O CT O B ER 2017 PM#40063170
2017 National Broker Survey Measuring Up BY ANGELA STELMAKOWICH
Cyber Lawsuits BY ANTOINE ST-GERMAIN
Analytics for Brokers BY JEFFREY BAER
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Products and discounts only available in Ontario and Atlantic region. To qualify for the discount you must be a current CAA Member in good standing (CAA Membership dues paid in full by membership expiry date). Eligible CAA Members may qualify to receive a Member Loyalty Discount based on membership tenure and Roadside Assistance usage. Auto and Property Insurance are underwritten by CAA Insurance Company. Subject to certain conditions and approvals. Underwriting eligibility rules apply. ÂŽ CAA trademarks owned by, and use is authorized by, the Canadian Automobile Association. (1720-07/17)
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CANADIAN UNDERWRITER
VOL. 84, NO.10, OCTOBER 2017 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY NEWCOM BUSINESS MEDIA INC.
www.canadianunderwriter.ca
COVER STORY
Measuring Up
35
Canadian Underwriter’s inaugural National Broker Survey polled brokers across the country on issues such as technology and attracting qualified professionals. Three in four respondents say they are satisfied with what they are doing while more than a third report that using social media effectively is among the sales and marketing issues posing a challenge. BY ANGELA STELMAKOWICH
FEATURES
17
51
59
25 Cyber Class Action A breach of payment card data is the subject of a class-action lawsuit in Quebec. One issue is the damages consumers can claim if their payment card data may have been stolen. BY ANTOINE ST-GERMAIN
Analyzing Data
Disruptive Tech
The question of whether or not insurers are truly in the best position to advise prospective home buyers on flood risk is a matter of debate in the industry.
Brokers of any size can use data analytics to improve their understanding of clients, and sometimes open-source tools and simple spreadsheets will do the job.
The Millennial lifestyle is disrupting the industry, but young people often need advice, speakers suggested at the Insurance-Canada.ca Executive Forum.
BY GLENN MCGILLIVRAY
BY JEFFREY BAER
BY GREG MECKBACH
Assessing Flood Risk
29
55
63
21 Regulatory Catch-up Social media and other technology innovations are disrupting the insurance industry and making it more difficult for regulators to protect consumers. BY BRIAN REEVE
Vehicle Use Whether or not an incident constitutes “use or operation” of a vehicle is often in dispute and debated in court, in both auto and non-auto policies. BY DANIEL STRIGBERGER & ANDREW MERCER
Standardizing Codes Databases have codes for endorsements on policies, but sometimes carriers introduce Z-codes, which no other carriers use, and this can create more work for brokers. BY CATHERINE SMOLA
Wealthy Clients Homeowners whose net worth is $5 milllion or more should be in the market for specialty policies with features not readily available in standard home insurance markets. BY TIA BECKER
October 2017 Canadian Underwriter
3
National
INSURANCEINSURANCE – – Claims we have it covered. weManual have it covered.
(416) 510-6800 communications opportunities. ckbach Art Director and highly effective marketing Twitter: @CU_Harmeet Editor (416) 510-6800 Greg Meckbach Director h@canadianunderwriter.ca Gail Page Gerald Heydens and highlyArteffective Associate Editor marketing communications opportunities. ckbach (416) 442-5600 ext. 3652 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 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 -6796 tor InsuranceMarketer.com Art Consultation 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 Insurance Media Group is committed Twitter: @InsuranceCanuk Production Manager (416) 510-5187 Circulation Manager tor Gary White Harmeet Singh to providing the most timely and relevant news, information paul@canadianunderwriter.ca VOL. 84, NO.10, OCTOBER 2017 anadianunderwriter.ca Production Manager Online 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 to insurance professionals from all segments of CU_Harmeet and resources Gary White Harmeet Singh (416)professionals 510-6760 Circulation Twitter: @InsuranceCanuk Manager anadianunderwriter.caTwitter: and resources to insurance from all segments of @CU_Harmeet Gary White -5600 ext. 3652the industry, providing marketers with a rangeService of specialized (416) 510-6760 hsingh@canadianunderwriter.ca mgarufi@bizinfogroup.ca Subscriptions/Customer National CU_Harmeet National PROFILE (416) 510-6788 (416) ext. 3652the industry, providing marketers with Mary a range ofGarufi specialized (416) 510-6760 Account Manager Subscriptions/Customer Managing Director, National Editor442-5600 the Service insurance industry’s social network Senior Publisher Twitter: @CU_Harmeet Gail Page andClaims highly effective marketing communications opportunities. -5600 ext. 3652 Claims (416) 442-5600 ext. 3545 Publisher Subscriptions/Customer Service Insurance Media Group Angela Stelmakowich Gail Page andClaims highly effective marketing communications opportunities. Angela Stelmakowich Steve Wilson Michael Wells (416) 442-5600 ext. 3652 gpage@bizinfogroup.ca mgarufi@bizinfogroup.ca Associate Publisher Subscriptions/Customer Service astelmakowich@canadianunderwriter.ca Ian Portsmouth uino Manual Gail Page Account Manager Manual gpage@bizinfogroup.ca astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Publisher (416) 510-5187 Paul Gail Page ian@canadianunderwriter.ca Manual (416) Aquino 510-6793 InsuranceMarketer.com (416)Production 442-5600 ext. 3545 nadianunderwriter.ca michael@canadianunderwriter.ca gpage@bizinfogroup.ca Print Manager Associate Publisher InsuranceMarketer.com (416) 510-5187 (416) 510-6793 Twitter: @InsuranceMedia uino (416) 510-6800 Michael Wells paul@canadianunderwriter.ca gpage@bizinfogroup.ca InsuranceMarketer.com InsuranceCanuk Associate Editor (416) 510-5187 Paul Aquino Circulation Manager 510-5122 (416) Phyllis Wright nadianunderwriter.ca (416) Art 510-6800 Director Twitter: @InsuranceCanuk (416) 510-5187 Circulation Manager Associate Editor Greg Meckbach michael@canadianunderwriter.ca -6788 paul@canadianunderwriter.ca Mary Garufi Gerald Heydens Print Production Manager InsuranceCanuk Circulation Manager (416) 510-6788 gmeckbach@canadianunderwriter.ca Mary Garufi Greg Meckbach the insurance industry’s social network Art Director Twitter: @InsuranceCanuk mgarufi@bizinfogroup.ca Circulation Manager (416) 510-5122 National (416) 510-6796 Account Manager -6788 Phyllis Wright Manager President Mary Garufi industry’s social network Production Manager the insurance mgarufi@bizinfogroup.ca gmeckbach@canadianunderwriter.ca Gerald Heydens National (416) 510-6788 Claims ext. 3545 (416) 442-5600 Account Manager Mary Garufi the insurance industry’s social network Online Karen Samuels Wells mgarufi@bizinfogroup.ca Claims (416) 442-5600 ext. 3545 Creighton Twitter:Editor @CU_Greg Elliot Ford Manual Bruce Manager Michael Wells mgarufi@bizinfogroup.ca (416) 510-5190 Art Consultation Jason Contant 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Blogs hosted by Canadian Underwriter rd Vice President Bruce Creighton hsingh@canadianunderwriter.ca insBlogs DIRECTORY Manager (416) 510-5117 mike@canadianunderwriter.ca President Elliot Ford Bruce Creighton (416) 510-6760 Print Production Manager insBlogs Insurance Blogs hosted by Canadian Underwriter INSURANCE nadianunderwriter.ca Property & Casualty Insurance Newswire Account Manager Twitter: @CU_Harmeet President (416) 510-5122 Papanou rd Property & Casualty Newswire Bruce CreightonINSURANCE eford@canadianunderwriter.ca Phyllis Insurance Wright Alex Vice President DIRECTORY -5117 Elliot Ford (416) 442-5600 ext. 3652 Bruce Creighton Vice President DIRECTORY Subscriptions/Customer Service nadianunderwriter.ca (416) 510-5117 Alex Papanou erwriter eford@canadianunderwriter.ca Vice President insBlogs Alex Page Papanou Gail -5117 Connect with Canadian insBlogs Underwriter Insurance Blogs hosted by Canadian Underwriter Associate Publisher Vice President urance Newswire (416) 510-5117 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4
Canadian Underwriter October 2017
ISSN Print: 0008-5251 ISSN Digital: 1923-3426
BY GREG MECKBACH
FOCUS
6 Editorial 11 Marketplace 66 Moves & Views 68 Gallery
ISSN Print: 0008-5251 ISSN Digital: 1923-3426
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Connectivity is changing the business of insurance. It’s about access to information when, where and how you want it. That’s what consumers expect, your employees need and your business demands. Find out why more insurance brokers rely on Applied software to manage their business anytime, anywhere. At Applied, we are connecting the business of insurance. See how at appliedsystems.ca/connectivity appliedsystems.ca
EDITORIAL
Thinking the Unthinkable
When one considers the number of devices with dials that glow in the dark, it is not even necessary for a loss to be caused by a hostile act or a reactor meltdown for the radioactive contamination exclusion to be triggered. Greg Meckbach
Associate Editor Canadian Underwriter greg@canadianunderwriter.ca
6
Canadian Underwriter October 2017
Brokers who watched the final panel of insurance chief executive officers (CEOs), at the recent RIMS Canada’s annual conference, would have heard that the Corporation of Lloyd’s perceives terrorism and nuclear incidents as two of today’s “top four” man-made threats. Power outages and a market crash are the other two man-made threats that comprise the top four, Lloyd’s Canada chief executive officer Sean Murphy said during the RIMS Canada CEO Panel Plenary. At the time, Murphy was alluding to the Lloyd’s City Risk Index, which uses research from the University of Cambridge. While the September 11 attacks 16 years ago are, no doubt, still fresh in many brokers’ minds, the threat of future terrorism and nuclear incidents should be top of mind. This is not because one should always fear the worst, but the issue for brokers is that for many policyholders, a terrorist attack would be excluded from a property policy. Also there could be a small-scale incident involving radioactivity, which is excluded from a property policy and for which compensation is not available under Canada’s Nuclear Liability Act. While the reasons for such an exclusion might be perfectly understandable — carriers are concerned about the aggregation of risk
from nuclear incidents or large-scale attacks — brokers should question whether or not a small-scale incident could cause a backlash from clients who felt they should have been covered. A bomb detonation could cause an expensive economic loss for an individual or business — even if the loss is small for an insurance carrier — yet it could be an excluded risk if it was caused by terrorism. There is also the scenario of a dirty bomb exploding in a populated area, causing few casualties, but resulting in tens of millions of dollars worth of losses. Incidents of this nature would not necessarily cause a balance sheet problem for an insurer, but might not be covered due to an exclusion for contamination of radioactive material. When one considers the number of devices with dials that glow in the dark, it may not even be necessary for a loss to be caused by a hostile act or a reactor meltdown for the radioactive contamination exclusion to be triggered. All of this is to suggest that the radioactive contamination and terrorism exclusions might be worth pointing out to clients whose knowledge of insurance is miniscule compared to that of a broker. In a 2013 court ruling — Bronfman v. BFL Canada Risk and Insurance Services Inc. — an Ontario judge explained that previous case law established “that an
insurance agent’s duty when asked to obtain a specific type of coverage is to use a reasonable degree of skill and care in doing so and to inform the principal promptly if such coverage is not available.” The Bronfmans sued their broker and won. Their home had been broken into, but their insurance had sub-limits on cash, jewellery, furs and collections. Although the broker argued the insureds ought to have read their own policy, an expert witness testified that few clients ever read their own policies and that the broker’s obligation is to explain the extent of coverage to clients and to point out relevant gaps. Coverage that does not exclude terrorism or radioactive contamination may not be easy to find, but insurance providers should not take for granted that all insureds are aware of all exclusions. After all, if a localized incident causes total economic losses of, say, $100 million, and none of that is insured, what is the risk to the reputation of the industry? After the 2013 Alberta floods, the reputation of some insurers took a beating. The fact that consumers could easily have read their policies to find their flood exclusions did not change the fact that there was a coverage gap. As consumer advocates, brokers could be instrumental in addressing coverage gaps in risks considered top of mind for carriers.
You see the Internet of Things changing your industry. Nick sees businesses two steps ahead. We have a checklist to help plan for the Internet of things. aig.com/innovative-tech
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. Š American International Group, Inc. All rights reserved.
Curtain Call. Celebrating nine years of recognizing our national leaders. The CIP Society created the National Leadership Awards to celebrate excellence and to recognize individuals who demonstrate a passion for learning, dedication to the profession, personal integrity and outstanding commitment to their organizations. The Society is proud of its role as a supporter of those industry leaders who act as role models and mentors. Their positive influence energizes and inspires the people around them. They enrich their communities. And they bring great credit to our industry. We thank all the nominees, as well as those who took the time to nominate them for this prestigious national award.
To our 2017 Honouree, the CIP Society offers congratulations for earning the respect and admiration of your peers in the industry. Alex Stringer | FCIP, CRM Assurances J -Marc Beauregard Inc., Marieville, QC Emerging Leader
Alex will be inducted into the CIP Society National Leadership Circle at the Institut d’assurance de dommages du Québec convocations in January 2018 in Quebec City, and March 2018 in Montreal.
CIP Society National Leadership Circle Established Leaders Ginny Bannerman, CIP (2013) Carla Blackmore, FCIP (2009) Ron Bouwmeister, FCIP (2010) Diane Brickner, CIP (2012) James Cameron, FCIP (2013) Glenn Gibson, CIP (2011) Andrew Janzen, FCIP (2009) Johanne Lépine, FPAA (2014) Barry F. Lorenzetti, CIP (2012)
Emerging Leaders Paul Martin, CIP (2016) Patrick McNally, FCIP (2009) Lynn Oldfield, FCIP (2014) Robert Pearson, FCIP (2016) Greg Thierman, CIP (2010) H. Ross Totten, FCIP (2009) Raymond White, FCIP (2010)
Bryan Bedford, FCIP (2015) Rob Bickerton, FCIP (2010) Patrick Bouchard, PAA (2009) Simon Charbonneau, FCIP (2011) Andrew Clark, FCIP (2011) Drew Collins, CIP (2012) Anne-Marie Deschênes, PAA (2013) Mathieu Gagnon, PAA (2010) Vincent Gaudreau, FPAA (2011) Lindsay Mackenzie, FCIP (2013)
For more information about the nomination process, to read about our CIP Society National Leadership Circle recipients, or to register to attend the awards presentation at your local Institute Convocation, please visit www.insuranceinstitute.ca/cipsociety
Melanie Needham, FCIP (2010) Thomas Newby, CIP (2009) Tammie Norn, FCIP (2013) Adrian Osti, FCIP (2014) Frederik Pelaez, FCIP (2012) Phillip Robichaud, FCIP (2009) Kevin Sigouin, CIP (2012) Jonathan Stone, FCIP (2009) Laura Van Vliet, CIP (2016)
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Canadian Market DIRECT WRITER ESURANCE EXPANDS INTO ONTARIO Allstate’s Esurance unit announced in September that the company is expanding its online auto and home insurance into Ontario. Esurance provides homeowners and auto insurance direct to consumers. Allstate reported in 2015 its Esurance unit is expanding into Canada, offering auto insurance online directly to consumers in Alberta. Originally owned by White Mountains, Esurance launched its website and started writing personal auto insurance in the United States in December 1999.
BC GOVERNMENT DECLINES TO HIKE ICBC RATES 20% The British Columbia government recently announced it is limiting its government-run auto insurer to rate increases of 6.4%. The rise in the basic rate will be far lower than “the 20% rate hike that was recommended by the report commissioned by the previous government and released in July 2017,” attorney general David Eby, also minister responsible for ICBC, says in a statement. An earlier report by Ernst & Young LLP concluded, among other things, that premiums charged by ICBC are not high enough to cover claims, the system is not sustainable and the cost of the average
minor bodily injury claim had risen well beyond the rate of inflation since 2000.
DEMUTUALIZING MAY NOT BENEFIT SOME INSURERS While Economical Insurance plans to submit in 2018 a conversion proposal outlining a proposal to demutualize, if a smaller mutual property and casualty insurer were to go through the same process as the insurer, it “may not realize the benefits when all practicalities are considered,” A.M. Best Company Inc. suggests in a recent report. Economical Insurance suggested earlier that it expects to submit its conversion proposal, to the federal Office of the Superintendent of Financial Institutions, before February 22, 2018. The majority of the insurer’s mutual policyholders voted in 2015 in favour of proceeding with demutualization. “Economical has noted that the demutualization process has taken longer to complete than the demutualization of life insurance entities in the 1990s due to opposition that simply did not exist in the past,” A.M. Best notes in the report, Canadian Property/Casualty and Life Remain Stable as Economy Rebounds, While Housing Market Bears Watching. “Although Economical Mutual may have the size and scale to accomplish the process favourably, smaller mutual companies that attempt to demutualize may not realize the benefits when all practicalities are considered,” A.M. Best adds.
