manager Onlinethe Editor Gary White to providing the most timely and relevant news, information Singh (416) 510-6788 (416) 510-6760 hsingh@canadianunderwriter.ca Production Manager Mary Garufi PROFILE to insurance from all segments of CU_Harmeet and resources Gary professionals White Harmeet Singh Managing Director, (416) 510-6760 Editor Twitter: @InsuranceCanuk Senior Publisher Circulation Manager anadianunderwriter.caTwitter: and resources to insurance professionals from all segments of @CU_Harmeet Gary White -5600 ext. 3652the industry, providing marketers with a range of specialized Insurance Mediamgarufi@bizinfogroup.ca Group (416) 510-6760 Angela Stelmakowich hsingh@canadianunderwriter.ca Subscriptions/Customer Service Steve Angela Stelmakowich Wilson National CU_Harmeet National (416) 510-6788 (416) 442-5600 ext. 3652the industry, providing marketers with Mary a range ofGarufi specialized (416) 510-6760 Account Manager Subscriptions/Customer National astelmakowich@canadianunderwriter.ca the Service insurance industry’s social network Ian Portsmouth Twitter: @CU_Harmeet Gail Page and highly effective marketing communications opportunities. astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Claims -5600 ext. 3652 Claims ext. 3545 (416) 442-5600 Publisher Subscriptions/Customer Servicemarketing ian@canadianunderwriter.ca (416) 510-6793 Gail Page and highly effective communications opportunities. Michael Wells (416) 442-5600 ext. 3652 Claims gpage@bizinfogroup.ca mgarufi@bizinfogroup.ca Associate Publisher (416) 510-6793 Subscriptions/Customer Service Twitter: (416)@InsuranceMedia 510-6800 uino Manual Gail Page Account Manager Manual gpage@bizinfogroup.ca Associate Editor Publisher (416) 510-5187 Paul Aquino Gail Page (416) 510-6800 Manual InsuranceMarketer.com (416) 442-5600 ext. 3545 Art Director nadianunderwriter.ca michael@canadianunderwriter.ca gpage@bizinfogroup.ca Print Production Manager Associate Publisher InsuranceMarketer.com Associate Editor (416) 510-5187 Greg Meckbach uino Michael Wells paul@canadianunderwriter.ca gpage@bizinfogroup.ca InsuranceMarketer.com Gerald Heydens InsuranceCanuk gmeckbach@canadianunderwriter.ca (416) 510-5187 Paul Aquino Circulation Manager Greg Meckbach Art Director 510-5122 Phyllis Wright nadianunderwriter.ca (416) Twitter: @InsuranceCanuk (416) 510-5187 Circulation Manager (416) 510-6796 michael@canadianunderwriter.ca -6788 Production Manager paul@canadianunderwriter.ca Print Production Manager Mary Garufi gmeckbach@canadianunderwriter.ca Gerald Heydens InsuranceCanukINSURANCE Circulation Manager (416) 510-6788 Mary the insurance industry’s social network Online Editor KarenGarufi Samuels Twitter: @InsuranceCanuk mgarufi@bizinfogroup.ca Twitter: @CU_Greg Circulation Manager (416) 510-5122 National Account Manager -6788 Phyllis Wright Manager President Mary Garufi industry’s social network the insurance (416) 510-5190 Art Consultation Jason Contant mgarufi@bizinfogroup.ca National (416) 510-6788 Claims (416) 442-5600 ext. 3545 (416) 510-6796 Account Manager Mary Garufi industry’s social network DIRECTORY the insurance jcontant@canadianunderwriter.ca Wells mgarufi@bizinfogroup.ca Sascha HassManager Claims (416) 442-5600 ext. 3545 Creighton Circulation Elliot Ford Manual Bruce Manager insBlogs Michael Wells mgarufi@bizinfogroup.ca (416) 442-5600, Ext. 6893 Account Manager InsuranceMarketer.com Manual canadianunderwriter.ca (416)Production 442-5600 ext. 3545 President Account Manager Mary Garufi Print Manager Online Editor Wells InsuranceMarketer.com michael@canadianunderwriter.ca INSURANCE eford@canadianunderwriter.ca (416) 442-5600 ext. 3545 Production Manager Print Production Manager Account gs mary@newcom.ca -5122 Michael Wells Phyllis Wright HarmeetManager Singh Elliot Ford Bruce Creighton insBlogs canadianunderwriter.ca Vice President DIRECTORY Print Production Manager (416) 510-5122 (416) 614-5831 Michael Wells Gary White instouch.com Phyllis Wright (416) 510-5117 NCE michael@canadianunderwriter.ca hsingh@canadianunderwriter.ca Print Production Manager instouch.com mike@canadianunderwriter.ca -5122 Manager Phyllis Wright President eford@canadianunderwriter.ca (416) 510-6760 INSURANCE Print ProductionAlex Manager Papanou (416) 510-5122 Twitter: @CU_Harmeet Account Manager TORY (416) 510-5122 Phyllis Wright President Insurance Blogs hosted by Canadian Underwriter rd Phyllis Wright Vice President Bruce Creighton insBlogs insBlogs DIRECTORY Ontario Manager (416) 510-5117 (416) 442-5600 ext. 3652 President Elliot Ford Service Bruce Creighton Account Manager insBlogs Subscriptions/Customer Ontario INSURANCE nadianunderwriter.ca Property & Casualty Insurance Newswire Account Manager PresidentInsuranceAlex Papanou rd Property & Gail Casualty Newswire Bruce Creighton INSURANCE eford@canadianunderwriter.ca Christine Hirst Vice Page President DIRECTORY -5117

instouch.com

insBlogs Ontario

instouch.com instouch.com instouch.com Ontario

Ontario insBlogs

the insurance industry’s social network

Associate Publisher Elliot Ford gs nadianunderwriter.ca (416) 510-5117 insBlogs Paul AquinoAlex Papanou eford@canadianunderwriter.ca

Insurance Blogs hosted by Canadian Underwriter

Bruce Creighton Vice President christine@canadianunderwriter.ca DIRECTORY gpage@bizinfogroup.ca erwriter Vice President (416) 510-5114 insBlogs Alex Papanou -5117 Connect with Canadian insBlogs Underwriter (416) 510-5187 Insurance Blogs hosted by Canadian Underwriter Vice President urance Newswire paul@canadianunderwriter.ca (416) 510-5117 Papanou & Casualty InsuranceAlex Newswire Property Property & Casualty Insurance Newswire Alex Papanou Newswire Twitter: @InsuranceCanukProperty & Casualty Insurance Manager InsuranceCirculation Blogs hosted by Canadian Underwriter Connect with Canadian Underwriter with Canadian Underwriter twitter.com/CdnUnderwriter (416) 510-6788 facebook.com/CanadianUnderwriter Mary Garufi Connect with Canadian Underwriter insBlogs.com Insurance Blogs hosted by Canadian Underwriter insBlogs.com Insurance Blogs hosted by Canadian Underwriter mgarufi@bizinfogroup.ca with Canadian Underwriter tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter Account Manager Insurance Blogs hosted by Canadian Underwriter Connect with Canadian Underwriter twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter (416) 442-5600 ext. 3545 Canadian Underwriter Michael linkd.in/CanadianUnderwriter WellsUnderwriter Insurance Blogs hosted by Canadian instouch.com/group/CanadianUnderwriter tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter InsuranceMediaGroup.com .ca michael@canadianunderwriter.ca twitter.com/CdnUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter facebook.com/CanadianUnderwriter Print Production Manager .ca MediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter InsuranceMediaGroup.com (416) 510-5122 Phyllis Wright InsuranceMediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter

insBlogs.com Insurance Blogs hosted by Canadian Underwriter

Insurance Blogs hosted by Canadian Underwriter

insBlogs.com

gs.com insBlogs.com

.ca

InsuranceMediaGroup.com

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InsuranceMediaGroup.com www.CanadianUnderwriter.ca/MediaGroup instouch.com/group/CanadianUnderwriter www.CanadianUnderwriter.ca/MediaGroup Published linkd.in/CanadianUnderwriter AccountbyManagerwww.CanadianUnderwriter.ca/MediaGroup President Elliot Ford Bruce Creighton erwriter iswww.CanadianUnderwriter.ca/MediaGroup published INESS MEDIA INC. thirteen times yearly (monthly + the Annual Statistical Issue) by SINESS MEDIA INC. Canadian Underwriter iswww.CanadianUnderwriter.ca/MediaGroup published thirteen timesthirteen yearly (monthly + the Annual(monthly Statistical Issue) NEWCOM BUSINESS MEDIA INC. Canadian Underwriter iswww.CanadianUnderwriter.ca/MediaGroup published times yearly + thebyAnnual Statistical Issue) by NEWCOM BUSINESS MEDIA INC. eford@canadianunderwriter.ca NEWCOM MEDIAM3B INC. 2S9 erwriter at thirteen 80 Valleybrook Drive,BUSINESS Toronto, Ontario, erwriter is is located published times yearly (monthly + the Annual Statistical Issue) by NEWCOM BUSINESS MEDIA INC. Vice President 451 Attwell Dr., Toronto, ON M9W 5C4 Published by

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ranceMediaGroup.com (416) 510-5117 InsuranceMediaGroup.com Alex Papanou InsuranceMediaGroup.com

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Canadian at thirteen 80 Valleybrook Drive,(monthly Toronto, + Ontario, M3B Statistical 2S9 Canadian Underwriter Underwriter is is located published times yearly the Annual Issue) by (416) 614-2200 • MEDIA (416) 614-8861 (fax) Phone: 442-5600. NEWCOM BUSINESS Canadian Underwriter is at thirteen 80 Valleybrook Drive,(monthly Toronto, + Ontario, M3B Statistical 2S9 Canadian Underwriter is located published times yearly the Annual Issue) by rved. Printed in Canada. The contents of(416) this publication may INC. not be reproduced or transmitted rved. Printed in Canada. The contents of this publication may not be reproduced or transmitted ither in part or in full, includingAll photocopying and recording, the written consent the rights reserved. Printed in without Canada. TheINC. contents of thisofpublication may not be reproduced or transmitted Phone: (416) 442-5600. NEWCOM BUSINESS MEDIA ither in may part any or inpart full,ofincluding photocopying andinrecording, without the written consent the All rights Printed The contents of thisofpublication may without not be reproduced transmitted Chairman and Founder President er. Nor this publication bereserved. stored apart retrieval system of any nature without in any form, either in orininCanada. full, including photocopying and recording, the written or consent of the er. Nor may any part of this publication be stored ininapart retrieval system any nature without and recording, without the written consent of the in any form, either or inpart full,ofincluding photocopying onsent. copyright owner. Nor may any this publication be stored in a retrieval system of any nature without All rights reserved. Printed inof Canada. The contents of this publication may not be reproduced or transmitted onsent. copyright owner. Nor may any part of this publication The be stored in a retrieval system of any nature without Allany rights reserved. Printed in Canada. contents of this publication may without not be reproduced transmitted prior written consent. monthly as a source of news, technical information and comment, and as a link between in form, either in part or in full, including photocopying and recording, the written or consent of the Connect with Canadian Underwriter prior written consent. monthly as a source of news, technical information and comment, and as a link between inPublished any form, either in may part or inpart full, including photocopying recording, without the written consent of the Vice President, Operations Controller of the insurance industry including brokers, agents, insurance andofreinsurance companies, © monthly asNor a source news, technical information and comment, andand as ain link between copyright owner. any of this publication be stored a retrieval system of any nature without ofmanagers the insurance industry including brokers, agents, insurance andofreinsurance companies, © Published monthly as a source news, technical information and comment, and as a linkcompanies, between and consultants. all segments of the insurance industry including brokers, agents, insurance and reinsurance copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without managers and consultants. all segments ofmanagers the insurance industry including brokers, agents, insurance and reinsurance companies, prior written consent. adjusters, risk and consultants. twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter prior written consent. adjusters, risk managers and consultants.

Jim Glionna

Joe Glionna

Melissa Summerfield

Peter Fryters

10 Volunteers Wanted With the risk landscape changing, RIMS president Nowell Seaman says the organization welcomes risk professionals who are dedicated, passionate and want to better understand and manage risk. BY GREG MECKBACH

Director of Circulation © Published monthly as a source of news, technical information and comment, and as a link between time we make our subscription list companies organizations whose technical information and comment, and as a link between Privacy Noticeto select © available Published monthly asand a source of news, Pat Glionna all segments of insurance industry including brokers, and agents, insurance vice may interest you. If you do From not wish contact information to be made available, timeyour to time we the make our subscription list available toinstouch.com/group/CanadianUnderwriter select companies organizations whose and reinsurance companies, linkd.in/CanadianUnderwriter all segments the insurance industry including brokers, agents, insurance and reinsurance companies, t us via one of the following methods: adjusters, riskof managers and consultants. product or service may interest you. If you do not wish your contact information to be made available, adjusters, risk managers and consultants. -668-2374 Fax: 416-442-2191please contact us via one of the following methods:

-668-2374 Fax: 416-442-2191Canadian Underwriter is published thirteen times yearly (monthly + the Annual Statistical Issue) by r@businessinformationgroup.ca NEWCOM BUSINESS MEDIA r@annexnewcom.ca Phone: 1-800-668-2374 Fax:INC. 416-442-2191 www.CanadianUnderwriter.ca/MediaGroup y Officer, 80 Valleybrook Drive, E-mail: Toronto,jhunter@businessinformationgroup.ca Ontario, Privacy NoticeM3B 2S9 jhunter@annexnewcom.ca All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted Mail to: Privacy Officer, 80 Valleybrook Drive,subscription Toronto, Ontario, M3Bavailable 2S9 From time to in time wein make our companies in any form, either part or full, including photocopying andlist recording, withoutto theselect written consent of the and organizations whose GST Registration number 890939689RT0001 ates: 2013 2016 Canada Canadian Underwriter is published times yearly (monthly the Annual Statistical Issue) without by copyright owner. 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Theof magazine is delivered direct-request basis Single Copies $10and plus applicable taxesThe All rights Printed in Canada. contents this publication may nota be reproduced circulation or transmitted Canadian reserved. Underwriter Circulation Dept. E-mail: jhunter@businessinformationgroup.ca jhunter@annexnewcom.ca to senior decision nationally, including insurance riskwithout managers, insurance and reinsurin 15,000 any form, either in part makers or in full, including photocopying and brokers, recording, the written consent of the 80 Valleybrook Drive, Toronto, Ontario Elsewhere 5 Canadian Underwriter ance company personnel, claims managers and adjusters. Since its beginnings, Canadian Underwriter has been a Mail to: Privacy Officer, 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without M3B 2S9 80 Valleybrook Drive, Toronto, Ontario with award-winning coverage 1prior Year $73.95 $71.95 link between all segments of the insurance industry, providing insurance professionals written consent. cal Issue M3B 2S9 ofWe industry issues, trends, news, personalities and events written by Canada’s leading insurance journalists. acknowledge the financial support above subscription) Annual Statistical Issue © Published monthly as a2013 source Canada of news, technical information GST and comment, and as anumber link between Registration 890939689RT0001 Subscription Rates: of the Government ofsubscription) Canada through 2016 We acknowledge the financial support $38 $39 plus applicable taxes (included withofabove all segments the2017 insurance industry includingSubscription brokers, agents, insurance and reinsurance companies, Subscription Canada Inquiries/Customer Service the CanadaRates: Periodical Fund of the of the Government of CanadaClass through Second Mail Registration Number: 08840 or separately $38 plus applicable taxes $39 1 Year $49.95 plus applicable taxes $51.95 risk managers and consultants. 1adjusters, Year $51.95 applicable taxes Mary GarufiPeriodical (416) 614-5831 quiries/Customer Service Department of plus Canadian Heritage the Canada Fund of the ISSNmary@newcom.ca Print: 0008-5251 Publications Mail Agreement #40069240 #40063170 2 $75.95 plus applicable taxes 6) 442-5600 ext 3552 16) 614-5831 Subscription Inquiries/Customer Service 2Years Years $73.95 plus applicable taxes Department of Canadian Heritage $75.95 ISSN Print: 0008-5251 ISSN Digital: 1923-3426 roup.ca m.ca Bona Lao (416) 442-5600 ext 3552 Privacy Notice Mary Garufi (416) Single Copies $10 614-5831 plus applicable taxes Return undeliverable Canadian addresses to: GST Registration number 890939689RT0001 ISSN Digital: blao@bizinfogroup.ca From timeCopies to time we make our subscription listtaxes available to select companies and organizations whose1923-3426 mary@newcom.ca Single $10 plus applicable Second Classcontact Mail Registration 08840 Elsewhere product or service may interest you. 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Canadian Underwriter August 2017

ISSN Print: 0008-5251 ISSN Digital: 1923-3426

FOCUS

7 Editorial 8 Marketplace 54 Moves & Views 56 Gallery

Photo: Courtesy of RIMS

rio

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February 2016 Canadian Underwriter

2017-05-01 10:53 AM

The driver of change isn’t the technology — it’s the customer. Alice Keung, SVP & Chief Transformation Officer

Your clients count on you to not only set them up with the products and services that are exactly right for them, but also to make that experience a simple and seamless one. Economical is committed to helping our broker partners deliver on those expectations with an advanced policy-admin system that makes doing business with us easy, quick, and more accurate than ever.

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Economical Insurance includes the following companies: Economical Mutual Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company, Petline Insurance Company. ©2017 Economical Insurance. All rights reserved. All Economical intellectual property, including but not limited to Economical® and related trademarks, names and logos are the property of Economical Mutual Insurance Company and/or its subsidiaries and/or affiliates and are registered and/or used in Canada. All other intellectual property is the property of their respective owners.

