Canadian Underwriter November 2019

November 2019

YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

REINSURANCE REPORT

OSFI’S TIME BOMB CAN INSURERS AND THE REGULATOR DEFUSE A POTENTIALLY EXPLOSIVE NEW SET OF RULES?

AMAZON ASPIRATIONS Pros and cons of mirroring the retail giant’s sales model

Monica Ningen

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INTERVIEW

HOW TO NARROW THE GLOBAL PROTECTION GAP

+

REINSURERS SEEK WILDFIRE HEAT MAPS

COMMERCIAL POLICY TIP: WHEN IT DOUBT, SPELL IT OUT

HOW INSURERS RESPOND WHEN INSURTECHS GET SUED

Want something real? Real people. Real relationships. Real expertise. Find out more about our specialty insurance, warranty and surety solutions. Visit www.trisura.com a step above ųĜŸƚų± :ƚ±ų±ĹƋåå FĹŸƚų±ĹÏå ŅĵޱĹƼ ĜŸ ± ±Ĺ±ÚĜ±Ĺ ŅƵĹåÚ ±ĹÚ ŅŞåų±ƋåÚ {ųŅŞåųƋƼ ±ĹÚ ±Ÿƚ±ĬƋƼ ĜĹŸƚų±ĹÏå ÏŅĵޱĹƼ ŸŞåÏĜ±ĬĜDŽĜĹč ĜĹƤĹĜÏĘå ĜĹŸƚų±ĹÏå ±ĹÚ ŸƚųåƋƼ ŞųŅÚƚÏƋŸţ å ±ųå ± ŞųŅƚÚ ŸƚŞŞŅųƋåų Ņü ƋĘå FĹŸƚų±ĹÏå ųŅĩåųŸ eŸŸŅÏĜ±ƋĜŅĹ Ņü ±Ĺ±Ú±ţ

CONTENTS

Volume 86, No. 10 | November 2019 YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

CANADIANUNDERWRITER.CA

F E AT U R E S

26

REINSURANCE REPORT

OSFI’s ticking time bomb Canadian insurers and reinsurers are working with the regulator to defuse a potentially explosive situation. How new rules proposed by Canada’s solvency regulator could cost the industry an estimated capital hit of between $21 billion and $30-billion.

30

HEAT MAP Reinsurers bore the brunt of the costs for Canada’s record-breaking wildfire in Fort McMurray. Now they seek better data on the country’s high-risk areas for wildfires.

34

AMAZON ASPIRATIONS Be like Amazon, Canadian brokers are told. But should Canadian brokers really mimic the online sales model of Amazon?

Monica Ningen, President, CEO, Swiss Re Canada and English Caribbean

canadianunderwriter.ca | November 2019

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We changed our name. Now we’re changing the game. ENCON is now Victor. As the insurance enterprise of the future, Victor offers the specialized expertise and core capabilities in underwriting, technology, distribution and access to capital that brokers and clients need to stay ahead. See how we can continue to support you with the strength of one of the world’s largest managing general underwriters.

UNDERWRITING

TECHNOLOGY

DISTRIBUTION

victorinsurance.ca

CAPITAL

Twitter: @cdnunderwriter

Facebookcanadianunderwriter

4 13 FROM THE EDITOR

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22 Monica Ningen, president and

Will M&A turn the industry into a small pond ruled by big fish?

PERSPECTIVES

INTERVIEW

CEO of Swiss Re Canada and English Caribbean, on how to insure more people against global catastrophes

11 Our readers respond to our

HANDBOOK

recent stories on women in the workplace, educating millennials, electronic pink slips, and more…

39 Branding How do you stand out from your competitors, who are all telling your clients how great they are?

16

399

IN EVERY ISSUE 15 17 21 21 41 41 45

SURVEY SAYS NEW OFFERS BIG MOVES SUMMARY BY THE NUMBERS TRUSTED ADVISOR DEAL TRACKER

DECLARATIONS 13 Emerging E&O Why emerging tech companies may need more than just traditional E&O policies

16 Free for all P&C insurers are speaking out against Canada’s seemingly arbitrary, patchwork quilt of auto rules and regulations. Here’s why it matters for Canadians

43 Say what you mean A court decision signals the importance of spelling out assumptions and expectations in plain language in a commercial contract

PEER TO PEER 46 Quebec quakes Joseph El-Sayegh of SCOR Canada offers his take on Quebec’s low take-up rate of quake insurance

canadianunderwriter.ca | November 2019

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AP Photo/Stephen Brashear

CANADIANUNDERWRITER.CA

SCOR launches its new strategic plan

SCOR has now successfully concluded its “Vision in Action” plan, confirming its position as an independent global Tier 1 reinsurer with a “AA-“ rating. SCOR has once again demonstrated its ability to combine growth, profitability and solvency in a period of low interest rates, marked by a series of natural catastrophes. Things are speeding up. The environment is becoming increasingly uncertain and complex, in scientific and technological as well as economic, financial, geopolitical, societal and regulatory terms. In an expanding and changing risk universe, SCOR firmly believes that reinsurance has strong growth potential. With its proximity to clients, its recognized expertise and its mastery of Life and P&C reinsurance, SCOR has all the vital qualities necessary to meet a growing demand for protection.

In a changing risk coverage market, Quantum Leap will ideally position SCOR to create even greater value for all its stakeholders.

TWO EQUALLY WEIGHTED TARGETS

www.scor.com

© Aperture75 / Anton Khegay / Angelatriks - Shutterstock

SCOR has set itself ambitious profitability and solvency targets in the current financial context. Under the Quantum Leap plan, the Group will pursue its growth while staying true to the fundamental principles that have shaped its success – a controlled risk appetite, a robust capital shield policy, high diversification and a strong franchise - transforming profoundly to create the reinsurance company of the future. SCOR is using new technologies – such as artificial intelligence, robots, blockchain, big data, satellite imagery and multi-cloud… – to innovate, expand its offering and increase its efficiency for the benefit of its clients throughout the world. All of the company’s activities are involved, from underwriting to asset management and from risk analysis to claims settlement. All SCOR employees are totally committed to implementing this ambitious plan, which will enable SCOR to fully adapt to the world of tomorrow.

FROM THE EDITOR MANAGING DIRECTOR, INSURANCE MEDIA GROUP

Sandra Parente sandra@canadianunderwriter.ca 416-510-5114 EDITOR-IN-CHIEF

David Gambrill david@canadianunderwriter.ca (416) 510-6793 MANAGING EDITOR

Adam Malik adam@newcom.ca ASSOCIATE EDITOR

Greg Meckbach gmeckbach@canadianunderwriter.ca

Fish in the pond

ONLINE EDITOR

Jason Contant jcontant@canadianunderwriter.ca ART DIRECTOR

Ellie Robinson

Will the pond be able to sustain the increasingly larger fish after one or two more decades of merger mania?

ADVERTISING AND MARKETING CONSULTANT

Pam Chodda Young pam@newcom.ca (416) 510-5122 PRODUCTION MANAGER

Karen Samuels CIRCULATION MANAGER

Mary Garufi PRINT PRODUCTION MANAGER

Lilianna Kantor NEWCOM MEDIA INC. CHAIRMAN AND FOUNDER

Jim Glionna PRESIDENT

Joe Glionna VICE PRESIDENT, PUBLISHING

Melissa Summerfield CHIEF FINANCIAL OFFICER

Peter Fryters DIRECTOR OF CIRCULATION

Pat Glionna

MEDIA INC.

5353 Dundas Street West, Suite 400, Toronto, Ontario M9B 6H8 Tel: (416) 614-2200 Fax: (416) 614-8861 Canadian Underwriter is published twelve times yearly by NEWCOM MEDIA INC. All rights reserved. Printed in Canada. The contents of this publication may not be reproduced or transmitted in any form, either in part or in full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. © Since 1934, Canadian Underwriter has been the voice of Canada’s insurance industry - a monthly magazine providing the highest quality and most relevant news and insight to insurance professionals from all segments of Canada’s property and casualty insurance market. The magazine is delivered on a direct-request circulation basis to nearly 15,000 senior decision makers nationally, including insurance brokers, risk managers, insurance and reinsurance company personnel, claims managers and adjusters. Since its beginnings, Canadian Underwriter has been a link between all segments of the insurance industry, providing insurance professionals with award-winning coverage of industry issues, trends, news, personalities and events - written by Canada’s leading insurance journalists. Subscription Rates: 2018 Canada 1 Year $51.95 plus applicable taxes 2 Years $75.95 plus applicable taxes Single copies $10 plus applicable taxes, except $49 plus applicable taxes for July issue featuring annual Statistical Guide. Elsewhere 1 Year $71.95 Subscription Inquiries/Customer Service Mary Garufi (416) 614-5831 mary@newcom.ca GST Registration number 890939689RT0001 Second Class Mail Registration Number: 08840 Publications Mail Agreement #40063170

Y

ou can tell the impact of mergers and acquisitions on the Canadian property and casualty insurance market by the jokes people are telling at industry events. At the National Insurance Conference of Canada (NICC) this year in Montreal, for example, the moderator of a regulatory panel, Don Forgeron, president and CEO of Insurance Bureau of Canada, opened with a quip that Intact wasn’t going to acquire the regulators represented onstage. There are so many acquisitions happening that we have added a new feature to our magazine (Deal Tracker, see Page 45) just to keep track of them all. IBC’s latest stats guide says there are 197 insurance companies in Canada. Ten years ago, IBC reported more than 230 private P&C insurers in the marketplace. So that’s 33 companies gone over the span of a decade. Consolidation is also sweeping through the broker channel, although the scope is harder to measure. A Deloitte study in April suggested that there were at least 1,770 Canadian P&C brokerages as of 2017. That landscape has changed significantly: even just the week before we went to press, BrokerLink, Hub and Navacord all announced major M&A deals with brokerages. We are hearing some brokers express concern about the concentration of ownership in the hands of increasingly larger brokerage competitors and fewer insurance carriers. In one poll, we asked brokers for a question that they would like to ask insurance company CEOs. One broker replied: “Where do you see brokers and the broker distribution model in 10 to 15 years? How large does a brokerage have to be to exist at that point?” For the longest time, brokers have justifiably asserted that they are fully integrated members of their communities. They know and are accountable to people in their communities. But if ownership continues to be concentrated into the hands of larger brokerages that have head offices outside of those communities, does that change the broker value proposition at all? As long as consumers still have options when they pick their brokerages, all is well. But get in on the M&A action early. Over the long haul, one has to know that unfettered M&A will ultimately hit the wall, inviting regulatory intervention in the future.

Return undeliverable Canadian addresses to: Circulation Dept. Canadian Underwriter 5353 Dundas Street West, Suite 400, Toronto, Ontario M9B 6H8 Tel: (416) 614-2200 ISSN Print: 0008-525 ISSN Digital: 1923-34

david@canadianunderwriter.ca MEMBER

Twitter: @Cdnunderwriter

Facebook: canadianunderwriter

canadianunderwriter.ca | November 2019

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OUR INDUSTRY’S LEADERS ARE IN GOOD COMPANY 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.

members benefit

To our 2019 Honourees, the CIP Society offers congratulations for earning the respect and admiration of your peers in the industry.

