Issuu

October/November 2020

YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

NATIONAL BROKER SURVEY

RISE OF THE SPECIALIST SMALL BROKERAGES NICHE THEIR WAY TO GREATNESS

REINSURANCE REPORT Execs predict how high your reinsurance rates could climb on Jan. 1, 2021

Bernard McNulty

INTERVIEW

HOW THE PANDEMIC HAS CHANGED THE WAY BUSINESS IS DONE

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THE TRUSTED ADVISOR’S REPORT, PART III

HOW TO PROMOTE DIVERSITY IN THE RANKS

COVID-19’S EFFECT ON THE EMBATTLED TRUCKING SECTOR

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Intact Insurance is here. Intact Insurance Specialty Solutions, now available across North America.

2020 has been an unprecedented year, bringing us all closer together as a community. Today, Intact Insurance Specialty Solutions is proud to announce coverage across North America. Weâ€™re here for your business, coast to coast, north and south of the border. Discover tailored expertise for a wide range of industries. Learn more at intact.ca/specialty

Certain conditions, limitations and exclusions apply. Insurance products provided by Intact Insurance Company in Canada, and by Atlantic Specialty Insurance Company, OBI America Insurance Company or OBI National Insurance Company in the United States. Services are provided by your broker. Coverage and availability vary by product and by province or state. All trademarks are the property of Intact Financial Corporation used under license. ÂŠ2020 Intact Insurance Company. All rights reserved.

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CONTENTS

Volume 87, No. 10/11 | October/November 2020 YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

CANADIANUNDERWRITER.CA

FE AT U R E S

2020 National Broker Survey We asked hundreds of brokers about their strategies, best practices, and their ﬁnancial forecast for next year. Here’s what they told us about specialization, referrals, and why they are optimistic about the future

DIVERSITY We asked industry professionals to share their thoughts on how the Canadian P&C industry can better reﬂect the country’s diversity. Here’s what they told us...

TRUSTED ADVISORS SERIES: PART 3 What do Canadian homeowners, drivers and business owners want from their brokers? Our research highlights ways in which brokers can get to know their clients even better

REINSURANCE REPORT Why Canadian P&C insurers could be paying more for reinsurance next year

ESSENTIAL, AND EXPENSIVE Truckers were deemed essential service workers when COVID-19 hit, but challenges remain in ﬁnding capital to insure them

Bernard McNulty, Chief Agent, Canada, Allianz Global Corporate & Specialty

canadianunderwriter.ca | October/November 2020

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All pros thea baird, cip Assistant Vice President, Commercial Risk Solutions

The Chartered Insurance Professional (CIP) designation has been proudly earned by more than 18,000 dedicated professionals in the insurance industry. CIPs like Thea take their training and education seriously, adhere to a strict code of conduct and are focused on the highest levels of service. Take your professionalism to a higher level. Get your CIP through the Insurance Institute to enhance your skills and serve your clients better today and in the future.

insuranceinstitute.ca/cip

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CANADIANUNDERWRITER.CA

Twitter: @cdnunderwriter

Facebookcanadianunderwriter

499 1 56

FROM THE EDITOR

RECOVERY

IN EVERY ISSUE

18 Bernard McNulty

56 Unique cyber threat

12 BY THE NUMBERS

How COVID-19 has affected the way Allianz Global does business in Canada, and the permanent changes as a result

Cybersecurity is top of mind with people working from home. Don’t forget to protect the supply chain of the business

HANDBOOK

60 Oil tanker storage

49 Sea change

Standards have finally been upgraded to reduce the risk of millions of dollars in claims every year due to costly oil spills

Mental health check

PERSPECTIVES 9 Readers respond to recent stories on IBAC’s D/X initiative, the rationale for bringing in U.S. adjusters to help with Calgary hailstorm claims and more…

DECLARATIONS 11 The ‘COVID quarter’ Canada’s P&C industry is still standing after COVID-19 infects the 2020 Q2 results

15 Ridesharing shake-up Why Uber ended its five-year business relationship with Intact and chose Economical as its new insurance partner

INTERVIEW

How a fledgling brokerage survived the challenges of COVID-19 and modified their business model to assist consumers during the crisis

16 NEW OFFERS 17 BIG MOVES 17 SUMMARY 54 DEAL TRACKER

PEER TO PEER 53 Competitive pressure

62 Talent

Five reasons why commercial lines real-time quoting should be a priority for insurers as market conditions become more challenging

Humber professor John McNeil reveals one thing industry professionals can do to attract more top talent to the Canadian P&C industry

canadianunderwriter.ca | October/November 2020

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We click.

The future is digital. Letâ€™s explore it together. Find out more about our specialty insurance and surety solutions.

Trisura Guarantee Insurance Company is a Canadian owned and operated Property and Casualty insurance company specializing in niche insurance and surety products. We are a proud supporter of the Insurance Brokers Association of Canada. www.trisura.com

a step above

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FROM THE EDITOR MANAGING DIRECTOR

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

Mental health check

ONLINE EDITOR

Jason Contant jcontant@canadianunderwriter.ca ART DIRECTOR

Take care of yourself, so you can take care of your clients

Ellie Robinson ADVERTISING AND MARKETING CONSULTANT

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

Karen Samuels PRINT PRODUCTION MANAGER

Lilianna Kantor NEWCOM MEDIA INC. CHAIRMAN AND FOUNDER

Jim Glionna PRESIDENT

Joe Glionna VP, SALES

Melissa Summerfield CHIEF FINANCIAL OFFICER

Trish Saltys, CA, CPA 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 18,000 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. *The 2020 publishing schedule was temporarily adjusted due to COVID-19 resulting in 9 issues, including 3 double issues. Subscription Rates: 2020 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

ounselling clients through an extended public health and economic crisis can no doubt make insurance professionals feel more like front lines mental health workers these days. But always remember that self-care during these times is paramount. While there are no known statistics for employee absentee rates within the P&C industry (or official counts of those who are on stress leave), stories abound of insurance professionals who are feeling the effects of looking after their clients instead of themselves. The Canadian Mental Health Association (CMHA) surveyed 3,000 Canadians in May. “Being confined to close quarters at home under physical distancing measures, with concerns about money (45%), job loss (31%) and having enough food to feed their families (21%), parents report having more conflicts with their children (23%), yelling/shouting more (17%), disciplining their children more (17%), and using harsh words more often (11%),” the CMHA reported. Those in the CMHA study could be your customers, your clients — or even you. COVID-19 caseloads in Canada are on the rise again and it is clear that your clients are not out of the woods yet. In a survey of more than 3,700 Canadian small businesses conducted in late August by the Canadian Federation of Independent Business (CFIB), the association asked its members: “Where do you think your business will be in six months?” About 15% of Canadian small businesses (more than 440 businesses in the CFIB survey) predicted they will either be fully shut down (3%) or operating at significantly reduced capacity (12%). So, expect to be managing your clients’ anxieties and financial suffering until at least the end of 2020. Dealing with Canadians’ anxieties during a long-tail catastrophe event such as a pandemic is exhausting. It takes a lot out of you. It means longer work hours and hyper-sensitivity to things that go wrong. It could mean burnout if your long-term stress isn’t sufficiently managed. And so remember in all of this to be kind to yourselves. Eat healthy foods, drink water, stay connected with family and friends, take time out from your (home) offices periodically to recharge, and seek counselling if need be. The best thing you can do for your clients is to stay healthy during these troubled times.

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 | October/November 2020

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M&A: a rising tide of large claims.

With market conditions putting increasing pressure on the Mergers and Acquisitions insurance market, it is more important than ever for clients to choose an insurance partner that is knowledgeable and tested. AIG insureds benefit from dealing with experienced claims handlers who understand the complex nature of Warranty & Indemnity claims and can focus on the key issues and bring them to resolution as quickly as possible. Visit us at aig.ca/manda to read the full 2020 Claims report.

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

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perspectives canadianunderwriter.ca l

company/canadian-underwriter l

@CdnUnderwriter l

The next big step in accelerating real-time data exchange September 10 The story: The Canadian P&C industry understands the benefits to consumers of better data connectivity between brokers and carriers. But the task ahead is to get everybody moving in the same direction, said Tom Reid, the new broker connectivity lead for IBAC’s DX initiative.

canadianunderwriter

What does it mean to be a trusted insurance advisor? August 24 The story: The pandemic has provided brokers the opportunity to prove they are there for clients in their time of need, said Joseph Carnevale, president of the Insurance Brokers Association of Ontario.

James K says: We really need to stop talking about this. It wastes time and resources. There’s nothing to be gained and everything to be lost by not moving to actual centralized integration (like every other industry). This is just a vendor goldmine. And even then, only for a few. We need to stop supporting the very mention of anything that keeps leeches on the system in power.

Michael Loeters says: This appointment by IBAC shows a significant commitment to moving the connectivity agenda forward. I am very proud that brokers coast-to-coast have reaffirmed their support for the DX Initiative, took this significant step to bring the right leader on board, and are leading the way, because it will ensure the needs of the consumer will be put front-and-center. Tom Reid brings significant credibility as the face of this initiative because he is a well-known and respected executive in the industry. His insurance experience brings a unique understanding of the P&C ecosystem, which is critically important to moving this forward. Tom is a “get it done” guy and with him on board, I feel more confident than ever we will get this done!

Gina McFetridge says: The need for significant progress in real-time data exchange between broker and insurance company systems has never been clearer. It’s exciting to see the progress that’s been made with First Notice of Loss over the past year. With Tom leading this project full-time, the rubber is really going to hit the road. This is a crucial investment in the future of the broker channel.

Adjusting Calgary’s hailstorm: The rationale for bringing in U.S. Cat adjusters

Chris Floyd says: All signs had positioned the market for a rough ride in 2020. Then COVID hit, and it broadened the challenge and opportunities for brokers to show their value, not only to commercial lines clients but also across the personal lines spectrum as well. Brokers across the country stepped up and continue to show their value to consumers.

August 28 The story: Following the $1.2-billion hailstorm in Calgary in June, adjusting firm CRU Group said during a Canadian Underwriter webinar that it found it difficult to find enough qualified independent catastrophe adjusters in Canada. CRU ended up bringing in experts from the United States.

How COVID-19 has changed selling cyber insurance

Thomas Young says:

August 21

Cat losses used to be the bread-and-butter of the independent adjusters business, but we don’t see many independents doing hail claims anymore, and their business model in Alberta has evolved into doing specialized claims. I’m not convinced the justification for using U.S. adjusters has anything to do with the specialized nature of the work. The digital platform on which the claims are reported is simple. And while some might think our weather damage is unique in Alberta, it isn’t any different to adjust than any other weather-related loss.

The story: Brokers and insurers should expect a greater demand in cyber insurance (if they haven’t seen it already), as the workforce shifts in the wake of the COVID-19 pandemic.

Sarah Hirst says: This is an article about one firm’s ability to staff with Canadian adjusters. It’s not a reflection of the Alberta or Canadian adjusting profession, which wanted to attend [the hailstorm event], and had the skills, tools and knowledge to adjust the files. I know of hundreds who were told their help wasn’t needed.

Stephen Fader says:

Photos: ©iStock.com

canadianunderwriter.ca | October/November 2020

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Will they let you see policy wording prior to purchase?

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Visit hsb.ca HSB Canada

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declarations By The Numbers p.12 l Uber's Insurer p.15 l New Offers p.16

iStock.com/ianmcdonnell

HIGHLIGHTS

2020 Q2 RESULTS

Still standing The P&C industry’s second-quarter earnings reﬂect the impact of COVID-19. Overall, they tell a story of ﬁnancial resilience B Y D AV I D G A M B R I L L , Editor-in-Chief

hen Elton John sings his famous pop tune, ‘I’m Still Standing,’ he could well be describing Canada’s P&C insurance industry at the end of 2020 Q2 — the dreaded COVID-19 financial quarter. “Canada’s property and casualty (P&C) insurance industry has survived the first six months of 2020,” states Grant Kelly, the vice president of financial analysis & regulatory affairs and chief economist of the Property and Casualty Insurance Compensation Corporation (PACICC).

SECOND WAVE PREP | SEPT. 18

Commercial clients preparing for a second wave of coronavirus infections in Canada should learn from their response to the first wave and fix or reinforce policies on inventory and supply chain issues, workplace disruptions, and personal protective equipment, Northbridge advised.

