Canadian Underwriter May 2011

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

M AY 2 0 1 1 A Business Information Group Publication #40069240

Language Divide

by Vanessa Mariga

Silencing the Hired Guns

By Craig Harris

Funds Withheld By j. Brian Reeve and laurie lapalme

Crawford 70th Anniversary

4/28/11

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r a b ting e l e C

70

Years Of Service 1941-2011

Since our founding in 1941, Crawford & Company has grown from a small independent claims adjusting firm to a global provider of claims services, business process outsourcing and consulting to companies in more than 70 countries.

As we mark our platinum anniversary, Crawford would like to thank our employees, clients, partners and shareholders throughout the world whose trust in us has contributed to our growth, innovative spirit and allowed us to gain unmatched expertise.

Crawford & Company is an equal opportunity employer

www.crawfordandcompany.com

pg3,4 Contents May11_v1_DG_VM

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VOL. 78, NO.5, MAY 2011 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

FEATURES

COVER STORY

Language Divide

12 Parts Trends Several factors, including supply chain issues arising from the earthquake in Japan, are squeezing the availability of vehicle repair parts, thus increasing repairable average severity.

30

Ontario has released a draft of its proposed new definition for catastrophic injuries sustained in motor vehicle collisions.

The new definition relies heavily on the language of medical experts, who distinguish between physical and pyschological injuries and suggest a new ‘interim’ category of catastrophic impairment. How this will be translated into case law is anyone’s guess.

BY VANESSA MARIGA

BY GREG HORN

20

16 Safety Features

52

Contemporary vehicles have geewhiz safety features that aim to avoid crashes, but time will tell how drivers will react to these new technologies and whether they will actually reduce collisions.

Expert Witnesses New rules of procedure intend to promote impartial expert witnesses and discourage the use of ‘hired guns’ in Ontario courts and arbitration rooms.

BY CRAIG HARRIS

44

Detecting Fraud

BY DAVID GAMBRILL

Five rules to help make reinsurance arbitrations work for you, or at least help you keep your self-respect.

BY ANGUS H. ROSS

BY ANNE McCARTT

Ontario sees an expanded role for Health Claims in Auto Insurance (HCAI) in the detection of auto insurance fraud.

BY JAMES DAW

58

26 Funds Withheld Funds withheld arrangements offer a tempting — but not risk-free — way to obtain credit for unregistered reinsurance under OSFI’s new Guideline B-3.

BY J. BRIAN REEVE AND LAURIE LaPALME

Evolution of Auto Reform As Ontario prepares for an October 2011 election, with the insurance file hanging in the balance, it is worth examining the history of Ontario’s auto insurance product, characterized by multiple drivers grabbing at the wheel.

56 Immobilizer Technology Success in installing immobilizer technology to prevent vehicle theft in Manitoba could be replicated elsewhere in Canada with the right incentives from insurers.

BY ANTHONY MANNELLA

40 Auto Reform Trends

Whose customer?

The proliferation of mobile apps with claims support services, offered by insurers and non-insurers alike, raises the question: Who gets the first call in the the event of a collision?

48 Reinsurance Arbitrations

The IBAO reflects on the need for brokers to maintain an ongoing dialogue with policyholders about Ontario’s auto insurance reforms, as well as the need to close the door on opportunities for fraud.

BY PAUL TAYLOR

62 Right Hand Drive A trend of importing right-handdrive vehicles to Canada has raised concerns that underwriters and insurance companies will walk away from coverage due to the perceived — and perhaps misinterpreted? — risks of insuring these vehicles.

BY MICHAEL KENT

BY JAMES I. CAMERON

May 2011 Canadian Underwriter

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VOL. 78, NO.5, MAY 2011

PROFILE

10 Emergency Preparation Kelli Kryzanowski has helped out in many times of crisis — 9-11, the 2004 Indian Ocean Tsunami — so being at the centre of preparing for seismic activity in B.C. is a natural fit for this emergency manager.

Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796

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BY DAVID GAMBRILL

SPECIAL FOCUS

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Editorial

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Marketplace

66 Moves & Views 68 Gallery

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EDITORIAL

Taking the Pulse

When you consider these global disasters on a cumulative basis, the numbers start to look foreboding. We’re barely 16 weeks into the year and we are already between onequarter and halfway to the analysts’ projected target for raising more capital.