Paul A. Croft, CIP

Ernest Mashingaidze, CIP

Monica Woldring, CIP

Aon Canada Halifax, NS Established Leader

Wawanesa Insurance Toronto, ON Emerging Leader

InsureLine Brokers Port Coquitlam, BC Established Leader

CIP Society National Leadership Circle established leaders

emerging leaders

Ginny Bannerman, CIP (2013) Carla Blackmore, FCIP (2009) Ron Bouwmeister, FCIP (2010) Diane Brickner, CIP (2012) James Cameron, FCIP (2013) Paul Féron, FCIP (2018) Glenn Gibson, CIP (2011) Andrew Janzen, FCIP (2009) Johanne Lépine, FPAA (2014)

Bryan Bedford, FCIP (2015) Rob Bickerton, FCIP (2010) Patrick Bouchard, PAA (2009) Kyle Case, FCIP (2018) Simon Charbonneau, FCIP (2011) Andrew Clark, FCIP (2011) Drew Collins, CIP (2012) Anne-Marie Deschênes, FPAA (2013) Mathieu Gagnon, FPAA (2010) Vincent Gaudreau, FPAA (2011) Lindsay Mackenzie, FCIP (2013) Melanie Needham, FCIP (2010)

Barry F. Lorenzetti, CIP (2012) 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)

Thomas Newby, CIP (2009) Tammie Norn, FCIP (2013) Adrian Osti, FCIP (2014) Frederik Pelaez, FCIP (2012) Laura Phillips, CIP (2016) Phillip Robichaud, FCIP (2009) Sara Runnalls, FCIP (2018) Kevin Sigouin, CIP (2012) Victoria Stanhope, FCIP (2018) Jonathan Stone, FCIP (2009) Alex Stringer, FCIP (2017)

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

Your resolve

Our

resources

They

can rebuild their lives

As losses from natural catastrophes increase, so does the risk. And so, inevitably, do the cost and complexity of covering it. So what better way to confront the forces of Nature than by joining forces with our clients and leveraging every ounce of our combined expertise and resources? Our flood risk expertise and proprietary NatCat modelling help our clients to start providing flood protection on a scale that was, until now, unavailable. And, to some, maybe even unthinkable. We’re smarter together. swissre.com

perspectives canadianunderwriter.ca l

company/canadian-underwriter l

@CdnUnderwriter l

She captured women’s feelings in the workplace with this response September 16

canadianunderwriter

Three things young insurance pros want from their bosses

The story: An executive from Aon Risk Solutions spoke at the RIMS Canada conference about how she was offered a junior position compared to the one she left six years prior after the birth of her first child. “I had to remind them: It was a baby that dropped out of my uterus, not my brain,” said Christine Lithgow, CEO of commercial risk solutions Canada.

September 18

C says:

Lucy Manni says:

I am a woman who has been in the insurance industry, on the broker side, for more than 36 years. I will never forget the most blatant discrimination over earnings I ever faced as a woman. I had been managing an office for a large brokerage with many offices. The first annual budget I prepared, I was told: “Well, this is a little aggressive. You will not hit these marks but you will learn and do better next year.” Our profits, every month, exceeded the budget that I had prepared. They were so impressed with me, they pointed it out publicly to my peers at our Christmas party. I was so proud of that moment. They even said that this enabled them to expand faster than they expected. I received a standing ovation. That bubble would soon burst. A few months later, I learned one of my part-time male employees was being hired to work full-time at a significantlyhigher salary than myself. I had encouraged him every step of the way to move into insurance full-time. I even mentored him. He had very limited insurance knowledge, working one day a week only doing Autoplan, basically keeping his license active. As much as I liked the fellow, finding out that he was now being paid way more than me upset me. I asked for a meeting with my higher ups, both men, to discuss it. They explained to me, “You are an asset, and he is a liability. In time, he will be an asset, too.” I responded, “Exactly, I am an asset now. So why am I being paid less to take on all this responsibility? And yet, you will pay someone more to be trained; someone who will take years to get to my level of expertise?” They just sat there uncomfortably. So, I addressed the elephant in the room and responded angrily: “Well, obviously it must be because he has balls and I don’t.” They sure didn’t like that much, but it was the truth. They had no intention of paying me more. They told me to “take a walk and cool off.” I took their advice and came back and gave them my notice and never looked back. I’m glad I left them. There was no way I could ever be happy working for a company that discriminated against women this way. I hope pay discrimination disappears. It has no place in any workplace.

Some more mature insurance pros also feel the same way. Companies have to evolve, trust their employees and be a lot more flexible. They’re biggest fear is that some employees are going to take advantage. Yes, it’s going to happen. But it’s quite obvious if those employees are going to slack off: it will reflect in their work. The Baby Boomers were – and some still are – workaholics. The younger generation are not letting employers take advantage of them. Good for them!

What young workers entering the industry are not learning The story: Millennials are missing an opportunity to learn soft skills from Baby Boomers, who are retiring in droves from the P&C industry, a conference speaker said.

Lynne says: The oldest millennials, myself included, are in our mid- to late-30s, and many of us have been in the industry for well over a decade now. I’ve spent years training staff on customer service soft skills. And what about Gen-Xers? Are we going to just pretend they aren’t still in the industry, providing the same type of guidance and leadership to younger workers?

September 23

Ontario approves electronic proof of auto insurance September 5 The story: Ontario is now the fourth province in Canada to approve the use of electronic pink slips for drivers.

Candice Paige Towns says:

September 17

Why this insurer gives workers 10 extra personal days off a year

The story: Young insurance professionals say they want flexible working environments, mentoring and open-mindedness.

Lol, this is stupid. Is ownership going to be digital too, then? Because you’ll still need to root through your glove compartment for that. Also, most people keep the insurance slip with the ownership in that little case that insurance gives you. Really not that difficult to find

Marly Ferreira says: Finally!

The story: RSA Canada said it is giving its workers 10 personal days off a year, on top of existing paid days, to help remove the stigma and raise awareness around mental health.

LMVS Law says: Insurers should have the same enlightened approach to AB and tort claims.

canadianunderwriter.ca | November 2019

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declarations HIGHLIGHTS

Broker Satisfaction p.14 l Rules of the Game p.16 l Big Moves p.21

E&O INSURANCE

When no love is lost Emerging tech companies are entering a new world of vicarious liability that may not be covered under traditional E&O policies B Y J A S O N C O N T A N T, Online Editor

E

merging tech companies are increasingly facing vicarious liability for how people are using their dating apps, ridesharing apps, social networking platforms, or even MMOs (massive multiplayer online games). For insurers, that may mean a refresh of traditional errors and emissions (E&O) policies. As recently as 10 years ago, traditional technology E&O policies were designed for business-to-business service providers such as project managers,

CALL FOR COMPETITION | OCT. 10

In a major policy shift, British Columbia’s Liberal Party, ousted from power in the 2017 election, called for an end to the Insurance Corporation of B.C. (ICBC)’s monopoly on mandatory auto insurance in the province since the 1970s.

IT consultants, or accounting software providers. They covered risks such as breach of contract or negligence (if there was some improper advice given, for example), or a delay in project delivery. “A traditional E&O policy works very well in that environment,” said Charlie Murray, international technology team leader with CFC Underwriting. “You can deploy a simple tick-box underwriting approach, which has been very much embraced by the tech E&O market,” especially by small- and

medium-sized businesses. For traditional E&O risks, for example, underwriters consider factors like the tech company’s revenue, largest contract values and the scope of services being rendered. Emerging tech companies may still need these coverages, but they also likely need coverage for vicarious liability, something not covered in a basic, one-size-fits-all tech E&O policy. “When you’re underwriting an emerging tech account, you’re not really underwriting the business, per se,” Murray ex-

DISASTER FUNDING | OCT. 4

Wildfires and rain put a $30-million dent in Alberta’s finances this year. The United Conservative Party’s cabinet declared official disasters in several communities to free up money to cover damage caused by the flames and local flooding.

canadianunderwriter.ca | November 2019

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ON THE SCENE 2019 National Insurance Conference of Canada (NICC) Sept. 22-24 Montreal, Quebec Canada’s premier insurance industry conference featured a wide variety of entertainment and content, including some of the industry’s most-recognized voices in home, auto and commercial insurance. By day, panel discussions dealt with emerging issues in auto insurance, insurance regulation, business growth, new modes of claims management, and more. By night, everyone donned their best black outfits for the much-anticipated Gala Dinner.

FIND MORE PHOTOS AT

CanadianUnderwriter.ca/gallery

DECLARATIONS plained. “You’re underwriting what other people are going to do with that tech. You really need to make sure there’s that vicarious element in there, because a traditional tech E&O policy will not always provide that.” How does vicarious liability play out for an emerging tech company? Imagine a dating app company that is found negligent for the actions of its underlying users when one party harms another. Murray cites the following example: “Harry and Sally go on a date. They’ve met through [the dating app] and something untoward happens to one of those parties. Who’s going to be brought into that suit? It’s likely going to be the dating app. That’s the same for many other different emerging tech companies; it’s the same with social networks. That big tech company with big, deep pockets is going to be brought into any action.” A lawsuit may allege the dating app is liable, says Murray. “It then ties back to the platform, arguing that one of those parties [arranged] the meet-up through the user-generated content posted on the platform, and the platform didn’t appropriately vet the users on the platform. As a result, the platform itself, the dating app, is negligent and responsible.” A traditional E&O policy may not respond to a vicarious liability claim because it’s not the platform that’s committed the wrongful act. Emerging tech companies may also need cover for either defamation (for user-generated posts online), or for business interruption arising from a cyber event and contingent business interruption. Or, since big tech companies have been known to circumvent regulations, they may also want cover for regulatory breaches and associated fines brought against a company as a result of its tech activities — coverage not found in a traditional tech E&O policy. Sometimes, along comes a claim that MYSTERY EXPLOSION | OCT. 4 Eleven years after the Sunrise Propane explosions in north Toronto caused $7 million in direct damage to the immediate neighbourhood, no one knows exactly what caused that accident or what the total damage was, an engineer told an annual industry conference.

SURVEY SAYS…

Broker Job Satisfaction We asked brokers to rate their career satisfaction in both our 2018 and 2019 National Broker Surveys. Here’s how the results compared over the past two years. Did the hard market chip away at the percentage of brokers who gave their career choice a 10?

2019

1% 1%

2

1% 0%

0%

3

1%

4%

4

2%

0-1

5% 5%

2019

2018

Extremely Dissatisfied

6

4% 3%

9%

7

14%

22%

8

19%

20%

9

14%

35%

10

41%

5

Extremely Satisfied

nobody ever could have imagined. CFC wrote a policy for a Canadian client involved an online multi-player, horsethemed roleplaying game. The insured company operated the game, which immerses players in an adventure island scenario. Players can care for and train their horses, interact with other players (real-life friends or strangers), and solve challenges and mysteries. “The exposure is very much driven by the number of interactions on the

2018

platform between the users,” explains Murray, whose London, U.K.-based company writes $13-million worth of tech E&O premium in Canada as part of its $80-billion book of business in the country. “The more interactions you’ve got, the more I might talk with another horse owner, the more chances there are for defamatory or offensive user-generated content. That’s going to drive those vicarious liability suits against the insured.”

