Issuu

February/March 2021

YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

2021 M&A REPORT

BIG FISH GETS BIGGER WHAT AN INTACT-RSA MERGER WILL MEAN FOR CANADAâ€™S P&C INDUSTRY

CRYSTAL BALL Why tech tops the list of emerging issues facing P&C leaders

Greg Kruk

INTERVIEW

HOW BROKERS CAN PREPARE FOR THE END OF THE PANDEMIC

WHEN WILL THE HARD MARKET REALLY END?

THE FUTURE AND IMPACT OF DATA IN AUTO INSURANCE

ENTERTAINMENT ADJUSTERS: HELPING THE SHOW GO ON

Aviva Lifestyle Insurance

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CONTENTS Volume 89, No. 1 (February/March 2021) YOUR GUIDE TO INSURANCE SUCCESS. SINCE 1934

CANADIANUNDERWRITER.CA

F EAT U R E S

Merger Mania Canada’s largest P&C insurer, Intact, is closing in on a deal to buy the parent company of RSA Canada, the country’s seventhlargest insurer. How the deal might re-shape Canada’s P&C industry

EMERGING ISSUES When P&C industry professionals gaze into the crystal ball seeking insight into tomorrow’s emerging trends, they see technology staring back at them. Our take on what it means for the industry in 2021

Greg Kruk, President, Sentinel Risk Insurance Group

canadianunderwriter.ca | February/March 2021

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11 36

FROM THE EDITOR

20 Greg Kruk

Blowback

PERSPECTIVES 9 Readers respond to recent stories on snow removal capacity, open banking, adding talent and more…

DECLARATIONS 11 Hard Market Just how much longer until the hard market softens and capacity returns? Hint: It’ll be a while...

INTERVIEW

Greg Kruk, president at Sentinel Risk Insurance Group and first vice president of IBAO, shares his thoughts on future challenges for brokers

HANDBOOK 32 Mobility, Part 1 P&C data collection is aligning with usage-based insurance and telematics. How mobility data will change insurance

36 IP and M&A

IN EVERY ISSUE

Intellectual property claims may not be fully covered by R&W policies. Why a standalone product may be best

12 SURVEY SAYS 16 NEW OFFERS 17 BIG MOVES

COMMERCIAL SPOTLIGHT

17 SUMMARY

38 Cyber

33 DEAL TRACKER

Brokers are about to see more personal lines cyber policies introduced into the product mix

RECOVERY 15 Alberta Auto

34 Curtains up

Recent legislative changes have attempted to reduce auto claims costs in Alberta, but will they be enough?

Adjusting for pandemic-related losses in the entertainment sector is like adjusting a Cat loss — a lot of claims over a short time

canadianunderwriter.ca | February/March 2021

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FROM THE EDITOR MANAGING DIRECTOR

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Blowback

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How political interference could hurt the very consumers that politicians and regulators wish to protect

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hen Canada’s economy isn’t rocking, expect politicians and regulators to come a-knocking. If we learned anything in the last quarter of 2020, it’s that the P&C insurance industry will have political and regulatory interference high among its growing list of emerging issues this year. In Ontario, for example, the premier took P&C insurance companies to task in October for withdrawing capacity from unproﬁtable business classes. Canadian insurance regulators also stepped in to micromanage the insurance sector late last year. In particular, market conduct regulators in British Columbia and Alberta each banned the use of “Best Terms Pricing” in the troubled area of condo insurance. Best terms pricing is a tool used to build subscription policies, in which multiple insurers cover a single commercial risk (such as a condo corporation). Sharing risk is one way for brokers to get insurers to provide capacity, and best terms pricing ensures that the lead insurer responsible for administering all the claims is compensated fairly. Alas, with best terms pricing now banned, insurers could very well refuse to be lead insurers in subscription policies, which are designed to provide capacity and consumer choice to a troubled condo market. Without subscription policies as an option, the corporate client’s condo insurance premiums just got higher – if brokers can ﬁnd any carrier willing to insure the risk at all. We’re witnessing a perfect storm. Canadian businesses are suffering because of the closures related to the pandemic; at the same time, insurers are pinched for capital in some business classes because of the pandemic-related economic collapse. When consumers want and need premium discounts at a time when the industry simply cannot afford to slash rates, that’s a potentially explosive situation for the industry. The situation calls for brokers and insurance professionals to step up their game in public education and awareness. Consumers, politicians, and regulators all need to know what’s happening in the P&C industry right now, and why. More importantly, they need to know how political interference and regulatory micromanagement could close doors to more consumer choice and less expensive insurance options, rather than opening them.

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Will Ontario’s new law result in a flurry of snow removal capacity?

What insurers want brokers to stop doing

December 9

November 30

The story: Ontario’s brokers hope a recent change to the law, allowing injured claimants less time to notify defendants of a lawsuit, will encourage more insurers to cover snow removal contractors.

The story: An insurance executive warns that brokers who take a broad, scattershot approach to getting submissions approved by underwriters are setting themselves and their clients up for failure and disappointment.

Wayne Battaglio says: I have been in the snow-clearing business for 45 years. In the last two decades, liability insurance has been a must. Property owners don’t want to pay increased snow-clearing rates (because of insurance increases), but they want operators to insure their property. Why is a property insured by the contractor and owner for liability? The property owner should always be first payer, not the contractor.

Scott Goodison says: Hopefully two things will happen: 1) the price will come down for snow removal operations, and 2) more insurance companies will want to write these operations. The wild card is that in two to three years’ time, the ambulance chasers will learn how to work around the legislation. This will increase the lawsuits and payouts once again. Three things are certain in life: Death, taxes, and creative ambulance chasers.

Markus says: While it is nice to have some recognition of a problem, closing the window of “opportunity” for erroneous lawsuits does little for the contractor paying exorbitant insurance rates. The problem lies in insurance companies taking the easy way out and settling lawsuits rather than taking the risk of fighting them. Any action taken now is already too late for many great contractors in this business. Keeping good records has been a norm for sometime now. It won’t matter whether the lawsuit is filed 60 days or three years after an incident. Judgements need to be lowered, lawyers need to start arguing to defend rather than settle, and plaintiffs need to foot their own legal costs.

The ‘strange and new opportunity’ for insurance from open banking January 4 The story: Technology firms could potentially gain access to consumers’ insurance data if Canada proceeds with so-called “consumer-directed finance,” a Microsoft Canada expert told brokers during a recent webinar.

Filip Ambroziak says: The good news is that these new applications may completely wipe out all future E&O claims against brokers, agents and companies, since the expertise now falls on the client. I believe the main issue with direct distribution channels is not the actual application/portal. That’s very easy to do. The issue is controlling what the public inputs into the applications, making sure the client knows exactly what he/she is purchasing, and ensuring the inputs are 100% honest and truthful. That will be a little bit tougher to create without completely breaching someone’s privacy. Perhaps connecting your insurance through your social media account may resolve that? I’m not sure how many would go for it.

Mashood (Max) Ali says: Incomplete applications, vague claim details are also areas that cause declines or delays in obtaining terms from insurers.

The best way for brokers to add talent December 1 The story: The top way for brokerages to find talent is through internal referrals made by successful employees, webinar panellists said at the IBAO Convention.

Ghislain Levesque says: And I’d say it’s just about the same for clients referring clients. Stop marketing to the mass. Market through your actual base.

How Economical could demutualize in 2021 December 22 The story: With required approvals and capital market conditions in place, Economical Insurance could demutualize and complete its planned IPO in the fall of 2021, Economical’s board chair says.

ST says:

Ted Watson says:

When a person, agent, or broker is involved in a paper application, how do you ensure that a user has input the info correctly? Whatever is done in the manual arena can be automated.

I’ve been hearing this for 15 years…smh [shaking my head]

Photos: ©iStock.com

canadianunderwriter.ca | February/March 2021

EVENTS COVERAGE

Future of Insurance Canada VIRTUAL CONFERENCE Conference Summary: The Future of Insurance Canada virtual conference, hosted in November by Reuters Events, featured two days of keynote presentations and panel discussions featuring some of the industry’s top property and casualty insurance leaders. Sessions explored the future of the industry, the importance of science and data, the industry’s role in society, digital transformation, analysis of client satisfaction, and more.

Keynotes and Key Speakers: Louis Gagnon, President of Canadian Operations, Intact Saad Mered, CEO, Zurich Canada Jason Storah, CEO, Aviva Canada Rowan Saunders, CEO, Economical Insurance Rob Wesseling, CEO, The Co-operators

Photos: ©iStock.com/Thinkhubstudio

ON THE SCENE

declarations Working From Home p.12 l Alberta Auto p.15 l New Offers p.16

iStock.com

HIGHLIGHTS

HARD MARKET CYCLE

A turn for the better When can brokers and their clients expect to see lower premiums and more capacity to return to the Canadian P&C market?

on’t look for the hard market in Canada’s P&C insurance industry to end in 2021, even with the end of the pandemic in sight, according to industry analysts. That means consumers will likely see higher insurance premiums and deductibles, as well as reduced capacity for insurance coverage, lasting well beyond the projected September 2021 COVID vaccine date publicized by Canada’s federal government. In fact, the earliest brokers can hope to see a soft market cycle return would

WILD WEST WEATHER | JAN 13

Heavy rain, snow, and winds gusting up to more than 100 km/h swept through B.C., downing trees and power lines, and leaving more than 100,000 customers without power in Abbotsford, Victoria and Vernon.