David Gambrill, Editor david@canadianunderwriter.ca

6

Canadian Underwriter May 2011

In the wake of a very bad catastrophe season in 2011 Q1, global reinsurers, commercial insurers and risk managers have understandably undertaken a self-assessment of the industry’s financial health.

And based on an overall analysis of recent public statements, financial analysts seem to be in agreement the industry was in good shape to absorb the body blow that was the first quarter of this year. Although there is still a niggling feeling there might be a straw out there — namely an active hurricane season — that might break the camel’s back.

Preliminary estimates show the Japanese quake and tsunami alone could cost the global insurance industry upwards of $27 or $28 billion, and the March 2011 earthquake in Christchurch, New Zealand could top out at roughly $8 billion. Those are just two events, and the industry is already out almost $36 billion. [As of press time, tornadoes in the southern United States have added about $2 billion to the tally.]

These are only preliminary estimates; not the same as the hard figures counted from actual claims files. For example, one modeler’s preliminary estimate in August 2005 declared insured losses from Hurricane Katrina should not exceed $600 million. Two months later, estimated insured losses related to Hurricane Katrina turned out to be more on the order of between $40 billion and $55 billion. This is an extreme example to demonstrate the point that we are still too

early in the game to figure out the true outcome.

Be that as it may, the insurance industry wants everyone to keep a sense of perspective.

Aon Benfield, for example, notes in a recent report that members of its global re/insurance industry aggregate collectively hold about $248 billion in shareholder funds. And analysts from Advisen to Guy Carpenter have reassured everyone it would take catastrophes on the order of between $75 billion and $150 billion before global re/insurers would start to feel the pinch and amass more capital.

Basically, the industry’s verdict is that these are not “market-changing” events.

Fair enough. But when you consider these global disasters on a cumulative basis, the numbers start to look foreboding. We’re barely 16 weeks into the year and already we are between one-quarter and halfway to the analysts’ projected target for raising more capital. Certainly, some re/insurance segments, most notably casualty lines in catastrophe-hit areas (i.e. in Japan), are seeing some signs of price increases. And some particularly exposed businesses are not seeing their coverage renewed.

One can only imagine what might happen if hurricane forecasters are correct in their predictions for 2011. The general consensus seems to be an elevated chance of a major hurricane hitting the United States or Canadian East Coast. If a Katrina hits Miami, we may in fact, despite record levels of capital, see the straw that broke the camel’s back.

Some in the industry might say the mere mention of this type of scenario is “alarmist.”

That’s an odd response, given that this industry is expected to prepare for the worst, most extreme forms of risk. Any company can prepare for the most statistically likely form of risk. The real challenge lies in making sure capital testing is solid when the weird events happen in bunches. These are not, as many insurance CEOs point out, 1-in-200-year events anymore.

Lost in all of the financial reporting is this: these events point to the need to review whether or not coverage is meeting the insureds’ needs and how that coverage might be improved/streamlined.

Generally speaking, these events have raised questions about how insurance policies respond when catastrophes follow closely on top of one another (fire following earthquake, for example, or tsunamis following earthquakes, or even earthquake ‘aftershocks’ rattling the same area as as an earlier earthquake).

Now might be an ideal time for insurers to review the merits/demerits of either bundling coverage for multiple loss causes into a general policy, or splitting coverages up into their various components and selling those segmented coverages separately (i.e. individual policies for fire, flood, earthquake, etc.) Different examples of how it can be done are available in Christchurch and Japan, and Canada might do well to review the efficacy of how well catastrophe losses are covered here.

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MARKETPLACE

Regulation CCIR SEEKS COMMENTS ON PROPOSED BEST PRACTICES FOR REGULATORY SURVEYS The Canadian Council of Insurance Regulators (CCIR) is seeking comment from the insurance industry on its issues paper, Best Practices for Regulatory Surveys.

The CCIR says the paper addresses the increasing use of regulator surveys, which is linked to an increasing emphasis on a risk-based regulation. CCIR’s draft best practices include the following (among others): • Developing a project plan that clearly states the problem the regulator is trying to address and clarifies the intended use of the survey.

• A consideration of whether the data or information could be obtained in any other way, or by means of surrogate data or information.

• Coordination among regulators, including a consideration of whether information gathered in multiple jurisdictions should be working through the CCIR, in addition to realizing the potential for regulators to invite other regulators to join in a survey.

The deadline for comments is June 30, 2011.