Regulation COURT RULES ON BI PREJUDGMENT INTEREST The reduction in Ontario’s prejudgment interest rate for pain and suffering from auto bodily injury (BI) lawsuits was intended to apply to collisions that occurred before 2015 if a lawsuit goes to trial after Bill 15 took effect, the Court of Appeal for Ontario ruled in September. The Courts of Justice Act “defines ‘prejudgment interest rate’ as the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced,” writes Justice Jean MacFarland of the Court of Appeal for Ontario in a ruling released September 19. But before Bill 15 took effect in 2015, there was an exception for damages for non-pecuniary loss (or pain and suffering) arising from BI or death arising from use and operation of a vehicle. For such damages, Bill 15 reduced the rate from 5% to the bank rate “at the time the proceeding was commenced,” Justice MacFarland adds in the court’s ruling in Cobb v. Long Estate. That case arose from a motor vehicle collision that occurred in 2008 and went to trial in 2015. The plaintiff argues the interest rate change “should not apply retrospectively to a collision that occurred in 2008.” The court disagrees. “The expressed goal” of Bill 15, “was to bring down
the cost of claims to achieve a reduction in automobile insurance rates within a two-year window and the adjustment of the prejudgment interest rate was one part of that strategy,” Justice MacFarland writes.
ONTARIO PROPOSES MANDATORY SURETY BONDS Surety bonds written by licensed insurers will be mandatory for certain public construction projects in Ontario if a bill tabled in September is passed into law. Bill 142 proposes several amendments to Ontario’s Construction Lien Act to ensure construction subcontractors are paid promptly. A proposed new section of the law “creates requirements for a contractor who enters into a contract with an owner that is the Crown, a municipality or a broader public sector organization” to provide the project owner “with a labour and material payment bond, and with a performance bond, if the contract price is above the amount set out in the regulations,” the provincial government states.
Claims SPRING DISASTERS COST INDUSTRY $223 MILLION Two significant spring storm and flooding events in eastern Ontario and western Quebec resulted in more than $223 million in insured damage, Toronto-based Catastrophe Indices and Quantification Inc. (CatIQ)
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reported in September. Between April 5 and 7, a pair of low-pressure systems resulted in major flooding in southern Quebec and wind damage across parts of Ontario and Quebec, Insurance Bureau of Canada (IBC) reports. This system caused more than $106 million in insured damage. The second event, one month later on May 5 through 7, led to major flooding across parts of eastern Canada after multiple days of significant rainfall.
Technology SOFTWARE DESIGNED TO DETECT CELLPHONE USE Computer algorithms developed by engineering researchers at the University of Waterloo in southwestern Ontario, can accurately determine when drivers are texting or engaged in other distracting activities, the university reports. The system uses cameras and artificial intelligence (AI) to detect hand movements that deviate from normal driving behaviour and grades or classifies them in terms of possible safety threats, explains a press release from the university. Algorithms at the heart of the technology were trained using machine-learning techniques to recognize actions such as texting, talking on a cellphone or reaching into the backseat to retrieve something, the statement adds.
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AUGMENTED REALITY COULD PREDICT RISKS: NOVARICA Augmented reality (AR) and virtual reality (VR) each boast considerable potential for impact within the insurance industry, with implications spanning risk mitigation, improved efficiency and loss ratios, and enhanced customer service, notes a new brief from Novarica. While their effect will have the greatest impact over time, AR and VR each have potential for consequences within the industry, Novarica states in the executive brief, Augmented and Virtual Reality: Potential Use Cases for Insurers, released in August. Carriers “are adapting to these recent trends with strategies to approach the market with simplified product sets and the technological capabilities to enable and support a defined, flexible, and well-connected distribution,” the brief adds.
Reinsurance REINSURANCE INDUSTRY CAN ABSORB HURRICANE LOSSES: FITCH RATINGS The reinsurance industry is “well-equipped to handle substantial hurricane losses,” Fitch Ratings Inc. suggests in a release issued a week after Hurricane Irma made landfall in Florida and two days before Hurricane Maria made landfall in Puerto Rico. Fitch Ratings reported September 12 “the combined high end of estimated losses
from both Hurricanes Irma and Harvey” is US$85 billion. Harvey made landfall on August 25 in Texas. “Reinsurance limits after Hurricane Irma need to be reinstated,” A.M. Best Company Inc. notes in a separate briefing in September. “Although most companies have already purchased automatic reinstatement coverage to protect against a second event, not all companies are prepared to cover a third.” Hurricane Maria brought a storm surge of six to nine feet to Puerto Rico, Verisk Analytics Inc.’s AIR Worldwide unit reports. “The growing frequency of severe hurricanes in the Caribbean could result in higher reinsurance costs when contracts are negotiated next year,” A.M. Best warned September 19.
2016 ACCIDENT YEAR COMBINED RATIO 101% The global reinsurance market is “far from thriving,” and while the Lloyd’s market “maintains an excellent business profile,” its accident-year combined ratio in reinsurance exceeded 100, notes a recent A.M. Best Company Inc. report. In Down But Not Out: Reinsurers Look to Reposition Amid Market Disruption, A.M. Best states the reinsurance industry had a combined ratio of 95.2% in 2016, up 4.8 points from 90.4% in 2015. Last year’s accident-year combined ratio, however, was 101%.
“This is the first time we’ve seen an accident-year loss in over 10 years, with the exception of 2011, which had several significant global catastrophes,” it states. Overall, the reinsurance market had net premiums written in non-life of US$139.5 billion in 2016, up from US$137.6 billion in 2015. The combined ratio during the first half of 2017 amounted to 94.8%.
Risk NON-CYBER POLICIES COULD STILL RESPOND TO CYBER About half of polled insurance industry practitioners see the risk of “silent cyber” exposure (potential cyber-related losses due to silent coverage from insurance policies not specifically designed to cover cyber risk) as growing over the coming year, suggests a recently released survey from Willis Re. The silent cyber risk outlook poll consisted of a sample of almost 750 participants, including leaders and experts at more than 70 insurance companies and groups around the world. The focus for the survey was on first-party property, third-party auto liability, third-party other liability and workers’ compensation. Examples of silent cyber exposure could include a cyber attack on an industrial plant’s control system that causes a boiler explosion or malware causing an elevator to fail.
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PROFILE
Community Involvement Greg Meckbach Associate Editor
Brokers need to do more than just sit in their offices for eight hours a day, suggests Brian Purcell, president-elect of the Insurance Brokers Association of Ontario. As a hockey coach, volunteer fire department captain, and broker with more than 20 years of experience serving a small community, Brian Purcell has some advice for property and casualty insurance brokers. “Be a member of something,” suggests Purcell, president-elect of the Insurance Brokers Association of Ontario (IBAO). “Go attend stuff. Don’t just sort of sit in your office for eight hours a day and go home and do nothing,” he says. With four children, a brokerage to run and two hockey teams to coach, Purcell probably has few, if any, idle evenings. “I am very involved in a lot of different things in 14
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our community,” Purcell says of his home town of Spencerville, located about 70 kilometres south of Ottawa. “It’s a bit of a joke,” Purcell reports. “If I’m at an event and everybody is doing introductions and I introduce myself as a member of the fire department or optimist club or something like that, somebody else finishes it off and starts naming a bunch of other things.” By day, Purcell is a broker at James Purcell Insurance Broker Ltd., named after his father. The elder Purcell founded the firm in 1973 and still services most of the brokerage’s farm clients. Purcell currently shares ownership with his wife, Colleen, and with his father.
insurance business in 2011. Licensed as a p&c broker since 1995, Purcell worked two days a week during the mid-1990s in Ottawa for London Life while working the other three days for his father in Spencerville. In 2002, Purcell began volunteering — as Territory 12 director — for IBAO.
CULTIVATING YOUTH
“I started going to (IBAO) conventions with my father,” he relays, adding that in 2002, the IBAO board was “looking for someone to fill” the Territory 12 director’s spot. “That was just at the time that the Young Brokers Council (YBC) was starting,” Purcell recounts, pointing out he was later co-chair and then chair of the council. IBAO encourages members under the age of 40, or those with less than five years of experience as a broker, to join YBC.
Brian Purcell is scheduled to succeed Traci Boland, a partner with London-based Ontario West Insurance Brokers, as IBAO president this January. Born and raised in Spencerville, Purcell began his insurance career with London Life after graduating from Trent University in 1991 with a degree in business administration. Purcell still has his life insurance licence and some group benefits clients, but he sold his book of life
“If they have it set up so that young brokers know there is an opportunity for ownership, I think it will be a driver for them to work a lot harder.”
“Being involved with YBC for such a long time, I would really like to see broker principals and owners look a lot more towards the young people coming up into the brokerages, to look at them as future buyers as opposed to just going to a company and selling off to a company or some other big firm,” says Purcell. “If they have it set up so that young brokers know there is an opportunity for ownership, I think it will be a driver for them to work a lot harder and become a lot more involved and to become more engaged in the brokerage,” he adds. In addition to his involvement with IBAO, Purcell serves on the discipline committee of the Registered Insurance Brokers of Ontario’s council. He was president of the council in 2010 to 2011 and chaired its qualification and registration committee in 2009 to 2010. In addition to serving as a captain with the local volunteer fire department, Purcell coaches two hockey teams, including one in an initiation hockey program for children aged three to six.
INFORMATION FLOW As incoming IBAO president, one issue high on Purcell’s
PROFILE
Photo: Peter Tym
resources in their office,” he suggests. Another major issue on Purcell’s radar is membership fees. Smaller brokerages tend to pay more per individual broker, in IBAO fees, than larger brokers. “We are looking at how to revamp the fee structure so it makes it fair for everyone, but also makes IBAO a viable association going forward,” reports Purcell. “When we lose membership dollars, it’s not really because members are cancelling. It’s because a smaller brokerage was purchased by a larger brokerage. So with the larger the brokerage, we are collecting less money per individual broker,” he explains.
radar screen is the integration — or lack thereof — between broker management systems (BMSs) and insurance company computer systems. “We are trying to make it much easier so that the information flows back and forth in one channel as opposed to each company building their own individual systems,” reports Purcell. Insurance companies are “continuing to move” towards
the vision of enabling the automatic transfer of data, back and forth, between our broker management systems and those of the companies, he suggests. However, “the problem is some companies that want to move forward — they are moving forward on their own rather than through the brokers,” contends Purcell. “Part of that is a lot of brokers don’t have the digital know-how or the digital
AUTO REFORM Meanwhile, David Marshall’s report on Ontario’s auto insurance system “is something we will definitely be spending quite a bit of time on, too, depending on where that goes,” says Purcell. Marshall, previously chief executive officer of Ontario’s Workplace Safety and Insurance Board, was appointed in 2015 as a special advisor to the finance minister to review and make recommendations on auto insurance in the province. Fair Benefits Fairly Delivered: A Review of the
Auto Insurance System in Ontario final report, was released April 11. In it, Marshall makes 35 recommendations, noting that accident rates are falling, but claims costs continue to rise. Marshall contends that neither the behaviour of personal injury lawyers nor “excess profits” of insurers are to blame for rising rates. Two weeks after the report was released, the Liberal government reported in its 2017-2018 budget document that is was “reviewing” Marshall’s recommendations and will be hosting consultations. In his review, Marshall recommends the province amend auto insurance regulations “to include only broad principles and entitlements for benefits,” and that auto insurance be overseen by an “arms-length regulator with a skills-based board.” IBAO officials “have a good relationship” with members of provincial and federal governments “because they know we are there for the best interest of the consumer,” Purcell says. “So the biggest thing is, as long as we are at the table and there is good dialogue going back and forth, I think if there is any opportunity for some changes that can benefit the consumer — it will be welcome.” October 2017 Canadian Underwriter
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Compromised Data
Antoine St-Germain
Partner, Gasco Goodhue St-Germain LLP
Gasco Goodhue St-Germain is a member of The Arc Group of Canada, a network of independent law firms across Canada.
A Quebec court recently ruled that obtaining credit reports and replacing accounts are potentially matters for which plaintiffs could be entitled to compensation in a class-action lawsuit arising from a breach of a retailer’s payment card data. When a company with consumers’ personal information is the target of a data breach, that same company could be sued by consumers alleging they suffered the inconvenience of having to set up credit monitoring and cancel payment cards, among other things. In Quebec, however, there are not a lot of judgments on the extent of general damages which may be claimed by purported victims of cyber breaches. The vast majority of such cases are dealt with through the class action process and this body of case law — developed as a result of the certification process — provides at least a partial answer. During the certification process, the proposed class representative must demonstrate a prima facie case to meet the conditions imposed Quebec’s
Code of Civil Procedure, which stipulates “the Court authorizes the class action if… the facts alleged appear to justify the conclusions sought.” It is in this context that courts must determine whether or not the proposed class representative arguably suffered a loss as a result of the defendant’s fault. The petitioner must, thus, allege, with sufficient precision and some evidence, his “damages” and demonstrate a prima facie cause of action. Also in this context, case law was developed on the issue of what, if any, general damages — such as pain, suffering and anguish, or the mere possibility that one’s personal information fell into the wrong hands — constitute a valid cause of action. In 2017, the Superior Court of Québec examined this issue in the matter of Zuckerman vs. Target Corporation. On December 19, 2013, Target publicly acknowledged that there had been “unauthorized access to Target payment card data, including customer name, credit card or debit card number and the cards expiration date and security code.” The following day, Target reported in a press release and a mailing to its customers that there was no indication that PIN numbers had been compromised. Further, the company noted that it would offer free credit card monitoring services for everyone impacted. On January 10, 2014, Target announced that certain other information had been taken and, on the same day, it extended its offer of one year
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of free credit monitoring to all customers who shopped in its stores in the United States. A number of class actions followed in the U.S. Evan Zuckerman, a Quebec resident, alleged that he used a credit card issued by a U.S. bank to shop at a Target store in the U.S. On January 20, 2014, he received an email from Target advising that his personal information may have been compromised. On January 23, 2014, he purchased a credit monitoring package at a price of $19.95 per month and made the first payment. The next day, he received an email from Target offering one year of free credit monitoring, which Zuckerman signed up for. He also cancelled the monitoring package he had purchased. He did not, however, recover the $19.95 he had just paid for the first month. On March 13, 2014, Zuckerman requested authorization, from a Quebec court, to institute a class action in which he would claim the following on behalf of its members: • compensatory damages for fear, confusion, inconveniences or loss of time; • compensatory damages for any costs or fees incurred; • compensatory damages for any losses incurred as a result of fraud or identity theft; and • punitive damages. Zuckerman alleged inconveniences and the $19.95 expense he incurred. He did not allege having been the victim of fraud or identity theft. He did produce emails from other purported class members who alleged fraud or identity theft, stress, fear, insecurity and the inconvenience of changing their bank account or credit card. Target argued the following: • inconveniences are not compensable damages; • the $19.95 expense did not constitute a direct consequence of Target’s alleged fault; • Zuckerman was not the victim of fraud or identity theft; and • for the others, the proof was weak. The court analyzed the allegations and, 18
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more specifically, the inconveniences, credit monitoring services, fraud or identity theft and punitive damage issues. On the notion of “inconveniences,” the court provided a synopsis of the applicable case law. It referred to the general principles enunciated by the Supreme Court of Canada in its ruling, Mustapha v. Culligan of Canada Ltd., which was released May 22, 2008.
ORDINARY ANNOYANCES In Mustapha, the court established a distinction between “damages,” which are compensable and ordinary “annoyances,” which are part of modern life and are not compensable. “Psychological disturbance that rises to the level of personal injury must be distinguished from psychological upset,” Chief Justice of Canada Beverley McLachlin wrote on behalf of the court in Mustapha.
Minor and transient upsets do not constitute personal injury, and hence do not amount to damage. “I would not purport to define compensable injury exhaustively, except to say that it must be serious and prolonged and rise above the ordinary annoyances, anxieties and fears that people living in society routinely, if sometimes reluctantly, accept,” Justice McLachlin added in Mustapha. “Quite simply minor and transient upsets do not constitute personal injury, and hence do not amount to damage.” Although stemming from a Common Law province, the principles set out in Mustapha were applied by the Superior Court of Québec in its 2012 ruling, Mazzonna v. DaimlerChrysler Financial Services Canada Inc. In Mazzonna, the Quebec court stated the following: “While the appeal in Mustapha was from a judgment of the Ontario Court of Appeal and while there may be differences in the contractual and delictual
(tort) rules of both jurisdictions, the Court finds no reason to conclude that the distinction between a compensable damage as opposed to an ordinary ‘annoyance’ of life should not apply in Quebec Law.” The Mazzonna case arose after DaimlerChrysler Financial Services Canada Inc. sent, in 2008, a letter disclosing it was notified by a courier service that a data tape “sent by Chrysler Financial containing certain customer information was destroyed or lost in transit.” That tape, DaimlerChrysler reported at the time, “requires specialized software and equipment to read,” but does “contain some personal information,” including names, addresses and social insurance numbers. In Mazzonna, the Superior Court of Québec refused to certify the class as the damages claimed (summarized as anxiety upon and after learning that petitioner’s personal information had been lost, and as a consequence of having to change some habits in the way petitioner managed her bank account) were prima facie of the nature of ordinary “annoyances” of life and did not constitute compensable “damages.” In that case, there was no proof or allegation of an attempt to defraud or of a fraud itself. As noted by the court in Zuckerman, after the class was rejected in Mazzonna, a new motion — arising from the same incident — was filed with a new petitioner, Maxime Belley, against TD Auto Finance Services Inc. This new petitioner was the victim of identity theft. Although in itself it is said there is no need for an actual allegation of fraud, the class action was allowed by the same judge who presided over the Mazzonna case in 2015. In Belley v. TD Auto Finance Services Inc., however, the inconveniences included, amongst others, an important number of measures taken by the petitioner, which were qualified as over and above ordinary “annoyances.” The complaint also included expenses and an allegation of fraud. The presiding judge in Zuckerman referred to the 2015 Court of Appeal of
Québec decision, Sofio v. Organisme Canadien de Réglementation du Commerce des Valeurs Mobilières, where a class action was once again dismissed because of the failure to allege sufficient “damages” that exceed the steps generally taken by any reasonable person to protect his assets. After analyzing the case law, the presiding judge in Zuckerman concluded the following: “… the monitoring of bank accounts and credit cards constitute normal activities and not inconveniences for which the account or card holder can recover damages. However, other matters such as setting up credit monitoring and security alerts, obtaining credit reports, and cancelling cards or closing accounts and replacing them are not ‘ordinary annoyances, anxieties and fears that people living in society routinely, if sometimes reluctantly, accept,’ but may amount to something more. These are potential-
ly matters for which class members would be entitled to compensation.” On the issue of credit card monitoring, the judge found it was premature to rule on the issue of determining if the expense was a direct, logical and immediate consequence of the breach as the allegations were sufficient for the class action to be authorized. Furthermore, on the issues of fraud and identity theft, the judge did point out that Zuckerman could not base the class action on a damage he did not suffer. The description of the proposed class was, nonetheless, quite wide. Finally, on punitive damages, as Zuckerman alleged loss of private information and intentional fault, the judge found that he brought himself within the definition of “intentional interference” stipulated in Quebec’s Charter of Human Rights and Freedoms, which provides for punitive damages in such circumstances.