Photos: iStock.com

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“Collectively, the 195 individual insurers that comprise the industry reported a return on equity (ROE) of 4.9% in the first six months of 2020,” as Kelly reports in PACICC’s September 2020 newsletter, Solvency Matters. While that may not seem like much, it’s a significant achievement for Canada’s federally-regulated insurers to post a collective industry profit of $898.5 million in 2020 Q2. This happened during a once-in100-year pandemic event that has caused one of the deepest economic recessions since the Great Depression of the 1930s,

although it is arguable that the 2020 pandemic recession will last as long. In fact, the industry’s profit during this past quarter was up from the $391.5-million profit it recorded in 2019 Q2, when the industry posted an even lower ROE of 4.6%. The industry also managed to shrink its combined ratio (COR), another measure of insurers’ profitability, from 103.2% during the second quarter last year down to 102.5% this year. That still shows the industry is losing money (numbers above 100% show a loss,

UNIQUE HARD MARKET | SEPT. 18 This hard market cycle is different from others because insurers are trying to do so many things at once, like increasing their rates, cleaning their books of business, and assessing their reinsurance treaties, Nona McCreedy of Aurora Underwriting Services Inc. told Canadian Underwriter. canadianunderwriter.ca | October/November 2020

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DECLARATIONS whereas numbers below 100% show a profit), but that’s still impressive given the nearly $2 billion in natural catastrophe claims losses that insurers racked up in Alberta alone this spring and summer. Another piece of good news: The industry’s capital position remains strong. “The industry’s overall MCT (minimal capital test) score for the first half of 2020 was 234.2%,” Kelly wrote. “This means that insurers are holding $2.34 in assets for every dollar of liabilities on their balance sheets. This is only marginally different than the 236.9% MCT posted at the end of 2019.” If the industry finds strength in these numbers, it’s because COVID-19 did a number on the industry’s balance sheets and claims costs. For example, although the industry took in $3.2 billion more in total underwriting revenue in 2020 Q2 than it did last year, it still reported a higher underwriting loss, according to financial figures posted by Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI). Canada’s federally-regulated insurers reported a 2020 Q2 underwriting loss of $893 million, as opposed to an $804.5-million underwriting loss during the same period last year. Some commentators note that the P&C industry was spared from a worse financial fate because government lockdowns caused people to work from their homes and keep their cars parked. Home insurance, for example, saw loss ratios drop from 63.7% in 2019 to 58.9% in 2020. And in auto lines, the total loss ratio for private passenger and commercial vehicles decreased from 78.3% in 2019 Q2 to 75.8% in 2020 Q2, according to OSFI. But the pandemic wreaked havoc in most commercial liability lines, mainly due to lawsuits related to pandemic exclusions in commercial policies.

APPEALING REACTOR DECISION | SEPT. 17

FM Global said it will appeal a $25-million Ontario court ruling that found the loss of use of a nuclear reactor — which was shut down due to a radioactive leak — constituted physical damage under a policy written for MDS (MDS bought radioactive isotopes from the reactor).

October/November 2020 | Canadian Underwriter

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wBY THE NUMBERS

The COVID Quarter The COVID-19 pandemic has hit the Canadian property and casualty insurance industry hard in many areas, according to the 2020 Q2 results from the Office of the Superintendent of Financial Institutions (OSFI). The figures below sum up the results of both Canadian and foreign P&C insurers regulated by OSFI.

Total Underwriting Revenue Total Claims Expenses Underwriting Income (Loss) Net Investment Income Net Income

2019 Q2

2020 Q2

$20.9 billion $21.7 billion

$24.1 billion $25 billion

$804.5 million Loss $1.9 billion $391.5 million

$893 million Loss $1.5 billion $898.5 million

2019 Q2

KEY LOSS RATIOS Property (Personal and Commercial) Auto Personal Accident (Private Passenger) Auto (Personal and Commercial) CGL (Products) CGL (Without Products) Cyber Excess Liability D&O Professional Liability

51.6% 93.8% 78.3% 65.9% 60.6% 153.7% 21% 50.1% 76%

2020 Q2

65.7%© 100.5%© 75.8%ª 95.8%© 112.4%© 498.9%© 57.2%© 59.3%© 39.7%ª

Source: Office of the Superintendent of Financial Institutions

Overall, the loss ratio for commercial liability insurance spiked dramatically from 65.4% in 2019 to 86.6% in 2020. Some commercial lines were hit harder than others. In cyber liability, for example, the loss ratio skyrocketed up to 498.9% in 2020 Q2, reﬂecting the reality that employees are working remotely — and digitally — from home to prevent the spread of the virus. Industry observers link the higher claims activity to a

marked increase in phishing and social engineering attacks by cybercriminals. Also, CGL liability loss ratios are up. With products, the CGL liability line featured a loss ratio of 95.8%, up signiﬁcantly from 65.9% over the same period last year. And CGL policies without products reported an unproﬁtable loss ratio exceeding 112%. That’s almost double what it was during the same time last year, when it was only 60.6%.

U.K. BI DECISION | SEPT 17

Intact Insurance said a recent verdict in the British Financial Conduct Authority’s business interruption test case won’t likely have any application to its Canadian BI policies, since the vast majority are triggered specifically by physical damage.

Photos: iStock.com

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Mapping your digital path forward In our new virtual world, connectivity has redeďŹ ned remote working and accelerated the digital ecosystem of insurance. Build your digital path forward today, and trust Applied to provide the innovation your brokerage needs to build your book of business now and well into the future.

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iStock.com/nadia_bormotova

DECLARATIONS

RIDESHARING

Why Uber has a new insurer After a ﬁve-year-long business relationship with Intact, ridesharing giant Uber moved its business to Economical. What prompted the move? B Y J A S O N C O N T A N T, Online Editor

rice turned out to be a key sticking point behind Uber’s decision to end its ﬁve-year-long business relationship with Canada's largest insurer, according to a senior Intact executive. Economical Insurance announced in August that it would become the ridesharing giant's new insurer, effective Sept. 1, 2020. “Over time, as these commercial relationships do evolve, I think we came to a point where we couldn’t agree on price with [Uber] and they chose to move the book to someone else,” Louis Marcotte, senior vice president and chief ﬁnancial officer of Intact Financial Corporation, said Sept. 15 during the Barclays Global Financial Services Virtual Conference.

CHANGING THE MIX | SEPT 30

Changing the mix of real estate portfolios, selling international exposures, and possibly increasing insurance prices are among the measures Canadian insurers are taking to compensate for the impact of COVID-19 on investment results, insurer execs told a Bloomberg conference.

Photos: iStock.com

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“We’re still in a very good relationship. We just couldn’t agree on the pricing levels and they had the freedom to go and they took that opportunity.” Marcotte was asked by Barclays’ senior analyst John Aiken during a virtual ﬁreside chat why Intact didn’t maintain the contract with Uber. The two companies have been working together since 2015 to develop a tailor-made ridesharing solution for drivers and passengers. An Intact spokesperson conﬁrmed that “Intact Insurance and belairdirect will continue to allow customers with a personal auto policy to participate in ridesharing. Intact continues to see opportunities for growth and innovation

in the sharing economy and will continue to develop insurance products in order to respond to customer needs.” Economical now provides commercial auto coverage for every Uber Rides and Uber Eats trip in Alberta, Ontario and Quebec. In Nova Scotia, coverage is only for the delivery of goods via Uber Eats, since Uber Rides doesn’t operate in the province. Coverage for drivers operating on the Uber platform will continue seamlessly, and there will be no gaps between the personal and usage-based commercial auto coverage, Economical said recently. Ridesharing insurance in Canada was designed with complete coverage in mind, the company's vice president of

BIGGEST BROKER CHALLENGE | SEPT 15

Rates in commercial lines are rising, but a senior Gallagher Canada exec said the biggest issue for brokers is reduced capacity. Two years ago, insurers would take on 100% of large risks, he said. Now it's more like 30% to 40%. canadianunderwriter.ca | October/November 2020

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NEW OFFERS commercial underwriting and specialty lines, Obaid Rahman, told Canadian Underwriter. “Many personal lines carriers have an endorsement for [one period of ridesharing], or they just cover it because they consider it personal exposure. If that’s not the case, there is coverage on the commercial policy. There is no coverage gap and it’s dealt with on both sides of the house.” One broker observed: “I wouldn’t be surprised if a ton of [ridesharing drivers] were with insurers, and never disclosed [that they were driving their vehicles for commercial purposes], and never knew they had to, and they just thought they were insured with Uber.” Economical sought Uber's business because the insurer sees mobility becoming more digitized. “For us, this was a natural evolution…where we could get into digital mobility on the commercial side,” Rahman said. "That's the trend. Given the path we’re on towards being the leading digital insurer, it was natural for us to go toward this." Before Marcotte revealed the negotations around price at the virtual conference, Canadian Underwriter had asked brokers for their take on the move from Intact to Economical. Curtis Killen, president of Quebec brokerage KBD Insurance, said he couldn't speak for Intact on why they let the Uber account slide. "But as you know, auto insurance remains difficult in terms of proﬁtability across Canada, so I’m assuming this had something to do with it,” he said. Another broker, who was granted anonymity to avoid possible repercussions from speaking candidly, agreed that “insurance companies generally don't let go of something if they are making obscene amounts of money. We don't know if Uber was the one to say, ‘Hey, Intact, you’re making too much and we want to go somewhere else.’”

WATER, WATER EVERYWHERE | SEPT 14

Which costs more? Old water pipes or natural disasters? One Gallagher Canada exec observed that the industry pays up to $6 billion a year in commercial property claims, while Canada’s biggest disaster season was $5.2 billion.

October/November 2020 | Canadian Underwriter

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MISCELLANEOUS PROFESSIONAL RISKS E&O INSURANCE Vendor: CHES Special Risk Target Audience: Brokers What it Does: Offers brokers and clients exclusive access to E&O insurance for over 100 professional risks

Managing general agency CHES Special Risk is now offering brokers and their clients exclusive access to errors and omissions insurance for miscellaneous professional risks. “We have access to some new markets from Lloyd’s of London that are exclusive to us,” says Gary Hirst, president and CEO of CHES Special Risk. “This allows us to offer E&O insurance for a whole range of industries that are difficult to place in Canada.” The product is for the following industries, including (but not limited to): Forklift training, photography, recruitment consultants, event planners, interior designers, tour operators, social media consultants, property managers, trade associations, health and safety inspectors, shipping and freight consultants, and forestry consultants. The coverage is available to more than 100 different industries; notable areas include recruitment consultants, photographers, and event planners. According to CHES, one distinguishing characteristic of the product is relatively low premiums.

VIRTUAL HOME SAFETY CHECK-UPS Vendor: Onlia Target Audience: Customers who bundle home and auto insurance What it Does: Provides homeowners with touchless home check-ups that identify and analyze risks associated with fire, water, and quality of life.

Home and auto insurance provider Onlia has partnered with Setter Inc., a digital home safety check-up service, to provide Setter's virtual safety check-ups to new and existing customers who bundle home and auto insurance. Onlia said it is the first insurance provider in Canada to partner with Setter for this service, which provides homeowners with an overall safety score. A digital report prioritizes action items to improve the safety of the customer's home. Setter’s concierge home manager alerts customers with seasonal reminders, ranging from changing smoke alarm batteries to cleaning eavestroughs. It also connects customers directly to providers when services are required, “taking the guesswork out of finding someone trustworthy.”

VERTAFORE CANADA CLOUD PLATFORM/INSURLINK Vendor: Vertafore Canada Target Audience: Canadian brokers What it Does: Enables brokers to securely connect and work from anywhere, and provides customers with real-time, self-service access

Vertafore Canada (recently rebranded from Keal Technology, the Canadian subsidiary of Vertafore) has launched a cloud-based insurtech platform and InsurLink digital customer experience solution for Canadian brokers. The technology offers Canadian brokers a platform to "connect securely and work from anywhere,” the company says. By simplifying and accelerating data access and processing, the product is touted as offering brokers faster performance, flexibility, and scalability so they can react quickly to shifting business needs while reducing IT costs and overhead. InsurLink enables brokers to offer customers real-time, self-service access to insurance policy documents and data through a full-featured web portal. This gives independent brokerages "their own branded customer interface to deliver a digital customer experience that is typically available through carriers, (but) without the development work,” as the company explains.

RISING AUTO LOSSES | SEPT 11 The Canadian P&C industry’s loss ratio in auto liability has deteriorated for the fourth year in a row, A.M. Best Company Inc. reported. Meanwhile, the loss ratio in “auto personal accident” deteriorated nearly 10 points, increasing to 80.3% last year. Photos: iStock.com

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DECLARATIONS BIG MOVES

SUMMARY COVID-19

New CEO at Guy Carpenter Canada Peter Askew succeeds Donald Callahan as president and CEO of the Canadian operations of Guy Carpenter, Marsh & McLennan’s reinsurance arm

WHO: Peter Askew NEW ROLE: President and CEO of Guy Carpenter & Company LLC’s Canadian operations. P&C EXPERIENCE: 25 years PROFILE: Executive vice president of Benfield Canada from 1999 through 2009. Director of Canada at QBE Services Inc. in 2016-17

Peter Askew is the new president and CEO of Guy Carpenter & Company LLC’s Canadian operations. He succeeds Donald Callahan, who stepped down from the role after 20 years. Callahan will remain with Guy Carpenter in Canada, dedicating his time and expertise to working with clients. Askew has been a managing director at Guy Carpenter, a reinsurance broker and advisor owned by Marsh & McLennan Companies Inc., for all but one year since 2009. Askew was director of Canada at QBE Services Inc. in 2016-17. From 1999 through 2009, Askew was executive vice president of Benﬁeld Canada. “Guy Carpenter’s long-term commitment to maintaining a deep talent pool is clearly evidenced by Peter’s promotion," John Trace, Guy Carpenter’s CEO of North America, commented. "His decades of local market knowledge and understanding of the unique demands of our clients will ensure that our Canadian operations continue to go from strength to strength.” In Canada, Guy Carpenter has offices in Toronto and Montreal.

Patrick Lundy, CEO of Zurich Canada from 2012 through 2017, is now NFP Canada’s senior vice president of manufacturing and real estate. Until this past March, Lundy was national business unit leader, general industries at Purves Redmond Limited.

Marc Lipman is now president of Lloyd’s Canada. Most recently COO of American International Group (AIG) Canada, Lipman took over the role from Lisa Duval, who had served as Lloyd’s Canada’s interim attorney-in-fact and chief agent since 2019.