HARD MARKET | OCT. 2 Brokers expect the current shift to higher rates and reduced coverage to stick around for awhile. “We are probably expecting to see hardening market conditions continue into next year,” Kent Rowe, president of the Insurance Brokers Association of Canada, reported. canadianunderwriter.ca | November 2019

15

AP Photo/Stephen Brashear

DECLARATIONS

INSURANCE REGULATION

Free for all Insurers are perplexed by what they see as the “uneven” application of insurance rules across the country. Why it matters to Canadians...

C

anadian insurers are becoming increasingly vocal about how the country’s patchwork auto insurance rules are creating market uncertainty and stifling product innovation. Using a football analogy, Louis Gagnon, president of Canadian operations for Intact Financial Corporation, emphasized the need for the consistent application of insurance rules while speaking at the National Insurance Conference of Canada in Quebec.

CYBER BUSINESS | SEPT. 27 Sixty-five percent of 300 Canadian small and mid-sized business owners (defined as fewer than 500 employees) said they have not been contacted by their insurance professionals about cyber insurance over the past three years, a national poll by Leger reported. 16

November 2019 | Canadian Underwriter

B Y D AV I D G A M B R I L L , Editor-in-Chief

Gagnon cited the 2012 NFL referee lockout. A dispute between the National Football League and the NFL Referees Association prompted the league to bring in replacement referees, leading to botched calls and bizarre game outcomes. In one glaring example, a last-play, Hail Mary pass at the end of a game between the Green Bay Packers and the Seattle Seahawks finished with two opposing players gripping the football in the end zone – one replace-

ment ref signalled a game-winning catch for Seattle, the other signalled a game-winning catch for Green Bay. “There was an uproar,” Gagnon said of the replacement referees. “Nobody was happy. The owners of the football teams were not happy. The players were scared to play because they didn’t know how the rules would be applied. The consumers, the people in the stands, were upset because they didn’t know if the game was going to be decid-

DENYING AUTO CLAIMS | SEPT. 25 Ontario’s Divisional Court ruled that a boilerplate claim denial – in this case, a check box on a form labelled “medical reason” (which included a short descriptor next to the ticked box) – is not sufficient as notice of a claim denial.

NEW OFFERS ed by a bad call by the ref.” Sharing the stage with Gagnon was Don Forgeron, president and CEO of the Insurance Bureau of Canada, a trade association for Canada’s home, auto and business insurers. “We share a sense of frustration when it comes to the issue of regulation,” Forgeron said in his opening remarks as the panel moderator. “We talk about outdated rules, we talk about rules that stifle competition. We look around at start-up tech companies that make up their own rules and then the regulators chase to catch up, while we [insurers] are drowning in a sea of legacy rules. We even have some provincial and federal rules that work at cross-purposes. For those who write auto insurance, you know exactly what I am talking about.” Canada has multiple auto insurance regimes across the country. “The reality is, we have this complexity in the system that’s provincially-driven,” Aviva Canada president and CEO Jason Storah said in a recent interview. “Why is it that an auto accident in Quebec is treated one way, and in Ontario treated another way, and in B.C. is treated another way? Why are the products different in those provinces? Because flesh, bone, metal and gadgets in cars are the same across all the provinces. That is an issue this industry has to tackle.” Canadians across the country do not have the same access to innovative auto insurance products because of this complexity, as Gagnon observed. “We have a new product in ride-sharing,” he said. “That product is not accepted everywhere in the country. It’s different in different jurisdictions. And it’s a product that consumers want....It’s difficult to think we serve the entire population the same way. It’s difficult to think that a Canadian could have access to the same thing all over the country because of all the different regulations.”

25-DAY APPROVALS | SEPT. 25 Ontario’s new auto insurance regulator, the Financial Services Regulatory Authority of Ontario (FSRA), is promising auto rate approvals in 25 days instead of the usual six months. And if FSRA makes the decision within 25 business days, it would be deemed approved.

UNDERWRITING PARTNER SUBMISSIONS Vendor: Element AI Target Audience: Underwriters What It Does: Extracts information and uploads data directly into an insurer’s system of records, freeing up underwriters to perform other high-value tasks.

Element AI, a global developer of artificial intelligence software with offices in Montreal and Toronto, has announced an upcoming submissions capability for its Underwriting Partner product. The product processes forms and documents to extract information and upload the data directly into an insurer’s system of records while flagging missing information and items for review. A human being is available when required. Underwriters are thus freed up to perform other high-value tasks. “As our first software product for the insurance market, Underwriting Partner Submissions capability will help insurance specialists process submissions for insurance faster, with greater accuracy and consistency, and improve workflows for a healthier underwriting expense ratio,” says Carlos Benfeito, head of insurance products at Element AI.

CLEARRISK INSIGHTS Vendor: ClearRisk Inc. Target Audience: Risk managers What It Does: Brings together risk management, insurance and claims systems in one solution.

St. John’s, Nfld.-based ClearRisk is providing a cloud-based solution to risk managers that brings together the entire risk management, insurance and claims ecosystem. Using any data source and third-party system, ClearRisk Insights combines the use of automation, integration and analytics to uncover data that was previously buried. The intent is to reduce administration time, automate important processes, and make sure important risk developments and blind spots are identified. Integration between insurers, adjusters and brokers helps to eliminate duplication and reduce incompatible data and cost of risk.

CYBER SECURITY SERVICES Vendor: AXA XL Target Audience: Underwriters, brokers and clients What It Does: Allows AXA XL’s underwriters, brokers and clients to strengthen their cyber capabilities to combat and recover from cyber attacks.

AXA’s property & casualty and specialty risk division, AXA XL, has partnered with professional services company Accenture to offer global cyber security services. The insurance and reinsurance company will tap into Accenture’s cyber security capabilities, including Accenture Security’s iDefense threat intelligence team, to help clients gain a deeper understanding of their cyber risks and to provide them with actionable reports on cyber threats. AXA XL will be able to offer its clients additional bespoke services (delivered by Accenture) that will help them to understand and mitigate their cyber risks. Initially, this will be done for the manufacturing, retail, healthcare and financial services industries, among others. It will be expanded to cover the P&C industry by early 2020. Accenture will provide post-breach security services for clients outside of the United States, including incident management and IT forensics. For U.S. clients, Accenture will deliver post-breach services as part of a group of service providers.

RISING SEAS | SEPT. 25 If steps aren’t taken to reduce emissions and slow global warming, seas will rise three feet by the end of the century, an expert United Nations climate panel warned. That means less snow and ice, stronger and wetter hurricanes, and uninhabitable islands. canadianunderwriter.ca d it | N November b 2019

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NOVEMBER 25, 2019 RITZ-CARLTON HOTEL, TORONTO

TOPBROKERSUMMIT.COM CEO PANEL OPENING KEYNOTE SPEAKER

Optimism Bias

Tali Sharot, Professor of Cognitive Neuroscience, University College London

Hear senior executives from some of the industry’s biggest carriers talk about issues of urgent interest to the broker channel.

LUNCH KEYNOTE PANEL

Cyber Risks and Opportunities

CAROL JARDINE

JASON STORAH

Paul Kovacs, Founder & Executive Director, Institute for Catastrophic Loss Reduction

Wawanesa

Aviva

STEVE PHILLIPS,

AFTERNOON KEYNOTE SPEAKER

What the Next Recession Means for You

Charles Myers, Founder and Chairman, Signum Global Advisors

ROWAN SAUNDERS Economical

Sovereign Insurance, part of The Co-operators

FOR SPONSORSHIP OPPORTUNITIES OR TO PURCHASE A TABLE CONTACT Sandra Parente sandra@newcom.ca | 416-510-5114

Pam Chodda Young pam@newcom.ca | 416-510-5122

CONFERENCE AGENDA November 25, 2019 • Ritz-Carlton Hotel, Toronto 8:00 – 9:00 a.m. Registration and Burns & Wilcox Networking Breakfast 9:00 – 10:00 a.m. Opening Keynote: OPTIMISM BIAS How often do you hear from your clients that nothing bad could ever happen to them? When selling insurance to your clients, you have no doubt encountered what renowned cognitive neuroscientist Tali Sharot describes as “the optimism bias.” Sharot, our keynote speaker, will discuss where this bias comes from, and how to compensate for it. How do you convince optimists to protect themselves against the worst things that could happen in their lives? Speaker: Tali Sharot, Professor of Cognitive Neuroscience, University College London 10:00 – 10:30 a.m. Networking Break 10:30 – 12:00 p.m. Executive Forum: SMALL GROUP DISCUSSIONS WITH CARRIER EXECUTIVES This interactive format will focus on sharing new ideas and knowledge through forwardthinking content and heightened audience engagement. This interactive session encourages delegates to discuss and debate critical broker/insurer issues with the top executives of a select group of insurance companies in an exclusive “think-tank” environment. Executives: Rowan Saunders, President and Chief Executive Officer, Economical Steve Phillips, Chief Operating Officer, Sovereign Insurance Graham Haigh, Vice President, Broker Distribution, Wawanesa Insurance 12:00 – 1:30 p.m. CAA Insurance Luncheon & Insurance Institute Keynote Presentation

CYBER RISKS AND OPPORTUNITIES Paul Kovacs will present the findings of the latest Insurance Institute research update on cyber risks, and mediate a panel discussion with leading experts working on the front lines in cyber risk management and security. The session will cover topics including cyber insurance products, claims and incident response capabilities, risk prevention and mitigation, and provide delegates with knowledge and insights to better protect their clients. Speaker: Paul Kovacs, Founder & Executive Director, Institute for Catastrophic Loss Reduction Panelists: Jacqueline Detablan, Vice President Specialty, CNA Patrick Bourk, Principal and National Cyber Practice Leader, HUB International Ontario Imran Ahmad, Partner, Blake, Cassels & Gradon LLP 1:30 – 1:45 p.m. INSURANCE AGGREGATOR: BROKER FRIEND OR FOE? Brokers have long competed against aggregators for insurance consumers’ attention, and aggregators have made some inroads into broker market share. But the relationship between brokers and aggregators may not need to be as adversarial as brokers think. Justin Thouin, co-Founder and CEO of LowestRates. ca, offers his thoughts on why aggregators could actually be a broker’s best friend. Speaker: Justin Thouin, Co-Founder & CEO, LowestRates.ca 1:45 – 2:15 p.m. Concurrent Sessions (Choose one of the Following) SURVIVING THE HARD MARKET How do you find new clients during a tightening market cycle when you can barely retain your current ones? OR

RECRUITING TOP TALENT & MANAGING THE FUTURE WORKFORCE Join us in exploring new strategies that brokers are using to recruit talent. Speaker: Trevor Buttrum, Manager, Career Connections, Insurance Institute of Canada 2:15 – 2:45 p.m. Networking Break 2:45 – 3:30 p.m. Afternoon Keynote WHAT THE NEXT RECESSION MEANS FOR YOU Brokers know the impact of a global recession on insurance: When economic times are tight, clients are looking for a little bit more for a little bit less. And claims risk is elevated when clients start to penny-pinch. While Canada’s economy has done relatively well so far, can it hold out in a world of U.S.-China tariff wars, Brexit, low interest rates, and upcoming electoral changes both at home and abroad? U.S. economist Charles Meyer tells Canadian brokers what to expect in the future. Sponsored by Navacord

Speaker: Charles Myers, Founder and Chairman, Signum Global Advisors 3:30 – 4:30 p.m. CEO Panel Moderator: David Gambrill, Editor in Chief, Canadian Underwriter Panelists: Jason Storah, Chief Executive Officer, Aviva Carol Jardine, President, Canadian Property & Casualty Operations, Wawanesa Steve Phillips, EVP & COO, Sovereign Insurance, part of The Co-operators Rowan Saunders, President and Chief Executive Officer, Economical 4:30 p.m. Closing Remarks, LowestRates.ca Cocktail Reception and CE Credit Verification

*Agenda subject to change

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AFTERNOON KEYNOTE SPONSOR

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EDUCATION PARTNER

Navacord Broker Partners ;‚;u $o];|_;uÄş At Navacord, we are building the Great Canadian Brokerage. Ć?Ć• uoh;uv -m7 Ć‘ v _-ˆ; 1ol; |o];|_;u |o Ń´;ˆ;u-]; |_;bu Ń´o1-Ń´ 0u-m7 -m7 1oll†mb|‹ ru;v;m1; ‰b|_ |_; 0-1hbm] -m7 v†rrou| o= - m-াom-Ń´ 1olr-m‹ĺ ); -u; om; 0†vbm;vv ‰b|_ oˆ;u ĹŞĆ? 0bŃ´Ń´bom bm ru;lb†l -m7 lou; |_-m Ć–Ć?Ć? |-Ń´;m|;7 -7ˆbvouv.