Photos: iStock.com

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

be in September of 2022 or 2023, a January Canadian Underwriter webinar poll of more than 800 P&C professional attendees suggests. Extremely low interest rates, social inflation (i.e. higher legal costs associated with claims), the pandemic-induced economic recession, increased reinsurance renewal rates, and uncertainty around COVID-related claims are all factors influencing the timing of a market cycle turn. “First, we are dealing with an underlying social inflationary period that is putting pressure on prior-year reserves,

and adds uncertainty to outlook,” Albert Benchimol, CEO of Axis Capital Holdings Limited, said during a recent earnings call. “Second, interest rates are about as low as they have ever been, creating substantial headwinds for investment income. And third, it is our expectation that the effects of COVID-19 and its economic repercussions will be felt over a number of years.” Back in August 2020, Charles Brindamour, CEO of Intact Financial Corporation, predicted it would take at least 18 to 24 more months of rate increases before the industry would see a market turn.

SOCIAL MEDIA INFLUENCERS | JAN 12

If the feds proceed with giving fintechs increased access to consumer financial transaction data as part of an “open banking” initiative, tech giants like Amazon and Facebook could get into the insurance business, says Steve Masnyk of CAMGA.

canadianunderwriter.ca | February/March 2021

DECLARATIONS That would take the hard market into between February and August 2022. In a virtual ﬁreside chat with UBS analyst Brian Meredith, Brindmour noted that the P&C industry’s return on equity, a measure of proﬁtability, hovered at around 5.5%. Historically, the industry ROE performance is around 9% to 10%. Given the low industry ROE, low interest rates, COVID-related pressure on the economy, and a hardened reinsurance market, “our perspective is that you’ve still got 18-24 months of momentum in the market,” Brindamour said. Prem Watsa, chairman and CEO of Fairfax Financial Holdings Limited, predicted last August that “the hard market is not going to last long.” In an earnings call, he said the concurrent hard market and pandemic events reminded him of the hard market cycle around the time of Sept. 11, 2001, when hijacked commercial planes crashed into the World Trade Center. “You had price increases in 2000, Sept. 11 [2001] came into play, and then prices really took off in 2002 and ‘03 and ’04,” Watsa said. The pandemic is a wildcard in guessing when the current market cycle will end, industry analysts say. “As some of you know, I’ve been hesitant up until last year to acknowledge that we actually were in a hard market,” Philip Cook, chairman of Omega Insurance Holdings Inc., said Jan. 14 at the Insurance Institute’s webinar, Industry Trends & Predictions: 2021. “I was calling it a difficult market because I didn’t think it would last very long. There’s no question that that now has been extended by COVID. However, it’s not really related to COVID. "I think…that because of COVID, we may not be able to demand now the magnitude of premium increases that we need to get back to sustainable profitability levels, simply because the consumer doesn’t have the funds to do it. So, in that regard, COVID may continue or

ONLINE BUYERS | JAN 12 Only 1.3% of Canadian P&C insurance policies were sold online in 2019, but American studies suggest a much higher (50%) adoption rate, leading TD Insurance executive Ray Chun to predict half of his customers will buy online in the next five years. 12

February/March 2021 | Canadian Underwriter

wSURVEY SAYS…

Working from home Since March 2020, the Canadian P&C industry has been working from home to prevent the spread of COVID-19. Although vaccines are starting to arrive in Canada, it might not be until September before people start returning to the office. We heard from more than 1,150 of our readers about how they feel about working from home and returning to the office. Here's what they told us... What is your current level of satisfaction with working from home?

Would you like your employer to offer more time to work from home after the pandemic is over?

41%

How do you feel about returning to the ofﬁce, assuming it is safe to do so?

14%

Very Satisfied

Very Enthusiastic

26%

81%

Enthusiastic

Yes

31%

30%

Satisfied

Neutral

15% 9%

Dissatisfied

19%

Neutral

19%

Not Enthusiastic

11%

Not at all Enthusiastic

Very Dissatisfied

Safe return to the office Do you plan on getting vaccinated before you return to the ofﬁce?

47%

53%

Yes

72%

28%

Yes

Are you comfortable working with people who choose not to be vaccinated?

Should vaccination be a requirement before returning to work?

extend the hard market.” In certain business classes, COVID has “accelerated” price increases that pre-dated the pandemic, Garth Pepper, president of Liberty Mutual Canada, said in a recent interview with Canadian Underwriter. “If COVID-19 goes away because of the vaccines, would that affect the hard market? Yeah, I think it would alter it to a degree,” Pepper said.

55%

45%

Yes

A lot of uncertainty exists about how COVID-related losses might affect the duration of the hard market, Pepper said. “If [the losses] turn out to be material, then certainly that could prolong the hardening in the market. If the losses associated with COVID-19 in certain segments do not turn out to be as material as some might think, then you have to think that wouldn’t [affect] the hard market as much. It will be interesting to see.”

PREVENTING FALLS | JAN 11 Broker clients can better protect themselves from slip-and-fall claims by installing video systems, watching for obstructions on the property, and asking claimants for all names they have used in the past, says a U.S. crime bureau. Photos: iStock.com

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EVENTS COVERAGE

Captiviating Business WEBINAR Webinar Summary: Hard market conditions in several commercial insurance lines in Canada has resulted in shrinking capacity, which in turn has created a favourable environment for self-insuring through captives. In November, Canadian Underwriter hosted a webinar to discuss the trends favouring captives, the benefits of transferring risk through captives, and some common factors in the successful creation of captive insurers.

Moderated by: David Gambrill, Editor-in-Chief, Canadian Underwriter Panellists: Alonso Tello, Vice President, Captives and Alternative Risk, AXA XL Canada Patrick Ferguson, Captive Sales Executive, Senior Vice President, Marsh Captives Solutions Group Braedy Walker, Assistant Vice President, Captives and Analytics, Hub International Canada

If you missed it, view it on demand at canadianunderwriter.ca/webinars

Photos: ÂŠiStock.com/anilakkus

ON THE SCENE

iStock.com/monkeybusinessimages

DECLARATIONS

ALBERTA AUTO

What changes mean for Alberta’s auto challenges Despite new bill, there’s still much work to be done, experts say

oth the Insurance Brokers Association of Alberta (IBAA) and the Insurance Bureau of Canada (IBC) believe that recent changes to auto insurance regulations in Alberta will reduce costs in the system. But more needs to be done around auto reform, they say. Bill 41, the Insurance (Enhancing Driver Affordability and Care) Amendment Act, received royal assent Dec. 9. Among other changes, the bill and related Orders in Council expand the number of injuries that fall under the Minor Injury Regulation and limit the number of expert witnesses that can be used in motor vehicle accident injury claims. “The bill really tackles the ‘low-hang-

RESTRICTING PAYOUTS | JAN 11 Canada’s solvency regulator announced it won’t consider allowing banks and insurers to hike dividends, offer share buybacks, or increase executive compensation until COVID-19 lockdowns have subsided and there is more economic certainty.

Photos: iStock.com

B Y J A S O N C O N T A N T, Online Editor

ing fruit’ which needed to be done,” said IBAA CEO George Hodgson. “However, much more fundamental reform is needed to take costs out of the system.” The association’s white paper on auto reform released in March 2020 recommended a hybrid no-fault system. IBAA suggested broadening the auto insurance product to offer Alberta consumers the option of choosing either an unlimited or limited right to sue (with certain parameters) in exchange for premium ﬂexibility. An auto insurance advisory committee had recommended in September 2020 that the province move to a pure no-fault system delivered by private insurers, a change IBC said would not be in the best

interest of drivers. “The changes the government made were actually just updates to the current system, which is more just a hybrid between tort and a no-fault system,” Celyeste Power, vice president of IBC’s Western region, said just after Bill 41 passed second reading in November. “Under Bill 41, [consumers] still have the right to sue,” Hodgson added. “It is not pure no-fault.” Rather, the bill introduced a “direct compensation for property damage” framework into the system. This ﬁrst-payer system for physical vehicle damage is in every other private auto insurance jurisdiction in the country, Power said. “Customers won’t notice any changes

INCENTIVIZING INCENTIVES | JAN 8

Ontario’s insurance regulator is looking for public feedback on its proposal to relax the rules prohibiting unfair or deceptive acts, allowing insurers to offer rebates and incentives to consumers under certain circumstances. canadianunderwriter.ca | February/March 2021

NEW OFFERS other than if they are in an accident, instead of having to sue or go through the other driver’s insurer to pay for the damage to their car, they can now get that through their insurer,” she explained. “It really just moves the claims process for the customer.” The changes to the Minor Injury Regulation and limiting the number of expert witnesses in auto claims should “reduce claims costs and stabilize premiums in the system,” Power said. The definition of a ‘certified examiner’ now includes dentists, and the definition for a minor injury now includes a sprain, strain or whiplash-associated disorder injury caused by the accident that does not result in serious impairment, whether physical or psychological in nature. Under the previous definition, “what was happening for a while in the auto insurance system in Alberta is that claims costs related to pain and suffering around injuries that are considered minor in most other jurisdictions…were not being considered minor in Alberta,” Power said. “That was leading to more and more settlements outside of the minor injury cap, leading to higher claims costs.” The bill also adds dentists, occupational therapists and psychologists to the diagnostic treatment protocol. “So, where they refined the minor injury definition, which will reduce claims costs, they did expand the treatment and care to make sure that people could get better, which comes at a cost itself,” Power said. She and Hodgson agree that the bill is an improvement from the 5% rate cap that was in place before in Alberta. “The 5% cap did nothing to reduce costs and created a situation where insurers tried various ways to make their products less attractive…and as a result, made getting insurance more difficult,” Hodgson said. “The items in Bill 41 at least have the potential to reduce costs, thereby easing the pressure on premium increases.”