ALBERTA CAT COSTS | SEPT 10

Four Alberta catastrophes this year have cost insurers a grand total of about $2 billion, IBC reported. A June 3 hailstorm topped the list at $1.2 billion in insured damages. April flooding in Fort McMurray cost a further $522 million in claims payouts.

Photos: iStock.com

p11-17 Oct20 Declarations.indd 17

Randy Carroll, CEO of the Insurance Brokers Association of Ontario (IBAO) from 2005 through 2014, is now an advisor with Apollo, a Toronto-based insurtech that aims to cut down the amount of time it takes a broker to process applications.

Taking a hard line Crawford & Company The global COVID-19 pandemic has created a paradigm shift in how the P&C insurance market operates, with a new normal on the horizon, according to Crawford & Company’s latest report, Responding to a market in flux: What does the pandemic mean for the insurance industry? Expect risk management to take centre stage, as insurers will favour companies that are demonstrating effective risk management practices and mitigation, the report says. Companies will need to do this to secure coverage or get acceptable terms to complete renewal negotiations. “We would expect to see these change dynamics result in greater pressure on insureds during the renewals process or when securing additional coverage,” Benedict Burke, Crawford’s chief client officer, global client development, says in the report. “The demand for more granular information during representations will undoubtedly increase as insurers seek clearer evidence of risk management and mitigation procedures, and also details of robust claims planning procedures, and effective claims management practices during negotiations.” Few companies had the risk management scope to include an event like the novel coronavirus, which sharply brought every economy to a halt, the report notes. Risk credentials will become an increasingly important differentiator when it comes to coverage negotiations. “Policy coverage will inevitably be put under the microscope, as companies assess the overall scope of current programs in the context of a changed business environment, a rapidly evolving risk landscape, and refocusing of business objectives,” the report says. Additionally, insurance buyers should expect to “see the introduction of more rigid terms and conditions, with more prescriptive wordings to remove uncertainty and ensure coverage accurately reflects the specific exposure submitted,” the report states. “Higher deductibles are to be expected while the scope of cover may contract.”

DEALING WITH INSURTECHS | AUG 28

Insurers should not expect a partnership with one insurtech to be a one-size-fits-all solution for every issue they’re facing, according to insurtech leaders. In fact, insurers should expect to work with multiple insurtechs to overcome multiple challenges. canadianunderwriter.ca | October/November 2020

2020-10-02 11:04 AM

INTERVIEW

BERNARD McNULTY, Chief Agent, Head of Claims-Canada, Allianz Global Corporate & Specialty

SPECIALTY COVERAGE

DOUBLING DOWN ON SPECIALTY Bernard McNulty, Allianz Global Corporate & Specialtyâ€™s new chief agent for Canada, explains the impact of the pandemic and what changes may be in store By Greg Meckbach, Associate Editor

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cu u | How has the COVID-19 pandemic affected AGCS? For example, are you getting claims from clien clients seeking business interruption coverage? interrupti We do have a high number of business interruption claim claims that have been presented, and we are worki working through those claims from a coverage poin point of view. The coverage for those has been ver very challenging; unfortunately, we were not able to provide coverage on a large number of th those. We have clariﬁed some wordings wh when a client or broker is looking for clearer langu language. We have not approached the with a broad re-underwriting of risk. business wit The pande pandemic has certainly affected the way we conduct b business. We have all been working now for over six months, servicing from home n our clients that th way, trying to stay as close as we can to our clients and brokers. It has changed the way we work, but I think it has been seamles seamless. In fact, we have written some business through this period despite all new busines the challenges. challenge

cu u | Are a any of these changes permanent? permanen I do think this th is going to have a long-term impact. To gi give you one example, we have staff in Montreal Mont who are now permanently remote empl employees. We have actually given up our space in Montreal through this process, and we haven’t hav missed anything that way. In Montr Montreal, we shared space with our trade credit cre insurer, Euler Hermes. We had ei eeight gh underwriters, as well as a claims and engi an engineering presence. With the exit from Mi MidCorp and programs, the bulk of that un underwriting team has left to go to anothe another insurer. In Toronto, we have a number of bili bilingual underwriters. Many of them came from Montreal originally. We ca will depend on those staff to keep w us close to our brokers and clients in Montreal. Our employees have worked very effectively and productively from home. They do rely on different technology platforms, whether that is WebEx

or Microsoft Teams. We have not been on a single ﬂight since March and our internal meetings are by conference call. But we haven’t missed a step.

cu | What other changes are underway with AGCS in Canada? Globally, we have embarked on a very comprehensive transformation program. We’re focused on deep underwriting expertise; being in the right markets and segments, enhancing our truly global business model; and digitization, which is so critical to delivering our strategy. We have established four global teams, each focusing on one industry going forward. We will have one focusing on ﬁnancial institutions, another on telecommunications and information technology, a third on aviation and aerospace, and a fourth on construction. We will leverage expertise globally to make sure we are servicing any Canadian clients in those industries. We announced in June that we are exiting the MidCorp business, including our program business in Canada. It will take a year to get through that process. We are refocusing on our corporate and specialty business in Canada going forward. In Canada, our focus going forward will be on our corporate and specialty business, which is exactly the business we started with ﬁve years ago. It is a big shift in Canada for us. We had a number of large national programs with a variety of broker partners. It included a few different segments; among them, realty, retail and some of that was restaurant business. It wasn’t business for which we could use or leverage our engineering or deep technical expertise. Frankly, the results were not strong and that’s why we decided to move away from that business.

cu | What’s driving some of the insured losses related to Canadian restaurants? I can’t speak for what kinds of losses our competitors are incurring, but for AGCS it was a variety of losses. Restaurants suffer everything from ﬁres, vandalism, and water damage. Vehicle impact claims are also very common: Many restaurants in Canada have drive-thru capacity,

canadianunderwriter.ca | October/November 2020

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PROFILE

INTERVIEW

particularly in the fast food area. Along with many of these incidents, we incur business interruption claims. I don’t know if our results were any different than any other competitor in this space, but it’s a challenging part of the business.

cu | What are some examples of issues that clients are facing with engineering risks? Construction projects in Canada, and I’m sure for global projects, are becoming increasingly complex. There are constantly newer designs and newer materials. We consistently see more and more environmentally friendly materials being introduced in projects. In the last ﬁve years, there have been many challenges with prototype products and materials that have never been used before. Our climate can be harsh and some of those products have not worked well because of our Canadian climate. We have seen several large losses presented on prototype designs and/or materials. Prototype systems can be anything from building envelope products to building controls.

cu | Within ﬁnancial lines, does AGCS have any concerns about D&O liability and E&O exposure? There are concerns. We are a big market in the D&O space. We like to write D&O for dual-listed clients, whose stock is traded on both the Canadian and U.S. exchanges. The only shift for us in 2020 from an appetite point of view is that we are going to move away from cannabis risk, which we started to write two years ago. Some challenges are unique to publicly-traded cannabis companies. We still have an appetite for D&O risk in some other publicly-listed companies — particularly oil and gas, mining, and ﬁnancial institutions. Those are all performing very well for us. We will continue to write D&O liability in those categories of business and probably expand our focus in similar areas. In E&O, we write a lot of business for construction project owners, engineers and architects. That business has performed very well. We use our engineering expertise when we look at the E&O portion of construction risk. Many new construction projects are starting in Canada despite COVID.

BERNARD McNULTY Title: Chief Agent and Head of Claims, Canada, Allianz Global Corporate & Specialty (AGCS). Industry experience: More than 25 years of experience in underwriting, claims and management. Joined AGCS Canada in 2015 as head of claims after serving as vice president, strategic broker and customer development at RSA Group. Also held positions at GCAN Insurance, Lombard Canada, CGU Insurance and ACE-INA Insurance. Education: Bachelor of Arts in English and Economics, University of Toronto. Holds both the Associate (CIP) and Fellowship (FCIP) designation levels from the Insurance Institute of Canada.

cu | Describe AGCS Canada’s approach to claims handling We don’t use a generalist model at AGCS. We have a line-speciﬁc model. That means we have specialists that handle only aviation claims, and a specialist that handles only marine claims, etc. We have a team of lawyers who handle our D&O and E&O claims. I think having lawyers on staff handling those claims has become the gold standard for a number of companies, and that is all they do for us. Our claims specialists are each part of individual underwriting teams. Our aviation claims experts, for instance, are part of the aviation underwriting team. They sit with the underwriters and they are constantly collaborating on new risks, on renewals and so on.

HERE WE GROW AGAIN! Union Power Insurance Brokers Inc., based in Hamilton, Ontario, is seeking technically-skilled, licensed, insurance brokers. We are one of the fastest growing P&C insurance brokers in Ontario. We offer highly competitive wages (salary plus commission) as well as many other perks, including telecommuting. The right individual should be detail-oriented, enthusiastic and a team player. Please submit resume to: careers@unionpower.ca. www.unionpower.ca 20

October/November 2020 | Canadian Underwriter

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2020 NATIONAL BROKER SURVEY

THE RISE (AND FALL?) OF SPECIALIZATION Specialization continues to be a major growth strategy for brokers, as our fourth annual National Broker Survey shows. But has the pandemic exposed the limits to specializationâ€¦? By David Gambrill, Editor-in-Chief

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2020 NATIONAL BROKER SURVEY

OVID-19 has not made a significant dent in brokers’ optimism about their financial future, according to the results of Canadian Underwriter’s 2020 National Broker Survey. Nor has the global pandemic changed three-year trends in what brokers have identified as successful business strategies and best practices. Specialization continues to be one of the most important ways to serve brokers’ customers well, while referrals continue to be the most popular way to gain new prospects. This is not to say, however, that the pandemic has had no impact on how brokers think about specialization. Survey results show, for example, that enthusiasm for specialization as a growth strategy may be starting to plateau. Some industry observers suggest the pandemic has highlighted the risk of extremely specialized business models. Specializing during the pandemic In the property and casualty insurance industry, specialization is tricky to define. For simplicity’s sake, we define it as insurance coverage that is different than “standard,” “traditional” or “general” lines of business such as auto, home, and commercial general liability (CGL) insurance policies. Extreme examples of specialization would include insurance for things like ostrich farming, tattoos, ATVs, bingo prizes, video lottery terminals, or circuses. Why would brokers wish to specialize? One broker in our 2020 National Broker Survey explains the rationale as follows: “General insurance is an ocean. If you’re going to try and do it all, you will likely never do anything expertly. Find a niche that you enjoy working in and work at being the best at that. Don’t feel that you need to do everything. Clients want an expert, not an order-taker.” For the past three years, brokers have extolled specialization in our annual National Broker Surveys. This year was no different. We conducted our study in August and September, during the COVID-19 pandemic. Despite the pandemic, 84% of more than 200 brokers agreed either somewhat or greatly with the statement: “Brokers need to become

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2020 NATIONAL BROKER SURVEY more specialized to withstand changing technology and sales models.” This result ranked highest among the four options provided for grading (see Figure 1). Elsewhere in the survey, we asked brokers: “Over the past 24 months, how beneﬁcial have the following practices been for serving your clients well?” The rankings this year mirrored the same rankings as last year (see Figure 2 on Page 27). Developing specialty markets experience ranked ﬁfth out of the Top 5. But while the numbers for the Top 4 have been relatively static over the years, approval for specialization shot up to 65% last year from 49% in 2018. This year’s result remained steady at 66%. Specialization is also high on the list of brokers’ best practices for maintaining trusted advisor status. Seventy-one per cent of brokers listed “developing specialty markets experience” as a best practice forr establishing or maintaining trusted advisor dvisor status with consumers. This has trended ended upwards steadily over the past three hree years: In 2018, for example, only 54%

of brokers surveyed selected specialization as a best practice. What’s motivating the move towards specializing? Kent Rowe, president of the Insurance Brokers of Canada (IBAC), cites brokerage mergers and acquisitions (M&A) as one key reason. “We hear a lot about brokerage M&A activity, and we are seeing more of that,” Rowe says. “It’s creating larger brokerages. Brokers are doing this to achieve scale, recruit talent, and enhance their tech resources. That presents an opportunity for specialization. For smaller brokerages, I deﬁnitely think we will see that trend continue.” Late last year, Adam Mitchell, president of Mitchell & Whale, spoke to Canadian Underwriter about the impact of M&A on broker strategy and specialization. “I think to succeed in this business you are going to have to scale the business tto grow to a size that you can afford all of tthe investment into the technology, the marketing, and the efficiency you need m iin order to be able to compete,” he said.