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DECLARATIONS BIG MOVES

SUMMARY DEMOGRAPHICS

Looming risk manager shortage

Newfoundland broker takes helm of IBAC

THE RISK MANAGEMENT SOCIETY (RIMS)

Kent Rowe has taken over from Chris Floyd as president of the Insurance Brokers Association of Canada.

WHO: Kent Rowe CURRENT ROLE: President, Insurance Brokers Association of Canada P&C EXPERIENCE: 20+ years PROFILE: Founding member of Newfoundland and Labrador’s Young Broker Network. Past president of the Insurance Brokers Association of Newfoundland

St. John’s, Newfoundland-based broker Kent Rowe is the new president of the Insurance Brokers Association of Canada. A former president of the Insurance Brokers Association of Newfoundland, Rowe is a founding member of the province’s Young Broker Network. He is vice president of commercial lines for Wedgwood Insurance. While studying business at Memorial University, Rowe decided to get into the insurance industry after his brother suggested he should consider it as an option. Rowe initially started his career as an account executive at Wedgwood, but he decided to get some experience at a carrier. For three years, he worked in Halifax as Aviva Canada’s business development manager for Atlantic Canada. He returned to Wedgwood in 2013. With offices in both St. John’s and Corner Brook, Wedgewood places a variety of business and commercial coverages, including surety, general liability, management liability, marine, cyber, builder’s risk, home, auto and high net worth. Rowe has taught courses at the Insurance Institute of Newfoundland and Labrador and is a founding member of the province’s Young Broker Network.

François Blais is now president of Industrial Alliance Auto and Home Insurance and Prysm General Insurance. In 2017, he became iA Financial Group’s vice president and chief data and analytics officer.

Mark LeBlanc is now managing director of broker distribution and marketing for Aviva Canada. He was previously Northbridge Insurance’s executive vice president of Ontario and Atlantic Canada.

DISTRACTED DRIVING | SEPT. 24 Fifty-three percent of 3,500 Canadians polled by Desjardins General Insurance Group admitted that they drove distracted by their cellphones at least once this year, up from 38% last year. Other distractions included changing the vehicle’s console/ infotainment system (41%).

Mark Hughes has retired from the role of vice president at Western Canada for CEP Forensic after more than 20 years in the insurance business. Based in Edmonton, Hughes founded Sintra Engineering in 1997. CEP merged with Sintra in 2017.

The risk management profession is at risk of falling short of enough professionals to meet anticipated demand in 2025. “Assessing this shortage and the ability of the talent within the profession to acquire knowledge and learning agility is critical for the future of the profession,” says the RIMS Risk Management Talent 2025 Report, released in September. The report analyzed more than 1,170 answers from surveys administered by RIMS, Chubb, The Hartford and Willis Towers Watson. Only 16% of the risk professionals surveyed thought there will be a sufficient number of risk management graduates to meet the demands of the profession five years from now. “Risk management professionals must develop an approach and plan for a continually expanding landscape of new challenges to demonstrate their value,” RIMS 2019 President Gloria Brosius said in the report. “Five years from now, these shifts may be complete and those who didn’t at least plan ahead will be left behind.” One major hurdle is to convince people outside the field that risk managers are an essential to company growth. Less than half (46%) of the risk managers in the study believed that leaders outside of the risk function area viewed risk managers as vital to company growth. People still value the risk management function. In fact, 87% of risk managers surveyed said their job is considered highly valuable within their organizations. Regarding future skills development, 94% of respondents agreed that new skills will be required to meet business challenges by 2025. Seventy-six per cent of risk management students feel they’re up to the task of tomorrow’s challenges. However, fewer than a third of executive leaders similarly feel that professionals are equipped.

LLOYD’S RATES | SEPT. 19

Insurance rates on renewal are up nearly 4% in the Lloyd’s market, which has returned to profitability. The price increases were witnessed across all major lines, most notably in property and aviation, the Corporation of Lloyd’s said in its financial report for the first six months of 2019.

4%

canadianunderwriter.ca | November 2019

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cu

INTERVIEW

MONICA NINGEN, President, CEO, Swiss Re Canada and English Caribbean

CATASTROPHE COVERAGE

MIND THE GAP The gap between those who are insured against catastrophes and those who aren’t is still noticeably wide, particularly as storms are supposed to get worse. Monica Ningen, president and CEO of Swiss Re Canada and English Caribbean, describes what can be done. By Jason Contant, Online Editor

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November 2019 | Canadian Underwriter

cu | Hurricane Dorian brought to mind the issue of the protection gap. What can be done to help close the gap? I think it’s important to recognize that countries are more or less vulnerable to specific disaster risks according to their level of preparedness and ability to absorb those losses. It really goes back to the specific area that you’re talking about — whether you’re in a developed or underdeveloped economy — and the maturity of the local insurance market. For example, compared to other markets, The Bahamas have an insurance take-up rate of about 40% of the properties insured. That’s pretty good on a relative basis. Yet that still leaves more than half of the properties uninsured and exposed to financial challenges following devastation such as Dorian. As in most other countries, a lot of the uninsured properties are often low-income housing; the property owners don’t have the financial means to afford insurance or access to affordable insurance.

cu | So what can be done? It requires collaboration between the insurance industry and public entities, and then financial assistance in some way, shape or form. An important part of that conversation is also around mitigation – making sure that people are living in places that are resilient over time. Another way to narrow the gap between economic and insured losses is to use innovative solutions or low-cost products that can really help countries and/or the cities that they live in recover after a big setback.

cu | What’s an example of an “innovative solution”? A parametric cover is a great example, but it could also be an innovative form of distribution. For example, somebody may not have access

to an insurance agent and so how else can you distribute the product? You might look for things to which most people have access; in most instances, that would be mobile phones. And so how can a mobile phone enable insurance to be distributed and to get insurance money into the peoples’ hands during a disaster? Pair this with education. It’s really important to educate the public on the value of and need for insurance. In some places, you have people that trust their government to bail them out more than they trust insurance companies. Once a risk is understood, people can take the necessary steps to think about how they can mitigate the risk or how the risk fits within the picture of their overall financial resiliency. Some people might choose to save more money [e.g. not transfer the risk to insurance], while other people will choose to buy insurance. But it needs to be a recognized choice. I think in some situations people either don’t understand the risk to which they are exposed, or they take for granted that they will get some sort of assistance once a large catastrophe happens. We must continue to build public awareness of the insurance industry’s value proposition; at the same time, we must work with governments to change the public dialogue. People should be made aware that when catastrophe happens, the insurance industry is quite often an important part of economies bouncing back faster.

cu | Looking at Canada, what are your options if the industry experiences another Fort McMurray-style catastrophe event? How sustainable is that for a reinsurer? As an industry, we need to continue to improve our understanding of catastrophic events. That involves understanding climate

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INTERVIEW

change and its impact. Also, it requires spending more time on perils that haven’t received the same attention or focus as other perils have in the past. If you look at peak perils across the world, most of the really extreme perils we talk about are earthquakes, hurricanes and typhoons — they are the headliners. Wildfire has received a lot of attention over the past three years or so because it has produced a significant amount of loss. Wildfires occur every year and the number of fires, their severity, and the size of area burned varies quite significantly. Total insured losses from wildfires in 2018 amounted to around $17 billion globally, a new record.

cu | Can you talk more about the wildfire peril in Canada? In recent years, the annual number of fires in Canada appears to have

remained flat or has even modestly declined, although the area burned appears to be on the rise. The frequency is down, year-to-date. Overall, the number of observed fires is below the country’s 10-year average — except in Yukon, where there has been slightly more activity. The intensity, the total burned area year-to-date, is down below the 10-year average. The exceptions are Alberta, Ontario and Yukon. In those three provinces, the total burn has more than doubled in comparison to the 10-year average.

cu | How do you think the wildfire risk will play out? We expect wildfire risk in Canada to grow. More people are settling in that wildland-urban interface area. Plus, longer periods of warm, dry weather are lengthening the fire season in Canada and across North America.

cu | Let’s go back to the big picture. Can you elaborate on your earlier remarks about the long-term sustainability of catastrophe insurance? When you take time and really dig into some of these perils that maybe we haven’t spent time on before, this allows us as an industry to assess the risk properly and set the right terms for an insurance cover that can be provided for the longterm. Now as part of that conversation, it’s possible that the current insurance rates set for a given peril or geography are not affordable to people longer-term.

cu | What happens then? In that situation, you have to think about mitigation. Do we need to work with the local government to think about where and how people build? If we’re going to allow them to build in an area where traditional insurance is no longer affordable, then it goes back to the public-private partnership and what else can be done. For example, is there a lower-cost parametric cover that a city could buy to help recover afterwards? There are a lot of options. But it does take work and collaboration across many different entities that don’t always collaborate on just your traditional policy.

cu | How do you view the current state of Cat models? There is no doubt in my mind that the industry is better off with the analytics today than we were 10 years ago; that includes Cat modelling. Cat models have made continued progress. Modelling estimates have become what I would call reasonably reliable when it comes to estimating early losses. Recent events have provided much-needed data to enhance and then to collaborate those model assumptions such as building vulnerabilities, for example. But Cat models are just one piece of the puzzle. Models are just models; they are never going to fully reflect reality, especially just one model. Think about the forecast of a hurricane path. With all the data and model runs we have, it’s still a really challenging 24

November 2019 | Canadian Underwriter

PROFILE

thing to predict several days out because there’s so many different variables that play into it. That’s very similar when it comes to coming up with actual loss. Go back in time to Hurricane Katrina. Models didn’t estimate that the levees were going to fail. That was probably a super-low probability in any model, yet they failed and the loss is a lot higher than any model would have shown at that point. Models are only as good as the data you put in them and they rely on adequate reporting and updates of property values.

cu | What else needs to be considered? The economy and its dependencies, the resiliency of the electrical infrastructure — there are so many other components that now play into what a total loss estimate will be. Companies today not only look at Cat models, they’re thinking about the area, how quickly can they get adjusters in, and how effective those adjusters can be.