TESTING CLIMATE RISK | JAN 7 The Office of the Superintendent of Financial Institutions (OSFI) will launch a pilot project in 2021 to test the impact of various climate-related risks on financial institutions’ bottom lines, including risks connected to a transition to a low-greenhouse gas economy. 16

February/March 2021 | Canadian Underwriter

BROKER CONTINUING EDUCATION PLATFORM Vendor: Wawanesa Mutual Insurance Company Target Audience: Brokers What it Does: Helps Wawanesa broker partners and their team members meet the expectations of the Canadian Council of Insurance Regulators (CCIR) when distributing insurance products

Wawanesa Mutual Insurance Company has introduced a new digital educational platform to help their broker partners sell and service Wawanesa’s products and services. Launched on Jan. 7, the new platform, in the words of the insurer, will be available to “all Wawanesa broker partners and their team members, and assist everyone in meeting the expectations of the [CCIR] in the distribution of insurance to Canadians.” The Broker Continuing Education platform represents the next generation of Wawanesa’s broker training with access to training on-demand, including instant self-serve access to multiple courses, ongoing new additions, and the flexibility of logging in from a computer or a mobile device. “With our previous broker training program, Wawanesa delivered nearly 350 training sessions to over 20,000 brokers,” said Graham Haigh, the insurer’s vice president of broker distribution. “With our new program, we are building on our commitment to brokers and empowering them with better digital training tools to provide excellent service to our mutual policyholders.”

ENHANCED WORKING FROM HOME COVERAGE Vendor: Intact Financial Corporation Target Audience: Intact customers What it Does: Provides customers working from home increased liability and home coverage, optional identity theft coverage and other benefits

Intact Financial Corporation is offering enhanced protection to give customers working from home increased liability and home coverage, the option to add identity theft coverage and cyber protection at a discount, as well as free access to mental health and well-being programs for a limited time. The enhanced protection provides customers with increased liability and home coverage for people working from home. Through my Identity, existing and new customers can also add identity theft coverage and cyber protection to their home policy at a discount. Plus, for a limited time, customers can enjoy free access to online mental health and well-being programs through LifeSpeak. Based on changing driving habits and patterns, Intact is also offering my Drive customers personalized feedback and tips to improve their safe driving and the opportunity to earn up to 25% off their auto insurance premiums.

SURETY BONDS PRODUCT Vendor: Apollo Insurance Solutions Ltd. Target Audience: Brokers and their clients What it Does: Allows brokers to bind a variety of bonds for contractors and businesses with amounts available from $10,000 to $100,000

Brokers and their clients can now purchase a surety bonds product through the Apollo Exchange, an insurance technology platform that enables brokers to transact insurance online in real time. Brokers are able to bind a variety of bonds for contractors and businesses with amounts available from $10,000 to $100,000. Available terms include one, two, and three years. The product is available in British Columbia, Alberta, Saskatchewan, Prince Edward Island, and Yukon. Brokers receive 25% commission on this product. The entire process, including quoting, binding coverage, and issuing policy documents, is immediate and digital. The bond will be sent to the principal by mail within 48 hours of purchase.

COST OF CATS | JAN 5

Insured losses from natural catastrophes in Canada totalled nearly $2.5 billion last year, CatIQ reported. Between 2009 and 2019, national severe weather losses across the country averaged about $1.9 billion annually.

Photos: iStock.com

DECLARATIONS BIG MOVES

SUMMARY

AXA XL gets new country manager Global commercial insurer AXA XL taps Renato Rodrigues from Brazil to lead the commercial insurer's Canadian branch.

WHO: Renato Rodrigues CURRENT ROLE: Country manager for Canada, AXA XL P&C EXPERIENCE: 20+ years PROFILE: Seven years as country manager for AXA XL Brazil. Regional leader for insurance in Latin America, AXA XL. Previously worked for Chubb and Liberty International.

Renato Rodrigues is AXA XL’s new country manager for Canada. Rodrigues previously led AXA XL’s Latin American insurance business. At press time, he was planning to move to Toronto from Sao Paulo, Brazil, once the COVID-19 restrictions enable him and his family to relocate. At AXA XL’s Canadian operation, Rodrigues succeeds Glen Hopkinson, who was appointed interim Canadian country manager in October 2020. Hopkinson had temporarily replaced Urs Uhlmann, who had been country manager since 2018. Before joining AXA XL, Uhlmann had been CEO of Zurich Canada. For his part, Rodrigues served seven years as country manager for AXA XL Brazil. Most recently, he has been AXA XL's regional leader for insurance in Latin America. In his new role overseeing the insurer’s Canadian operation, Rodrigues reports to Joe Tocco, AXA XL’s CEO of the Americas. Rodrigues has “extensive experience leading international commercial insurance across the Americas,” says Tocco. “He is a fantastic team leader and brings a wealth of knowledge in commercial P&C insurance and overall business strategy, which will support our growth objectives in Canada.” AXA XL was known as XL Catlin until Paris-based AXA acquired Bermuda-based XL Group PLC in 2018. XL had acquired Catlin Group in 2015. Apollo Insurance Solutions Ltd. has hired Marco Andolfatto as its new chief underwriting officer. Andolfatto was most recently senior vice president and chief strategy officer at Totten Insurance Group, a Canadian MGA owned by Hub International.

Charles Taylor Adjusting has promoted Michael Guy to be its managing director and regional head of Canada. Guy was previously Charles Taylor Adjusting’s vice president and branch manager. Guy has been a claims adjuster since 1996.

REMOTE MANAGEMENT | JAN 5 Managers of a remote workforce will no longer be overseers in an office culture, Vala Afshar wrote in ZDNet. They will be more like orchestra conductors, bringing individual remote workers’ talents and skills together to deliver solutions to consumers. Photos: iStock.com

Adam Romano has been appointed head of the Allianz Global Corporate Specialty (AGCS) Canada liability team. Romano will be based in Toronto and reports to Dieter Hautzer, North America regional head of liability. Romano has worked for AGCS since 2016.

EMERGING RISKS

Risk of insolvencies, more D&O claims ALLIANZ GLOBAL CORPORATE & SPECIALTY The global COVID-19 pandemic, which fuelled the biggest economic downturn in a century, will leave the economic outlook volatile, thus increasing the likelihood of insolvencies and directors and officers (D&O) claims. That warning is contained in a new report from Allianz Global Corporate & Specialty (AGCS), entitled Directors and Officers Insurance Insights 2021. The report highlights five trends that will leave the D&O market on its heels; the volatile economy (and related insolvency exposure) ranks as the top risk. The report cites Cornerstone Research, which points to six “mega” bankruptcy filings involving businesses with at least US$1 billion in reported assets during 2020 Q1. That number spiked to 31 in the second quarter, with another 15 in the third, for a total of 52. The quarterly average from 2005-19 was just five. Credit insurance company Euler Hermes said the worst is yet to come, particularly in the first half of 2021, per the AGCS report. Could a COVID-19 vaccine reverse some of these fears? “We expect markets to remain fragile in view of the recent extreme bullish reaction to positive COVID-19 vaccine news,” David Van den Berghe, global head of financial institutions at AGCS, said in the report. “Further, the tech war between the U.S. and China, and the end of the Brexit transition period, will remain top of mind as well, and adds to an overall high level of economic uncertainty.” Other threats highlighted in the AGCS report include: increased securities class action activity; cybersecurity threats; diversity; climate change; environmental, social and governance (ESG) factors (generally due to inaction on such issues); and specific challenges for private companies, such as employee-related and breach of fiduciary duties lawsuits. ts.

