C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A
NO V E M B E R 2 0 1 2 A Business Information Group Publication #40069240
Volatile Calm 2013 REINSURANCE MARKET OUTLOOK
Seismic Shift BY GEMMA ROTHON & CHRIS WHITE
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VOL. 79, NO. 11, NOVEMBER 2012 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP
www.canadianunderwriter.ca
COVER STORY
2013 Reinsurance Market Outlook
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It looks like things are calm on the Canadian reinsurance front. However, potentially disruptive factors, both at home and abroad, persist. Will issues such as the increased frequency and severity of extreme weather events, the Euro debt crisis and flagging growth in some emerging markets be the combination of factors that threatens to shatter the calm?
FEATURES
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Big Data
Cyber Security
Effective data management is central to ensuring the best and most relevant information is kept and not swept away by a tsunami of incoming data.
Small and mid-size companies appear not to be sufficiently prepared to avert everyday cyber exposures ranging from losing USB flash drives to using weak passwords and having unprotected networks.
BY STEVE PAPAGIANNIS
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BY EDUARD GOODMAN
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16 Earthquake Risk
42 Hurricane Sandy
There seems to be a shift in rating assumptions about Canada’s vulnerability to earthquake risk, producing uncertainty in the London insurance and reinsurance market that has led to some capacity being withdrawn from Canadian property risks.
The slow-moving hurricane that brought devastation to the Caribbean and the U.S. Atlantic coast also extended its diminished reach into some areas of Canada.
BY GEMMA ROTHON & CHRIS WHITE
Directors and officers are becoming more exposed to liabilities involving private pension plans. But are they covered by insurance?
24 Municipal Infrastructure More than 120 municipalities from across the country provided their input, inspiring mostly passing grades in the Canadian Infrastructure Report Card. BY GREGOR ROBINSON
Predictive Analytics Some organizations are opting to venture beyond using predictive analytics for rating and underwriting, and are now exploring the benefits of the approach for customer service, sales and marketing. BY ROGER BURKHARDT
Concurrent Liability
28 Data Breach
An Ontario court has ruled that both an auto and a home insurer must defend in an action for personal injury because of the potential for concurrent liability.
Immediate action is needed during the first 24 hours following a data or information breach to help avert hefty costs and mitigate damage to both company reputation and consumer trust.
BY MICHAEL TEITELBAUM
BY SCOTT PIDDUCK
BY ANGELA STELMAKOWICH
48 Pension Liability
BY CRAIG HARRIS
52 Condo Insurance There is a need to recognize that insurance requirements for a condominium project during construction and after completion are very different. BY SHARON VOGEL
60 IBAO Convention Ontario brokers are tackling plenty of issues to ensure the channel remains healthy. BY ANGELA STELMAKOWICH, GREG MECKBACH & HARMEET SINGH
November 2012 Canadian Underwriter
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VOL. 79, NO. 11, NOVEMBER 2012
PROFILE
Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793 Associate Editor Greg Meckbach gmeckbach@canadianunderwriter.ca (416) 510-6769
10 Time Trials As incoming president of the Toronto Insurance Conference, Steven Hawkins is gearing up to spend his time on efforts, including a public emergency endorsement for commercial insurance contracts and lobbying at the federal and provincial levels. BY GREG MECKBACH
SPECIAL FOCUS
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Editorial
Online Editor Harmeet Singh hsingh@canadianunderwriter.ca Twitter: @CU_Harmeet (416) 442-5600 ext. 3652
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64 Moves & Views 66 Gallery
Connect with Canadian Underwriter
Marketplace
Art Director Gerald Heydens
Production Manager Gary White (416) 510-6760
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EDITORIAL
Shaken Crystal Balls
The tsunami failed to materialize and the shaking, although far-reaching, did not cause any major damage. Perhaps not so for concern. Angela Stelmakowich, Editor astelmakowich@ canadianunderwriter.ca
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Canadian Underwriter November 2012
What would be an appropriate penalty for failing to issue a safety warning of a seismically active area in the weeks before a deadly earthquake? For seven Italian earthquake experts, it was manslaughter convictions and six-year prison sentences. Ordered in the wake of the 6.3-magnitude L’Aquila earthquake in 2009, which claimed the lives of more than 300 people and decimated historic architecture, the sentence appears to be about more than preparedness. Perhaps it underscores the growing awareness and unease around earthquake risk. And not just in Italy. Consider the ShakeOut drills on October 18, held in favourite earthquake haunts, including California, Washington state, Japan, New Zealand and Canada’s own British Columbia. The B.C. drill attracted an estimated 600,000 participants in schools, public offices, residences and businesses. As if on cue, a little more than a week later, a 7.7-magnitude earthquake struck off B.C.’s north-central coast, shaking regions as far away as Edmonton and the Yukon, and triggering a tsunami warning. The tsunami failed to materialize and the shaking, although far-reaching, did not cause any major damage. Perhaps not so for concern. Just days before the quake, the provincial government and Canadian Red Cross said the two would team up to ensure better and faster response in
times of major or catastrophic disasters. The objective is joint planning and training in case of a major disaster, such as an earthquake. However, B.C. should not be alone in considering earthquake’s potential impact. Also in October, a 4.0-magnitude earthquake west of Portland, Maine was lightly felt as far away as Sherbrooke, Quebec; and a 4.5-magnitude earthquake near St. Hyacinthe, Quebec was felt in the Montreal and Ottawa areas. Damage was not significant in any of the three quakes. Given that the B.C. earthquake “occurred in a sparsely populated stretch of the Canadian coast, significant insured losses are not expected,” AIR Worldwide reported at the time. That said, insurable losses loom. IBC has commissioned a study of economic and insured loss potential from a major earthquake in B.C. There is a 5% to 15% chance of a major quake in the Ottawa/Montreal/Quebec City region within the next 50 years, and a 30% chance of the same in B.C., said Don Forgeron, president and CEO of the Insurance Bureau of Canada, citing numbers from Natural Resources Canada. “Beyond the risk to human life, an earthquake in Canada presents the most significant risk to the insurance industry and possibly to the Canadian economy,” Forgeron noted in his speech at this year’s National Insurance Conference of Canada in Quebec City. The potential appears to be
sufficiently of concern that the Office of the Superintendent of Financial Institutions has put forward changes to Guideline B-9, Earthquake Exposure Sound Practices, and the capital formula included in the Minimum Capital Test Guideline “Best practices developed in the last 15 years in the use of earthquake models and in mitigating the risks associated with using models, need to be reflected in the guideline.” OSFI has further advised property and casualty insurers to start looking at their earthquake risk exposures on a national basis, an approach to be phased in over 10 years. For companies with similar exposures to earthquake zones in both B.C. and Quebec, the required solvency resources are likely to increase by less than 40%, OSFI says. The widely held view is that being prepared will help, at least as far as knowing what to do and how to minimize injury when (not if) a quake occurs. It may also help if all this awareness spurs updating of infrastructure and personal preparedness to diminish the impact of what cannot ultimately be averted. “No country can fully insulate itself from disaster risk, but every country can reduce its vulnerability,” Jim Yong Kim, president of The World Bank, said recently. “Better planning can help reduce damage, and loss of life, from disasters, and prevention can be far less costly than disaster relief and response.”
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MARKETPLACE Sign up to receive Canadian Underwriter’s free Insurance Headline News Email Alert: http://bit.ly/cuenews
Canadian Market NET INCOME UP, LOSS RATIOS DOWN Financial results for the Canadian property and casualty insurance sector improved during the first six months of 2012 over the same period in 2011, new figures from MSA Research Inc. show. Net income increased 57.5% to $2.100 billion for the first half of 2012 compared with $1.333 billion in the first six months of 2011, notes a table in the MSA Quarterly Output Report Q2-2012. The figures exclude government insurers, Lloyd’s and Genworth. Comparing the first six months of 2011 to the same period in 2012, MSA notes net loss ratios decreased in three categories of insurers: personal and multi-line writers (excluding the Insurance Corporation of British Columbia, Manitoba Public Insurance and the Society of American Foresters) dropped from 70.28% to 60.63%; commercial lines writers (excluding Lloyd’s) fell from 60.44% to 57.22%; and reinsurers decreased from 72.93% to 62.67%. “Commercial lines writers continued to exhibit impressive bottom-line numbers despite continued erosion in top-line revenue,” Joel Baker, president and CEO of MSA Research, wrote in the quarterly outlook. “The soft
8 Canadian Underwriter November 2012
commercial market lives on.” In addition, underwriting income in the category of commercial lines writers (excluding Lloyd’s) increased from $231.9 million in the first six months of 2011 to $365.1 million for the first half of 2012.
PARTNERSHIPS TO KICK CARGO THEFT TO CURB CargoNet and the National Equipment Register (NER) were recently launched in Canada to help insurers and policyholders combat cargo and heavy equipment theft, a move meant to mitigate losses along the supply chain. “Cargo crimes affect the entire supply chain, from shippers to insurers, to carriers, their employees and ultimately the end-customer,” says David Bradley, CEO of the Canadian Trucking Alliance (CTA), one industry partner with CargoNet and NER. The CTA noted last year that cargo theft — increasingly orchestrated by organized crime syndicates — is about $5 billion a year. Developed by Verisk Crime Analytics, CargoNet and NER are supported by several Canadian insurers and fleets. CargoNet is already operating in the United States. “CargoNet and NER help prevent theft and improve recovery rates through secure information-sharing and collaboration among theft victims, their business partners and law enforcement,” Verisk reports.
Both offerings are based on secure national databases and information-sharing platforms managed by crime analysts and other experts. They apply analytical tools to aggregate data to show and predict theft trends. “The problem of equipment and cargo crime is getting worse and hurting the bottom lines of insurers and policyholders,” says Greg St. Croix, senior vice president and national risk consulting practice leader at Marsh Canada. Zurich Canada and CNA Canada are also supporting these initiatives.
P&C RATES MOSTLY FLAT FOR 2013 Willis Group Holdings predicts that property and casualty rates in 2013 will be mainly flat or decreasing with a few exceptions. Marketplace Realities 2013, a new report from the global insurance broker, notes that 2012 has been a year of recovery for the p&c industry. But the economy, particularly low interest rates, continues to be the major barrier to growth. “Abundant capacity, low underwriting losses and the lingering weak economy are creating a flat marketplace,” notes a statement from Willis. Although casualty, executive risks and several specialty lines will see small rate increases, buyers with non-catastrophe exposed risks will witness decreases of between 5% and 10%, the statement adds.
Regulation CONCERN VOICED THAT REFORMS NOW IN LIMBO Just how measures meant to reform Ontario’s insurance industry will play out remains unclear following the resignation of Premier Dalton McGuinty and the proroguing of the provincial legislature. Any bills not yet passed into law must be introduced again, including initiatives to fight auto insurance fraud. Randy Carroll, CEO of the Insurance Brokers Association of Ontario, says the Steering Committee of the Ontario Auto Insurance AntiFraud Task Force has not yet submitted its final report. It will address, among other issues, regulation of health clinics and independent medical assessment providers, possible expansion of the authority of the Financial Services Commission of Ontario (FSCO), and protecting insurers who report suspicions of fraud from civil suits. “We would be disappointed if we won’t see the continued momentum necessary for the reforms on the auto insurance system,” notes an Insurance Bureau of Canada (IBC) spokesperson. Phil Howell, chief executive officer and superintendent of FSCO, offered some optimism while speaking at the IBC’s 12th annual Regulatory Affairs Symposium in Toronto on October 24. Citing proposed reforms around the definition of
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MARKETPLACE
catastrophic impairment and the dispute resolution process, he said the regulation process “will continue,” but emphasized that implementation depends on approval from politicians. With regard to its case backlog, FSCO has noted as many as 2,000 files monthly will be handled by an alternative dispute resolution firm employing retired judges and lawyers. How quickly the backlog is eliminated “depends on how willing all the participants are to step up,” Howell said.
Risk Management RISK MANAGEMENT, PERFORMANCE LINKED A new survey out of Europe indicates maturity of risk management processes is correlated with sustainable improvements in corporate performance. Companies having the most advanced risk management showed the strongest growth for the past five years, as measured in terms of earnings before interest, taxes, depreciation and amortization (EBITDA), note findings from the 2012 Risk Management Benchmarking Survey of the Federation of European Risk Management Associations. Conducted in collaboration with AXA Corporate Solutions and Ernst & Young, the survey is based on 809 responses from risk
and insurance managers. In all, 28% of companies with advanced risk management practices reported an EBITDA growth rate of more than 10% compared to 22% whose risk manage-
ment was classed as mature, 15% for moderate and 16% for emerging. Among companies with an EBITDA growth rate of more than 20%, 74% have mature or advanced risk management practices.
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November 2012 Canadian Underwriter 9
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PROFILE
Time Trials Greg Meckbach Associate Editor
Steven Hawkins, the incoming president of the Toronto Insurance Conference, will soon be spending even more time to help commercial brokers succeed. Steven Hawkins is now a senior vice president of a major brokerage firm, but he had humble beginnings in the insurance industry. In 1993, after graduating from Brock University in St. Catharines, Ontario with a degree in business administration, the incoming president of the Toronto Insurance Conference broke into the industry by landing a job in the mailroom at Wawanesa Insurance. Doing so was not as easy as one might think. “The economy wasn’t very good back then,” he says. “People were passing my resume by, thinking I was overeducated and I pretty much wanted to take any job that was available.” So after some persistence, Wawanesa offered Hawkins the job in its mailroom and from there, he worked his way into the auto department. “You really just need your foot in the door and then you can make a career out of
10 Canadian Underwriter November 2012
what you want,” he says. Today, Hawkins is a senior vice president for the consumer practice at Marsh Canada Ltd. in Toronto. His full-time job includes handling major retail clients for Marsh; his “part-time” job will be as TIC president in 2013, succeeding Robert G. Harrison.
RISK PROPOSITION Hawkins comes by insurance naturally. His father worked for Reed Stenhouse (now part of Aon Inc.), specializing in aviation, liability and casualty, before becoming a risk manager for what was then Knob Hill Farms. After starting at Wawanesa, Hawkins obtained his Chartered Insurance Professional designation from the Insurance Institute of Canada and completed the Fellow Chartered Insurance Professional program at the University of Toronto, majoring in risk management. After Wawanesa, Hawkins joined Lombard Canada Ltd. in 1995, spending five years as a claims examiner for property and casualty losses before serving as an underwriter from 2000 until 2002. Property risk factors have certainly changed over the years. Hawkins says that when he was an underwriter, he dealt with clients whose buildings may not even have sprinkler systems. That is not the case today. “The building codes and building technology have all
improved in the last 20 years, so I don’t come across unprotected buildings in my business like we used to,” he says. Also improved is security. “Everyone seems to have the proper safes now,” he adds. “Things are not in the bottom drawer of the CEO’s desk.” Hawkins joined Marsh Canada as a client executive and team leader, handling commercial liability and property for customers in verticals such as manufacturing, transportation and construction. In his current capacity, he manages a team of 10 and is also the lead client executive dealing with Canadian Tire and Boston Pizza. Among his tasks is helping clients control losses and mitigate claims. “We have staff actuarial analysts and that will help us pinpoint where a client’s having issues,” Hawkins says. “For a lot of the retail businesses, it’s slips and falls. It sounds minor, but it’s a huge amount of the claims that I deal with,” Hawkins says.
EMERGENCY ENDORSEMENT As TIC president, Hawkins will likely be spending time on several initiatives already under way at the conference, including a public emergency endorsement for commercial insurance contracts and lobbying at the federal and provincial levels. “We’re not simply a black tie and a golf tournament,” he says. “We’re an advocate for the
commercial brokers, so we’re a voice for them.” Hawkins made his comments on October 30, as about 45,000 Toronto residents were without power the day after the storm that originated as Hurricane Sandy made landfall south
Property risk factors have certainly changed over the years. Hawkins says that when he was an underwriter, he dealt with clients whose buildings may not even have sprinkler systems. of Atlantic City, New Jersey, and wind gusts in southern Ontario hit 100 kph. It is certainly of concern to brokers if clients cannot renew policies because of electronic communications disruptions during emergencies, says Hawkins. “You don’t want your insureds to be left without coverage just because their policy expired at 12:01 a.m. on a certain evening or morning and they couldn’t get in touch with their broker to ensure that a bind order was given, or we couldn’t provide them with a quote,” he says. For a few years, TIC has been involved in drafting a public emergency endorsement for commercial insur-
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PROFILE
a link from its own website to a webpage through which there is promotion of an insurance company, agent or broker that deals in insurance products other than authorized types of insurance. “Whether it’s 30 years ago or today, we seem to still be talking about the same themes,” Hawkins says. At the provincial level, TIC is working with the
sometime this fall. TIC supported, in principle, the proposed Reducing Automobile Insurance Premiums by Eliminating Fraud Act. However, Bill 41, which was referred to committee last March and sought, among other things, to enhance whistleblower protection, died on the order paper when Premier Dalton McGuinty prorogued the Ontario legislature in October.
used to develop Netscape Navigator and Internet Explorer. Almost a generation after this milestone development of the public Internet, some companies are moving more to a web-based technology. But brokers are concerned about firms creating their own portals. “Unlike the banks, who use the same technology, insurers and brokers, we seem to have our own internal applications,” Hawkins says, alluding to IBAO’s
IN THE BANK
Insurance Brokers Association of Ontario to jointly oppose the use of credit scores in assessing risk. Conference representatives are also working with the Steering Committee of the Ontario Automobile Anti-Fraud Task Force, which is scheduled to submit its final report
PORTAL AND PARCEL
efforts to alleviate the problem by supporting the eDoc standard in broker management systems. “It seems that they are moving forward,” he says of the work on an industry portal. “Hopefully we can see some advancement.” Those efforts will likely be taking some of Hawkins’s time as TIC president, too.