2017-Canadian-Underwriter-Alice.indd 1

2017-07-17 10:08 AM

EDITORIAL

Wildfire Wild Card Yet another wildfire. As July turned to August, hope that wildfires dotting British Columbia’s southern half would abate and that the state of emergency would at last be lifted dissipated like smoke in the wind. Continuing conditions and new fires have again extended the state of emergency until at least August 18; the situation at that point will be the arbitrator of whether or not people, businesses and affected communities across British Columbia’s interior will be able to start getting back to normal. The fires have sparked dozens of evacuation orders or alerts, and the resulting damage toll — determining exactly what can be saved and what cannot — will, again, need to wait until response can transform to recovery. Perhaps, it will only be then that what has been done in the name of mitigation and preparedness can be accurately evaluated. The damage toll will need to take into account both homes and businesses within communities. However, it must also consider costs to business operations that may be located away from communities and that rely, literally, on land now being scorched by flames, that remains under threat or that has been isolated by inaccessible infrastructure: cattle ranches, mining operations and wood products facilities, among them.

To date in fiscal 2017-2018, just four months old, B.C. Wildfire Service reports that the province has witnessed 889 fires that have burned 591,210 hectares (5,912 square kilometres) of land. The total makes it official: 2017 is shaping up to be British Columbia’s worst wildfire year since 1958, when an incredible 8,560 square kilometres (or 856,000 hectares) was lost to forest, bush and grassland fires. The worst season in just shy of 60 years — with 26 fires still considered “of note” as of early August — and the calendar has just turned to the new month. Wildfires will happen; there is no stopping nature and the devastation it can bring. Consider the still-upsetting Fort McMurray wildfires — Canada’s largest-ever insured loss from a natural catastrophe and an event from which recovery continues — as well as earlier blazes in Slave Lake and Kelowna. Wildfires remain a bit of a wild card in Canada, but related understanding and appreciation is growing. This is something that must happen — and happen quickly. While wildfires cannot be stopped and will exact both emotional and financial tolls, things can be done to help reduce the risk and associated insurable damage. These include restricting development in proximity to forests (at the very least, creating a buffer zone); requiring homes and businesses to

take risk mitigation measures in and around structures (including related to building materials and landscaping); enhancing sharing of services among municipalities; hiking premiums for structures in high-risk zones (in turn, these would need to benefit from government-encouraged and insurer-supported incentive programs and rate breaks); and incorporating as part of more regular inspections consideration of wildfire risks. Beyond those measures, though, is the need for improved risk modelling and more scenario stress testing by stakeholders. In a recently released report from AIR Worldwide, the catastrophe modelling firm cited one study that found many areas in the northern hemisphere, including the northern portions of Canada, are expected to have increased risk of wildfire. By providing more concrete numbers, improved modelling will support better planning for, guarding against and dealing with something everyone knows is coming. Better numbers will be vital to achieve buy-in from stakeholders ranging from policyholders to modellers, the insurance industry and governments. Such a development promises to transform the wildfire wild card into a more known quantity. And that knowledge, coupled with the concerted commitment of all stakeholders, can help to reduce the frequency and severity of wildfire’s impact.

While wildfires cannot be stopped and will exact both emotional and financial tolls, things can be done to help reduce the risk and associated insurable damage. Angela Stelmakowich Editor Canadian Underwriter angela@canadianunderwriter.ca

August 2017 Canadian Underwriter

MARKETPLACE

Risk 40% HIDE IT CYBER SECURITY INCIDENTS FROM EMPLOYERS: SURVEY Four in 10 surveyed employees around the globe hide IT security incidents to avoid punishment, notes a new report from Kaspersky Lab and B2B International. Based on input from 5,274 respondents worldwide, the report further found dishonesty is most challenging for larger businesses: 45% of enterprises with 1,000-plus employees experienced staff hiding incidents compared to 42% of small- and mediumsized businesses and 29% of very small businesses (less than 49 employees). “Uninformed or careless employees” are one of the most likely causes of a cyber security incident — only second to malware, it notes.

ONTARIO HIKES MAX FINES FOR STARTING FOREST FIRES Ontario has hiked maximum fines for both individuals and corporations for starting forest fires, with responsible perpetrators facing fines of as much as $25,000 for individuals and up to $500,000 for corporations. About half of all forest fires are started by people, and can cause considerable risk to public safety, expensive property damage and have broader impact on communities and regional industry, notes a statement from Ontario’s Ministry of Natural Resources and Forestry. “These updated fines will bring Ontario in line with other provincial jurisdictions,” the ministry reports. Fire management in Ontario costs, on average, $130 million a year.

EASTERN CANADA QUAKE RISK DESERVES ATTENTION

APP DEVELOPER LAUNCHES PILOT PROGRAM TO CURB DISTRACTED DRIVING

Risk awareness is severely lacking and not enough attention is paid to quake risk in eastern Canada, argues a new report from Swiss Re. The region could produce the country’s largest-ever natural catastrophe loss if the same magnitude 7.3 earthquake that occurred in the past happened today. Swiss Re’s in-house model indicates a quake in Quebec’s Charlevoix seismic zone would spur estimated total damage to residential property of $10.6 billion, “with a 25% probabilility that the losses could exceed $14.4 billion.”

Vancouver app development company eBrake Technologies Inc. has launched a pilot program that will offer a smartphone app geared at preventing distracted driving. During the summer, select TELUS team members and fleet drivers across Canada will receive an invitation to install the smartphone app on their mobile devices. The app for Android and iOS smartphones — in final testing, with an North American launch expected in the near future — requires no in-vehicle hardware. When the app detects

Canadian Underwriter August 2017

vehicle-related motion, it not only locks the device and blocks notifications, but also requires the user to complete the company’s patent-pending passenger unlock test, which cannot be done while driving.

Canadian Market PROTECTION AGAINST “HOME-SHARING RENTALS GONE WRONG” The Commonwell Mutual Insurance Group has released a new policy meant to protect clients against “home-sharing rentals gone wrong” on popular sites such as Airbnb, FlipKey and HomeAway. The policy offers protection related to, among other things, theft, vandalism and innkeepers’ liability up to $10,000 per claim. “The product fills potential gaps hosts may not be aware of from insurance policies provided by the various home-sharing sites.” Some home-sharing sites provide some form of coverage while others do not, says a company spokesperson. Using a home-sharing site that does not provide insurance coverage could produce a significant gap, the spokesperson cautions.

BEAZLEY LAUNCHES ITS ENVIRONMENTAL COVERAGE IN CANADA Beazley has launched its local environmental coverage in Canada with a product suite tailored to the market. The suite includes a

fixed site form, a contractors’ pollution legal liability form and a combined form. Limits are as much as $25 million, Beazley reports. The company’s expectation is “the Canadian environmental space will continue to develop and challenge insurers’ technical strengths.”

DIGITAL MAP PRODUCTS ACQUIRES DMTI SPATIAL California-headquartered Digital Map Products, Inc. (DMP) reported in July that it had acquired DMTI Spatial from Neopost Canada. The “acquisition of Canada’s market leader in location-based information and data quality expands DMP’s North American footprint,” states a joint release. The move allows DMP to continue building its cloudbased platform in geospatial intelligence, supporting the company’s plans to expand its geographic footprint and broaden its suite of geospatial mapping solutions. DMTI Spatial “offers the most comprehensive source of Canadian geolocation data and high-precision addresses,” the statement adds.

Technology AIR WORLDWIDE RELEASES PROBABILISTIC CROP HAIL MODEL FOR CANADA AIR Worldwide has released what the catastrophe risk modelling firm calls the industry’s first crop hail model to provide stakeholders across the crop insurance value chain with a probabilis-

MARKETPLACE

tic view of the effects of hail on Canadian crops. The model reflects the company’s 10,000 simulations of potential annual hail activity, including past hail events and weather patterns, reports AIR Worldwide, a Verisk Analytics business. With that information, “insurers and reinsurers are able to assess the likelihood of a wide range of losses.” The probabilistic view of potential hail activity offers a view of the risk of loss for the coming season to crop hail contracts in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan.

ARTIFICIAL INTELLIGENCE SAW RECORD HIGH INVESTMENTS IN CANADA Artificial Intelligence (AI) attracted US$162 million in investments across 12 deals in the first half of 2017, the highest amount of funding in Canada in the past five years, notes a new report from PwC Canada and CB Insights. But despite the record high in AI deals, investments in venture-backed companies based in Canada slowed in 2017 H1, PwC Canada notes. Funding decreased 14% to US$885 million in the first half of 2017 from US$1.03 billion for the same period in 2016. The number of deals also decreased to 127 from 170 from the same period last year. Quarterly activity in 2017 Q2 saw US$400 million

deployed across 58 deals, a decline from 2016 Q2, which also saw 58 deals, but US$600 million deployed.

and replacement of their contents, or their policy may stipulate an overall total for these coverages,” he says.

Claims

Regulation

SASKATOON STORM ESTIMATED TO COST MORE THAN US$30 MILLION

NEWFOUNDLAND AND LABRADOR CARRYING OUT AUTO INSURANCE REVIEW

A fast-developing thunderstorm over Saskatoon on June 2 that spawned ping pong ball-sized hail is estimated to cost more than US$30 million, Aon Benfield notes in a recent report. The thunderstorm caused the “most significant” damage on the east side of the city, as thousands of claims from affected vehicles and property were filed with insurers, reports Impact Forecasting, Aon Benfield’s catastrophe model development team. It is anticipated the related total economic and insured losses will be in the tens of millions of U.S. dollars.

The Government of Newfoundland and Labrador is launching a comprehensive review of the auto insurance system in the province. As part of the process, the Public Utilities Board (PUB) will conduct an independent closed-claims study to better understand factors contributing to the rising automobile insurance claim costs in the province, notes a statement from Service NL. PUB will also conduct public consultations to seek input on each aspect, including third-party liability, accident benefits, physical damage coverage and uninsured motorist coverage, of the auto insurance product. PUB will submit a report and recommendations to the provincial government. Service NL will also carry out its own consultations, including exploring issues outside the scope of the PUB’s mandate, such as the ratesetting process and ways to encourage more competition in the marketplace.

POLICYHOLDERS AFFECTED BY WILDFIRE SHOULD TALK TO INSURERS ABOUT LIMITS Insurance Bureau of Canada (IBC) has advised policyholders who have been affected by the British Columbia wildfire to discuss policy limits with their insurers. There are several broad categories of claims that fall under additional living expenses (ALE) and some that may not, explains a spokesperson for IBC. Some policyholders will have coverage for ALE “as well as repairs to their homes

against two liquor establishments in connection with an impaired driving incident that claimed a family of four. SGI reports it has filed a statement of claim with the Court of Queen’s Bench in Saskatoon against the two establishments that served a woman whose blood alcohol concentration was almost three times the legal limit when the collision happened. SGI also plans to file suit against the woman.

ONTARIO AUTO RATES UP 0.76% IN 2017 Q2: FSCO Approved rate increases for auto insurance in Ontario were an average of 0.76% in 2017 Q2 for insurers representing slightly more than half the market. Financial Services Commission of Ontario (FSCO) reports that it approved rates for 22 insurers representing 54.9% of the market based on premium. This compares to a 1.24% increase on average for the first quarter of 2017, FSCO figures indicate.

Correction In Fire Stopper, in the July 2017 issue of Canadian Underwriter, it was reported that KPMG cited Insurance Bureau of Canada (IBC) as estimating the financial and economic impact of the 2016

SGI PURSUES ACTION AGAINST ESTABLISHMENTS IN IMPAIRED DRIVING CASE

Alberta wildfire was $8.9 billion.

Saskatchewan Government Insurance (SGI) is, for the first time, pursuing legal action

MacEwan University, not IBC.

KPMG, in fact, attributed that figure to a report from CU apologizes for the error.

August 2017 Canadian Underwriter 9

PROFILE

Volunteers Wanted Greg Meckbach Associate Editor

With the risk landscape changing, RIMS president Nowell Seaman says the organization welcomes risk professionals who are dedicated, passionate and want to better understand and manage risk. As a former Saskatoon broker, Nowell Seaman can attest to the fact that insurance providers play a critical part in understanding and managing risk. “Our industry service providers and partners play a critical part in working together to better understand and manage risk,” says Seaman, president of RIMS, the risk management society. “These are our common goals and when risk is wellmanaged and mitigated, not only does it lower costs and improve returns, but it keeps companies and organizations operating, it keeps production under way and, more importantly, it keeps people safe and communities prosperous.” Identifying how best to 10

Canadian Underwriter August 2017

address concerns is not only a key goal of risk professionals, but the focus of each year’s RIMS Canada Conference, this year scheduled for September 24 to 27 in Toronto. “I always get excited about the RIMS Canada Conference, in that you can really have time to connect and talk about solutions,” says the former chair of the RIMS Canada Council.

HOME ON THE PRAIRIES Born in Edmonton, to a family that farmed in Nova Scotia for 200 years, Seaman attended school in both Saskatchewan and Winnipeg. At one time, he even was a professional guitarist in Nashville. But since 2013, he has served as director of global risk management for Potash Corporation of Saskatchewan Inc., whose operations include five potash mines in the province and one in New Brunswick, as well as plants in, among other places, the United States and Trinidad. Starting his insurance career as a broker in the mid-1980s, Seaman once served as partner and director with McCallum Insurance Brokers in Saskatoon, which has since been acquired. “I developed a really strong interest in risk management,” he says of his early years as a broker. “I really grew to enjoy that part of the business, providing risk management services

for larger commercial clients and, just naturally, that grew into an interest in risk management,” Seaman says. That growth led to him becoming a full-time risk manager. In 1995, the year Seaman joined RIMS, he was hired as manager of risk management and insurance services for the University of Saskatchewan. Risk management was then more insurance-focused, concentrating on hazards and insurable types of risks and enterprise risk management (ERM). “At the time I started in the business, (ERM) was just an emerging concept in some sectors. It certainly wasn’t as widely embraced as it is today,” Seaman says. As the RIMS president, director of global risk management, father of five and grandfather of one looks back on his decades in risk management, Seaman says few organizations had ERM programs 20 years ago. “Now the majority of organizations have an ERM program, whether it’s titled ERM or not.” Before the university developed its ERM program — the school was one of the first in the country to do so — Seaman reports he “was very much focused on property, liability, casualty and any kind of insurable risk, as well as working to manage risk that may be less insurable, but controllable.” After development of the ERM program, however,

he says “when I became involved in that, the scope of risks expanded to reputational risk, financial risk and compliance risk… every category of risk.” His move four years ago from the university to Potash Corporation represented a big change, Seaman suggests. Though many principles, practices and tools in the

When risk is well-managed, “it keeps production under way and, more importantly, it keeps people safe and communities prosperous.” higher education sector and the private sector are consistent, the move “into mining and resources and fertilizer was a very interesting change in risk,” he points out. “There is extremely high focus and value placed on safety of people and on protection of the environment and that is very clear in the risk material that we do provide to our stakeholders,” Seaman says of his employer. “But as well you might imagine, there is a wide range of other kinds of uninsurable risks that do affect companies like ours and those can be things as

Photo: Courtesy of RIMS, the risk management society

PROFILE

varied as changes in the prices of commodities to changes in regulatory environments,” he explains. “There really is no mystique. Those risks can have a very large impact on organizations,” he adds.

STRENGTH IN NUMBERS During his tenure at the University of Saskatchewan, Seaman served as a director of the Saskatchewan chapter of RIMS, as well as chair of the RIMS Canada Council

from 2003 to 2005. In the early 2000s, he also chaired the secretariat, during which time the William H. McGannon Foundation — which provides a “student involvement program” for those enrolled in postsecondary study programs in risk management, insurance or related programs — was created, a point of pride for Seaman. He also received what is regarded as Canada’s highest honour in risk

management, the Donald M. Stuart Award, in 2007. That same year, Seaman joined the RIMS Board of Directors. “I am a big believer that an organization is built on the strength of its volunteers,” he says. With RIMS, “you will meet some very passionate volunteers who invest considerable time because they believe in the development of risk management as a profession and what it can contribute, not only to the individual members, but certainly for the companies and organizations it serves, as well as the communities we live in,” he says. “I really believe in the organization and that’s what drives me to work for it,” Seaman says of RIMS. For example, the society launched its Certified Risk Management professional certification in 2016 and is continuing to “develop and place emphasis” on the certification in 2017. “It’s basically providing risk management practice with a worldwide recognized certification that recognizes a mature risk management practitioner,” Seaman says. That recognition and expertise is important in light of the changing risk landscape, which, undoubtedly, includes cyber. Today, he says, the insurance industry has really “stepped up to the plate” in providing coverage for cyber risk. “It’s one of those things

that’s on risk managers’ minds, but I think it’s also on insurers’ minds,” he says. “Oftentimes, when you simply go through the underwriting process for cyber these days, you can end up having a dialogue about those areas and priorities that most need to be addressed in a particular organization,” Seaman says. “The changes in RIMS have reflected the changes in risk management practice over the two decades I have been involved. Twenty years ago, risk managers spent a lot of time explaining the basics and value of risk management,” Seaman reports. Today, most organizations “have a risk management program and recognize the value and the importance of having risk management being part of the organization’s competencies,” he says. They are now “asking how can we do more. How can we use risk management to make better decisions for the organization? How can we use it to reduce uncertainty effectively?” RIMS “is playing a very important part of bringing risk managers around the world together,” Seaman says. “You might be a practioner in Canada, but your company may have operations worldwide,” he says. Having a common understanding of risk management terms, concepts and practice helps professionals do their jobs. August 2017 Canadian Underwriter

Good Natured Opinion/Analysis

Wetlands are increasingly seen as an unexpected gift Blair Feltmate — one with the potential Head, Intact Centre on to keep on giving — in Climate Adaptation, University of Waterloo Canada’s continuing efforts to reduce costs from urban and rural flooding. The only proviso is that stakeholders, including municipal governments, need to support protective approaches that allow these Natalia Moudrak valuable areas to remain as is. Director of the Infrastructure Adaptation Program, Intact Centre on Climate Adaptation, University of Waterloo

The costs of flood damage across the country are escalating. For example, Insurance Bureau of Canada reports that property and casualty insurance payouts related to extreme weather have more than doubled every five to 10 years since the 1980s, with flooding as the primary driver. Relative to this lamentable trend, the costs of flooding can never be capped — and certainly not reversed — through efforts that focus primarily

Canadian Underwriter August 2017

on, for example, shifting responsibility for losses among such key players as Public Safety Canada (Disaster Financial Assistance Arrangements), insurers and provincial and municipal governments. Shifting responsibility is the metaphoric equivalent of running from one location to the next on a sinking ship — it can create the illusion of a solution, while wasting time and ignoring the inevitable reality that the ship will, ultimately, sink. Relative to Canada’s growing flood risk, the subject of focus should be on keeping the ship afloat rather than playing a financial shell game. Fortunately, there is a simple, practical and costeffective solution to mitigate a major cause of flood risk in Canada that should appeal to the interests of all stakeholders. Simply stated, by leaving natural wetlands natural, Canada can materially limit the costs associated with future floods.