THE LESSON LEARNED In Quebec, the certification of a class action has a low threshold. The courts are required to weed out those cases where the petitioner has no chance of success. In doing so, the courts have determined that, when dealing with loss of personal information, there must be more than mere “annoyances,” which are considered a normal aspect of modern life. Although an organization that falls victim to a cyber attack must continue to be proactive, take reasonable means to protect its clients’ personal information and establish a rapid response in case of a breach (which should include free monitoring for its clients), the mere existence of a breach does not automatically open the door to a claim for general damages. It will be interesting to actually read the judgment on the merits should the Zuckerman class action actually proceed on the merits.
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Regulatory Reform
Insurance regulatory frameworks are becoming disrupted as new technologies and the rise of social media are changing the way insurance is bought and sold.
Brian Reeve
Partner, Cassels Brock & Blackwell LLP
Disruptive technologies are affecting all aspects of the operations of insurers, including the products that are offered and how they are distributed. These changes are creating significant challenges for insurance regulators as their regulatory frameworks become disrupted as well. The traditional model for regulating insurance was based upon a concept that an insurer needed to be licensed within a specific jurisdiction that had borders around it. For example, an insurer that wished to do business with residents of Ontario required both a licence at the federal level issued by the Office of the Superintendent of Financial Institutions (OSFI), as well as one issued by the Financial Services Commission of Ontario (FSCO). It was assumed that an insurer that wished to insure Ontario residents would be required to both engage in solicitation activities in Ontario, as well as to normally establish a physical presence. Because the activities of the insurer physically occurred within Ontario, it was relatively easy for both OSFI and FSCO to regulate them. In the event that an insurer did not comply with applicable laws, a cease and desist order would be issued that would effectively prohibit the activities and which could be easily enforced.
Both OSFI and FSCO would have jurisdiction over the activities since they would be occurring within Ontario.
INTERNET SALES When the Internet was first used for the sale of insurance, it was assumed that the normal rules for regulating an insurance transaction would be applicable. It would be necessary for the insurer to be licensed in the jurisdictions of residents that it accepted applications from. It was also assumed that licensed agents and insurance brokers would still be involved (or available) in order to help facilitate online insurance transactions. However, new technologies, as well as the growing popularity of social media, has resulted in significant changes to how insurance is being sold online. It has become difficult for Canadian insurance regulators to stop the sale of insurance transactions from online unlicensed insurers. Both OSFI and FSCO lack jurisdiction to either prohibit or enforce Canadian insurance regulatory laws for transactions occurring outside of Canada. Significant consumer protection regulatory issues may occur as a result. An unlicensed insurer is not required to maintain assets in Canada and
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few remedies will exist in the event that claims are not paid. The physical location of the insurer has become less relevant and the use of cloud computing has increased the complexity of determining where an insurance transaction is actually occurring and where the data regarding it is stored. The location of a website’s servers has become an important issue for insurance regulators who have traditionally required full records to be physically maintained in their jurisdictions.
REINVENTING THE POLICY The traditional approach to insurance products and pricing was based upon an insurance model developed hundreds of years ago. In the pre-Internet era, insurers had a limited ability to use data in order to underwrite and price products. A traditional insurance policy was provided on a uniform basis in order to ensure consistency and certainty with respect to its coverage. It was not possible to customize the product that was offered, except by the limited use of endorsements. For certain products such as automobile insurance, a variation from a governmentapproved policy was not permitted. Similarly, rating systems were developed that used a very limited number of factors, such as geographic location and certain characteristics of the property that was being insured. Insurance pricing was based on actuarial analysis using backward looking historical data. The traditional insurance model was based on the concept that the owner of property was responsible for its use and would want to insure its full value. In a “sharing economy,” the ownership of property becomes less important. It has become less relevant who owns property as compared to who is actually using it at a specific point in time. Insurance pricing models will need to evolve to move away from a concept of owning property to one based on actual usage. It is now possible for insurance to be priced using “real-time” or forward22
Canadian Underwriter October 2017
looking data (including predictive analytics). Insurers are now able to use the large amounts of data that are available about their customers and their risks to develop individualized pricing models. As insurance policies become more personalized, it will become increasingly difficult for insurance regulators to control the product that is being offered. This issue will be even greater in the United States, where state insurance regulators must approve both the form and rate of all insurance products. In Canada, this type of regulation only exists with respect to automobile insurance.
RISE OF FINTECH “Fintech” is the term normally used to describe technology companies that are established to provide financial services, including insurance. Fintech is basically the integration of finance and technology.
“In the new fintech era, it is possible to design insurance products that are highly customized and tailored to the individual characteristics and requirements of each insured.” Fintech is already changing the way that some consumers purchase insurance. Fintechs are attempting to adopt new technologies faster than conventional insurers, particularly in the areas of pricing and underwriting. Fintech utilizes any combination of the following: • the Internet of things (the use of Internet-connected devices involving smartphones, telematics in cars and sensors in homes); • big data analytics; • artificial intelligence and machine learning; and • distributed ledger technology or blockchain. Fintechs have attempted to develop
new models for providing insurance coverage and pricing it. The basic concept that is facilitated by the Internet and big data is to allow an insured to determine how much coverage is actually required and for what periods of time. Usage-based insurance is now becoming more common with respect to online sales. Fintech allows the consumer to select the specific elements of the policy and coverage that are required and to pay for them based upon the actual amount of usage. Consumers are not required to insure property at its full replacement value. Consumers are able to decide how much coverage they require based upon their individual circumstances. Big data and artificial intelligence offer the promise of more effective individualized underwriting in the future. However, if a consumer is allowed to pick and choose the types of coverage that are required, there is a real possibility of mispricing and adverse selection. A traditional insurance model is based upon a spread of risk using a large group of people with uncorrelated risks and geographic locations.
CUSTOMIZATION Fintechs are also attempting to use blockchain as a way to create more secure and transparent insurance transactions online. It is also possible that Bitcoin will one day be accepted as a way to pay the premium for a policy that is purchased online. In the new fintech era, it is possible to design insurance products that are highly customized and tailored to the individual characteristics and requirements of each insured. Consumers are now looking for personalized products and experiences. They want one-stop shopping, as well as immediate access to products and services. FinTech is attractive to consumers since it allows for immediate online insurance coverage using just a few clicks rather than submitting an application to an insurer and then often waiting days for a quote.
A number of new insurers, particularly in the U.S., are offering what is effectively peer-to-peer insurance. One of the basic concepts of peer-to-peer insurance is that a collective pool of insureds with similar risk profiles is established in which positive underwriting results are shared with the insureds as a bonus payment or return of premium. Peer-to-peer insurance is really a technology-based variation on traditional insurance models such as fraternal benefit societies and mutual insurance companies. Technology permits companies to offer new variations on the mutual concept that are more consumer-friendly and attractive to younger consumers compared to more traditional insurance.
in the future to offer free insurance to their customers as part of the cost of the car. It will be very difficult for an insurance regulatory framework to be provided for with this type of coverage. The traditional insurance regulatory model required a licensed agent or insurance broker to be involved in a transaction to purchase insurance for consumer protection purposes.
It is likely that the sale of insurance on a direct basis will increase in Canada. As more and more transactions occur online, point-of-sale insurance on the Internet will continue to increase. It is becoming more common for an option to obtain insurance to be offered at the time that a consumer purchases a product online. The reduced role of licensed agents and insurance brokers
AUTO INNOVATION A lack of regulatory oversight in these types of insurance models can lead to significant consumer protection issues if the pools that are established are insufficient to pay claims that may occur. A new era of driverless cars that has been made possible by artificial intelligence, machine learning and telematics may be only a few years away. The traditional automobile insurance model that is based upon protecting against the negligence of drivers may be replaced by a model in which accidents are caused by software failures leading to product liability claims. Telematics is allowing actual driving patterns of insureds to be determined and priced accordingly. It is becoming increasingly clear that access to data about the behaviour patterns of insureds is powerful information that will affect both the decision to insure, as well as the pricing of a particular risk. Ride-sharing is also creating challenges for insurance regulators since gaps in insurance coverage may easily occur. For example, people who use their cars for ride-sharing for commercial purposes may not have coverage for such activities under their personal insurance policies. It is possible that manufacturers of driverless cars in Canada may decide
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October 2017 Canadian Underwriter 23
in online insurance transactions will likely result in an increase in market conduct issues. It also creates significant challenges for insurance regulators who may lack the resources or the jurisdictional authority to respond to consumer complaints. It is likely that privacy will continue to increase in importance. The ownership of consumer data and the ability to access and use it will be a critical issue. It will become increasingly difficult for insurance regulators to protect the privacy of consumers, as well as to control how their personal information and other data is used. This issue will become even more important when an insurance transaction is occurring outside of Canada. The era of disruptive technologies provides both significant opportunities, as well as risks, for insurers. It also provides new challenges for insurance regulators. The first step in dealing with these challenges is to appreciate
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that change is inevitable and will accelerate. A new model for insurance regulation that both embraces these changes, as well as attempts to provide practical and effective ways to regulate them and protect the consumers, will be necessary.
GLOBAL COLLABORATION It is clear that insurance regulators will need to take a new approach in response to the disruptive changes that are occurring. It is important to recognize that the insurance regulatory framework is itself being disrupted in addition to the insurance market. Regulators will need to take a more proactive and “real-time� approach to insurance regulation that is based on early intervention and flexible responses. Traditional rule-making provided in legislation needs to be replaced by more informal guidance that can quickly be revised or updated as required. It will be important for insurance reg-
ulators to stay as up-to-date as possible with respect to the effects of disruptive technologies on the insurance industry. Canadian insurance regulators will need to collaborate with insurance regulators in other jurisdictions and attempt to come up with practical and workable solutions for the international regulation of insurance. It is likely that the International Association of Insurance Supervisors will play a much more important role in the future in co-ordinating a global system for insurance regulation. The era of an insurance regulator operating on the basis that its jurisdiction is an island under its exclusive control is over. Insurance regulators must co-operate more effectively with each other on an international basis in the future. They must also adapt and respond to the challenges of disruptive technologies in the same manner as the companies that they regulate.
Buyer Beware Insurers have expertise in flood risk and have access to specific property information, but municipalities, with access to infrastructure data, are in a much better position to advise owners on how to assess their land for flood risk.
Glenn McGillivray Managing Director, Institute for Catastrophic Loss Reduction
Floods involving property damage are nothing new in Canada — the Canadian Disaster Database from Public Safety Canada indicates that more than 300 overland flood events have occurred in the country since 1900 — but it was really the 2013 southern Alberta flooding that brought the peril to the fore. That event, Canada’s costliest insured natural disaster until last year’s wildfire in Fort McMurray, raised a host of questions, including why overland flood insurance was not available in Canada, why the country’s flood maps are in the state they are, and why homeowners and others do not have proper access to information to help them determine whether or not their existing properties are safe or whether or not a prospective property is at risk. While much has been written about the first two, not much has been said of the third. However a blog this past May — posted by the Institute for Catastrophic Loss Reduction to the Canadian Underwriter insBlogs site — discussed the matter of creating a formal mechanism through which home buyers can be informed of the level of flood risk for a particular property. Some who reacted to the piece rightly questioned whether or not such disclosure should
only occur at time of sale, particularly since such a process would only capture a comparatively small number of homes in Canada each year. Others raised the question of the role that the insurance industry could, or should, play in such disclosure, if any. In particular, two main questions arose: 1) Can insurers (read: brokers, agents and carriers) be the ones advising homeowners on how to assess a property for flood risk? 2) Should insurers be the ones advising homeowners on how to assess a property for flood risk? These, it turns out, are two very different questions. The answers get further muddied depending on whether one is considering an existing property or a prospective property.
INSURER CONSTRAINTS Insurers could conceivably be in a position to inform existing property owners about flood risk. After all, they have a direct communication line to the property owner, know where the property is located, have at least some information about the property in question, and have skin in the game, so would benefit from the property owner having such information.
October 2017 Canadian Underwriter 25
But whether or not insurers are in a position to offer such information is an entirely different story. First, fewer than half of the Office of the Superintendent of Financial Institutions-regulated companies operating in Canada offer homeowners insurance. This does not include provincially licenced companies, like Ontario’s farm mutuals. Of these, less than one-third currently offer overland flood coverage. So only a small number of homeowner insurers currently have information to share with their insureds about flood risk (though, to be fair, many are large companies with significant market share). Second, the flood risk information currently held by many insurers is not very detailed. One catastrophe analytics expert reports that insurers are accepting/ rejecting and pricing flood risks according to company-specific variations of notional Average Annual Loss grids that are generated by a probabilistic model that takes both flood hazard and insured property vulnerability into consideration. The geographical resolution of these grids really depends on each company’s systems, and whether they use Forward Sortation Areas, six-digit postal codes or latitude and longitude, for example.
PROPERTY-LEVEL RISK Thus, companies generally do not have access to detailed flood risk at a specific property level. It might be a challenge to communicate this complex process and any findings to the average homeowner. Third, the flood information available only partially addresses the most common and most damaging form of flooding in Canada, which is pluvial (i.e., urban or heavy rainfall-related) flood. Thus, a homeowner may be told that his or her risk of overland flood is low, but still experience flooding as the result of a heavy rainfall event. Fourth, the information currently being used by the relatively few insurers offering overland flood insurance in Canada may, at least partially, be obtained from old (and sometimes very old) flood 26
Canadian Underwriter October 2017
maps. While some jurisdictions in Canada have newer flood maps, and some have incorporated climate change projections into their maps, most places have very dated maps that do not incorporate the last several decades of development or climate change into their inundation footprints. Even if Canadian insurers were willing to be the source of flood risk information for Canadian homeowners and home buyers, they would be strongly advised not to undertake such an endeavour until the country’s flood maps have been updated and a commitment is made to keep them updated. Whether or not insurers could be in a position to inform prospective property owners about flood risk to a property is far less clear. It can be argued that once an insurer enters the picture, it might
Companies generally do not have access to detailed flood risk at a specific property level. be too late in the process for the buyer to learn whether or not a property is at risk of flooding and, therefore, to act on the information — for instance, to back out of the real estate deal. Thus, it is probably better to create a mechanism through which a home buyer could determine the flood risk of a property early on so the information could be used as part of home-buying decision-making process. The next question is whether it is — or should be — the insurance industry’s responsibility to act as the source of flood risk information for current or prospective property owners. As noted, there may be a strong argument in favour, given insurers’ direct relationships with homeowners and the open avenues they have to communicate with them. And with the burgeoning overland flood insurance market in Canada, these companies have a strong incentive to provide such information, as knowledge of risk could lead to risk
avoidance or loss control measures being put into place by the insured. But governments, particularly local governments, also have a direct relationship and open avenues of communication with property owners. What is more, they are responsible for drainage-related infrastructure, community planning and zoning, first response/emergency management and, in many cases, flood mapping. In addition, they have access to site plans, neighbourhood plans, drainage and other infrastructure plans and data, surveying data, building inspection documentation, building permit data, information on future development plans, information about past flood events, and other sources of relevant information. Generally, it makes far more sense for local government to be the source of flood risk information for property owners, particularly since flood risk is not static. With property and infrastructure development and climate change, flood risk changes over time and it would be important to put a formal mechanism into place where homeowners can be informed of changes in flood risk over time. One of the challenges, however, will be to get over the notion — usually argued by local politicians — that identifying a property as being at risk of flood will cause its value to plummet. The reality is that the research connecting flood risk disclosure to property value is really not all that clear, and much of it indicates that an actual flood itself will cause property values to decline, not the labelling of a property as being at risk. If the industry is going to get anywhere on the flood risk disclosure file, this bogeyman must be put to rest.
HOW TO DELIVER One of the remaining questions is how to communicate flood risk to those current or prospective homeowners that are interested in learning about the exposure presented by a given property. Some may argue that flood maps for some areas in Canada can be very difficult to locate, and this is undoubtedly true. Some may also say that flood maps should be made available to the
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general public so they can see if a particular property is at risk. But this may not be the best plan. While it is true that flood maps should be easily accessible (as many people and organizations need them for various reasons), the general public needs something more straightforward to reference in order to get a rating of their flood risk. Expecting an average person to be able to read and understand a regulatory floodplain map is unrealistic. Just consider for a moment how even semi-knowledgeable people butcher the concept of return periods and it becomes clear that average homeowners should not be left to their own devices to figure out how to interpret a flood map.