Also on TIC’s radar are efforts to ensure that banks are not involved in practices such as selling insurance on their websites. Section 7.1 of the Insurance Business (Banks and Bank Holding Companies) Regulations, under the Bank Act, states, in essence, that a bank shall not provide
Photo: Simon Cheung
ance contracts, intended to extend the term of a soon-toexpire policy, or to suspend the notice period for a pending cancellation, once an emergency is declared. The intent, Hawkins says, would be to have coverage remain in place, after expiry, “until such time proper instructions” were sent. TIC had worked on the endorsement with the Insurance Bureau of Canada (IBC), whose board approved a similar document in 2009. “I’m hoping it comes to fruition early next year, if not by the end of this year,” he says, adding TIC has buy-in from the majority of insurers. IBC and TIC worked together on an endorsement for property and liability policies, Hawkins reports. Without such an endorsement, a client could be left without a policy because phone and/or Internet service is unavailable, the broker could be exposed to an errors and omissions risk, and the insurance company could receive bad press should clients lose coverage for a time.
TIC will continue in 2013 to explore how online technology can best be employed to advance broker interests. Hawkins graduated from Brock the same year the National Center for Supercomputing Applications released a web browser software application, later
November 2012 Canadian Underwriter 11
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Steve Papagiannis
Lead, Information Management Practice SAS Canada
Easy is not always better when it comes to data collection. Effective data management is critically important to avoid having valuable information become a needle hidden in a very big haystack. Today data collection is easy — maybe too easy. The list of possible data sources for an insurer is expanding, everything from post-accident onboard automobile data to social media communications among claimants and more traditional sources like email, medical records and police reports. Add to that list the low cost of storage and the possibility of a data tsunami is almost inevitable since there is little motivation not
12 Canadian Underwriter November 2012
to gather every bit of data possible. The downside is that data on its own has little value unless effectively managed. If a company’s technology capabilities fail to keep pace with how quickly it is creating data, the haystack will keep growing while that needle keeps getting smaller. Insurance companies have always analyzed data, perhaps to a greater degree than organizations in any other industry. After all, accurate actuarial tables — the underpinning of the industry — are themselves an astute and early example of data analysis. Overall, however, the industry has not yet applied this in-depth use of analytics to broader, real-time operational issues. SAS recommends considering eight key issues that can have an impact on data management. For some companies, this may necessitate a more comprehensive review of how their data governance policies and data management technologies stack up against both current and future business needs. • Big data: There is a growing variety, volume and complexity of data being used by companies, including many sources of unstructured
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data. With regard to insurance, this could involve anything from emails to adjuster notes. • Changing patterns of data consumption: People used to consume data primarily at work, accessing it from a networked desktop. Now, there are Internet-connected tablets, smartphones and more.When, where and how data is used has changed dramatically, particularly in the past four or five years. • More complex data management re-
quirements: Since data is coming from so many different sources and systems, users or applications may require data migration; others may need data consolidation to obtain an enterprise-wide view. There are also more complex needs, including greater integration with external data sources such as vendor and customer data. • Data demand from more applications: The data management framework must support front-office applications like
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14 Canadian Underwriter November 2012
customer relationship management (CRM) and back-office applications such as policy management systems. • Pressure for faster turnaround: Batch processing is a thing of the past. Organizations are looking for real-time or near-real-time data processing. • Additional deployment options: The location of IT data architecture is no longer limited to being on site within corporate walls. Many companies are considering cloud solutions, which could be public, private or hybrids. • Different needs for different roles: To gain more value from data, companies are looking to get that data into more and more hands. Everyone from those with limited technical skills to IT professionals and quantitative specialists are accessing and analyzing corporate data. As such, this must be reflected in an organization’s information management strategy.
SHIFTING MINDSETS Most of the aforementioned considerations, to some degree, are ongoing issues for Canadian insurers. The result has been a shift from a more traditional and tactical data management mindset to a broader, more strategic information management mindset. In How to Manage Your Data as a Strategic Information Asset, a paper published by SAS earlier this year, beyond the eight key considerations noted above is information management.This is defined as the confluence of the following three important capabilities: • Data management: managing and governing data from a unified platform, including data integration, data quality, data governance and master data management, with the ability to access any type of data source across the enterprise. • Analytics management: managing a portfolio of analytic models in a systematic way — such as model development, testing, deployment and monitoring — and using the results of those models as new information assets. • Decision management: embedding information and analytical results directly into business applications or processes at the point of decision, and supporting
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a feedback loop as decision outcomes are cycled back into the process. So what does this mean for Canadian insurers?
DATA MANAGEMENT Today’s leading companies look for data management to go beyond data integration, quality and consistency issues to address more project needs and use cases — everything from front-end CRM to back-end claims systems. In the insurance industry, one area of renewed data management focus should be how to better understand broker performance. The industry has a pretty firm grasp of how much business revenue it receives from a broker, but to better understand the true value of the relationship and the broker’s performance, more data is needed. The insurer needs to know not only what was sold and the sort of claims that came through, but also the types of people being insured. Like retail’s desire to capture a 360degree view of its customers, the insurance industry, through better data management, has the opportunity to get a better view of its customer — the broker. The necessary information is already being collected by existing systems; what needs to change is the insurer perspective on data management to allow for collecting information in a way that specifically addresses how to better understand broker performance and value.
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into more complicated insurance scenarios. Were one to examine the complexity of insuring a pipeline or an oil tanker, one would see a dramatic increase in the number of variables now being taken into account to properly ascertain risk. The more data that is available in a model, the greater the likelihood of improved accuracy. But as the number of data sources grow and problems become more complex, companies may feel pressured to
ANALYTICS MANAGEMENT
Like retail’s desire to capture a 360-degree view of its customers, the insurance industry, through better data management, has the opportunity to get a better view of its customer — the broker.
Analytics goes beyond building a model designed to pull new information from data. Predictive models help companies manage risk, something found at the core of an insurance company’s success. An analytics model can certainly be developed to solve a specific business problem, but this approach may not be ideal. Far better is to create competing models, employing different techniques, to tackle complex problems and business issues. The ability to create competing models is increasingly important as insurers look to broaden their offerings, delving
take shortcuts. Analyzing all of the data takes too long; analyzing a slice of the data (especially in risk assessment scenarios) can become a dangerous business proposition. One solution is to take the data, distribute it among many computers and have all the processes run in memory. The results are staggering — processes that may have taken hours or days now take seconds or minutes. That said, a successful company needs to create an environment in which to manage these models — call it the an-
alytics model factory — which are then embedded in business processes and monitored. When this occurs, it becomes easier to document models and collaborate across the many facets of a company. By feeding the models back into the decision-making process, they can be continuously evaluated with regard to whether or not they are adding business value.
DECISION MANAGEMENT At the end of the day, data only has value when it can be used to drive strategic and accurate business decisions. Decision management is about taking information or analysis and embedding it into everyday business processes. In the insurance industry, this could be adjusting actuarial tables to take into account any combination and permutation of variables (and doing so quickly enough to produce valuable results) or assessing the possibility of a claim being fraudulent based on the most up-todate social data available. Much of the insurance industry’s focus is on policies and claims — the pillars of the industry — but there is a smaller and important aspect of the industry that occasionally gets overlooked in the decision management process: risk management as it pertains to investment. For many decades insurers relied on returns in investment in the 5% to 8% range. For the foreseeable future, it looks like rates of return on investment will remain low. In addition, with a number of social and fiscal problems continuing around the world, investment itself will likely remain risky. As such, it is important for insurers to reduce investment risk as much as possible by employing better data management. This, in turn, promises to lead to improved decision management. It appears companies are increasingly realizing that to avoid data tsunamis and gain value from the almost endless sources of available data, they may need to re-evaluate how they manage and drive value from their data.
November 2012 Canadian Underwriter
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Gemma Rothon Underwriter Non-Marine Property AEGIS London
Chris White Underwriter Property Treaty AEGIS London
Rating assumptions about Canada’s vulnerability to earthquake risk appear to have been shaken. The resulting uncertainty in the London insurance and reinsurance market has led to some capacity being withdrawn from Canadian property risks.
The London market is taking stock of Canada’s earthquake exposure. Following recent major earthquakes in Chile, New Zealand, Haiti and Japan, Canada’s own vulnerability to earthquake risk has increasingly come into focus. As if to underline the potential threat, the Queen Charlotte Islands region of British Columbia experienced a magnitude 7.7 earthquake on October 27 with, as reported by the U.S. Geological Survey, 10 more aftershocks recorded, the largest of which was magnitude 6.3. What used to be regarded as a 1 in 500-700 year event, forming the basis of most rating assumptions, no longer seems as reasonable an estimate as it once did. This has produced increased uncertainty within the London insurance and reinsurance markets which, in turn, has led to some capacity being withdrawn from Canadian property risks and brokers unable to complete all their programs. With London representing the largest concentration of capacity for commercial property in British Columbia, for example, a reduced appetite on both the primary and reinsurance sides could have a long-term impact on the availabil-
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ity and pricing of (re)insurance coverage for Canada’s commercial and residential property. While this plays out, the growing concentration of risk in the hands of fewer domestic players may also create coverholder unease over the domestic market’s ability to meet the cost of a major, catastrophic event.
IN THE ZONE In 1946, an earthquake of magnitude 7.3 hit Vancouver Island and became the largest event loss in Canada, while as Risk Management Solutions, Inc. reports, a repeat of the 1700 Cascadia earthquake could result in losses of US$40 billion in Canada alone. Research by Aon Benfield suggests that although the average recurrence interval for subduction zone earthquakes in Cascadia is 550 years, there have been three in the last 1,000 years alone, with clustering of as much as five events expected between longer quiet periods. As such, there could potentially be further events in this current phase. While British Columbia may have the highest earthquake risk in Canada, Ontario’s earthquake
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in June 2010 proved that other parts of the country also have exposure. It continues to be a case of when, not if, for Canada’s next major earthquake. Despite this very real risk in Canada, it is earthquake activity elsewhere that is doing more to make underwriters nervous. The experience of countries like New Zealand, which shares many topographical similarities with Canada, has illustrated just how much damage earthquake can cause. Entire stretches of land in New Zealand have effectively been “retired” because of the liquefaction of ground after earthquake activity.This has caused underwriters to think again about the earthquake risk in areas like Richmond, British Columbia, which could experience a similar pattern of destruction to that seen in parts of New Zealand.
IMPACT ON PRIMARY MARKET The consequence of this growing awareness, at least from a primary insurance perspective, has seen some brokers struggling to complete their
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Canadian property programs as the London market has pulled back. London market insurers are now far more aware of their overall aggregate limits, contrasting heavily with a few years ago when some insurers operated without set aggregate limits. This is certainly no longer the case. Other changes include a move toward buying separate reinsurance programs for Canadian property books, enabling London market insurers to write more business than their risk appetite would otherwise allow. There is also a greater degree of postal code rating being applied, and areas that were previously not seen as such high risk are now attracting a much higher rating. New modelling is demonstrating that Victoria is just as exposed as Richmond. This is where changes to earthquake rating scales are having the most dramatic impact. Additionally, there is evidence that some underwriters have shifted primary insurance capacity from homeowners to commercial business, owing to a much
worse premium to aggregate ratio on homeowners’ business because of the high automatic limits for contents and other coverages. The overall reduction in appetite from London, however, has provided more opportunities for domestic insurers to pick up this business, which suits many of those insurers who are striving for market share and are prepared to offer the reductions that London will not give. This does have some ramifications for coverholders who, given the insurer consolidation that has taken place in Canada, may be less comfortable seeing a concentration of risk in fewer hands. There are signs, though, that those lower domestic rates are slowly catching up with rates being offered from the London market.
REINSURERS PUSH UP RATES The primary markets are, of course, only half the story. London provides something like 20% of Canada’s overall reinsurance catastrophe capacity of
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some $22 billion, with the balance supplied domestically in Canada, and from the Bermuda and United States markets. Canadian treaty renewals largely take place in January, with 2012 showing a marked change upwards in rates and pricing at the top layers setting the precedent. One reason for this was a change in the long-held perception that Canadian catastrophe reinsurance business does not correlate with that of the U.S. But natural catastrophes do not stop at national borders and there is a growing realization that Seattle and Vancouver, in particular, could be affected in the same event. There is also concern that the clustering of earthquakes could mean a major earthquake in California makes one in British Columbia more likely. This increase in reinsurance rates made capacity easier to come by in contrast to the primary side, although given the concern around overall aggregates, there were also signs of some reinsurance providers in London pulling back. Signings on lower treaty layers increased
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significantly at renewal, typically with percentages from the mid-40s to 50s, up to the 90s. This means that any further reduction in treaty capacity or increase in demand at the forthcoming January 2013 renewal may result in treaty programs not getting completed or requiring significant rate increases. Another factor to take into account has been the regulatory impact associated with Canada’s Office of the Superintendent of Financial Institutions requiring domestic insurers to increase their reinsurance purchasing to allow for the greater likelihood of a major earthquake being more like a 1 in 400 year event, as opposed to a 1 in 500 year event. The effect of this action has been a greater demand for reinsurance from cedents, albeit on a gradual basis.
OPPORTUNITY TIME The overall impact of global earthquake activity together with specific changes — such as a rapid rise in residential property values in Canada, model changes or increased demand for rein-
surance, for example — have reduced the London market’s overall appetite for Canadian property insurance business as rates in some areas struggle to meet expectations. Some insurers have moved their entire Canadian earthquake capacity from direct to treaty business. For treaty business, returns are perceived to be better and tail risk (to extreme events) is lower as most treaties will have exhausted limits at the 500-year level, while losses from a direct portfolio grow exponentially with higher return periods. That is not to say there are not some great opportunities to do business in Canada, and there are still plenty of committed London players on both the insurance and reinsurance sides. Underwriters, though, will want to see the right ratings and brokers in London may still find, in the short to medium term at least, that they struggle to complete all of their Canadian property programs until pricing gets to the right levels to match the growing perception of earthquake risk in Canada.
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The use of predictive analytics is advancing into areas beyond the traditional rating and underwriting fronts. Organizations that opt not to venture into these new Roger Burkhardt arenas — including customer President and CEO service, sales and marketing EagleEye Analytics — risk losing competitive positioning to other insurers.
tive patterns in all areas of the business generates significant positive results in growth, profitability and customer retention. Carriers that get it are able to compete on a whole new level, capitalizing on important insights into their own customers and operations. But there is clearly a predictive analytics gap — one that separates future-focused carriers from those that will be left behind. For the laggards, many using analytics solely for rating and underwriting, the risks are big, including missed opportunities and loss of competitive positioning to other insurers.
MITIGATING CUSTOMER CHURN More and more insurers are realizing that the benefits of predictive analytics extend well beyond rating and underwriting. Use of analytics, once reserved for pricing actuaries, has moved into customer service, sales and marketing, as well as the executive suite. As carriers find that understanding, there is also more recognition that making business decisions based on predic-
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With customer loyalty decreasing and expectations increasing, customer churn rates in the insurance industry are at an all-time high, particularly when it comes to personal lines. In today’s soft market, insurers can ill afford to watch their best customers slip away. Carriers that use predictive analytics for rating are making progress in the battle against churn.
Illustration by Greg Hargreaves/www.threeinabox.com
Predictive Battle Lines
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They are able to identify the best risks, match them to the best rates, and improve not only retention, but the overall profitability, too. Many carriers in Canada have used predictive analytics for rating for many years, working seamlessly with regulators and improving their businesses. That said, there is another part of the equation that these carriers are missing. Insurers typically review rating, and
Measuring the intersection of profitability and retention is the key to even greater performance, one that will allow carriers to proactively shape their books of business. they measure retention. However, each function is examined independently. Measuring the intersection of profitability and retention is the key to even greater performance, one that will allow carriers to proactively shape their books of business. Using predictive analytics, carriers can determine which customers are profitable, but difficult to retain. Most important, they can look forward, and understand how new customers will retain and how profitable they will be as the business is being written or renewed. Use of real-time decision-making, across the lifecycle, is a definite gamechanger. It enables carriers to accurately measure customer lifetime value, and develop proactive retention strategies. Leading carriers are moving beyond loss cost to include in their predictive models and optimization strategies other operational costs, including those related to acquisition and customer service.
BREAKING DOWN THE DATA-SHARING DIVIDE Brokers are the closest direct link to the insured for carriers that rely on the broker distribution channel. While traditionally most carriers and brokers did
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not share data and analytics capabilities, predictive analytics wield such significant power to change the course of the business that it can provide a strong stimulant to break down the organizational divide. The availability of strong analytics tools, combined with cloud technology, removes technology barriers for carriers looking to partner with their brokers on customer acquisition and retention initiatives. For example, one carrier is providing its brokers with individual prospect lists generated from analysis of its nationwide data, using predictive analytics to generate profitable business. It then manages and guides the broker’s prospecting by monitoring the profitability scores of the new business as it flows in. Internally, carriers can measure current and predict future performance of brokers. Using modelling, carriers can identify the productivity and profitability of brokers by geography, line of business, underwriter or by individual broker. These models remove the random fluctuations in actual claims from an individual broker, which tend to lead to management by anecdote. These management tools provide unique opportunities to both capitalize on growth strategies and change course quickly to minimize risk.
OFFENCE, NOT DEFENCE No carrier can afford to sit back when it comes to customer acquisition in the current market environment. But the degree to which insurers are leveraging predictive analytics to shape their sales and marketing strategies, and partnering with brokers to execute on them, varies widely. Some are using predictive analytics, combined with big data and social media analytics, to target prospects. These strategies are made possible through better modelling, providing insurers with an understanding of which segments — or even individual customers — are likely to be the most profitable. For example, each customer in a segment can be scored on the basis
of proven predictors to profitability throughout the customer lifetime, as well as on the likelihood of attrition. Carriers and their brokers can then devise plans to focus on customers who have a high customer lifetime value, but also a high likelihood of churning. The plans may include preferred customer service for customers with specified scores, multi-selling or retention discounts. Carriers can also use predictive analytics to establish correlations between different variables and policies to determine which customers are most likely interested in additional products. The insureds often equate accurate multiselling with good customer service, which increases customer satisfaction.