NATURAL BENEFITS Wetlands are naturally occurring repositories where water can accumulate following large storms, and then discharge slowly over time either downstream or into the ground water system. It has long been understood that as wetlands are transformed to accommodate agricultural development or urban growth, the flood mitigation

capacity of wetlands would be diminished. However, what was not understood was the degree to which flood risk, and associated flood costs, might be influenced by the retention or loss of wetlands. With more than 70% of southern Ontarioâ€™s pre-settlement wetlands having been lost through agricultural drainage, development, encroachment, land clearance, filling and road construction â€” and with similar losses noted in other provinces â€” quantification of the financial value that wetlands play in flood risk mitigation is long overdue.

CONCRETE NUMBERS The financial value of wetlands to attenuate flood costs was explored in a recent report from the Intact Centre on Climate Adaptation (ICCA). The report quantifies the potential for wetlands to limit flood risk and associated costs to residential homes, apartment buildings and industrial and commercial infrastructure, in both rural and urban settings in southern Ontario (with findings that have national applicability). For both the rural site (located north of Mississauga) and the urban location (within Waterloo), computer models simulated a major fall flood (sensu Hurricane Hazel, 1954). Under conditions of a changing climate, whereby extreme weather will be more intense, Hurricane

Hazel-level events will be increasingly common. For example, in June 2004, in proximity to Waterloo, a severe localized storm generated 160 millimetres of rainfall in four hours, and 202 millimetres of rainfall over 24 hours. For both the urban and rural settings, under conditions of severe flooding with wetlands intact versus converted to agricultural development, costs of flood-

Recognizing that wetlands, under conditions of major storms, play a material role in limiting flood costs in both urban and rural settings, there is obvious need for broad-scale advocacy to retain and restore wetlands across Canada. ing were assessed relative to impacts on building structures and damage to building contents (Figure 1 from the ICCA report, shown below, offers an overview of the approach used to calculate flood damage from extreme weather). The difference between the two calculations reflected the direct financial value of wetlands to mitigate flood costs.

Figure 1: Assessing Financial Value of Wetlands Conservation for Flood Damage Cost Reduction (Process Flow) Phase 3: Classify Inundated Buildings

Phase 4: Complete Flood Damage Estimation

Obtain Land Use and Building Footprints Data for the Pilot Site

Record Required* Information for Each Inundated Building (e.g. Dwelling Type, Main Floor Elevation, Garages, etc.)

Calculate Total Annual Flood Damage Estimates for Each Wetland Loss Scenario

Land Use and Building Footprints Data

Inundated Buildings File (Updated)

Phase 1: Obtain Hydrologic and Hydraulic Modelling Results

Phase 2: Obtain Land Use and Building Footprints Data

Obtain Flood Depths Data for Wetland Loss Scenarios (Hydrologic and Hydraulic Modelling)

Flood Depths Data

Map Flood Depths in Relation to Land Use, Building Footprints Data

Inundated Buildings File

Determine Flood Attenuation Benefit for Wetlands Conservation

The additive value of wetlands to mitigate flood costs was substantial (see Table 1 from the report, on next page). At the rural pilot site, under conditions whereby wetlands remained intact, flood damage costs were $8.9 million, which was $3.5 million or 29% lower than the $12.4 million cost that would have been realized had wetlands been replaced with agricultural development. At the urban pilot site, if wetlands were maintained in their natural state, the cost of flood damages would have been $84.5 million, which was $51.1 million or 38% lower than the $135.6 million that would have occurred consequent to agricultural replacement. If the modelling had assumed that wetlands were replaced by largely impervious surfaces (such as buildings, roads and parking lots), which increasingly characterize urban settings as opposed to agricultural development, the value of flood damage avoidance would have exceeded 29% to 38%. Thus, the report concludes the additive value of wetlands to reduce flood damage is conservative.

NEXT STEPS Recognizing that wetlands, under conditions of major storms, play a material role in limiting flood costs in both urban and rural settings, there is obvious need for broad-scale advocacy to retain and restore wetlands across Canada. Insurers and reinsurers should be prominent national voices in this effort. With regard to discussions focusing on the utility of wetlands to limit flood risk, insurers will inevitably find themselves communicating with government agencies with whom they have had little interaction historically, such as natural resources, fishery and forestry ministries. That being the case, prior to meeting with such agencies, insurers should familiarize themselves with the additional benefits that wetlands convey relative to the interests of those agencies. Otherwise stated, insurers need to learn to expand their dialogue. To illustrate, insurers should familiarize themselves with how wetlands function in the general framework of habitat August 2017 Canadian Underwriter 13

Table 1: Estimated Value of Flood Damage Costs to Buildings With and Without Wetlands, CAN$

Flood Damage Costs Flood Damage Costs for Rural Mississauga for Urban Waterloo With wetlands kept intact

$8.9 million

$84.5 million

With wetlands “lost” to agricultural development

$12.4 million

$135.6 million

Flood damage costs reduction due to wetlands conservation

$3.5 million or 29%

$51.1 million or 38%

protection, biodiversity improvements, water quality enhancement, drought attenuation and carbon sequestration. Knowledge of all these areas will amplify the message that maintaining wetlands in their natural state is a financially prudent and socially desirable outcome for Canadian communities. Complementing the flood mitigation argument, with an additional cadre of benefits, will elevate receptivity by politicians to retain and restore wetlands. The cost-effective function of wetlands to limit flood risk is also consistent

Canadian Underwriter August 2017

with, and reinforcing of, the directives outlined in the Wetland Conservation Strategy for Ontario, Ontario’s Climate Change Action Plan and the Government of Canada’s Pan-Canadian Framework on Clean Growth and Climate Change, which are also documents with which insurers should familiarize themselves. Inevitably, some stakeholders will push back on wetlands retention as an encroachment on much-needed urban and rural infrastructure expansion, or agricultural development (both positions have merit). Thus, arguments in favour of wetlands

protection should be inventive, and to some extent, conciliatory. There may be, for example, means to incorporate wetlands protection into new community design, such that the combined value of flood mitigation services, coupled with aesthetic value, can create both a demand and premium for a property that might otherwise be viewed as less desirable if either component is sacrificed.

THE LONG VIEW Climate change is irreversible, and as a consequence, the extreme storms of today pale in comparison to those yet to occur. Efforts that focus on preparedness for these bigger storms must be put in place now since every day that society does not adapt is a day it no longer has. At the top of the list of initiatives to which governments and insurers should commit, in an effort to limit flood risk, is the retention and restoration of natural wetlands. Every time big storms hit, wetlands will be the gift that keeps on giving.

Beyond Intent Nadia MacPhee Partner, Brenton Kean

Brenton Kean is a member of The ARC Group of Canada, a network of independent insurance law firms across Canada.

A New Brunswick court recently addressed a rarely litigated exclusion in liability policies, which are meant to ensure an insured’s intentional conduct does not attract coverage. The ruling, plus an earlier one in British Columbia, show that although a plaintiff may allege the insured’s conduct was intentional, the analysis must go further. As a general proposition, insurance is not meant to provide coverage for intentional acts. That concept was described by Justice Frank Iacobucci in his concurring judgement in Non-Marine Underwriters, Lloyd’s of London v. Scalera, a Supreme Court of Canada decision released in 2000. Citing Insurance Law in Canada, “[I]nsurance usually makes economic sense only where the losses covered are unforeseen or accidental: ‘The assumptions on which insurance is based are undermined if successful claims arise out of loss which is not fortuitous,’” Justice Iacobucci wrote at the time. From a social perspective, it is not desirable to “encourage people to injure others intentionally by indemnifying them from the civil consequences,” he added.

One way that this objective is expressed in liability policies is that coverage is triggered by an “occurrence,” generally defined to include an accident. That aspect of liability policies has been frequently litigated. Of course, there are specific exclusions in liability policies that further ensure the insured’s intentional conduct does not attract coverage. One of these rarely litigated exclusions — the knowing violation of the rights of another exclusion — was recently considered by the Court of Queen’s Bench of New Brunswick in Cook et al v. Aviva Insurance, released this past January.

BACKGROUND In Cook et al v. Aviva, a former employee commenced an action against her employer and his professional corporation in both her own name and that of her holding company. Marlene Myers, employed as an accountant, alleged constructive dismissal, but later added allegations of defamation against the employer. The plaintiffs alleged the following: • the employer conveyed false information and imputed the plaintiff’s guilt of a crime, fraud, dishonesty, immorality, dishonourable conduct or incompetence in her profession as a certified general accountant(CGA);

August 2017 Canadian Underwriter 15

• published the information and instituted proceedings with the RCMP and the CGA association based on this information, knowing it to be false, or, in the alternative, with reckless disregard to the fact that it was false; and • did so maliciously and deliberately, with the intention of discrediting the plaintiff’s professional reputation, discouraging clients from engaging the plaintiff’s services and to prevent the plaintiff from earning a living as an accountant. The plaintiffs further alleged the employer carried out the aforementioned actions, with the purpose of exposing the plaintiff to great distress, embarrassment, loss of reputation and financial loss. Finally, they alleged that the employer’s conduct had been “vindictive, malicious and so outrageous that it is deserving of an award of punitive damages.” The plaintiffs claimed they sustained special and general damages, including economic loss of business, profit, reputation and

goodwill as a result of the employer’s conduct. The employer denied all of the allegations. The employer and his professional corporation were insured under a Commercial General Liability (CGL) policy issued by Aviva Insurance Company of Canada. The insureds maintained that the insurer owed them a duty to defend the plaintiffs’ action, particularly with respect to the defamation allegations. The insureds brought an application for a declaration to this effect to New Brunswick’s Court of Queen’s Bench. They also sought reimbursement of defence fees incurred. The CGL policy provided coverage for compensatory damages awarded against the insureds because of “personal and advertising injury,” which was defined to comprise offences, including libel and slander. This coverage was subject to several exclusions, however, including an exclusion for the knowing violation of rights of another: “Personal and advertising injury”

www.sedgwickcms.ca 888.601.6228 #RIMSCanada2017 booth 312

caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury.” The plaintiffs’ claim alleged deliberate and malicious conduct by the insureds in carrying out the defamatory acts with a goal of inflicting harm. The insurer argued the “knowing violation” exclusion was clearly aimed at precluding coverage for the deliberate infliction of harm. It denied that it had a duty to defend. The insurer relied on the interpretative principles to be applied to a coverage analysis as set out by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., released in 2016. The insurer submitted the policy language was unambiguous and the court should give effect to the clear language. The insureds were generally covered for claims of defamation under the policy,

unless the defamatory act was intentional and meant to inflict harm. In that case, the policy would not respond. If, however, the court found that the language was ambiguous, it should then determine the expectations of the parties when the insurance contract was entered into. The high court in Ledcor directed that courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as the interpretation can be supported by the text of the policy. The policy at issue contained general language, in addition to specific exclusions, indicating that intentional conduct would not be covered. For example, the policy only covered bodily injury and property damage caused by an “occurrence,” the policy excluded coverage for bodily injury and property damage expected or intended from the standpoint of the insured, the policy excluded coverage for bodily injury and property damage arising from

abuse committed by an insured, and the policy excluded coverage for personal and advertising injury if the insured published material with knowledge of falsity. The insureds acknowledged that the statement of claim alleged some statements were made with knowledge that they were false, but pointed out the plaintiffs further alleged, in the alternative, that the statements were made with reckless disregard to the fact that they were false. Accordingly, the exclusion, at best, would catch some of the allegations, but not all. The court examined the pleadings to determine if the allegations made against the insureds had the possibility of triggering coverage if the allegations were deemed true.

PREVIOUS CASE LAW Before Cook et al v. Aviva, there was only one reported decision considering the application of the “knowing violation” exclusion in the context of a defama-

www.vericlaim.ca 888.601.6228 #RIMSCanada2017 booth 312

tion claim. In British Columbia Medical Association v. Aviva Insurance Company of Canada, a 2011 ruling by the Supreme Court of British Columbia, a physician brought an action against the British Columbia Medical Association and several individuals alleging that she was the victim of a malicious public campaign characterized by defamatory expression, injurious falsehoods and negligent misstatements. The physician further alleged the defamatory statements were published with the knowledge that they were false, or alternatively, with reckless indifference whether they were true or false. She claimed the defendants’ objective in making the defamatory statements was to cause her harm. The defendants’ insurer denied it had a duty to defend the insureds based on the knowing violation of the rights of another exclusion. They argued that the conduct was alleged to be intentional with the aim of causing injury to the plaintiff. The insureds brought applications to

the Supreme Court of British Columbia seeking a ruling that the insurer had a duty to defend them. Justice Carol Ross noted that where defamation is a tort of strict liability, the plaintiff could succeed in a claim for defamation regardless of whether or not she proved intent on the part of the insured. If the trial judge, ultimately, accepted that the insureds were liable in defamation, but did not intend to cause harm to the plaintiff, the policy would respond. It was, therefore, possible that there would be coverage under the policy. The court, consequently, found there was a duty to defend.

THE LATEST DECISION Following the approach of the court in British Columbia Medical Association v. Aviva, the court in Cook et al v. Aviva examined the constituent elements of an action for libel or slander. Justice George Rideout found it significant that one could succeed in proving tortious conduct

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, issued in 2010 by the Supreme Court of Canada, the New Brunswick court ruled that there was a possibility that the claim was covered by the policy. The insurer was ordered to defend the insureds.

CONCLUSIONS

without demonstrating any maliciousness on the part of the tortfeasor. Accordingly, even if the plaintiff pleaded that the conduct was intentional and was carried out with the aim of inflicting harm, she could, conceivably, succeed in her claim of defamation without proving any of those allegations. On that basis, and applying the applicable test for the duty to defend from

The takeaway from both British Columbia Medical Association v. Aviva and Cook et al v. Aviva is that although a plaintiff may allege the insured’s conduct was intentional, the analysis must go further. One should also determine if the plaintiff could succeed in his or her claim against the insured, regardless of whether or not it can be established that the conduct was intentional and meant to inflict harm. If the plaintiff could succeed on that basis, then the allegations regarding the insured’s intention should effectively be set aside for the purposes of a coverage analysis.

Make your name stand out. The Chartered Insurance Professional (CIP) designation is recognized as the hallmark of professionalism in the property and casualty insurance industry. Employers across Canada know that a CIP has completed several years of rigorous study, adheres to a strict code of conduct and has the experience to offer clients fully qualified professional service. If you want to be assured employers will take note of your resumé—earn your CIP.

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Canadian Underwriter August 2017

THIS AD PREPARED BY: CLIENT:

RYAN EDWARDS INSURANCE INSTITUTE

Be assured.

Held to Ransom

Graeme Newman

Chief Innovation Officer, CFC Underwriting

Ransomware is not new, but attacks are transforming in step with changing motivations. Businesses are advised to have in place precautions to thwart attacks when possible, complemented by cyber insurance should attackers manage to break through. The two large-scale, high-profile global cyber attacks — WannaCry and NotPetya — have recently put ransomware in the spotlight. But this cyber crime tactic has been affecting businesses of all kinds for more than a decade and it seems no one is immune to it. Victims are as far flung as municipalities in the United States to banks in the Middle East and universities in Canada, and ransomware’s prevalence is only increasing. For those less familiar with the term, ransomware refers to when computer systems are infected

with a malicious software program that searches for data files and encrypts them so they are inaccessible without the decryption key. System owners are then asked to pay for the decryption key and threatened with losing their data unless payments are made. It is a form of crime that is showing a significant uptick. In the first quarter of 2016, for example, ransomware accounted for 12.9% of claims received by CFC Underwriting, while it was the root cause of 20.5% of claims in the same quarter of 2017. The advent of ransomware is part of a natural evolution of computer crime. In the early days of computers, viruses were mostly just an inconvenience, posing no real threat to business continuity or balance sheets. However, as businesses began using technology to manage more and more of their operations and as data increasingly became one of their most valuable assets, it is only natural that criminals would try and monetize these attacks. From the perspective of hackers, the attacks are fairly easy to implement, come with few risks and have the potential to reap significant rewards if done right.