ALBERTA RATE BOARD COMMITS TO MOVING TOWARDS FILE-AND-APPROVE REGULATORY SYSTEM With the province’s auto insurance product now stabilized, the Alberta Insurance Rate Board (AIRB) is now

8 Canadian Underwriter May 2011

committing itself to moving towards a file-and-approve regulatory system.

“The board is now looking forward to working with government and industry to review the premiums regulation with the view to moving away from the current industrywide adjustment process to a file-and-approve system,” AIRB chairman Alf Savage commented in the AIRB 2010 Annual Report. “The board believes a model that deals with each company on its own merits will provide for more efficient and effective regulation, which in turn should foster greater competition for consumers over the longer term.”

Currently, the board is required under Section 656 of the Insurance Act and Section 4 of the Automobile Insurance Premiums Regulation to conduct an annual adjustment process that uses the industry-wide experience to determine whether premiums for basic coverage on private passenger vehicles should be adjusted.

ALBERTA ISSUES REVISED GUIDELINES COVERING UNBUNDLED/SEGMENTED RATING PROGRAMS An Alberta driver’s insurance premium should not increase by more than 10% per year solely as a result of their insurance company switching from a traditional rating program to an unbundled or segmented rating program, the Alberta superintendent of insurance has announced among its revised rating program guidelines. Alberta’s su-

perintendent of insurance posted the new guidelines on its Web site on Apr. 14, in response to the emergence in Canada of “unbundled or segmented auto insurance rating programs.” Such programs rely on advanced analytics to more accurately determine the premium for a consumer, based on complex combinations of individual risk factors. The full set of guidelines can be found at: http://www.finance.alberta.ca/ publications/insurance/super_ bulletin0211.pdf

Canadian Market “MODESTLY POSITIVE” TRENDS IN CANADIAN P&C INDUSTRY’S 2010 FINANCIAL RESULTS: IBC Trends in the 2010 financial results of Canadian property and casualty insurers were “modestly positive,” showing marginal improvement over 2009, according to statistics released by the Insurance Bureau of Canada (IBC).

IBC reviewed the 2010 financial trends at the Swiss Re 2011 Canadian Insurance Outlook 26th Annual Breakfast meeting held in Toronto on Mar. 31, 2011.

Underwriting results have generally improved, but the industry as a whole posted its third straight underwriting loss, observed Gregor Robinson, senior vice president and chief economist at the IBC. Overall, the industry’s summary ratios — including combined ratio, return on equity and capital adequacy test

scores — were about the same or slightly better in 2010 as they were in 2009.

And “on the positive side, the [underwriting] loss was substantially smaller last year —$54 million, compared to a loss of $207 million in 2009,” Robinson noted.

But the underwriting picture “becomes less positive when we remove the effect of reserve adjustments,” Robinson said. “In 2010, there were net releases of prior-year reserves of about $1.2 billion. Removing these from the underwriting results shown [for 2010], the industry’s underwriting loss grows to $1.3 billion.” Additionally, when the effect of reserve development is removed, the 2010 combined ratio increases by three percentage points, up to 103.6%.

Reinsurance ACCUWEATHER FORECASTS RISK OF NORTHERLY LANDFALLING HURRICANES IN 2011, INCLUDING CANADIAN MARITIMES AccuWeather.com’s hurricane centre is predicting more U.S. hurricane landfalls for 2011, including a risk during the late season of tropical storms sweeping through New England and the Canadian Maritimes.

Overall, the centre predicted fewer tropical storms in 2011 than in 2010. Nevertheless, the centre’s estimated number of tropical storms (15), hurricanes (8) and “major hurricanes” of Category 3 or higher (3) in 2011 are all

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MARKETPLACE above seasonal average.

And while there may be fewer storms this year than last, more of this year’s hurricanes will affect the U.S. coastline than in 2010, AccuWeather.com predicts.

“As with most Atlantic hurricane seasons, the areas where storms are most likely to make landfall shift as the season progresses,” AccuWeather.com notes.

The mid- to late hurricane season may see a shift in storm direction towards the eastern Gulf and Caribbean areas. This could shift to the northeastern area of the United States by the late season, AccuWeather predicts.

“Another mid-to-late season concern for landfalls will be northern New England and the Canadian Maritimes.”

DESPITE SEISMIC ADVANCES IN EARTHQUAKE PREDICTION, SURPRISES CAN STILL HAPPEN: ICLR Catastrophic earthquakes in New Zealand and Japan in 2011 Q1 present new lessons for insurance companies, according to Institute for Catastrophic Loss Reduction (ICLR) executive director Paul Kovacs, who spoke at the ICLR’s annual general meeting in Toronto on Apr. 8.