FIGURE 1

Industry Issues

2020 Agree*

2019 Agree*

2018 Agree*

Brokers need to become more specialized to withstand changing technology and sales models

84%

87%

88%

Brokers are successfully communicating their value to consumers and businesses

82%

74%

72%

With all of the recent and anticipated changes in the insurance industry, brokers face more opportunities than threats

66%

56%

55%

Insurance carriers are striking a fair balance between the interests of carriers and brokers

42%

40%

52%

*Combined total of ‘Agree Somewhat’ and ‘Agree Strongly’ responses

“Another strategy you can choose is to niche. You could shrink down to greatness and get yourself to defend a corner of the market that the others can’t get into. But you’re going to have to pick one or the other, and merge, cluster, buy or sell your way into one of those scenarios.” Rowe believes there is a place for everyone in the brokerage landscape of tomorrow. Regardless of what may happen down the line with M&A, he says, “brokers will continue to do what they’ve always done, which is to react to the needs of their consumers.” And so, when thinking about specialization, brokers should be focusing not only on niche products and solutions of interest to consumers, but also on niche services they may be able to provide. Some see the trend towards specialization beginning to plateau. The numbers in this year’s survey, for example, show that specialization, although it is still ranked a Number 1 strategy, has started to trend downwards ever so slightly over the past three years (84% this year, as opposed to 87% in 2018 and 88% in 2018). The pandemic may have shown the outer limits of specialization, says Colin Simpson, president and CEO of the Insurance Brokers Association of Ontario (IBAO). “The brokers that have possibly suffered the most business-wise through the pandemic are those that only specialize in certain areas, especially in commercial lines that have been hit by the pandemic,” he says. This appears to be borne out by the industry’s ﬁnancial results for 2020 Q2, the ﬁnancial quarter that clearly shows the economic impact of the pandemic on the P&C business. As MSA Research president and CEO Joel Baker notes in the Q2-2020 MSA Quarterly Outlook Report, multi-lines and insurers in the traditional lines of home and auto tended to do better than those insurers who were selling commercial insurance policies in specialized areas of business. As Baker observes, cyber insurance losses were off-the-charts in 2020 Q2; cyber writers reported a combined ratio of 1,110%, meaning cyber insurers paid out $1,100 in claims for every dollar of premium they raised. Any brokers specializing

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FIGURE 2

solely in cyber would not be in business very long with those kinds of numbers. As a result of the pandemic, “what I think you are likely to find is that there will be more balance going forward,” Simpson says. “Even those brokers who specialize will have a balanced portfolio to support their area of specialization. I think that will be the trend. I think [because of the pandemic] there will be a bit of soul-searching as to, ‘What are the risks to my business in being specialized?’ What I think is likely to happen is that the need for higher level of service will definitely be there, because [the pandemic] has shown a higher need for consumer service and consumer support. And that is where brokers really come to the fore.” Rise of referrals Physical distancing or no, brokers still see referrals as being the best way to generate sales leads and gain new clients. “Word of mouth,” one broker in the National Broker Survey wrote, when asked about the most beneficial way to find new clients over the past 24 months. “Our brokerage is in a smaller community, so we know many/most of our clients personally. And the assistance we provide our clients, our willingness to help when they have questions, concerns, or are dealing with a loss, leads them to refer family and friends to us.” One senior broker of 42 years in the industry said he now does business only by referrals. “I’m completely customer service-oriented, so selling my knowledge and skills for the past 42 years gives me an excessive amount of referrals from existing clients, plus I belong to a networking club.” As in the past three surveys, brokers found it most beneficial to ask existing customers for referrals, as opposed to asking other professionals for referrals, although both methods are popular (see Figure 3). Out of six options for generating new leads, brokers placed referrals from existing customers at the top of the list (67% this year), and referrals from professionals in second place (46%). The popularity of seeking referrals from professionals jumped 11 points from 2018 to 2019 (from 41% to 52%), but lev-

Serving Customers Q: Over the past 24 months, how beneﬁcial have the following practices been for serving your clients well?

Top 5 Answers Educating yourself more about the customer’s particular situation

Personally assisting in the claims process

Informing clients of relevant new products

84%

75%

73%

Informing clients of emerging risks and exposures

Developing specialty markets expertise

71%

66% FIGURE 3

Gaining New Clients Q: For generating sales leads or identifying new prospects, how beneﬁcial have the following activities been for you in the past 24 months? 4 – 5* 2020

4 – 5* 2019

8 – 10* 2018

Asking existing customers for referrals

67%

73%

67%

Asking other professionals for referrals (e.g. accountants, lawyers)

46%

52%

41%

Maintaining an active social media presence

41%

45%

32%

Personal advertising (i.e. not your brokerage’s general advertising)

24%

32%

21%

Cold calling

14%

16%

12%

n/a

25%

17%

Speaking at events, offering free webinars, etc.

*Respondents were asked to grade the effectiveness of each of the above strategies on a scale of 1-5 in 2019-20, and on a scale of 1-10 in 2018. Higher numbers indicated the success of the strategy, with the highest grades (either 4-5, or 8-10) showing it to be considered a “best practice.”

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2020 NATIONAL BROKER SURVEY

FIGURE 4

Challenges to Your Brokerage Q: Based on what you know now, what’s your best estimate of how the ﬁnancial performance of your brokerage will be next year compared to this year?

2020

2019

2018

Much POORER

Somewhat poorer

The same

21%

26%

29%

Somewhat better

50%

60%

55%

Much BETTER

18%

11%

12%

SUM of all BETTER responses

68%

71%

67%

BEING connected MATTERS. THANKS, LLOYD’S. 28

elled off slightly this year. Still, one broker in the survey said the business contacts generally resulted in better closing success. “Industry players — e.g. financial advisers, life agents, and real estate agent referrals — will yield much better prospects that fit your corporate culture, thus higher closing/client success.” Other options in the survey included maintaining an active social media presence, personal advertising (not the same as the brokerage’s general advertising), or cold-calling. Company website leads and digital marketing leads from third-party vendors also came up in the written comments. Rowe believes changing demographics in Canada have contributed to the success of referrals in finding new business. Access to information has improved on the internet, and generations that have grown up with the internet (such as Millennials, for example) have become more likely to research a product before buying online, as Rowe ob-

The World Federation of Insurance Intermediaries

A sincere thank you to Lloyd’s Canada for supporting our participation in the World Federation of Insurance Intermediaries (WFii) from the 38,000 Canadian insurance brokers IBAC represents. Being connected to something bigger, matters.

October/November 2020 | Canadian Underwriter

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2020 NATIONAL BROKER SURVEY serves. As part of their research, they are asking friends and family for advice, which makes referrals from them all the more important — and successful. And so, brokers are more actively reaching out to their clients for referrals. Simpson does not see this changing because of the social distancing required to slow the spread of the novel coronavirus. “There is always value in relationships,” he says. “Insurance is a people business. A referral could actually add more value to a brokerage. It becomes stickier because of the relationships involved. It’s less likely to move around than in situations you might see [during the pandemic].” For example, a client unhappy with relief offered by an insurer during the pandemic could theoretically be more likely to move from one brokerage to another, seeking a better relief package. And some referrals during a hard market may be one way for clients to access capacity that may not be available. Post-pandemic prospects Brokers tend to be an optimistic lot. In both 2018 and 2019, most brokers in our National Broker Survey predicted that their financial performance would be better the next year than it was the year before (see Figure 4 on Page 28). The same was true in 2020, despite the pandemic and the global economic meltdown associated with it. More than two-thirds (68%) of Canadian brokers in this year’s survey said the financial performance of their brokerages would be “somewhat better” (50%) or “much better” (18%) next year compared to this year. They had every reason to be pessimistic. By most meaningful performance metrics, the Canadian P&C industry’s financial results took a beating during COVID-19. Federally-regulated insurers reported an $893-million underwriting loss in 2020 Q2, according to statistics released by Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI). MSA Research’s quarterly stats show the Canadian P&C industry posted a combined ratio of 103.6% during the second quarter, when government-ordered lock-

downs shuttered the businesses of broker clients. (That means insurers were paying out $1.03 in claims and expenses for every dollar of premium revenue they collected.) Economists and industry analysts don’t see much improvement for the global economy until some kind of vaccine or treatment for the virus is found, which many sources in the medical community predict will not be widely commercially available until next year at the very earliest. So, where is the brokers’ sunny sense of optimism coming from? To be sure, the broker’s sense of financial optimism is more muted this year than it has been in the past. In 2019, 71% of brokers surveyed expected a somewhat or much better year this year than last year. (If only they knew about the pandemic then.) But while some brokers admitted that the pandemic tempered their forecast and financial results, others said it had no impact at all. Many brokers in the survey found reasons for optimism in the future. “It affected business in the short term (Mar., Apr., May),” one broker reported, “but we have normalized now, and we see opportunity in the uncertainty ahead.” It helped that insurance is an essential service, meaning brokerages across Canada were able to keep their doors open to clients, although many brokers are still working from home to prevent the spread of the virus. One broker in the survey highlighted how the pandemic caused many clients to contact the brokerage for advice. Many Canadian brokerages took calls from clients who wanted to change their coverage to reflect the fact that their business operations had either been closed or restricted. Clients also looked to their brokers to advocate for premium relief measures. These dynamics accentuated the value of brokers’ services to their clients, which in turn was good for broker business. “The pandemic has been good for business,” one broker reported, “because we are personal service-centric and [we] were available to speak to our clients at any time.”

Appointment Kavita Ramcharan, MASc., P. Eng. Assistant Vice President, Inspection Operations and Client Services HSB Canada is pleased to announce the appointment of Kavita Ramcharan to Assistant Vice President, Inspection Operations and Client Services. In addition to her role as technical inspection services liaison with client companies, Kavita will lead HSB Connected Technologies and IoT offerings. Kavita has been active with various associations and regulators and will have oversight over HSB Canada’s technical participation with Technical Standards and Safety Authority, Canadian Boiler and Machinery Underwriters’ Association, Canadian Standards Association, and Insurance Bureau of Canada. Kavita holds a Master’s of Applied Science degree in Engineering from the University of Toronto, is a Professional Engineer, and holds a National Board Inservice Commission and Ontario Certiﬁcate of Competency.

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FEATURE l DIVERSITY & INCLUSION

DIVERSITY & INCLUSION

WE HAVE A LOT OF WORK TO DO How can the Canadian P&C industry ensure its workplaces reflect the communities they serve? We asked senior industry executives what can be done to make sure everyone feels respected and valued, regardless of demographic factors such as gender, skin colour, sexual orientation or gender identity. Hereâ€™s what they told us....

iStock.com/wildpixel

By Greg Meckbach, Associate Editor

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DIVERSITY & INCLUSION l FEATURE

ndustry leaders need to reach out to prospective employees from historically disadvantaged groups, especially people who are Black and Indigenous, to ensure that employees have role models within the organization, property and casualty executives tell Canadian Underwriter. In doing so, they should compare the demographics of the management teams with both the general employee and customer populations. “We have a lot of work to do in terms of inclusion and diversity across levels of management,” Saad Mered, CEO of Zurich Canada, said of the P&C industry generally. “While we may have done very well in the industry in terms of gender diversity — at the individual contributor level or at the coalface of the workforce — we have not done so well as we move up management ranks.” Diversity is the variety of people and ideas within a company, Deloitte Canada notes. Organizations often deﬁne the diversity of their people according to differences — such as race, gender, age, disability or sexual orientation — but it can also apply to education, family status, values and beliefs, working-style preferences, religion, and veteran status, among others. Diversity and inclusion means you have an environment in which people feel involved, respected, valued, connected, and able to bring their “authentic” selves to the team and business, Deloitte said in a recent report. “Inclusion is really the issue [the industry needs] to tackle,” said Donna Ince, senior vice president of personal lines for RSA Canada. “We can bring people in. We can look like we’ve got great diversity. We can tick all those boxes, but inclusion [is] how people feel about how they are contributing and how they are valued at that table. Are they being heard? Are they being listened to?” A 2017 survey of 7,327 Canadian P&C industry employees (about 6% of the industry) had 69% of its respondents as women and 31% as men, the Conference Board of Canada reports in Demographics of the P&C Insurance Industry in Canada, a report commissioned by the Insurance Institute of Canada. In the survey, 2.2% of the respondents said they

were Indigenous (compared to 3.9% of Canadian workers in 2016) while 2.8% of respondents self-identified as lesbian, gay, bisexual or transgender (LGBT). “What we are seeing in Canada and a lot of other western countries — not just in insurance but in other corporations — is that even companies that are fairly diverse in entry level roles become substantially less diverse from a seniority perspective,” says Michael Thompson, associate vice president at TD Insurance and co-chair of the Black Employee Network at The Toronto-Dominion Bank’s P&C subsidiary. “Organizations need to look at how the leadership reflects their employee base and customer base,” Thompson adds. “When they don’t see people who look like them within the leadership ranks, that is somewhat of a tell in terms of, ‘Am I going to be able to reach my aspirations in this organization if they are not hiring leaders that look like me or have similar backgrounds? And will I be understood within this organization?’” Debbie Thompson suspects she is the first Black woman in Canada to be president of a provincial brokers’ association. She served in 2013 as president of the Insurance Brokers Association of Ontario. On several occasions, while attending industry events, she observed that she was the only Black person in a room of about 100. “We have to get better at just acknowledging that the service industry should look like the residents or the citizens that it represents,” she said. “When I was growing up my father would always say to me, ‘As a Black woman, you will always have to do 110% of [what] your white counterpart [does] to be at the same level, to get paid the same, to be seen the same.’ I still think that is true today.” At Desjardins Group, Benaaz Irani is responsible for about 470 independent insurance agencies for Desjardins in three provinces. Born in Mumbai in a family of Iranian descent, Irani finished university in her native India before immigrating to Canada, joining the Canadian Imperial Bank of Commerce shortly thereafter. Her move to Desjardins resulted from Desjardins’ acquisition of CIBC’s

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FEATURE l DIVERSITY & INCLUSION