August 2017 Canadian Underwriter 19

TACTICS AND AIMS Not all ransomware is created equal, however. In fact, as similar as the WannaCry and NotPetya attacks looked on the outside, each had a very different purpose and outcome. The WannaCry attack this past May was a more typical example of the scattergun approach that many ransomware variants take. It just happened to identify a very common security gap in unpatched versions of Microsoft Windows and was unusually fast-spreading. The aim was clearly to accrue a substantial sum of money from the US$300 ransom demands, but its actual success was minimal. A security researcher in the United Kingdom stumbled upon the kill switch, which dramatically slowed the attack shortly after it began. Although enhanced versions of this particular strain of ransomware have cropped up since, it is believed the hackers only pocketed around US$125,000, meaning that only 1% of victims paid the ransom. June’s so-called NotPetya outbreak displays a different motivation. The attack originated from an update to a software package primarily used by Ukrainian companies and some multi-national corporations. It was designed to spread only within systems initially infected, instead of spreading globally across many computer systems like WannaCry. In addition, the mechanisms whereby victims could pay the ransom quickly disintegrated, leaving those affected with trashed systems and no way to recover data without an uncorrupted back-up. All of this suggests that any ransomware component present in this virus was actually just a smokescreen, and that this was, in fact, a highly targeted attack designed to destroy systems rather than make money. NotPetya affected a wide range of companies around the globe from logistics company Maersk to advertising giant WPP. Still, 80% of the victims were organizations operating in Ukraine, leading some to believe a nation-state actor was behind the attack and that this might have been a trial. 20

Canadian Underwriter August 2017

This is a scary prospect, indeed. It would only need a combination of WannaCry’s wide reach and NotPetya’s destructive force to cost businesses — and their cyber insurers — billions of dollars.

A good policy will incorporate access to specialist providers who can help a business manage the incident when trouble first strikes. Many insurers have panels of specialists in place that can help firms through each stage of incident response. COSTS ADD UP Contrary to how the crime is described, the vast majority of that money is not going towards a ransom. In fact, the extortion demand — around US$300 on average and what the WannaCry attackers requested — generally represents the smallest cost to businesses when an incident like this occurs. Whether or not a victim pays the attackers, it is the aftermath of an incident that costs businesses money.

After an attack, it is not uncommon to need to bring in IT specialists to rectify and restore systems, forensic investigators to analyze how it occurred and where vulnerabilities lie, and even public relations specialists to publicly manage the issue. That does not even take into account probably the biggest expense a business will see following an event like this — business interruption. It is said that time equals money, and oftentimes just getting into a position where things can operate normally again takes weeks, meaning significant lost revenue. All of these costs add up and before long, even a small event could lead to a daunting, sometimes bankrupting total. Because of the way that ransomware infects systems, as a company grows, so usually does the cost. Maersk reports it estimates a business interruption loss of US$450 million while the loss experienced by British consumer goods company Reckitt has been estimated to be around US$100 million. Logistics company FedEx, which was also hit by the NotPetya attack, has reported it will be looking at a significant material loss. This is as a result of remediation costs and decreased shipping volumes on the company’s express service, and partly because it did not have cyber insurance in place that would cover this kind of event. Some systems are not recoverable, but it is too early to quantify total damages. The good news is that all of these are insurable losses under a typical cyber insurance policy. And not only can it cover these costs, but a good policy will incorporate access to specialist providers who can help a business manage the incident when trouble first strikes. Many insurers have panels of specialists in place that can help firms through each stage of incident response. What cyber insurance will not cover are improvements to systems to prevent similar future attacks. After all, patching systems sometimes involves upgrading them, so deciding who is responsible for what can be hazy and if expectations are not met on either side, a real source of frustration.

As well as obtaining a policy, clients need to be responsible for maintaining a reasonable level of cyber security and making improvements if certain strategies fail. Equally, many insurers need to be clearer about what kinds of things a policy is meant to cover, and what it is not.

WHAT TO EXPECT NEXT Costs of ransomware attacks are likely to climb as the world experiences more and more so-called targeted extortion attacks. This is a more personalized form of ransomware, whereby fewer people are targeted, but for larger sums of money. Ransom demands here are higher, running closer to US$10,000 to US$20,000 on average, but some can climb to US$100,000 if the attackers are confident the victim has no choice but to pay. Recent ransomware events are likely to galvanize hackers after seeing a series of large organizations affected.

Along with larger companies, hackers will, no doubt, increasingly target firms that rely heavily on technology or hold a lot of data, including financial services, education, healthcare and, worryingly, critical infrastructure. Just last year, the University of Calgary reported that ransomware had encrypted the email server used by its faculty and staff. Nervous that some individuals could lose their life’s work if the information stored was destroyed, the university opted to pay the $20,000 extortion demand. With more to lose, these organizations are more likely to pay up and will, presumably, be the most attractive victims for hackers going forward. Recent events have demonstrated that ransomware and other forms of cyber crime are now part of the new reality. Cyber criminals will continue to find ways to circumvent end-point protection solutions to make money and wreak havoc. For that reason, businesses must know

that they have solid security software in place to protect as much as it can, but should the worst happen, a cyber insurance policy is vital for businesses to respond to and deal with this kind of modern-day crime.

Looking for More? The following recent ransomware news may also be of interest. Check out www.canadianunderwriter.ca and search for the following: • Many global Internet users unprepared for dealing with ransomware attack, study finds • WannaCry ransomware attack “arguably the first ever cybercatastrophe”: RMS cyber expert • Ransomware attacks quadrupled in 2016, projected to double again in 2017: Beazley • Canadian companies likely to pay ransomware demands

August 2017 Canadian Underwriter 21

Shifting Landscape After a shaky start, earthquake is steadily gaining profile among stakeholders from governments to policyholders about the risk and the importance of having plans in place. Nowhere in Canada is awareness higher than on the west coast of British Columbia, which abuts the ring of fire. But even there, a shift in thinking is under way as to what areas could produce the largest insured losses should a quake occur.

Justin Moresco Senior Product Manager, RMS

New insights often challenge the established view. The view of earthquakes in Canada is changing, including shifts in the seismic risk within the greater Metro Vancouver area and in the balance of seismic risk between the east and west. Starting with Metro Vancouver, insured seismic risk was previously viewed as being more heavily concentrated in the city proper, given the exposure concentration, including a prevalence of high-value buildings. But based on insights, the product of a new RMS model focused on earthquake risk in Canada, it appears insured seismic risk is driven more by exposure in the expansive region to the south of Vancouver, which straddles the main arm of the Fraser River. Why is this region in focus? It is worth examining how it was created. For thousands of years, the Fraser River carried sand, silt and other sediments westward towards the Georgia Straight, helping to create a network of islands. Today, these islands and their surroundings are home to the fast-growing City of Richmond, the Van-

Canadian Underwriter August 2017

couver International Airport, Deltaport container terminals and more, all of which sit on top of what geologists call a sedimentary basin. The portion of the basin to the south of Vancouver, call it the Vancouver Basin, has deposits of soft soils as deep as 300 metres. The Vancouver Basin accounts for about 10% of the total earthquake-exposed value within British Columbia, but contributes about 20% of the province’s modelled insured (or gross) average annual loss and 500-year return period loss (for this particular article, earthquake-exposed value — that is, after taking into account penetration rates, but before applying policy terms — and modelled loss considers all lines of business and coverages, although not high-value specialty occupancies, such as power plants, which were removed to generate results that reflect more typical insurance portfolios). In contrast, the City of Vancouver accounts for about 13% of British Columbia’s total earthquake-exposed value while contributing about

City of Vancouver Fraser River

Map of Vancouver Basin. Darker colors indicate deeper deposits of so7 soils.

Vancouver Basin

Source: RMS, Map of Vancouver Basin. Darker colours indicate deeper deposits of soft soils.

15% of the modelled insured average annual loss and 500year return period loss.

KEY CONSIDERATIONS It is tempting to attribute this shift to differences in growth patterns between the City of Vancouver and the Vancouver Basin. But analysis indicates the new view of risk is driven by improvements in seismic risk modelling and not changes in insured exposure. Ground motion Ground motion amplification that occurs during earthquakes is a key consideration. Softer site conditions, such as those made up of silts and clays, tend to amplify shaking compared with stiffer site conditions, such as those made of rock. This amplification has been observed in past earthquakes and contributed, for example, to the heavy damage in the Marina District of San Francisco, following the magnitude 6.9 Loma Prieta Earthquake in 1989. Although ground motion amplification can occur anywhere there are soil deposits, the magnitude of the amplification is even more pronounced for buildings on sedimentary basins, such as is the case in the Vancouver Basin. The geologic structure and deep deposits of soft soils withLiquefac)on in a basin amplify shaking several times greater than would contribu)on to otherwise be observed for taller buildings. For example, the modeled insured sedimentary basin beneath Mexico City, coupled with inadaverage annual equate design and construction standards, resulted in the colloss in the city lapse of more than 400 buildings followingof Vancouver, the magnitude 8.0 Michoacán Earthquake in 1985. the Vancouver Basin, and The magnitude of ground motion amplification depends surrounds. on a number of factors, including the magnitude of an earthquake, the distance between the earthquake source and the site, the depth of the basin and the characteristics of a particular building. In general, shaking can be as much as two to four times greater for taller buildings within basins compared with those located on rock.

Modelling techniques that only consider the surface soil conditions generally underestimate the ground motion amplification within basins. But recent research by Sheri Molnar at the University of Victoria and scientists at Natural Resources Canada and elsewhere have provided important data to improve modelling the potential impact of amplification. Liquefaction Predicting where liquefaction will occur is another important feature of modelling to identify risk. Liquefaction — a process in which loose and saturated sandy soil transforms into a semi-liquid state during strong earthquake shaking — was a major cause of damage during the 2010-2011 Canterbury earthquake sequence in New Zealand. One of the tremors, the magnitude 6.3 Lyttelton Earthquake in 2011, led to widespread liquefaction in the City of Christchurch, especially along the Avon River, which cuts through the city. The liquefaction caused the ground to vertically settle and, especially closer to the river, move laterally, undermining building foundations. The destruction and loss of life from these earthquakes was tragic, but the events provided a huge opportunity to learn, acting as a laboratory for the earthquake engineering community. The billions of dollars in claims data, in addition to numerous studies by academics and practitioners, has resulted in a vastly improved understanding of the conditions necessary to cause liquefaction and its impact on the built environment. One observation from Christchurch is that shallow ground water acts as a sort of fuse for liquefaction, and without it, regardless of other conditions, the process will not occur. Another observation is that the severity of liquefaction varies significantly over short distances. Maps of liquefaction severity following the Lyttelton Earthquake show dramatic differences in liquefaction over areas just tens of metres apart. This is especially true close to water channels because of the prevalence of loose soil and their “open faces,” which allow the ground to displace laterally.

City of Vancouver Fraser River Higher

Vancouver Basin

Lower

Source: RMS, Liquefaction contribution to modelled insured average annual loss in the City of Vancouver, the Vancouver Basin and surrounds. August 2017 Canadian Underwriter 23

The Fraser River Delta in British Columbia has all of these liquefaction triggers present: shallow ground water; loose, sandy soil; and a web of river channels. It also has the most important trigger of them all, nearby faults and the Cascadia Subduction Zone, with the capacity to produce large earthquakes.

LOWER INSURED SEISMIC RISK Looking north of the Fraser River, towards the City of Vancouver, modelled insured seismic risk has reduced. Ironically, this is partly driven by reduced modelled ground motion amplification and liquefaction in the city, but there are other important factors at play. For example, some types of reinforced concrete buildings that are common in the city are now viewed as less vulnerable than they were previously because engineers now better understand their seismic performance. Looking towards the east, to the provinces of Ontario and Quebec, modelled insured loss (average annual loss and the

Canadian Underwriter August 2017

500-year return period loss) for these provinces has reduced by more than 40%. This change is driven primarily by an improved understanding of seismic hazard within the St. Lawrence River Valley, home to the cities of Montreal and Quebec City, among others. This leads to another important shift in Canada’s overall modelled insured seismic risk, considering a nationwide perspective. With seismic risk reducing in Ontario and Quebec while remaining relatively stable in British Columbia as a whole, seismic risk is even more heavily concentrated in the west. British Columbia now accounts for almost 65% of the country’s insured modelled average annual loss and about 75% of the 500-year return period loss. While changes in risk modelling drive this new view, it is important to acknowledge that earthquake insurance take-up is much lower in Ontario and Quebec than it is in British Columbia. Risk-modelling techniques have improved in recent years, thanks to the

advances in earthquake science and engineering, as well as lessons learned from past earthquakes. These advances provide insights into a changing insured seismic risk landscape across Canada. The insurance industry should be aware of these changes and strive to use these emerging insights in their business decisions.

Looking for more? The following recent earthquake news may also be of interest. Just visit www.canadianunderwriter.ca and search for the following: • Stilling quake risk in eastern Canada demands greater focus, awareness and effort: Swiss Re • U.S. earthquakes estimated to cost US$6.1 billion annually in building stock losses • Preparation, not panic, is the way to address earthquake risk: IBC’s Don Forgeron

Tall Storey

Greg Meckbach Associate Editor

Proposals in Ontario and federally to allow for taller wood buildings has attracted supporters and detractors, both of whom have different views on whether or not risks will also be higher. A guideline that would allow for designing wood buildings in Ontario taller than six storeys high is raising some support and some concerns. In Ontario, “if you can demonstrate that a building constructed from some material — other than steel or concrete — meets the same minimum safety requirements as the Building Code, you can use that alternate material, such as mass timber,” says Michael de Lint, director of building regulatory reform and technical standards at the Residential Construction Council of Ontario (RESCON). But before building a mass timber structure exceeding six storeys, a constructor would have to “go through an alternative solutions route,” meaning it would need to apply to the municipality, de Lint points out. It would then be at the

municipality’s discretion to decide whether or not to approve the project. “We have worked with the (Ontario) Ministry of Natural Resources and Forestry to develop a guideline or a resource document to assist designers and municipalities to approve those tall wood buildings over six storeys,” de Lint reports. It will include “information on how to build taller buildings with mass timber products and all the fire-structural issues that you need to take into account for that kind of construction,” he says, adding it is expected to be issued this summer. Ontario is not the only province where the wood building issue is receiving attention. British Columbia was the first province out of the gate to change its building code to permit for construction of wood-frame buildings taller than four storeys. And in Quebec, a new 13-storey condo tower in Quebec City uses cross-laminated timber (CLT) as its primary building material. Some experts note that CLT has been tested by the National Research Council (NRC) for fire resistance, while building codes in both British Columbia and Ontario require mid-rise wood frame buildings to be more earthquake-resilient than those built from other materials. Conversely, some suggest some tall wood buildings may be particularly susceptible to water damage.

UP TO CODE While each province has its own building and fire code, the NRC publishes national model construction codes, which are updated every five years. The 2010 national building and fire codes restricted wood building height to four storeys. The National Building Code 2015 edition permits buildings classified as Group C and D (residential and office-type building, respectively) to be built up to six storeys using combustible materials, notes an NRC spokesperson. “The technical committees are currently developing proposals that would permit combustible construction up

August 2017 Canadian Underwriter 25

to 12 storeys for the 2020 code,” the spokesperson says. “This is currently under development and public consultation has not yet occurred.” There are already some timber structures in Canada over six storeys, including the 14-storey Brock Commons student residence in Vancouver, and the Quebec City condo, Project Origine, which includes a 12-storey wood structure on top of a one-storey concrete podium. While Quebec’s building code does not permit wood buildings higher than six storeys, de Lint notes, it has “developed an alternatives solution.” With the ability to propose “alternative solutions” to provincial building codes, “there seems to be a back channel to which they are getting in with these kinds of projects,” argues Tareq Ali, director of marketing and communications for the Canadian Institute of Steel Construction (CISC). The CISC’s take is there “is not enough evidence-based support to do this kind of accelerated tall wood construction,” Ali says. Paul De Berardis, RESCON’s director of building science and innovation, says the new condo’s underground parking is constructed completely of reinforced concrete. “That underground parking garage structure was basically raised above ground and it formed the first floor of the building,” De Berardis notes. The “concrete podium would serve as a rigid ‘backbone,’ which would provide some measure of torsional rigidity,” says Mark Millner, vice president of engineering at Pario Engineering and Environmental Sciences. “Also, the interface between the structure and soil would be best handled by the use of concrete, as in most conventional buildings.”

FIRE CONCERNS Tests performed in 2013 by NRC confirmed 12-storey mass timber structures “met the required fire safety specifications,” reports FPInnovations, an association of wood products firms that maintains it is “possible to construct safe and secure wooden buildings greater than six storeys in height.” CLT “has a built-in fire-resistant prop26

Canadian Underwriter August 2017

erty just based on how the composite is actually created with the multiple layers of the mass timber CLT,” says De Berardis. “So that’s one of the built-in attributes of CLT that kind of lends itself to allowing these structures to go higher and still maintain certain fire resistance ratings,” he suggests. With wood-frame buildings exceeding four storeys in height, the Ontario government mandates “enhanced automatic sprinklering” to the United States National Fire Protection Association’s NFPA 13 standard. Ontario also has demands to meet a higher seismic load than similar buildings made of non-combustible materials.

“Earthquake, snow, rain and any other atmospheric, or climatic, loads are the same for any structure,” says Millner. CLT falls into a separate classification from “light wood frame” lumber, says De Berardis. CLT, glued laminated timber or a combination of those products can be used for taller buildings. Still, “particular attention would need to be given to fastening of the members,” advises Millner. “Unlike steel, where welding is often a simple solution to complex connection issues, wood has issues such as direction of the grain, which must be considered when fastening pieces together.”