RETAINING CLIENTS | JAN 5

The insurance industry has spent too much time and effort searching for new business at the expense of client retention, which is a far more affordable strategy, said Christian Bieck, insurance global research leader at the IBM Institute for Business Value. canadianunderwriter.ca | February/March 2021

HOW THE PANDEMIC HAS IMPACTED AN ALREADY CHANGING INDUSTRY

With its lockdowns and limitations, the COVID-19 pandemic has increased demand for convenience in how goods and services are sold and delivered — including insurance. Tom Reikman, SVP and Chief Distribution Officer at Economical Insurance, says that for brokers and insurers, the ongoing trend toward enhanced service delivery and digital transformation has just accelerated. “The P&C industry has lagged behind other service sectors in offering that seamless experience,” he notes. “But now, customers expect conveniences like immediate quotes and having 24-hour access to their personal accounts and information.” Many brokers are adapting, including not only where and how they work, but with whom. Reikman points out that, all else being equal, CSRs and producers are understandably more inclined to go with the carrier that has reliable, efficient systems for quoting, submission, and servicing of policies, as well as the ability to provide them with easy access to information. More than that, their customers are looking for choices, something brokers are uniquely positioned to offer. “Consumers are clearly telling us: ‘Give me options, give me ways to save money, and give me the ability to connect with you when and how I want to,’” he says.

For Reikman, that kind of smooth synergy between in-person and online is key. “So as an insurer that aspires to make insurance better, we need to always ask: ‘How does the customer want to interact with our brokers, and us? What do we need to add or adjust within our value proposition?’ A ﬂexible, focused, client-centric approach is the goal.”

Lastly, he encourages brokers to be nimble, whether it’s from a customer service perspective, recruiting talented employees, or investing in technology. “Customers expect us to be responsive and efficient,” he says. “My suggestion is to ask yourself: ‘How critical is this to the success of my business? Can I quickly adjust course if needed? What will the impact

A ﬂexible, focused, client-centric approach is the goal. – Tom Reikman, Economical

The rapidly changing market space will also continue to accelerate expectations. “Many of our broker partners are growing their businesses. They recognize that to maintain momentum and meet evolving customer demands, they too must evolve. They want access to Sonnet-like digital capabilities and enhanced service offerings — like online information access — to meet those changing needs,” he notes. Reikman acknowledges another challenge will be ﬁnding new ways to attract and retain clients. He says this can be strategically achieved through value-added offerings (like telematics), utilizing marketing analytics, increasing breadth of product offering (“bundling the customer”), and ﬁnding a meaningful way to properly recognize customer loyalty. These are all areas where he says Economical places focus.

of what we do now be in two, three, or even four years — and what if we don’t do it?’” It’s been Economical’s mantra, and the reason its corporate strategy is designed to “embrace focused innovation and be a disruptor, instead of being disrupted.” For Reikman, that kind of focus on long-term gain is everything, whether for a 150-year-old company like Economical or a brokerage: “Those who are adaptive, diligent, and committed to investing the time and resources today are the ones who will be successful and yielding the beneﬁts tomorrow.” Reacting with speed is a quality that’s essential during an unparalleled situation like the pandemic — and beyond. “It may be hard sometimes,” he says, “but keep looking forward.”

IT’S OUR BIG 1-5-0 We’re an insurance company with deep roots and big ambitions — a century and a half of helping our neighbours and a future bright with historic ﬁrsts to come. It’s the kind of innovation and service Canadians have come to expect from us. 150 years? We’re just getting started. economical.com

PROPERTY | AUTO | BUSINESS Economical Insurance includes the following companies: Economical Mutual Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company, Petline Insurance Company. ©2021 Economical Insurance. Economical and Economical Insurance are registered trademarks of Economical Mutual Insurance Company. All Economical intellectual property belongs to Economical Mutual Insurance Company.

INTERVIEW

GREG KRUK, First Vice President, Insurance Brokers Association of Ontario; President, Sentinel Risk Insurance Group

STRATEGY

PANDEMIC CHALLENGES Greg Kruk, ďŹ rst vice president of the Insurance Brokers Association n of Ontario, and president at Sentinel nel Risk Insurance Group, speaks to how the pandemic has changed brokers, and how brokers can adapt to be successful in the long term By Greg Meckbach, Associate Editor

February/March 2021 | Canadian Underwriter

cu | Has COVID resulted in any permanent changes to the way brokers work? Absolutely. COVID has opened up our eyes to some of the technology we introduced in different brokerages across the country. This technology was not simply the new flashy thing: It allowed us to be nimbler in our work-from-home environment. Most brokerages are back to having some people in the office. Some have school-aged kids and the minute the children have a sniffle, they are sent home, so the parents have to be at home with their kids. Brokers who are going to succeed in the long term will show flexibility, allowing their team members to operate back and forth between the office and the homes at the drop of a dime. Before the pandemic, many saw monitoring staff as an additional measure required to work from home. ‘Are they doing what they should be doing? How do we track performance? How do we keep them upbeat and tied to the team?’ The pandemic has caused brokerages to have to find ways to make their team feel like they are not getting cabin fever working from home. Also, COVID has caused brokers to see emerging risks in a different way. A lot of insurance policies were not intended to cover pandemic, but moving forward there is going to have to be some sort of coverage for similar situations. Who knows whether or not the client is going to purchase the coverage, but the industry is now going to have to come up with another coverage for another risk that was never thought to be that serious in the past.

cu | Tell us about challenges facing brokers when they advise clients about business interruption and coverage gaps during a pandemic. That’s the tough part. Now the pandemic risk is in our face and known. So we’re going to have to make sure we have this

coverage available to offer. How insurance companies are going to be able to price, that is the tough part. We have data now from COVID, but unless we are going back 100 years and collecting information from the Spanish ﬂu, actuaries don’t have a lot of data to work with to price this product properly. It is much like cyber coverage, in that regard: You are trying to price a product when you don’t know what the exposure is in the long term, or even the short term for that matter.

cu | We hear some clients in the hospitality sector are not being offered coverage on renewal. Exactly. Insurance Bureau of Canada (IBC) recently stepped in to start a process whereby numerous carriers could come together and provide quotes for risks that are unable to get coverage elsewhere. My understanding is that IBC has brought together different insurance markets to help provide coverage by taking pieces of the risk – essentially building a facility for it. They are going to work with the client, using a risk management lens, to make the risk more appealing to insurers. Right now, we are seeing that if coverage is available, it’s often being renewed at 400% or 500% of the original premium. At a time when revenues are already down, this is just unacceptable for the client, and it leaves a black mark on our industry. But it goes back to the insurance companies trying to provide coverage for a risk when we don’t actually know what the risks are. For example, we don’t know if or for what restaurant owners, hotel owners, or other hospitality risks are going to be held liable in terms of following COVID protocols. I think the pandemic has created such an unknown that it is just hard for clients to get coverage or even decent pricing. All across Ontario, I see articles in different small-town newspapers, as well as on social

canadianunderwriter.ca | February/March 2021

INTERVIEW

media, quoting restaurant owners saying, ‘Look, I have been operating for years and I am going to close my doors, all because I cannot ﬁnd insurance or I cannot afford my insurance.’

cu | What concerns did underwriters have about the hospitality sector before the pandemic? It had been tough for a long time prior to COVID to find any type of a palatable quote for a hospitality risk. So if you take out the risks from infectious disease, and other risks that have emerged due to COVID, it was already very difficult to find quotes for hospitality and trucking. Insurance companies often did not want to touch restaurants or any type of resort in older buildings with older heating and plumbing systems. Another big problem is claims from slips-and-falls. Often they are frivolous claims; at times, they can be a gambit to get an insurance company to settle out of court. Our country has become litigious and there are opportunities for someone to make a quick buck from some of these business owners through their insurance policies. But insurance is designed for legitimate insurance claims. An insurer will often want to settle a claim quickly just to avoid the extensive legal costs of defending themselves. Slipand-fall claims can add up and really hurt a risk. It irks business owners when they have taken every precaution possible to make sure their sidewalks are salted, their floors are cleaned, and signs are up when floors are mopped, and yet they still find out their insurance company paid out on a slip-and-fall. Some insurance companies have taken a stand against this. They have built an internal legal team to defend the most frivolous legal claims because they don’t want to be a target of frivolous lawsuits. They will fight it at any cost to let plaintiffs’ lawyers know, ‘Come to us if you have a legitimate claim but don’t come to us with frivolous claims because we will fight it.’

February/March 2021 | Canadian Underwriter

PROFILE

GREG KRUK Title: First Vice President, Insurance Brokers Association of Ontario; President, Sentinel Risk Insurance Group Industry experience: 16 years, including six years with Economical Insurance and the remainder as a broker. Education: Bachelor of Commerce, McMaster University; Chartered Insurance Professional; Canadian Professional Insurance Broker. Volunteer work: Involved with IBAO since 2005, including the Young Brokers Council, Going Paperless committee and chair of the IBAO Technology Committee. Coaches hockey and sits on the board of multiple charities.

cu | What are IBAO’s top priorities going into 2021? Every three years, the IBAO does a strategic plan with the help of a third-party consulting ﬁrm. The main focus areas are enhancing consumer awareness of the broker value proposition; advocacy at the political and insurance company level; professional development; and leading the industry in strategic initiatives. Enhancing consumers’ awareness of the broker value proposition is done through messaging and marketing both at the IBAO level and the grassroots level in local communities. With advocacy, the focus is on availability of coverage for certain sectors of business. We are seeing in Ontario some companies not providing renewal for clients in the hospitality industry, taxis or snow removal. Many

of these businesses have been hit hard already by the pandemic and are trying to get back on their feet. But now they cannot ﬁnd coverage, which is a requirement to operate. Professional development is a focus for the IBAO in 2021. IBAO has created a new program called Broker Launchpad to help Ontario brokers get their RIBO Level 1 licences.

cu | How does IBAO plan to tackle recruitment? IBAO has a recruitment strategy to push awareness of the broker channel to students in the insurance courses at different colleges across the province. They are getting the interested people licensed and helping to subsidize the cost of getting those people licensed so they can jump right into our industry and connect those people with interested brokers looking for talent.