MONICA NINGEN Title: President, CEO of Swiss Re Canada and English Caribbean Past experience: Previously Swiss Re’s head of property underwriting for the U.S. & Canada and chief property underwriter. Ningen joined Swiss Re following the acquisition of GE Insurance Solutions (GEIS) in June 2006. During her time with GEIS, Ningen was responsible for catastrophe risk management globally. Industry contributions: Ningen is a frequent speaker and panel contributor at industry conferences and events on the topic of resiliency, closing the protection gap, and diversity and inclusion. She served on the board of directors of the Insurance Institute for Business & Home Safety from 2014-18. She currently serves on the board of directors for Insurance Bureau of Canada and the Institute of Catastrophic Loss Reduction.

What’s a guitar without strings? Brokers are instrumental to our success! We’re tuning into your needs to amplify our partnership. echeloninsurance.ca/amplify

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COVER FEATURE l REINSURANCE REPORT

2019 REINSURANCE REPORT

OSFI’s ticking time b mb Canada’s solvency regulator and the property and casualty insurance industry are working to defuse a potentially explosive situation – one that could see global reinsurance capital fleeing from Canada. What will be the outcome of this ticking regulatory time bomb? By David Gambrill, Editor-in-Chief

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November 2019 | Canadian Underwriter

REINSURANCE REPORTT l COVER FEATURE

R

einsurance is not normally explosive stuff. And yet, Canada’s solvency regulator and the nation’s property and casualty insurers are trying to defuse a ticking time bomb that currently sees them standing between $21 billion and $30 billion apart. That’s the amount of additional capital the P&C industry says will be required to comply with new reinsurance rules proposed by the Office of the Superintendent of Financial Institutions (OSFI) in June 2018. To put this into perspective, the total capital pool available to insure all Canadian risks — home, auto and business — is about $50 billion. This huge gap between OSFI and the P&C community is perplexing to many industry observers. OSFI’s proposed rules “would require a significant amount of additional capital to be in Canada, which is certainly not realistic for all the reinsurers to have to do that,” observed Koker Christensen, co-leader of Fasken’s financial institutions group, at the 2019 National Insurance Conference of Canada (NICC) in Quebec. “This is obviously a significant issue. From my perspective, I don’t remember the last time I saw quite a divergence between OSFI’s perspective and the industry’s perspective.” OSFI’s ticking time bomb A very important caveat comes courtesy of Monica Ningen, CEO and president of Swiss Re Canada and English Caribbean: “The reinsurance framework proposals are what I would call relatively early stage,” she told Canadian Underwriter recently. “The industry continues to engage constructively with OSFI, although the federal election means that we are in a period in which OSFI is unable to share any updated thoughts on those proposals. The industry is expecting a draft to the B-2 guideline in November and then a final B-2 and B-3 guideline in 2020.” The discussions have been ongoing for quite some time. Two years ago, Nev-

ille Henderson, OSFI’s assistant superintendent of the regulator’s insurance supervision sector, told the National Insurance Conference of Canada (NICC) about the progress of the department’s 10-year reinsurance review. “Over the years, we have been taking a look at reinsurance activities and reinsurance is extremely important in managing catastrophe risk and we’ve found we don’t have a deep understanding of how some of that is done,” he said at the 2017 NICC. “So we’re looking very closely at reinsurance practices, we want to understand that somewhat better.” OSFI’s 2018 discussion paper suggests that the industry and the regulator don’t share the same understanding. One rule change in particular, OSFI’s proposed new Policy Limit Rule, has set the industry on edge. Essentially, it assumes some kind of major disaster scenario in which “the largest three policies of each insurance company will incur total losses at the same time, and that the largest unregistered reinsurance counterparty on each policy will fail,” as stated in a Canadian Insurance Briefing Note issued by the Toronto Insurance Council (TIC) in October. TIC’s members include Canadian commercial insurance brokerages. “The probabilities associated with these are calculated by industry actuaries to be somewhere in the range between 1-in-1billion to 1-in-5-trillion-year loss events.” OSFI’s new rule would reduce commercial policy limits to policyholders and/or reduce exposure to the largest unregistered reinsurer. [An “unregistered reinsurer is not regulated by OSFI.] The shortfall would be made up by more capital or collateral posted in Canada. This particular proposal essentially flies in the face of how global reinsurance works, the industry argues. “OSFI’s concerns ignore the necessary and important role of global risk diversification that underpins global insurance,” the TIC briefing paper states. “Insurance and reinsurance companies

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COVER FEATURE l REINSURANCE REPORT of high-level risks in Canada. In another part of the paper, OSFI proposes a new collateral requirement to ensure that insurers park enough capital in Canada to cover off their risks. OSFI would require “that either (1) the ceding FRI continues to hold capital in Canada for the ceded insurance risk, or (2) the unregistered reinsurer posts collateral in Canada (in which case the ceding FRI may then reduce its required capital).” Says the regulator: “OSFI does not intend that its collateral requirement either encourage or discourage the placement of reinsurance with of specific risk scenario OSFI FRIs or unregistered reinsurers, is trying to guard against with but rather that there be an adequate its proposed new rules. The level of capital/collateral in Canada to regulator’s concerns appear to have emanated from its 10-year review protect the policyholders and creditors of of the reinsurance sector. The paper is the cedant FRI from undue loss.” complex and detailed. To characterize the issue, OSFI appears to be concerned Risks of Detonation that reinsiurance capacity would not be At the 2019 NICC, Canada’s highimmediately available in the event of a est-profile industry event, IBC sounded an uncharacteristically stark warning: major catastrophe in Canada. “[Federally regulated insurers] FRIs “The outcome of OSFI’s proposed policy have increasingly adopted business limit rule would be to increase the capmodels that rely heavily on reinsurance,” ital level of the impacted companies by the regulator noted in its Discussion Pa- $21 billion to $30 billion, thereby askper on OSFI’s Reinsurance Framework, re- ing them to, on average, more than triple leased in June 2018. “Particularly in the their capital base,” said keynote speakP&C sector, there are concerns about the er Don Forgeron, IBC’s president and risks associated with writing large pol- CEO. “This additional capital requireicies in Canada, and subsequently ced- ment is out of reach for most, if not all, ing a significant portion of these risks of the impacted companies. “This risks isolating Canadian comoutside of Canada, with little capital or vested assets maintained in Canada to panies – setting us apart from our global competitors. It will make this country a support the increased risk exposure.” In particular, the OSFI paper points less appealing marketplace and force Caout, the “risks associated with large nadians to pay more in an industry with exposures and concentration of rein- fewer players… “To put it mildly, we are frustrated surance counterparties must be better managed.” To help do this, “OSFI in- with OSFI’s reinsurance proposal. Idetends to introduce a rule related to the ally, we’d see the regulator realize that issuance of high-limit policies by P&C these changes are too drastic and disFRIs. Under the proposed rule, the max- ruptive and do not achieve the desired imum policy limit that a P&C FRI could outcomes to protect policyholders.” The reaction of the global insurers issue would depend upon its level of capital and excess collateral, as well as and reinsurers will vary, predicted Jothe diversity of its reinsurance counter- seph El-Sayegh, president and CEO of parties.” What’s more, says OSFI, such SCOR Canada Reinsurance Company, a limit could be extended to global rein- “hence creating a disruption to accessisurers as well. That would essentially bility and affordability of (re)insurance limit their participation in the insurance in Canada.”

To put it mildly, we are frustrated with OSFI’s reinsurance proposal. Ideally, we’d see the regulator realize that these changes are too drastic and disruptive and do not achieve the desired outcomes to protect policyholders.” pool and diversify their risk globally, which allows them to offer the range of insurance products required by Canadian policyholders while maintaining a prudent and careful approach to risk management. “Global risk diversification is what makes it possible for Canadian insurance and reinsurance companies to provide large loss limit policy protection for various industries, commercial buildings and critical infrastructure in Canada.” Reinsurance played a key role in funding claims related to the 2016 wildfire in Fort, McMurray, Alta., which is currently the highest-priced disaster to hit Canada (about $3.8 billion in insured damage). Ratings agency A.M. Best estimated at the time that approximately half of that total was covered by European-based reinsurers. Aon Benfield estimates reinsurance capital worldwide to be worth $US585 billion as of last December. In Canada, an earthquake is widely regarded to be one of the most damaging form of perils to the Canadian P&C industry, estimated to be a 1-in-500-year event. In 1992, Munich Reinsurance Company of Canada estimated that a Magnitude 6.5 earthquake near Vancouver would cause more than 200 fatalities, 7,000 injuries, and insured losses of between $7 billion and $13 billion. Decades later, updated research commissioned by Insurance Bureau of Canada (IBC) found that a Magnitude 9 earthquake about 75 km away from Vancouver would cost the industry approximately $20 billion in insured losses. The industry still isn’t sure what kind 28

November 2019 | Canadian Underwriter

REINSURANCE REPORTT l COVER FEATURE During a 2019 NICC discussion panel on OSFI’s proposals, a Swiss Re executive said about two dozen to three dozen Canadian insurers and reinsurers would be affected by OSFI’s proposals. He said commercial insurers would be most affected. And if they reacted to the proposals by writing less business in Canada, the effects on the commercial insurance market would be pronounced. “Reinsurers could sidestep the [proposed] rules so easily by writing business in Canada on an unlicensed basis,” said Jonathan Turner, senior vice president and chief financial officer of Swiss Re Canada. “Now, I believe that would reduce the capacity available for the Canadian industry. It’s probable that would make capacity scarcer. It would drive prices up for the Canadian industry, and those prices would be borne not just by the commercial insurers in Canada but across the entire industry.” By how much would that drive up

commercial insurance rates in Canada? “That would put commercial insurance prices up by up to 30%,” Turner said in a response to a question from panel moderator Jonathan Stephenson, managing director of Guy Carpenter. If reinsurers bailed on covering high-value commercial risks, personal lines insurers would not likely be able to step into the breach, Turner predicted. He doubted, for example, that personal lines writers dabbling in commercial insurance – or even ones that insured larger commercial accounts — could put up $100 million in capital or more to underwrite some of Canada’s biggest commercial insurance risks. Toronto Pearson International Airport is a $1.5-billion risk, Turner observed. So was the refurbishment of the Central Block of Canada’s House of Commons (with an insured limit of $1.5 billion). And any hospital in a major Canadian city would have a policy limit in the “high-hundred-millions to low billions,” said Turner.

Defusing the Crisis So what will become of this issue? A P&C industry task force is currently discussing the reinsurance proposals with OSFI. “For our part, we at IBC are encouraging OSFI to slow things down – to take the time to understand and more clearly define the problem they are trying to solve,” Forgeron said in a speech delivered at the 2019 NICC. An informal coalition of insurance companies, along with IBC, have been actively engaged with OSFI, the federal Department of Finance and the office of the Minister of Finance on this issue, the TIC paper notes. Christensen finds reason for optimism that cooler heads will prevail. “Historically, the relationship between the regulator and the industry has been collaborative and publicly transparent. I think this is a challenging issue, but I think between the public dialogue, it will get resolved in some way that is satisfactory. But it all remains to be seen.”