LOOKING ABROAD Instead, Canada could take a page out of the book of the United Kingdom, Austria and Poland, for example, where property owners can enter their postal codes into online tools to receive relatively
simple risk information. Such information could help them decide whether or not to purchase a certain property or whether or not to buy flood insurance. In North Carolina, there is a website that contains a Flood Risk Information System, which has accessible flood hazard data, models, maps, risk assessments and reports. This site also provides geospatial base map data, imagery and light detection and ranging (LiDAR) data, along with hydraulic and hydrologic models that are available for download. An interesting feature of North Carolina’s portal is that users can indicate if they are members of the general public or if their information needs are more advanced. It is an imperative that Canadian property owners and prospective home buyers have quick, easy and free access to easily understandable information outlining the risk of flood for a given property. Such information can be used to inform the need for risk avoidance and
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loss control measures, insurance coverage and home-buying decisions, among other things. And while an argument can be made that insurers should be the ones providing such information, a more effective stance is that government, particularly local government, is better suited to be the source of such information.
Editor’s Picks Looking for more information about flood protection? Check out www.canadianunderwriter.ca and search for the following: • Ontario government proposes to ‘strengthen’ conservation authorities’ flood protection role • Time to fine-tune residential flood cover, consider high-risk areas: Enders • Standard would help enhance flood resilience of new communities: report
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Client:
Insurance Institute
Auto Use
Daniel Strigberger
Partner, Samis + Company
Andrew Mercer Associate, Samis + Company
For both auto and non-auto policies, parties sometimes disagree over whether or not property losses or personal injuries are, ultimately, caused by use or operation of a vehicle. Canadian courts are often called upon to decide whether or not claims fall under the definition of “use or operation” of automobiles. Non-auto liability policies — such as homeowners and commercial general liability — tend to exclude claims arising from use or operation of automobiles. Such exclusions tend to be interpreted narrowly. That being the case, it can get murky in incidents
involving multiple classes of negligent acts, some of which relate to auto use or operation. Mandatory auto liability policies in Canada tend to cover claims arising out of the use and operation of the vehicle. The first-party statutory accident benefits coverage is triggered where the claimant establishes he or she was in an “accident,” which the policy defines as“…an incident in which the use or operation of an automobile directly causes an impairment…” Conversely, most liability policies (with the obvious exception of auto policies) exclude liability arising out of an automobile accident and, more specifically, the “use or operation” of an automobile. A commercial general liability policy (CGL), for instance, will generally exclude liability claims that arise from the “ownership, use or operation of an automobile” or other losses that would be covered by an auto policy. The insurer’s intent seems to be clear: to have all liability claims involving an automobile directed to an auto insurer.
TRIP AND FALL There are several (often contentious) cases addressing when an accident arises out of the use, operation or ownership of an automobile. Cover-
October 2017 Canadian Underwriter 29
age provisions under the auto policy are interpreted broadly in the insured’s favour. For example, in the Ontario Licence Appeal Tribunal (LAT) case, 16000131 v. TD Insurance Meloche Monnex, the applicant was running down a street in the early hours and tripped over some stone blocks, lost his balance, and fell head first towards a Honda sedan parked in a driveway. Because he crashed head first into the parked car, he sustained catastrophic injuries. A LAT adjudicator found, in a decision released June 16, that the claimant was involved in an “accident.” The thrust of the finding was that the parking of the vehicle was an ordinary and well-known “use” of a vehicle and the injury occurred because the claimant crashed into the vehicle. Broadly speaking, the so-called “purpose” and “causation” tests were met and there was coverage under the auto policy. Then there are cases where a liability claim is made on a non-auto policy that includes aspects that are completely outside of an auto policy, while also containing allegations that fall squarely within the auto policy. The difficulty for non-auto insurers arises when a plaintiff alleges that a loss was caused by two (or more) classes of negligent acts, some being related to an automobile and some not.
INSECURE PLATE The Supreme Court of Canada addressed this situation in its ruling in Derksen v. 539938 Ontario Ltd., released in 2001. This was a tragic case where a steel plate flew off the back of a trailer, went through the windshield of a bus, killing a child and injuring three others. The plaintiff’s claim obviously included allegations that the truck was operated negligently. However, there were also allegations pertaining to the negligent cleanup of a worksite. Indeed, while cleaning up the worksite, an employee decided to place a steel plate on the back of a trailer, unsecured. Therefore, the plaintiffs in Derksen alleged two types of negligent acts: negligent clean-up of the worksite (not related to 30
Canadian Underwriter October 2017
the automobile) and negligent operation of the truck (related to the automobile) for failing to ensure the truck was safe to drive before going on the highway. The insured’s CGL insurer took the position that the auto exclusion applied. The Supreme Court of Canada, however, concluded that the auto exclusion did not apply to the entire claim, as there were independent allegations of negligence unrelated to the use or operation of the automobile. The CGL insurer had three main factors working against it. First, exclusion clauses are interpreted narrowly in favour of the insured. Second, the doctrine of contra proferentem dictates that any ambiguity in an exclusion is to be interpreted in the insured’s favour. Lastly, the insurer chose not to include any wording in its exclusion to address concurrent causes.
because the allegations all centered on the use or operation of an automobile. The court concluded the following: “…. in substance, all of the allegations of negligence made in the statement of claim allege that the Ungers were injured as a result of the use, operation or ownership of the vehicle driven by Riccia and owned by Matthews or his business. The mere description of some of the acts of negligence as ‘negligent business practices’ does not create a separate and discrete cause of action. Those allegations could assist the Ungers in establishing their claim only to the extent that they helped them demonstrate that the vehicle was being used or operated in a negligent fashion when the accident in which the Ungers were injured occurred.
Coverage provisions under the auto policy are interpreted broadly in the insured’s favour.
Similarly, in the more recent case of Horsefield v. Economical Mutual Insurance Company, released this past August, Ontario’s Superior Court of Justice confirmed that the exclusion will apply unless there are allegations that are completely separate from the use or operation of the vehicle. In Horsefield, the plaintiffs rented their house to their son, who had a tenants policy containing an auto exclusion. The tenant was under the vehicle repairing the brakes when a gas tank fell on the floor and caused a massive fire. A subrogated claim was brought against the tenant to recover the property damage caused by the fire. A central issue in Horsefield was whether or not the claim involved allegations and facts beyond the use or operation of the automobile. The cause of the spark that caused the fire was unknown and, thus, could have been caused by something outside of the use, or operation of the vehicle. The court concluded, however, that the facts in the case seemed to support the fire having been caused by the use and maintenance of the automobile, despite an absence of evidence. It is evident from the decisions in Horsefield and Unger that, despite the Supreme Court of Canada’s ruling in Derksen, it
Considering the aforementioned factors, the Supreme Court of Canada determined that the CGL policy applied with respect to any of the non-auto negligence allegations in the claim, including the allegations regarding the employee having placed the steel plate on the back of the trailer. Later decisions have clarified that the principles in Derksen only apply in instances where there are two genuine, discrete allegations of negligence. It does not suffice for an insured to argue that there are a variety of types of allegations of negligence. This issue was addressed in Unger (Litigation Guardian of) v. Unger, a case involving an automobile accident, but where the plaintiff also sued the driver’s employer for negligent business practices, including hiring and supervising the driver. In Unger, the Court of Appeal for Ontario distinguished the facts from Derksen and found that the auto exclusion applied
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is still not always clear when an auto exclusion will apply where there are concurrent causes. One significant issue is that the policy in Derksen did not specifically address concurrent causes, but some insurers have amended their wording to address concurrent causes specifically. Insurers might be in a better position to rely on the auto exclusion when they have this more specific wording. Moreover, it would be a rare case where there are causes, or alleged causes, that are completely distinct from the use or operation of the automobile. Even in Derksen, it could be argued that the placing of the steel plate on the trailer was part of the use of the truck. There is a surplus of conflicting case law on the issue of which activities constitute the use or operation of a vehicle, and the lack of clarity in that regard spills over into the interpretation of the auto exclusion.
In summary, there are different contexts in which courts must analyze the nexus between a loss (usually property damage or a bodily injury) and the use, operation or ownership of an auto-
One significant issue is that the policy in Derksen did not specifically address concurrent causes, but some insurers have amended their wording to address concurrent causes specifically. mobile. In the context of an auto policy, courts will interpret the wording broadly in determining whether or not a loss was an “accident.” In the context of other policies containing an auto exclu-
sion, the inverse is true: the exclusion will be interpreted narrowly. Moreover, where there are concurrent causes of a loss, an insurer might still be responsible for aspects of a claim that fall outside of the exclusion.
Editor’s Picks Looking for more recent news about auto and liability? Check out www.canadianunderwriter.ca and search for the following: • Reduction in prejudgment interest rate in Ontario auto lawsuits applies retrospectively: Court • EY report on reforming B.C. auto points to impending restrictions in Australia on auto accident benefits for minor injuries • Autonomous vehicles will require a reassessment of liability: RIMS Canada Conference speaker
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Kathy James joins Vericlaim Canada
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Senior general adjuster Myron Zaharia strengthens ClaimsPro presence in British Columbia September 26 — by SCM Insurance Services
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FirstOnSite Restoration strengthens national broker relations team
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New president announced for the Canadian Independent Adjusters’ Association September 25 — by Canadian Independent Adjusters’ Association
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ClaimsPro/IndemniPro announces retirement of Malcolm C. Ross September 21 — by SCM Insurance Services
CSIO offers digital document solution to members
Insurance industry icon Ron Newcomb passes September 13 — by Kernaghan Adjusters
Economical-sponsored Relay For Life events raise $1.35 million for the fight against cancer September 13 — by Economical Insurance
WINMAR is pleased to announce Sue Whittick to the WINMAR family September 12 — by WINMAR®
BBCG Claim Services announces retirement of Ted Baker September 11 — by SCM Insurance Services
Cira Health Solutions opens new medical assessment centre in London, Ontario September 11 — by SCM Insurance Services
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COVER STORY
Measuring Up
The
2017 National Broker Survey
Measuring Up
Broker awareness of the need to remain current in light of ongoing developments, consumer demands and competition is high. But with some stiff challenges remaining, brokers must tackle these head-on or risk becoming less relevant to consumers. That is why Canadian Underwriter undertook its first-ever National Broker Survey. Who better to inform brokers about what works (and what does not) than other brokers? The following insights will provide brokerages — big or small; full-service or specialized — with a clear vision of how best to meet the fast-paced change that is becoming the norm. BY ANGELA STELMAKOWICH
October 2017 Canadian Underwriter 35
COVER STORY
Measuring Up CROSS-COUNTRY CHECK-UP Canadian Underwriter’s inaugural National Broker Survey took the pulse of brokers across the country on issues ranging from strategies to grow their businesses to using technology, attracting talent and advancing the broker value proposition. There were 709 respondents in all. Of the 486 respondents who provided their positions, slightly more than 41% identified themselves as owners/ co-owners, 9% report being a chief/senior executive without a significant ownership stake, 20% note other executive or manager without significant ownership stake, and 30% say front-line broker with little or no management responsibility. About eight in 10 of the 509 brokers commenting on how they spend their days, a meaningful amount of that is spent working directly with customers in a broker capacity (see lower graph on page 38) and almost as many, about 75%, say they are more satisfied than not to be doing what they are now doing. Still, that leaves approximately 25% of surveyed insurance brokers (both front-line and owners) who report there is room for improvement (see Got Satisfaction? on opposite page).
OBJECTIVE: GROWTH Whether owner, manager or front-line employee, though, growth of the business seems quite rightly to be a preoccupation. Asked about the steps that have been taken in the past 12 months to prepare the business for growth, upgrading existing technology was the most commonly cited option for the 237 brokers who provided answers to that question. Rounding out the top five was improving/increasing staff training and development, cited by 73%; adopting new technology, 64%; improving existing sales and marketing efforts, 65%; and improving customer service, 65%. Asked what his brokerage has done to prepare for future growth, Sean Graham’s top three picks involve a mix of person and machine. For Graham, president of Idea Insurance, a digital brokerage based in Hamilton, Ontario, these 36
Canadian Underwriter October 2017
forward-looking efforts are as follows: • scalable technologies: systems that are cloud-based, affordable and allow for mobility let employees work from anywhere and be extremely efficient; • aggressive growth plan: growth at the digital brokerage is viewed less as an art and more as a science, sticking to a tried-and-true formula for success and constantly measuring and optimizing results; and • culture: many businesses plateau because they cannot hire enough or the right type of people, which, in turn, prevents creating “an environment where people enjoy coming to work becomes infectious and helps get over the hiring hump.” Setting the culture is essential, agrees Michael Loeters, senior vice president of commercial insurance for PROLINK, Canada’s insurance connection, which is based in Toronto. “Ensure you have a strong culture where everyone understands the strategic objectives, what needs to happen to achieve these objectives, and that they are all buying in,” Loeters recommends. “If you do not have this, you will always be swimming against the current and make no progress. Culture drives performance, keeps the best talent and attracts the best talent,” he emphasizes. Numbers two and three to make his short list are building risk management expertise and having the right digital strategy in place. With regard to the former, he says that as consumers become more sophisticated, their expectations of brokers are changing. “They want more than cost-effective and comprehensive insurance. Clients want their broker to be a risk consultant that understands their needs, industry, business and unique risks so they can be advised on how to proactively manage risk,” Loeters continues. With regard to developing the right digital strategy, many clients of his brokerage “are expecting their broker to be able to provide online tools that will enable them to transact and access information on a range of things 24/7, without
the need to always talk to someone or wait for an email response,” he relays. These self-service tools, Loeters contends, will allow staff to “spend less time on low-value administrative tasks, and more time on advising, retaining, up-selling, cross-selling, risk services and other activities that contribute to the growth of the firm.” Adds Graham, “I know from experience that having a plan, having the tools to implement it and the people to execute it are the keys to any successful business.” Of course, not everything a brokerage tries will be successful. Still, “I think any brokerage poised for growth needs to take some calculated risks and be prepared to fail,” Graham emphasizes. “One school of thought would be that if you haven’t experienced failures, you are not trying hard enough to grow,” he says. “Growing brokerages need to be able to look at these setbacks as positive learning experiences and then quickly move on to something that works.” Depending on the initiative, concrete results for efforts taken can materialize from immediately to some time down the road. “If it takes too long to see positive change occur, then we are not failing fast enough,” Graham suggests. Loeters takes the view that “a strong company culture yields benefits immediately.” The timeframe is longer for risk management services, he says, with the return likely not seen for 12 to 24 months because of such things as the time it takes to hire the right people, develop the service offering and get comfortable with a fee or service model. “This is a large mind shift for many brokerages who have traditionally made a living from solely the sale of insurance products. Becoming a product and services organization is a big change,” Loeters points out. Considerably faster — he suggests “almost immediate” — is the return from digital enablement. “It is a differentiator when talking to prospects that should improve your quote-to-bind ratio, increase client retention and enable your
COVER STORY
Measuring Up
Got Satisfaction?
0
LEAST possibly satisfied with my employer
1
2
3
4
5
6
7
9
8
6.57%
17.52%
16.79%
17.52%
17.52%
9.49%
6.57%
0.73%
4.38%
0.73%
1.46%
0.73%
On a scale of 0-10, how satisfied are you with your brokerage as an employer?
Sorry, I prefer 10 not to say MOST possibly satisfied with my employer
How satisfied are you with the quality and amount of training/education your brokerage gives you in each of the following areas? 43.88%
35.97%
Somewhat satisfied 15.11% Highly satisfied 5.04%
Highly dissatisfied Somewhat dissatisfied
2.16%
43.48% 21.01%
15.83%
46.04% 23.02%
25.90%
5.04% Technology
1 2
0.67%
5.03%
0.67% 0.67%
3
1.68%
5
28.99%
6
11.41%
Sales techniques
47.10% 21.74% 4.35%
26.81%
34.23%
7
Evaluating customers’ risk
On a scale of 0-10, how satisfied are you with your job?
4 1.56% 5 6.25% 6 7.81% 7 20.31% 8 21.09%
1 3.91%
0
Least satisfied
2 0.78% 3 0.78%
9 15.63% 10 19.53%
0.00%
6.25%
Customer service
0 2.34% 1 0.00%
My brokers are the LEAST possibly satisfied with their jobs
4
Product knowledge
41.73% 40.29%
On a scale of 0-10, how satisfied do you believe your brokers, specifically, are with their jobs?
Most sastisfied
8
8.72%
9
6.04%
10
Sorry, I'd prefer not to say
As to be expected, of the 49 respondents who provided additional comments, about a quarter cited the need for better pay and benefits. However, the next most frequent comments related to the need for additional training, support and communication.
30.87%
My brokers are the MOST possibly satisfied with their jobs
October 2017 Canadian Underwriter
37
COVER STORY
Measuring Up staff to focus their time on activities that grow the bottom line,” Loeters says. “By marrying an effective online solution with effective people resources, we increased our quote-to-close ratio to almost 90%, added 220 new clients in six weeks, and were able to up-sell and cross-sell new products to 35% of these clients,” Loeters reports. But beyond customers, brokers must foster satisfaction on the inside. “Weak culture causes an organization to slip into chaos evidenced by high employee turnover, low productivity and a poor client experience,” he maintains.