NEXT WAVE: COMMERCIAL LINES Using predictive analytics for customer retention and pricing has been a logical move in personal lines insurance because of the homogeneity of the risks and the high frequency and low severity of claims. It would appear the use of superior predictive analytics has helped companies such as Progressive and GEICO in the United States, and Intact in Canada, to gain significant market share.
As carriers see the benefits and the technologies progress to meet their needs, the next wave of predictive analytics in commercial lines is now taking place. Commercial lines carriers have been slower to follow suit. However, as carriers see the benefits and the technologies progress to meet their needs, the next wave of predictive analytics in commercial lines is now taking place.Traditional thinking in commercial lines has been that judgment is the key to underwriting; with low frequency/high severity claims, there was just not enough data to warrant the use of predictive analytics. That thinking is changing, as carriers in some markets have already
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Information such as census data, weather conditions, data from social media or consumer preferences, which can be incorporated into existing data, can improve the ability to predict the customers who will most likely contribute to the bottom line.
seen big advantages of using predictive analytics. Of course, the benefits of viewing variables and correlations in new ways are not limited to any one specific market. All commercial lines insurers can benefit from the segmentation and underwriting opportunities provided through predictive analytics. The idea that commercial lines databases are too small to justify the use of predictive analytics is outdated. Instead, there are advantages for all insurers — from personal lines to commercial lines — that may have only smaller amounts of data. A large volume of data is no longer critical to utilizing predictive analytics effectively. Much can be determined from the patterns in small amounts of data, leveraging the strong signal gained from revealing the interactions of multiple variables. On the other hand, examining variables individually — whether the carrier in question has a large or small database — can lead to the creation of simplistic descriptions of customer segments that each have a wide range of profitability.
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The interactions between variables are important for discriminating among customers who might otherwise be within the same segment, but who may have very different profitability. Moreover, carriers can add data sources from outside of the organization to improve predictive power. Information such as census data, weather conditions, data from social media or consumer preferences, which can be incorporated into existing data, can improve the ability to predict the customers who will most likely contribute to the bottom line. Modern cloud-based predictive analytics offerings frequently have third-party data already available as part of the service.
NOW IS THE TIME The time is now for carriers to identify creative new ways to use analytics to improve their businesses. Resource barriers — once a major issue — have been all but eliminated with the development of modern predictive analytics software. Modern predictive analytics tools have eliminated the need for carriers to hire large numbers of actuaries
and spend months, if not years, working on manual analysis to get answers. Cloud-based software reduces the costs, and makes predictive analytics capabilities accessible to large and small carriers. And tools with insurance industry-specific algorithms provide far greater speed and accuracy. While the new capabilities provide a positive dynamic for many, others will be left behind. Adverse selection is real — good risks move to the leaders that will be most likely to offer lower premiums and better service, while bad risks are the ones that remain. It is a losing proposition.The availability of new tools removes the barriers for all carriers. There is a gap in the insurance industry when it comes to predictive analytics. Some of the leading companies have been focused on pricing analytics for many years with great success, but others are catching up, sometimes managing to leapfrog them, by applying predictive analytics more broadly. Those advances are aided by not limiting efforts to rating and underwriting, but extending the benefits of powerful analytics tools throughout the enterprise.
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P Grading
Modern Times The Canadian Infrastructure Report Card, reflecting input received from 123 municipalities across the country, has given some types of infrastructure high grades. Gregor Robinson Other types, however, might Senior Vice President, benefit from a few more lessons. Policy and Chief Economist Insurance Bureau of Canada
The importance of investing in modern infrastructure has become synonymous with Canada’s economic competitiveness and quality of life. Grading that infrastructure can serve as a guide to renewal, both for individuals and for countries. At least that is the hope behind the first-ever Canadian Infrastructure Report Card, a joint project of the Canadian Construction Association, the Canadian Public Works Association, the Canadian Society for Civil Engineering, and the Federation of Canadian Municipalities (FCM). Released in September, the report card provides data from a survey of 123 municipalities where 60% of the Canadian population lives. Examining municipal roads and the systems used to manage drinking water, wastewater and
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stormwater, the report assigns grades ranging from “very good” to “very poor”; it does not offer recommendations for action or forecast capital needs. The overall conclusion for key categories is as follows: drinking water, good; wastewater collection, good; stormwater management, very good; and municipal roads, fair. There are, however, qualifications to the assigned ratings. The Insurance Bureau of Canada (IBC) particularly notes that while responding municipalities ranked stormwater management as very good overall, the category had a low number of responses. Of the 123 municipalities surveyed, only 68 provided input. Of those respondents, many do not have formalized asset management systems in place that allow them to track the condition of their stormwater system assets.
FACTS AND FIGURES The report card provides information on a number of factors, such as the physical condition of the infrastructure, available capacity, value of the infrastructure systems, and types of management systems used to collect information and make infrastructure investment decisions. “The total value of Canada’s municipal water, wastewater and stormwater, and road systems is
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approximately $538 billion, $50.7 billion of which was identified as being in Canada’s municipal water, poor or very poor condition. A further $121.1 billion worth of infrastructure is wastewater, stormwater and in fair condition,” notes the report card. road systems are valued at “The total value of infrastructure in a approximately $538 billion. fair or worse state equates to approximately $13,000 per Canadian household.” Of that, $50.7 billion worth of Canada’s stormwater asset manage- infrastructure was identified ment systems are the best of the infraas being in poor or very poor structure classes covered in the report, generally rated as “very good.” That condition, and $121.1 billion said, the report adds 12.5% of stormwa- in fair condition. ter installations surveyed fall below “good” condition, with this figure ris- frastructure in the process of being built ing to 23.4% for stormwater pipes. — going to be able to handle severe The replacement cost for the storm- weather in the future? water infrastructure in “fair” to “very Research commissioned by IBC, Telling poor” condition is $15.8 billion, or the Weather Story by Dr. Gordon McBean, $1,270 per Canadian household. released in June, indicates that that fuDuring the financial crisis, the report ture could include what until now have card states, the country’s govFigure 1 ernments worked together to use stimulus funds to develop local infrastructure and create jobs. However, the $33-billion Building Canada Plan is scheduled to expire in 2014. Infrastructure Canada is currently engaging provinces, territories, the FCM and other stakeholders to shape the development of a new long-term infrastructure plan. Consider the following statistics from the infrastructure report card: 50% of Toronto’s sanitary sewer system is more than 50 years old; 50% of Toronto’s watermains are at least 55 years of age; and 27% of Ottawa’s piped infrastructure is 40-plus years old, with 50% being between 20 and 40 years old.
ISSUES OF CONCERN Having completed its review of the report, IBC is concerned about the state of infrastructure within communities and their resiliency to accommodate the continuing increase in the incidence of severe weather. The bureau is principally concerned with the following questions: Is the infrastructure now in place — and the in-
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been very severe, 1 in 20 year storms happening every 10 years in some regions. Are particular types of infrastructure of more concern than others? Based on 2012 estimates, Canada’s insurance industry pays $1.7 billion a year in claims resulting from water damage. This in-
cludes frequent sewer back-ups, when intense rainstorms compromise aging municipal sanitary systems and storm sewers become overloaded.
TOOLS TO PRIORITIZE The industry will soon be offering municipalities a municipal risk assessment tool (MRAT), scheduled for implementation in 2013. MRAT will help municipalities identify where weaknesses exist, assisting in prioritizing infrastructure investments in areas where infrastructure is more vulnerable to failure. MRAT seeks to benefit municipalities by doing a number of things, including the following: • Increase awareness of infrastructure deficiencies: Identifying a city’s problem areas (in the form of a map, See Figure 1 mock-up below) can help municipalities to communicate the importance of improving vulnerable infrastructure. • Offer access to updated local rainfall return period statistics: As the tool validation process proceeds, updated statistics will be made available to municipalities, which will be essential for ongoing municipal infrastructure planning. • Provide information about future climate patterns: Given the long life expectancy of buried infrastructure, municipalities need to understand projected future climate patterns to make efficient and effective long-term investment plans. • Help prioritize infrastructure investments: The federal and provincial governments are interested in supporting investments in areas where infrastructure is more vulnerable to failure. MRAT can help municipalities identify vulnerabilities and, in turn, support municipality presentations to governments to procure funding. IBC expects to provide a submission to the federal government this fall as it holds consultations on infrastructure renewal.
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Into the
Scott Pidduck
Underwriter Professional Liability QBE Services Inc.
The first 24 hours following a data or information breach are the most critical, requiring immediate action to help avert hefty costs, as well as to mitigate damage to company reputation and consumer trust. As advances in technology have made it easier to move information around, a data or information breach has become one of the most important risks for any firm to consider, contain, mitigate and manage. Emails, instant messaging and social media have opened up the channels now in use and changed how information is moved — among companies and individuals alike. While it is very difficult to control this flow of data and information, there is no excuse for not doing whatever can be done to protect said information. There is even less excuse for not recognizing the need to respond immediately once a breach has been reported or identified.
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In January 2012, a Bloomberg article described how China-based hackers tried more than a year earlier to derail a $40-billion acquisition of the world’s largest potash producer, Saskatchewan's PotashCorp, by an Australian mining company, by targeting the downtown Toronto offices of Canadian law firms managing the deal. (It was reported that seven different Canadian law firms were breached as well as the federal Department of Finance and the Treasury Board of Canada.) Breaches and leaked information can have a drastic impact on negotiations and, worse, actual outcomes. Information landing in the wrong hands can potentially lead to catastrophic damage amounting to millions of dollars, in addition to crippling damage to the reputations of, and consumer trust in, any organizations involved in the breach.
NEW RISK Lawyers may be among the most educated purchasers of insurance, yet most law firms are without protection from one of the most pertinent risks related to their profession: protection of “client” information. The ability for hackers to wreak havoc, even breaching
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technology-savvy firms like Sony, is no longer merely a threat; it is a reality. Given the highly sensitive nature of client-lawyer relationships, law firms need to recognize that the portability of information in channels outside of their control is a risk that can come home to roost. Consider the tools of the modern-day businessperson: laptops, USB drives,
smartphones and tablets are used for conducting business more than ever before. Couple that with higher workloads and greater work pressure, professionals are increasingly relying on the ability to take work home with them. Content resides on devices more than ever before and the associated security in most cases is wanting. Despite efforts by organizations to protect, secure and
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manage business data and content, human behaviour is presenting a challenge to strict security. For example, findings from a survey on USB security out of the United Kingdom, conducted by the Ponemon Institute and involving 10 European countries, indicate that 72% of those who lose or misplace a USB that contained company information do not report the breach or notify the appropriate authorities. The risk of devices being lost or stolen — and, along with them, their content — in transit is significant. In an age where companies are pushing “paperless” working environments, organizations are effectively encouraging the use of tools often without appropriate governance or adequate terms of use to provide guidance. By not doing so, an organization is inadvertently putting at risk its intellectual capital, corporate reputations and competitive intelligence.
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www.claimscanada.ca 30 Canadian Underwriter November 2012 Official Journal of the Canadian Indeépendent Adjusters’ Association
A junior partner is working late to add the finishing touches to an aggressive takeover bid. He places the presentation and supporting financial reports on a USB drive so he can later access the information from the client’s boardroom. He also adds to the drive the revenue forecast and penetration analysis he has been working on over the past couple of weeks so that it will be on hand should any questions arise with regard to the sustainability of his recommendations, and whether or not report numbers can be substantiated. There are three other organizations also involved in the takeover bid. The junior partner packs up and hurries to catch the train. Upon arriving at his home station, he takes a cab to his residence. At home, he leaves his briefcase by the door. The following day, he arrives at the office early to prepare for the presentation, empties his briefcase and cannot find the USB drive. Frantic, he calls the train station to see if anyone turned in the drive, but has no luck. He calls the cab company, but unable to recall the taxi number or driver, is told he will be called if any-
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The process can begin with just the names and contact information of those compromised; the nature of the content does not need to be disclosed or shared in any way, meaning that solicitor-client privilege will not slow the process.
thing turns up. When his boss later walks in and asks for the USB to share the presentation material with the other organizations involved in the bid, he can only say the firm’s information (and theirs) has been lost. A June 2011 report from NetDiligence notes that 15% of breaches occurred as a result of lost or stolen devices, 36% were caused by hackers and 19% were the result of actions by rogue employees. Many insurers offer cyber risk coverage, although only a handful seem to address one of the most important aspects of managing the risk: a response protocol to address the time immediately following the breach, as well as the potential damage to the organizations and individuals compromised by the breach.
THE RESPONSE In many cases, the actions taken within the first 24 hours of a breach can go a long way toward gaining control of the situation, by initiating corrective measures and starting the notification process. An insurance partner should be able to offer the support needed if such events occur. The junior partner reports the loss of information to his firm’s senior counsel who, in turn, informs the risk manager. The firm’s appropriate cyber risk policy is located and the 1-800 response line is called in order to initiate the emergency response scenario. The process can begin with just the names and contact information of those
compromised; the nature of the content does not need to be disclosed or shared in any way, meaning that solicitor-client privilege will not slow the process. A call centre is standing by to begin notifications before close of business day. Within hours, the firm’s insurance carrier and response team have responded with legal, public relations and claims specialists who have begun the process of determining the potential scope of the damage, have identified what information has been compromised and have started to prepare statements for the media. Managing any impact on the reputations of the organizations involved is critical. In addition, any potential business interruption is evaluated and mitigation strategies are immediately implemented. The lost USB drive has not yet been recovered, but the organization has nonetheless initiated its emergency response protocols, and the insurer’s claims and crisis communications team has already made significant strides to minimize the breach’s impact and started to mitigate potential exposure.
LOOKING FORWARD Privacy legislation is changing rapidly. For example, there have been changes in Ontario and also federal amendments tabled, namely Bill C-12, An Act to amend the Personal Information Protection and Electronic Documents Act, more than a year ago. As insurers work to keep up with the fast-changing nature of legislation in
the cyber world and introduce new products to protect firms caught by the flow of data, there are a few important things to bear in mind. The responsive aspect of the coverage is critical — claims and response teams need the knowledge, experience and support personnel in place to quickly and efficiently respond to a breach as soon as it has been reported. With a number of cyber products in the marketplace, underwriting knowledge is key — inexperience or lack of knowledge in this area can leave an organization exposed because of inadequate coverage related to the class of business. Premium indications also may be slightly skewed based on improper ratings of exposures. The ability of an insurer to protect an organization’s data (or that of its clients) globally must also be a consideration since emailed attachments can reach other countries as quickly as someone sitting in the same office. When talking to an insurance broker, ask for an underwriter who has comprehensive coverage, experience and claims capability for cyber and data security. Safeguarding the integrity of clients or organization data and information is the first step in mitigating the broader risk to reputation, sustainability and trust. Specify the need for a response component to the cyber policy to ensure coverage provides the capacity, capability and expertise to respond quickly, which can have a significant impact on the end result.
November 2012 Canadian Underwriter
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Volatile Calm 2012 has been a relatively quiet year for reinsurance when set against the catastrophes of 2011. Executives in the Canadian property and casualty reinsurance industry were asked to look ahead to 2013 and report what they see on the horizon.
32 Canadian Underwriter November 2012
been going on in the United States. Not like a familiar password? — and “ex- pany experiences a breach, its major risk only does that mean that SMBs in ploitation of insufficient authentica- is either the total cost of handling the Canada are now more attuned to the tion” — such as networks that do not breach or the potential cost of a lawsuit,” potential for privacy breaches, it could have any passwords. Fioravanti explains. “The major risk that In addition, the wide availability of an SMB faces is going out of business also translate into additional compliance mandates from both provincial automated hacking programs may in- because customers decide to take their and federal governments to get in front crease the odds that an SMB will be a business somewhere else. It’s that repuvictim when a larger company will not. tational loss that’s really a concern for the of what is certainly a growing issue. The regulatory environment is likely “The amount of effort big companies put small to mid-size businesses.” to move toward a mandatory notifica- into detecting and repelling these protion requirement in Canada, making it grams, using similarly automated defence COVERAGE OPTIONS even more critical for firms to have systems, is staggering,” Seaman suggests. As technology platforms have become proactive protocols and breach response more sophisticated and companies rely plans in place. more heavily on them to do business, The main areas of concern in the the insurance industry has responded cyber realm for Canadian businesses with improved coverage options. Broare not materially different than those kers who may have struggled with client of firms in the U.S. and even the pushback in the past might find more United Kingdom, says Nowell Seaman, success with today’s more comprehensive solutions. manager of risk management and “The cyber insurance products have insurance services at the University of evolved significantly in the last decade,” Saskatchewan in Saskatoon, and a memSeaman points out. “The products and ber of the Risk and Insurance Managethe types of coverage they’re offering ment Society, Inc.’s board of directors. now seem to be more consistent from “All firms — whether you’re large, provider to provider, and they are filling small, non-profit or for-profit — should very important gaps.” be very concerned with protecting their Exclusions in traditional policies make customers’ and users’ data and privacy,” A recent study conducted Seaman says. the latest dedicated breach coverage by Verizon and several But the increasing reliance on IT sysoptions an even better value to SMBs, tems to conduct business and support international security especially when viewed against the podaily operations, including taking pay- partners shows that larger tential cost of an exposure. ment information and storing sensitive Not only were the cyber liability poliorganizations are less likely data, makes the need for a secure and cies of old typically less robust than robust technology architecture of even to suffer breaches caused today’s offerings, Fioravanti says many ere atofhome, there isof concern over greater importance than it was 10 or by the “exploitation them were also too expensive for the default such as the apparent increased frequency and severity of extreme weather even five years ago.factors Because customers SMB crowd. Coverage was historically or guessable credentials.” continuing and pressure on local reinsurers to achieve profit global companies, with need to be confidentevents, that their informa-consolidation aimed at “larger, from underwriting investment income. Couple a jumble tion is protected, and companies needresults, prices startingof at $25,000,” she reports. Doesnot1-2-3-4-5 sound like a that with influencestools beyond borders — the Euro area debt crisis, That flagging growth to know their technology willCanada’s was prohibitively high for the vast familiar password? in someinemerging and of global continue to bring money the door,markets and regulatory demands — and domestic majority small firms. forcesbeen couldcomproconspire to bring relativehave calmfewer to an resources end. any systems that have SMBs the typically Today’s products have a much lower Will it be a matter of clear skies ahead? Or are there indicators that storm mised “would be a very great concern,” available to respond to cyber exposures, barrier toclouds entry, and Fioravanti says that are forming? Is the current view of Canada as a stable marketplace to Seaman says. not only in terms of in-house technolwhenenough SMBs compare the price point to weather storms that may develop? Howexpertise, importantbut will also it be the for Canada to exercise ogy tools and the risks they potentially face should a obtainofadequate rate for risk into return breach and ensure amount money they canthe funnel occur,that “it’s a no-brainer for these SIZE MATTERS underwriting discipline, policy breaches terms are and commensurate with exposure? breach response. Fioravanti says that brokers and clients.” When it comes to privacy The availability of affordable breach data security concerns, a company’s size SMBs are more likely to need insurance may be a telling indicator of its risk. A coverage to address things such as the coverage in an increasingly connected recent study conducted by Verizon and cost to notify customers and to con- world also gives agents a new tool to several international security partners duct an investigation to determine the retain existing accounts and take advanshows that larger organizations are less extent of the exposure. tage of new opportunities. “If a broker There are also less tangible implica- is not talking about this,” Fioravanti likely to suffer breaches caused by the “exploitation of default or guessable tions that may be more damaging to says, “they’re going to lose the business credentials” — Does 1-2-3-4-5 sound smaller organizations. “If a large com- to somebody else who is.”