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Media

COVER FEATURE l M&A REPORT

M&A REPORT

Fishing for market share Intact Insurance, Canada’s largest P&C insurer, is pursuing a deal to acquire RSA Canada, the country’s 7th-largest insurer. What the deal means for Canada’s P&C marketplace…

Photos: iStock.com

By Greg Meckbach, Associate Editor

February/March ary/March 2021 | Canadian Underwriter

M&A REPORTT l COVER FEATURE

anada’s biggest ﬁsh in the property and casualty market may be getting much bigger, and that’s drawing a lot of attention from the nation’s brokers. Intact Financial Corp., which occupies more than 15% of the market, announced in November it would be working with Danish insurer Tryg to acquire London-based RSA plc, which includes RSA Canada and its 4.35% market share in this country. Under the terms of the proposed deal, Intact would pay £3 billion (about CDN$5.15 billion) and Tryg would pay £4.2 billion (about CDN$7.2 billion) to acquire RSA. Intact would take over RSA’s Canada, U.K. and international operations and obligations. Tryg would retain RSA’s Sweden and Norway operations. Intact and Tryg would co-own RSA’s Denmark operations. Yet, according to industry experts, even though the biggest ﬁsh in the pond may get bigger, the pond is still large enough to accommodate more mergers

among Canada’s 192 private P&C carriers (the number of carriers cited in IBC’s 2020 Fact Book). “Compared to life insurance, the P&C side [of the Canadian insurance industry] is very fragmented. It could sustain a lot more merger and acquisition activity,” says Adam Mitchell, president of Mitchell & Whale Insurance Brokers Ltd. “There is potential for more consolidation in the Canadian P&C market,” observes Victor Adesanya, vice president of insurance at DBRS Morningstar. Mitchell and Adesanya were interviewed shortly after the proposed Intact-RSA deal was announced and before the deal was approved by either RSA shareholders or the federal Competition Bureau. “Our thesis at Intact is: Here in Canada, 15 to 20 points of market share will change hands in the coming years,” Intact CEO Charles Brindamour said Nov. 4, 2020, during a conference call discussing his ﬁrm’s Q3 2020 ﬁnancial results. The Q3 earnings call was held the day before Intact and

canadianunderwriter.ca | February/March 2021

COVER FEATURE l M&A REPORT

“One or two notable transactions per year has slowly transformed the Canadian landscape, including the recently-announced acquisition of RSA by Intact and Tryg.” RSA made their proposal public. The Intact-RSA-Tryg deal is expected to close sometime in 2021 Q2. As of press time, the friendly takeover agreement has been recommended by all three insurers’ boards. It has also been approved by RSA shareholders and Canada’s Competition Bureau. “Some of the beneﬁts [of growing by acquisition] are [that] it is less expensive and more efficient to move into an area by acquisition than by building from the ground up,” Raymond Thomson, associate director of Oldwick, N.J.-based A.M. Best Company Inc., said in an interview after the Intact-Tryg-RSA deal was announced. “One or two notable [carrier M&A] transactions per year has slowly transformed the Canadian landscape, including the recently-announced acquisition of RSA by Intact and Tryg,” Georges Pigeon, Montreal-based deal advisory partner at KPMG Canada, said during KPMG Canada’s 29th annual insurance conference in November. For Canada’s brokers, a merger between Intact and RSA Canada raises the question of what impact the union would have on consumer choice. “I think when you go from 15% to 20% — if those are the right numbers — it begins to sound like some sort of competitive advantage,” says Steven Frye, a Toronto-based partner with Baker Tilly WM LLP, referring to the additional market share Intact could get by acquiring RSA Canada. But it’s hardly market domination. “I don’t think 20% (of the total Canadian P&C market) is cornering the market or making [Intact] so large that no one can 26

February/March 2021 | Canadian Underwriter

compete against them,” Frye observes. “There could be certain circumstances where [Intact acquiring RSA Canada] would cause an issue, but on balance I don’t think it’s going to have a signiﬁcant impact on choice,” says Dave Pettigrew, chair of the Insurance Brokers Association of Saskatchewan and CEO of Harvard Western Insurance. “There are still a lot of players in the market.” With $2.5 billion in net premiums written in 2019, RSA ranked seventh in the overall Canadian P&C market behind Intact, Desjardins, Lloyd’s, Wawanesa, The Co-operators and Security National. But RSA’s market share in Canadian P&C varies by region. Intact and RSA had market shares of 23.5% and 19.2%, respectively, in Newfoundland and Labrador in 2019, meaning the combined entity could write nearly half the business in that province. “In Newfoundland, this could be really interesting. That could be an area of the country where it might have some impact,” Pettigrew says. Newfoundland happens to be the home of Kent Rowe, president of the Insurance Brokers Association of Canada. “As a local broker here in Newfoundland and Labrador, and I would say the same thing would apply nationally, we are always concerned when choice in the marketplace is potentially limited,” said Rowe, who is the commercial lines manager at Wedgwood Insurance Limited in St. John’s. The Competition Bureau is a federal government organization that reviews proposed mergers in all of Canada’s industries, including insurance. Intact

said on Jan. 18 that the agency is not contesting the deal. Mergers and acquisitions involving insurance companies doing business in Quebec are examined by the province’s Autorité des marchés ﬁnanciers, says Sylvain Théberge, the AMF’s public affairs director. But not all mergers between P&C carriers require AMF approval, he told Canadian Underwriter. A merger involving a Quebec chartered insurer is subject to approval by the provincial ﬁnance minister. For the federal Competition Bureau, a key question is how much market share a post-merger company would have. The Competition Bureau does not usually challenge a merger if the combined entity would have no more than 35% market share, said Paul Collins, a lawyer who heads the competition and foreign investment group of Stikeman Elliott LLP. Collins made that comment in a 2019 interview about M&A in general, not about RSA and Intact. “I do not think that Intact would run into anti-trust issues in Canada with the acquisition [of RSA Canada],” said Marcos Alvarez, senior vice president and head of insurance at DBRS Morningstar before the Competition Bureau approved the deal. “But even if there were anti-trust issues, it might only be in certain provinces, where the combination of RSA and Intact might reach such a high level that the regulator might not be comfortable. If that is the case, it could be a matter of exiting or selling some parts of the businesses in particular provinces.” The RSA acquisition will increase Intact’s direct premiums written from about $12 billion to $20 billion a year, Intact CEO Charles Brindamour said in a November press conference. The company’s headcount will grow from about 16,000 to 26,000. “I would not be a bit surprised if there would be books of business, or classes of business, or chunks of business that drift to another carrier...because a broker has decided that their current business with Intact is high enough and merging those (Intact and RSA Canada) together would create too much of a presence in their brokerage,” Frye says.

M&A REPORTT l COVER FEATURE “Are they [Intact] going to hang on to everything [from m RSA Canada] they bought?? aProbably not. And they probably have planned for that.” For Intact, a major part of its M&A strategy is to expand outside of Canada. da In 2017, Intact acquired OneBeacon Insurance Group Ltd. for US$1.7 billion. Minnesota-based OneBeacon writes a variety of commercial lines including general liability, ocean and inland marine, commercial multi-peril, surety and entertainment. In Canada, Intact is also expanding its BrokerLink subsidiary. When it acquired The Guarantee Company of North America in 2019, Intact also bought Princeton Holdings’ MGA subsidiary Frank Cowan Group. In general, there are risks when one company acquires another, says A.M. Best’s Thomson. One of those is execution risk. Every acquisition is different and they all bring different characteristics to the table. Considerations would include different information technology systems and different corporate cultures. Regarding branding, as of November, Intact had yet to decide whether it would continue to use RSA’s marketing brands in Canada, including Johnson, Unifund, and Canadian Northern Shield. “If you look at the Canadian market, the top two brands would be Intact Insurance and belairdirect, which happen to be the two brands on which we have built our business,” Brindamour said in a November press conference. “So clearly this transaction is one of growth and we will make sure that over time, as we

business, we integrate the bu strongest brand.” build on the strong recent acquisiWith its rece tions, Intact has eexpanded its geographic reach reach, expanding proddeeper into different diff Thomson. “The ucts, says Tho rest of the market have to really k will ill h re-focus their efforts,” he says. “Intact is a strong competitor.” When a rock gets thrown into the pond, there is a ripple effect in the market. It’s not uncommon after a mega-merger, as some industry sources have told Canadian Underwriter (not in the context of the Intact-RSA deal), for other players to protect their share of the marketplace through mergers. Whatever the reason for consolidation, data from the Insurance Bureau of Canada indicates that Canada’s pool of private P&C insurers has shrunk from 230 down to 192 over the past 11 years. Other signiﬁcant deals in recent years include CAA Club Group’s 2019 acquisition of Echelon Insurance, Aviva Canada’s 2016 acquisition of RBC General Insurance Company from the Royal Bank of Canada, and The Travelers Companies Inc.’s 2013 acquisition of The Dominion of Canada General Insurance. Adesanya points to last year’s deal between La Capitale and SSQ as an example of mutuals merging. He was interviewed before Heartland Farm Mutual Inc. agreed in January to merge with The Kings Mutual Insurance Company. So how much more M&A activity is around the corner? One sign of more consolidation is the distribution of market share. In 2019, Intact (at 15.3%