One is that surprises can happen.

“The science community predicted the strength and location of the earthquakes in Haiti and Chile, but was not able to forecast when the earthquake[s] would strike,” Kovacs said. In comparison, Kovacs noted seismologists in New Zealand were surprised by the location of the

Magnitude 6.3 earthquake that hit Christchurch on Feb. 22, since the area was not on a known fault line.

And in Japan, Kovacs noted: “Seismologists were very aggressively saying: ‘The worst I can imagine for this location is an 8.2 earth-

quake,’ and we had a 9.0 earthquake [on Mar. 11, 2011], which is much worse than an 8.2 earthquake.

“So one of the new lessons from New Zealand and Japan is that, despite advancements happening in seismology and the science, there

are surprises. Decision makers need to use the science, but they need to use it carefully and understand that there are limits and find the right way to take the scientific knowledge and build it into their decision making process...”

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PROFILE

Emergency Planning David Gambrill Editor

Kelli Kryzanowski has helped out in many times of crisis — 9-11, the 2004 Indian Ocean Tsunami — so preparing for seismic activity in B.C. is a natural fit for this emergency manager.

Kelli Kryzanowski describes herself as “a bit of an adrenaline junkie,” which is certainly a relevant qualification in the emerging field of emergency management.

Currently, she is the manager of catastrophic disaster planning and community recovery at Emergency Management British Columbia, which falls under the purview of the B.C. Ministry of Public Safety and Solicitor General.

She first started at her current position in 2005. Prior to this, she worked for eight years with the Canadian Red Cross coordinating volunteer responses to many global tragedies, including 9-11 and the 2004 Indian Ocean earthquake and tsunami.

Perhaps not surprisingly, she

10 Canadian Underwriter May 2011

came to the Red Cross after cutting her teeth as one of the few female forest fighters in B.C. in the early 1990s. Why is she seemingly always on the scene of a disaster, ready to lend a helping hand?

“It started through my concern for international affairs and what I saw going on in the world with major disasters in other places,” she says. “Ever since I was a little girl, my heart always broke when I saw people suffering after emergencies and disasters and that’s where my connection with the Red Cross really came from, too.”

Kryzanowski joined the Canadian Red Cross in the late 1990s, seizing the opportunity during an “off-season” in the firefighting field. She worked with the Red Cross for eight years; in that time, she completed her Master’s degree in International Development.

While at the Red Cross, she acted as coordinator for the humanitarian issues program (HIP), in which youth looked at issues such as the social impact of international armed conflicts.

She also helped coordinate volunteer and fundraising efforts. This included a volunteer response to the damage caused in New York in 2001, when two hijacked planes crashed into the World Trade Centre, killing more than 5,000 people. The Disaster Operations Volunteer

Escapees (DOVE) program sent Red Cross volunteers to the site to help victims with things like family reunification. “We sent quite a few volunteers from British Columbia to Red Cross headquarters for 9-11,” Kryzanowski says.

She was also involved in one of the Canadian Red Cross’s largest fundraising events on Vancouver Island following the Indian Ocean Tsunami on Boxing Day in 2004. A 9.1 earthquake off the west coast

I was really looking at the issue of resilience. How do communities spring back from disasters quickly? Which communities do spring back more quickly, and why? of Sumatra, Indonesia triggered a powerful tsunami that inundated coastal communities in 14 different countries with waves up to 100 feet high, killing more than 230,000 people.

Kryzanowski visited Phuket, Thailand, among the hardesthit countries, to survey the damage there. “I was really looking at this issue… of resilience,” she says. “How

do communities spring back quickly? Which communities do spring back more quickly, and why?”

Kryzanowski credits her experience in Thailand with the background to become a project manager in 2005 for the Tsunami Integrated Preparedness Project (TIPP) in B.C. The Provincial Emergency Program of the Government of B.C established the TIPP project soon after the South Asia tsunami.

“I learned first-hand the incredible power of a tsunami,” she say of her experience in Thailand. “This one was a teletsunami because it came across the Indian Ocean to do damage in Indonesia. Seeing that incredible power gave me an understanding of how we need to ensure the people B.C. have the education and knowledge of these [adverse] impacts [of a tsunami], and that we are able to put in place the systems to ensure the safety of British Columbians…

“That’s where I got started really with the province in catastrophic disaster planning.”