H
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COVER STORY
Volatile Calm Canadian Underwriter asked Canadian reinsurance company CEOs, presidents and chief agents what they expect to see on Canada’s reinsurance radar in 2013? Their answers are presented in alphabetical order by name.
1
André Fredette
Senior VP & Chief Agent Caisse Centrale de Réassurance
The reinsurance market survived the financial meltdown of 2008-2009. I see no reason there will not be an orderly renewal season for 2013. There are, however, certain trends that are putting pressure on local reinsurers. Low interest rates on government bonds mean that profit must come more from underwriting results rather than investment income. That said, the local insurance market is having trouble growing. Every company cannot meet its 10% growth target when the economy is only growing at 2%. As a result, companies that have excess capital and pro rata treaties with reinsurers have used their excess capital to either reduce or cancel their pro rata cessions to reinsurers. The result for a reinsurer, apart from lack of growth, is to make its portfolio mainly an excess of loss or Cat portfolio. This portfolio is inherently more volatile in results since the large pro rata treaties in the past tended to be low in volatility and helped to dampen the swing in results. For 2013, the chief impact on primary insurance companies will probably be on the property per risk and catastrophe treaties since the results for these treaties have been poor in the last couple of years in Canada and also because of the fallout from the Cat losses in Asia (Japan, New Zealand and Thailand) last year. Reinsurers are more likely to raise prices on renewal and to be more discriminating with regard to their use of capacity. Even primary insurance companies are taking similar actions, especially in quake zones such as Vancouver. 34 Canadian Underwriter November 2012
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The other classes of reinsurance should be renewed on an “as is” basis or with minor increases, depending on individual results, but not at levels that would be described as disruptive.
Currently, the potential for the U.S. economy to go over the fiscal cliff adds another dimension to political-induced uncertainty.
2
Caroline Kane Senior VP & Chief Agent in Canada Toa Reinsurance Company of America
While the Canadian reinsurance industry showed a marked improvement in the first half of 2012 over 2011, the second half will likely show some deterioration, primarily as a result of catastrophe activity in Alberta, Saskatchewan and Ontario.
Despite the continued downward pressure on profitability — exposure growth, loss trends and low investment returns — there remains ample capacity in the Canadian market to foresee a fairly flat 2013 treaty renewal season. The “pie” of available reinsurance premiums continues to shrink as primary insurers become larger, consolidate and retain more risk. Further consolidation within the Canadian market is expected to continue. It is perhaps, in part because of this shrinking of assumed reinsurance premiums, that some reinsurers have diversified by becoming active or increasingly active in the primary market. While Canada has been spared many of the financial meltdowns that have occurred in Europe and the United States these past few years, Canada nevertheless operates in a global economy. We are not immune and cannot operate in isolation to events happening beyond our borders. The industry at large will continue to be faced with numerous challenges, including what seems to be an increase in frequency of weather-related losses, changes to the political landscape and continued economic uncertainty. Overall, capital needs have increased and will continue to do so in this dynamic environment in which our industry operates. The “flight to quality” remains paramount to insurers, reinsurers, regulators and rating agencies alike. To face the current and future challenges as reinsurers, it is necessary to remain focused, exercise underwriting discipline and obtain adequate rate for the risk return.
3
Sharon Ludlow President & CEO
Swiss Re Canada
The global economy remains fragile, with Europe in recession and weak growth in Canada, the United States and Japan. Even the emerging markets are growing at a reduced pace.
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COVER STORY
Volatile Calm The Euro area debt crisis is subdued for now, but is far from being resolved, creating uncertainty all around the world. Moreover, currently, the potential for the U.S. economy to go over the fiscal cliff adds another dimension to political-induced uncertainty. Slow growth and stimulative monetary policies have kept interest rates low and has property and casualty insurers focused on underwriting profitability. Insurers are also “re-risking” their investment portfolios, seeking higher returns as they continue to earn dwindling interest rates on “safe” government bonds. The focus on underwriting profitability and the increased use of predictive analytics is expected to continue. Generally speaking, primary property insurance prices are trending upwards; commercial pricing is lagging behind. Globalization has brought foreign Cat risks close to home. The Japan earthquake and the Thailand floods of 2011 revealed increasing global vulnerabilities to supply chain disruption and related business interruption exposures. Diversification, stability and a strong capital position are critical in a global reinsurance market. The (re)insurance market in Canada has weathered storms before and should continue to do so in 2013. Looking ahead, the overall market environment remains challenging, but there is economic rationale for continued improvements in pricing and the prospect for higher investment yields further down the road of economic recovery.
4
Cam MacDonald Senior VP & Chief Agent Transatlantic Re
Recent history has again confirmed that large weather-related losses — such as the Calgary hailstorm this August — are here to stay in Canada. And the Canadian reinsurance market should anticipate more of these catastrophic events over the upcoming 12 months. 36 Canadian Underwriter November 2012
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Changing weather patterns, population density and higher property values have conspired to create a wide array of potential loss scenarios throughout the entire country (remember Slave Lake).
Despite these warnings, there remains a plethora of available global capacity and appetite for Canadian Cat business as many international underwriters view Canada as a preferable non-Cat-prone zone. However, as Canadian catastrophe loss analysis evolves, it is expected that greater emphasis will be placed on loss frequency and severity in pricing models. In a weak investment environment, there is considerably more pressure on underwriting profit and it is imperative that policy terms and conditions are commensurate with exposure. Canadian regulators have made earthquake aggregation and capital requirements a top priority and as we draw closer to the 1 in 500 year event threshold, the focus on this subject will intensify.
5
Frank Rueckert Senior VP, Canadian Treaty Department
Hannover Re
Changing weather patterns, population density and higher property values have conspired to create a wide array of potential loss scenarios throughout the entire country. Writing on Halloween eve, it is scary to imagine that if the stars were aligned a bit differently, the recent combination of Hurricane Sandy and the 7.7-magnitude earthquake off the coast of British Columbia just days apart, could have been the realization of our industry’s “worst case” scenario. It appears, at least this time around, that we dodged a potential loss sequence of biblical proportion. Indeed, this double near-miss should serve as a wake-up call to all reinsurance underwriters.
Despite the hail that accompanied the Alberta storms in August — with a market loss estimated at $400 million to $600 million — 2012 has been marked by an absence of big Cat losses. Some individual programs affected by losses may see property Cat rate increase, although unlikely across the board or at the levels at 2012 renewal. Global developments and severe losses in Canada during a tough 2011 motivated significant premium hikes and some markets to reduce their capacity. On the casualty side, reinsurance rates are not where they should be. However, with consolidation, the very biggest primary players in the market can afford to retain more of their business, making it less likely it will be ceded to reinsurers. With the Office of the Superintendent of Financial Institutions making changes to how property and casualty insurers measure and manage earthquake exposure, B.C. quake is certainly an issue and cedents may respond by adjusting their writings and, possibly, their
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COVER STORY
Volatile Calm exposure. As well, the multitude of severe losses in Alberta will need to be monitored to determine if this is part of a trend. Looking forward, reinsurers will also likely keep an eye on the concentration of cedents in some regions. Are we happy to live with concentration that would mean being just as exposed in the future to certain kinds of losses as has been the case in the last 18 to 24 months? From the reinsurance perspective, is it advisable to take on more business if a reinsurer is too heavily concentrated, independent of the possible margin? There is also the ongoing consolidation process between primary companies, primary companies buying brokers and brokers buying brokers. This can possibly produce a situation where reinsurers do not see the bread and butter business, but are increasingly pushed toward the high-volatility Cat layers, which carry high capital charges.
6
Steve Smith President & CEO Farm Mutual Reinsurance Plan
While the unprecedented global catastrophe activity from 2011 took a very positive turn in 2012, the catastrophe activity in Canada continues to prove somewhat volatile. Occurrences such as the August hailstorm in Alberta, the severe thunderstorms that struck several areas of Ontario — including Hamilton, the Greater Toronto Area and Thunder Bay — and the windstorms that frequented Western Canada were not insignificant. In addition to the loss activity, the outlook for investment returns (arguably) for the foreseeable future remains relatively dismal. With the risk-free rate of return down to approximately 1.5% and investment returns barely above that, the pressure for rate adequacy at the reinsurance level will be very evident. The cost of capital will ensure that reinsurers emphasize minimum rates on line to at least maintain and achieve desired returns for their shareholders. 38 Canadian Underwriter November 2012
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Exposures in earthquake zones that are now subject to both additional regulatory reporting and capital requirements will place further emphasis on Cat modelling and data integrity in 2013.
However, this will be somewhat conditional on a couple of fronts. The ability of insurers to increase retentions and absorb more risk, coupled with evidence of reserving adequacy and limited adverse development, will be significant factors. In spite of the pressure to generate decent returns, the Canadian reinsurance market continues to be well-capitalized, providing the ability for reinsurers to grow. Any growth opportunities that will be identified will be met with the challenge of achieving adequate rates in a very competitive marketplace.
7
Matthew Spensieri VP, Reinsurance Catlin Canada Inc.
There appears to be ample capacity available for Canadian companies either in traditional Cat covers or in a growing availability of “insurance bonds” or other risk transfer vehicles. Primary auto rates will see some reductions or, at best, remain flat as insurers are experiencing a marked improvement over 2011. This will likely generate upward pressure on reinsurance rates to maintain income levels as loss trends are reflecting a rise in severity, particularly with the increased exposure to Catastrophic Impairment rulings on Ontario accident benefit claims.
While there are numerous and significant influences on the reinsurance market, the most obvious/recognizable driver is catastrophe loss(es) or the absence thereof. In 2011, the industry suffered both a high frequency and high severity of losses around the globe. These events prompted a slight restriction in capacity, along with a minor uptick in pricing at year-end. Thus far in 2012, there have been very few “events” around the globe. To date in Canada, we have seen a number of events, although most have been relatively minor. The largest was the August hailstorm in Alberta, with estimated losses being as high as $600 million. While the Cat losses suffered in 2012 by insurers and reinsurers in Canada are sizeable, they are not anticipated to cause significant disruption. Apart from “adjustments” to specific programs that may have suffered a loss, little change is expected for the coming year. Model changes and regulatory requirements may continue to fuel demand for Cat capacity. We have also witnessed industry consolidation influencing demand, at least until the combined portfolios can be ratified. That said, there appears to be ample capacity available for Canadian companies either in traditional Cat covers or in a growing availability of “insurance bonds” or other risk transfer vehicles.
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COVER STORY
Volatile Calm
However, the main influence of this supply/demand marketplace is price. The current low interest rate environment, coupled with the economic downturn from 2008, has caused many reinsurers to be more disciplined/ protective of their capacity (capital). At the “right” price, they are willing to assume risk. Otherwise, they are less willing to risk their capital, especially at these low investment yields levels. The recent 7.7-magnitude earthquake in British Columbia produced little resultant loss. At the time of writing, Canada was feeling the impact of Hurricane Sandy as it reached the United States, having left a swath of destruction in the Caribbean. While the losses in Canada from this storm may be “modest,” the ultimate total cost to the worldwide insurance/reinsurance industry will definitely be in the billions. From an economic, regulatory and business perspective, Canada is seen as a very stable market. While we continue to experience Cat losses, there is a belief that failing a “mega catastrophic event here in Canada” — which some are predicting, but no one is actually wishing to occur — not much will change over the coming year.
8
Matt Wolfe
Senior VP & Managing Director Canada Beach and Associates Ltd.
The Canadian reinsurance market outlook for 2013 is likely to be a “tale of two cities.” The story will feature a growing and stable property marketplace (particularly property catastrophe) set against a casualty marketplace 40 Canadian Underwriter November 2012
that continues to shrink, likely to the ultimate detriment of reinsurers and insurers alike. Property 8 catastrophe reinsurance demand is robust and will continue to be so in 2013 as insurers move towards meeting the Office of the Superintendent of Financial
Insurers may see reinsurers push for some rate increases in light of their recent losses from Hurricane Sandy, especially if that event quantum continues to increase. Institutions Canada’s ultimate goal of having the financial resources (capital and reinsurance) sufficient to meet earthquake claims equivalent to a 1 in 500 year event. Reinsurance supply will be sufficient to meet demand next year and pricing is expected to be generally stable. Insurers may see reinsurers push for some rate increases in light of their
recent losses from Hurricane Sandy, especially if that event quantum continues to increase. That said, any such increases are likely to be modest. While the Canadian property catastrophe reinsurance market is currently meeting the needs of Canadian insurers at a reasonable cost, the recent 7.7-magnitude earthquake in the waters off British Columbia is a useful reminder that this could change. Canadian insurers should build contingency relationships with non-traditional suppliers of property catastrophe reinsurance capacity (capital markets) to have alternatives at hand in the event of a major catastrophic event. These relationships will also be a useful supplement to traditional reinsurance capacity as the movement to the 1 in 500 year event threshold puts some pressure on reinsurers to meet demand. The Canadian casualty reinsurance marketplace has been contracting in recent years and this trend is expected to continue through 2013 unless one or more of the following three factors plays out: 1) a major catastrophic event materially reduces insurers’ available capital; 2) a major casualty systemic event occurs; or 3) reinsurers find a way to evolve their casualty reinsurance product offering to recapture lost business. Reinsurers need to balance their property catastrophe exposures by writing casualty exposures. Unless one of the aforementioned three events occurs, the continued contraction of the casualty reinsurance market will likely result in more reinsurers entering the casualty insurance sector and diluting returns for all.
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In the Wind The heavy hand of a superstorm — bearing the lightness of the name Sandy — delivered a slow-moving assault that left parts of the Caribbean and the United States battered and areas in central and Atlantic Canada feeling its diminished touch. Angela Stelmakowich Editor
Hurricane Sandy hit Jamaica, Haiti, Cuba, the Dominican Republic and the Bahamas — triggering flash flooding and landslides in some areas — in late October before making its way along the Atlantic coast of the U.S. and touching down as a post-tropical storm in New Jersey. Heavy rains and punishing winds produced damage along Sandy’s path that ranged from incidental to complete. There were reports of damaged or destroyed homes, flooded property and infrastructure, a record storm surge at the Battery in lower Manhattan, subway flooding, declared states of emergency, evacuations, and millions of people as far away as Toronto left without power as the storm saw October turn to November. On October 28, the Canadian Hurricane Centre forecast the rain that would come to southern Ontario, Quebec and Atlantic Canada. Rainfall amounts in some localized areas were projected to be as much as 75 millimetres. A wind warning was in effect for much of southern and eastern Ontario, including Toronto, on October 29. “These gusts could cause broken tree limbs or, in some cases, uprooted trees which may result in downed utility lines,” the
42 Canadian Underwriter November 2012
centre noted. Leaves obstructing stormwater drainage systems along roadways and heavy rainfall also carried through on the threat to increase flooding in some areas. Sandy’s diameter made it the largest Atlantic hurricane on record in terms of the span of tropical storm-force winds, which reached almost 950 miles across, AIR Worldwide noted in a press release issued October 30. “Sandy’s diameter was nearly twice the size of other massive hurricanes, including Katrina (2005) whose diameter was 435 miles, Isabel (2003) whose diameter was 575 miles, and Isaac (2012) whose diameter was 450 miles,” Tim Doggett, principal scientist at AIR, said in the statement. “The sheer size of Sandy will ensure that damage is very widespread,” comments Glenn McGillivray, managing director of the Torontobased Institute for Catastrophic Loss Reduction (ICLR). “With its size and strength and hybrid nature, this storm has a far reach inland, which has made it different than many hurricanes in the past, especially typical weak Cat 1 storms.” The one plus of Sandy’s enormity may have been that the huge radius helped to keep the winds at Category 1 intensity.