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FEATURE l WILDFIRE EXPOSURE

WILDFIRE EXPOSURE

Heat map Reinsurers bore a large portion of the Fort McMurray wildfire losses. Now, they want better data on Canada’s high-risk areas By Greg Meckbach, Associate Editor

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November 2019 | Canadian Underwriter

WILDFIRE EXPOSURE l FEATURE

ildfire was the most expensive peril for the global insurance industry in 2018, and the risk is getting higher in Canada. Now for the good news: government scientists are working on maps that would help give the industry a better idea of which specific neighbourhoods are at risk of wildfire. As of press time, Canada has made it through most of 2019 without any major insured wildfire catastrophe losses. As of Aug. 29, a total of 3,873 reported wildfires in Canada had burned more than 1.8 million hectares of land, according to the Canadian Interagency Forest Fire Centre (CIFFC). The total number of fires this year is on pace to finish well below the 6,444 recorded at this time last year. Nevertheless, insurers who paid out more than $3.7 billion for wildfire damage in Fort McMurray, Alta., in 2016 remain on high alert. Canadian P&C insurers are more concerned about wildfire risk now than they were 20 or even 10 years ago, says Urs Uhlmann, AXA-XL’s country manager for Canada. The key is to get a handle on wildfire loss exposure.

Wildfire exposure “In Canada, the number of properties at risk is definitely increasing, however we don’t actually have any numbers right now on how much it has increased,” says Lynn Johnston, a Sault Ste. Marie, Ont.-based forest fire research specialist for Natural Resources Canada. The agency is currently working on a national fire risk mapping study for Canada. The government hopes to have the data available to the industry and the general public in 2020. The idea is to have colour-coded maps indicate wildfire risk in any given area. “I have been talking to a lot of insurance and reinsurance companies and they are pushing for any kind of information,” says Johnston. The maps are “not super high-scale,” she adds. “You would not be able to use them for each individual house. It takes more of a neighbourhood kind of a look. But it would give you a much better idea of the risk

for a neighbourhood overall.” To complete the mapping, Natural Resources Canada set an internal deadline of the end of the fiscal year, which is Mar. 31, 2020. How exactly insurers will be able to access the maps has yet to be confirmed. Johnston says the data will be available to anyone who requests it, possibly through the government website or an FTP site. The 2016 Fort McMurray wildfire was the most expensive insured loss in Canadian history, reports A.M. Best Company Inc. Most of those losses were picked up by non-Canadian reinsurers. Canada placed third (behind the United States and Indonesia) in a Lloyd’s report that ranked countries with the greatest amount of economic damage from wildfires between 1990 and 2012. Canada suffered $6.46 billion in economic damage from wildfire, Lloyd’s reported in Wildfire: A burning issue for insurers? The country’s most expensive losses have happened in Alberta, although all Canadian provinces and territories are at risk of wildfire, said Johnston. “Just because it does not happen often, and there have not been those big events like Fort McMurray and Slave Lake, that doesn’t mean it can’t happen anywhere,” said Johnston. She cited Parry Sound 33, a huge wildfire that affected central Ontario last year, as an example. “Nova Scotia, despite it being a wet province, has a lot of wildland-urban interface areas and there could be problems even there,” Johnston says. There is also the possibility of losses in suburban Vancouver. A lot of fuel could burn in that area, but the fact that it is also very wet reduces the risk, adds Johnston.

What’s behind the losses The growth of properties in the wildland-urban interface (WUI) is contributing to larger and more deadly fires in California, Swiss Re says in Natural catastrophes and man-made disasters in 2018: “secondary” perils on the frontline. Worldwide, factors increasing wildfire risk include climate change, population growth and urbanization. The WUI is where housing meets or intermingles with wildland vegetation, said Miranda Mockrin, a Baltimore-based research scientist for the United States Forest Service. Globally, most insured wildfire losses have resulted from property damage in the WUI, Lloyd’s

canadianunderwriter.ca | November 2019

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FEATURE l WILDFIRE EXPOSURE said in Wildfire: A burning issue for insurers? In the United States, the number of homes in the WUI grew 41% —from 30.8 WILDFIRE EXPOSURE million in 1990 to 43.4 million in 2010, Mockrin said in an interview. Similar figures are not available for Canada, said Natural Resources Canada’s Johnston. There are two types of WUI, observes Mockrin. One type, typically low-density, includes homes that are sort of interspersed or intermingled with vegetation. The second type does not have much vegetation directly next to homes, but the homes are near a sizeable amount of wildland vegetation. This is significant for insurers because buildings that are not immediately adjacent to vegetation can still be lost or damaged as a result of wildfire. The U.S. Forest Service recently studied buildings in California that were lost to wildfire from 1985 through 2013. The results were published in a recent article in International Journal of Wildland Fire.

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“We were sort of surprised by the results,” says Mockrin, who co-wrote the article. “We found that over 80% of all the buildings lost were in the WUI. But about 50% of them were in that area where you have housing that is not sort of immediately surrounded by wildland vegetation.”

Advising on wildfire risk Brokers have a role to play in advising clients on how to reduce wildfire risk. “I do think brokers can play a major role in pointing out the various resources that are available for preparation,” said AXA-XL’s Uhlmann, citing the Institute for Catastrophic Loss Reduction (ICLR) as an example of one such resource. What makes structures particularly vulnerable are roofs made of untreated wood shakes, warns ICLR, which advises that using metal, asphalt, clay and composite rubber tiles are better options. Risk mitigation measures recommended by ICLR include cleaning debris

out of roof gutters and not storing firewood or propane tanks within 100 metres of the home. In the zone between 10 and 30 metres from the home, property owners can reduce risk by spacing trees at least three metres apart. AXA-XL observes that many wildfire losses are not caused by the fire itself. “Where there is fire, there is smoke,” Uhlmann says. “It’s not necessarily direct fire impact that creates the problem. The business interruption and the damage that happens because of smoke or ash is much more difficult to predict. It’s not just how close you are to the forest.” It’s also a question of whether your client’s building is vulnerable to having smoke or ash blown in through ventilation. “A lot has been written on how to prepare for the next big [wildfire],” says Uhlmann. “I do believe there is a big opportunity for all our customers to reduce the damage to their business and consequently get back up and running.”

ON THE SCENE Annual WICC Quebec Fundraising Event Oct. 17, 2019 Montreal, Quebec Four hundred guests gathered at the Hotel Le Windsor for the annual WICC Quebec Fundraising Gala, with proceeds going to the Canadian Cancer Society (CCS). Under the honorary chairmanship of Glen Bates (Economical), guests heard the moving testimony of cancer survivor Mario Barbieri. The guests’ generosity allowed WICC Quebec to exceed a milestone of $1 million in donations to the CCS since its creation 11 years ago. In 2019 alone, a record total of $150,000 will be donated.

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FEATURE l BUYING INSURANCE

BUYING INSURANCE

Amazon aspirations Be like Amazon, experts tell the P&C industry. But is it realistic for brokers and insurers to mimic the retailing giant’s online sales model? By Adam Malik, Managing Editor

M

arketing, sales, tech, and business gurus expend a lot of energy telling the property and casualty insurance industry how it should be more like the Amazons of the world. Common advice to the industry includes: • put consumers first; • make it easy for customers to buy insurance online; • create “a great customer experience,” by providing consumers the insurance product they want, how and when they want it, and at the price they want; • deliver the product quickly and efficiently. Google and Amazon are great at dealing with customers, so the gurus say, and so the P&C industry should mimic what they do to succeed. But buying a T-shirt from your smartphone while you are about to go to bed is different from buying an auto policy. There are many more factors to consider when purchasing insurance. So how can the P&C industry be expected to offer its services in an Amazon-like manner? Is it even possible? To be or not to be…Amazon The answer isn’t so simple. Brokers, for example, dispense advice. So, although they might want to replicate some aspects of the so-called Am-

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l FEATURE

azon sales experience, it would be a mistake to try to imitate everything, some brokers say. “I would challenge the assumption that imitating Amazon or Google would produce the ‘best’ experience for an individual looking to understand their various insurance options,” says Brenda Rose, vice president at FCA Insurance Brokers in Toronto. One common catchphrase heard in the P&C industry is to “make the customer the centre of everything you do.” This is frequently cited as the thing that makes companies like Amazon and Google so great. Certainly, brokers do need to think about how to do that, and doing do requires several key elements, says Rick Orr, owner of Stratford, Ont.based Orr Insurance. “The great experience that the customer is looking for is access, responsiveness, understanding, and professionalism,” he explains. “Look after me the way that I want to be looked after. If I send you a text, respond to my text. If I send you an email, respond to my email. If I call, pick up the phone and have a conversation with me.” Amazon does those things quite well, the gurus say, but it also operates as a 24/7 shopping experience. There is some debate within the broker community as to whether brokers must work 24/7 to deliver the insurance product. Last year, fewer than half of brokers in Canadian Underwriter’s 2018 National Broker Survey said “meeting with prospects after-hours” constituted a best practice. In this year’s survey, the number went up to 55%. Even if brokers don’t necessarily need to adopt the 24/7 model, some adjustments need to be made, Orr says. “I think brokers need to figure out a way to expand their hours and be more accessible to the public. In today’s world, just having a staff with cellphones means they can text, email and respond [to customers]. I think satisfies a lot of customer demand.” Buying insurance is a complicated process and can’t be done with a few clicks of the mouse, Rose says. “The critical element is the availability of advice for the client, whether before they make a purchase or at any point afterwards.”

Amazon’s self-service model Sonnet Insurance is an example of an insurance company that could be likened to the Amazon/Google sales model, at least in personal lines. Its raison d’etre is to sell insurance by asking the fewest questions possible. It uses data in its back-end systems to fill in the rest of the blanks. When the company launched, it looked at Amazon, Google, Apple and other major players who are considered the standard of customer service and aimed for those levels. “We know what the standard is, and we know the new and evolving expectations that customers have,” says Sonnet’s vice president of customer experience, Carolyn Beatty. “How can we apply that to insurance? How do you empower that customer, and how do you make insurance something that they can understand?” Leaders in non-insurance industries have valuable wisdom to impart to the P&C insurance industry, she adds. “You have to simplify the experience of accessing and buying insurance, as well as the actual product set itself. I think that’s what a lot of these major players have done within their particular sectors.” Buying insurance may never be as simple as buying a shirt from Amazon, but buying home insurance is not that far off, Beatty notes. It may be only “four or five clicks away” for the average consumer with Sonnet. “It’s easy for them to get the quote,” she says. “It’s easy for them to understand what the quote contains.” At that point, they can test different types and levels of coverage they need, and they can see the impact those changes make on their quote in real time, she adds. Amazon and Google are designed to be self-serve, which is also Sonnet’s goal. “What feels important to me about what we’ve done is that we’ve made the quoting and purchasing simple for the customer, but we’ve also made the product as simple as possible to understand,” Beatty says, acknowledging that there are inherent limits to simplifying the insurance product. “You’re never going to completely be able to articulate accident benefits for auto in Ontario. But I don’t think even auto regulators necessarily understand it all.” The more complicated the product, the easier it is to make a

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FEATURE l BUYING INSURANCE mistake. But ďŹ xing a purchasing mistake is an area where the insurance product signiďŹ cantly differs from other consumer products, as brokers point out. For example, buying the wrong T-shirt can be easily remedied, whereas buying the wrong insurance policy can’t be ďŹ xed easily. Orr believes this is an essential reason why it’s risky to cut down the number of questions asked of customers. Similarly, it’s risky to have customers who don’t know about the product, or who don’t know exactly what they need, buying insurance on their own. “We can actually talk to and educate a customer, while Amazon’s going to sell you the cheapest T-shirt every time,â€? Orr says. “You may end up with a T-shirt that doesn’t ďŹ t, is the wrong size, and is of poor quality. That’s not the [experience] that we want to deliver,â€? Orr says, especially when it comes time to deal with a claim. The broker full-service model Buying commercial lines insurance can

get even more complicated, since coverage is typically customized to the particular needs of the business. The advice of brokers in this space becomes crucial, as brokers are well-positioned to gain an understanding of the individual needs of the business and then match those needs with the speciďŹ c insurance coverages that are available. As Rose puts it, most people are educated enough about T-shirts that they know what they want when they’re shopping online. They know their size and what colours they like. But arranging insurance for a small business? “Unless I’m an insurance professional, I am likely going to want to discuss what kinds of protection are available and make some informed choices,â€? Rose says of a commercial clients’ needs. “I want, and need, a different kind of experience, even if the dialogue takes place through an electronic exchange.â€?