Which Which of of the the following following are are aa moderate moderate to serious challenge to your brokerage? to serious challenge to your brokerage? 44.18% 44.18%
Growthofofthe thedirect-to-consumer direct-to-consumer 68.17% 68.17% Growth salesmodel model sales
35.15% 35.15%
change
Proliferationofof Proliferation risksand andassociated associated risks covers covers Consumerself-education self-education Consumer abouttheir theirinsurance insurance about needsand andoptions options needs
10.45% 10.45% 18.76% 18.76% 58.91% 58.91%
Consumermisperception misperception Consumer thevalue valueofofinsurance insurancebrokers brokers ofofthe
Consumerdistrust distrustofof 26.84% Consumer 26.84% insurancebrokers brokers insurance
The experiences of survey respondents offer a wealth of sales and marketing activities that have borne fruit. Asked what activities have provided the biggest bang for the buck at their brokerages over the past two years, input from the 319 respondents who answered the question points to several options. These include customer referral programs (almost 27% of respondents say it is highly effective compared to slightly less than 4% who say it is not effective at all); product education for brokers (27% say it is highly effective compared to 4% who say it is not effective at all); and sales/communication training for brokers (20% say that it is highly effective compared to 3% who report it
79.76% Yes
20.24% No
38
Demographicchange change Demographic amongyour yourcustomers customers among
Legislative/regulatory 26.60% Legislative/regulatory 26.60% change
TRIED AND TRUE
16.8%
Insurance Insuranceindustry industry consolidation consolidation
Canadian Underwriter October 2017
33.97% 33.97%
00
Consumermisperception misperceptionofofthe the Consumer differencebetween betweenbrokers brokersand andagents agents difference
10 10
20 20
30 30
40 40
50 50
60 60
is not effective at all). Perhaps surpris- polled brokers comments. “The success ingly, less positive is that 21% of re- is not based on the social site, the inspondents say charitable giving (cashways or vestment It’s based on Thinking about to have havefinancially, “trusted etc. advisor” Thinking ways the to “trusted advisor”team to labour) is not effective at allabout compared capability of the responding status with your9% customers, how effective status with your customers, effective to 8% who say it is highly effective; maximizehow results,” the broker contends. have the following practices been for you? say online advertising notfollowing at all effec- practices There arebeen also hills climb. The top have isthe for to you? tive, matched by the same percentage six sales and marketing issues posing a Maintain an active 1.23% Maintain an to activeserious who say it is highly effective; and 8% moderate social-media presence 1.23%challenge for the social-media presence who say social media publishing is not 310 brokers who offered responses are Seek PR/media Seek PR/media 0.83% opportunities 0.83% effective compared to 10% who say it is as follows: opportunities Self-publish highly effective. • finding/retaining brokers with good 0.75% (e.g. blog,Self-publish newsletter) 0.75% (e.g. blog, newsletter) “People have to be able to shift prisales skills, noted by 52% of those Consistently draw customers'attention to happenings Consistently drawtake customers'attention happenings orities and learn very quickly thatto could affect their risk respondents; profiletoand exposure 2.13% that could affect their risk profile and exposure 2.13% advantage of opportunities,” one of the • differentiating the company from its Speak at events, 0.92% Speak at events, conduct webinars,etc. 0.92% competitors, cited by 50%; conduct webinars,etc. Proactively research new pressure on prices, re• downward Proactively researchrisks new 1.90% products and emerging 1.90% products and emerging ported byrisks 45%; Proactively research policy and 1.86%effectively, select• using social Proactively research policy and media regulatory changes 1.86% regulator y changes ed by 38%; In my current role, • customer retention, noted by 37%; Weighted averages averages I spend a meaningful • determiningWeighted correct marketing channels, cited by 31%; and amount of time working • customer loyalty/retention, reported directly with customers by 34%. One broker agrees pricing pressure is in a broker capacity a very real focus of customers, but sug(i.e. advising on and gests that good service can help overcome selling policies). the fixation. “The majority of customers, they are shopping for the cheapest premium. But when we have the opportunity to educate customers regarding all their options and explain their coverages,
70 70
Building Watertight Plans for Commercial Properties Al Bruno, National Risk Control and Construction Leader at RSA Canada, discusses how brokers can work with commercial clients to mitigate water damage from non-flood related causes.
Water losses are a significant source of property claims for many of Canada’s P&C insurers, according to the Insurance Business of Canada (IBC). Water damage threatens everyone, and is a particular concern for institutions such as hospitals and correctional facilities, assemblies such as schools and libraries, new construction and Real Estate Investment Trusts (REITS), all of which are especially prone to equipment-related water claims. As insurers, it’s our responsibility to equip clients with comprehensive tools to mitigate this risk.
Why is water damage mitigation crucial? The IBC estimates that 40 per cent of all property claims are water-damage related, and that the Canadian P&C industry pays out billions to these claims each year. Within this segmentation of claims includes condominiums which impact REITs, to illustrate that from a commercial perspective, there’s no question that we need to be taking the proper precautions to reduce these numbers. Business growth and reputation is grounded in delivering the products and services their customers need in a timely manner. The implications of water damage could be significant, especially if it affects equipment critical to operations, causing business interruption. Your clients can benefit from your expertise and guidance to both help them minimize their exposure, and ensure they have the adequate insurance protection in place in the event of a loss.
What is water damage mitigation? Typical water damage claims we see in commercial properties involve sprinkler systems, domestic water systems, cooling systems, cooling towers, roofs and other tanks, or boilers in mechanical rooms. Many water-related claims are caused by: Water escape caused by aging piping, valves or equipment Incorrectly installed piping and equipment Tenant, landlord and contractor mistakes, leading to leaks Another contributing cause is Canada’s changing climate conditions, leading to heavier rainfall. According to the IBC, precipitation in Canada has increased by 20 additional days of rainfall over the last 50 years. Higher precipitation levels can cause a strain on commercial properties, especially if they have aging or poorly-designed infrastructure that can make them more susceptible to non-overland flooding. 1
2
3
How we can help There are many events that can cause water damage, but as these claims remain high, it will impact commercial property insurance rates. A reduction in industry-wide claims can improve insurance premiums in the long term. As front-line advisors, brokers should take an active role in helping their clients implement water damage mitigation strategies.
Helpful tips for water damage mitigation Inside Your Commercial Property Pay attention to the quality of the components and installation of any fixtures and appliances Develop a program for exercising the domestic shut-off valves on an annual basis. Label all valves. Turning off the wrong supply valve could lead to dry-firing of a boiler! Schedule regular inspections of the workplace to identify potential hazardous conditions, inspect signs of water infiltration, and slow leaks that can lead to mold Outside Your Commercial Property Institute annual preventive maintenance and cleaning of sanitary sewer lines and roof drains to reduce the risk of sewer back-up Use pipe freezing protection if your property is susceptible to cold weather Arrange for snow clearing to reduce flooding risk in case of unexpected warm weather
At RSA, we know that offering comprehensive protection is simply not enough. We recognize the need to educate commercial clients about water damage mitigation, and help them reduce risks to their businesses. Water damage can lead to large and complex claims. We are invested in helping you effectively communicate water-related risks and mitigation strategies with your clients, and we encourage you to reach out to your RSA contact to discuss. For more information, please visit rsabroker.ca, or email Al Bruno at al.bruno@rsagroup.ca.
1 2 3
Climate Ontario – Infrastructure in a Changing Climate Insurance Bureau of Canada – Telling the Weather Story NRCAN - Canada in a Changing Climate: Sector Perspectives on Impacts and Adaptation 2014 Report
COVER STORY
Measuring Up the majority of them, we’re able to retain them,” the broker notes. Looking at moderate to serious challenges in general, growth of the directto-consumer sales model took the top spot (see graph on page 38). “I’m tired of competing with my own companies for the same consumer,” one broker says. “You can’t compete against your own companies. This is like playing a hockey game with some of your players helping the other team. We are a team or we are not,” adds another. It was an oft-repeated concern. One respondent identifies as a challenge for brokers “competing against 800 numbers from the very companies we represent. That is unacceptable and disloyal toward brokers. How would these companies react if we, the brokers, had our own insurance company owned by us and competing against the big carriers? They would feel the pain.” Another broker further questions the independence of some brokers. “Many brokers are now owned by insurers and no longer fit the definition of an ‘independent broker.’ However, the public does not know the difference because we all use the same term,” one broker says. “Regulators need to enforce better disclosure rules to consumers so they can better understand who they are dealing with and their level of independence,” the respondent adds. The broker model is shrinking, one respondent maintains. “Insurance companies are buying out brokerages and operating them as direct sales,” the broker writes. “In addition, the insurance carriers are starting their own in-house sales force. Eventually, the insurance markets for brokerages/brokers will be limited.” Says Loeters, “As brokers increasingly compete with direct writers and commercial insurance moves increasingly to a fee model, brokers will need to find ways to make up lost commission income and risk services can be a key component of this.” Other major themes emerging from broker comments relate to concerns revolving around online services and pricing. continued on page 42... 40
Canadian Underwriter October 2017
Seamless Connections The inability to have data flow between systems electronically, without manual intervention or portal connections, has long been an issue for brokers and insurers. The lack of seamlessness has proved a drag on broker resources, efficiency and ability to advance real-time response. A recent successful data exchange test between brokers and companies offers promise that these bumps can be left behind and a smoother process created, allowing data to flow between systems electronically, without manual intervention or portal connections. This past summer, a team of players in Canada’s property and casualty insurance industry completed initial testing for the Broker Connectivity Accelerator. Among the accelerator’s objectives are to define data exchange standards between companies and brokers and “standardize the way insurance brokers send transactions to insurance companies and receive complete responses in real time.” The Canadian Guidewire Users Group — with representation from Aviva Canada, Economical Insurance, Red River Mutual and Wawanesa Mutual Insurance Company — engaged Guidewire to develop the process in collaboration with Keal Technology, Custom Software Solutions, the Centre for Study of Insurance Operations and the Insurance Brokers Association of Canada (IBAC). The alliance is further strengthened by the backing of Applied Systems and Zycomp Systems. “The success of any integration effort, ultimately, means success for the customer,” says Peter Braid, chief executive officer of IBAC. “This is especially beneficial when such successes are built upon standards that all stakeholders can implement in their own way and in their own time,” Braid comments. “Connecting with insurers enables brokerages to access new markets, quickly quote insurer products to submit business, enabling staff to provide the consumer
choice with a broad product range and insurer choice,” says Jeff Purdy, senior vice president of international operations for Applied Systems. “By ensuring a fundamental connection between insurers and brokers that allows for ease of doing business, all parties in the value chain benefit.” At Wawanesa Mutual Insurance Company, the broker management system connectivity to the insurer’s back-end system “will give brokers the ability to enter the customer transaction once; they will then know very quickly whether coverage has been placed, what the premium is, enter payment and provide proof of insurance,” notes Tracy Riley, vice president of business transformation for the insurer. Applied Systems’ North American research shows that “insurer connectivity like download services can result in more than 60 minutes of time savings per employee per day,” Purdy reports. The recent successful test “has provided us the confidence that the accelerator is meeting the needs of the broker. The accelerator is establishing the digital approach for broker real-time integration that is essential for the future,” notes information from Aviva Canada. “Having the standard, keeping the standard, maintaining the standard is key to the industry moving forward in the digital age,” the insurer points out. It will also promote more innovative competition. “Given the technology available in other industries today, customers are looking for a frictionless service experience and our goal is to partner with our brokers to provide it,” Riley reports. “Ultimately, every brokerage and every insurer will choose to operate a system (and, quite often, more than one system) they feel is most appropriate and best suited for their business,” Braid says. “However, the more business that can be transacted using a standardized approach, the greater the efficiency for all parties,” he suggests.
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COVER STORY
Measuring Up
How strongly do you agree with the following statements about the technology at your brokerage? Disagree completely
Agree completely
Disagree somewhat
4.29%
Disagree completely
Agree somewhat
38.57%
15.00%
42.14%
I’ve received the training I need to use the technology I’m required to use.
Disagree completely
31.43%
Disagree somewhat
30.00%
Agree somewhat
25.71%
I need technology that my company hasn’t provided.
9.29%
45.00%
5.07%
The technology I’m required to use is appropriate to my role.
Disagree completely Agree completely
12.86%
43.57%
52.90%
Disagree somewhat
28.26%
Agree somewhat
14.49%
Agree somewhat Agree completely
Disagree somewhat
Agree completely
Disagree somewhat
2.14%
Disagree completely
Agree somewhat
16.67%
50.00%
28.26%
The technology I’m required to use is of sufficient quality.
Agree completely
4.35%
I can’t keep up with changes in the technology I’m required to use.
Disagree completely
4.29%
Disagree somewhat
19.29%
Agree somewhat
Agree completely
40.00%
36.43%
My brokerage has adequate IT support in place.
With regard to the former, “human TECHNOLOGY AS FACILITATOR and staff adoption,” one broker says. behaviour is too volatile and variable to Whatever the challenges to be adDespite a potentially bumpy transisell insurance online. It’s risky, danger- dressed, it is likely technology will tion, brokers understand the link beous behaviour, and I feel that insurance play a role in creating a brokerage that tween technology and growth potential. is sustainable, responsive and insurance companies are not serving the publicHow Almost 80% of the 237 brokers providdifficult isefficient, it to attract qualified forward-looking. Theopenings ability to employ and protecting the public,” one brokerprofessionals comments on actions taken by their to fill at your ing brokerage? argues. “It’s not the broker who is fail- technology as a vehicle for better serv- brokerages over the last year to prepare ing to educate the public about broker ing consumers is critically important for growth point to upgrading existing 36.88% not only for retention 11.66% to technology. value, it’s the regulators of the insurance 49.5%today, but also11.96% industry who have allowed the degra- create useful intelligence that can help Whatever specific actions taken, howdation of the insurance ‘product’ to be with personalizing coverage, enhancing ever, investments are leading to concrete whittled down to that of buying a pair innovation and identifying potential gains for some. One respondent reports of shoes instead of an important service. products and services in the future. the measures taken by the brokerage in It is heartening, therefore, that broThe public is going to be hurt, Very if they the last Very yeareasyhave resulted in 15% growth, difficult Somewhat difficult Somewhat easy kers seem pleased with the training they another cites more than 20% organic have not been already.” Adds another respondent, “There are are receiving related to technology. Of growth in the last eight months, and yet too many people who purchase online, the 140 brokers providing input on one another notes two-digit growth in direct and do not know what they have pur- question dealing with technology needs written premium over the past two years. chased, and have no idea even where and training, about 42% agree comOf course, challenges — some depletely that they have received the train- cades old — persist. One such stubborn their insurance is.” In terms of pricing, “insured are less ing needed to use the technology they sticking point is the reduction (hopeand less loyal. They will write with the must use, and 45% agree completely fully, the elimination) of double-entry. person saving them $2 a year versus re- that the technology required to be used “Systems need to be able to communiis appropriate to their role. maining with the current broker.” cate better with each other so you are Still, some surveyed brokers are ex- not typing in an address three times, Consumers, another adds, “are being prodded to buy by price rather than val- pecting a few hiccups while transition- for example,” one broker contends (see ue of the policy. The longer that contin- ing to a new way of doing things. Seamless Connection on page 40). “There currently is not an effective tool ues, the more price-driven we become, Not every brokerage and every inthe less happy the clients are. There will that marries the digital world with the surance company is managed the same be more gaps in coverage and claims bricks-and-mortar world using effective way, Peter Braid, chief executive officer of not being paid, leading to more dissat- technology that is affordable, easy to use Insurance Brokers Association of Canada and allows for quick and easy customer (IBAC), commenting on the recent Broker isfaction. It becomes a spiral.”
Q34
42
Canadian Underwriter October 2017
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COVER STORY
Measuring Up
How difficult is it to attract qualified insurance professionals to fill openings at your brokerage?