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STORM CLOUDS Damage estimates from Sandy have swelled. As of November 1, catastrophe modeller EQECAT Inc. pegged estimated insured damage in the U.S. at $10 billion to $20 billion, and total economic losses at $30 billion to $50 billion. On October 30, AIR estimated insured losses to onshore properties south of the border would be about $7 billion to $15 billion (U.S). Estimates included wind and storm surge damage to onshore residential, commercial and industrial properties and their contents, automobiles, additional living expenses for residential properties and business interruption for commercial properties. Tom Teixeira, a practice leader at Willis Global Solutions, wrote in a recent blog that he was not surprised by the estimate, but expected figures to increase once all losses, including business interruption, had been analyzed. Teixeira argued that many major companies have failed to learn the lessons provided by catastrophes in 2011. “The silo mentality — driven by localized profit and loss accounts — has created opposing objectives, such as procurement trying to significantly reduce inventory and group risk trying to reduce the level of business interruption should disasters occur.” Risk Management Solutions (RMS) reported on November 2 that it was still too early to reach reliable loss estimates. “It is evident that Sandy’s impacts are widespread and multiple, with mounting super-Cat like elements,” Claire Souch, vice president for model solutions at RMS, said in a statement. Because power outages may mean water pumps are not operational, “extensive standing water has been shown in previous events to lead to a phenomenon known as ‘vulnerability deterioration,’ as the water seeps further into building’s structures,” Souch said. How quickly power is restored and floodwaters pumped from towns and transport systems are “key variables [that] will play a significant part in the ultimate loss.” Fitch Inc. estimated on October 30 that Sandy has the potential to trigger large insurance claims for business in44 Canadian Underwriter November 2012
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terruption (BI) and contingent business interruption (CBI) “related to the flooding as the affected areas work to restore power and resume operations following the storm.” BI policies usually can be claimed if the interruption is the result of a physical loss or damage to property as a result of a covered cause of loss; CBI policies cover loss of income when a client’s operations are disrupted by a supplier and covers the same perils as the main policy. Noting that many firms do not purchase CBI insurance, Fitch pointed out losses have been underestimated in previous disasters. Making the scary prediction on Halloween that Sandy’s impact “from an insurance standpoint is likely astronom-
One catastrophe modeller reported it was too early to come up with loss estimates. “It is evident that Sandy’s impacts are widespread and multiple, with mounting super-Cat like elements.” ical,” Daniel Gerber, co-chair of the Global Insurance Services Group for the law firm of Goldberg Segalla, noted that many property insurance policies exclude losses resulting from storm surge flooding, although perhaps have limited coverage for flooding caused by sewer or drain back-up.While fire is generally covered, Gerber said, it may not be if caused by flooding. “Knowing the type of applicable coverage and the exact cause of loss will be critical in Sandy claims,” he added. “It pays to always be prepared at home with the necessary items to withstand at least 72 hours without power and water,” suggests Pete Karageorgos, manager of consumer and industry relations for the Insurance Bureau of Canada. It is also best to be prepared for any storm, “because situations change and storms in different seasons provide different challenges,” Karageorgos says. McGillivray advises people to do a number of things: realize that hurricanes not only can, but do, impact Canada;
take seriously forecasts, watches, warnings and special weather statements from reputable institutions such as Environment Canada and its Canadian Hurricane Centre; and prepare ahead of time, having a 72-hour kit ready. “On a grander and more permanent scale, we need to consider how we build critical infrastructure, homes and other assets in light of the science that says the frequency and severity of severe weather will increase in the future,” he adds.
SILVER LINING One bit of light from the gloom may be that with fewer catastrophes so far this year, property and casualty insurers are in a better position to absorb Sandy’s hit. As of October 29, the U.S. catastrophe losses were down 51% from 2011, A.M. Best noted in a special report. Most of Sandy’s financial impact in the U.S. will be absorbed by the National Flood Insurance Program, which covers homes for as much as $250,000 for the structure and $100,000 for personal possessions; commercial properties for up to $500,000 for the structure and $500,000 for contents, it added. No negative ratings actions on reinsurers were expected to result in the wake of Sandy’s anticipated losses, Fitch reported, explaining that losses from a single event would need to exceed $60 billion to trigger an outlook revision from stable to negative. McGillivray says that Hurricane Irene last year went down as the most costly Cat 1 hurricane in the history of the U.S. “It appears all but certain that Irene will probably slip down to second place as a result of Sandy.” Although emergency preparedness is quite good locally and provincially, says McGillivray, there is some concern that Canada currently lacks a strong, cohesive federal disaster strategy. “We should consider, for example, that had the recent earthquake off B.C. been different, and had Sandy been worse, Canada may have been faced with having to manage two large disasters simultaneously.” ICLR supports the federal government’s current efforts to work toward a mitigation and disaster strategy.
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Eduard Goodman
Attorney, Privacy Expert and Chief Privacy Officer IDT911
Losing USB flash drives, using weak passwords and having unprotected networks are among the everyday scenarios that make up most data security breaches. Still, small and mid-size companies appear not to be sufficiently prepared to avert the potentially costly effects of cyber exposures. When companies think about privacy breaches, the first thing that comes to mind is the classic hack attack against a global corporation. But the bigger threat comes from breaches at smaller companies in the form of a mislaid thumb drive, a stolen laptop or a weak password. In fact, most data security breaches and other cyber exposures are the result of benign, everyday scenarios. This should not come as a surprise considering that 55% of small and mid-size businesses
46 Canadian Underwriter November 2012
(SMBs) allow employees to use devices like USB flash drives, but only 23% encrypt customer data, notes a recent study by Symantec. Dianna Fioravanti, vice president of sales, distribution and underwriting operations at Economical Insurance in Waterloo, Ontario, says that a variety of other, equally ordinary events, such as unprotected networks and breaches, also can put SMBs at risk. Mobile computing and social media rank high on companies’ list of concerns when it comes to risks in the cyber world. But for all these worries, 66% of SMBs polled reported that they would not even know if they had suffered a breach, and fewer than a third (31%) have procedures in place should a breach be discovered. The confluence of risk and lack of preparation is a recipe for disaster. “I think there’s a lot of education around this that needs to be done,” Fioravanti says, adding it is imperative that brokers have the tools and information they need to assess and manage their clients’ cyber liability risks. Companies in Canada may not have as many widely publicized cyber exposures as their counterparts in the United States, but that does not mean they have not learned a few lessons from their southern neighbours. It appears the Canadian market has been closely watching what has
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been going on in the United States. Not only does that mean that SMBs in Canada are now more attuned to the potential for privacy breaches, it could also translate into additional compliance mandates from both provincial and federal governments to get in front of what is certainly a growing issue. The regulatory environment is likely to move toward a mandatory notification requirement in Canada, making it even more critical for firms to have proactive protocols and breach response plans in place. The main areas of concern in the cyber realm for Canadian businesses are not materially different than those of firms in the U.S. and even the United Kingdom, says Nowell Seaman, manager of risk management and insurance services at the University of Saskatchewan in Saskatoon, and a member of the Risk and Insurance Management Society, Inc.’s board of directors. “All firms — whether you’re large, small, non-profit or for-profit — should be very concerned with protecting their customers’ and users’ data and privacy,” Seaman says. But the increasing reliance on IT systems to conduct business and support daily operations, including taking payment information and storing sensitive data, makes the need for a secure and robust technology architecture of even greater importance than it was 10 or even five years ago. Because customers need to be confident that their information is protected, and companies need to know their technology tools will continue to bring money in the door, any systems that have been compromised “would be a very great concern,” Seaman says.
SIZE MATTERS When it comes to privacy breaches and data security concerns, a company’s size may be a telling indicator of its risk. A recent study conducted by Verizon and several international security partners shows that larger organizations are less likely to suffer breaches caused by the “exploitation of default or guessable credentials” — Does 1-2-3-4-5 sound
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like a familiar password? — and “exploitation of insufficient authentication” — such as networks that do not have any passwords. In addition, the wide availability of automated hacking programs may increase the odds that an SMB will be a victim when a larger company will not. “The amount of effort big companies put into detecting and repelling these programs, using similarly automated defence systems, is staggering,” Seaman suggests.
A recent study conducted by Verizon and several international security partners shows that larger organizations are less likely to suffer breaches caused by the “exploitation of default or guessable credentials.” Does 1-2-3-4-5 sound like a familiar password? SMBs typically have fewer resources available to respond to cyber exposures, not only in terms of in-house technology tools and expertise, but also the amount of money they can funnel into breach response. Fioravanti says that SMBs are more likely to need insurance coverage to address things such as the cost to notify customers and to conduct an investigation to determine the extent of the exposure. There are also less tangible implications that may be more damaging to smaller organizations. “If a large com-
pany experiences a breach, its major risk is either the total cost of handling the breach or the potential cost of a lawsuit,” Fioravanti explains. “The major risk that an SMB faces is going out of business because customers decide to take their business somewhere else. It’s that reputational loss that’s really a concern for the small to mid-size businesses.”
COVERAGE OPTIONS As technology platforms have become more sophisticated and companies rely more heavily on them to do business, the insurance industry has responded with improved coverage options. Brokers who may have struggled with client pushback in the past might find more success with today’s more comprehensive solutions. “The cyber insurance products have evolved significantly in the last decade,” Seaman points out. “The products and the types of coverage they’re offering now seem to be more consistent from provider to provider, and they are filling very important gaps.” Exclusions in traditional policies make the latest dedicated breach coverage options an even better value to SMBs, especially when viewed against the potential cost of an exposure. Not only were the cyber liability policies of old typically less robust than today’s offerings, Fioravanti says many of them were also too expensive for the SMB crowd. Coverage was historically aimed at “larger, global companies, with prices starting at $25,000,” she reports. That was prohibitively high for the vast majority of small firms. Today’s products have a much lower barrier to entry, and Fioravanti says that when SMBs compare the price point to the risks they potentially face should a breach occur, “it’s a no-brainer for these brokers and clients.” The availability of affordable breach coverage in an increasingly connected world also gives agents a new tool to retain existing accounts and take advantage of new opportunities. “If a broker is not talking about this,” Fioravanti says, “they’re going to lose the business to somebody else who is.”
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Pension Puzzle Directors and officers are becoming more exposed to liabilities involving private pension plans. And depending on the risk and circumstances, they may — or may not — be covered by insurance. Craig Harris Freelance Writer
One of the prime casualties in the aftermath of the 2008 economic crisis was the sponsored pension plan of a private company or organization. While the housing market and financial services industry received much of the attention during that period, pensions also took a sharp hit. In 2008, private pension plans in the 36 countries that comprise the Organisation for Economic Co-operation and Development lost 23% of their real value on aggregate, or a staggering $5.4 trillion. Even today, pension plans are struggling with funding levels. In a report released last August, ratings agency DBRS reviewed 451 defined benefits pension plans in North America and showed a combined funding deficit of $389 billion at the end of 2011. More than two-thirds of plans reviewed in the past year were underfunded by a significant margin. “In order for companies to address this funding gap, employers will have to maintain high levels of contributions, as many plans have now entered the danger zone of funded status,” DBRS noted in the report.
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This “danger zone” has several ramifications. One key facet is the liability of directors and officers, who may be involved as both “employers” and “administrators” related to the pension plan. Evolving litigation in common law has only served to further expose senior managers and Boards of Directors to potential pension liability. “I don’t think the pension exposure is uniformly appreciated by directors or officers making decisions about pension funds,” says Richard Johnston, a partner in Fasken Martineau LLP’s Toronto office. “There is a range of sophistication in terms of how this issue is addressed by companies,” Johnston says. Some argue that these concerns are rapidly emerging onto the radar screen for directors and officers because of the heightened activism of plan beneficiaries. Risk managers and lawyers are becoming increasingly aware of the risk of pension liability,” suggests Ian Gold, founding partner of Thomas Gold Pettingill LLP. “Pension governance is more of a concern as a result of the recent economic downturn and the financial troubles facing
pension plans: beneficiaries are increasingly scrutinizing the administration of the plan.”
nize and fulfill fiduciary obligations for a pension plan can expose (directors and officers) to substantial personal liability.”
OBLIGATED BY LAW There are several obligations that directors and officers face regarding private pension plans, spelled out by statute or common law. Many provincial and federal pension laws make directors liable for offences their corporations commit. For example, offences may include failure to submit required contributions to the pension fund or to hold contributions in trust on the employees’ behalf. Directors can be held personally liable for substantial fines, as well as amounts required to reimburse the plan. As Gold points out, in Ontario a plan administrator can be fined $100,000 for a first offence in breaching an applicable pension statute. The common law has also seen several recent developments. “In the last four years, directors and officers have been surprised to see potential personal liability they might incur due to common law,” notes Mary Picard, a partner with Fraser Milner Casgrain LLP in Toronto. “This is an ongoing, evolving area of litigation, particularly for companies that are in the ‘zone of insolvency.’ If they have a defined pension plan, that is one of the top questions we see when it comes to directors and officers.” A leading case in this area involves the insolvency of Slater Steel. In a 2008 decision, the Court of Appeal for Ontario essentially allowed a claim to proceed against corporate directors and officers related to a shortfall in the company’s defined benefits pension plan. The case, Morneau Sobeco Ltd. Partnership v.Aon Consulting Inc., also involved disputes regarding actuarial assumptions used in the administration of the pension plan. “The decision in the Ontario Court of Appeal in Slater Steel exposed 10 directors, officers and employees to possible personal liability of $20 million with no meaningful recourse against the insolvent Slater Steel or its assets,” Johnston notes in a commentary on the case. “This is a reminder that failure to recog-
ADMINISTRATOR AND/OR EMPLOYER One of the critical issues in this case was the fiduciary obligation of the directors and officers as “administrators” of Slater Steel’s pension plan, as opposed to “em-
ployers.” As Johnston notes, Ontario and other Canadian provinces impose fiduciary duties on the designated administrator of a pension plan. But for most plans, the designated administrator is also the employer. This so-called “two hats” approach adopted by the courts distinguishes that an employer may be free of fiduciary duties in determining pension benefits and changing those benefits. However,
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when the employer (directors and officers) acts as a plan administrator, it accepts fiduciary obligations. Cases such as Slater Steel can blur the lines between employer and administrator, creating potential conflicts of interest — and liability. “One of the issues that Slater brought out is that directors and officers have an inherent conflict when it comes to administering a pension plan,“ Picard says. “They owe a duty to the stakeholders of the corporation and also a duty to members of the pension plan. On a day-to-day level, that conflict can be very difficult,” she adds. The potential for increased exposure to pension liability should be met with a comprehensive risk management program, several sources recommend. “Risk management is about education and the implementation of sound procedures,” Gold says. “Directors and officers who are involved in the administration of a pension plan should be familiarizing themselves with the Canadian Association of Pension Supervisory Authority’s governance guidelines and educating themselves on the relevant law with respect to their legal duties,” he advises. “With respect to pensions, directors and officers should insist on a clear governance policy outlined in a formal document,” says Alexandra North, an associate with Fraser Milner Casgrain LLP. “Directors should also review any actuarial evaluations, audit reports and minutes of pension committee meetings.”
ROLE OF INSURANCE Insurance, in the form of directors and officers (D&O) liability and fiduciary liability, can also play a role in addressing the pension liability puzzle. D&O policies can vary significantly among insurance providers in terms of coverage, terms and exclusions. For example, a common exclusion under D&O involves claims against a director or officer in relation to pension liability caused by a breach of duties imposed on a pension fiduciary under statute or common law. 50 Canadian Underwriter November 2012
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“In general, D&O policies exclude pension liability and, therefore, a fiduciary liability policy is a more appropriate option,” says Gold. “However, all policies will contain exclusions that will affect coverage. For example, it is unlikely that willful misconduct or a fine would be covered under an insurance policy.” Fiduciary liability insurance provides specific protection for organizations and individuals responsible for the governance, management and administration of pension and benefit plans.
It is essential to obtain proper advice with regard to the nature of the coverage required by an organization. “There may be add-on coverage to a D&O policy for fiduciary obligations or there may be a need to purchase separate fiduciary liability insurance. Either way, the word ‘fiduciary’ needs to be front and centre when looking at insurance coverage.” “There is a need to get proper advice as to the nature of the coverage required by an organization,” Johnston says. “There may be add-on coverage to a D&O policy for fiduciary obligations or there may be a need to purchase separate fiduciary liability insurance. Either way, the word ‘fiduciary’ needs to be front and centre when looking at insurance coverage.” Picard reports she has seen an upswing in requests for fiduciary liability insurance in recent months. “There does not seem to be any clear answers or standard practices regarding what coverage exists or the amount of protection required,” she comments. “This has to be worked out with the broker. One client asked me how much financial coverage they should get. I said, ‘for the entire amount of the pension plan’; that is the potential exposure.”
GET EDUCATED Johnson says he believes there is a need for more education regarding coverage, risk and terms from insurers and brokers when it comes to pension liability. “I think there should be more information about what is covered under these policies,” he argues. “Those marketing insurance should understand the exposures directors and officers have under pension plans and how they may or may not be covered.” That need may become more pressing in the years ahead, as pension plans evolve and continue to struggle with underfunding issues. The focus of pension litigation traditionally has been on defined benefit pensions, Johnston says, but defined contribution plans, which are increasing in popularity among plan administrators and offer more investment choices to beneficiaries, could create significant exposures going forward. “When you look at these plans, it is not until many years later that people look at their investments, either when they are close to or at retirement,” Johnston observes. “They may question the selection of investments, particularly ‘default’ investments that are offered if no option is taken by a beneficiary. The decisions made in the past related to investments and the plan will be under the microscope. That is when you will want to have documented policies and procedures in place.” Others contend that pension liability and ongoing litigation may make for improved awareness and better governance practices in the future. “My feeling is that we will see better governance of pension plans as a result of this disruption and uncertainty,” Picard concludes. “Ultimately, pension plan members will be better served,” she adds. “Hopefully, the rise in pension litigation in Canada will motivate boards to pay closer attention to their legal obligations to plan beneficiaries,” Gold comments. “Better pension governance will mean less liability for administrators and better outcomes for plan beneficiaries.”