“Sometimes you need individuals to support you to climb the ladder, and sometimes people need to give you a hand to get there. You need to create a safe environment for people to succeed, to fail, and to move forward.” general insurance business. “I have come this far because I have had amazing male role models who have supported me throughout my career,” says Irani, appointed vice president of the Desjardins Agent Network last year, succeeding Barbara Bellisimo, who retired from Desjardins at the end of 2019. Irani believes men and women must work together to create an inclusive work environment. “Sometimes you need indi-

viduals to support you as you climb the ladder, and sometimes people need to give you a hand to get up there. You need to create a safe environment for people to succeed, to fail, and to move forward.” Leaders need to make sure people feel comfortable and respected, says Zurich Canada’s Mered. “For me, that emotional well-being, that comfort every team player has to have within the ﬁrm — regardless of who they are, regardless of their

background — is, in the end, the bigger challenge. That goes to behaviours, it goes to unconscious biases and is so difficult to inﬂuence in the short term.” Mered recounts some feedback he heard recently from a company focus group. “One of our claims examiners, who is a person of colour, whose parents are originally from Jamaica, mentioned to me that because of the responsibility he has, he attends court-driven mediations and arbitrations quite often. He takes offence at the fact that in Canada, a number of these court officials are still called ‘masters.’” This is the title of case management masters working in the Ontario court system. “For some, ‘Master’ has a different connotation,” as Mered points out. “Little things like this fail to recognize some very painful historical legacies that I think we need to stop once and for all and address collectively.” For its part, RSA Canada commissioned a third-party survey of its work-

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DIVERSITY & INCLUSION l FEATURE ers. Employees were asked whether they identified as being: part of a visible minority group; newcomers to Canada; Lesbian, Gay, Bisexual, Transgender, Queer or Questioning and Two-Spirit (LGB2sQ+); having a disability; First Nation; Métis; or Inuit, said RSA’s senior vice president of personal insurance, Donna Ince. To keep the answers confidential, RSA Canada received only the total numbers and not the raw data. The participation rate was 71.3%. About 24% of respondents at RSA Canada self-identified a part of a visible minority, compared to 22% of the Canadian labour force. About 24% of respondents self-identified as newcomers to Canada, in line with the Canadian labour force. About 5% identified as LGB2sQ+, which is about the same percentage as the Canadian labour force, RSA Canada reports. “The challenge is, you have to check in with your employee group around self-identification,” said Ince. “It’s really hard to keep tabs on whether you are hitting a target on anything other than gender.” In 2017, RSA Canada set a specific gender target of 50% for women in senior leadership positions, to be achieved by the end of 2020. The target was increased in 2018 to 55% and was finally reset in 2019 to 48%. As of Mar. 31, 46% of senior leaders were female, Ince said. “We need to shift what we have done around gender diversity and now shift it to the racialized people, LGB2sQ+, people with disabilities and indigenous people,” says Ince. Bringing in and promoting people from historically-disadvantaged groups requires a fine balance, notes Irani at Desjardins.“You do want to hire people who are the right fit for the job, who are talented,” she says. “You can’t just hire people because you want to be seen as being diverse. We want to be honest to ourselves.” For its part, Fairfax Financial Holdings Ltd. has formed a Black Initiatives Action Committee at the Fairfax corporate level, CEO Prem Watsa said this past July during an earnings call. The committee was formed “to discuss these issues openly and to create more opportunities for people from the Black community and for all minori-

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ties,” said Watsa. Toronto-based Fairfax owns Northbridge Insurance plus Odyssey Group, Brit PLC and Allied World, among others. The diversity of your workforce could depend in part on where your offices are. As a commercial insurer, Zurich has a presence in big cities, notes Mered, adding some personal lines insurers and life insurers may be more concentrated in mid-sized cities. “Being in big cities enables us to have a fairly diverse work force,” he says, “which I would say probably represents — mostly but not entirely — the population mix of big cities in Canada.” But the industry could be doing more to improve the representation of some groups, says Mered. “For Black Canadians and Indigenous Canadians, we have not done enough. I would say we have not gone aggressively in a structured way to high schools, to technical colleges, to universities, which have more of an affinity with these populations, and made the sales pitch of why insurance is a great career.” Traditionally, the insurance industry has hired from universities, including mathematics, actuarial and engineering programs. Diversity and inclusion is not just a one-off project or program, says Mered. “It’s a daily battle. It’s a way of living.” Unconscious bias has been a hot topic in recent times. Photos emerged showing Prime Minister Justin Trudeau had (before entering politics) worn makeup to darken his skin with blackface or brownface on multiple occasions. Trudeau has since apologized for the behaviour. South of the border, Black Minnesota resident George Floyd died on May 25 after a police officer pressed his knee against Floyd’s neck for nearly eight minutes. The incident prompted a nationwide protest. “I think what has happened in the last few months has really been a wakeup call to us as leaders,” Mered says. “Right below the surface, things are not what they seem to be. Re-opening the loud vocalization of those sentiments and observations, for me for the last few weeks, has been a painful but positive step forward.”

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2020-10-02 1:34 PM

FEATURE l BROKER TRUSTED ADVISOR SURVEY (PART 3)

2020 TRUSTED ADVISOR SURVEY: PART 3

We need to talk… Based on recent consumer research and brokers surveys, Canadian Underwriter has identified three crucial topics of conversation to help brokers forge stronger bonds with their clients

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t’s easy to succeed as a broker. All you have to do is ﬁgure out what your clients want and then give it to them. Simple, right? But as consumer research will tell you, it’s not always easy to know what your clients expect of you — especially if their expectations are constantly shifting. “There’s a lot that we still need to learn about consumer behaviour,” says Colin Simpson, president and CEO of the Insurance Brokers Association of Ontario (IBAO). “Everybody’s environment changes. Just because you think you understood the consumer yesterday doesn’t mean you will understand them today, depending on what’s going on in the consumer’s world. “There is an opportunity here for us to step back and look at the way we interpret consumer behaviour and whether…it is aligned with what the broker delivers. I think in a lot of cases it probably is.” To help brokers enhance their communications with clients, Canadian Underwriter undertook its own consumer research this year in March, right around the time that the World Health Organization declared the novel coronavirus to be a global pandemic. In Part 1 of our inaugural Trusted Advisor Survey, published in July 2020, we asked more than 600 personal lines home and auto insurance consumers and 160 commercial lines clients what they thought about the service they were getting from their brokers. The survey showed consumers giving their brokers high marks on many key aspects of the broker value proposition — trust, choice and advice. In the second part of our four-part Trusted Advisor series, published in August, we asked about 200 Canadian P&C insurance brokers to rate themselves on the same core aspects. In this issue, we compare the results of the consumer and broker surveys to spot the greatest opportunities for brokers to get to know their clients better. Our complete list of opportunities, plus a brief description of how we chose them, is explained in our sidebar, ‘Talking Points.’ Three main opportunities stand out for both personal lines and commercial lines brokers to have a deeper conversation with consumers:

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BROKER TRUSTED ADVISOR SURVEY (PART 3) l FEATURE • Consumers and brokers should talk about what’s involved in “solving” an insurance problem • Consumers want to hear more from their brokers about ways to prevent loss • Consumers need a better understanding of the broker’s role in the insurance transaction Solving an insurance problem Brokers solve consumers’ insurance problems every day. Particularly in a hard market, they are trying to find coverage in a market dominated by capacity issues, to say nothing of finding insurance coverage for a low premium. Sometimes just finding coverage is a huge problem to be solved. But the obvious gap between consumers and brokers on the topic of problem-solving may speak to a difference in how consumers and brokers are defining the “problem” to be solved. “Brokers are always solving problems,” says Insurance Brokers Association of Canada (IBAC) president Kent Rowe. “But it may come down to whether the solution is acceptable to the client. In the hard market, some solutions may not be as appealing to consumers as they might be during a soft market.” Rowe cites the example of a client looking for coverage. In a hard mar-

ket, characterized by higher premiums and reduced coverage options, the least expensive option may be available for $8,500. But the client may have paid only $5,000 for similar coverage last year. And so, when presented with the $8,500 option, the consumer may not be inclined to think the broker actually “solved” his or her problem, which was reducing the price point. In fact, the broker may have just negotiated with more than seven different carriers to find the insurance in the first place, given the hard market conditions. For the broker, the “problem” was finding the coverage; and so, in the broker’s mind, the problem is indeed solved. In this example, which is a common conversation between consumers and brokers, the importance here is for the broker to make the client aware of the challenges he or she faced to secure the coverage. If the expectation was a cheaper price, and that expectation is not realistic in the current market environment, the broker does need to manage these consumer expectations up front, by explaining the current state of the market and what it means for the consumer. Advising on ways to prevent loss Again, brokers do this all the time, but do consumers know that this is what you are doing?

Context is everything, Simpson says. For example, a broker’s role is to provide access to the insurance product. And so, when a broker advises on how to access a particular product at a cheaper price, a consumer may not realize that the broker is actually providing them with advice on how to reduce their risk. The broker’s risk advice to a consumer “may just be cloaked in some form other than loss reduction,” says Simpson. “If you’ve been told that you need to improve your lock systems to prevent theft, for example, it may be phrased [by the broker] as, ‘You need to improve your lock system if you want the deductible or a discount.’ But consumers may not see that as loss prevention. They may just see that as some kind of demand from the insurance company [to obtain the insurance product].” Sometimes the type of product matters, too. Commercial lines products are tailored for speciﬁc business risks, and there are many ways brokers can advise on ways to reduce losses. But the auto product is regulated, the options are fewer, and sometimes the only risk advice a broker can give to reduce losses is obvious. “The only auto insurance where you might consider giving advice [on reducing losses] is if you have a telematics device that will tell the consumer to slow down,” as Simp-

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FEATURE l BROKER TRUSTED ADVISOR SURVEY (PART 3) son puts it. Otherwise, “what are you going to say? ‘Stop at a stop sign?’” Rowe says the role of the person providing the advice also may lead a consumer to interpret whether or not the information is intended as a form of loss control. For example, if a claims adjuster tells a consumer to upgrade his or her roof to avoid water damage — or if a loss control officer at a manufacturing plant says a part needs to be replaced to prevent an equipment breakdown — it may be obvious to the consumer that they are getting “advice on ways to prevent loss.” But if a broker gives the same advice, will the consumer see this as advice on loss reduction or on how to reduce their insurance premium? In the end, it may come down to brokers having to make it clear to consumers that their advice on coverage or price is in fact providing suggestions for how to reduce their losses, as Rowe observes. The role of the broker When conducting our Trusted Advisor Survey, we had to be certain our consumers and business clients were using brokers. To do this, we asked the question: “Who is your broker?” And brokers will not be surprised to learn that we had to de-select the surveys where the respondent listed their “broker,” for example, belairdirect (a direct writer) or Allstate (an agent, but not an independent broker). Brokers in Canada have long been in the game of public education about what it means to be an “intermediary.” Over the years, they’ve run ads on Hockey Night in Canada; invested in the “Bipper” branding campaign; donated money to community charities; and advocated on behalf of their constituents in the hallways of Parliament. So what more do they have to do to help consumers understand what brokers do for a living? Ultimately, Simpson says, the answer may lie in a society-wide ﬁnancial literacy campaign. “I think if you really want to step out of the box to educate consumers, you really have to start when they are young. I think you have to start in high school and university-level age group, so that they understand where they go [to purchase insurance]…It’s really ﬁnancial literacy generally that needs to be improved across the board.” In addition, Rowe says, the battle for the hearts and minds of consumers may rest in those one-on-one conversations that brokers are having with their clients in the trenches. “The battle is really won during those front-lines conversations with clients, explaining our role as brokers in navigating the insurance markets on their behalf.” Overall, Rowe says, “I don’t think there’s such a thing as over-communicating when we talk about what we do for our clients and the services we provide. I’m a big fan of communicating with clients about expectations. They expect us to explain coverage and to advise on loss control. There’s an opportunity here to demonstrate how great we are as brokers.” 36

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Talking points Canadian Underwriter conducted separate surveys with consumers and brokers, in both personal and commercial lines, between March and May 2020. We asked all respondents to rate broker performance in more than 20 metrics related to the broker value proposition. Overall, consumers gave brokers high marks as trusted advisors. Comparing the results of our consumer and broker surveys, we isolated five areas where the widest gaps existed between consumers’ and brokers’ expectations. These “gaps” suggest topic areas where brokers would most benefit having discussions with their customers, thereby strengthening their bond with their clients. One important note: In some instances, consumers rated brokers as “above average” in the areas where there were the greatest gaps between survey answers. In other words, the presence of a gap below does not necessarily mean consumers were unhappy with the brokers’ performance in these areas. The gaps merely suggest areas in which consumers and brokers could have a more detailed discussion about service expectations.

Personal Lines CONSUMERS

BROKERS

Good problem-solver

55% agree

93% agree

Advising on ways to prevent loss

46% agree

83% agree

Keeping on top of changes [e.g. to products, regs, etc.]