QUAKE RESILIENCE “Wood is naturally more earthquakeresilient,” de Lint says. “Because B.C. was the first province in Canada to develop requirements for six-storey wood buildings, they were quite sensitive to the earthquake issue, so they required the wood buildings to resist a 20% higher load than an equivalent steel or concrete building,” he says. This requirement, he reports, was “carried over” to Ontario. “Wood is generally more flexible than other building materials and un-

der test conditions, performs better in an earthquake scenario,” says Eileen Ho, director of commercial property underwriting at Northbridge Insurance. “Earthquake, snow, rain and any other atmospheric, or climatic, loads are the same for any structure,” states Millner. “In short, it would be incumbent on the design engineer to ensure the design is sufficient to account for any and all loads (and various combinations),” he explains. “So, these risks would not increase simply because of the material used to construct the structure.”

WATER WORRIES For some, use of wood in tall buildings raises concerns about water damage risk. “Water damage reacts differently in wood-frame buildings than for concrete structures,” notes Study of Insurance Costs for Mid-Rise Wood Frame and Concrete Residential Buildings, a report prepared by Globe Advisers for the Concrete Council of Canada. “Oftentimes in wood-frame structures, water-related problems are not apparent for some time,” it notes. Northbridge Insurance is “aware of the mould issues in cross-laminated timber high-rises that are being raised by some building envelope experts,” Ho says. The insurer’s property policies “exclude mould unless it is caused by or results from an insured peril.” Wood-framing members tend to shrink after drying following installation, Ali says, reporting “in mid-rise structures, the effects of cumulative shrinkage can damage the building envelope, such as the exterior cladding, windows and hold-down system,” as well as plumbing, heating, ventilation and air conditioning installations. “The building codes all require moisture to be controlled; however, in a timber structure, there may be requirements for treating any wood exposed to moisture, beyond what is currently required,” says Millner. Many RESCON members “are actively constructing multi-unit buildings in the four- to six-storey range,” De Berardis says. “One estimate is there are about 80 projects at some stage of development.

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You know your business inside out. You know your markets, your customers, your competitors. Above all, you know the risks facing your business. At Swiss Re Corporate Solutions, we have the capabilities and the financial strength to meet the risk transfer needs of businesses worldwide. But that’s only half the story. Whether your risk is basic or complex, whether the solution is off-the-shelf or highly customised, we believe that there’s only one way to arrive at the right solution. And that’s to work together and combine your experience with our expertise and your strengths with our skills. Long-term relationships bring long-term benefits. We’re smarter together. corporatesolutions.swissre.com Visit our experts at Canadian RIMS, booth #521, in Toronto. Swiss Re Corporate Solutions offers the above products through carriers that are allowed to operate in the relevant type of insurance or reinsurance in individual jurisdictions. Availability of products varies by jurisdiction. This communication is not intended as a solicitation to purchase (re)insurance. © Swiss Re 2017. All rights reserved.

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COVER STORY

Going All Out?

Going All Out? Outsourcing looks poised to become even more popular for many organizations in many different sectors. Arguments for its use seem to be rightly moving down the well-trodden path of cost reduction to a place where quality, performance and â€” likely most important â€” customer service is the main focus. But what risks can moving out potentially bring in?

BY ANGELA STELMAKOWICH

Canadian Underwriter August 2017

COVER STORY

Going All Out?

utsourcing, clearly, is not new. Continuing pressures, escalating demands and increasing competition have made farming out functions or parts of functions attractive — if not necessary — for a good number of organizations across a wide variety of industries. The initial consideration seemed squarely focused on gaining efficiencies and alleviating stress on the bottom line. However, the view of potential benefits appears to be broadening into the quality, performance and customer service realms. It all sounds rosy and is certainly tempting in light of the many demands that organizations face. But every action inspires an equal and opposite reaction and, as such, organizations must ensure they are carefully and comprehensively contemplating the risks that may be coming back. Solid protections, agreements and contracts must be in place that anticipate all possible “what ifs,” while also ensuring those partners selected can deliver on their promises and address matters should something untoward occur. Outsourcing raises questions. What are the associated risks? Are those risks fully known and, if so, appropriately addressed through insurance, risk mitigation and risk transfer? Are well-conceived and forward-looking agreements in place to address issues, anticipated and not, that could unfold? And is it sometimes the case that outsourcing may simply be too great a risk for an organization to take?

August 2017 Canadian Underwriter

COVER STORY

Going All Out? IN OR OUT? Grant Williamson’s belief is outsourcing is definitely on the rise, noting that it is a subject that is relevant to every organization. “Everybody’s being squeezed,” points out the managing director and leader, Eastern Canada for Jardine Lloyd Thompson Canada Inc. Companies are moving beyond some of the first outsourcing functions, like payables and receivables, and now branching out and “looking at different areas, whether it’s H.R., whether it’s operations, whether it’s customer service,” Williamson reports. Beyond cutting costs, he sees outsourcing as a way to improve efficiency and quality, as well as gain expertise that may not be available in-house. “It’s a way to gain a bunch of other buckets, not just the cost-reduction piece,” he adds. “We absolutely need to outsource, and it has been increasing,” suggests Darius Delon, president and principal consultant for Risk Management 101. Delon says functions such as insurance procurement, property inspections, liability inspections, property appraisals, claims management and actuarial are currently well-supported. Emerging roles that might benefit from outsourcing in the future, he notes, include emergency response planning, business continuity planning, enterprise risk management design and implementation, and independent insurance program design. From a general perspective,there currently seems to be a higher level of focus and outsourcing with regard to IT, says Ben McAllister, manager of risk, insurance and business continuity planning for the University of Victoria. Of course, with any function that is outsourced or employs a vendor, risks can be created. Consider, for example, customer service and the potential associated reputational risk, Williamson says. “It’s your brand, it’s your reputation, it’s your product and it’s being represented by a third party. So right out of the gate, you’ve got this risk of somebody else managing your brand and your product and your customer experience, which can be an 32

Canadian Underwriter August 2017

issue if it’s not handled properly,” he says. McAllister cites threat intelligence as a good example of a service that vendors are providing that may simply not be feasible in-house. There are a “number of organizations that provide very specific information to different industries related to the threat landscape and they have, in fact, relationships with some of

A key question to be addressed in the contract is this: “What are you actually making the third-party vendor responsible for?” says Grant Williamson of JLT Canada. the shady organizations that exist to be able to get a more clear understanding of who’s the target, why are they targeted, what are they after,” he reports. Cyber is, clearly, an issue receiving more attention. With cyber having the potential to cross outsourced functions, Jennifer Drake, vice president of the legal and research practice at Aon Reed Stenhouse, says “we use electronic data, technology and information technology resources so much that it does come into play with almost any service provider to some extent.” Whether outsourcing relates to data storage, website maintenance or cyber security, it is becoming quite common among organizations of all sizes since they may not “necessarily always have the time or the money to invest in doing it internally,” Drake notes. Common or not, organizations still must take into account risks arising from a third-party service provider gaining access to the organization’s systems, she advises.

DOTTED LINE “The key for people to understand is there is going to be a new element to their cyber security. It’s no longer just a question of what is our internal security?” she points out. “The liability still tends to come back to the organization that collected that data in the first place,” Drake says, meaning the organization must carefully look at contractual risk transfer. Williamson says companies have done a good job of engaging the stakeholders needed to develop agreements and contracts, including staff in compliance, risk management, legal, audit, operations, IT and even vendor management. Contracts are something risk managers and the broking community do well, he says, but adds that it seems more analysis is being done at the organization level to determine if it wants to take on the risk. A key question to be addressed in the contract is this: “What are you actually making the third-party vendor responsible for?” Williamson asks. “Are they actually viable to be responsible for the things you’re making them responsible for?” he asks. “It’s one thing to say you’re responsible for that in a contract, but have you actually done the risk management and the business analysis to say they actually can take that on and can be responsible for that in the event of an issue or a loss or a claim.”

GET SPECIFIC “Third-party contractors need to be managed just like any other professional staff,” Delon says. “Contractors must be qualified, directions need to be clear, context of the organization needs to be understood, a realistic timeline needs to be developed with the contractor, progress updates should be given by the contractor, and the contractor needs to be motivated to perform the task,” he says. “A proper scope of work needs to be developed to ensure the solution is of high enough quality, achieves the specific needs of the board, is on time and on budget,” Delon says. “The scope of work plays the most important role in

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Going All Out? providing a solution and, therefore, should be the best researched and accurate portion of the contract,” he adds. McAllister says that determining what sort of agreement is needed is highly “dependent on the specifics of what you’re trying to manage.” At UVic, for example, he says the university has a very robust procurement process. “The up-front part on the procurement piece is really important because that’s where your roles and your responsibilities are well-defined,” McAllister notes. With respect to cyber, “if you’re putting into play some robust service agreement, which should be happening, then there should be certain questions that organizations are considering or asking themselves,” says Drake. These include such considerations as what happens with data at the end of the contract (if maintained, can it potentially be compromised later) and what breach and privacy laws apply (each jurisdictions will have different obligations). Another consideration that needs to be nailed down is whether or not subcontractors can be used by the contractor and, if so, who they are, she notes. If a contractor is outsourcing to another party, says Williamson, “do they actually have contractual requirements in place with whoever they’re outsourcing to that match?” It is paramount that everyone is “aligned in how we think about risk.” While Williamson’s view is that companies are doing a very good job of managing that first piece, the first entity, that is not necessarily the case beyond the first layer. An organization must understand “how far down does the rabbit hole go,” he says. “Do we have a good view to all the inherent risks that exist.”

ADEQUATE COVER? Beyond the “standard nuts and bolts of a contract,” says McAllister, of particular importance is “that evaluation of the indemnity provisions and the insurance provisions.” Drake would likely agree. Something like cyber insurance must be considered for both for the organization and the 34

Canadian Underwriter August 2017

provider. While companies often think about themselves, she says, “I don’t know that they always think to say that any service provider they’re using must also purchase cyber insurance.” Beyond requiring that a provider have coverage, limits also should be specified, she advises. “If there is third-party cov-

“We have a contract right now that we’re investigating and there’s a limitation for liability for $25,000. That’s a drop in the bucket when you consider the cost of a potential data breach,” comments the University of Victoria’s Ben McAllister. erage on that service provider’s insurance policy, then that is a bit of a solvency guarantee for the client,” Drake says. By knowing there are “at least some insurance proceeds there to respond,” she explains, “then you can consider what is the real limit of liability and can we push it to a point where we think it’s going to be adequate if we do need to sue the service provider and try and recover some money.” Also keep in mind that some service providers, particularly large ones, may guarantee provision of certain security or risk management measures, but “will either place a cap on the liability or really try to push that liability back onto the organization that collected it (the data),” Drake explains.

“Organizations need to understand that because they are outsourcing to a third-party service provider — let’s say the storage of sensitive information — it doesn’t mean they’re also outsourcing that liability,” she emphasizes. And if an organization has decided to outsource a function for which there are only one or two providers, “they will have all the leverage to push everything back onto you,” Williamson points out. One likely challenge going forward is cloud-based computing, which, as it stands, is a somewhat new and non-standard area with regard to contracts. Vendors providing these services “have what I would describe as prohibitive limitations of liability,” McAllister says. “There’s a lot of negotiation that needs to happen and there needs to be a lot of push-back by the client on these service providers around what should we reasonably expect to take in terms of risk and really what’s your risk,” he argues. “The cloud environment is certainly an area that I’m monitoring, particularly from the contract side, because these vendors are reluctant to take on any risk. And the whole point, for us, is to have a more efficient system and have less risk.” Drake’s view is that very large cloud providers are unlikely to accept much, if any, liability going forward. “They can’t realistically agree to that because if you think of the millions of organizations that are using” a large service, it could not continue if it were to “agree to a certain amount of liability with every organization that it does business with,” she says. “It would just be too great a risk.” McAllister sees a definite imbalance forming. “We have a contract right now that we’re investigating and there’s a limitation for liability for $25,000. That’s a drop in the bucket when you consider the cost of a potential data breach.” His view is the provider “should be assuming the risks of their systems and there needs to be a conversation between the client and the vendor around what is the risk and how do you manage that.” At the university, it is “certainly pushing back on those providers,” McAllister

COVER STORY

Going All Out?

“A better-defined process, for most organizations, needs to exist to prequalify and select the appropriate contractor for the organization’s needs,” suggests Darius Delon of Risk Management 101. reports, adding “in some cases, not moving forward because it’s not worth it.” Recent survey results from Clutch show that polled enterprises in the United States are increasingly tapping internal and U.S. resources to address IT services needs. “As IT functions become increasingly critical to the operation of the enterprise, many decision-makers want more control over how these functions are managed, thus, prefer to keep IT work in-house,” Clutch reports. Whatever the issue or type of business, Williamson suggests a positive from pushback is that enhanced awareness by all involved is resulting in “more educated push-back and a smarter conversation than they may have had in the past.”

with people who have deep pockets so that if something happens and a need arises to rely on indemnity or other contract provisions, “they have the financial means to be able to back-stop some of those things,” he says. A possible solution to the monitoring challenge may be to require that an independent evaluation of systems be reported back to the organization, he suggests. Williamson agrees the contractor risk monitoring piece could potentially be improved upon. For those organizations trying to do it internally, “I think you need to have a dedicated vendor management team.” Without that, it may be best to outsource the function, he notes.

KEEP AN EYE OUT

Delon suggests there is a great divide between the C-suite and the risk professional since the reporting line varies widely depending on the organization, with some reporting to the board while others report to procurement. “Reporting to finance is often a decent compromise between procurement and CRO (chief risk officer),” he suggests. “It’s absolutely paramount that the C-suite buys into how the company thinks about risk, how the company is going to manage risk so that everybody is on the same page,” Williamson emphasizes. On the cyber front, more and more organizations that previously did not think they had any cyber or privacy risk are starting to realize “this is a real risk exposure that they can no longer ignore,”

With regard to risk management contracting, Delon says, “there is often a lack of understanding on the subject matter and there is an over-reliance on the contractor.” What is needed, he says, is a “more mature and embedded model,” that includes monitoring as a key component. “A better-defined process, for most organizations, needs to exist to prequalify and select the appropriate contractor for the organization’s needs.” Monitoring is a difficult area, sources agree. It may be that an organization has no way to “audit or confirm compliance of some of those background-type elements of the services that they’re providing,” McAllister notes. At UVic, the university tries, when possible, to contract 36

Canadian Underwriter August 2017

FILLING ANY GAPS

Drake says. “It’s important to remember they’re probably retaining more risk than maybe they realize,” she says, citing the importance of the vetting process. “Networking with internal stakeholders is a hugely important part of being a risk manager and making sure you have those relationships internally,” says Williamson. “The risk management group needs to be well-integrated into the business at every level in order for it to work.” Before considering outsourcing functions, it is essential to engage in conversations internally and to go through the risk assessment process to quantify the risk to the organization, determine the likelihood of that risk occurring and developing strategies to reduce both the likelihood and impact should something occur, McAllister advises. “Risk management is really about dialogue. It’s about understanding what could impact the objectives of your organization and be able to have a conversation about that and make informed decisions,” he adds. “The risk that I see increasing, especially in a flat or slow-growth economy, is the variance between what board members expect to happen with the management of risks and the quality of the solution,” Delon offers. “The real question is, will senior leadership see the risks clearly and acknowledge the need for expertise outside of their organization and not just rely on internal resources in an attempt to save costs during what has been a slow recovery since 2008?”

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Jean-Marc Laurin named a regional vice president for Vericlaim Canada

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Scott Lynds joins Kernaghan Adjusters Halifax branch! Russell Finley joins EFI Global as senior professional geoscientist and hydrogeologist July 17 — by Cunningham Lindsey Canada Claims Services Ltd.

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The CIP Society Ethics Series

The CIP Society Insurance Institute of Canada

The CIP Society represents more than 17,000 graduates of the Insurance Institute of Canadaâ€™s Fellow Chartered Insurance Professional (FCIP) and Chartered Insurance Professional (CIP) Programs.The CIP Society, through articles such as this, is working to bring ethical issues to the forefront and provide learning opportunities that enhance the professional ethics of all insurance professionals.

Here Comes Trouble The quick fix of terminating a producer suspected of unethical behaviour by simply cutting a cheque could have some lingering effects. Litigation costs and unpleasantness may be avoided, but what if the producer simply moves on to a new job and continues with the same questionable behaviour? What must a brokerage do to meet its obligations to its customers, its industry and regulators? Within a mid-sized brokerage operation, rumours have swirled around about the questionable conduct, comments and actions of a certain commercial lines producer. He constantly appeared to operate close to the line. Although nothing was ever substantiated in terms of rule violations, staff had their suspicions.

Finally, one of the owners felt she should take a closer look at the producerâ€™s activities and, in so doing, discovered several violations (both current and historical) that were of grave concern. Upon reviewing the producerâ€™s personnel file, it was clear that his references were never consulted when he was hired. He was simply hired on the recommendation of an internal staff member. Regardless, the current evidence of misconduct could not be tolerated and a decision was made by the owners to terminate his employment. The producer argued that, in his defence, he had always operated the same way and no one had approached him to change his behaviour any time during his tenure with this brokerage. Thus, in consultation with the brokerage legal team, it was decided to terminate the producer without cause and provide a severance payment so as to avoid the unpleasantness of litigation. It was also agreed to not provide a future reference for him (positive or negative) if ever requested and to only confirm dates of employment. While it appeared the approach would avoid embarrassment and costly litigation for the firm, the owner who discovered the misconduct had a nagging, uneasy feeling about the direction being taken. In essence, it was allowing the producer to remain in the industry and continue with this pat-

August 2017 Canadian Underwriter 39

tern of suspected dishonesty. To whom should the owner be most loyal? Her firm and its shareholders? Or the insurance industry as a whole?