By “electronic exchange,� Rose refers to digital communications options, which give clients the option to speak with a human or a chatbot about insurance. “It is becoming common for consumers to be able to start quotes — and in some cases compare results and complete purchases online — with help buttons available to ask questions,� she says. Commercial lines insurance isn’t as commoditized as home and auto insurance, and so the self-serve business model isn’t quite as applicable (although some insurers are moving in this direction by exploring self-serve insurance options for small business owners). Nevertheless, by exploring online service options, brokers in all lines of business are looking to improve access and responsiveness, as per Orr’s earlier remarks. Being more accessible thanks to technology helps create that Amazon-like experience.

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ON THE SCENE Gore Mutual Fast Forward Idea Accelerator Sept. 18, 2019

Sept. 24, 2019

Vancouver, B.C.

Toronto, Ontario

Gore Mutual held its Fast Forward Idea Accelerator event in both Vancouver and Toronto this year. At each location, panels of industry leaders and innovators shared valuable insights about the importance of customer experience, the emergence of insurance brands in the future, and the growing dominance of data and technology. Keynote speaker Terry O’Reilly, Canadian advertising guru and CBC Radio host, talked about the power of customer service and how to build memorable brands.

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It’s time to celebrate our Institute graduates Our graduates have worked hard for their designations and are deserving of our full recognition. Mark your calendars for a special occasion, supporting local graduates from coast to coast!

Convocation Ceremonies at Institutes & Chapters across the country Newfoundland & Labrador

Saturday, November 9, 2019

Comfort Inn in St. John’s.

Prince Edward Island

Tuesday, November 5, 2019

Delta Prince Edward in Charlottetown.

New Brunswick

Friday, November 8, 2019

Crown Plaza Hotel in Moncton.

Nova Scotia

Wednesday, November 6, 2019

Casino Nova Scotia in Halifax.

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Ontario Chapter

Thursday, November 14, 2019

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The Fort Garry Hotel in Winnipeg.

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Northern Alberta

Thursday, November 21, 2019

Doubletree West Edmonton in Edmonton.

Southern Alberta

Wednesday, November 2 , 2019 Wednesday, November 20, 2019

BMO Centre at Stampede Park in Calgary.

Vancouver Island Chapter

Friday, November 22, 2019

Victoria Golf Club in Victoria.

Kelowna

Thursday, November 28, 2019

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Pan Pacific Hotel in Vancouver.

handbook HIGHLIGHTS

Bucking Tradition p.41 l Driving High p.41 l Plain Language p.43

BRANDING

Standing out in the crowd Yes, you offer your clients the best rates in addition to speedy, personalized service. But so does everyone else. Here’s one way to stand out from the crowd…. BY A DA M M A L I K , Ma n a g i n g E d i t o r

Y

ou’ve likely seen an x-ray machine more often than you’ve considered the theory of relativity. And yet, it’s more likely you can name the person who came up with the theory of relativity (Albert Einstein) than the person who discovered the x-ray machine (Wilhelm Roentgen). That’s because the force of Einstein’s identity turned him into a recognizable brand. His personality and ideas made him stand out from the other great thinkers in his field. He still influences our thinking today, which is remarkable considering he’s been dead for almost 65 years. Einstein became synonymous with not conforming to the traditional dictates of the scientific field. His thinking was dif-

ferent. His hair was not neatly kept like his predecessors or colleagues. There’s a famous picture of him with his tongue hanging out, showing his eccentric side. In Einstein’s era, scientists didn’t typically act in such a manner. And as a scientist, his accomplishments were unparalleled. Now, apply this line of thinking to the insurance industry. Do any companies, brokerages or carriers, truly stand out? Or do most seem the same? It’s not surprising to hear brokerages using similar messaging when they promise to take care of client needs, speedy service, the best rates, etc. So, if everyone’s messaging is similar, how do you differentiate? Terry O’Reilly, a CBC broadcaster and advertising guru, offered some lessons

recently as the keynote speaker at Gore Mutual’s Fast Forward Idea Accelerator, an event held in both Vancouver and Toronto. The first step, he told the audience, is to define your brand. Tell people what you stand for. “In other words, it’s a crystal-clear definition of what makes your company unique,” he says. Telling people what you stand for implies what you stand against. And that, to O’Reilly, is where things get exciting. “What you stand against is infinitely more interesting than what you stand for, because most companies in most categories all stand for the same things. ‘We’re faster, we’re newer, we’re cheaper, we’re smarter.’ They all use the same language,” he said.

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HANDBOOK In contrast, consider the example of big brands like Nike, Apple and WestJet. Nike stands against making excuses for not exercising [“Just Do It”]. WestJet stands against cold corporate culture [“Why do WestJetters care so much? Because we’re also WestJet owners”]. Apple stands against concentrating computer power inside corporations [“1,000 songs in your pocket”]. Take an example from the insurance world. Simplicity is the key branding message from belairdirect. “For consumers, 90% of insurance is complicated. It’s hard to understand. We do strive as a brand to make insurance simple for all of our consumers,” says Humberto Valencia, the company’s vice president of marketing and digital strategy. belairdirect is an example of a company standing against complication, O’Reilly says. [Economical’s Sonnet Insurance would be another.] But at the same time, Valencia tells Canadian Underwriter, that’s not by design. belairdi-

rect didn’t sit around the boardroom and say their messaging was going to focus against complexity, says Valencia. And it’s not the slogan at the end of their commercials. Simplicity is an ethos that goes beyond belairdirect’s marketing. “Everything we do internally in terms of sales processes, operations, [and] tools we develop for our clients is to make insurance simple for the end consumer,” he says. “So, that’s the emotion we’re going after. It’s simple. It’s easy.” Emotion is also linked to branding. Customers have to feel what you’re telling them and feel connected to your brand. “When everything else is equal, customers will choose the company they feel the most positive about,” O’Reilly says. “It is a visceral decision, not an intellectual one.” Insurance actually has an advantage over other products because intense emotions are linked to the delivery of the product to consumers, says O’Reilly. For example, insurance becomes an emo-

HELPING CANADIANS understand rising insurance rates

tional experience when a person suffers a loss involving their homes, cars and businesses. They are seeking protection. And so, when it comes to linking insurance an emotional appeal, half the race is already won, O’Reilly says. “I’ve spent my entire career trying to infuse emotion into car tires and doughnuts. Your product has emotion built into it.” Backing up the claim of simplicity is also important. Valencia points to the ability to handle something as small as an address change to something bigger like an accident claim, all via the company’s app. That’s where Valencia feels his company makes the biggest impact and shows value to customers. “Even when you think about a claim, the client pays us so that whenever they have trouble with their car or their home, we’re there for them,” he says. “You have a car accident, you take a picture and upload it; when you talk to the agent on the phone, he’s already informed about what’s happening. That’s why it’s so im-

The cost of home and auto insurance in Canada is rising, and concern is mounting about how to keep insurance affordable while still offering great service. We realize how important it is to work with our broker partners to educate Canadians about what’s happening and what it means to them. By sharing helpful resources, we’re making the insurance experience better for everyone involved. Learn more at economical.com/rateincreases.

Insurance can be better economical.com/rateincreases

PROPERTY | AUTO | BUSINESS Economical Insurance includes the following companies: Economical Mutual Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company, Petline Insurance Company. ©2019 Economical Insurance. All Economical intellectual property belongs to Economical Mutual Insurance Company. All other intellectual property is the property of their respective owners.

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HANDBOOK portant: it’s a clear brand differentiator. Not just as a marketing message but as a whole client experience.” Finding that differentiator is key for any business, O’Reilly says. “If you look and act like everybody else in your category, then you’re just a commodity. That is the worst position to ever find yourself in the marketing world.” O’Reilly said insurance companies and brokerages should be asking themselves some key questions: • What unique experiences do I bring to the table? • Why do I understand my clients more profoundly than my competitors? • What is our philosophy when it comes to insurance? “Those are the building blocks of branding,” O’Reilly said. Help for answers to some of those questions can come from listening to the customers’ needs and wants. Valencia

points to mobile usage trends. The key to a marketing platform is to consider these three questions: • Is the ad memorable? • Will the audience link it to your brand? • Will people understand the message? belairdirect recently launched a series of commercials with mixed martial arts legend Georges St. Pierre. In the ads, the fighter’s trainers cut short part of his training so that they can drive less and more safely, thus saving money on their car insurance. The ad would have been fine with anybody playing the role of the fighter, but belairdirect wanted a famous face to make it memorable. On top of that, the company leveraged its familiar mascot, the animated knight, to help the consumer link the ad to the company. Such details help to create lasting brand impressions that are critical to standing out in a crowded marketplace, O’Reilly says.

BY THE NUMBERS

AUTO LIABILITY

DRIVING HIGH One year after the legalization of cannabis in Canada (cannabis edibles were legalized on Oct. 17, 2019), CAA South Central Ontario commissioned a June study of 1,510 Ontario drivers between the ages of 19 and 70. It appears more work is required to make your clients aware of the dangers of driving high.

1in 5

Ontario drivers are current cannabis users

5%

of Ontario drivers (1.2 million Ontarians) have driven high in the past 3 months

72%

of cannabisimpaired drivers waited three hours or less before driving

27%

of these cannabisimpaired drivers reported feeling somewhat or very high when they got behind the wheel

71%

of cannabis-impaired drivers were confident in their ability to drive

TRUSTED ADVISOR

I’m feeling boxed in with my leadership team. They’re resistant to change. I feel like we need to keep up with the times but they prefer the traditional approach. Who’s right? — Falling Behind

Dear Falling, Times are indeed changing in other industries, and many have made the point that insurance has been slow to adopt new technological advances. Technology has done a lot of good, but it has the opportunity to do so much more if we allow our brokerages to give them a shot. The feeling you’re experiencing in your company is normal. We all have our own biases. We tend to think in safe spaces. What has worked so well will continue to work going forward, right? Well, no. Many use Blockbuster as the perfect example of this fallacy of induction (e.g. since the past 10 ducks were white, the next duck will be white too). Its leadership team had a bias that was resistant to change. They were doing well in their market but ignored cultural changes and resisted new technology. They suffered and are no longer in business. “Bias will screw you over,” Gore Mutual’s director of market and communications Igor Bubic told audiences of the recent Fast Forward Idea Accelerator in Toronto and Vancouver. “Ignoring our customers will come back and bite us hard, because their preferences and societal norms change constantly.” What you need to do, he said, is surround yourself with unicorns. These are people who listen to your customers, think differently, have unconventional ideas, and are just different from you. Their thinking can keep you more on the path of Netflix and less on the path of Blockbuster. “Go out and find your unicorns,” Bubic said. “Hold them tight. Don’t let them go, because they’ll transform you. They’ll transform the way you think and you’ll make the impossible happen.”

canadianunderwriter.ca | November 2019

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ON THE SCENE Insurance Market Briefing–Canada Sept. 13, 2019 Toronto, Ont. In its 13th annual Insurance Market Briefing-Canada, A.M. Best Company Inc. provided analysis based on its Sept. 12 report, Canada Insurance: Still Profitable Amid Growing Challenges. The ratings agency also offered insight into the cause of losses in Canada’s personal and commercial insurance lines. In addition to A.M. Best’s financial analysts, speakers included Ron Stokes, EY Canada’s national transaction leader for financial services. Topics of discussion included insurtech, cannabis, mergers and acquisitions and reinsurance.