59% agree

93% agree

Explains the broker’s role to the consumer

46% agree

80% agree

Presents multiple quotes for new business

50% agree

83% agree

CONSUMERS

BROKERS

Advising on ways to prevent loss

53% agree

93% agree

Good problem-solver

60% agree

96% agree

Advance warning of rate increases

56% agree

91% agree

Explains the fine print

57% agree

89% agree

Explains the broker’s role to the consumer

62% agree

92% agree

Commercial Lines

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FEATURE l REINSURANCE REPORT

REINSURANCE REPORT

Storm System Several pressures on rate suggest reinsurance premiums will rise during the January 2021 renewal season. By how much? Reinsurance execs look into the crystal ball

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By Greg Meckbach, Associate Editor

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REINSURANCE REPORTT l FEATURE

he reinsurance market is hardening, but by how much rates will go up in the January 2021 renewal season is anyone’s guess. Several ‘X-factors’ include the final tally of damage caused by the 2020 hurricane season, the level of risk exposure in the primary carriers’ books of business, and what kind of reinsurance contracts the primary insurers have. “With the Jan. 1, 2021 renewals, there could be some rate increases, likely 5% to 15%, not just in Canada, but in the global reinsurance market,” Matt Wolfe, president of reinsurance solutions in Canada for Aon, says in an interview. “There are definitely segments in the reinsurance market that are quite firm and they have seen significant price increases.” If primary insurers have to pay more for reinsurance, they will likely pass some of that cost on to their clients, says Marcos Alvarez, Toronto-based senior vice president and head of insurance at DBRS Morningstar. “You could see reinsurance prices causing further hardening on the primary side,” says Geoffrey Lubert, CEO of Willis Re Canada. “But the primary insurance market was definitely already hardening, independent of reinsurance. Now we are seeing reinsurance catch up.” Ray Thomson, director of New Jersey-based A.M. Best Company Inc., says the ratings agency is indeed looking at a generally hardening market in reinsurance. “It has been an active catastrophe season in Canada thus far. There was a huge hail storm in Alberta and even Tropical Storm Isaias reached up into Quebec and the Maritimes. With all that activity, there could be some expectation of more price increases.” For Bermuda-based Axis Capital Holdings Ltd., gross written premiums in reinsurance were up 9% for the first six months of the year, from US$1.82 billion in 2019 to US$1.978 billion in 2020. “For the June 1 [2020] renewals, we saw the best [reinsurance] market conditions in more than 10 years, with tightening terms and conditions, in addition to higher pricing,” Axis CEO Albert Benchimol said in July during an earnings call. “This year, we are seeing firming conditions across substantially all of our lines of business.” Primary insurers will see “up to double-digit rate rises” in their reinsurance rates this January across many of the lines of business, said Brian Schneider, Chicago-based head of reinsurance at Fitch Ratings. “We did not see that last January. We have seen it in April and June thus far, so we think that January should continue the trend we have seen thus far this year,” Schneider says in an interview.

For Lubert, it would be difficult to guess exactly what reinsurance changes the property and casualty industry could see when it comes time to renew in January. “Rate changes are going to be specific to the client and line of business,” he said. “I don’t think reinsurers will underwrite with an across-the-market approach. You are not going to see all clients getting X amount of rate increase. You are definitely going to see individual clients rated according to their own underwriting approach, loss history and exposures.” And don’t assume reinsurers will raise rates for all primary insurers. With this coming January renewal season, some reinsurers can still get more revenue on the same amount of business, even if they do not raise their rates, Wolfe explains. “If the primary insurer has already raised its rates, then the reinsurer is getting more rate for the same exposures than it had a year ago. So the reinsurer is calculating the rate off that new premium base,” he says. “So when primary insurers raise their rates, that ultimately lifts the boat of the reinsurers’ results, especially if it’s on a quota share basis. It is also true, but less direct, if it is on an excess of loss basis.” Even if the primary carriers do raise their rates, sources say, this does not necessarily mean that for every extra dollar the primary insurer spends on reinsurance, the primary insurer will increase its premiums by a dollar. “It depends in part on how the primary companies place their reinsurance,” Alvarez explains. “If it is proportional, you can probably expect that these price increases will pass linearly to the customer, but if [primary insurers] have excess-of-loss type of reinsurance arrangements, the pricing is a bit trickier. What we see in Canada is most of the P&C carriers have a strategy of non-proportional reinsurance — for example, buying reinsurance on an excess of loss basis.” In early September, experts told Canadian Underwriter that the outcome of the January 2021 reinsurance renewal season will depend in large part on how the hurricane season develops during the remainder of the fall. At the time of writing, Hurricane Sally had made landfall on the Gulf of Mexico coast near Mobile, Ala., causing record floods with wind speeds of more than 160 km/h. On Sept. 16, the U.S. National Hurricane Center issued flood warnings for Alabama, Florida, Georgia, the Carolinas and Virginia. AIR Worldwide estimated that Hurricane Laura, which made landfall Aug. 27 near the Louisiana-Texas border, cost the industry up to US$8 billion.

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FEATURE l REINSURANCE REPORT “If we get a couple of large hurricanes, that is going to have an impact on reinsurance pricing,” Lubert told Canadian Underwriter the week before Sally made landfall. “It would pretty much shut the retrocession market down, which would have an impact on the reinsurance supply.” Retrocessional cover is what reinsurers buy to reinsure themselves. “When reinsurance contracts are renewed on Jan. 1, we might see increases in the high single digits in some lines,” Alvarez said before Hurricane Sally. “This depends a lot on how the hurricane season develops from now until November. You never know if are going to get hit by another hurricane in the season.” Wolfe sees some market factors that would normally lead to reinsurance rate increases. These include poor investment income, the risk of insured losses arising from COVID-19, and Cat activity. “Due to low interest rates, the investment returns, for a number of years, have not

been enough to subsidize the underwriting results,” Wolfe says. “Over the last few years, reinsurers have had to get more disciplined on the underwriting side.” Global reinsurers experienced higher combined ratios during the first half of this year than in the first six months of 2019, DBRS Morningstar said in a report released Sept. 2. The average combined ratio for 13 large reinsurers was 103.7% in the six months ending June 30, 2020, a 10.9-point deterioration from 92.8% in the first half of 2019. “Investors were sick of losing money,” Lubert says. “The insurance and reinsurance sectors have not been overly profitable for a while.” Moreover, weather catastrophes are costing Canadian insurers. “There has been significant Cat activity in Canada over the last 10 years, including the southern Alberta and Toronto area floods in 2013 and the Fort McMurray wildfire in 2016,” Wolfe

says. “If we look at the 10-year window, I think the reinsurers covering Canadian catastrophes are doing okay, but that is something to keep an eye on.” Worldwide, there have been significant concerns around insured losses from COVID-19. “The estimates range wildly,” Wolfe says. “Regarding the industry-wide insured losses arising from COVID, we don’t know yet what that number will be, but it will not be insigniﬁcant.” And so, COVID-19 could also affect the January reinsurance renewals. “A primary insurer could do one of two things to minimize its rate increases,” Wolfe says. “It may be able to demonstrate that it does not have material COVID exposures, given the type of business it writes. Or, if it does have material COVID exposure, it could demonstrate that it is taking very proactive steps in terms of limiting its exposure through the use o f exclusions or reducing capacity.”

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FEATURE l TRUCKING INSURANCE

TRUCKING INSURANCE

Overloaded Trucking was already going through challenging times. The pandemic isn’t helping. How brokers can help clients navigate their way through the insurance marketplace

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By Adam Malik, Managing Editor

bout 200 vehicles were involved in a major crash outside of Montreal in the middle of February, including at least 15 commercial trucks, according to news reports. Neither the extent of damage to the trucks nor the damage caused by the trucks is known. Video footage showed heavy-duty vehicles in the pileup. A big incident like one this doesn’t happen very often. But plenty of smaller incidents make those working in the commercial trucking insurance space nervous. The sector has been plagued by rising premiums over the past few years, a challenge that isn’t expected to subside for at least a couple more. And that’s just the tip of the iceberg. The World Health Organization declared COVID-19 to be a global pandemic in March 2020, exacerbating an already 42

fraught situation for the trucking industry. Canadians needed the trucking sector to keep the supply chains moving. Trucking was deemed an essential service not only to keep shelves stocked in grocery stores, but to ensure personal protective equipment was being delivered to frontline workers. And so, while many Canadians received premium rebates for parking their cars in their garages to work from home during the pandemic, truckers remained out on the roads, meaning their risk remained high, as did their premiums. While brokers, underwriters, carriers and clients are working together to lower the trucking industry’s risk exposures, don’t expect any quick solutions, brokers have told Canadian Underwriter. Indeed, the sector appears destined for a hard market over the long haul.

How did we get here? Similar to personal auto, trucks are more expensive to repair following a crash. “When you have a small claim, like a bumper claim,” says Joe Palmer, director of transportation at Gallagher Canada in Hartland, N.B., “with all the technology that’s in the trucks with sensors and lane-departure warnings and cameras, a simple repair is significantly more expensive today.” Higher repair costs also reflect the significant amount of damage done when a truck is involved in a collision. “If a truck hits a car, versus a car hits a car, it’s a whole new game,” says Jurenda Landry, director of client services at KASE Insurance in Toronto. Driver skill is also a significant factor. Like many industries, fleets need a growing number of people to fill roles.

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TRUCKING INSURANCE l FEATURE times were good, creating a race to the bottim tom in terms of rates. As claims increased, tail liabilities piled up, and so-called nuclear verdicts from the U.S. hit. Carriers clea decided to step away from the business, dec says Scott Cober, Toronto-based nationsay practice leader for transportation with al p BFL Canada. And when they did, “it left BF that capacity shortage we’re seeing now.” tha

As more inexperienced drivers get behind the wheel, up goes the risk. “It’s known in the industry that a driver with under three years’ experience is three times more likely to get into an accident,” Landry says, adding that it takes years of being on the road to understand how to react to different driving situations. The Canadian trucking industry has responded to a driver shortage in part by hiring drivers from other countries. But even when experienced drivers from outside Canada get behind the wheel, their on-road experience comes from operating vehicles in their home country. “They’re not experienced with our roads, our weather, or our equipment,” Palmer says. “Things are different [here] and they have to adjust to it.” As for the trucking insurance world, new carriers jumped into the space while

The COVID effect Things didn’t get any easier after the Th pandemic shrank the economy. “The scene hasn’t changed,” Landry said. “The same mountain exists, the same challenges are still there. The only thing that’s truly, truly changed is that insurers have taken time to re-evaluate risks on their end.” Shrinking capacity was and always will be an issue, says Angelique Magi, national vice president of specialty solutions in trucking and specialty auto at Intact Insurance. “That isn’t any different now or going forward for the industry.” However, brokers praised insurers for stepping up to help clients affected by the sudden change in circumstances due to the pandemic. For example, insurance companies would typically never do a mid-term change for a fleet pre-COVID, Cober notes. “I think the industry rose to the occasion: Every major fleet insurance company did do that, and [they] certainly came to the table to give premium relief for the fleets.” Landry agrees. “Overall, our insurer partners that are heavily into trucking have been really great and responsive and understanding. That was really a heartwarming thing for us to see,” she said. “I don’t think everybody will say this, but there has been a decent amount of compassion from our insurer partners during this. A few insurers actually stepped up and said, ‘Okay, let’s look at this. Let’s see what we can do now for you guys and we’ll re-evaluate it in three months.’” Not only did that showcase broker value to clients, but customer loyalty to the insurer increased. In the same way that a positive claims experience may keep a customer with a carrier despite a higher rate, being flexible had the same effect. “In the trucking industry, everybody

chats with each other,” Landry says. “They’ve definitely seen the efforts insurers have made and that [brokers have] made. From that, we’ve created a little bit more loyalty with our clients, more so than we already have. Insurer loyalty is growing, which is really cool to see. That’s not a common thing.” One thing trucking companies learned from COVID-19 is the importance of diversification. “A trucking company hauling products that are non-essential versus a company that’s hauling food is obviously going to experience a downturn based on the impact COVID has had on our economies in Canada and the U.S.,” Palmer observes. Companies most affected by the shutdowns are looking at what else they can haul in order to stay operational. But they have to keep in mind that their drivers and staff have qualifications and experience to haul certain types of freight. “You don’t want to get into hauling something that’s totally different [and] that you don’t have experience in,” Palmer says. Other trucking companies looked to expand their business radius and transport to areas they didn’t before, attempting to seize an opportunity to expand their operations. For clients looking to move into the U.S. or beyond their provincial borders, “those were discussions we had to have with underwriters because there were pricing pressures,” Cober says. “And if the market didn’t really do cross-border, certainly we had to try and find a solution for them.” Another pandemic-related challenge is that some drivers don’t want to get behind the wheel due to safety concerns. Some of the busier trucking companies found that not all drivers were comfortable taking to the road as infection rates spiked, especially south of the border. “So that’s been another reason why trucking companies’ productivity has dropped. Even though [the companies] may have the drivers to go, [the drivers have] elected to stay home so they don’t expose their family or themselves [to the virus],” Palmer says. Furthermore, drivers essentially live on the road and finding rest stops becomes a challenge. “So you can understand why canadianunderwriter.ca | October/November 2020

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FEATURE l TRUCKING INSURANCE some of those people say, ‘I’m just going to stay home until things open back up to more of a normal,’” Palmer says. When fleets are parked, companies use the time to fix up their operations. “I can tell you that our clients have taken their time to fix up everything and say, “Hey, now that nothing’s happening or slowed down or delayed, now I have the time to really look at the training manuals we have,’” Landry says. “That’s where our producers and sales team have really taken the next step.” Parked trucks allow companies to get their vehicles into proper shape by performing needed maintenance, Palmer notes. “Getting caught back up on some of those things have been a bit of a silver lining.” Another indirect benefit of the pandemic has been to identify and update archaic ways of doing business. Take the following example of a technological change: A company parks its fleet, and a

broker gets a call from the trucking operator saying they just got a freight contract. The company needs to get back on the road. At that point, for the broker, “it became that tedious job of calling the underwriter to get it back on the road,” Cober says. “A fair system during the pandemic would be a pure mileage-based one, in which you use the vehicle and, at the end of the month or week, you report it. I think in the future, something like that will make the process much smoother.” How long will this last? It’s hard to peg how long the trucking industry will be in a hard market. Before the pandemic, brokers estimated anywhere from one to ﬁve years. Could COVID-19 drag things out even longer? “I don’t know if it will extend the hard market — it’s tough to predict that,” Palmer says. “There is still a lot of uncertainty, that’s for sure.” In the meantime, brokers are encour-

aged to gain a total understanding of their clients’ businesses. For example, brokers could ask about their trucking clients’ contingency plans, as Magi recommends. Can their clients dispatch virtually? How many trucks can be parked while maintaining a positive cashﬂow? Can trucking companies serve their core customers and still move goods effectively? What are their future plans? Are they considering diversifying their business? Underwriters will need to know all of this, Magi says, as well as the places where the client intends to travel. Clients should also be aware of the latest advances in technology, she says. That includes the use of dashcams to validate claims or ﬂeet management telematic systems to analyze driver behaviour — and correct that behaviour, where necessary. “Brokers are going to have to understand that those are the big areas where they’re going to have to educate themselves,” Magi says.