An advisory in British Columbia following the 2011 earthquake and tsunami in Honshu, Japan tested B.C. residents’ preparedness for a tsunami.

The province’s Provincial Emergency Notification [PEN] System sent out 1,000 calls, 400 faxes and 400 emails, all in

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PROFILE

about 40 minutes, notifying emergency program coordinators, the media, RCMP and ambulance drivers that a tsunami could happen.

Some communities responded well. Other responses suggested a gap in communication around tsunamis. For example, people need to be aware that they have to respond

quickly to tsunami threats, particularly in the instance of a near-shore tsunami.

“In a near-shore tsunami, people need to know that when the ground shakes for more than a minute or so, they need to drop, cover and hold,” she says. “When the earthquake stops, they need to pick themselves up and start running for

higher ground. A lot of people are thinking they need to wait for a siren to go off, or for somebody to come and knock on their door and tell them to get moving. The education we need to get out there is that you just really need to get yourself out and get moving.”

Kryzanowski is now handling B.C.’s seismic emergency management portfolio, which includes earthquakes, tsunamis and volcanoes. In this role, she helped with The Great British Columbia ShakeOut, modeled after the ShakeOut program in California. Supported by the Insurance Bureau of Canada (IBC), the program was the largest earthquake drill in Canada, with more than 400,000 participants.

The drill made clear that in the event of an earthquake, people should simply drop down immediately, cover themselves with a solid object such as a table or a desk, and hold onto the object covering them for the duration of the shaking.

The key is to avoid the panic instinct to leave the building, Kryzanowski says.

“People think they should get out of a building because they think it is going to collapse,” she says. “But our building codes in North America are such that buildings rarely, rarely ever pancake. Most people are killed or injured when they are

trying to get out of a building during the earthquake.”

When asked about the role of insurance in emergency management, Kryzanowski noted the IBC has been working hard to educate B.C. residents about the importance of understanding their coverage prior to a disaster occurring. Some may not be aware, for example, that earthquake is covered by way of endorsement and not automatically in their homeowners’ policies. This is something the industry may wish to discuss, Kryzanowski says.

“One of the things we always wonder about here in B.C. in particular is that you have to ask for earthquake insurance,” she says. “We’d love to see earthquake insurance become automatic and you would have to ask not to have it.”

Insurers do have a role in making the public aware of the need to purchase earthquake coverage. “The government does assist with the disaster financial assistance program, but we don’t with insurable perils like earthquakes or fires. So really, [insurers should be] encouraging their clients to have earthquake insurance, I think.”

Also, she noted, insurers and adjusters may want to keep up their knowledge about emergency social services and how the emergency management system works

May 2011 Canadian Underwriter

11

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Parts in the Equation

Greg Horn

Vice President of Industry Relations, Mitchell International Inc.

As I speak to collision repair industry groups throughout North America, I am often asked to forecast repairable average severity trends for the upcoming year. I tend to focus on parts, perhaps because I began my career selling parts at a dealership and have spent a great deal of time analyzing their usage. However, looking at past estimate severity increases to forecast changes involves more than just parts. As you’ll see, although this category plays a large role, we must carefully look at all of the various areas that make up an estimate — parts, labour, paint and materials.

Interestingly enough, the most influential area is also the most volatile — parts. In today’s repairable estimates, parts make up approximately 44% of the cost of the repairable estimate.

12 Canadian Underwriter May 2011

Labour comes in at approximately 43%, with paint and materials rounding out the total.

WHY ARE PARTS SO VOLATILE? The fact is, labour rates change more slowly in the course of a year than parts prices, and labour charges are more influenced by your local competition than parts would be. Paint and materials costs can increase at a more rapid pace, but they make up a smaller part of the estimate. Additionally, labour and paint and materials charges on the average estimate are also linked to the collision-estimating guide. In other words, a large component of the average charge for labour and paint is determined by the hourly allowance supplied by the information provider’s guide. By contrast, parts are virtually 100% driven by price, so a change of 10% in collision parts prices will hit the bottom line harder than a 10% increase in hourly labor.

This year, more than most, quite a few external factors are influencing collision parts prices.

Canadian dollar exchange rates to major currencies, instability in the Middle East and the tragic events in Japan all will play major roles in the prices we pay for our collision replacement parts.

Illustration by Claire Manning/www.threeinabox.com

Several factors are squeezing the availability of vehicle repair parts, including the earthquake in Japan, thus increasing repairable average severity.