Tracy Makris, CAIB, CIP President Bryson Insurance This scenario may happen more often than everyone would like to think and in a variety of professions. As professional insurance brokers, governed in Ontario by the Registered Insurance Brokers Act, it is the duty of brokers to protect the interest of the insurance consumer. In the aforementioned scenario, upon confirmation that a violation has occurred and the professional competence of the individual producer has been breached, the owner should act to protect society as a whole. Along with her obligation to her clients, she needs to protect those ethical brokers who conduct themselves, at all times, in a professional manner and who continue to contribute to the moral fabric of the firm and society. Unfortunately, fear of litigation can dictate an individual’s or a firm’s course of action and, many times, steer it away from the correct behaviour. The brokerage community as a whole needs to stand together and protect the owners and employees of brokerages, but most importantly, the consumers of insurance products, from those who operate without ethics, as well as act selfishly and with complete disregard for others. 40

Canadian Underwriter August 2017

Kristin Coulombe, CHRL Director Human Resources Jones Deslauriers Insurance Management Inc. As brokerage leaders, it is the job of owners to identify the level of severity of the violation that has occurred. They can then move forward and determine the consequence of the actions to be taken. Companies should have proper due diligence procedures in place through their recruitment practices and annual audit procedures. In this particular case, as the producer was terminated without cause, it appears that the owner and the shareholders did not consider the level of the violation to be severe enough to report to the regulator, but did regard it as severe enough not to tolerate the behaviour in their particular brokerage. This brokerage is making a statement to its employees, shareholders and the industry by terminating the producer’s employment. It is also making a statement to other brokerage owners by only providing employment dates versus an actual reference — which is a red flag to H.R. professionals. Do not be fooled and think that rumours about behaviour and ethics will remain silent in the brokerage; word of mouth travels very fast in the industry. Companies in the industry must do what is right and ensure proper due diligence in their hiring practices and commercial audit procedures to avoid any such violation(s) in the future. The owner controlled the situation for her shareholders and issued a warning sign to the industry; it is now up to other companies to pick up on that sign. If, however, the violation was severe, there is no doubt that the owner would have had all shareholders supporting her decision of termination with cause and reporting the producer to the regulator. As much as shareholders understand and appreciate the importance of the company’s reputation in the industry, there is a line where, if crossed, no other brokerage or client should come into contact with this producer entirely. If, as leaders and professionals, bro-

kers are loyal to their firms and put their people and customers first, this will, ultimately, make a positive contribution to the industry. Maurice Audet Senior Vice President, Regional Resource Leader Risk Research & Solutions Aon Reed Stenhouse Inc. What is not provided in the scenario presented is the nature of the unacceptable behaviour. If it was criminal, both the regulator and the authorities should be notified. If it was not criminal, but unethical, the regulator should be notified. What is also not provided in this scenario is whether or not this is the first offence. What if the producer had behaved unacceptably in his previous brokerage and been let go without cause for the same reason? While making the problem go away quietly has short-term benefits for one brokerage office, there

are long-term consequences, with the potential for the producer to continue his violations elsewhere. From a public relations perspective, sweeping something like this under the rug does no more than confirm some public perceptions that insurance brokers are more interested in protecting their own interests than protecting the public’s. Permitting a “rogue” broker to continue causing damage by simply allowing him or her to move to another unsuspecting employer is unethical and, it could be argued, a violation of the

Crawford & Company (Canada) Inc. Makes Key Operational Appointments Crawford & Company (Canada) Inc., is pleased to announce the appointment of several key operational staff on a national level and within our Ontario operations. Joe Turcotte, an employee of Crawford for over 30 years has been appointed to the position of national general manager, Insurer Markets. In his new role Joe will serve as liaison between Crawfordâ€™s branch network, operations and sales, with the objective of growing our business through streamlining and simplifying operational processes and supporting branch functions. On a branch level, a number of seasoned, highly successful Crawford branch managers have taken on managerial roles within their newly expanded branch networks. The appointment of Mary Charman, Kelly Stevens and Mike McLeod as managers, Spencer Bailey as assistant manager, and Keith Marentette as managing professional for their respective branch hubs, will serve to enhance the operations of our branch network. Crawford has strategically grouped its Ontario branches into hubs based on geographic proximity and service reach. These newly established service hubs consist of North GTA, West GTA and West Ontario, all of which serve as the central location for surrounding branches. This initiative, coupled with the professional acumen, service excellence and devotion to quality that former branch managers Joe Turcotte, Mary Charman, Kelly Stevens, Mike McLeod and Keith Marentette have displayed throughout their careers at Crawford, serves to strengthen our operational excellence and service delivery to our clients.

Joe Turcotte

National General Manager, Insurer Markets As a claims professional for over 30 years at Crawford, Joe has held a number of progressive positions including multi-line claims adjuster, control adjuster, branch manager and national general manager, insurer markets. Throughout his professional career he has worked closely with many of Crawfordâ€™s insurer clients and has implemented effective service solutions. Joe is an active member of the Insurance Brokers Association of Hamilton and past president of the Ontario Insurance Adjusters Association (Hamilton chapter), and he holds his Chartered Insurance Professional designation from the Insurance Institute.

Mary Charman,

Manager, North GTA Branch Hub

(Newmarket, Barrie, Orangeville, Huntsville and Owen Sound branch locations) Mary has been with Crawford for over 22 years and is heavily involved in the insurance community. She holds executive positions with both the Canadian Independent Adjusters Association and the Ontario.

Kelly Stevens,

Manager, West GTA Branch Hub

(Mississauga, Hamilton and St. Catherines branch locations) Kelly commenced her insurance career in 1995 and has occupied numerous progressive roles with several insurers in the Ontario auto and property space. She has been with Crawford since 2007 and has been branch manager of the former Toronto West operation since 2015.

Spencer Bailey

Assistant Branch Manager, West GTA Branch Hub (Mississauga, Hamilton and St. Catharines branch locations)

Spencer brings a vast knowledge of claims adjusting to this position, with more than two decades of experience working in all aspects of the claim administration process. Spencer is an industry recognized expert and has a reputation for handling complex losses in the areas of residential and commercial property, general liability and environmental, with a special focus on greenhouse claims. He holds his Chartered Insurance Professional (CIP) designation and is licensed in all lines. In his new role, Spencer will be responsible for the direct supervision of front line associates in the property and casualty lines of business.

Mike McLeod

Manager, West Ontario Branch Hub

(Kitchener, Waterloo, Brantford, London and Windsor branch locations) Since joining Crawford in 1998, Mike has held positions as bilingual adjuster-trainee, all lines field adjuster, branch supervisor and branch manager. Mike has gained a wealth of knowledge in both his field and management roles. As branch manager, Toronto West,Mike was also instrumental in helping Crawford work through several large branch consolidations in the GTA. These experiences and his vast capabilities make Mike an ideal candidate for this role.

Keith Marentette

Managing Professional, West Ontario Branch Hub

(Kitchener, Waterloo, Brantford, London and Windsor branch locations) Keith began his insurance career in Windsor, Ontario with Crawford, as an all lines adjuster in 1975. Throughout his professional career he has held branch manager positions within Kamloops, British Columbia and London, Ontario. Keith will be working with Mike McLeod to help manage this growing area.

www.crawfordandcompany.ca

Code of Conduct regulating brokers. As to the owner’s loyalty, the decision to provide a severance payment for termination without cause is a business decision taken in the best interest of her firm. The obligation to report the conduct to the regulator is a separate issue and is dictated by a broker’s duty to maintain the integrity of the profession under the Code of Conduct regulating brokers. Failing to do so not only hurts the profession, but can also subject the firm and the individual to disciplinary proceedings. Arthur Kosikowski, CIP Senior Investigator Complaints and Investigations Registered Insurance Brokers of Ontario The issue of ethics and ethical behaviour is permanently at the forefront of the insurance industry as a whole. In this particular scenario, the owner is faced with a dilemma when dealing with a producer committing the acts of misconduct. On the surface, firing the producer without cause, providing a severance package and refusing to provide references might seem like the best possible option. The firm would be getting rid of the problem, avoiding possible litigation and the associated costs, and by not providing references, would perhaps avoid a lawsuit in case another employer found the references not to be accurate. But examine the motives and implications of the way the owner dealt with the problem. From the scenario, it appears the firm had no procedures regarding checking references, and allowed the producer to continue to “operate close to the line.” Both of these issues might come up if the owner reports the producer’s misconduct to the regulator. While the producer’s actions may have been unethical, is the producer solely to blame? There are many questions that need to be asked. Had the producer been provided any training? Was allowing the producer to continue to “operate close to the line” a largely contributing factor in the producer’s misconduct? 42

Canadian Underwriter August 2017

Who and what else were the contributing factors in the producer’s misconduct? Why did the owner not attempt to educate the producer about his misconduct? Was the owner contributing to the producer’s misconduct by firing him without trying to find out why the misconduct occurred in the first place? Was the owner committing an act of misconduct by failing to notify the regulator? Although getting rid of an apparent problem producer might seem like the only approach at the time, the question the owner should have been asking is this: How will the members of the public, other brokers and the insurers be affected if the misconduct is not reported and is allowed to continue?

THE FINAL WORD The owner is faced with a difficult situation when she discovers that one of her producers is engaging in questionable conduct and has made a number of violations. At the discovery stage, the owner must not only consider how to move forward by reprimanding that producer, but also determine how her firm got into the position that it did. What are the policies and procedures, as well as the informal internal culture, that allowed the producer to make these violations in the first place? In the scenario, it appears the hiring process was not handled properly and that changes will be required to make sure that potential hires are properly vetted prior to being offered a position. Barriers in communication can be addressed to help staff feel empowered to do the right thing the next time they become suspicious of a co-worker’s actions. Ideally, tighter oversight by the owners will help flag problems early on, before they spiral out of control. In order to remedy the situation, the owner must not only ensure the producer is properly disciplined — and the proper authorities and regulators are notified — but also ensure that the firm addresses the policies, procedures and culture that led to the problem so that the problem does not occur again.

Charting the Course

Cyber insurance seems like it is poised to go it alone. Growth of the line — currently in the United States and perhaps in future in Canada — is taking shape as a stand-alone offering. What are the benefits of such a move?

Fred Eslami

Senior Financial Analyst, A.M. Best Company

As the profile, frequency and severity of cyber attacks continue to gain in scope and potential impact, insurers have become increasingly aware of the correlating risks and rewards in this growing line of business. Given the seriousness and scale of attacks in 2016 and 2017, as well as the modelled damage estimates that continue to materialize, an abundance of underwriting opportunities clearly wait ahead. Industry observers have predicted that the cyber line of business will be a leading growth area in the property and casualty space, with an amalgamation of estimates from different industry sources suggesting cyber coverages will increase to between US$7.5 billion and US$20.0 billion by 2020. Despite the 34.7% growth in direct premiums reported by companies in the United States from 2015 to 2016, it is too early to determine if these growth projections will come to fruition. Demand for coverage increases after every reported breach, but whether this appetite will be sustained remains to be seen. There is another more pressing and overarching question regarding the uncertainty of this risk, one that demands insurers exercise prudent underwriting practices and appropriate risk management and mitigation measures. The capabilities of insurance companies to analyze, aggregate, monitor and manage cyber exposures under various scenarios must continue to be explored. Data quality remains a key factor

when insurers provide information to regulators, other stakeholders and rating agencies, for example, and is an area that continuously needs to be refined. A.M. Best recently released a study, Cybersecurity and Identity Theft Insurance Coverage Supplement, which was initially introduced by the National Association of Insurance Commissioners (NAIC) in the U.S. for year-end 2015. The supplement broke down coverage based on either a stand-alone or packaged basis. The following are some of the high-level observations from the study. With respect to packaged policies, companies were required to either provide a verifiable amount or an estimate for the packaged policies. This information was limited to 140 insurance companies that filed annual statutory statements for year-end 2016 with the NAIC, although the data quality had certain limitations. Direct premiums written (DPW) in 2016 totalled US$1.3 billion, of which 67.9% was written on a stand-alone basis, with the balance reported as packaged policies. This percentage gradually increased among top market leaders, indicating a willingness to “go it alone” when it comes to writing cyber. The top 20 writers wrote US$1.2 billion in DPW, of which 73.7% was on a stand-alone basis. This percentage also rose for the top five writers, which reported 81.0% of the US$699 million in DPW from stand-alone policies. Comparing August 2017 Canadian Underwriter

2015 with 2016, overall DPW for both stand-alone and packaged policies increased by 34.7%.

TRUE SHIFT? While the shift from packaged coverage to stand-alone policies is evident when comparing 2016 data with 2015, one must consider whether or not insurers have more accurately completed this NAIC statement, and whether or not this may have impacted the shift. Nonetheless, A.M. Best views any shift toward stand-alone coverage as a positive change since most claims to date have been covered under traditional insurance products, such as commercial general liability (GCL) policies, business interruption (BI), or directors and officers (D&O). The extension of implied coverages to these lines was not intended and without any exclusory language; however, some court rulings south of the border have sided with policyholders. Because of the general language of the aforementioned polices, and expensive litigation, many insurers have realized it is more efficient and effective to utilize tailored coverage forms in addressing cyber liability risks, thus keeping these exposures separate and apart from CGL/ BI/D&O policies. Focusing on the top 20 writers in the study, stand-alone cyber policy paid losses, relative to direct premiums earned (DPE), increased from 19.5% in 2015 to 24.3% in 2016. Paid losses relative to DPE for packaged coverages increased from 15.7% in 2015 to 21.8% in 2016. This increase in paid losses for packaged coverages may have been driven by the defence and litigation costs that are inherent in such policies. Overall, cyber insurance for the majority of this universe of companies was profitable and the direct loss ratio decreased from 51.4% in 2015 to 46.9% in 2016. The decline in the direct loss ratio during 2016 for these U.S. insurers, however, is partially attributed to the majority of reported cyber attacks being related to ransomware heists. In almost all ransomware cases, the 44

Canadian Underwriter August 2017

Captive Audience Regulators in Bermuda and Vermont, markets dominated by captive insurers, have already taken steps requiring insurers to provide more specific information around cyber coverages. In Europe, the implementation of the General Data Protection Regulation (GDPR), scheduled to take effect May 25, 2018, will enhance the consistency of data protection rules across the European Union and also create significant new obligations for companies processing personal data. There will be a requirement for mandatory requirement for mandatory notification notification upon serious upon serious data breaches. data breaches. While this new data regulation will help align European standards with those in the United States, the most significant impact from the GDPR will likely be a marked growth in cyber insurance revenues on a global basis.

losses were well below the deductible and a simple back-up recovery resolved and remedied any negative long-term effect of the attacks, thus having no material impact on the balance sheets of insurance companies. A continued increase in the standalone type of coverage compared with packaged is expected, mainly as a result of anticipated cost and expense reductions in litigating disputed claims, as well as more specific and defined policy language focused on the prevalent type of attacks. The U.S. market’s transition to stand-alone cyber policies may contribute to better pricing and reserving methods, which, ultimately, may lead to refinements in modelling tools and contribute to more accurate understanding of risk aggregation. More granular data analytics and sophisticated exposure modelling that translates cyber risk into potential loss amounts and probabilities will help insurers create new and innovative products, as well as sharpen their underwriting and pricing strategies. This should, ultimately, unlock more capacity from traditional and alternative capital sources. While there is currently significant variability in model output based on data collection, data quality, embedded assumptions and parameters utilized, each are useful tools that provide insight into cyber exposures. These factors will help the market continue evolving and build a better ecosystem for trading cyber risk. Collaboration by cyber modellers and

insurers, with each focusing on some of the many aspects and scenarios of this difficult risk, is a positive step forward. Due to the intricacies of cyber coverage, it is expected that the majority of future premiums will be offered by a limited number of companies. While many signs point to very substantial growth in the cyber line of business, it remains to be seen whether or not increased demand will be sustained beyond the typical bump that occurs after every noteworthy breach. As cyber threats continue to pose potential risks to an insurer’s balance sheet, it will require risk mitigation strategies to become more entrenched within an organization’s enterprise risk management strategy. Even though current analysis shows that total economic losses are large, estimated insured losses are far lower because of limited insurance uptake rates. But as cyber coverages increase, potential cyber losses will become more critical in the rating process.

Looking for more? The following standalone cyber news may also be of interest. Just visit www.canadianunderwriter.ca and search for the following: • Organziations considering standalone cyber coverage should evaluate risk profile • “Slow but steady” trend in take-up rates among U.S. cyber insurance clients

Risk of Recall

Product recalls can have a significant impact on a business, regardless of its industry, size or location. Brokers need to keep abreast of associated risks Cameron Brady to inform clients about what Assistant insurance coverage should Vice President, Product Recall be in place and to help them Underwriting, develop a product recall Chubb plan that best suits their needs and exposures. Threats of a product recall can significantly disrupt a business. Consider the food manufacturer that must pull produce from thousands of grocery stores across the country after individuals fall ill or need to be sent to hospital as a result of food poisoning, or the component parts manufacturer that discovers a mechanism is causing electrical failures, putting people at risk for deadly accidents. These are just two of countless examples that illustrate recalls can be a complex and expensive business. A recall event can be debilitating to a man-

ufacturing customerâ€™s bottom line or even put the company at risk for going out of business. That being the case, brokers should talk to their manufacturing customers about the risks associated with product recalls and the importance of managing their particular supply chain, having a product recall plan in place and purchasing product recall coverage. Product recall coverage, for example, provides balance sheet protection. It is first-party coverage to reimburse the insured for financial loss because of the recall, and to mitigate reputational damage and loss of brand equity. Financial loss includes recall costs incurred in implementing the recall (such as costs to rent storage space, employeesâ€™ travel and transportation attributable to the recall); product replacement and product rehabilitation costs that repair the affected product and cover refunds; and business interruption costs. Some insurance policies offer endorsements for other losses, including consequential damages, product extortion and adverse publicity. In addition, many policies provide coverage for the expense of product recall consultants, who can assist with both pre-incident and post-incident assessments.