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HANDBOOK

COMMERCIAL CONTRACTS

Say what you mean An Alberta court case serves as a reminder that parties to commercial insurance contracts need to spell out their assumptions and expectations using plain and ordinary terms B Y D O N M C G A R V E Y, Senior Partner, McLennan Ross LLP (Edmonton) A N D J O E L F R A N Z , Associate, McLennan Ross LLP

A

decision from the Alberta Court of Appeal has highlighted the importance of giving the words of a contract their ordinary and grammatical meaning when there is no evidence of ambiguity as to the parties’ intent. In doing so, the Appeal Court not only overturned the trial judge, but substituted the trial judge’s decision with an order dismissing the action entirely. In 541788 Alberta Ltd v Bourgeois & Company Ltd., an individual plaintiff sought to

purchase land within the City of Edmonton. The plaintiff sought an appraisal of the land from a qualified real estate appraiser. The contract for the appraisal services requested was negotiated by way of a single email thread as follows: “This note is intended to provide you with a quotation of fees and timing to complete an appraisal estimating the market value of the lands [described legally and municipally]…. “I understand that the purpose of

this appraisal is to assist you in estimating an appropriate purchase price on these lands…. “It is clear that the highest and best use of the subject lands is to be subdivided in a fashion that is consistent with surrounding properties…Our appraisal will investigate the issues and costs that may be incurred in the course of acquiring and developing these lands….. “We intend on using a cost of development technique that shows the potential

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HANDBOOK

Simply put, the Alberta Court of Appeal found that the trial judge had conflated a technique of appraisal, being the Cost of Development Approach — which required the appraisal to cost out a hypothetical development — with something more than a mere appraisal. revenue from the sale of lots…This approach also estimates the costs to produce those lots and make them available to the public…The net present value of the revenue, less costs will show the price that can be paid for this parcel based on the assumptions that we make on your behalf. From that information you should be able to determine if the costs, effort and risk are viable from

your perspective…. “If you would like us to proceed under these terms, kindly acknowledge that by return email.” The individual plaintiff responded with the simple words: “That is what I want. Go ahead, thanks.” Lacking any information about the individual plaintiff’s intentions for the land beyond purchasing it, the defen-

dant appraiser made certain assumptions in analyzing the Cost of Development (Land Residual) technique of real estate appraisal. He assumed that the parcel could accommodate 58 single family lots; he priced the development of those lots accordingly and arrived at an estimated market value of the lands. The appraisal report was delivered and the parties never communicated again. A numbered company controlled by the individual plaintiff purchased the land approximately eight months after the effective date of the appraisal. The purchase closed six months later at a price approximately $250,000 more than the appraised valued of the land. Prior to closing, but one year after the appraisal report was provided, the plaintiffs retained an engineer and development consultant to make an application for rezoning and subdivision. The plan was to develop 53 single family lots, plus 70-75 low- to medium-density

RETURN OF LIQUIDATION DIVIDENDS TO PACICC MEMBER COMPANIES FINAL NOTICE Recently, the Property and Casualty Insurance Compensation Corporation (PACICC) returned almost $21 million in liquidation dividends to 140 member companies following the resolution of seven historic insolvencies, including: Beothic, Canadian Millers’, Canadian Universal, GISCO, Hiland, Markham General and Ontario General. The pro-rated balances repaid to each member company for each insolvency were confirmed by an outside accounting firm. PACICC has been unable to return a portion of liquidation dividends (totalling $78,046.57) to 14 companies that PACICC has not been able to contact, including: Arrowpoint Capital; British Aviation Insurance Company Ltd.; Canadian Premier Life

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Insurance Company; Centennial Insurance Company; Claimspro; Constitution Insurance Company; Interior Savings Insurance Services Inc.; London and Midland General Insurance Company; Lumbermens Underwriting Alliance; Pool Insurance; Providence Washington Insurance; Security Insurance Company of Hartford; Specialty National Insurance Company; and Utica Mutual Insurance Company. If you have information that could assist PACICC in returning funds to any of the above companies or their successors, please contact: Ian Campbell, Vice President, Operations, PACICC, 20 Richmond Street East, Suite 210, Toronto, Ontario, M5C 2R9, icampbell@pacicc.ca.

Any liquidation dividends remaining unclaimed after 18 months will be transferred to PACICC’s Compensation Fund to assist insurance consumers in future. PACICC is the resolution authority for Canada’s property and casualty insurance industry. In the unlikely event of an industry insolvency, PACICC assesses member companies in order to respond to policyholder claims of the insolvent insurer. An account is established to balance claims payments made to affected policyholders against monies that PACICC receives from the insurer estate as a creditor. PACICC refunds excess liquidation dividends to member companies when those funds are no longer needed to support the insolvency.

HANDBOOK

DEAL TRACKER

Latest acquisition news & activity This case serves as a reminder of several key issues to be aware of in contract claims. Of particular importance is identifying a clear scope of work at the outset, preferably in a written contract. That will prevent most of these disputes from arising.

housing lots — far more than assumed by the defendant appraiser. After submitting this development proposal, the municipality advised that three remnant parcels bordering the lands would also need to be acquired, serviced, and developed in order for the municipality to approve the rezoning and subdivision application. The purchaser of the land sued the appraiser for failing to warn about the remnant parcels. The trial judge found the email that constituted the contract between the parties “required more than a simple valuation of the lands in question for purchase, but contemplated purchase, development application, re-zoning, subdivision and sale of at least single-family units, and the identification of factors that would have a significant effect on the cost to do so... [and fell] somewhere between the narrow scope of an appraisal report...but less than a full feasibility analysis.” The trial judge held that the defendant breached the standard of care by failing to properly account for the remnant parcels. The Alberta Court of Appeal found that the trial judge had failed to apply established contractual interpretation principles, which included considering the ordinary and grammatical meaning of the contract to determine the “subject matter” of the contract. Upon reading the contract as a whole, the appeal court held that the

scope of the contract was unambiguous. It was never the intention of the parties that the defendant conduct a feasibility study for development. Only a standard appraisal was required. Simply put, the appeal court found that the trial judge had conflated a technique of appraisal, being the Cost of Development Approach — which required the appraisal to cost out a hypothetical development — with something more than a mere appraisal. This case serves as a reminder of several key issues to be aware of in contract claims. Of particular importance is identifying a clear scope of work at the outset, preferably in a written contract. That will prevent most of these disputes from arising. While the email sent by the defendant in this case was clear, more specificity regarding the exact scope — and an express clause that disclaimed any sort of feasibility study — may have prevented the action in the first place. Precision in drafting the contract is, as always, critical.

Don McGarvey Q.C. is a senior partner with McLennan Ross LLP in Edmonton practising commercial litigation including professional liability, directors and officers liability, and fidelity claims. Joel Franz is an associate with McLennan Ross LLP in Edmonton practising in the areas of com-

BrokerLink Bradley’s Commercial & Phil Leon BrokerLink bought two family-owned brokerages in Ontario. The Intact Financial Corp. subsidiary announced on Sept. 4 that it had acquired Bradley’s Commercial Insurance Limited of Stittsville, about 30 km southwest of downtown Ottawa. In a separate deal around the same time, BrokerLink said it acquired Hamilton-based Phil Leon Insurance Brokers Inc., effective Sept. 1. Bradley’s Insurance places auto, home and farm insurance. Ross Bradley will assist BrokerLink during the transition process. Bradley’s Insurance partners Ray Shannon and Stacy Elliott will remain as key members of the BrokerLink team, as will Chantal Pelletier, who will be taking on the role of director for eastern Ontario. Along with his staff, David Leon, president of Phil Leon Insurance, will continue to serve customers as part of the BrokerLink team. Phil Leon places home, auto, motorcycle and watercraft insurance, as well as commercial property and auto.

The Co-operators Group Cadieux Beausejour Cadieux Beausejour Dupras Inc., formerly an independent brokerage, is becoming an agency of The Co-operators Group Ltd. Guelph, Ont.-based The Co-operators announced the acquisition Aug. 27. Cadieux Beausejour Dupras is based near Montreal. For Cadieux Beausejour Dupras clients, coverage will remain in effect for the remainder of the policy term. In its 2018 annual report, The Co-operators said it has 2,753 licensed insurance representatives throughout Canada.

HUB

GMS Insurance Inc

GMS Insurance Inc., an employee benefits consulting firm based in Mississauga, Ont., has been acquired by Hub International, Chicago-based Hub announced this past September. Last year, Hub acquired the affiliated Kitchener, Ont. operations of GMS. Other recent acquisitions by Hub include: • Kelliher Agencies, a Sask.-based personal and commercial lines brokerage; • Clarity Benefits Group, a Calgary-based employee benefits firm; • Cottenie and Gardner, a Sask.-based personal and commercial lines brokerage; • Porchlight Financial, a Vancouver-based retirement planning firm; • BenefitLink Resource Group, a Vancouver-based employee benefits firm; and • Berk Bilgen Insurance, an Edmonton-based personal and commercial lines brokerage.

mercial litigation and insurance litigation. canadianunderwriter.ca | November 2019

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peer to peer QUEBEC QUAKES Is the low take-up rate of earthquake insurance in Quebec an emerging risk for the P&C industry or an overblown fear? Joseph El-Sayegh, president and CEO of SCOR Canada Reinsurance Company, offers his take on what it means for Canadian insurers. – As told to Jason Contant

Regarding earthquake coverage in Quebec, it has a very low take-up rate of around 3 to 4%, and this has been the case for decades. The insurance industry is using all means possible to promote and educate the public about the exposure to their properties and the lack of earthquake protection. There is low exposure for the P&C insurance industry because of the low take-up rates, so I wouldn’t describe this is an “emerging” per-

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November 2019 | Canadian Underwriter

il. However, that could change if the banking and mortgage lenders change their requirements and ask for an earthquake coverage to protect their loans. Demand would then grow exponentially, which could challenge the pricing of the supply. At the same time, it should not limit access to capacity, since the reinsurance market is equipped to provide the protection in Quebec. To provide some further context,

natural catastrophes tend to make the headlines, however, we see the results of the Canadian insurance market being affected by the increased frequency of property losses – just larger fires – and physical damage to automobiles. Property losses have been a systemic problem across the market, and we have found insurance companies caught by surprise in the past two years. These are not emerging perils, but they are emerging loss drivers.

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