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The Canadian dollar has gained significantly against the U.S. dollar over the past five to seven years. As a result, U.S. carmakers are seeing pressures on margins for U.S.sourced parts sold to Canadian OE distributors. This is a complex pricing arrangement (we usually don’t see a direct price increase in Canadian parts for North American nameplates every time there is an exchange rate difference), but there has been a slight bump in popular parts to ease deteriorating margins.

Watching the loonie exchange rate against the euro, yen and yuan will help forecast potential in European, Japanese and aftermarket parts respectively. One difficulty with relying solely on a currency analysis is that so many collision parts for high-volume European and Japanese parts will come from NAFTA zones rather than overseas, diluting the influence of the loonie to euro and yen exchange rate. However, the impact of the exchange rate remains elevated for aftermarket parts because of the direct link between aftermarket parts and prices set in Taiwan.

THE WORLD WE LIVE IN Before dismissing the importance of the yen-to-loonie exchange rate, we need to examine the impact of the earthquake, tsunami and consequent damage to nuclear reactors in Japan. Right now, Japanese auto makers and sub-suppliers are struggling to get back into production, thus reducing the volume of car parts coming out of Japan. This will have a greater impact on less popular and luxury models, since they are more likely to have been manufactured in Japan. Simply reading the first character

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of your vehicle’s 17-digit VIN number can be a good indicator of potential parts shortages. If it starts with the letter “J,” your vehicle was produced in Japan. And if it starts with a number — 1, 3, 4, etc. — you have a vehicle produced in a NAFTA country.

Right now, Japanese auto makers and sub-suppliers are struggling to get back into production, thus reducing the volume of car parts coming out of Japan.

Most Japanese carmakers indicated recently that their plants are partially re-opened (or they will be re-opened in the coming weeks). But the underlying problem relates to the production of electricity: Japan’s many crippled nuclear plants not only caused an immediate health risk from radiation, but will also affect manufacturing operations this year. Recently, the Japanese government requested all businesses based in

Japan to reduce their electric energy consumption by 25%.

Before the crisis, Japan was already an extremely energy efficient country; so a 25% reduction in an already-efficient infrastructure means severe cuts will have to be made. Additionally, peak reductions are set to happen in the sweltering summer, when private use of energy to power air conditioning in homes will be at its height. Rolling brown outs and black outs are difficult to deal with in the manufacturing process, making the elimination of production shifts or reduction of assembly line times necessary to maintain a safe work environment.

Lastly, let’s look at another trouble spot, the unrest in the Middle East. Reduction in oil production from volatile areas has increased the price of a barrel of crude oil. As we pass $1.27 per litre of gas, delivery costs for collision parts will be as affected as they were during the gas price spike roughly three years ago.

BY THE NUMBERS Armed with this information, you can likely see the future of automobile collision repair costs for the year. They’re bound to rise. By how much? That’s where the art of forecasting comes in. In rough numbers, 44% of approximately $3,000 average severity means that parts dollars are around $1,320 of an estimate. Now we need to apply an inflation factor; 10% is not out of reason. Taking inflation into account could mean a $132 increase in average severity.

Will it happen? Now comes the best part of “forecasting.”The answer is, that depends on so many factors.

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The

Anne McCartt

Senior Vice President for Research, Insurance Institute for Highway Safety

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Future of

Auto Safety Contemporary vehicles have gee-whiz safety features that aim to avoid crashes, but time will tell how drivers will react to these new technologies, and whether they will actually reduce collisions.

Vehicles of the future are here right now, and more of them have gee-whiz safety features that aim to avoid crashes altogether — or at least help some drivers avoid some crashes by supplying critical information at critical times. These features may alert a driver who has become distracted, for example, or improve a driver’s ability to see a hazard lurking just around a bend. In the wake of the huge success of electronic stability control, designed to help drivers maintain control in emergency maneuvers or on slick roads, expectations for the new features are high.

However, their benefits are hard to predict.

It’s tempting to become cheerleaders for any new feature promising to address drivers’ mistakes, since drivers make a lot of them. But for

16 Canadian Underwriter May 2011

the most part the features being installed in current models simply give drivers information. How will the drivers respond? Will they use the information correctly? Will it elicit the right response? Will drivers become annoyed by too much information? The Institute is conducting research to try to answer those questions.