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Clarifying
Coverage
Sharon Vogel
Partner, Construction, Engineering, Surety and Fidelity Group Borden Ladner Gervais LLP
Insurance requirements for a condominium project during construction and a condominium after construction has been completed are very different. Mitigation of risks demands that that difference be appropriately addressed. The insurance requirements of a condominium construction project are complex.There is a fundamental distinction between the construction phase — when the developer, its contractors and consultants have ownership and care, custody and control of the property — and the post-registration and turnover phase, when the condominium corporation and the unit owners assume ownership of the property. In these two phases, the insurance requirements of a condominium are different. During the construction phase, appropriate insurance must be in place to ensure that, in the event of an occurrence, sufficient funds will
52 Canadian Underwriter November 2012
be available to complete the project and pay any damages suffered by the developer and its contractors. After the construction phase is complete and the condominium corporation has assumed ownership of the common elements, the insurance obtained by the condominium corporation must, at minimum, comply with the relevant legislative requirements. Beyond these requirements, the insurance needs of a condominium must be assessed based on the risk profile of the building at issue.
INSURING A CONDOMINIUM DURING CONSTRUCTION During the course of construction of a condominium project, appropriate insurance must be obtained by the project participants to provide coverage over that period. A builder’s risk policy will generally be obtained by the developer/builder to cover the project during construction. Such policies typically contain an exclusion for the cost of making good faulty or improper design, faulty or improper workmanship, and faulty or improper materials. In the event a construction deficiency is identified on a condominium project, it will often be the case that such a de-
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ficiency is attributable to one of these causes and, as such, the cost of making good the deficiency may, therefore, be excluded (though resulting damage may be covered). Commercial general liability (CGL) insurance is also essential for the participants in the construction of a condominium project.There has been extensive litigation regarding the coverage afforded by CGL policies in condominium con-
struction deficiency cases, particularly in British Columbia, where the “leaky condo” phenomenon has resulted in a significant number of cases over the past 10 to 20 years. The targets of these actions have included developer-builders, contractors and subcontractors, material suppliers, designers and municipalities. In three recent class actions in Ontario, brought by condominium unit owners against developers, designers,
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subcontractors and material suppliers following incidents involving falling glass, $20 million in damages was sought in each of these cases for loss of enjoyment of units, because the balconies of the units were closed, and for a diminution in rental income and value.The potential for large claims such as these must be taken into consideration in assessing the adequacy of the policy limits of the various participants in the construction process. Professionals involved in the design and construction of a condominium project, including architects and engineers, will have professional liability policies in place. Often the limits of such policies will be quite low when compared to the costs of remediating a major design deficiency in a condominium.
INSURING A CONDOMINIUM AFTER CONSTRUCTION Following construction, once the condominium corporation has assumed ownership of the common elements, certain legislative requirements are imposed on the condominium corporation with respect to insurance. By way of example, Ontario’s Condominium Act, 1998 (the Condominium Act) is the main source of legislation governing the insurance of condominiums in the province and is being referenced as a representative example of legislative requirements imposed on condominiums. The act explicitly addresses insurance issues affecting condominium corporations, the directors/officers of condominium corporations and condominium owners themselves. However, the legislation does not refer or give direction in respect of the insurance requirements of developers, builders and architects during the construction phase. The Condominium Act creates a two-part insurance regime, which requires the condominium corporation to have two types of coverage: (i) property insurance which provides coverage in respect of damage to the units and the common elements caused by major perils; and
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(ii) liability insurance. In Ontario, a condominium corporation is required to obtain and maintain insurance for both itself and on behalf of the unit owners in respect of damage to the units and common elements caused by “major perils.”The major perils referenced in the Condominium Act are as follows: fire, lightning, smoke, windstorm, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts. While condominium corporations must obtain coverage for these “major perils,” whether coverage for other perils is required hinges on what is specified in the declaration or bylaws of the condominium corporation. Ontario’s act does not address issues related to the availability of coverage for the above-listed major perils. The amount of insurance required under the Condominium Act is the replacement cost of the property damaged, subject to a “reasonable” deductible. The act also includes a termination clause that requires an insurer to provide at least 60 days notice before terminating insurance coverage. The insurance coverage required for condominiums has been the subject of commentary by Canadian courts. In Carleton Condominium Corp. No. 26 v. Nagur, for example, the court commented on the duty imposed on a condominium corporation in terms of repairing damage to units noting that the Condominium Act: … requires all condominiums to maintain insurance coverage for the benefit of all owners on all common property and all units (up to the “standard unit”) for certain specified perils and damage. Therefore, where damage occurs to a unit and the corporation’s master insurance policy provides coverage for such damage, the corporation is responsible for repairs to such damage (either by making an insurance claim, or where it elects not to make such a claim for economic reasons, the corporation is itself responsible for repairs). Insurance agents and brokers will be asked by condominium corporations, through their boards, to ensure that
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adequate insurance is put in place, including the following: • confirming in writing that the insurance policy provides coverage in respect of the prescribed major perils listed in the relevant legislation and any other perils set out in the declaration and bylaws of the condominium corporation. Even if the insurance policies held by a condominium corporation are in the form of “all risk” policies, a condominium board may seek assurances from a broker or agent that the damages that ought to be covered are, in fact,
Three class actions related to falling glass incidents in Toronto each sought damages amounting to $20 million. The potential for large claims such as these must be taken into consideration in assessing the adequacy of the policy limits of the various participants in the construction process. covered under the relevant policy so as to reduce any risk of ambiguity; • assisting with regular insurance reviews and appraisals, particularly where there is a renovation to the common elements of a condominium; and • advising that the deductible is “reasonable” such that, in the event of an incident, the condominium is financially prepared. As well, the condominium corporation will want to ensure the unit owners are adequately informed about the insurance needs of their individual units. A condominium corporation is also required to obtain liability insurance. Pursuant to Section 102 of the Condominium Act, a condominium corporation must obtain and maintain liability insurance which insures against its liability (1) resulting from a breach of duty as occupier of the common elements or land the corporation holds as an asset; and (2) arising from ownership, use or
operation of boilers, machinery and pressure vessels, and motor vehicles. Condominium corporations generally purchase CGL policies.
INSURANCE NEEDS OF THE CONDOMINIUM BOARD A condominium’s Board of Directors also requires adequate insurance. The Condominium Act addresses both the indemnification of, and the insurance requirements for, directors and officers of the condominium corporation. Section 38 allows directors and officers to be indemnified pursuant to the by-laws of the corporation, except for any breach of the duty to act honestly and in good faith; Section 39 of the Ontario act requires that officers and directors be insured, but only if such insurance is “reasonably available.” The importance of this coverage was highlighted in Boily v. Carleton Condominium Corporation 145, a 2012 decision from Ontario. Directors and officers were held personally liable in respect of certain legal costs incurred in connection with a motion to enforce a settlement relating to a dispute between the condominium board and certain unit owners in relation to courtyard landscaping work and the appropriate procedure to be followed by the board in approving that work. What constitutes insurance for directors and officers that is “reasonably available” under Section 39 is not defined by the Condominium Act, but most condominium board members will want to ensure that adequate insurance is in place prior to taking on any role on a condominium’s Board of Directors. The insurance requirements of condominiums will vary depending on both the jurisdiction and the nature of the building, but the insurance needs of a condominium both during and after construction are complex and merit careful review and risk analysis with the advice of an expert insurance broker. The author gratefully acknowledges the assistance of Rahim Jamal, a student at Borden Ladner Gervais, in the research and preparation of this article.
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Michael Teitelbaum
Partner Hughes Amys LLP
An Ontario court has held that both an auto and a home insurer are obliged to defend in an action for personal injury because of the potential for concurrent liability. With all facts not yet available, the judge signalled he was not prepared to permit either insurer to avoid a possible duty to defend or indemnify. Ontario’s Superior Court of Justice, in the 2012 ruling Huestis v. Dahmer, held that a home insurer was obliged to defend concurrently with an automobile insurer in an action for personal injury. The plaintiff, Richard Spatola, accompanied the defendant, Earl Dahmer, the owner of a tilting-bed tow truck, on a delivery of large equipment, which included a snow blower, a lawn
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mower and a 470-pound tool chest. The two men arrived at the delivery site, the home of Vincent Huestis, the third party in the underlying proceedings. Huestis and Spatola stood on the bed of the truck to help unload. It is disputed whether both Spatola and Huestis undid straps securing the tool chest to the truck floor, or if Huestis stood by as Spatola did so. Huestis’ precise role was unknown at the time of this application as he had not yet been examined for discovery. There was evidence, however, that Dahmer was on the ground at the rear of the truck, and caused the truck bed to begin to tilt. The tool chest started to roll and struck Spatola. He jumped and struck a nearby parked van, suffering injuries. Spatola sued Dahmer, thereby engaging the latter’s garage automobile policy with Lombard General Insurance Company. Dahmer sued Huestis, alleging he negligently assisted Spatola with offloading the tool chest from the truck. This engaged Huestis’s home insurance policy with Co-operators General Insurance Company. Co-operators sought a declaration that Lombard was exclusively liable to pay the applicant’s defence costs and indemnity for Spatola’s damages since Huestis was an “occupant” of the truck.
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Huestis and his insurer took the position that the accident occurred during the use and operation of an automobile and that any involvement that he may have had in unloading the equipment should be covered by Lombard’s automobile policy. Dahmer and his insurer’s position was that the homeowner was separately liable from the truck owner for negligence not arising out of the use and operation of a motor vehicle.
Justice Peter Lauwers held that the automobile insurer had a duty to defend and indemnify the homeowner for damages resulting from his negligence, “but not necessarily exclusively.” Justice Lauwers noted that the limited evidence available about the events inside the truck immediately before the accident meant there was insufficient facts upon which to determine whether or not the automobile exclusion in the
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homeowner’s policy applied, which would exclude coverage under the Cooperators policy. As there was a possibility the homeowner might have been negligent for a non-auto-related act in respect of which the homeowner’s policy might also be engaged concurrently with the automobile policy, the practical effect was that both insurers were obliged to defend. The court further held that the issue of the application of the automobile exclusion in Co-operators’ policy be tried immediately following the trial of the underlying action. In arriving at this decision, Justice Lauwers addressed two issues: first, whether in doing what he did, the homeowner was an “occupant” of the truck pursuant to the automobile policy; and second, whether or not the homeowner fell within the automobile exclusion in the homeowner’s policy. On the first issue, the court determined that Huestis was an “occupant” of the truck and, therefore, was an “insured” pursuant to the automobile policy.
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58 Canadian Underwriter November 2012
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Pursuant to section 239 of Ontario’s Insurance Act, an “occupant” of an automobile is an insured person who should be defended by the insurer from allegations made against him or her for loss or damage from bodily injury arising from the ownership or direct or indirect use or operation of an automobile. In accordance with the insurance contract in the case at bar, an “occupant” can
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be a driver, a passenger being carried in or on the automobile, or a person getting into, on, out of or off of the automobile. To determine if Huestis was an “occupant,” two Court of Appeal for Ontario decisions that reached opposite results on similar facts were considered. Justice Lauwers held that the 2004 decision, Axa Insurance v. Dominion of Canada General Insurance Co., and not the 2006 decision, Djepic v. Kuburovic, was applicable. In Axa, Dr. William Isen was sued by Dr. Stephen Simms for causing him personal injury. Dr. Isen had put his boat on a trailer and attached it to his wife’s van using a bungee cord. The cord detached and snapped across the boat, striking Dr. Simms’s eye.The court held that the automobile insurer had a duty to defend Dr. Isen. In determining whether or not this accident arose from the “use and operation of an automobile,” the court used a two-part test: First, did the accident result from the ordinary or well-known activities to which automobiles are put? Second, is there some nexus or causal relationship between the injuries and the use and operation of the vehicle or is it incidental or fortuitous? Since the bungee cord was being used to secure cargo to the trailer with a view to making it safe for transport, the court found the accident happened during the ordinary use of the automobile. An opposite result was reached in Djepic. While using bungee cords to secure a mattress to the roof of the plaintiff’s van, which was parked in the defendant’s driveway, a cord came loose and struck the plaintiff in the eye. The court held that the defendant was not covered by the automobile policy because he was not an “occupant” of the motor vehicle pursuant to the policy. He was also not an “insured person” because he was not a passenger or a person getting into or out of the van. The policy is “not intended to cover someone who simply steps onto a part of the vehicle when the action is not connected in any way with being transported by that vehicle,” the court noted. In deciding to follow the Axa precedent, Justice Lauwers said the context
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was critical, noting “the vehicle in question was a truck with its own special constellation of uses,” and the accident happened when the truck’s tilting-bed feature was engaged and moving. During this time, Huestis was an “occupant” of the truck because he was involved in unloading — an ordinary and wellknown activity to which trucks are put. He continued: “In my view, it would be inconsistent with a purposive approach to construing a garage automobile policy to be categorical about the cargo that tilting-bed tow trucks might ordinarily carry apart from wrecks, auto
to identify alleged negligent acts that potentially constitute non-auto-related concurrent causes of the accident — he held that because of unknown and disputed facts, it was premature to decide if this exclusion applied here. He did not proffer any allegations that raised non-auto-related activities on Huestis’s part. What could have happened on the truck that is not related to its use or operation? Could the court be hinting there was negligence in how the straps holding the tool chest were undone and that this is not auto-related? Ultimately, what those acts might be are speculative, but the absence of what fully transpired was sufficient for Justice Lauwers to find that he could not make a final determination on the application of the exclusion.
COMMENT
Since the bungee cord was being used to secure cargo to the trailer with a view to making it safe for transport, the court found the accident happened during the ordinary use of the automobile. parts and associated paraphernalia.” On the second issue, Justice Lauwers noted the home insurance policy contained a provision excluding liability for “damage arising from the ownership, use or operation of any motorized vehicle, trailer or watercraft except those for which coverage is provided for.” After considering Djepic — where the Court of Appeal was not prepared to find that a similar exclusion clause applied because it might be possible
1) In deciding that Huestis was an “occupant,” Justice Lauwers emphasized his presence on the truck and involvement in the unloading process. This allowed the matter to be distinguished from Djepic, where it was found that being next to or stepping onto some part of the vehicle was not sufficient to make someone its “occupant.” 2) It is evident from certain comments in his ruling that Justice Lauwers was not prepared to permit one of two insurers to avoid a possible duty to defend or indemnify when all facts were not yet available that might establish there was, perhaps, non-auto-related negligence involved in the accident. The absence of all potentially relevant evidence permitted him to ensure both insurers participated in an upcoming pre-trial. 3) The court did not address the potential conflict posed by Co-operators currently defending Huestis, and that how the defence is carried out might influence the outstanding issue. That said, comments by Justice Lauwers infer that Huestis will now have to be represented by someone other than Co-operators’ lawyer: “For practical purposes, the outcome of this application will determine who will pay Mr. Huestis’s costs of defence and indemnity, if any, and whether he will be separately represented.”
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Insurance Brokers Association of Ontario: 92nd Annual Convention (Toronto)
Angela Stelmakowich Editor
Greg Meckbach Associate Editor
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Brokered
Challenges
Ontario brokers, like their counterparts elsewhere in the country, are looking to get in front of a number of issues to ensure the long-term health of the broker channel. Industry stakeholders gathered at the 92nd Insurance Brokers Association of Ontario (IBAO) Convention at the Fairmont Royal York Hotel in downtown Toronto from October 17 to 19. Building on the convention’s theme — Leading the Way: Our Vision, Our Brand, Our Strength — attendees were treated to an array of seminars, as well as the centrepiece of the information sessions, a panel discussion involving CEOs of some of Canada’s largest insurers.
USE OF PREDICTIVE ANALYTICS Despite the need for insurance brokers to make greater use of predictive analytics computer software to offer lower-risk customers better rates, industry has not done a good job of explaining the benefits to customers and policymakers. At least that was the view of some members of the CEO Panel, held on October 18. Used properly, analytics can serve as an aid to support an underwriting decision, said Alister Campbell, CEO of The Guarantee Company of North America. “The tools are getting more powerful, the databases are getting bigger,” Campbell
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pointed out during the panel discussion. “It allows us to get proper pricing so that people actually get the right price for the right risk,” commented Maurice Tulloch, president and CEO of Aviva Canada. Campbell cautioned that if fewer variables are used, the result is narrower ranges of prices. “If you get us down to five questions, you don’t need a broker. The machines can do it and the customers can do it themselves,” he said. “If we’re allowed to use lots of variables, we will be able to nuance and select within those codes,” Campbell added. “We have to do a much better job as an industry, and as brokers, in supporting and pointing out the benefits of using predictive analytics,” suggested Karen Gavan, president and CEO of Economical Insurance. Said George Cooke, president and CEO of The Dominion, “The one thing you [brokers] don’t ever want to do is to put the person selling your insurance for you in a position where (they) can’t explain fully, completely and in an understandable and acceptable way to their customer, why it is they’re paying what they’re paying.”
PREVENTION QUID PRO QUO Extreme weather events look to be on the rise, with little indication that they will abate any time soon. Given what some regard as this climate change-induced reality, it seems inevitable that water-related damage will increase in step. Homeowners who do their part to mitigate
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Honouring Five Decades Of Commitment To Leadership, Stability And Growth
Barry Kennedy, Senior Vice President Gore Mutual Insurance Company
Gore Mutual congratulates Barry Kennedy as he celebrates 50 years in the insurance industry. Few people demonstrate the passion that Barry has for this industry. His contributions have been significant and include mentoring and encouraging students to pursue a career in insurance. Gore Mutual considers it a privilege and honour to have Barry on our leadership team. He embodies our core values by delivering genuine personal service, demonstrating a commitment to community and ensuring integrity guides our actions.
CU Seminar ad November 2012_Layout 1 12-10-22 9:35 AM Page 1
Putting the pieces together.
Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
CIP Society Events: London – CIP Society Annual Olympics at Palasad . . . . . . . . . November 22 Toronto – Annual Industry Trends Breakfast with Phil Cook . . . . January 17 St. John’s – CIP Society Bowling Event . . . . . . . . . . . . . . . . . . . . . . January 18 CIP Society PROedge Seminars: Ottawa – Advanced Investigation of Slips, Trips & Falls & Personal Injury Claims . . . . . . . . . . . . . . . . . . . . . . . November 29 Kitchener – Cyber Liability Seminar . . . . . . . . . . . . . . . . . . . . . . November 29 Toronto – Global Changes & Catastrophic Loss . . . . . . . . . . . . . . December 6 Vancouver – Wine 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 24
Convocations: CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country: IIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 27 IIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .November 28 IIBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .November 29 IADQ–Québec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 5 IIO–GTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 24 IIO–Kawartha/Durham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 1 IIO–Hamilton/Niagara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 21
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
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insurable water damage by installing protective equipment should be rewarded for their efforts, suggested Aviva Canada’s Maurice Tulloch. There is no denying climate change is here, Tulloch said. “We’ve had hailstorms, we’ve had Slave Lake, we’ve had flooding, we’ve had massive rain events.” Consumers can have protective devices such as backwater valves installed for as little as hundreds of dollars, he told conference attendees. “But what we better be prepared to do, when we inform and they act, is reward, and reward with a better rate because they’ve taken those preventative measures.” Information from the Insurance Bureau of Canada (IBC) lists a number of measures designed to prevent waterrelated damage, including the following: installing backwater valves or plugs for drains, toilets and other sewer connections; installing a sump pump; anchoring fuel tanks to the floor to avoid fuel spills or fuel catching fire during a flood; and installing flood shields or built-up barriers for basement windows and doors. At the municipal level,Tulloch pointed to the promise of the municipal risk assessment tool (MRAT), a web-based resource from the IBC, that is currently being refined and is meant to help communities and insurers assess potential infrastructure failure. Using Toronto as an example, Tulloch said that the city is effectively looking to spend about $14,000 per household to upgrade infrastructure in 100 neighbourhoods identified as problematic. He argued that it is incumbent on insurance companies to help inform at the industry, broker, government and consumer levels. “Think practically about how you will advise your customers about how to protect themselves properly,” added The Guarantee’s Alister Campbell. The current situation represents an opportunity for brokers to help customers “manage something that is inevitable, clear and really matters to the thing they are spending the most on in their life — their homes,” Campbell added.
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ATTRACTING AND RETAINING The Guarantee’s Alister Campbell seems to be of the mind that underwriters who have been around the block is a decidedly good thing. “Underwriters get better with mileage,” Campbell said as part of the CEO panel. “They need to make mistakes, they need to learn, they need to really understand exposure,” he added. Despite the value of high-mileage types, an injection of youth is needed to keep running in fine form. With an aging labour force, insurers are trying to attract talent and continue providing the best underwriting experience to their brokers. The Insurance Institute of Canada has estimated that by 2017, 25% of the current labour force in the property and casualty industry could retire. Even with Canadians living longer, healthier lives, Campbell noted the chal-
The new municipal risk assessment tool may hold promise. It is estimated that Toronto is effectively looking to spend about $14,000 per household to upgrade infrastructure in 100 problematic neighbourhoods. lenge is to nurture experienced underwriters while still creating career paths for those in junior roles. Extending training programs to brokers is one way to address a shortage of experienced people. Economical Insurance took its own training and education initiatives and extended them to brokers over the past year. By the end of the year, the company will have completed 115 workshops for its broker partners, said The Economical’s Karen Gavan. Intact Insurance is also planning to train 1,000 brokers on commercial lines underwriting next year, noted the company’s president, Jean Francois Blais. Aviva Canada’s Maurice Tulloch rec-
ommended investing more time talking about the industry at both the college and university levels. It is a tack that seems to be paying off. Five years ago, the industry was attracting second-tier students, Tulloch said. Now, however, the absolute best are beginning to enter the industry, especially through partnerships between the industry and schools, he added.
THE ONLINE CUSTOMER Adopting a collaborative approach that focuses on common initiatives, as opposed to company-specific efforts, represents the best way for brokers to win the online client, IBAO president Rick Orr said during the IBAO’s 2012 Annual General Meeting on October 17. It was a message that Orr has repeated often during his term as president in 2012. “I asked the industry to work together, to collaborate to develop common initiatives for the online interaction with consumers,” he said. While some heard the message and are working with IBAO, “others did not and went off to build their own proprietary solutions, making it more difficult for us to win as a channel,” Orr said. “Collectively, we can win the online consumer and beat the directs.” Debbie Thompson, incoming president of the IBAO, reiterated the importance of collaboration as part of her remarks to convention attendees on October 19. “If we could get everyone rowing in the same direction, we could dominate this industry in any market… against any competition… at any time.” Innovation and leadership are central to creating customer value. “We have to show our present and future customers that we are willing to adapt to the way they want to buy insurance from us,” Thompson emphasized. “The consumer expects to interact with their preferred suppliers how and when they want.The consumer expects the right mix of interaction points. We have to be mindful of those expectations if we want to build a relevant and meaningful customer experience and, even better, increase our market share.”
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MOVES & VIEWS UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE
1
Mark Blucher [1] has been named the interim president and CEO of the Insurance Corporation of British Columbia (ICBC), effective immediately and until further notice. Blucher’s most recent role was as ICBC’s senior vice president of insurance, a position he has held since joining the corporation in 2010. In that role, he was responsible for pricing, product design, product marketing and sales through ICBC’s broker network for basic and optional insurance. As interim president and CEO, he will work closely with ICBC’s Board of Directors and management to implement the business plan, with a renewed focus on cost control and financial stability. Blucher has held a number of senior executive positions in New Zealand and Australia.
2
Scott Campbell [2a], formerly vice president of sales and distribution at Economical Insurance, is the new vice president for Ontario. Campbell replaces Walter Leszkowicz [2b], who has left to pursue other endeavours, the company notes. The move is part of a new organizational structure at Economical, meant to “enhance collaboration across our organization and allow us to continue to deliver profitable growth as we move through our transformation and demutualization,” says president
64 Canadian Underwriter November 2012
1 and CEO Karen Gavan. Other executives changing roles include the following: Dianna Fioravanti [2c], formerly vice president of commercial insurance, is now vice president of sales, distribution and underwriting operations; Pamela Derksen [2d], past division vice president of Western General, is now vice president of commercial insurance; and Pamela Marson [2e], most recently operations manager of the Ottawa branch, has been named vice president of personal insurance. Also at the company, chief financial officer Phil Mather will take on the role of president for Economical Financial; chief risk officer Louis Doiron will continue to focus on enhancing enterprise-wide risk management; Jorge Aruda is the new chief transformation officer; chief actuary Linda Gross will assume additional responsibility for management and approval of product and pricing policy; Rob Gow, vice president of the Western Region, will add oversight for Family Insurance Solutions to his tasks; and Chris Weber is now vice president of underwriting transformation.
2a
2b
3
RSA Canada has appointed Tony Hayes [3] as its vice president of sales and marketing. Previously responsible for the national sales strategy of RSA’s personal and commercial insurance portfolios, the company reports Hayes will now lead the insurer’s sales, distribution and broker development strategies across all lines of business. His main priorities will include helping maintain RSA’s growth and profitability, as well as its broker and customer propositions, including assisting with the transition for Quebec brokers in light of RSA’s recently completed acquisition of L’Union Canadienne. Previously, Hayes led the British Columbia region through the acquisition of CNS. He will relocate to Toronto.
4
Martin-Eric Tremblay began his new duties as Aviva Canada’s senior vice president for Quebec and Atlantic Canada on November 1. Over his 30 years in insurance, Tremblay has acquired management and executive
3 experience in marketing, underwriting, operations and actuarial. In his new role, he will lead broker support, customer service and underwriting expertise initiatives for Aviva’s Quebec and Atlantic regions. His last position was executive vice president of national property and casualty products and president of Quebec operations for the Cooperators Group Ltd. Tremblay succeeds Patricia St.-Jean.
5
Policy Works Inc. has announced its iPad application, Policy Works Producer, is now available to customers for download from Apple’s App Store. Released on a limited basis in March, the app is for “commercial lines insurance producers working in the field.” It is also meant to help automate
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MOVES & VIEWS
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7 brokers’ workflow and make tasks, such as measuring performance, more efficient. The app is now broadly available following field testing with select brokers. To use the app, brokers must be Policy Works customers, be running the company’s current commercial management desktop system, and have a valid Policy Works Cloud account.
6
Burns & Wilcox plans to open an office in Calgary within six months. “Oil and energy is something we are very interested in pursuing, to the extent that we have opened an office in St. John’s, Newfoundland,” Gary Hirst, executive director of Burns & Wilcox Canada, said while attending the Insurance Brokers Association of Ontario Convention in Toronto in Octo-
2d ber. “We’re very interested in the actual equipment, drilling. We’re able to look at the accident benefits coverage for the crews that are out actually there drilling for the oil,” Hirst said. Among other types of insurance, the Calgary office will offer liability to surrounding property, bodily injury, pollution and environmental liability.
7
Donald Brown [7] was recently welcomed as the director of national sales and marketing for Paul Davis Systems Canada, Ltd., a full-service mitigation, restoration and construction company. A certified sales professional, Brown will take on responsibilities for new business initiatives in the insurance and corporate/ commercial market sectors, as well as management of the Paul Davis Systems network marketing plan and national account administration. He brings to the position 25-plus years in sales, business development, marketing, corporate communications and account management in several business sectors.
2e
8
ERAssure, the operating name of Kitchener, Ontario-based Estate Risk Protection Plan Inc., is advising property and casualty insurance brokers whose clients are the participants of a looming $1-trillion, inter-generational transfer of wealth in Canada to take note of emerging risks. In a discussion paper released October 11, the company outlines what it sees as emerging risks for individuals responsible for administering estate assets (executors) to and from children of the baby boom generation. “An executor is legally responsible to locate, preserve and manage the estate assets,” the paper says. “The executor’s liability for estate matters often survives the distribution of the proceeds of the estate to the beneficiaries,” it adds. Scot Dalton, CEO of ERAssure, argues “this emerging risk is creating a new insurance marketplace, which also means a significant new [errors and omissions] risk that brokers have not previously dealt with.” Coverage is underwritten by Economical Insurance.
DAS Canada has announced the availability of DAStransport to help protect small businesses from major legal costs associated with their commercial vehicles. DAS offers policyholders unlimited access to the insurer’s legal advice hotline. The policy covers businesses, drivers and all necessary legal costs related to traffic ticket defence, driver’s licence protection, auto contract disputes and commercial safety violations. Coverage is available across the country for taxis, limousines, trucks, cars and any other commercial vehicles.
10
Crawford and Company Canada’s Contractor Connection repair network service is now available to the United Kingdom-based R. J. Kiln and Co. Ltd., part of the Kiln Group, which provides international insurance and reinsurance underwriting. Open to insurers for residential and property claims programs, the network offers contract administration, repairs, estimate reviews and water mitigation. “The London markets are extremely important to us and Kiln is a leading Lloyd’s syndicate, underwriting property risks from coast to coast in Canada,” says John Sharoun, CEO of Crawford Canada. Follow @CdnUnderwriter on
http://twitter.com/CdnUnderwriter
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Crawford & Company (Canada) Inc. held its annual RIMS Canada Conference dinner on Sept. 8 at The Saskatoon Club in downtown Saskatoon, Saskatchewan.
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Cunningham Lindsey held its annual RIMS Canada Conference dinner on Sept. 8 at at the Marquis Hall in the Exeter Room of the University of Saskatchewan.
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Granite Claims Solutions, CKR Global, Rochon Engineering and Sibley & Associates (Granite Global Solutions companies) held their annual RIMS Canada Saskatoon Conference 'Kick-Off' reception on Sept. 8 at Hudsons Canadian Tap House in downtown Saskatoon.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
SCM Insurance Services hosted a cocktail party on Sept. 8 to help kick-off the RIMS Canada Conference at the Sheraton Cavalier Saskatoon Hotel.
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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery
Delegates of the Risk and Insurance Management Society (RIMS) Canada Conference Saskatoon laced up their running shoes for the William H. McGannon Foundation’s annual Fun Run-Walk early on Sept. 9. Sponsored by FM Global, Suncorp Valuations the event raised funds for the foundation, is an initiative of RIMS Canada and was established to provide resources in the form of grants to advance risk management by way of education, research, mentorship programs and work experience programs.
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Professional leadership starts at the top. See all photos from this event at www.canadianunderwriter.ca/gallery
Zurich Canada kicked off the Saskatoon RIMS Canada Conference on Sept. 9 by hosting a ‘Prairie Fling’ customer dinner at Champêtre County in St. Denis, Saskatchewan, offering guests the chance to learn about Saskatchewan and the prairies in a unique way (Champêtre shom-pay'tr adj. having to do with the countryside, nature, outdoors literal translation: ‘to be in the field’).
Maurice Tulloch, BA (Econ), MBA, CMA was elected Chair of the Board of Governors of The Insurance Institute of Canada (IIC) at the 59th Annual General Meeting, held October 27, 2012, in Montreal, Quebec. Mr. Tulloch is President and Chief Executive Officer, Aviva Canada, based in Toronto, Ontario. Silvy Wright, BA (Hons), CA, President and CEO of Northbridge Financial Corporation, was elected Deputy Chair, and T. Neil Morrison, BA (Econ), President & CEO, HUB Ontario Limited and Chairman, HUB International Latin America was elected Vice Chair, Membershipat-Large. Karen Barkley, MBA, CIP, CRM, President and CEO of Specialty Risk Underwriters Inc. is immediate Past Chair. Regional Vice Chairs are: » Ted Teterenko, MBA, FCIP – Western provinces; » Randy Bushey, CIP – Ontario; » François Coté, FPAA, CRM – Quebec; and » Mary Lou Loder, FCIP – Atlantic provinces. Divisional Vice Chairs are: » Michael Willis, FCIP – Academic » John R. Tisdale, MBA, FCIP, CRM – Professionals
The IIC is the premier professional education body for the property & casualty insurance industry. Its membership of over 38,000 includes 20,000 active students in its formal programs. The Institute is also the parent organization of the Chartered Insurance Professionals’ Society, which serves the needs of more than 16,000 graduate Chartered Insurance Professionals (CIP) and Fellow Chartered Insurance Professionals (FCIP). For more information, please visit our website at www.insuranceinstitute.ca
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Exhibitors worked the show and showed their work, as delegates networked with colleagues and checked out the latest company offerings at the Exhibit Hall at the 2012 RIMS Canada Conference in Saskatoon.
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The opening ceremonies of the 2012 RIMS Canada Conference Saskatoon: ‘Horizons: 2012’, held Sept. 9-12, started with plenary speaker Dan Gardner, author and journalist, speaking on ‘Getting Risk Right’ with references from his book Risk: The Science and Politics of Fear. Other speakers at the opening ceremonies included emcee Nowell Seaman, the University of Saskatchewan; Saskatoon conference co-chairs Doug Brown, City of Regina, and Lisa Brost, BHP Billiton; Betty Clarke, Chair, RIMS Canada Council, City of St. John’s; Mary Roth, executive director of RIMS and Deborah Luthi, RIMS president.
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Delegates of the 2012 RIMS Canada Conference Saskatoon, gathered to celebrate the achievements of their peers during the Awards Lunch. Michel Turcotte, senior director of risk management and insurance at Ivanhoe Cambridge, Inc. in Montreal, was named the recipient of the 2012 Donald M. Stuart Award and presented with the award at the luncheon. Widely recognized as Canada’s highest honour within the risk management field, the Ontario chapter of RIMS (ORIMS)
has bestowed the award on a deserving individual in recognition of outstanding contributions in risk management each year since 1979. Throughout his career, Turcotte has been called on to construct and implement risk management programs for major corporations in Canada and around the world, including recently at Quebecor Media, Inc., where he created a vast and detailed risk management program from scratch that covers a diversified group of international subsidiaries. “His work
changed the risk culture of the organization from one of mere risk transfer to one of the most complex enterprise risk management programs in the country,” notes RIMS and RIMS Canada Council. Turcotte, a noted risk management author and lecturer, has made significant contributions to risk management education and is responsible for pioneering Frenchlanguage risk management education in
Quebec. “The role of the risk practitioner has certainly evolved throughout the course of my career and I strongly believe that it is the responsibility of seasoned risk professionals to provide leadership and mentor the next generation of risk managers,” says Turcotte, president of the RIMS Quebec chapter from 2004 to 2006. Michel is an accomplished speaker, instructor and author whose work exemplifies this prestigious award,”
adds David Beal, president of ORIMS and director of risk management for the Ontario School Boards’ Insurance Exchange. Also honoured at the conference was Gareth J. Lewis, manager of claims at HIROC in Toronto, who received the 2012 Fred H. Bossons Award. The award is presented annually to the risk management professional who earns the highest marks on the three courses required to receive the CRM designation.
ADVERTISERS’ INDEX ACE INA Insurance
2
Aviva Canada Inc.
37, 100 (OBC)
DAS Canada
99 (IBC)
HSB BI&I
43
Burns & Wilcox
2
1
23
Canadian Underwriter magazine
49, 87, 89
CarProof Vehicle History Reports
27
CICMA/CIAA Ontario Joint Conference
53
Claims Canada magazine
30
Crawford & Company (Canada) Inc.
17
Cunningham Lindsey Canada
9
Elliott Special Risks LP
41
FirstOnSite Restoration
18, 19
Gore Mutual Insurance Company
61
The Guarantee Company of North America
25, 85
Insurance Institute of Canada
3
4
1) Michel Turcotte 2) Gareth J. Lewis, 2012 receives 2012 Fred H. Bossons Award 3) David Beal, president of ORIMS presents Michel Turcotte with the 2012 Donald M. Stuart Award 4) Michel Turcotte, 2012 Donald M. Stuart Award recipient
5, 57, 62, 71
Insurance Internet Directory
92
inswire.ca
14
Impact Auto Auctions
39
Northbridge Insurance
29
Ontario Insurance Directory
58
RSA – Royal & Sun Alliance Insurance Company of Canada
13
ServiceMaster of Canada Limited
45
TIWA Wine & Cheese
54
SUM – Strategic Underwriting Managers Inc
51
Swiss Reinsurance Company Canada
35
Totten Insurance Group
97
XL Group
7
November 2012 Canadian Underwriter
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FirstOnSite Restoration hosted a Meet & Greet reception at the Saskatoon RIMS Canada Conference on Sept. 10 at 2nd Avenue Grill in downtown Saskatoon.