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HIGHLIGHTS

BROKERAGE OPERATIONS

How to survive a pandemic A broker principal shares his story about how his ﬂedgling brokerage managed to navigate its way through the various business disruptions caused by COVID-19 B Y R O B V O S S E L E R , Executive Vice President, Principal Broker, Union Power Insurance Brokers Inc.

ur brokerage is six years old, which is still relatively new. As insurance brokerage principals would appreciate, significant challenges exist when starting an insurance brokerage from scratch. Insurers are leery of newcomers, costs exceed income, and recruiting quality staff is a huge feat. We were just getting over that start-up hump when we were hit with the pandemic; COVID-19 was like a punch to the gut. The safety of our staff and customers was Priority 1. The thought of exposing them and their families to COVID-19 created significant stress. Despite being identified as an essential service, we shut

our physical location down immediately. Thankfully, we had the foresight to purchase laptops for all team members in the days leading up to Ontario’s complete shutdown. Also, we had upgraded to cloud-based servers accessed via VPN, so our network was ready to switch from physical to virtual operations. We were ready for this. Or so we thought. As soon as the province-wide shutdown was announced, our phones went silent, our website stopped humming. Customers were much too pre-occupied with more important concerns; shop-

ping around for insurance was on nobody’s priority list. Six years of very hard work developing our business looked to be at signiﬁcant risk. We sat down with our leadership team and broke down the emerging situation into manageable pieces. We had the technology in place, but we identiﬁed other challenges. For example, what about proper broker supervision while working remotely, which is a regulatory requirement? We have some experienced brokers and some that are still acquiring the required skillset. Adjusting the way we supervised li-

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HANDBOOK

We aspire to be the trusted advisor. With all of the choice and multiple messages out in the consumer world, people don’t know where to look or whom to trust. This pandemic forced us to zero in on our target clients. cenced individuals required a new way of thinking. Remote coaching, Zoom, and Microsoft Teams became the new tools for education and oversight. Internal file maintenance and underwriting audits became especially important. We learned a lot about how some people have challenges working from home and others thrive working remotely. Indeed, as the pandemic continued, we identified some team members who out-performed the majority in significant ways. This came as a surprise to us, to be honest. Understanding one’s propensity to work effectively from home will now be incorporated into our hiring practices. What was once considered an employer perk will now become a highly desirable employee attribute. These people were focused instead of stressed out by long commutes and maintaining family obligations. We can now recruit from anywhere in Ontario. We can hire, supervise, and reward insurance professionals who live outside of our own backyard. We learned many lessons, including how work/life balance is key to a high-performing workforce. Next came the challenge of making the phones ring again. Some believed advertising for new business during a pandemic was not a proper way to conduct ourselves, citing the potential for brand damage. We found the exact opposite to be true.

The situation was new to everyone. Both new customers and existing clients wanted and needed advice. This required a shift in messaging. Our new message was simple: During these tough times people want advice. After we shifted from a price proposition to a service-first and advice-first offer, our phones lit up. It helped that the media were saying drivers should pay less for auto insurance while sheltering at home, so our messaging resonated. Yes, sales went down and our staff were consumed by advice-based conversations, which rarely lead to a sale. Nevertheless, we think we demonstrated the value of an independent broker’s advice and created a huge amount of goodwill, which will pay off in the long term. We aspire to be the trusted advisor. With all of the choice and multiple messages out in the consumer world, people don’t know where to look or whom to trust. This pandemic forced us to zero in on our target clients. We offered them information that was timely and relevant and embraced our role as independent insurance brokers. Despite it all, we didn’t lay off a single person. Staff disruption was minimal and team morale was high. We encouraged our staff to use some downtime to take online courses or book a “staycation” in order to de-stress. Today, production is trending back to pre-pandemic levels. We have slowly shifted back to physical operations. Thankfully, our leased space is large enough to allow for physical distancing. Hand sanitizer and wipes are strategically placed throughout the office. Arrows on the floor ensure proper distancing when moving about. We are not out of the woods yet. Now is not the time to let down our guard. However, I truly believe our business is stronger because our team is stronger. And a stronger team will lead to a healthy workplace, engaged clients, and stronger long-term financial results.

Appointment Michael Storey, BA, FCIP Assistant Vice President, Underwriting HSB Canada is pleased to announce the appointment of Michael Storey to the position of Assistant Vice President, Underwriting. In addition to providing leadership for equipment breakdown, cyber and specialty coverage underwriting, Michael will assume responsibility for developing new IoT insurance solutions. Michael joined HSB Canada in 2001 as an Account Executive, Special Risks, and was subsequently promoted to Manager and then to Director, Underwriting in 2017. He has been active with Canadian Boiler and Machinery Underwriters’ Association, Annual Engineering Insurance Conference and Insurance Bureau of Canada. Michael holds a Bachelor of Arts (Economics) degree from the University of Western Ontario and is a Fellow Chartered Insurance Professional.

Rob Vosseler is executive vice president and principal broker for Union Power Insurance Brokers Inc., in Hamilton, Ont.

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HANDBOOK

DATA STANDARDS

Elevate your commercial business Top 5 reasons why commercial lines real-time quoting should be a priority B Y C A T H E R I N E S M O L A , P R E S I D E N T, C E O , Centre for Study of Insurance Operations

ompetitive pressures in commercial insurance are expected to increase in the coming years. The reasons for this may vary, including market volatility, economic growth, or the ongoing hard market conditions, but insurers will eventually be forced to evolve through digital transformation. Despite commercial lines (CL) being more complex than personal lines, data standard adoption will bring tremendous value industry-wide. Through the implementation of CSIO’s Data Standards, insurers can offer customers the beneﬁts of real-time quoting and automation. Data standards for commercial lines have been around for a long time, but the beneﬁts have not been fully realized due to barriers such as software incompatibilities and legacy systems that can’t

and obtain insurance much faster. Under this scenario, CL quoting would follow the same process as personal lines, providing a consistent experience for the customer; they’ll know exactly what to expect. Research from the Conference Board of Canada found that 85% of brokers expect CL data standards to lead to faster turnaround times for customer quotes and renewals. Brokers would then devote more time to client retention, which Improve the customer experience A top priority for insurers is to ensure is essential to secure business portfolios. the customer journey is a frictionless, end-to-end experience. A key success Grow business portfolio factor is real-time quoting ability, allow- According to McKinsey, the small coming broker partners to support custom- mercial insurance market accounts for ers in the way they expect. Quotes would one-third of the commercial lines martake only a matter of seconds, allowing ket; it is the fastest-growing segment customers to make informed decisions of the commercial P&C marketplace. properly support them. Standards are fundamental to compatibility, helping partners to connect using the same “language.” This allows systems to talk to one another more efficiently and accurately by exchanging data in a structured format along the insurance value-chain. Insurers consistently list ﬁve reasons why they choose to move towards CL real-time quoting.

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DEAL TRACKER

HANDBOOK In fact, Stats Canada reports that 98% of Canadian businesses are small businesses, making it an attractive opportunity for insurers to gain market share. The small business segment, generally comprised of profitable businesses with lower loss ratios, has been traditionally served through brokers. It demands a relatively high-touch and low-cost model to cater to small business clients’ needs. To find success in this space, insurers are leveraging CSIO standards and real-time functionality to streamline the process to win more business. Automate underwriting Typically a small business insurance application takes two or three days to process, although some policies take five days or more, according to Conference Board of Canada research. By implementing real-time quoting, insurers can automate this process and slash processing time down to seconds. The end result is a greater number of digitized commercial insurance transactions, leading to higher overall productivity. Not only will insurers realize efficiencies with savings in underwriting and general administrative costs, but real-time quoting provides a competitive advantage. It frees up time for underwriters to assess and evaluate complex risks, as well as improve underwriting results. Also, it creates more time to provide technical advice, recommendations, and mentoring. Enhance data quality The ability to make informed business decisions using data and analytics is paramount. Through standards and real-time quoting, more sophisticated data capture improves an insurer’s ability to acquire and select risk, as well as to underwrite and price policies. To capture value from a large pool of data, standards and structures are required to interpret the data effectively. Real-time transactions force partners to send structured data, enhancing the quality of the information collected. Using this data, insurers can then better identify trends and segment markets; create better rating models to boost profitability; and provide new products that 54

better meet customer needs. Using the XML Data Standards, CSIO’s Commercial Lines Working Group established the minimum data set of 43 elements required to quote small commercial business, along with the additional questions for contractors, retail, and professional services risk. With a clearer understanding of their risks, insurers can gather more data while asking fewer questions, creating a positive customer experience. Build stronger partnerships Business partner relationships should be strategic alliances between entities with a common interest in working collaboratively and building long-term relationships. The Conference Board of Canada research shows that 91% of brokers are more likely to work with insurers that have implemented data standards. Leveraging the standards to build real-time capabilities means shorter development time for both insurers and vendors, reducing system maintenance costs in the future. Real-time functionality strengthens the relationships and makes possible new integrations, which vendors can then offer to broker clients. Ultimately, insurers that focus on fostering these positive relationships with brokers will increase trust, transparency, and drive strong business success. Commercial lines are at a tipping point. Customer expectations, new competitors and a changing set of challenges are transforming the insurance industry. To win new business, both insurers and brokers must ﬁnd ways to become more efficient in their operations. With standards, and ultimately real-time quoting functionality, commercial insurance providers have the opportunity to become more customer-centric, lower costs, and achieve growth.

Catherine Smola is president and CEO of the Centre for Study of Insurance Operations (CSIO). Email standards@csio.com with any questions about CSIO’s Commercial Line Data Standards. The CSIO XML Standard is licensed to CSIO by ACORD (As-

Latest acquisition news & activity One80 Intermediaries Strategic Underwriting Managers Inc. Managing general agent Strategic Underwriting Managers Inc. has been acquired by Boston-based One80 Intermediaries. SUM president Jeff Somerville will join the senior leadership team of the new parent firm, One80 president Matthew Power says. Established in 2011, SUM has offices in Toronto, Montreal, and Lachine, Que. One80 has offices in 20 U.S. cities, from which it places a variety of P&C coverages — including condos, apartments, vacant land, and builders’ risk, among others. With the SUM acquisition, One80 is going international. For its part, SUM places commercial general liability, directors and officers, environmental and cannabis, among others.

Brokerlink makes nine deals Intact Financial Corp.’s BrokerLink unit announced the closure of nine acquisitions this year, as of August. In Alberta, BrokerLink acquired HDF Insurance Services Ltd., Rocky Mountain Agencies Co. Ltd., and Topley and Sanders Investments Ltd., operating as Topley Sanders & Jepson General Insurance. In Ontario, Impact Insurance Brokers Inc., Cambridge Insurance Brokers Ltd., and CIB Financial Services Inc. all joined BrokerLink. In the Maritimes, Anderson Brown Company Insurance & Realty Limited (ABC Insurance) and Major Brothers Limited joined the BrokerLink team from Nova Scotia, while Assurance Manuel Ltee (Manuel Insurance) was acquired in New Brunswick.

Aon Willis Tower Watson Aon plc’s proposed offer to acquire Willis Towers Watson plc was approved in August by the shareholders of both global commercial brokerages. The deal, if approved by regulators, would result in the world’s largest commercial P&C brokerage. At the time of writing, the merger was still subject to approval from competition regulators in Canada and other jurisdictions, as well as the Irish High Court. Both Aon and Willis Towers Watson are domiciled in Ireland, with offices in Canada.