SAFETY FEATURES Features available on some vehicles, especially luxury ones, include:

Forward collision warning with automatic braking More occupant deaths occur in frontal crashes than in any other kind of crashes. Some of these collisions could be avoided.The severity of others could be reduced if appropriate action were taken sooner. A new vehicle feature addresses this by detecting, usually by radar, when a driver is headed for trouble.Then the driver is alerted. In some cases, braking is applied.

The systems differ among manufacturers in terms of when and how they activate. Forward collision avoidance on some models begins by sounding alarms and/or flashing lights to warn drivers of hazards. In some cars, safety belts are tightened. When a crash is imminent, brakes are applied, often with progressively more pressure.

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Emergency brake assistance Some frontal crashes could be avoided if hazards were detected sooner, but others involve drivers who did see and brake for hazards but couldn’t stop in time to avoid crashing. Crashes like these might be avoided if drivers had technology that senses panic braking, or a situation in which a driver might be about to apply brakes hard. Brake assistance readies the brakes for activation and/or applies extra pressure.This kind of technology is being introduced now.

Lane departure warning When a drowsy or otherwise impaired or distracted driver drifts out of a travel lane, either into another lane or off the road, the result can be serious. A new feature, usually mounted on or near the rearview mirror, can help by detecting when a driver begins to depart from a travel lane without apparent intent (for example, when the turn signal isn’t on).

The system alerts the driver by vibrating the steering wheel, emitting an audible and/or visual warning, or other means.

Some systems also brake selected wheels to nudge a vehicle back in lane.

Blind spot detection Side and rearview mirrors help drivers keep track of nearby motorists, but blind spots on either side still allow adjacent vehicles to “hide.” To warn drivers of the presence of hiding vehicles, features are being added to some Audi, Buick, Cadillac, Mazda, Mercedes and Volvo models that sweep nearby lanes, looking for vehicles approaching from behind and entering blind spots.

A light comes on to warn a driver of a hiding vehicle. In some cases, the light flashes or becomes brighter if the driver activates a turn signal in the presence of a conflicting vehicle. Some of the systems include a beep as well as a light.

We don’t know if people will notice the lights. Some people don’t use their side mirrors, where the warnings usually are located.These factors could limit the safety potential. Drivers who often navigate in heavy traffic might get so used to the lights and beeps that they pay little attention to them.

18 Canadian Underwriter May 2011

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Adaptive headlights High beams on all passenger vehicles help drivers see better on dark roadways. The active lights introduced on some models can help even more, by pivoting in the direction of travel when drivers steer around curves and corners.

The purpose is to help drivers see sooner what may be looming around the bend.

Other features automakers are introducing include rear cameras to reveal hazards when drivers back up (such as small children); warnings for drivers who become drowsy, as indicated by eyelid movement; and heads-up display to reduce the need to look away from the road to consult the instrument panel.

Forward collision warning, lane departure warning, blind zone detection and adaptive headlights have a lot of potential. In a best-case scenario, if the

Benefits will be disappointing if drivers simply turn off crash avoidance features that are annoying or don’t seem to help. systems work as designed, the Institute estimates they could prevent or mitigate as many as 1 of every 3 fatal crashes and 1 of every 5 serious or moderate injury crashes.

In addition to these safety features, others are designed more for convenience. A few vehicles, for example, have technology that automatically guides a car into a parallel parking space.

DRIVER RESPONSE Driver response is key to the success of any crash avoidance feature. If drivers see and respond to features and don’t compensate by taking more risks behind the wheel, crashes can be reduced.

But if motorists respond by changing how they drive, potential benefits may not pan out.

Drivers don’t change their behavior in response to many safety features but do respond to those that give direct and immediate feedback — for example, when acceleration is boosted or brakes are improved. This could be the

case with studded snow tires, which have delivered a less-than-expected benefit (possibly because drivers who think they won’t skid go too fast for conditions). Some motorists will respond to emerging crash avoidance features the same way. They’ll drive faster or pay less attention to the possibility of a hazard ahead if they think a gadget will alert them if needed.

Previous experience indicates more automatic features — those that apply brakes automatically to avoid a collision, for example — will be the most effective.Yet many of the features being introduced on current cars give motorists feedback by activating a warning light. Then drivers have to take appropriate action to avoid crashes. Such features might not live up to their hype.

Of course, benefits will be disappointing if drivers simply turn off crash avoidance features that are annoying or don’t seem to help. This could be the case with blind spot detection systems, which could activate continuously in heavy urban traffic.