36.88%
Very difficult
49.50%
Somewhat difficult
11.96% 11.66%
Somewhat easy
Very easy
Connectivity Accelerator test, says of the they believe that was the case, 89% say Adds yet another respondent, “There How difficult it to toaattract insurance benefits of streamlining the process. theyis agree moderate qualified or high degree. is so much bluster and busy work with“However, by creating a more seamBrokers not withoutatconcerns, in the industry right now that it is difprofessionals to fillareopenings your brokerage? less flow of information between bro- however. “The broker management sys- ficult to cut through it all and determine kerages and insurers, the productivity tems (BMSs) focus too heavily on the the correct path to take.” gains will allow those resources to be latest and greatest and adding new feaOngoing issues, however, have not deployed in other ways,” Braid says, in- tures and functions. Almost no effort is dampened broker optimism about the cluding digital marketing efforts or new spent on improving the functionality of likelihood of their businesses improvdigital service tools. the day-to-day work, which probably is ing their financial performance over “As the industry is evaluating digital about 80% of what the systems are used the next fiscal year. In all, 53% of the transformation, it is important to have for,” one broker argues. 233 brokers providing an answer to that industry-wide initiatives, likeVery thisdifficult accel“We have Somewhat invested difficult heavily in our Somewhat on- question say easy Verythis easyis somewhat likely and erator program, that bring together all line capabilities and are seeing a great 36% report this is highly likely. of the key stakeholders who enable con- return on investment,” says another. “The “We are working on some innovative nectivity across the value chain,” says biggest challenge is that our online plat- new products that can be delivered low Jeff Purdy, senior vice president of inter- form does not integrate with our broker cost, but will lead to the types of valued national operations for Applied Systems. management system or our insurer part- relationships we are looking for,” one “It is important to evaluate compat- ners. The result is duplicate date-entry.” broker points out. ibility and implementation impacts that reduce friction between systems and alIn the past three low for this seamless flow and exchange of information,” Purdy notes. years, how many “With a streamlined approach, bro26.94% times has a potential kers will be able to spend time on othbuyer approached you er value-added customer services, as to discuss buying your well as up-selling and cross-selling to 15.03% 16.58% new and existing customers,” suggests company or some of Tracy Riley, vice president of business its assets? 13.47% transformation for Wawanesa Mutual Insurance Company, also commenting on the recent accelerator test. 5.18% 7.25% Many brokers seem optimistic that the 9.33% technology and systems their broker4.66% 1.55% ages have in place allow them to serve 0% customers as quickly and effectively as 0% 9 10or more required to remain competitive. Of the 2 3 4 8 1 7 0 times 235 brokers answering to what degree 5 6
36.88%
44
Canadian Underwriter October 2017
49.5%
11.96% 11.66%
SUM Insurance Can. Underwriter 7_17.indd 1
6/9/17 11:02 AM
COVER STORY
Measuring Up
How strongly do you agree with the following statements? Disagree greatly Disagree somewhat Agree somewhat Agree greatly
43.32% 38.71% 14.75% 3.23%
In all of the recent and expected changes in the insurance industry, I see more opportunities than threats.
Within 10 years, I’ll lose most of my business to direct channels.
UP FOR SALE? And make no mistake, those abilities will make brokers increasingly attractive. Consolidation and partnerships are continuing in a bid to create entities with greater scale and reach, establish regional dominance or attract like-minded businesses. How many times have brokerages been approached? (see graph on page 44) Who are the prospective buyers? Apparently, brokerages know a good thing when they see it. Of the 158 respondents who identified the type of prospective buyer approaching their business, other brokerages accounted for just shy of 80%. Dean Morrissey, vice president of commercial lines for Merit Insurance in Waterdown, Ontario, reports interest has been demonstrated, but not the right kind. In the past two years, “known consolidators active in the marketplace” have approached Merit Insurance as a possible acquisition, Morrissey says, but “none 46
Canadian Underwriter October 2017
Insurance carriers are striking a fair balance between their interests and the interests of brokers.
Brokers and the broker channel do a good job of communicating their value to consumers and businesses.
2.76% 30.88% 54.84% 11.52%
“As we know, data is the new resource of the 21st century,” says Braid. “For brokers, being able to analyze their own data can help them identify new opportunities within their existing client base.”
17.47% 37.70% 40.23% 4.60%
8.74% 20.23% 59.08% 11.95%
4.14% 10.80% 53.33% 31.72% Brokers need to become more specialized to withstand changing technology and sales models.
advanced to the point where consideration or negotiation was involved.” Why? “We have not seen an opportunity presented to us yet that would allow continuity for our staff and customers,” he explains. That being the case, the brokerage has opted to turn the tables. It has “elected to seek opportunities for growth and acquisitions ourselves, while continuing to bring in younger partners wishing to acquire an ownership position within our firm.”
Of the 196 brokers who provided responses with regard to when an external expert last conducted a formal valuation of the business, almost a third (31%) note this had been done within the last three years. However, almost half of respondents (47%) report the valuation has never been done. Despite the clear interest in brokerages, there does not seem to be much appetite for straying too far away from existing lines, at least for now. Asked
To what degree are each of these personnel issues presently a challenge to your business?
1.60% 1.90% 1.60%
1.44% 1.16% 1.40%
1.51% 1.52%
Employee productivity Finding employees Motivating employees Building/maintaining workplace culture Retaining employees Managing payroll costs Bringing young people into the business Staff training/development
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COVER STORY
Measuring Up about the likelihood of the business expanding into new lines — such as life, health and wealth — within the next three years, many of the 235 brokers who responded to the specific question plan to maintain their current books. For those open to the possibility, the list of reasons for considering such a move varied, of course. The most frequent reasons given include developing a new income stream, creating a
one-stop, full-service brokerage and entering strategic alliances to be able to expand client offerings, responses indicate. Beyond brokerages being purchased, though, is industry consolidation. “If ‘insurance industry consolidation’ includes insurance company investment in brokerages, it’s a serious issue,” one broker cautions. “In addition to the ethical issue, these brokerages, of course, get preferred treatment,” the broker adds.
Key to meeting objectives — whether growth, expanding lines or clearing technology hurdles — is having the right people in place. Asked about moderate to serious challenges to their businesses, about 58% of the 236 respondents to the question cite finding qualified workers. Asked specifically how difficult it is to attract qualified insurance professionals to fill openings, 37% of respondents say very difficult and about 50% say somewhat difficult. “People do not have the necessary skills for a brokerage to hit the ground Surprised? ARC isn’t. Surprised? running, and asARC such,isn’t. may not even understand the role of a broker longYour customer has a list of the vehicles that term,” one respondent notes. “When are covered by your fleet policy. You have you don’t have the capability to increase a list of the vehicles that are covered by ARC Group Canada is a national ARC Group Canada is a national quickly, that policy. network ofstaffing independent law you firms,have to turn down network of independent law firms, each business, intimately connected to and progress more slowly,” And your lists aren’t theintimately same. each connected to their local market. the broker goes on to say. their local market. Insurance and risk management When the one vehicle that is involved in “Even our value proposition to conexperts. Regional strength. Insurance risk appear management an accident is the one thatand doesn’t on vince new post-secondary graduates to National scope. experts. Regionalnext? strength. both lists, do you know what happens get into our industry is falling further That is the ARC Group. National scope. behind the rest of the financial services ARC does. Go to AskARC.com That is the ARC Group. industry,” argues PROLINK’s Michael Loeters. “What has saved us to date is the Go to AskARC.com high barriers to entry to open a new brokerage or start a new insurance company. However, at the same time, we have made ourselves ripe for disruption.” Once brokerages have attracted choice employees, they need to ensure the culture, systems and opportunities are available to keep them around. Bob Kimball, owner and president of Pearson Insurance in Sussex, New Brunswick, says that attracting qualified ARC Group Canada is a national network of independent law firms, professionals can be tough, especially in each intimately connected to their local market. small towns. That makes education and Insurance and risk management experts. Regional strength. National scope. Go to AskARC.com training a particularly important first step for new hires. Once a new employee comes aboard, Kimball reports, the brokerage starts The ARC Legal Reporter them in “the CAIB Canadian Accredited Winter Issue – Article #1 Insurance Broker) program and any weA National Network of Independent Law Firms binars or company-sponsored training. We have all staff complete their CAIB When is a medical examination considered a second examination under Rule 36 of the New Brunswick Rules of Court? degree and remunerate them for each The ARC Legal Reporter section completed. Education is continv. Crowther and Kelly Case: uous both inside and outside the office.” Winter IssueReported – Article #1 Blyth 2009 NBCA 80 Citation: When both the plaintiff’s physical and mental condition are in issue in an action, and At Issue: One broker respondent notes that “the the plaintiff undergoes a physical examination, will a subsequent application for a
If you’re in Manitoba, this is considered an automobile.
ndent Law Firms
48 Canadian Underwriter October 2017 al examination considered a second examination e 36 of the New Brunswick Rules of The Court? Court: ARC_Fleet ad_1/2 page.indd 1
v. Crowther and Kelly
ATTRACTION MEETS RETENTION
Judgment Rendered: Factual Summary:
If you’re in Manitoba, this is considered an automobile.
psychiatric examination be considered an application for a second medical 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
33.97%
0
Consumer misperception of the difference between brokers and agents
COVER STORY
10 Measuring Up
20
30
40
50
60
Thinking about ways to have “trusted advisor” status with your customers, how effective have the following practices been for you? Maintain an active social-media presence
1.23%
Seek PR/media opportunities
0.83%
Self-publish (e.g. blog, newsletter) Consistently draw customers'attention to happenings that could affect their risk profile and exposure
2.13%
Speak at events, conduct webinars,etc.
0.92%
Proactively research new products and emerging risks
1.90%
Proactively research policy and regulatory changes
greatest personnel challenge is training new staff and having them move on to larger centres to realize upward movement in their career paths.” Another brokers points to the challenges of achieving balance when shifting culture, but ensuring the core identify of the business is not lost along the way. “One of the advantages of having staff who have been with us for so long is they have a ton of experience and have answers ready that a younger staff member wouldn’t. The downside is that some of our longer-term staff have been doing it forever, and keeping them motivated can be a challenge.”
TRUSTED ADVISOR At the heart of things for brokers, though, is to serve as trusted advisors for consumers. That most time is spent on doing things that brokers should be doing to cement their status as trusted advisors is a positive survey finding. But the effectiveness of different approaches employed by brokers to cultivate that status varies considerably. Provided with options ranging from maintaining an active social media presence to self-publishing, speaking at events and proactively researching policy and
0.75%
1.86%
Weighted averages
regulatory changes, in all but one of the categories — drawing customers attention to happenings that could affect risk profile or exposure — the 382 broker respondents who had tried the approaches identified all as moderately effective (see chart above). The most common theme to emerge from anonymous broker comments revolved around the importance of nurturing customer contacts so that they blossom into long-term relationships. And the approach that seems to be most consistently successful is a fairly traditional one: regular contact, timely response and being well-informed about emerging trends to help customers always remain ahead of risks. With customers’ demand for instant access to information, “if it takes brokers days to receive policy information from insurers via mail or fax, that does not support the broker’s core value prop — to be there for customers in their time of need,” emphasizes Applied Systems’ Jeff Purdy. Customers have come to expect ease of doing from their experience with other industries. “If this ease of doing business and timely service declines, there are likely to be impacts to a broker’s retention rate.”
70
One broker emphasizes the need to better educate consumers. “Our value cannot be duplicated by directs as they currently operate, but the broker channel does not do a good job of educating consumers on our value or always providing the value of choice, advice, advocacy. We have a competitive advantage if we use it,” the broker writes. “Brokers are too quiet; they simply allow the insurance companies to create the culture,” argues another. “The reality is the Baby Boomers are all nearing retirement and the percentages that are being offered to purchase a brokerage are high (for now). So who can blame them for selling? It’s a seller’s market.” Noting that consumers have come to expect personalized and customized services and information in many other areas of their life, “they are frustrated with organizations they have been doing business with for years that interact with them like they barely know them, cannot anticipate their needs, or make interaction difficult,” suggests Loeters. Surveyed brokers also had some comments for how insurance carriers could support the broker channel. “Insurance carriers need to give the insurance broker more recognition in their advertising to the public,” one broker contends. “In my opinion, they fail dismally in advertising the importance and value of the broker’s role.This creates mistrust between brokers and insurers, with the threat of disintermediation.” Another respondent points out that “we really need to be providing excellent customer service and claims follow-up. Focusing on the broker loyalty and service we provide will help us to maintain a stronghold on the industry,” the broker suggests. And what about growth? Putting in place a structure early on offers a strong foundation on which growth can be built, adds Idea Insurance’s Sean Graham. “Implementing it too late can come as a culture shock to employees. Running a five-person business in a disciplined way helps for when you have 100 people on board.” October 2017 Canadian Underwriter 49
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Data Crunching
Jeffrey Baer
Manager of Advanced Analytics, Economical Insurance
Brokerages of all sizes can gain insight using data analytics if they collect accurate data on clients and operations and leverage government and public information sources. Brokerages can gain valuable insight, such as a better understanding of customer turnover and demographics of their market territory, by analyzing electronic data without buying the most expensive database management software on the market. However, there are specific steps that need to be taken to ensure the data is of suitable quality. Analytics managers at insurance carriers collaborate with the various business units within the company to use analytics to improve efficiency, decision-making and the customer experience. With the right data, skillsets and a little bit of elbow grease, the same objectives can be achieved at a brokerage. Analytics is the broad term used to describe data and numerical analysis to derive insights and guide decisions. While “big data” is the new craze in analytics, it is not necessary to collect thousands of data points on millions of clients for analytics to be successful. In fact, smaller data sets are generally easier to understand, process, and analyze. The key to analytics is data quality. The old ad-
age “garbage in, garbage out” best describes this. The insights gained from analyzing data are of little or no use if incorrect data is entered, or if the input data is duplicated, inconsistently coded or incomplete.
DATA QUALITY Collecting high-quality data on clients and operations is the first step towards enabling analytics. Brokers should think about the processes or areas of their business that they want to better understand and validate that they are gathering clean data that describes these activities. Any collected data must be stored digitally to empower analytics. The structure of this data is also important. For example, if a broker wants to understand client retention patterns, he or she needs to capture — within the broker management system, for example — and store snapshots of data over time. Each snapshot should contain information about the client and indicate whether or not he or she is currently being serviced by the brokerage. Within each snapshot, the brokerage can collect data on which products a customer has purchased, and the data set can indicate whether or not the customer is still a client. Some insurers enrich the insights derived from internal data using external data available free of charge or at low cost. For example, a brokerage could analyze federal census data from Statistics Canada to identify the sections of its trading area
October 2017 Canadian Underwriter 51
2017 UNDERWRITERS OF THE YEAR The following individuals understand what the role of an underwriter truly is: to write great business that satisfies the clients’ needs and creates a win-win for the broker and insurer. What sets these underwriters apart from other hard working underwriters is their attitude. They communicate in an open and effective manner, and they go out of their way to explain the reasoning behind their decisions and make suggestions, if necessary, to help our member brokerages place the risk elsewhere. Their consistency and helpful nature have made them outstanding underwriters who are a pleasure to work with.
COMMERCIAL AWARD
PERSONAL AWARD
Andrew Chan Intact Insurance
Darryl Gibson Northbridge Insurance
Amanda Petrov RSA Canada
Pauline McLaren Aviva
Shelley Blagdon RSA Canada
Jeff Crawford Novex Group Insurance
Heather Topham Family Insurance
Portia Myrvang CNA
Fiona Stewart Wynward Insurance Group
Farzina Coladon The Guarantee Company of North America
Leanne Stodulka Economical Insurance
Brenda Windle Aviva
Hasaan Gilani Aviva
Alexander Kwan Aviva
Martine Dolan The Guarantee Company of North America
with the greatest proportion of homeowners or renters. An insurance professional could also use data from Natural Resources Canada to determine where wildfire risk is high. If the data set is comprised of no more than a few hundred thousand rows of data, a brokerage could gain useful insight without having to spend tens of thousands of dollars on software licenses. There are desktop database management systems available to manage data in a controlled database, while a spreadsheet can be used for data exploration and simple analysis. For more advanced analytics, such as predictive modelling, there are open source tools accessible free of charge. Although it is beneficial to have a team member with the right skills to analyze data and provide insight, some small brokerages may be reluctant to hire a dedicated analytics expert, even though an expert could generate a return that would justify the expense. Some brokerages taking their first step into analytics may prefer to outsource to a service provider.
TECH SKILLS An analytics expert should be knowledgeable about computer programming, statistics, machine learning and geographic information systems for data-mapping and visualization. Core non-technical skills include problem-solving, creativity, insurance industry knowledge and the ability to communicate technical concepts in a manner that is easy to understand. Analytics experts often have degrees in statistics, actuarial science, computer science, data science or operations research. There are numerous applications of data analytics that can help an insurance brokerage. For example, analytics can improve a broker’s understanding of clients and better inform the customer value proposition. Customer segmentation is a branch of analytics that can be applied to identify the profiles of existing clients or potential first-time customers. For example, knowing that a brokerage attracts older clients whose first language is Mandarin
can guide customer service and growth strategy. To perform customer segmentation, the first step is to compile a table containing one row of data for each customer. Each row could have one column for each relevant customer attribute, such as age and preferred language. A statistical algorithm can then be run to uncover patterns within the data. Analytics can be also used for target marketing. By overlaying internal client data with federal census data on a local population, an insurance brokerage can evaluate market penetration within its trading area and determine focal areas for marketing activity. This type of analysis can all be completed in a spreadsheet. Using insights from census data, a broker can align marketing content with the demographics of people living in neighbourhoods in the broker’s target market. Analytics has been applied for years in the retail industry to analyze customer retention patterns. Insurance brokerages can also build retention models using statistical software, with client data snapshots as an input. These models support strategies to retain high-value customers flagged as flight risks. Customer service analytics can be used to optimize service and staffing levels by collecting data on the time, duration and type of customer interaction. For example, a brokerage could use statistical models, known as time series forecasts, to predict the number of calls and walk-ins on a specific day and time. This information is valuable to support scheduling and staffing decisions. Analytics can even be used to make informed decisions on whether or not to add office space or move an office to a different location. For example, before opening a new office to service Millennials with young families, a brokerage could use census data to find out where these customers are located. Analytics is accessible to everyone. The combination of high-quality data, skilled analytics personnel and a vision for analytics application opens up a world of possibilities to improve decision-making within a brokerage.