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recovery Supply Chain Cyber Risk p. 56 l Oil Storage Safety p. 60

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HIGHLIGHTS

MANAGING CYBER RISK

The growing need for cybersecurity in supply chain management Your suppliers are most at risk, and attacks will be costly B Y A L E X A N D R A W R I G H T, J A C K I E V E R G N E A N D K E N R AY N E R , Cyber Insurance Solutions Inc.

any companies and organizations are moving their practices online because of COVID-19 and the nationwide lockdown to prevent the spread of the novel coronavirus. In addition, more people are working from home and connecting with others through technology. More than half (56%) of employees are using their personal computers during the pandemic as a consequence of their company’s policy to work remotely, according to the Work-from-Home (WFH) Employee Cybersecurity Threat Index. Nearly 25% of employees working from home don’t know what security protocols are in place on their device; more than one-

in-four have frequent issues with spotty Wi-Fi, limiting antivirus efficacy. The increased use of the digital space for work brings supply chain issues into the foreground. Many individuals put their trust in supply chain companies, but those suppliers can be the most at risk. According to Symantec’s latest Internet Security Threat Report, attacks on supply chain increased by 78% in 2018. A variety of reasons account for the increase in cyberattacks; many of them start with “multiple points of contact” — i.e. many different organizations, or sources of information, coming together to conduct effective supply chain management.

With the increase of online interaction, and in an effort to mitigate cyberattacks, many companies are shoring up their online infrastructure, increasing the use of ﬁrewalls, and bolstering their digital security. But perceiving supply chain security primarily as an IT problem may result in overlooked exposures. Supply chains have many seamless connections between vendors, suppliers, and enterprises. Each communicate important information and provide an area of weakness for external attack. It’s important for companies to introduce new technologies to improve consumer interface and automate administration. But that comes with a risk: For

October/November 2020 | Canadian Underwriter

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SUPPLY CHAIN CYBER INSURANCE l RECOVERY

Many individuals put their trust in supply chain companies, but those suppliers can be the most at risk. According to Symantec’s latest Internet Security Threat Report, attacks on supply chain increased by 78% in 2018. cybercriminals, it’s a new way to breach security and steal important information. Supply chain cybersecurity must be looked at as a whole, because third-party contracts can be a way of entry into a supply chain system. Supply chain is only as strong as its digital weakest link; a breach in security can severely affect an organization. Supply chain cyberattacks are not just common, they are costly. In a survey conducted by independent or-

ganization Vanson Bourne, 66% of 1,300 surveyed IT professionals reported experiencing a software supply chain attack. Of those surveyed, 90% described signiﬁcant ﬁnancial costs, with the average being US$1.1 million. Attacks on supply chains are becoming more complex; each time it happens, some aspect of the supply chain, including people and vendors, must be be assessed for their own digital risk.

According to Symantec’s report, the reasons for the high increase in supply chain cyberattacks are two-fold: 1) infiltration through third-party suppliers; and 2) malicious malware is being integrated into larger software. Third-party suppliers Supply chains are highly vulnerable due to the fact that they are interconnected. This interconnectivity is essential to the business, but significantly increases the risk to a cyberattack. Hackers are not trying to penetrate firewalls so much as they are encrypting themselves in software used by one of the connected organizations. Cyberattacks can happen against smaller software companies that have weaker cybersecurity. Vendors, suppliers, or the supplier’s suppliers, may use this software, exposing the entire supply chain to an attack. Larger companies, including insurance companies, have fallen victim to the trap of not properly vetting

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RECOVERY l SUPPLY CHAIN CYBER INSURANCE nity is well aware that the easiest way into a large companyâ€™s security is through a smaller, weaker organization. As the demand for online resources and supply chain becomes even more critical, the need for a strong and resilient cyber infrastructure becomes even more important.

Supply chain is only as strong as its digital weakest link; a breach in security can severely affect an organization.

The global supply chain Many products have multiple parts that are manufactured globally. Companies that make, buy, sell, or trade the parts use outside software and hardware. Different parts are made by multiple companies, suppliers, contractors from across the globe, creating a scattered source of much-needed parts. Cyberattacks can be delivered through both the hardware and the software. A hacker can inďŹ ltrate softand securing entry by suppliers. Changing ware using a number of different methods. a supply chain management system takes It can be easily infected through software upďŹ nancial investment, time, and human redates, replacing legitimate ďŹ les with malware. If sources. If not implemented properly, the hackers are able to trick a user into sharing sign-in resultant wasted labour, service redundancy, information at the developer stage, they can build a and missed deadlines may be costly. stronger attack, entering malware into the software In 2018, Ticketmaster, a ticket sales and disbefore its even shipped to customers; this makes the maltribution company, announced that public informaware even harder to ďŹ nd once it reaches the consumer. tion had been hacked and consumer information stolen. The One vulnerable point is open-sourced information, often used target was payment information from customers. They were to develop software. Many open-source libraries and frameworks hacked through a third-party supplier. The hacker commu- provide a strong foundation for new technologies at a better price. They can be essential for creating innovative technology while improving efficiencies, building on existing software and elements to create a technology solution. The downside is that these sources can be compromised. Embedded with malware, they create a higher risk for use. Supply chain software and technology interfaces â€” such as customer relationship management and enterprise resource planning â€” are often outsourced to other organizations to reduce infrastructure costs and create interoperability. This ties into the ďŹ rst issue mentioned above: Adding a third-party adds additional risk. Outsourcing to other organizations can reduce costs, but it increases risk if those organizations donâ€™t have the correct cybersecurity processes in place. Hardware can be just as much at risk as software inďŹ ltrations. Counterfeiting, theft of intellectual property, and installing malicious parts can be a large FIRST GENER AL CRE ATES market for those who are looking to make a proďŹ t. Cyberattacks can go beyond software and into the hardware. PE ACE OF MIND BY Counterfeit parts are more common than most people think. LE ADING OUR CLIENTS The U.S. Department of Homeland Security released a report THROUGH RESTOR ATION stating that 34,143 counterfeit parts were seized in 2017, with 12% of the products being safety and security-related products. WITH EXPERTISE AND C ARE . Each purchased device and downloadable application needs to be vetted and examined for potential security risks to reduce the risk for malicious products to enter a supply chain.

Solutions. Performance. Integrity. Ć‚TUVIGPGTCN EC 58

Protecting supply chain Organizations should emphasize cyber resilience to maximize their business opportunities while mitigating cyber risk. When an organization has a breach in their cybersecurity, itâ€™s not only

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SUPPLY CHAIN CYBER INSURANCE l RECOVERY vulnerabilities. A secure supply chain is vital since individuals and organizations are moving their practices online, ordering more stock and sharing information. It’s costly to ignore the risk of cybersecurity. The strongest supply chain organizations have not only minimized their cyber risk, but they have promoted this fact to gain trust from their various stakeholders. An important contract term for insurers is “supplier obligation management.” Insurers must take appropriate steps to manage their supply chains by requiring is essential. Each employee must under- that each supplier describe, and guarstand their own risk and the best way to antee, the cyber health of their organimitigate cyberattacks, for their own safe- zation. In other words, suppliers must demonstrate their “percentage of cyber ty and that of an organization. Supply chain organizations and their preparedness” as a condition of becomthird-party suppliers must use best ing a supplier. practices, including a cyber risk assessment. To reduce risks of using opensource software, each component should Alexandra Wright and Jackie Vergne are consultants be assessed. A security analysis helps to and Ken Rayner is vice president with Cyber Insurance understand the risk of use and highlight Solutions Inc. and Cyberisk Chek Inc.

Supply chains are highly vulnerable due to the fact that they are interconnected. This interconnectivity is essential to the business but signiﬁcantly increases the risk to a cyberattack. costly to ﬁx, it erodes consumer trust. You can reduce vulnerabilities in supply chain digital security in many ways. One to ensure each software supplier and third-party vendor is secure. Suppliers must be screened; their security risk should be assessed before working with supply chain organizations. High standards must be developed and enforced for both third-party and for employees. Employee education and risk assessment

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iStock.com/Marc Dufresne

RECOVERY

SAFETY REGULATIONS

Gushing over oil storage How Canada’s P&C insurers plugged a regulatory hole that exposed the industry to millions of dollars in claims every year B Y M I C H A E L F R E I L L , President, Mark 1 Engineering

anada has seen many signiﬁcant improvements in oil heat storage systems over the past decade. Among the biggest is a new installation standard that promises to help reduce the number of costly oil spill claims for insurers. Ten years ago, the heating oil industry in Canada was increasingly dealing with the negative fallout of spill and leaks from heating oil storage systems. Homeowners were experiencing signiﬁcant damage to their homes due to oil leaks; insurers were paying millions of dollars in claims with no signs of improvement in area of safety regulations. For years, Insurance Bureau of Canada (IBC), an association representing Canada’s home, car and business insurers, appealed to provincial governments to step in and regulate the industry. The idea was to create safety standards for oil storage that would lead to a reduction in spills. Back in 2009, I pointed out in an article published in Canadian Underwriter that data from the province with the

toughest regulation, Prince Edward Island, was not showing any improvement compared to non-regulated provinces. Regulating an industry when you don’t understand what’s going wrong wasn’t leading to the desired result, which was fewer claims. And so, the tack changed: Key stakeholders committed to collecting failure data and determining what was going wrong. Then they would look to a national technical code committee to recommend solutions. IBC spearheaded a massive study in 2008 to determine the cause of oil leak claims for its members. Four years later, the insurers’ association presented its data to the Canadian Standards Association (CSA) B139 technical committee in Montreal. Comparing the IBC data with 10 years of PEI spill data, the results were essentially the same: 85% of the heating oil system failures and 91% of the overall claim costs were associated with tank systems installed outside the home. Only 15% of heating oil system

failures and 9% of claim costs were associated with tank systems installed inside the home. Armed with the IBC’s data, the PEI government, the Canadian Coast Guard, and the CSA B139 technical code committee worked to identify cost-effective solutions for addressing the common failures for storage systems located both inside and outside the home. For the 2015 CSA B139 code edition, the CSA committee came up with a number of code changes to address all of the key areas where deficiencies in the design and/or equipment had led to a failure. The new standard, CSA B139-15, significantly changed the requirements for oil storage installations both inside and outside the home. For tanks located outside, it called for more robust foundations, double-bottom steel tanks and/or fibreglass construction, and no more copper lines at the bottom. Copper lines need to be top draw or large steel/flexible stainless steel

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NEW STANDARDS l RECOVERY pipes can be used on bottom draws. As for inside installations, tanks must be placed in specially-designed containment trays, regardless of the tank type (this is for overfill and connection protection). Filters need containment protection and must be corrosion-resistant. Oil burners can be fitted with specially-designed containment devices where filters are typically installed. In addition, the entire inside oil tank system can be protected with secondary leak detection alarms, which act like smoke detectors should a leak occur. Given all of the enhancements to the installation standard — including vastly improved storage tanks, filters, lines, containment systems, and leak detection alarms — the oil storage system today is vastly different than it was even before 2015. The risk of a damage claim today from a tank system installed according to this new standard has been almost entirely eliminated.

Oil heat is still one of the most economical and practical sources of space heating in urban and rural areas where natural gas is not served. Propane is a great cooking fuel, but it’s very expensive to use for space heating. And it must be sourced almost entirely from rail cars — something that has proven to be a challenge based on the limited storage capacity and the problems moving petroleum by rail. Heating oil (diesel) on the other hand does not suffer from these challenges and plenty of storage capacity exists. A couple of important notes to insurance companies who underwrite this business: • Communicate to homeowners that the best location for their oil storage system, if at all possible, is inside the home. This takes Mother Nature and vandalism out of the risk equation. • It’s very important to communicate to the homeowner that the CSA B139-15 installation code is the minimum installa-

tion standard. Follow up and request pictures of the new installation to make sure it is installed correctly and to code. Some unscrupulous contractors may cut corners to get the business, while other bad actors may even ignore the codes completely. Make it clear to the homeowner to check the ﬁnal installation. The P&C industry has achieved its goal of having provincial governments regulate the installation of oil heat systems. The only thing left to do is for provincial governments to adopt and enforce the latest code standard. Data collection was the key to making this happen. IBC is reporting that claims are continuing to decline signiﬁcantly. As oil heat systems get replaced with the new standard, the incidents should pretty well disappear.

Michael Freill, is president of Mark 1 Engineering Ltd., in Dartmouth, N.S.

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peer to peer YOUNG TALENT

FINDING THAT SWAGGER Insurance is a cool industry, but not enough people know it. John McNeil, program coordinator and full-time professor at Humber College’s insurance management program, explains how to change that – As told to Adam Malik

We as an industry need to walk with a little bit of swagger. Insurance is an awesome industry to work in and this pandemic offers us a chance to enhance our position. The insurance industry was deemed to be an essential service during the pandemic. There were few, if any, jobs lost. The pandemic has been a dark time for a lot of people in other industries. A lot of people don’t have jobs to go back to or are going back in limited roles. My students, however, even during the darkest times of the pandemic, were getting one, two or even three offers at times. They were hired throughout the

whole year. I’m at a 75-80% placement ratio. The ones who didn’t get placed either went back to school, they’re international students, or they wanted to wait until the pandemic is over before they start looking for work. This is the industry’s chance to seize an opportunity to enhance our position. For those sitting at home, this is a great time to either get their broker’s licence or OTL (other than life) licence. Or they can jump into the industry and start their CIP or even go into risk management. Speaking of risk, the insurance industry is leading the way. If you walk into

a store, there’s a sticker on the ﬂoor directing traffic. Well, it was a risk manager co-ordinating that. Even the tracking and tracing, and the back to school discussions — it’s insurance professionals who are having these discussions. Having these types of discussions is essential. People only know insurance as a consumer. We need to highlight just how secure a job in the insurance industry is. We kind of accept that people fall into insurance. Once somebody’s given a chance to be immersed in the industry, they really like it.

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Aviva Lifestyle Insurance

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