of net premiums written) was the only insurer with more than 10% of the overall Canadian P&C market, according to the 2020 Canadian Underwriter Statistical Guide. For his part, Mitchell says Economical Insurance is “not shy” about potentially buying other carriers. The Waterloo, Ont.-based mutual insurer announced in December that it could make an initial public stock offering in 2021. This assumes Economical policyholders vote to demutualize and the federal government gives the go-ahead. At the time of writing, a policyholder vote was expected sometime in 2021 Q2. Economical started the demutualization process in 2015 in part to raise money from capital markets to participate in acquisitions, CEO Rowan Saunders told Canadian Underwriter earlier. A mutual insurer cannot raise equity financing from capital markets without first demutualizing, said Anurag Chandra, CEO of Constellation Insurance Holdings, in a 2019 interview with Canadian Underwriter. Chandra was not commenting specifically on Economical. In March 2019, Economical’s mutual policyholders (of whom there are fewer than 1,000) voted in favour of a conversion proposal released in January 2019. In 2021, Economical plans to put the same proposal to all eligible policyholders (both mutual and non-mutual) for a vote. “The reason they are going to an [initial public offering] is to get access to capital and do some more things [such as strategic investments],” Mitchell says. “Many other industries have gone through a ton of M&A.”

canadianunderwriter.ca | February/March 2021

FEATURE l 2021 EMERGING ISSUES

2021 EMERGING ISSUES

Forwardlooking Emerging technology issues, including staying on top of consumer buying habits and rapid digital transformation, are staring back at P&C executives through the crystal ball. Oh, and donâ€™t forget about the hard commercial market

Photos: iStock.com

By Greg Meckbach, Associate Editor

February/March 2021 | Canadian Underwriter

2021 EMERGING ISSUES l FEATURE

azing into the crystal ball, several emerging issues are staring back at Canada’s P&C insurance industry. Staying on top of the world’s digital transformation is chief among them. Indeed, technology plays a central role in many of the issues facing the industry at the moment. Also swirling about in the crystal ball is the impact of the hard commercial market on classes of business suffering from the closures mandated by the global COVID-19 pandemic. Changing Expectations For Laviva Mazhar, a Montreal-based investment associate with Luge Capital (which provides funding to ﬁntechs), a central question for the P&C industry is this: How do we serve customers who are used to the kind of online experience provided by companies like Amazon, Uber or Google? Technology startups can disrupt the insurance industry, warns Mazhar. Recent changes in consumers’ expectations, which are no doubt shaped in part by the rise of online shopping through big tech companies, have caught the attention of senior P&C industry executives, including those at The Co-operators Group Ltd. of Guelph, Ont. Peter Primdahl, vice president for emerging business models at The Co-operators, started his insurance career about 30 years ago. Back then, it was much easier to service customers, he suggests. “The environment now is not changing by year — it is almost changing by month,” Primdahl said during Insurance in the Digital Age — The Future of Agents and Brokers, a webinar hosted by Reuters Events this past December. He was responding to an audience member who asked whether “fully digital” is the way forward for insurance agents and brokers. “You have to serve many different aspects, through many different mediums, to adequately meet the clients where they need to be met,” Primdahl said.

Episodic Insurance Five years ago, The Co-operators did an indepth assessment of how it should serve customers in the digital age. The analysis included changes to customer consumption patterns, both within and outside the insurance sector. “When we allowed ourselves to peer into the future, we saw more changes coming at an accelerated pace,” reports Primdahl. That rapid pace of change persuaded The Co-operators to partner with Slice Labs to launch Duuo, a digital insurance company designed to address the needs of Canadians whose needs weren’t being met by traditional insurance models. Duuo’s ﬁrst product was coverage for homeowners who rent their properties using websites such as Airbnb. A new insurance product was necessary because risks associated with overnight rentals are not normally covered in a homeowner’s policy. “It really required us to re-imagine insurance,” Primdahl said during the webinar. Elaborating, he said Duuo’s new product triggered a “move away from the annual cycle, which is embedded into our [insurance industry] culture [and our] technology.” Instead, he said, the digital product offering caused his team to “really think about the world through an episodic, on-demand type of lens, and really try to meet the clients when, where and how they would like to address [their] largely unmet needs.” To provide insurance on-demand, some coverages could be “embedded” within non-insurance products. “This will not happen tomorrow. But over the medium- to long-term, there is an opportunity for both insurance carriers and intermediaries to integrate or partner up with platforms such as Amazon, Shopify, Airbnb, Uber, or any other platform where the consumer has the ability to order a service or product on-demand,” Luge Capital’s Mazhar says in an interview. “Basically, the idea is that the insurance

canadianunderwriter.ca | February/March 2021

FEATURE l EMERGING ISSUES

“If you think about Shopify, where you have micro and small merchants, a carrier could potentially grow its book of small business insurance by distributing micro liability policies through those kinds of platforms.” product is embedded at the checkout process with other services on other digital platforms. Those platforms could distribute small, vanilla-type products that are easy to underwrite,” she explains. Examples of small policies that could be embedded with other products at the checkout process include simple liability policies. “If you think about Shopify, where you have micro and small merchants, a carrier could potentially grow its book of small business insurance by distributing micro liability policies through those kinds of platforms,” says Lazhar. “If there is an online service where you could hire freelancers or contract workers, there could be an opportunity for a carrier to distribute business coverages, such as liability, through that type of platform.” Self-service Not every commercial client wants to buy insurance the same way, says Robin Joshua, president of Echelon Insurance, a P&C carrier that CAA Club Group acquired in 2019 from Echelon Financial Holdings. “Some prefer the familiar face-to-face meetings,” he said in an interview with Canadian Underwriter. “Others prefer paper. Some have a preference to do a lot of self-service — digitally-enabled ways to manage service.” Some customers would prefer to talk to their broker or agent through digital chat instead of over the phone, adds Mark Hardy, vice president of direct life and health for TD Insurance. “We need to recognize that to support customers,” Hardy said during the Reuters webinar. “That applies equally to 30

February/March 2021 | Canadian Underwriter

life insurance or to other insurance products. ‘I want to do it when it’s convenient for me, and how I want to do it, but I want that human element to support me.’” Hardy suggests clients should at least be able to start interactions with their brokers digitally, even if those clients do not want to be talking to a computer the whole time. At TD, many clients go through at least part of the process of applying for insurance online, Hardy says. But before they reach the end of the application and purchase process, they often want a second opinion from an agent or conﬁrmation that they have done it correctly. Silent cyber Although the emergence of digital has spurred innovation, it’s also made cyber risk an emerging issue for underwriters. “We have known about cyber for a while, but the pandemic has accelerated digitization — which has, in turn, increased the threat,” says Dipika Deol, head of Canadian P&C treaty underwriting at Swiss Re. The new normal, in which millions are working from home to avoid the spread of COVID-19, has increased cyber risk. “Silent cyber is also very important,” Deol says. “This is when cyber perils trigger losses in more traditional insurance policies. “The concern with silent cyber is to understand the full impact of cascading effects on individuals and businesses. The industry needs to monitor and manage these types of exposures, which is no small feat in the rapidly changing environment in which we ﬁnd ourselves.”

Who needs a drink? If technology is enough to drive you to drink, don’t forget about the emerging issues associated with the hard market. Hard markets are characterized by high premiums and deductibles, as well as shrinking capacity for coverage. “Usually there is a cycle [between hard and soft markets] of three years, but this [hard market] has lasted a while,” says Joshua. “Frankly, we don’t see it changing to a soft market for some time to come. That of course causes availability issues and sometimes affordability issues for consumers.” Brokers and managing general agents report it is especially difficult to find coverage for commercial clients in the hospitality sector, including restaurants, taverns, nightclubs, hotels, motels, and event venues. “Many business owners are facing premium challenges or outright loss of coverage,” says Joshua. Echelon Insurance announced in November the re-launch of its commercial hospitality coverage. Its target markets include family and fine dining restaurants, hotels, and motels, including bed-and-breakfasts and banquet halls. The announcement came within weeks of the Insurance Bureau of Canada launching its business insurance action team, which aims to help hospitality clients find coverage. Echelon is not primarily targeting taverns or establishments that get most of their revenue from alcohol. Within the hospitality sector, coverage is especially difficult to place for clients who earn most of their revenue from serving alcohol. This is especially true for strip clubs, nightclubs and pubs, said Nona McCreedy, owner of Alberta-based Aurora Underwriting Services Inc., a Lloyd’s coverholder. “If [clients] still have liability coverage, it is premises-only, as far as I have heard. Most of them can’t find a general liability policy with full liquor liability for that type of risk where they [earn] 70% or more of [sales on] liquor,” McCreedy says in an interview. For some nightclubs and taverns, a Lloyd’s syndicate may offer a $5-million general liability policy but the sub-limit for alcohol liability is $1 million, she says.