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For more information visit canadianbrokernetwork.com or call 647 260 3798
October 2017 Canadian Underwriter 53
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Standardizing Codes
Catherine Smola
President and Chief Executive Officer, Centre for Study of Insurance Operations
Insurance brokerage databases for customer insurance policies rely on computer codes to identify elements endorsements, discounts and coverages. But when different insurance companies use different codes for the same element, it can require more work from brokers wanting to analyze the data. When brokers store home and auto policy information from multiple customers in a database, the code for one endorsement can differ among clients, if an insurer uses its own custom code rather than the same industry-standard code that other insurers use. Within the property and casualty insurance industry, Centre for Study of Insurance Opera-
tions (CSIO) data standards define thousands of elements of an insurance policy, including coverages, endorsements and discounts. By assigning each one a unique code, carrier and broker computer systems can exchange data. But sometimes carriers introduce a code that nobody else uses. These codes, known as Z-codes, can often create more work for brokers, whose broker management systems (BMSs) are typically programmed only with the standardized codes. In some cases, a carrier uses a Z-code even when a standard code exists, effectively creating a code that duplicates one already in common use.
MORE WORK FOR BROKERS While many insurers already agree to use industrystandard codes, the proliferation of customized codes — each of which is unique to one insurer — can create more work for brokers who need to create reports and search their databases. Carriers and brokers transmit policy data and eDocs to one another using CSIOnet, which is a secure data exchange platform. The Z-code system, intended for insurers to cover off exceptional circumstances in auto and habitational policies, has inadvertently led to a large number of non-standard Z-codes in everyday use. Reasons for this vary, including the following: • insurers use Z-codes as a work-around for legacy system issues;
October 2017 Canadian Underwriter 55
• a perception that Z-codes are the most expedient method; and • some insurers are not familiar with the existence of a standard code that covers the same situation as a Z-code. Over the past 12 months a total of 67 million codes were sent on CSIOnet, 16% of which (10.7 million) were Zcodes. Some insurance companies rely on Z-codes more often than others, with the heaviest user sending them 48% of the time. One company used one particular Z-code almost three million times.
MANUAL INTERVENTION The challenge for brokers is in how their broker management systems interpret and manage these codes. In some instances, a broker must manually intervene when the BMS downloads an unrecognized code from CSIOnet. In others, Z-codes can impede a broker’s ability to process and access policy information in its own system, since identical coverages may be coded in multiple ways. This can prevent brokers from running comparisons on their customers, running reports and identifying at a glance who has different types of coverage. “If you want to query your system and say, ‘How many of my homeowners’ policies have the earthquake endorsement?’ your ability to query your system is compromised because of Z-codes,” says Ted Harman, president of Accent Insurance Solutions. “The quality of data is compromised because not every insurer is using the same code for whether they
In some cases, a carrier uses a Z-code even when a standard code exists, effectively creating a code that duplicates one already in common use. have earthquake on a policy or not.” Harman cites an example of one insurer using a Z-code for its earthquake endorsement while another uses an industry standard code. “You would have to have a directory of all of the different codes the different insurance companies use to be able to extrapolate the data across your whole client base to understand who has the earthquake endorsement,” he explains. Sean Christie, chief information officer
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Canadian Underwriter October 2017
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and vice president of information services at Gore Mutual Insurance Company, and Jennifer Morrison, senior business analyst, information services for the insurer, explain the issue using the analogy of moving into a new house. “Imagine the exchange of policy information between an insurance company and a brokerage as moving data from one house to another,” Morrison says. “If the insurer’s boxes of policy information are all labeled “miscellaneous,” a broker must open up every single box to figure out where the boxes should be placed in the new house. But if insurers use standard codes recognized by the industry, they can identify data under more specific categories — such as coverages, discounts or surcharges. This way, when an insurer uses a CSIO code and sends that information to the broker, it’s like putting everything into the right spot. With a Z-code, brokers have to open it up, look at it and see where it belongs, so it creates additional work for the broker.” More than 20 insurers are now working with the centre to start reducing and/or eliminating their Z-codes. The process may involve mapping Z-codes onto previously existing CSIO standard codes for the same coverage. If a carrier’s Z-code does not duplicate an existing code, the carrier may formally submit a standards maintenance request to formally add that code to the standards. Once approved, the code is circulated to all carriers and BMS vendors for programming into their system.
While eliminating Z-codes does not retroactively clean the broker’s legacy data, doing so results in immediate benefits to brokers and significantly improves their ease of doing business going forward.
MONTHLY REVIEWS Centre members meet monthly to submit, review and approve requests for new codes. These meetings ensure that members have access to a frequent, agile process to address emerging business needs with standardized codes rather than introducing new Z-codes. For any company, the ease or complexity of reducing its current use Z-codes depends on a variety of factors. One is the number of Z-codes the company uses; the fewer currently in use, the less time is required to eliminate them. A company’s size may also be a factor, as national companies with offices in many provinces may use multiple codes
If a carrier’s Z-code does not duplicate an existing code, the carrier may formally submit a standards maintenance request to formally add that code to the standards.
ple reason that they want to make business processes easier for their broker sales force. “We want to make it easier for brokers to do business with us,” says Christie. “We are making a commitment to keeping these Z-codes cleaned up and implementing the appropriate CSIO standard code as quickly as we can.” The use of Z-codes is expected to continue to decline over the coming months, bringing further efficiencies to carriers and brokers, and improving the ease of doing business for the broker channel.
Editor’s Picks Looking for more recent news about information technology applications in insurance? Check out www.canadianunderwriter.ca and search for the following: • Data the engine for innovation to improve business, serve customers, speaker suggests • 79% of U.S. insurance CEOs confident of growth prospects, 82% looking to disrupt: KPMG study • Skills deficiencies impeding effectiveness of smart technologies: Accenture
to cover off circumstances unique to each region. Codes for a “disappearing deductible” discount, for example, may be different across Canada because the deductible is different in each province. Mergers and acquisitions may also play a role in Z-code clean-up. “If three companies amalgamate, the codes from all of these companies need to be considered,” says Debbie Smith, vice president of business solutions delivery-Guidewire at Aviva Canada. “When you bring in new business through a merger or acquisition, you may be required to honour their codes,” Smith reports. At the same time, major IT projects can serve as an opportunity for carriers to review and eliminate their Z-codes. This was the case for Aviva Canada and its migration to the Guidewire platform. The Canadian Guidewire Users Group announced its successful completion of initial testing of Guidewire’s Broker Connectivity Accelerator this past August, prompting some insurance companies to clean up their Z-codes. The accelerator is designed to standardize the way insurance brokers send transactions to insurance companies and receive complete responses in real time. “For us, part of the motivation for getting rid of Z-codes is our work on the accelerator project,” notes Smith. “For the upload of data between the carrier and the brokerage to be successful, we need to reduce or eliminate the Z-codes. The accelerator needs to be able to find codes that are in the CSIO standard for the upload to be successful.” Insurers are also motivated to get rid of Z-codes for the sim-
October 2017 Canadian Underwriter 57
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
Kitchener—Building Construction..........................................................October 25 Ottawa—Loss Control and Appraisal ...................................................November 2 Ottawa—Insuring Seasonal & Secondary Homes ...............................November 6 Winnipeg—Farm Insurance..................................................................November 7 Webinar—Communicating with Confidence .......................................November 9 Webinar—ADVANTAGE Live: Rising Auto Rates ................................. November 14 Webinar—ADVANTAGE Live: Climate Change....................................November 30
Toronto—Lowes Fund Breakfast ............................................................ October 31 Various Locations—Career Connections’ Feed the Minds of Youth ....November 1 Toronto—Indoor Beach Volleyball .......................................................November 8 Kitchener—Whisky Tasting ..................................................................November 9 Toronto—At the Forefront .................................................................. November 15 Sydney—Annual Sydney Soirée ......................................................... November 16 Ottawa—Avoiding Bad Faith Claims ..................................................November 23
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.
Special Report Insurance-Canada.ca Executive Forum
Connected Consumers Insurtechs may present a threat to established insurance providers, but an Executive Forum speaker contends that young people should be in the market for a trusted advisor.
Angela Stelmakowich Information networks, the gig economy and the Editor
Greg Meckbach Associate Editor
Millennial lifestyle are changing the way consumers buy insurance, but younger people are still in need of guidance when buying insurance, speakers noted at the recent Insurance-Canada.ca Executive Forum.
CHECK ASSUMPTIONS “I think many of the younger people, who we assume are very comfortable buying online, in fact, as it turns out, they are the ones who need the advisor,” Lorie Phair, managing director of the Canadian Broker Network, said during the Executive Forum. “They need the personal touch.” By contrast, Phair noted, older people “who are a little more confident… may, in fact, be the ones that are more comfortable making a purchase online.” Phair was one panelist taking part in the Canadian Perspectives on InsurTech session at the forum, held August 29 in downtown Toronto. “We want to make sure we are checking our assumptions about demographics and that makes it particularly challenging with marketing,” Phair told attendees. “We tend to look at it as, the young people want this… want that, and it’s very much about individual behaviours.” Baby Boomers and members of the Generation X age group “are connected,” said Andrew Lo, president and chief operating officer of Kanetix Ltd. “I definitely see an aggregation and convergence of attitudes across the consumer base,” Lo reported. “We always talk about Millennials and the next generation after that and how connected they are, et cetera, but I am actually seeing convergence of those attitudes.” Today’s information technology and information networks will “change how everyone wants to consume insurance,” Lo predicted.
BLURRED LINES The insurance industry is “going to face massive decline if new products and channels are not established for the younger generation,” Mark Dowds, co-founder and chief strategy officer of Trov Inc., told insurance professionals attending the forum. Changes affecting the insurance industry include the “Millennial lifestyle,” Dowds said, with young people living in cities and not buying cars, for example. “If they are at work, a lot of the times they are using their own computers or their own gear,” Dowds said during the session, Enabling On-Demand Insurance. “When they are working and when it’s commercial and when it’s not — those lines are very blurry,” Dowds suggested. “The gig economy is massively on the rise.” Trov, an authorized representative of AXA Insurance in the United Kingdom, reports that it allows customers to “instantly turn insurance on or off for individual items, such as a laptop, camera or bicycle” through a mobile app. The company is also live in Australia and “will be launching in Canada” in 2018, Dowds reported. One of the company’s target markets includes young people who do not own vehicles or homes and those who do not have contents insurance. “Every area of banking has had chunks taken out of it and you are going to see the same happen with insurance,” Dowds told those in attendance.
EVOLVING REGULATOR Regulators can be a “catalyst” for change “in some areas where insurtech can play a role and that is modelling and integration with predictive analytics,” David Crozier, president and chief
October 2017 Canadian Underwriter 59
executive officer of Everest Insurance Company of Canada, said during the Executive Forum. But normally regulators do not drive change, added Crozier. “Regulators, by their nature, have to be cautious,” he said. “Their number one job is to protect either a consumer or a market and, as such, change is not the first thing on their mind. It is assessing that change and what impact it can have on their stakeholders.” Crozier made his comments during the panel, Canadian Perspectives on InsurTech, moderated by Neil Mitchell, managing director of Marsh Canada. Mitchell asked the panelists about the commercialization of insurtech and whether or not a regulator can be a “catalyst” for transformation. “Innovation is not their goal,” said Matteo Carbone, Milan-based founder and director of the Connected Insurance Observatory, commenting in general on regulators around the world. Regulators, Carbone suggested, are there to protect consumers, “but to do that they need to understand the business models.” But two years ago, the Financial Services Commission of Ontario (FSCO) was “open to” a telematics-based auto insurance product when Ingenie Canada Inc. launched, Lorie Phair, then chief executive officer of Ingenie Canada (and now managing director of the Canadian Broker Network), said at the forum. When Ingenie Canada launched in 2015, that was “probably the first time a brokerage played a very active role in new prod-
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Canadian Underwriter October 2017
uct innovation working with FSCO,” Phair said, referring to the usage-based insurance product that Ingenie was marketing towards young drivers, both directly through its website and through brokers. It “took a very long time” to get Ingenie’s offering approved, Phair suggested, but added FSCO “saw the benefit.”
ROOM FOR INNOVATION Established players can partner with fintechs to take advantage of cloud computing, advanced analytics and other technologies, and there are “use cases across the value chain” of insurance, a speaker suggested during the forum. “You don’t have to abdicate your responsibilities to the start-ups of the world,” Debbie Landers, vice president of cognitive solutions for IBM Canada, said during the session, Cognitive Computing: Future Proof Your Competitive Advantage. “There’s lots of room in here for internal innovation and entrepreneurship and capability that you develop or you drive to be developed on your behalf,” noted Landers. “Clearly, the start-ups are innovative” and “they’re helping us to break through ways of thinking that we may never have thought about before.” But Landers emphasized there are plenty of large companies with start-up mentalities. There are those established players “reinventing their business models in order to drive strategic change,” she reported. “Resistance is futile,” Landers quipped. “Innovation is going to happen, so you’re either in it and driving it, or you are left behind,” she cautioned. Companies must consider what they need to do to “be differentiated and disruptive where you need to be disruptive. How will you partner with those fintechs that are being disruptive in a way that helps you advance your business, rather than seeing them as a threat?” Landers emphasized that organizations need to start thinking about their future IT structures. “There will be no way to not have tech involved in a lot of what you’re going to do,” she noted. Now “is the dawn of a new era that will involve hybrid clouds, that will involve multiple kinds of applications that are integrated across the clouds,” Landers said. As such, “it’s very important to start thinking about what is the data you have, what is the data you will want to access in order to be able to get more of those insights, what are those building blocks on which you will build?” she asked. There is plenty of promising technology available — from artificial intelligence to cognitive computing, cloud and advanced analytics — that can help “get your business where it needs to be,” Landers pointed out. “We believe there’s use cases across the value chain in insurance,” she told attendees. “Again, whether you do it yourself, you partner with somebody, you have a trusted advisor helping you do it, you bring a fintech in — there’s a whole spectrum of things that can be done to take advantage of this capability.”
Recent Insurance Press Releases featured on insPRESS.ca Continued from page 33.
Naomi Myers joins Pario as director, national business development
La commandite nationale de La Garantie à la WICC démontre notre appui inconditionnel à la lutte contre le cancer
September 6 — by SCM Insurance Services
August 22 — by The Guarantee Company of North America
Origin and Cause welcomes Kevin Huberdeau
The Guarantee’s WICC national sponsorship demonstrates resilient fight against cancer
September 6 — by Origin and Cause
FirstOnSite Restoration releases smoke cleaning tips for B.C. residents and businesses September 5 — by FirstOnSite Restoration
Cira Health Solutions receives three-year CARF reaccreditation September 5 — by SCM Insurance Services
Middlesex Mutual Insurance Co. launches online quoting as part of their continuing approach to digital innovation using Mutual Concept Computer Group Inc.’s online quoting solution September 5 — by Middlesex Mutual Insurance Co.
La Garantie discrédite les fausses idées concernant l’assurance contre les vols et les détournements dans ces deux nouvelles vidéos September 1 — by The Guarantee Company of North America
The Guarantee debunks misconceptions about crime insurance in these two new videos September 1 — by The Guarantee Company of North America
Origin and Cause’s Eduardo Mari and Dinu Matei presenting at MS&T17 August 30 — by Origin and Cause
Economical Insurance contributes to an enhanced patient experience at Louise Marshall Hospital with $12,000 donation August 30 — by Economical Insurance
InsurTechTO: Highlighting InsurTech in Toronto August 30 — by Insurance-Canada.ca
DKI Canada and EFI Global to present on Canadian property insurance market topics. Thursday, August 24, 2017 August 23 — by DKI Canada
WAWANESA renews its support to WICC QUÉBEC with a $25,000 commitment over the next three years August 23 — by On Side Restoration Services Ltd.
August 22 — by The Guarantee Company of North America
FirstOnSite Restoration builds on recent successes and looks ahead August 22 — by FirstOnSite Restoration Limited
CSIO welcomes software provider member Kumaran Systems August 22 — by CSIO (Centre for Study of Insurance Operations)
Claude Dery of Fredericton wins 2017 Jeep Wrangler Sport S in Select Sweepstakes August 17 — by Economical Insurance
Policy Works and FIRST Insurance Funding of Canada expand their integrated payment solutions August 16 — by FIRST Insurance Funding of Canada
CSIO adds senior manager, technology strategy and architecture to its Toronto team August 16 — by CSIO (Centre for Study of Insurance Operations)
CSIO releases video on industry eSlips solution August 14 — by CSIO (Centre for Study of Insurance Operations)
Markel’s Western region update August 14 — by Markel Canada
EFI Global’s engineering and forensic specialists equipped to support in aftermath of catastrophic British Columbia wildfires August 11 — by EFI Global
DSB Claims hires new Markham branch manager August 10 — by DSB Claims
Industry leaders to host CRIMS client appreciation event – Monday, September 25, 2017 August 8 — by DKI Canada
Drone imagery proves beneficial in BC wildfires August 8 — by CRU Adjusters
Why CRU chose Kespry for drone insurance inspections August 22 — by CRU Adjusters
To Read the Full Story for Each Press Release visit insPRESS.ca
Your Insurance News Source .ca
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Affluent Market
Tia Becker
Manager of Personal Insurance, Burns & Wilcox Canada
Many wealthy homeowners have risks that are hard to place and may be suited for high-net-worth insurance policies, which can be tailored to reflect differences in contents and lifestyle.
many are unaware of the need for one. That puts the responsibility on the insurance industry to educate these individuals. When picturing a high-net-worth individual, one might think of celebrities and high-ranking executives. In fact, homeowners in the market for high-net-worth insurance tend to be business owners or just plain hard-working people who started from humble beginnings, saved for their entire life and do not see themselves as affluent.