August 2017 Canadian Underwriter 45

RECALLS FRONT AND CENTRE Canada has witnessed plenty of product recalls in recent years, recalls that can have an impact on companies of all sizes. In 2016, for example, the Canadian Food Inspection Agency (CFIA) issued hundreds of notices related to recalls and allergy alerts for items ranging from packaged meats to auto parts. Agencies such as CFIA and Health

Canada’s Consumer Product Safety Program (CPSP) have the power to initiate recalls and appear to be exercising more intensive oversight. Acting on reports by consumers and businesses, during fiscal 2015-2016 — from April 1, 2015 to March 31, 2016 — CPSP conducted thousands of compliance and enforcement activities. These included carrying out 324 planned in-

spections across 13 different product categories, reviewing 1,693 consumer complaints and incident reports, and identifying and taking corrective action on 842 different non-compliant products, 258 of which resulted in a recall. CFIA’s recall activity is also increasingly looking beyond Canadian borders, with a recall initiative with the United States leading to 114 jointly posted recalls with the U.S. in fiscal 2015-2016, including six recalls jointly posted with Mexico. Despite this increased quality control oversight, companies that do not understand regulations, standards of proper business practices and how to properly navigate and proactively respond to a recall are at risk.

MANAGING SUPPLY CHAIN RISKS

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Canadian Underwriter August 2017

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In today’s globalized age, it is all the more important to understand that product safety problems can be caused by activities in countries that do not have the same standards and enforcement as Canada and the U.S. A supply chain might consist of sourcing, manufacturing, packaging and distribution, all taking place in different locations around the world. In these circumstances, geographical distance and the greater complexity of co-ordination it entails can result in delays in product sourcing and in distribution issues. Differences in standards and procedures magnify the possibility of quality defects such as contamination or substandard manufacture. For example, if pharmaceutical ingredients at one end of the supply chain are adulterated or even counterfeited, the finished product can cause serious harm. A weak overseas link in the supply chain can result in a North American recall and, perhaps, collateral damage to a company’s business operations. Vetting suppliers is the crucial first step in managing recall risk. That requires having a formal supplier approval/vendor management program in place. Once a supplier is approved, performance evaluation begins; scorecards are useful for this purpose.

Based on its evaluation, a company should meet regularly with supplier management to review performance and plan improvements. Diligent supplier management should uncover problems in enough time to be able to find an alternative supplier or take other remedial measures. However, even the most scrupulous vendor management program cannot eliminate all supply chain risk. The transfer of recall risk requires clear contracts that make the allocation of risk in the event of a recall explicit. The contract should specify who bears the cost of a recall and how. Carriers are increasingly seeing supply contracts requiring that a supplier take the financial responsibility for damage from a recall caused by components that it provides, whether through a hold harmless or subrogation clause or some similar provision. In fact, contracts often require suppliers to purchase product liability and products recall insurance to cover recall risk.

RECALL PLANS ESSENTIAL A fast and effective recall provides a company the valuable opportunity to reinforce its commitment to safety, quality and service. In contrast, a poorly managed recall can lead to adverse publicity and possible brand damage. Furthermore, the financial and other losses to which a company can be exposed by a product recall event are severe, including recall costs in the millions of dollars, product replacement and business interruption costs, and reputational damage/loss of brand equity. A recall event may even affect the industry as a whole. To minimize the risk of these costs, companies need a product recall plan. CPSP has published general guidelines that should be consulted, but it is key that the plan be a detailed manual outlining the steps required to initiate and conduct a product recall, as well as the parties responsible for managing the event. A product recall consultant can help to formulate the plan, and some insurance policies even cover that expense.

A weak overseas link in the supply chain can result in a North American recall and, perhaps, collateral damage to a company’s business operations. Some essential features of a product recall plan include the following: • supply chain structure chart: clearly maps out all supply chain operations, including suppliers, customers, distribution centres and retailers; • issue identification and escalation: should contain the methodology for identifying an issue and advancing through the organization; • recall management team responsibilities: lays out a clear statement of the specific recall responsibilities of each individual, department and affiliate; • investigatory procedures: explains the process for gathering information about the defective product, determining the cause of the problem and how to solve it, and how to prevent future system breakdowns; • traceability/mapping: shows, with specificity, how products within a corporation are traced, including a mapping protocol to describe in detail how the product is distributed; • regulatory compliance: outlines the regu-

latory requirements of all the products in all the jurisdictions that the products are sold; and • mock recalls: puts on the company’s calendar a “mock recall” to measure the effectiveness of the recall plan. In addition, the company needs a quality control/quality assurance manual to ensure that a manufactured product or performed service adheres to a defined set of quality criteria or meets the requirements of the client or customer. The manual should include documentation of quality controls in place, instructions for and documentation of preventive maintenance, protocols for product testing and documentation of test results, and records of all quality control activities.

CHOOSING A PARTNER The use of consultants on both a proactive and reactive basis can help smooth the recall process. While proactive work can range from developing a recall plan from scratch to auditing production facilities, reactive work can entail public relations advice, product retrieval services and product analytical services. Companies should ensure products sold meet government regulations, adhere to customer specifications and, most importantly, remain safe for use. In this time of increasing enforcement, the enormous financial, brand and reputation exposures to a recall event are real. As such, every company must understand its supply chain risk, have a product recall plan in place and purchase product recall coverage tailored to its specific exposures.

Looking for more? The following recent product recall news may also be of interest. Visit www.canadianunderwriter.ca and search for the following: • Known, hidden risks in supply chains demand an overall strategy • Total Recall • Toyota recalls 21,722 vehicles in Canada

August 2017 Canadian Underwriter 47

Flipping the Script Disruption, clearly, is disruptive. But organizations, including those in Canada’s property and casualty insurance space, need to flip the script and view disruption for what it can be: an opportunity to change how they think about and manage risk.

Jennifer Johnson

Partner and National Leader, Risk Assurances Services, PwC Canada

The current business landscape features incessant disruptions — all bringing with them inherent risks — across all industries, and the property and casualty insurance industry is no different. This has never been a more important issue to explore; gaining a better grasp on how to manage risk best will help insurance companies, here at home as elsewhere, not only survive this challenging business climate, but thrive within it. PwC’s recently released Risk in review report explores how effectively businesses are managing risk. For the first time, Canadian-specific results have been broken out to allow for a deeper examination and comparison to the global numbers. Findings reflect input from respondents in, among other sectors, consumer and industrial products, financial services, technology, government and education, and health services. Stakeholders in Canada’s p&c industry are familiar with the key disruption issues facing the Canadian insurance marketplace. Usage-based insurance, shifting customer expectations and a growing direct-to-consumer channel to market are clear examples of how digital disruption has changed the insurance industry. These changes are creating new market oppor-

Canadian Underwriter August 2017

tunities, including for new or non-traditional players, but also give rise to evolving risks such as those around cyber, data protection, technology and human capital. Capturing these opportunities while managing the risks effectively will be a challenge for many organizations. The report’s Canadian-specific findings show just 35% of polled organizations that experienced digital disruption managed the issue effectively compared to 42% of global respondents. Digital disruption, of course, is hardly the only issue that has caused disruption in the past two years. For example, 44% of Canadian respondents cited technology advancements compared to 34% globally; 44% noted human capital changes compared to 34%; 44% reported financial challenges compared to 36%; 37% noted operational disruption compared to 30%; 30% cited digital innovation compared to 28%; and 30% pointed to culture and compensation changes compared to 23%. In some sectors, including p&c insurance, Canada lags in innovation, which makes current business practices that much more susceptible to disruptors. Though length and cost of disruption is not something one can easily pinpoint, in most cases, companies will be looking at eroding market share as new entrants come into their markets. The length of disruption would depend on how quickly a company is able to respond with innovations of its own once any disruptors have entered its market. Otherwise, those companies

reporting and greater transparency. Still, it is clear that non-regulated organizations — without those external forces driving processes — are lagging behind and may want to take a lesson from their regulated peers.

LEADING FROM THE FRONT

are likely to see continued decrease in performance and market share. So, what must organizations do to more effectively manage risk going forward?

A FUNDAMENTAL SHIFT It starts with embedding risk management into the front line. This is vital because it is the front line where decisions are made on a day-to-day basis. The decisionmaking process should consider the risks involved and how to manage them. That said, many organizations, including insurers, have not yet fully embraced risk management in the front line. In fact, the report found in every area surveyed, Canadian organizations were below global respondents in terms of how effectively they are at managing risk, although they continue to catch up. These organizations, however, did better than the global average at managing risks from the front line on both regulatory and compliance risk (33% compared to 26%) and technology risk (44% compared to 42%). Managing risk from the front line is, admittedly, a big step that often requires a shift in culture as organizations strive for the agility necessary to be successful in an ever-changing market rife with disruptions. While Canadian organizations acknowledge they do not have it right just yet, it is encouraging that respondent entities appear receptive to the belief that risk management should be managed from the front line of defence (top management level) as opposed to the second (risk management/compliance)

Embedding risk culture into the front line to the point where this mindset and approach becomes routine within management’s day-to-day thinking is paramount. and third (internal audit) lines. The findings indicate that polled Canadian organizations within regulated industries, such as insurance, are making greater strides in risk management than those in non-regulated sectors. Much of that advantage is driven by the nature of regulation, which demands higher levels of risk management, more

As the responsibility for risk management is shifted to the front line, a key issue that organizations will face is an evolving risk culture. Embedding risk culture into the front line to the point where this mindset and approach becomes routine within management’s day-to-day thinking is paramount. Experience has shown that organizations managing risk from the front line begin to really see the value of risk management, creating an environment that is not only adaptable, but highly agile. This is a key consideration when the market and competitive landscape can change so quickly. Evolving an organization’s risk culture is never an overnight task and resistance to change is almost always a factor to some degree. With that in mind, initially focusing efforts on a couple of key areas is recommended and, as the culture change starts to manifest itself, to then broaden those initiatives. Enhancing risk culture also means embedding a focus on risk in the way organizational performance is evaluated. When making key strategic or tactical decisions, how much is leadership factoring in risk? Questions need to be

August 2017 Canadian Underwriter 49

asked: What could go wrong? What are the possible challenges or obstacles? Are those risks acceptable or not? Those are tough questions to answer without first having a clearly defined risk appetite in place. A risk appetite provides a framework for determining whether or not the risks involved with key decisions are acceptable or tolerable.

A CONSISTENT MESSAGE Once an organization’s risk appetite has been defined, top management must conduct itself accordingly, filtering its decision-making process through that framework. Two strategies here can really help this process along. 1. The corporate risk appetite needs to be clearly communicated with a clear “tone from the top.” This must be a top-down message, so that the president or chief executive officer must initiate the risk culture change by embedding it into his or her language whenever speaking to the leadership team. Over time, that will ensure the

message filters down through the organization. 2. Do not be averse to tying risk management into performance management processes. Do not just talk the talk; walk the walk. By actually factoring risk management into evaluation processes — especially those of senior management — this approach will really drive forward a risk culture shift within the organization. Clearly, the second and third lines of defence still have a vital role to play in risk management, but organizations that rely too heavily on that model may find they lack the agility necessary to make timely decisions in today’s rapidly moving landscape. As such, those organizations seem more likely to lag behind key issues such as new ventures, new markets and pricing strategies. This shift will not greatly affect the role that risk managers play, but may actually offer tremendous benefits. With risk management embedded into the first line, top management are more likely to

reach out to risk professionals on a proactive and consultative basis, providing a greater opportunity for risk managers to add greater value by delivering their perspective in a more timely manner. There is an opportunity here to stop thinking about risk management as a compliance type of exercise, but increasingly as an opening to usher in a change in the way the organization thinks about and manages risk. The approach will result in a more agile organization that benefits from the rapidly shifting market landscape.

Looking for more? This recent news may be of interest. Visit www.canadianunderwriter.ca and search for the following: • Common language holds promise of advancing risk management • Worldwide mid-sized firms may fall short on insurance, risk management

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Canadian Underwriter August 2017

Insurance Analytics Canada Summit Toronto

Data Converging True, it is all about data these days. That said, determining how best to employ the ever-growing store of internal and external data is necessary to gain forward-looking insights. For Canada’s property and casualty insurance market, knowing what to do with data to meet customer needs and demands will likely prove the end-game. Jason Contant Online Editor

Greg Meckbach

Associate Editor

The Insurance Analytics Canada Summit in June offered a view of current insurance analytics and future possibilities. Everything from agility to brokers embracing digital transformation will help shape Canada’s property and casualty landscape.

DRASTIC SHIFT NEEDED The insurance industry has been very incremental in dealing with disruption and needs a drastic shift from historical analysis to predictive, future risk models, Pranav Pasricha, chief executive officer at Intellect SEEC, told those attending a session at the recent Insurance Analytics Canada Summit. “You cannot disrupt with incrementalism,” Pasricha argued. “Our industry, so far, has been very incremental. You can’t win in this world of insurtech by doing a thousand small, little insurtech projects,” he emphasized. The biggest challenge for the industry is technology, particularly outdated core policy admin systems, Pasricha said during Big Data & AI: Time to Unlearn All You Know About Traditional Analytics. Pointing out that the industry has “always had this concept of static data models,” Pasricha said simply “they do not work anymore. The model for now is big data: you have 10,000 indicators, not 70 indicators, of underwriting and they’ll change every single day. That is what takes you

from a reactive, backward-looking model to a truly predictive future-looking model.” To get to that future-looking data model, insurers should take their information systems from what Pasricha calls “structured, little data” to “true big data.” Insurers need to run their processes and current actuarial ratings, and then run machine-learning systems in parallel “so it becomes a supplementary tool,” he noted. “Here is how you can make a better decision and this is how you should change your coverage and pricing,” Pasricha told attendees. As these changes take hold, machine-learning algorithms will work in the background, starting the supplementary rating and underwriting model. Last, “the machine-learning algorithms can now perform for two or three years. That’s where you can take your hands off the steering wheel and now this car can drive on its own,” he advised. “Fundamentally change your data process; change your thinking process,” he said. “I think the industry is broken, to a large extent, and we are sitting at an historic crossroads on how to reform it.”

GREATER AGILITY ESSENTIAL Canada’s property and casualty insurance industry is “struggling to speed up the process of being more agile,” Paul MacDonald, senior vice president

August 2017 Canadian Underwriter 51

of claims and chief claims officer for RSA Canada, said during a summit session. “The vast majority of customers, with some exceptions, still can’t renew online most of their insurance products,” MacDonald said during How Analytics Are Transforming Claims, Underwriting and Pricing. “A lot of our internal processes were designed to improve our speed and our expenses,” he pointed out. That being

the case, “now we are spending a lot of time asking, ‘What does this mean for the customer? How many questions on the application? How long does it take for a claim to be processed? What is the fastest way for getting them to a preferred supplier and why would they even bother using a preferred supplier?’” Insurers “are trying to use analytics to understand what the customer experi-

If you’re in Manitoba, this is considered an automobile.

nt Law Firms

BROKERS EMBRACING DIGITAL

Many brokers are taking the bull by the horns and embracing digital transformation, with or without the help of insurers, Greg McCutcheon, the president of Opta Information Intelligence, noted during the recent analytics summit. Since insurers are not able to embrace every single broker, brokers are taking it Surprised? ARC isn’t. Surprised? ARC isn’t. upon themselves to transform digitally, McCutcheon said during the session, Your customer has a list of the vehicles that Future of Insurance: How Will Digital Innovation are covered by your fleet policy. You have Disrupt the P&C Space for 2020 and Beyond? a list of the vehicles that are covered by ARC Group Canada is a national ARC Group Canada is a national Rather than waiting for insurance that policy. network of independent law firms, network of independent law firms, each intimately connected to them with techcompanies to enable And your lists aren’t theintimately same. each connected to their local market. nology, “they’re taking matters into their their local market. Insurance and risk management When the one vehicle that is involved in own hands,” he said of brokers. “Their experts. Regional strength. Insurance risk appear management an accident is the one thatand doesn’t on ideas and thought processes are, in many National scope. experts. Regionalnext? strength. both lists, do you know what happens cases, really, really entrepreneurial, revoThat is the ARC Group. National scope. lutionary in some ways. Right now, I’m ARC does. Go to AskARC.com That is the ARC Group. pretty impressed with some of the brokers out there in Canada that are workGo to AskARC.com ing hard to drive digital transformation and I’m also really pleased to see insurers being much more flexible in helping these broker distribution channel partners grow and change and be more relative to this experience for customers.” Change is being driven by consumers’ need for choice and the evolution of technology, McCutcheon suggested. He is “seeing a migration both on the underwriting side and in the broker commuARC Group Canada is a national network of independent law firms, nity to move to pre-filled commercial each intimately connected to their local market. solutions and small commercial online Insurance and risk management experts. Regional strength. National scope. Go to AskARC.com direct-to-consumer packaging.” For underwriters, they “have an awful hard time letting go of questions... but they’re getting there,” he reported. The ARC Legal Reporter “I think that the industry, as it goes Winter Issue – Article #1this journey on pricing, will evolve down A National Network of Independent Law Firms as well, and has to evolve,” he argued. This change could evolve into a product When is a medical examination considered a second examination under Rule 36 of the New Brunswick Rules of Court? that is more flexible and tailored to the consumer, which “creates a lot of opporThe ARC Legal Reporter tunities for the insurance communities v. Crowther and Kelly Case: Winter IssueReported – Article #1 Blyth 2009 NBCA 80 Citation: newand products and solutions, unbunWhen both the plaintiff’s physical and mental condition are in issue in — an action, At Issue: the plaintiff undergoes a physical examination, will a subsequent application for a dle, provide new offers.” psychiatric examination be considered an application for a second medical

examination considered a second examination 52 Canadian Underwriter August 2017 36 of the New Brunswick Rules of The Court? Court: ARC_Fleet ad_1/2 page.indd 1

Crowther and Kelly BCA 80

ence is across the entire enterprise and then try to figure out how to reduce the cycle time for that experience,” MacDonald said, but a remaining hurdle is the industry is still “line of business-specific.”