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MOBILITY SERIES - PART ONE

Data in the insurance mobility world How distribution, product, underwriting, reinsurance and claims are all set to change with the rise of mobility B Y C L I N T O N D ’ S O U Z A , Senior Director , Insurance Innovation Strategy, Insurance Search Bureau of Canada

s Canada’s digital insurance ecosystem matures, its centre of gravity is now aligning with the technologies and choices people are making in the mobility ecosystem. Bike share, scooter rental, shortterm vehicle rental, and car-sharing programs are expanding globally, providing new options for consumers to purchase insurance. Canada is starting to follow this trend. Therefore, we need to make sure our insurance ecosystem is up to the task ethically and operates for the betterment of customers. The mobility ecosystem taking shape

February/March 2021 | Canadian Underwriter

will bring significant disruption — and transformation — to our industry in terms of leadership, priorities, markets, and personal data. In addition, the line between personal and commercial lines is blurring with the growth of ride-sharing, delivery, and car subscription services. Mobility brings together multiple areas of insurance — auto, manufacturing, suppliers, dealers, the sharing economy, connected vehicles, and mobile app development — into one technology as a service. Insurance has essentially five components: Underwriting, product manufacturing, distribution, reinsurance, and claims. Each will significantly change

with the rise of mobility. If Canada follows other global regions, the pattern of distribution would shift from aggregators back to the broker channel. Take, for example, the recent move by Marsh and AXA XL in the U.S. to partner with data and analytics company Arity to create a same-day delivery service for their clients. The customizable insurance solution enables American businesses, such as a network of retailers or restaurants, to use individual drivers as employees or “gig” independent contractors. Here, we see a move away from using outdated underwriting models, such as relying on prior-year revenues,

HANDBOOK towards the use of more accurate, behavioural-based rating methodologies. When instant coverage is required through connected technology platforms, the insurance product can be wrapped into other services and solutions. At the same time, the risk requiring insurance will change: there will be lower emphasis on the vehicle itself, and a greater focus on the drivers and security of data. Mobility service providers such as car manufacturers, fleet managers, ride-hailing companies, and subscription car-sharing services, will sharpen their focus on insuring against supply chain risk. Underwriting will become more automated, in part because a vast quantity of data produced — by means of telematics applications, for example — will enable more AI functionality. Machine learning and artificial intelligence will enable machines to interpret, understand, and discover patterns in the data, which will in turn allow the insurance industry to better predict the risk. Reinsurers will enter in direct partnership with mobility players to create reinsurance pools. We are starting to see this now: Swiss Re and Daimler Chrysler announced recently that they are launching an MGA for mobility called MOVINX. In the claims area, customers today expect the process to be quicker, simpler and more intuitive. For example, when processing a first notice of loss request, a bot would extract the information from the request and enter it into the claims system. If the claim is complete, a cognitive bot would validate its information and mark it approved for payment. Mobility brings different elements of other markets and industries to the customer experience. A vast amount of new data generated in this wider ecosystem will likely be available to the insurer or broker, further enabling the technology to assess risk. Take historical claims and convictions of drivers as examples. Recent changes in the Ontario market by the Financial Services Regulatory Authority of Ontario (FSRA) is enabling the introduction of more flexible and innovative programs for consumers, and is encouraging industry competition in

this space. Many of these programs and emerging technologies around the world have embedded usage-based insurance (UBI) programs that benefit consumers through programs like pay-as-you-go or pay-per-mile (or kilometre) options. FSRA’s recent announcement enabling the introduction of more flexible and innovative UBI programs that benefit consumers and encourage competition is promising. However, data governance and how much customer data can be used and shared with the mobility ecosystem still needs to be determined. The federal government has introduced an ambitious new bill that aims to protect Canadians’ privacy while promoting data-driven innovation. Bill C-11 received first reading in November 2020. It also marks the first meaningful attempt in Canada to regulate the use of data in artificial intelligence. In addition, it addresses the de-identification of personal information from a record or data set. Under the new law, it’s clear that consent to de-identify personal information would not be required. Among Bill C-11’s other features is the introduction of new consumer portability rights that encourages innovation in the open banking systems. Under certain circumstances, and at a person’s request, organizations will have to transfer in a relatively timely fashion personal information they collected about the individual to another organization. Many of these emerging technologies collect a vast amount of data that actuaries can experiment and play with. Whether insurance is starting to evolve as an industry to become more innovative in terms of data use, similar to what banks are accustomed to doing, will depend on our regulatory environment, and whether our insurance ecosystems can ethically share and use data for the benefit the insurance customer, as other regions around the globe have done in the mobility space.

Clinton D’Souza is senior director of insurance innovation strategy at the Insurance Search Bureau of Canada and on the advisory board of Curbo, a

DEAL TRACKER

Latest acquisition news & activity McFarlan Rowlands Hamilton Ward & Cathers McFarlan Rowlands Insurance Brokers is expanding in southwestern Ontario by acquiring Hamilton Ward & Cathers Insurance Service Ltd. Hamilton Ward & Cathers has five brokerage offices south and east of London. McFarlan Rowlands has more than a dozen over a wide area from Sarnia to Kitchener. Todd Sprague, president and principal broker at Hamilton Ward & Cathers, will join the McFarlan Rowlands team on Jan. 1, the companies said Dec. 17.

Hub Prince Albert, Seymour Alper, Stalco & Mumby Hub International Ltd. acquired one brokerage firm in each of Ontario, Quebec, Saskatchewan, and Alberta during the final quarter of 2020. In Prince Albert, Sask., Hub acquired the assets of Prince Albert Insurance Limited, which places personal, commercial, farm, and specialty coverage. Hub also acquired Seymour Alper Inc. in Mount Royal, Que. Seymour places commercial insurance for various types of businesses, including apparel and textiles, retail, real estate, and manufacturing. In November, Hub acquired Stalco Insurance Ltd., a family-owned brokerage with three offices in eastern Alberta. Stalco COO Adam Doyle will join Hub Canada West and report to vice president of operations Sarah Cameron. Stalco’s offices are in Wainwright, Provost, and Kitscoty. In October, Hub bought Waterloo, Ont.based Mumby Insurance, which places coverage for architects, landscape architects, engineers, and specification writers.

Heartland Farm Kings Mutual The Kings Mutual Insurance Company and Heartland Farm Mutual Inc. are proposing a merger. If approved by policyholders and regulators, the deal would take effect June 30, Waterloo, Ont.-based Heartland announced Jan. 18. The combined firm would be called Heartland Farm Mutual Inc. The Kings Mutual is based in Berwick, N.S. The proposed deal will be put to both mutuals’ policyholders for a vote this May.

start-up mobility platform. canadianunderwriter.ca | February/March 2021

recovery Alberta Catastrophes p. 36

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HIGHLIGHTS

ENTERTAINMENT CLAIMS

No business like show business For claims adjusters in the entertainment ﬁeld, the pandemic hit TV and ﬁlm producers like a catastrophic event. Here’s what it took for adjusters to survive the deluge…

ometime during the COVID-19 pandemic, a Canadian TV production made a call to their insurance adjuster with an unusual claim — they didn’t know what to do with their live animals. They had bred the animals speciﬁcally for their TV production, which had now been disrupted because of a government lockdown to prevent the spread of COVID-19. “That production was forced to shut down because of COVID and they were stuck with animals and unable to return them to their original breeder,” according to Frederick Amirizian, a Crawford & Company (Canada) insurance adjuster and ﬁlm and entertainment subject matter expert. “They had to feed them, 34

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

[and] keep someone on location to make sure they were okay.” Once COVID lockdowns were lifted, the ﬁlming crew worked as quickly as possible to make sure that they could continue to use the animals, which incurred major and unexpected costs. Time was of the essence, as Amirizian recounts: “The production needed cubs, but obviously the animals [didn’t] stop growing [during the lockdown].” In the Canadian entertainment industry, time is money. According to the Canadian Media Producers Association, as cited in Crawford & Company (Canada)’s recent white paper, Entertainment Contingency Claims, the Canadian ﬁlm and television production generated nearly $9 billion in production

volume and approximately 179,000 jobs. Film and television production is a round-the-clock, deadline-driven business. It is tied heavily to rental and equipment costs, labour costs, special effects work, and marketing. Any production delays, often the result of actors falling ill or faulty equipment, typically drive insured losses in show biz. And those entertainment losses can be on an epic scale. And so, when COVID-19 shutdown orders literally became show-stoppers, insurance adjusters were inundated with entertainment industry claims. Amirizian says he received the same number of claims in one month as he typically saw in an entire year. For entertainment adjusters, it was the equivalent of adjusting a catastrophic event.