Homeowner policies aimed at individuals with a net worth of $5 million or more are available through specialty markets. High-net-worth policies can provide features suitable for wealthy clients, such as higher limits for valuable collections and custom finishes, access to subject matter experts, and kidnap and ransom coverage. High-net-worth homeowners are lucrative prospects for brokers placing home insurance because many wealthy people are underinsured. Some are simply not buying home insurance with high-net-worth features and there is a lack of high-net-worth policies that meet their needs. It is rare for a wealthy person to actively seek out a high-net-worth policy, mostly because
INHERITANCE Another opportunity for insurance providers is among Baby Boomers who intend to transfer their wealth to Generation X or Millennial heirs. When an individual inherits a large pool of assets, many times they need guidance on how to protect that fortune. For example, if someone inherited a rare Duesenberg automobile that his or her grandparent purchased in the 1940s for $5,000, but that is now worth more than $1 million, that should be properly insured. Additionally, within their own books of business, brokers can usually identify clients who may be ready to transition to a high-net-worth pol-
October 2017 Canadian Underwriter 63
icy. This may be the case for a business owner who started from nothing and has built a successful operation over the course of 30 years, for instance. Due to the complexity of services and the lifestyle of many high-net-worth individuals, full-service risk managers should counsel clients accordingly. While premiums are higher for specialty policies, most clients will see the value of insuring their family assets with a high-net-worth carrier when the coverages and services available through the affluent insurers are compared.
risk profile of a 28-year-old with no kids who sold her first tech company for $20 million may be different from a 68-yearold former chief executive officer and family man who has earned and saved $60 million in wealth over a lifetime.
HIDDEN EXPOSURES
HOME INSPECTIONS
There are several key indicators, such as occupation, high-end vehicles, luxury homes and other signs of an affluent lifestyle. However there may be others that are not as obvious. By performing a risk assessment on current clients, brokers can uncover obscured exposures, including liability exposures and valuable collections, such as fine art. Risk assessments should be revisited annually with clients to monitor any changes. It is about insuring a lifestyle just as much as insuring property, making it imperative to understand the ins and outs of a specific person or family’s affluent lifestyle in order to create a suitable insurance plan to preserve it. Risk profiles can vary. For instance, the
When someone fits into the category of a high-net-worth individual, it does not mean that his or her risk and coverage needs are the same as others. Often when assessing the lifestyle of a specific individual, the differences start in the home. While affluent families and individuals need a net worth beyond $5 million to be considered for high-net-worth policies, the home only has to be valued at $1 million or more. Home inspections are critical because they usually uncover additional needed coverages. Some items that should lead to additional discussion regarding coverage may include the following: • fine art lining the walls;
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Brokers can usually identify clients who may be ready to transition to a high-net-worth policy.
• antique furniture; • vintage guitar collections; • a collection of fine wines; • collector cars in the garage; • valuable jewellery; • bespoke sculptures; and • finishes and high-end, or specialty materials. High-value homes tend to have more unique features themselves that would need to be properly covered in the event of a loss. These features may include imported Italian marble, hand-made finishing or one-of-a-kind designs. For these reasons, an inspection is important. The insurance provider needs to assess the true value needs of the home and its content. Inspectors can work on behalf of all parties, whether it be an insurance company, brokerage, or managing general agent. Individuals with high net worth do not always have time to meet directly with brokers. An assistant can help a broker identify potential issues or roadblocks, with the aim of placing coverages with limits that are suitable for the client.
ADDITIONAL FEATURES Some homeowners may not be convinced that the cost of high-net-worth policies — compared to standard homeowner policies — are justified. Yet by buying a high-net-worth policy, a client could get access to a wide range of subject matter experts. For example, a client seeking a personal articles floater for a cherished family painting or rare foreign vehicle could have access to, and assistance from, an art curator or collector car specialist to ensure that accurate values are established, sufficient protection is in place and the proper coverage is offered. Some high-net-worth carriers have the expertise to offer additional coverages, such as insurance for super yachts or even kidnap and ransom (K&R). Wealthy individuals can be at greater risk for being kidnapped — especially those who have a high profile in the community. Depending on the policy language, kidnap and ransom insurance can cover — in addition to money demanded by the kidnappers — accidental death or
permanent physical disablement and legal liability. K&R coverage can also include medical care, lost wages, public relations counsel and relocation. Many high-net-worth risks can be difficult to place. Standard markets have less appetite for risks that may have had high claims reimbursements, a larger theft exposure, multiple mortgages and homes registered under the name of a company. Working with underwriters within the specialty market place can help provide solutions for such risks.
OFFSHORE PROPERTY Many standard markets also have less of an appetite for secondary homes or seasonal property outside of the country, such as a condo in Hawaii or a winter home in the southern United States. Some high-net-worth individuals are also opting to purchase personal umbrellas policies, which are meant to supplement a client’s current
A client seeking a personal articles floater for a cherished family painting or rare foreign vehicle could have access to, and assistance from, an art curator or collector car specialist. liability policy so that they are not set back by lawsuits stemming from an accident.
Higher limits may be required and not available through the standard market, and eligibility and policy coverages can vary. These policies may have to be tailored to meet the needs of the specific client. For example, worldwide protection is offered as a result of an increase in high-net-worth clients travelling to international exotic locations. The high-net-worth space will continue to evolve into the 2020s as technology advances. That means attention to detail will be more important than ever before.
Editor’s Picks Looking for more recent news on insurance for affluent clients? Check out www.canadianunderwriter.ca and search for the following: • Appraising Contents • Insurance providers ‘need to go further’ to understand needs of high net worth individuals: Chubb
October 2017 Canadian Underwriter 65
MOVES & VIEWS
UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
1
Blair Feltmate [1], head of the Intact Centre on Climate Adaptation at the University of Waterloo, will chair the new Expert Panel on Climate Change Adaptation and Resilience Results, announced in late August by Catherine McKenna, federal minister of environment and climate change. The panel will advise the federal government on measuring progress on adaptation and climate resilience to better understand how federal, provincial and territorial adaptation efforts are building Canada’s resilience to climate change.
2
Gregg Hanson, former president and chief executive officer of Wawanesa Insurance and current director of Winnipegbased Wynward Insurance Group, has been named chairman of the company. Hanson assumes the reins from 15-year chairman Curt Vossen, president and chief executive officer of agri-food company Richardson International, who has retired. Hanson joined Wawanesa Insurance in 1979 and progressed through various positions, becoming president and chief executive officer in 1992.
3
Derek Lothian [3a] has been named the new chief executive officer
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for the Insurance Brokers’ Association of Saskatchewan (IBAS), replacing Ernie Gaschler [3b], who served IBAS for a quarter century before announcing his retirement this past spring. Lothian, most recently a senior level advisor to more than a dozen private and publicly traded enterprises, industry associations, academic institutions and First Nations, is also a former vice president and national director of communications and business development for Canadian Manufacturers & Exporters. He is scheduled to take on his new duties with IBAS in November.
4
Hub International Limited has acquired Integro (Canada) Ltd., a commercial property and casualty insurance brokerage with offices in British Columbia, Ontario and Quebec. Specializing in complex risks — including construction, transportation, professional services, real estate, manufacturing, entertainment, mining and financial services — Hub International reports the deal “will round out Integro Canada’s solution by enabling them to bring employee benefits and personal line insurance options as well.” Key Integro staff, including Toronto-based president Mark Rankin, Montreal-based chairman
1
3a
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Robert Dunn and Vancouverbased managing principal Michael Baddeley will join the Hub International team.
5
Ontario-based DSB Claims reports that it recently hired Ken Dusenbury [5a] as its vice president of strategy, programs and claims experience. Dusenbury “has decades of experience in claims,” notes a statement from the company. Also at DSB Claims, Arwin Te [5b], a former broker, has taken on the role of executive adjuster and branch manager for the Markham, Ontario office.
6
Kevin Huberdeau [6], who has more than three decades of
multi-disciplinary engineering experience, recently joined Origin and Cause’s Edmonton office. Among Huberdeau’s specialties are assessing fire and structural damage, as well as investigating motor vehicle collisions.
7
Andrew Brown [7] has taken on the role of regional director of Alberta for Jensen Hughes, a company that provides engineering and risk management services. Among other things, Brown has provided detailed reviews and expert reports and rebuttals, in addition to appearing in Canadian private arbitrations as both a fact and expert witness.
MOVES & VIEWS
3b
5a
5b
in the delivery of technology and IT operations in support of corporate strategic business goals and objectives. He will remain in the role while an executive search is undertaken to replace Oscar van der Meer, formerly chief digital and payments officer, who left the firm as of September 11.
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8
Naomi Myers has joined Pario Engineering & Environmental Sciences as it new director of national business development. With more than 14 years of professional experience in claims management and technical training, Myers’s most recent position was business development manager for rmsQuantify, which provides post-loss appraisal services.
9
SCM Insurance Services reported in late August that it has received a majority investment from funds affiliated with global private equity firm Warburg Pincus LLC. SCM Insurance’s “ambi-
13a tious growth plans will see it become an even larger, more diverse company, with a significantly expanded presence to better serve its clients and their customers, supporting their ever-changing needs and challenges,” it notes.
10
With four decades in the auto body business, including 16 as a shop owner, Donnie Hogan has joined Fix Auto Canada’s network in Miramichi, New Brunswick. Hogan opted to join the network “to expand his business and reach an even larger consumer audience to which he and his team could deliver the high calibre of service they have become known for,” Fix Auto reports.
13b
11
Yvon Charest [11], president and chief executive officer of iA Financial Group, was recently invested as an Officer to the Order of Canada. iA Financial Group offers a number of different financial services, including auto and home insurance.
12
Henrique Godinho will temporarily take on the role of vice president, digital and payments at Central 1 Credit Union & Payments. Currently serving as associate vice president of technology services for the Vancouver-based credit union, Godinho has more than 25 years of experience
Marsh recently announced that it has moved to adopt a new global management structure. The global management structure now includes the newly formed Global Risk & Digital division, the newly formed Global Placement & Specialties division and Marsh International, notes a statement from Marsh. “This is an exciting time in our industry as the complexity of risks and the speed of change our clients face increase,” John Doyle [13a], Marsh president and chief executive officer, says in a statement. In connection with that announcement, Doyle reports that there will be a number of additional appointments to Marsh’s Executive Committee, including Martin South [13b], president, United States and Canada.
October 2017 Canadian Underwriter
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GALLERY
The Metro Toronto Convention Centre was the official venue of RIMS Canada 2017, the 44th edition of the Risk and Insurance Management Society’s annual conference. From September 24th to the 27th, hundreds of risk managers and other industry professionals from across Canada, plus dozens from the U.S. and overseas, shared best practices during networking breakfasts and lunches, gleaned insights from keynote addresses and seminars, strolled the Exhibit Hall to discover the latest tools of the trade, and turned a little less risk-averse at the many unofficial, after-hours events associated with the conference. (Canadian Underwriter was both a conference sponsor and exhibitor.) Speaking of risk, here’s a warning to our readers: RIMS Canada 2018 will take place in St. John’s, Nfld., where hotel rooms are always in short supply.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
October 2017 Canadian Underwriter
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APPOINTMENT GALLERY
Mark Cummings, President and CEO, Teachers Life Teachers Life is pleased to announce the appointment of Mark Cummings as President and CEO. Mr. Cummings brings a wealth of insurance expertise to the role, having been CEO of Scotia Life Insurance Company, overseeing all Canadian operations, and having held leadership positions at RBC and the Canada Life Insurance Company. Mr. Cummings has a long commitment to serving the community. He is Chair of the Board of Linbrook School in Oakville and a Board Member of the National Sanitarium Association. Teachers Life is a federally regulated life insurance company and North America’s largest educatorowned fraternal insurer.
For more information, please visit TeachersLife.com.
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RIMS Canada 2017 launched on September 24th with its Community Celebration. As the name suggests, it was a buoyant gathering of hundreds of risk and insurance professionals at Toronto’s Steam Whistle Brewery, located in a former repair shop of the Canadian Pacific Railway. A full set by Canadian blues-rock star Colin James was the entertainment highlight of the night.
APPOINTMENT
GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Zurich Canada hosted its RIMS Canada 2017 reception at the mesmerizing Ripley’s Aquarium of Canada. (Nestled at the foot of the CN Tower, the facility is home to more than 16,000 marine creatures.) Guests were treated to live jazz renditions of pop music, multiple food stations and, of course, close-enough-to-touch views of sharks, stingrays, anemones and more. Zurich Canada president and chief agent David Levinson welcomed attendees and offered his thanks for their support during the company’s recent transition period.
Matt Douris Matt Douris joins Burns & Wilcox Canada as Senior Claims Examiner in the Toronto office. Matt brings with him a tenure of more than 30 years of experience in the Marine Insurance industry, specializing in Cargo Claims and Subrogation. Professionals in the insurance industry speak highly of Matt, touting that he “brings extensive experience to the field” in the insurance claims process, and that he is “a supportive leader” who aids in the positive development and education of claims adjusters. “Bringing Matt onto the team will not only elevate those around him, but he will also reinforce our already robust presence in the Marine Insurance marketplace,” said Jodie Kaufman Davis, Corporate Vice President and Managing Director, Burns & Wilcox Canada. “His experience is second to none.” Prior to Burns & Wilcox Canada, Matt specialized in claims with several other insurance firms, holding various titles including Associate Vice President and President. Douris said, “It is an honour to be part of such a tight knit organization that truly cares about its employees, clients, and partners, and I look forward to bringing my expertise to this new role.” Burns & Wilcox Canada is a leading managing general agent with offices in Toronto, Ottawa, Halifax, Vancouver, Montreal, and St. John’s. Burns & Wilcox offers more than 300 specialty products and is recognized for its expertise in property and casualty, professional liability, environmental liability, construction, ocean and inland marine and personal insurance. More information can be found at www.burnsandwilcox.ca.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
See all photos from this event at www.canadianunderwriter.ca/gallery
On an unseasonably hot September 24th, many RIMS Canada 2017 attendees enjoyed a welcome opportunity to cool off, courtesy of Sedgwick and Vericlaim, which hosted a pre-conference Open House at Toronto’s Taverna Mercatto.
It must have been hard for fans of the Fab Four to decline an invitation from CRU Group and Maltman Group to their Come Together reception at RIMS Canada 2017. Tribute act The Jukebox dressed accordingly for their opening set of The Beatles’ early hits, then changed costumes to close out the evening with tunes from the band’s psychedelic period.
CONGRATULATIONS
Eric K. Grossman Recognized by Best Lawyers of Canada as Lawyer of the Year 2018 in the area of Personal Injury Litigation.
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www.ztgh.com
APPOINTMENT
GALLERY
DIRECTOR, ATLANTIC CANADA See all photos from this event at www.canadianunderwriter.ca/gallery
More than 150 insurance and risk professionals honoured the distinguished career of SCM Insurance Services cofounder Larry Shumka at the company’s Client Appreciation Reception during RIMS Canada 2017. After guests viewed a video montage of stories and best wishes from past and present SCM partners and employees, Shumka reminisced about his journey with SCM, which grew from a single Edmonton storefront in 1986 into a multifaceted, 2,500-plus-employee business operating across Canada and in the U.S. True to form, Shumka credited his wife, Donna, with doing most of hard work. Although Shumka recently relinquished the chairmanship of SCM, he will stay on as a board director; Donna remains SVP of real-estate services and external relations. Canadian Underwriter wishes Larry all the best in his wellearned retirement.
The General Insurance OmbudService (GIO) is pleased to announce the appointment of Mr. Graydon Nicholas to the organization’s Board of Directors as Director representing Atlantic Canada. Nicholas brings a remarkable wealth of experience and knowledge in the legal and political fields, being the first Aboriginal person to hold the office, the first appointed as a provincial court judge and the first in Atlantic Canada to obtain a law degree. In September 2009, Nicholas was appointed as the Lieutenant Governor of New Brunswick on the advice of Prime Minister Stephen Harper. He is also a recipient of the New Brunswick Human Rights Award. Nicholas’ expertise will contribute greatly to GIO’s regional and national success. GIO is an independent organization for consumer dispute resolution of Canadian home, car and business insurance. GIO assists customers and their insurance companies resolve differences costfree in a fair, independent and impartial environment. For more information please call toll free 1-877-225-0446 or visit giocanada.org.
www.giocanada.org
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
The smoke of nearby forest fires did nothing to slow the action at the 33rd Annual General Meeting and Conference of the Canadian Independent Adjusters’ Association (CIAA), held Sept. 7-10 in Kelowna, B.C. In a little more than three days, attendees enjoyed: a golf tournament; tradeshow; President’s Banquet and Ball; education sessions; an organic wine-tasting and dinner at Summerhill Pyramid Winery; and, a hospitality suite hosted by Canadian Underwriter and Claims Canada. There was also the important business of the Annual General Meeting, at which outgoing CIAA president Heather Matthews of Crawford & Company (Canada) passed the ceremonial gavel to incoming president Monica Kuzyk of Curo Claims Services.
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WORD OF MOUTH IS A POWERFUL THING One of the most reliable ways to find out if a company’s service is great or not is by hearing from the people who actually used it. That’s why we’re so proud of our 93% claims satisfaction rating, a standard of excellence we uphold one delighted customer at a time.
Get ready for the future, with us. economical.com/stories
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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. Percentage based on 91,254 Economical claimant survey responses measuring customer satisfaction with claims services from January 2007 to December 2016. ©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.
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