Judgment Rendered: Factual Summary:

If you’re in Manitoba, this is considered an automobile.

examination?

Should medical examinations that are ordered as part of the discovery process be characterized as ‘independent’ medical examinations? Court of Appeal of New Brunswick October 13, 2009 (Reasons delivered November 2015-02-14 26, 2009) 1:05 PM The plaintiff suffered injuries in a motor vehicle accident and commenced an action seeking damages. Both the plaintiff’s physical state and mental state were in issue in the action. The plaintiff submitted to a physical examination by the defendant’s expert,

Data analytics is also providing a vast opportunity for insurers, he said. “If you had told me five years ago that we would accurately predict wind and hail in Alberta by rooftop location, I would have told you, you were crazy,” he added. “We’re doing that and all other perils. These models test against five years of past claims history information and show they are very strong. It’s accelerating,” McCutcheon said.

TELEMATICS CAN HELP IDENTIFY LOSS TRENDS Mobile telematics data sometimes provides meaningless information, but it also offers the potential for rich insights that can be employed to reduce distracted driving and build loss trends, attendees heard during How Mobile Apps are Unlocking the Next Generation of Insurance Products and Services. “With the phone data, we are able to not only, at a high level, look at distraction, but we can take distraction really at microseconds and tell the difference between the time you are texting, the time you are on Bluetooth, the time you are just using the phone with your hands, activity, typing, swiping, locked, not unlocked,” said Ted Gramer, chief executive officer at TrueMotion, a mobile telematics data science firm. “We can actually build loss trends from really a granular level and rebuild the impact on frequency. Once you know what the loss trends are starting to look like, the next chapter is trying to figure out how do you take the rate and adjust your premiums to reflect that,” Gramer told attendees. Digging deeper into phone technology and analytics — sensors, GPS data and usage data — can “almost get down to risk per trip,” he suggested.“The opportunity to dig in and connect the dots with mobile data is far more than I ever appreciated. The challenge is it’s not easily accessible.” Telematics also offers a “really significant opportunity in claims,” Gramer said, noting that rich data from the accident scene can describe such things as if the vehicle’s airbags deployed, how quickly deceleration happened, if a person got out of the car after the accident or if he or she placed a call. The challenge for the industry, he suggested, is to “figure out how to make the value proposition compelling enough that consumers want your app on their phone, and the insurance industry hasn’t done a great job of that.”

used — “we have come to know what our customer looks like,” Natur said. “We have catered our marketing, we have catered our products to that. We are constantly re-evaluating it.”

FOCUS ON COMPANY PRIORITIES Insurance professionals who are implementing data analytics must focus on what they want to achieve and deliver value quickly to senior business leaders, Travelers Canada executive Erika Schurr noted at the Insurance Analytics Canada Summit. Travelers companies in Canada and elsewhere have decided to use data agility, data blending and self-service, Schurr, chief actuary for Travelers Canada, told attendees of the presentation, Having a Bigger Impact: Making Analytics Real for Business. Data agility is defined as “how fast can you extract value from available data and how quickly can you translate that information into action.” Data blending “is really about having a straightforward way to extract value across multiple data sources.” And self-service allows business users to perform queries and generate reports on their own, “with nominal IT support.” Schurr cautioned that when implementing data analytics, insurance professionals “need to start delivering value” to senior leaders quickly. “You don’t need to have this massive up-front investment before they achieve some results and it just gives support for further investment down the road.”

DATA MUST BE TRUSTWORTHY There are “all sorts of insights” that an insurance brokerage can get from customer data, but that data needs to be trustworthy, Sam Natur, president and chief executive officer of Bullfrog Insurance Ltd., emphasized during the summit. “If you don’t have data, go capture the data,” Natur recommended to attendees. “If you don’t have trustworthy data, or integrity, you are going to start running into all sorts of problems and your decisions are going to be constantly things that you come back and second-guess,” he said during the session, Improving Products and Service Through Analytics. With the information his company captures — such as age, gender, IP address, the device and the browser being August 2017 Canadian Underwriter 53

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

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AND CLICK ‘MY EVENTS CALENDAR’ ON THE HOME PAGE

Kenn Lalonde [1], president and chief executive officer of TD Insurance, has been elected chair of the Board of Directors for Insurance Bureau of Canada (IBC). Previously deputy chair of IBC, Lalonde has been in his current role at TD Insurance since 2012 and was named to the company’s senior executive team in early 2016. Prior to joining TD Insurance, Lalonde “held executive roles at CUNA Mutual Group, CUMIS Group and CIBC, where he led multiple business lines, including its insurance business,” IBC reports.

CEP Forensic Inc. is merging with Sintra Engineering Inc., the two forensic engineering services firms announced July 1. The new entity, CEP-Sintra, will have almost 100 employees at offices in Vancouver, Edmonton, Calgary, Toronto, Ottawa, Montreal, Quebec City and Moncton. “The merged company will offer multi-disciplinary forensic engineering services, from fire and explosion investigations and accident reconstruction services to structural remediation advice.”

Aviva Canada and Sharp Mobile reported in July that the two firms have agreed to give

Canadian Underwriter August 2017

Canadian brokers access to the iMobilebroker platform, which includes the iMobilebroker app, web portal and expanded Broker Admin Data Portal. Among other things, the products allow a customer to access his or her insurance information — such as auto insurance pink cards, policy details and payment information — through his or her broker’s mobile app and portal. The deal “will initially see Aviva Canada provide funding support to the first 50 qualified brokers for the iMobilebroker platform.”

Elliott Cappell [4] is the City of Toronto’s new chief resilience officer. Cappell, whose appointment was announced in June, will oversee city-wide, resilience-building efforts to help Toronto prepare for events such as natural catastrophes and severe weather. Previously a senior advisor on strategic policy to the Ontario government, he will also be responsible for the development and implementation of the city’s resilience strategy.

Catastrophe Response Unit (CRU) Inc. reports that it will use technology from Kespry Inc., a California manufacturer of hardware and software for unmanned aerial vehicles. “Kespry’s drone technology further enhances how we

handle and process claims, as well as underwriting elevations and pre-loss reporting,” notes a statement from adjusting firm CRU, whose offices include Toronto and Calgary. With almost three decades of experience in adjusting, teaching and flying, CRU’s Glenn Smith [5] will head the drones division.

Gore Mutual Insurance Company is acquiring Collingwood, Ontariobased brokerage Howard Noble Insurance Limited, which also has offices in Barrie and Alliston. “We are developing new alliances to enable investments in digital and in-store customer experiences, recognizing that some brokers have new models of

ownership while others are fiercely independent,” says Gore Mutual vice president of distribution Paul Jackson. Shelley Vermeersch [6] will assume leadership of Noble Insurance as its managing director. Brokerage president Wayne Noble is retiring.

John Doyle [7a] has been appointed chief executive officer of Marsh Inc., parent firm Marsh & McLennan Companies Inc. announced in July. Doyle succeeds Peter Zaffino [7b], who served as chief executive officer since 2011, but effective August 1, became executive vice president, global chief operating officer for American International Group Inc.

MOVES&&VIEWS VIEWS MOVES

of Calgary; Gordon Adams; Robert Cartwright, Jr.; Al Gorski; Leslie Lamb; John Phelps; Michael Phillipus; Frederick Savage; and Lori Seidenberg.

positions have included general adjuster, branch manager, 10a vice president of operations (AIG). Previously, Zaffino and Lloyd’s Division leader. served as president and chief executive officer of Marsh & McLennan’s subsidiary, Guy Macdonald Chisholm Carpenter. Doyle is a former Trask Insurance (MCT) chief executive officer of announced in early AIG’s commercial January that it will insurance join propbusinesses worldwide. erty and casualty brokerage BrokerLink. The terms of the Crawford Company transaction were & not disInc. has closed, (Canada) notes a statement named JoeBrokerLink Turcotte [8] from BrokerLink. as its new national general companies, subsidiaries of manager, insurerCorp., markets. A Intact Financial 30-year84 veteran of serving the include offices company, TurcotteCanada, “has held clients in Atlantic a number progressive Alberta andofOntario. Dating roles,more including fieldyears, adjuster, back than 60 control (and) branch MCT hasadjuster more than 110 inmanager.” His objectives surance professionals in 18 in the new role include offices. Michael Brien, who streamlining and the simplifying has led MCT over last 12 operational processes and years, joins BrokerLink as supporting branch operations. functions. head of its Atlantic

10b Carolyn Snow [7] will lead RIMS as president for the 2014 term, Insurance which MacCoy took effect January 1. Snow, Brokers who hasLtd. beenofon the Sydney, Scotia RIMS Board ofNova Directors for has become the 22nd locaseven years, is currently dition of of Archway Insurance, for rector risk management effective “We Humana July Inc. 1. She previously welcome president) served as(MacCoy RIMS’s treasurer, Ritchie MacCoy to our of secretary and director management team, external affairs. Thehis RIMS employees and MacCoy’s many board for 2014 also includes business and personal vice president Richard clients to Archway notes Roberts, Jr.;Insurance,” treasurer Julie the company,corporate which has Pemberton; secrebrokerage in Nova tary Nowelloffices Seaman, director Scotia andrisk New Brunswick.for of global management Potash Corporation of James Bond Saskatchewan Inc.; Gloria [10a] is thedirector new Brosius; Steve Pottle, relationship manof risk management services ager in British Columbia for at York University; Jennifer First Insurance of Santiago; JanetFunding Stein, direcCanada, makes loans tor of riskwhich management and to businesses to finance their insurance at the University

As of January 8, Toronto insurance broker Jones DesLauriers Insurance Management Inc. 7a (JDIMI) had acquired Whitley Insurance and Financial Services. Whitley Insurance has offices in Belleville, Ontario and the nearby communities of Trenton, Deseronto and Stirling. “The acquisition is expected to build a solid presence for JDIMI in Eastern Ontario and position the firm to11 better service their clients, with strengthened commercommercial insurance policial and personal insurance cies. Bondin“brings more than offerings the region and a 15 of experience in the newyears financial services divifinancial services industryfrom sion,” notes a statement and has previously worked JDIMI. President and CEO in sales onDeSantis the insurance carrier Shawn will lead the side,” Firstcompanies. Insurance. teams notes from both Also the company, Chris LorisatClarke [8] has been Baronas [10b] is the firm’s named successor to Paul new relationship for Whitley, presidentmanager of Whitley the Ontario who Eastwill Region. Insurance, remain during a transition period. Envista Forensics has hired James [11] Ken Wheeler Rayner [9] hasas technical leadAnderson for electrical joined engineering. Prior joining McTague & to Associates Envista Forensics, Ltd. as its director Wheeler of busiworked as a senior forensic ness development, Central electrical associate Region. “Ken bringsata 30 wealth Forensic Engineering. He of experience to our com- has more 30held yearsvarious of experipany, than having ence forensic electrical seniorinmanagement positions and investigation. with fire insurers and other MGAs,”

11 9

says Chuck McTague, president of Anderson McTague & Associates, a familyowned MGA based in New Farm AnBrunswick. State In January, Canada recently derson McTague & Associates a free announced released it was expanding, app designed to allow usersto adding an office in Toronto to manage home and service the their brokers of Ontario auto insurance.Rayner’s Available and Manitoba. from Apple’s App Storethe and appointment confirms Google Play,“commitment the State Farm company’s to Canada App allows users to the Ontario/Manitoba marketdirectly access through their place, and to the building of phones their insurance a local support team to assist policies, obtain brokers with theirinformation surplus and a claim or linestips, and file difficult to place receive an online quote. business,” McTague adds.

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Jiwan Thapar has been The appointed Guarantee practice lead Company of of 30 Forensic Engineering’s North America construction services group. has announced that Tara Thapar 10-plusvice years Wishartbrings [10] became of experience in consulting, president of claims for the engineering and construction insurer’s Toronto branch on management 30 Forensic December 2, to 2013. Having Engineering, primarily 21 years of experience in The working on advisory Guarantee’s claims roles to resolve construction department, Wishart disputes will be of complex nature size. responsible for theand operations of the Toronto Branch Claims. TaylorThe McGregor She first joined Guarannow project tee in 1995isas an aadjuster manager EFI and has held roles offor increasGlobal. Since joining the ing seniority with the comfirm April, McGregor pany,inincluding, most has worked projects relatedfor to, recently,onclaims manager among other things, trans-is a specialty lines. Wishart portation losses, oil member of bothdomestic the Surety spills, initial of containment Association Canada andand control, and remediation the Canadian Associationofof impacted Women insoil/groundwater. Construction.

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August 2017 Canadian Underwriter

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The Ontario chapter of Women in Insurance Cancer Crusade (WICC) held a Canada 150-themed golf tournament on July 12 at the Angus Glen Golf Club in Markham, Ont. Thanks in large part to the financial support of numerous sponsors, the 18th-annual event raised $55,000 for the Canadian Cancer Society.

Canadian Underwriter August 2017

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August 2017 Canadian Underwriter

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On June 5, Chubb hosted an exclusive Insurance Thought Forum, featuring Evan Greenberg, Chairman and CEO of Chubb Limited/Group, and the companyâ€™s executive team. Approximately 100 Chubb clients and brokers attended the session at Torontoâ€™s Four Seasons Hotel, where Greenberg addressed a broad spectrum of topics including the current insurance market, digital requirements for carriers and brokers, economic trends and free trade agreements.

August 2017 Canadian Underwriter

Putting the pieces together.

Events and Seminars Calendar CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to advance your professional and career development. CIP Society Seminars

CIP Society Events

Hamilton—D&O…Get in the Know! .......................................................August 24 Kitchener—Assessing Commercial Risks............................................. September 6 Sudbury—Desktop Investigations Lunch & Learn .............................. September 7 Webinar—Life Leases ......................................................................... September 8 Ottawa—The Sharing Economy and the Internet of Things ............. September 12 Toronto—Risk Forum 2017 ................................................................ September 19 Ottawa—Managing Broker Errors & Omissions .................................... October 17 Winnipeg—Farm Insurance..................................................................November 7

Hamilton—Volleyball Tournament.......................................................... August 30 Little Rapids, NL—Golf Tournament .................................................... September 8 Dartmouth—Charity Softball Tournament ....................................... September 15 Ottawa—Golf Tournament ................................................................ September 15 Nanaimo—Mid-Island Cocktail Event ............................................... September 21 Edmonton—Battle of the Insurance Bands....................................... September 28 Dartmouth—South Shore Soiree ........................................................... October 19 Toronto—Indoor Beach Volleyball .......................................................November 8

Looking for insight and research on the latest trends in the p&c industry? Visit our free online library of Trends Papers at www.insuranceinstitute.ca/cipsociety/information-services. Looking for information to advance your career? Visit: www.insuranceinstitute.ca/mycareer.

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On July 11, the King Valley Golf Club in King City, Ont. hosted Enterprise Rent-a-Carâ€™s charity golf tournament, held annually since 2007 in support of Women in Insurance Cancer Crusade (WICC). Accepting a $10,000 donation from the Enterprise Holdings Foundation was WICC media relations director and Canadian Underwriter account manager Christine Hirst.

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Cunningham Lindsey held a cocktail reception for more than 100 invited guesets on June 28 at Hyâ€™s Steakhouse in Toronto, raising a toast to a late-breaking summer and highlighting the work of four of its specialty services divisions.

Canadian Underwriter August 2017

TALK DIRECTLY TO THE EXPERTS WHO WRITE THE BUSINESS. At XL Catlin you have direct access to an underwriter who is empowered to call the shots for Canadian accounts. So, if you don’t want to talk to someone who has to talk to someone else, talk to us.

“Highest Customer Satisfaction among Large Commercial Insurers” XL Catlin, the XL Catlin logo and Make Your World Go are trademarks of XL Group Ltd companies. XL Catlin is the global brand used by XL Group Ltd’s (re)insurance subsidiaries. In Canada, coverages are underwritten by XL Specialty Insurance Company—Canadian Branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of XL Catlin. Coverage may not be available in all jurisdictions. XL Catlin received the highest numerical score among 11 insurers in the J.D. Power 2016 Large Commercial Insurance Study, based on 1,484 total responses, measuring the opinions of risk professionals in the U.S. and Canada with commercial insurers, surveyed April-July 2016. Your experiences may vary. Visit jdpower.com.

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You see possibilities for the city skyline. Tonya sees bolts, bytes and blueprints. We have a Client Risk Solutions team with capabilities beyond insurance. aig.com/crs

AIG is a proud supporter of RIMS Canada. Visit us at booth #203 to learn more.

AIG Insurance Company of Canada is the licensed underwriter of AIG property casualty insurance products in Canada. Coverage may not be available in all provinces and territories and is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. ÂŠ American International Group, Inc. All rights reserved.