ENTERTAINMENT CLAIMS l RECOVERY “When the COVID-19 pandemic hit, it brought on a simultaneous wave of claims because all production was halted at once,” the white paper states. “And even though the production halted for the same reason, all pandemic-related claims were different or atypical. Uncertainty around restarting or relocating production loomed, and there were limited mitigation measures.” Even when provincial governments lifted some of their most severe lockdown restrictions, production crews still had issues to ﬁgure out. Yes, the projects had been restarted, but they still had novel claims related to accessing existing set locations, recreating sets elsewhere, and ongoing social distancing requirements. “Some productions have resumed, but it’s hard to shoot action, comedy, or romance scenes [while] keeping appropriate distancing,” says Crawford’s executive general adjuster John Sharoun, who joined Marcel Lacoste, a pioneer in entertainment claims, in mentoring

Amirizian. “Scenes have to be reviewed and the logistics of production rethought…And the question of how coverage may apply arises because these are unusual scenarios.” The entertainment adjuster It takes a special skill set and personality to adjust entertainment claims. “You have to be responsive whatever time it is,” observes Amirizian, who compares his job to delivering a baby, since he has to be available to policyholders day and night. “I have been called in the middle of the night because an actress was sick and (production) didn’t know what to do. No one can wait. In this industry, every second has a big impact on production so you always have to be available.” Adjusters working in this line of business also develop a very technical knowledge base. They handle complex claims involving tight television and ﬁlm production schedules, dangerous stunts, ﬁlming with live animals and

highly specialized equipment — to name a few. All the while, they have expert knowledge of relevant insurance policies, each of which is tailored to the policyholder’s unique risk. Entertainment adjusters must also build a high level of trust and credibility with clients and other stakeholders. They deal with a lot of different people in resolving a claim, so good communication skills are a must. “You have to be a good fundamental adjuster to begin with and have traits to manage multiple stakeholders and communicate effectively,” Sharoun says. One advantage of working in the entertainment industry, Sharoun added, is that people involved in the creative process are typically ﬂexible and very used to last-minute changes, whether or not the unforeseen mishap is insured. As a result, the production crew is wellversed in reviewing alternative scenarios and ﬁnancial impacts with the adjuster to determine possible loss costs.

canadianunderwriter.ca | February/March 2021

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RECOVERY

M&A RISKS

Your best defence against IP claims Traditional R&W policies can fall short of providing claims protections. Here’s why a standalone IP policy is needed… B Y K R I S T I A N K O L S A K E R A N D A N G U S M A R S H A L L , CFC Underwriting

ntellectual property (IP) has caused a dramatic shift in the valuation of companies. Intangible assets, including IP, now make up anywhere from 70% to 90% of a typical company’s balance sheet. As a result, IP often plays a signiﬁcant role in an acquisition. How can buyers protect their investment against IP infringement allegations arising from past or future activities? When an acquisition takes place, the buyer usually obtains representations and warranties (R&Ws) from the seller regarding the company or assets being acquired. Representations are essentially statements of fact at a point in time. They typically address certain historical circumstances, not future issues. Accordingly, the buyer is usually able to seek indemnity from the seller for a breach of representation only if the issue that caused the breach occurs before the representation is given, and discovered after the transaction has closed. In most instances, R&Ws will include statements in relation to the target compa36

February/March 2021 | Canadian Underwriter

ny’s IP. It’s common for the seller to rep- reason. The extent to which a company resent that the operations of the target’s infringes a third party’s IP rights canbusiness do not infringe, misappropriate, not easily be discovered through due or violate any other party’s IP rights. diligence; and due diligence will never To protect against financial loss result- eliminate infringement risk. This is priing from a breach of R&Ws, buyers are marily because of resource constraints increasingly turning to R&W insurance. in searching for relevant IP rights from While this affords IP infringement pro- a sample of millions; also, it’s impossible tection, its extent varies depending on the to anticipate spurious or opportunistic scope of the IP R&Ws negotiated between infringement allegations. the seller and the buyer. Consequently, sellers are cautious in Differences in bargaining positions can providing broad IP representations in reaffect the scope and breadth of all R&Ws, spect of the target company’s infringement including IP, which is especially relevant of third-party IP. Including qualifiers to when acquiring a company in a compet- representations such as “…to the seller’s itive auction. A potential gap can exist knowledge...” and materiality qualifiers between the protections provided under are a common way to reduce significantly the IP representations (and consequent- the ability of the buyer to claim against the ly under the R&W insurance policy) and seller for a breach of representation. the exposure brought about by an IP inIP insurance offers a solution because fringement allegation made against the it will respond to any allegation of IP inacquired company. fringement, regardless of whether the seller’s representations are limited in any way. Filling the gaps IP infringement R&Ws are heavily ne- Prospective IP infringement exposures gotiated in transactions, and for good Acquired companies are exposed to IP

INTELLECTUAL PROPERTY RISKS l RECOVERY infringement allegations that are linked to new business activities, just as they are exposed to allegations related to existing business activities. In what way do these exposures arise? Often, the purpose of acquisitions is to “scale up.” Typical strategies include developing new products and services to complement or diversify those already sold by the acquired business. New products and services are not only exposed to IP infringement allegations, they’re not typically protected by R&W insurance policies due to the retrospective nature of representations covered under the policy. An R&W policy provides no protection for future IP infringement allegations, which is why a separate standalone IP infringement insurance policy may be of value. New markets are another potential source of exposure. It’s possible to develop and sell a product or service in one country without infringing a third

party’s IP. But as soon as the same product or service is offered in a new jurisdiction, a different set of IP rights and rules apply. This is because IP rights are granted nationally and managed by IP offices in their respective jurisdiction. As a new strategy pursued following the acquisition of a company (so on a prospective basis), it’s unlikely that there is any protection under the R&W insurance policy or, alternatively, that the sellers provided any representation concerning a new product or service. A standalone IP infringement insurance policy can ensure that companies have infringement protection in new territories. Finally, there is an exposure related to new third-party IP. An allegation that an acquired business is infringing a new patent, granted after the transaction closed, is not something commonly represented, meaning that an R&W insurance policy would not afford any coverage. Fortunately, IP insurance is

available to cover infringement allegations relating to new IP rights. Looking ahead The combination of R&W insurance and IP insurance not only protects the buyer against ﬁnancial loss resulting from breaches of the R&Ws made by the seller, but also against any IP infringement allegations relating to the target’s new business activities going forward. Plus, it can ﬁll in any gaps where the R&Ws fail to provide sufficient cover in respect of third-party IP infringement allegations. It can act as a deal facilitator, smoothing the negotiation of IP R&Ws, and provide peace of mind for both the acquisition and integration stages of a transaction.

Kristian Kolsaker is an IP underwriter and Angus Marshall is transaction liability practice leader at CFC Underwriting

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canadianunderwriter.ca | February/March 2021

COMMERCIAL

SPOTLIGHT

cyber THE RISE OF PERSONAL CYBER Cyber insurance has been limited to the commercial space for now, but it will soon expand to personal lines

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By Adam Malik, Managing Editor

ersonal cyber insurance is expected to be a big opportunity for brokers in 2021 as more insurers introduce the product to the marketplace. “We’re seeing the idea of personal cyber catching on quickly,” says Matt Cullina, managing director of global markets at CyberScout. This is thanks in part to Canadians’ increased reliance on technology as a result of the COVID-19 pandemic. To prevent the spread of the virus, people are working from home, ordering groceries online, learning virtually, and connecting with family and friends through video messaging applications. “It’s like we’re tethered to WiFi,” Cullina says. In personal lines, the industry has been slow to bring a cyber product to market, observes Bill Gatewood, national personal insurance practice leader at Burns & Wilcox. “Honestly, it’s something that I’ve been concerned about for probably the last three to four years because there’s such a rise in people’s information being compromised.” 38

February/March 2021 | Canadian Underwriter

Considering how many breaches have affected governments and large companies alike, it’s naïve for anyone to believe their information hasn’t been compromised, Gatewood says. “And I don’t think that’s overstating it. I don’t think that’s insurance scare-tactic hyperbole. I just think it’s a fact.” In what Cullina called a “weird” twist, Canada is actually leading the way in introducing cyber to personal lines. “Usually, the U.S. is [first],” he says. But Canada is “the first movers in that type of cyber market.” He predicts Canadians will see the big insurers introduce cyber solutions to personal lines products as an add-on. “You’ll see at least one, if not two, national writers launch a personal cyber solution in 2021,” Cullina says. “I think for most insurance markets, once the first couple of folks do it, everybody else wants to jump on the bandwagon.” Personal lines cyber will provide a much broader solution than other existing products, such as identity theft solu-

tions, which have been around for some time, Cullina says. Gatewood agrees. “We’ve had some traditional identity theft coverage in fairly small and low limits and it’s really not all that sophisticated. Some fairly generic, small-limit ransomware coverage has been available for people.” What will the expected uptake be like? If commercial cyber is any indication, it might be slow. “That took a while to convince business owners to purchase cyber insurance,” Gatewood says. Sales will probably mimic a hockey stick, he predicts. ”I think it’s going to go slowly, then it’ll get to a point where the trend line will start to shoot. Because we have to create that awareness, we have to explain to people what they have at risk. You have to convince them that there’s real value in it.” Cullina ﬁgures there will be a heavy marketing component involved. “And hopefully, you’re going to start seeing some strong adoption of those types of solutions as well.”

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