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On Sept. 10, Catlin Canada hosted a reception at the Saskatoon RIMS Canada Conference at the Sky Bar Penthouse Suites in the Holiday Inn, Saskatoon. Catlin Canada, looking to make it a little easier for students entering the insurance/risk management field of study, presented a $20,000 cheque to the William H. McGannon Foundation at the event.
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More than 70 companies and organizations providing products and services filled the Exhibit Hall at the 2012 RIMS Canada Conference in Saskatoon.
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(UKYL =\RHKPU ACE Canada, the Canadian-based operating division of the ACE Group has announced the appointment of Andre Vukadin as Assistant Vice President, Branch Manager, Quebec, and Eastern Canada. Mr. Vukadin will be responsible for growing the commercial and national risk segment in these markets. Mr. Vukadin’s mandate includes the development of an effective business development strategy for the region while offering exemplary service to ACE’s brokers and clients. Mr. Vukadin will report to Steven Lucas, Vice President, National Account Marketing. With approximately nine years of insurance experience in the Quebec and Eastern Canadian marketplace, Mr. Vukadin most recently served as Eastern Region Commercial Underwriting Supervisor for a leading global carrier. Mr. Vukadin holds a Bachelor of Commerce degree from Concordia University and a Commerce diploma from Dawson College. ACE Canada® refers to ACE INA Insurance and ACE INA Life Insurance, subsidiaries of the ACE Group, and is rated AA- (Very Strong) by Standard & Poor’s and A+ (Stable) by A.M. Best Company. ACE Canada, through its underwriting companies, provides insurance products and services throughout Canada. Additional information on ACE Canada and its products and services can be found at www.ace-ina-canada.com. The ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 53 countries, ACE provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. ACE Limited, the parent company of the ACE Group, is listed on the New York Stock Exchange (NYSE: ACE) and is a component of the S&P 500 index. Additional information can be found at: www.acegroup.com.
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Chartis hosted its annual RIMS Canada cocktail reception on Sept. 10 in the Adam Ballroom in the Delta Bessborough Hotel, Saskatoon. Guests were able to mix and connect at the reception before venturing out to other conference-related functions throughout the city.
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ARC Group Canada hosted a reception at the RIMS Canada Conference in Saskatoon at Staqatto Piano Bar on Sept. 10. The event included an entertaining evening of duelling pianos, industry mingling and delightful appetizers and beverages.
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Delegates of the 2012 National Insurance Conference of Canada (NICC) held in Quebec City, Sept. 30-Oct. 2, enjoyed the opportunity to share refreshments and conversation at the opening night of the conference. The conference raised $18,000 through donations made in lieu of speaker gifts and a silent auction and raffle for WICC, the 2012 NICC charity of choice. Over $87,000 has been raised for WICC at NICC since 2008.
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$QJHOLTXH 0DJL Alister Campbell, CEO of The Guarantee Company of North America (The Guarantee) is pleased to announce the appointment of Angelique Magi as Vice President, Strategic Initiatives effective November 5, 2012. In this newly created role, Angelique will help The Guarantee explore a range of segment, product and distribution strategies as we evolve our portfolio of profitable, specialty lines to position the company for continued profitable growth. Over the past 20 years she has held positions of increasing seniority in a range of capacities within the property-casualty insurance industry including underwriting and portfolio management positions in the personal lines areas, before moving into areas focusing on the transportation industry sector. Prior to Angelique’s appointment at The Guarantee, she was National Director, Transportation of a major global insurance company. A graduate of Flagler College in St. Augustine Florida with a BA in Political Science, she has her CIP designation through the Insurance Institute of Canada. Since 1872, The Guarantee has been a leader in specialty insurance within the North American marketplace and has earned a prominent reputation for providing specialized insurance products, supported by a depth of knowledge and expertise in niche segments including contract and commercial surety, directors & officers liability, fidelity and personal insurance targeted at high net worth individuals through Guarantee GOLD®. 2012 marks the 140th anniversary of The Guarantee, a testament to the company’s long term dedication to product expertise, industry knowledge and strong partner relationships.
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The sixth annual National Insurance Conference of Canada (NICC), held in Quebec City from Sept. 30-Oct. 2, featured speakers such as Amanda Lang, senior business consultant, CBC News, emcee of 2012 NICC; Craig Alexander, senior vice president & chief economist, TD Bank Financial Group; Julie Dickson, superintendent, OSFI; Mario Albert, president and CEO, AutoritĂŠ des marchĂŠs financiers, to name just a few. In addition, there were numerous speakers on a variety of panels as part of concurrent sessions taking place at the conference. [Speaker photos courtesy of NICC].
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/HYTLL[ :PUNO Steve Wilson, Senior Publisher, Canadian Underwriter magazine – Insurance Media Group, is pleased to announce the appointment of Harmeet Singh to the position of Online Editor of Canadian Underwriter’s Insurance Media Group of products and websites, including CanadianUnderwriter.ca. Harmeet joins Canadian Underwriter from a previous position as a reporter covering the information technology industry in Canada. An experienced multimedia news reporter, she has covered local news and politics in the nation’s capital and has worked as a community news reporter in British Columbia. Harmeet holds a Bachelor of Journalism degree from Carleton University. Harmeet can be contacted at: hsingh@canadianunderwriter.ca as well as on Twitter: @CU_Harmeet Since 1934 Canadian Underwriter magazine, Canada’s leading insurance and risk journal has provided insurance professionals with an award-winning package of articles, features, news and events. The Canadian Underwriter group of insurance industry media products has grown and developed to cover a wide range of information vehicles, both in print and online. Canadian Underwriter’s Insurance Media Group is committed to providing the most timely and relevant news, information and resources to insurance professionals from all segments of the property and casualty insurance market.
INSURANCE MEDIA GROUP www.insurancemediagroup.com November 2012 Canadian Underwriter
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Everest Reinsurance Company hosted a cocktail event at The Trump International Hotel in Toronto on Oct. 16, to thank clients for their continued support and to demonstrate their continued commitment to the Canadian market. Reinforcing this commitment, members of Everest Re’s corporate senior management team; Joseph Taranto, chairman and CEO, Dominic J. Addesso, president, and John Doucette, EVP and chief underwriting officer participated in the event. Taranto and James Camerino, chief agent, Canadian Operations, briefly spoke to attendees on behalf of the entire Canadian staff.
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.YLN 4LJRIHJO Steve Wilson, Senior Publisher, Canadian Underwriter magazine – Insurance Media Group, is pleased to announce the appointment of Greg Meckbach to the position of Associate Editor of Canadian Underwriter magazine. Greg joins Canadian Underwriter from his previous position as Digital Media Editor of the Daily Commercial News at Reed Construction Data Canada. From 1997 until 2010, he covered information technology and telecommunications for various publications at IT World Canada, Transcontinental Media and Plesman Publications. He has a Bachelor of Applied Arts in Journalism from Ryerson University. Greg can be contacted at: gmeckbach@canadianunderwriter.ca or Phone: (416) 510-6796 Since 1934 Canadian Underwriter magazine, Canada’s leading insurance and risk journal has provided insurance professionals with an award-winning package of articles, features, news and events. The Canadian Underwriter group of insurance industry media products has grown and developed to cover a wide range of information vehicles, both in print and online. Canadian Underwriter’s Insurance Media Group is committed to providing the most timely and relevant news, information and resources to insurance professionals from all segments of the property and casualty insurance market.
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The Canadian Insurance Accountants Association (CIAA) recently held its annual meeting and conference in Lake Louise, Alberta. These national officers were elected for 2012-2013. (From left, first row: President Annette Pohle, PricewaterhouseCoopers LLP; Adrian Serge, Marsh Canada Limited; Rose Fiore, RBC Royal Bank; Sandra Taylor, Ontario School Boards’ Insurance Exchange; Antonietta Montisano, RSA; Farhan Karamat, Ernst & Young LLP;
(Back row, from left) Dave Paterson, Ayr Farmers’ Mutual Insurance Company; Lilien Occhiuzzi, Aviva Canada; Rick Keeler, Munich Reinsurance Company of Canada; Christine Davis, SCOR Canada Reinsurance Company; and Glenn Taylor, RBC Insurance. Absent: Terri Fotheringham, KPMG LLP; Rocky Bhatia, the Economical Insurance Group; Ricardo Cardoso, Deloitte & Touche LLP; and Colleen Sexsmith, CAS Accounting for Insurance Inc.
Rena Robertson of Alberta brokerage Drayden Insurance Ltd. was voted the 2012 Policy Works Ninja in the 3rd Annual Policy Works Ninja Awards. The race was tight, but in the end, Rena’s mad Policy Works skills pushed her to the top. Special congratulations and thanks to all the finalists and nominees. Insurance industry votes not only helped determine the
annual Policy Works Ninja, it also helped WICC (The Women in Insurance Cancer Crusade) as Policy Works pledged to donate $5 per vote to WICC. [Photo]: On Oct. 18, at the 2012 IBAO Conference in Toronto, Steve Pieroway, VP of Marketing & Client Services at Policy Works, presented WICC’s Barb Reddick with a cheque for $2,475.
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The Insurance Institute of Ontario hosted the 20th Annual Lowes Fund Breakfast Seminar on Oct. 22 at the National Club in Toronto. Industry professionals attending the seminar listened to featured speaker, Pat Foran, broadcaster, author, public speaker and consumer advocate, whose spoke about the “Importance of Being a
Smart Savvy Consumer.” Since 1993, the John E. Lowes Insurance Education Fund annually offers scholarships to Ontario residents pursuing postsecondary education that includes the study of property/casualty insurance. In 2013, it will celebrate the 20th anniversary of the John E. Lowes Insurance Education Fund.
Auto repair company CARSTAR Automotive Canada has renewed its first-ever franchise relationships for another 20 years, the Hamilton, Ont.-based company announced Oct. 12. During the 1980s, both Domenic Lucarelli and Sam Saputo were employees of CARSTAR president and CEO Sam Mercanti, who recognized their talent for the industry. In June 1992, the two opened the company’s first franchises in Stoney Creek, Ont. and Ancaster, Ont. Their wives, Rosanna Lucarelli and Rosa Saputo, were also critical to the franchises’ development. This September,
Lucarelli and Saputo renewed their agreements with CARSTAR for another two decades. The two locations have sales of more than $2 million, CARSTAR reports. Now, Saputo’s two sons, Paul and Joe, will take over CARSTAR Ancaster, while Lucarelli will eventually pass his Stoney Creek business to his son, Joseph. “We are really looking forward to working with both generations of owners and maintaining the great reputations that they have earned over the years,” Lisa Mercanti-Ladd, CARSTAR’s vice president of marketing and client services said. “These families have worked to stay
ahead of the future needs of customers and insurance partners and share in our values of integrity and loyalty. We are truly excited for our future development.” CARSTAR’s franchise network now includes more than 160 locations in Canada, and more than 400 throughout North America.
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INSURANCE INTERNET DIRECTORY ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org
CLAIMS ADJUSTING FIRMS ClaimsPro Inc. Committed to providing leading-edge claims management services. www.scm.ca Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com
PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com
GRAPHIC COMMUNICATIONS Quelmec Loss Adjusters Identifying, Investigating, Resolving... for over a quarter century! www.quelmec.ca
Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters Doing What Is Right®. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors. www.mclarens.ca
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Informco Inc. Integrated Graphic Communications Specialists. www.informco.com
INSURANCE SOFTWARE APPLICATIONS Kanetix Ltd. - SAAS Division We provide corporate clients with fast & reliable insurance quoting systems, web services, web systems and hosting. www.kanetix.ca/about_dev_services
INSURANCE COMPANIES CONSULTING FIRMS Cameron & Associates Insurance Consultants Ltd. Insurance & Risk Management Consultants. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
CONSTRUCTION CONSULTANTS MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca
DAMAGE COST CONSULTANTS SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca
EMPLOYMENT ONLINE CRU Adjusters Calm in the face of a storm. www.cruadjusters.com
complex engineering incidents. www.waltersforensic.com
I-HIRE.CA Canada's Insurance Career Destination. www.i-hire.ca
ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com Walters Forensic Engineering Inc. Providing scientific answers to
Canadian Underwriter November 2012
Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com Catlin Canada Underwriting Ambition. www.catlincanada.com Chartis Insurance Company of Canada Your world, insured. www.chartisinsurance.com FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com
Keal Technologies Complete technology solutions for insurance brokers. www.keal.com
REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Munich Reinsurance Company of Canada Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com
RESTORATION SERVICES Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca
RISK MANAGEMENT
Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com
The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management. www.thearcgroup.ca
INSURANCE LAW
SPECIALTY INSURANCE
The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca
William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com
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In Memorium
Larry Welsh Long-time editor of Canadian Underwriter magazine (1980’s-1990’s) Lawrence Welsh passed away suddenly, on Friday, October 5, 2012 at home in Southampton, Ontario. He was born in London, Ontario on January 16, 1933, the youngest red-headed son of an Irish mother and a Scottish father, Kathleen and David Welsh. His working career was varied, but he
always felt lucky to have gone back to school to study journalism (B.A. Dip. Journalism, University of Western Ontario). Starting in 1966, Larry was a reporter at The Toronto Telegram, then The Globe and Mail Report on Business (mining and insurance beats) and last, a magazine editor at Southam Magazine Group, where he was editor of Canadian
Underwriter magazine. He retired (from Canadian Underwriter) in 1997 after a fulfilling career in journalism. Having gained a depth of knowledge and contacts within the industry through his reporting at The Globe and Canadian Underwriter, Larry became one of Canada’s premier property and casualty insurance market journalists.
In Memorium
Dale Rempel The Insurance Brokers Association of Canada (IBAC) announced its Chairman, Dale Rempel, passed away. IBAC notes in a prepared statement: “It is with great sadness that the Insurance Brokers Association of Canada announces the passing of its chairman, Mr. Dale Rempel. Dale was the owner of Rempel Insurance Brokers in Morris, Man. and a lifelong resident of Morris. He is survived by his wife
Lynn, children Brent and Leanne, and daughter-inlaw Becca. Dale was diagnosed four years ago with a brain tumor, which he has battled courageously since then. Dale is also survived by the larger insurance brokerage community across Canada. He has devoted many years to the Insurance Brokers Association of Manitoba, as well as the national association. His contributions to the profession over the past
decade are something that all of us can be grateful for and proud of. Throughout his life, he has selflessly given to family, friends and his colleagues in the industry; both prior to diagnosis and subsequently. His passing is indeed a very sad loss to our profession. There was a Tribute Evening to honour Dale’s life at the Southern Manitoba Convention Centre, Morris, Manitoba on Thursday, Oct. 11.
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More than 1,000 people made their way through the exhibit hall to visit the 75-plus exhibitors at the Insurance Brokers Association of Ontario (IBAO)’s 92nd Annual Convention and Exhibition in Toronto at the Fairmont Royal York Hotel on Oct. 17-19.
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In Memoriam “Totten Insurance Group is saddened to announce the sudden passing of our friend and colleague, Deborah Taylor. Deb, who joined Team Totten two years ago, will be remembered as a devoted mother and mentor whose dedication was second to none. She spent her free time riding her motorcycle and was a tireless supporter of WICC. She took great joy in sewing and crossstitching for most of her life, and had a passion for her flower garden. Debby absolutely loved motorcycling, and recently started an affinity for golfing. She took great pride in being a faithful “Hockey Mom” for her son. Deb was laid to rest on Saturday September 29th in Moncton. Colleagues from the Atlantic Canada team, and members of the leadership team were in attendance representing all of Totten Group, and a donation was made to a local charity in Deb’s name. Our thoughts and prayers go out to Deb’s loving husband Larry, her beloved son Byron, her family and friends. She will truly be missed.”
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Convention in Toronto on Oct. 19. This is the fourth year the IBAO has recognized outstanding members for the work they do in the industry and in their respective communities.
The Insurance Brokers Association of Ontario (IBAO) presented its 2012 Awards of Excellence during the Gala on the final night of its 92nd Annual
The Awards include four categories: including Broker of the Year, Brokerage of the Year and Affiliate Achievement. The 2012 winners are listed to the right.
IBAO Awards IBAO President Rick Orr presented the following Awards of Excellence (1-5): 1) Affiliate Achievement Andy Friyia; Casandra Haas Stewart; Suzanne Pountney; Lisa Vercillo; and Michael McPhee: London Insurance Brokers Association.
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2) BROKERAGE OF THE YEAR (less than 10 brokers) President Rick Orr and Rick Dresher: Affiliated Insurance Management Inc., Oakville. 3) BROKERAGE OF THE YEAR (10 or more brokers) Kevin Donovan; Jacquelyn Schulz; Dianne Monteiro; and Amanda DeOliveira: Donovan Insurance Brokers Inc., Waterloo.
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4) Young Broker of the Year President Rick Orr and Scott Maskell: Glenny Insurance Broker Ltd., Fort Erie. 5) Broker of the Year President Rick Orr and Peter Blodgett: Darling Insurance & Realty Ltd., Peterborough.
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6) CEO Panel Evan Solomon; George Cooke; Maurice Tulloch; Karen Gavan; Jean Francois Blais; and Alister Campbell. 7) Incoming President Inaugural speech by Debbie Thompson, incoming president. 8) Presidents Award Scroll President Rick Orr receives Presidents Award Scroll from incoming president Debbie Thompson. 9) CAIB Grads
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