A cautionary tale comes from antilock brake technology. When anti-locks were introduced on passenger vehicles, expectations were high for crash reductions, based on how cars with the systems performed in tests by the Institute and others. But the initial outcome on the road was to increase crashes, and anti-locks never have produced a large safety benefit. The problem could be the tests involved skilled drivers in controlled settings, but real-world driving is fraught with unforeseen circumstances for motorists whose skills may be limited. Drivers also might compensate for anti-locks. Assuming they can stop quicker if they need to, they drive faster and/or delay brake application.

We’ll have to wait for research examining on-the-road performance of the new crash avoidance systems. They are proliferating as technology becomes more accessible and affordable. Eventually the idea is to link technologies designed for both vehicles and roadways, building an interactive communications system. Then the future really will have arrived.

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Silencing Hired Guns Freelance Writer

New Ontario court rules place a higher level of judicial scrutiny on the role of expert witnesses, particularly in complex cases involving medical diagnoses.

For years, courts have expressed concern about the trend of ‘hired gun’ expert witnesses retained by plaintiff or defendant lawyers. Given that trial judges are not specialists in technical matters such as medical or psychiatric conditions, these experts are relied upon to clarify the issue at hand.

Yet the adversarial approach of the legal system, combined with the proliferation of socalled “opinions for sale,” often means judges — and in some cases, juries — are faced with divergent and conflicting assessments. In many cases, the issue involves insurance and health-related claims.

“I think insurers need to be a lot more cautious and careful in working with their counsel on retaining experts,” says Gerry George, a lawyer with Samis & Company. “They need to demonstrate that their processes meet this increased level of judicial scrutiny.”

20 Canadian Underwriter May 2011

The Ontario Rules of Civil Procedure were changed in January 2010. Among other things, the changes include revamped duties of experts under Rule 53.03. In particular, the amended rules require experts to acknowledge their duty to “to provide opinion evidence that is fair, objective and non-partisan.” This acknowledgement of expert duty, known as Form 53, also states experts are expected to provide evidence related only to matters within their area of expertise and to provide “such additional assistance as the court many reasonably require.”

Experts must now sign the Form 53 acknowledgement and attach it to their reports. As a further measure to ensure impartiality, the form emphasizes the expert’s duty to the court “prevails over any obligation which I may owe to any party by whom or on whose behalf I am engaged.”

Additionally, the new rules set out a long

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Craig Harris

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checklist of items that should be included in every expert report, such as the expert’s area of expertise, qualifications, employment and educational experience. These also require the expert to disclose any instructions provided by lawyers or clients in relation to the proceeding, as well as background research, documentation and “foundational material” that led to the opinion.

“The fundamental change is that the expert now has to acknowledge that he or she is there to assist the court, not to be an advocate,” says Gary Srebrolow, a lawyer with Blaney McMurtry who is the leader of the firm’s health law group.

“The changes to the expert rules are best described as a warning shot to experts making a handsome living acting as ‘hired guns,’” notes Darcy Merkur, a partner with Thomson Rogers. “In time, courts may highlight these new delineated duties when criticizing experts that are seen as advocates, causing a more profound impact on the expert’s credibility in other proceedings.”

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George notes the Beasley finding could render independent medical examinations (IMEs) far less relevant to court proceedings. “This is an important decision in that IMEs, which insurers have tended to rely on in the past, are not as much of an option anymore,” George says. “It will be hard for these reports to stand up to scrutiny and get around conflict or bias issues.”

Indeed, it is more likely that IME assessors retained in accident benefits or disability claims will be limited to giving fact evidence only, not opinionbased evidence.

EMERGING CASE LAW Case law and judicial commentary have already emerged in the wake of the new expert rules. In Beasley and Scott v. Barrand (2010), an insurer sought to have three medical assessment reports admitted pursuant to Rule 53.03. The plaintiff was injured in a motor vehicle accident in 2002 involving a car and a motorcycle.The three medical doctors authoring the reports signed the Form 53 acknowledgement of expert’s duty.

Ontario Superior Court Justice Patrick Moore denied the application to file the medical reports, finding that the acknowledgement forms “are seriously flawed.”

“It appears clear to me that the doctors did not take time to read and reflect upon the content of the form before signing it and that affords me no comfort to believe that these experts understand their duty to assist the court with opinion evidence that is fair, objective, non-partisan and within the area of expertise of each doctor,” Moore found.

22 Canadian Underwriter May 2011

Beasley is an important decision in that IMEs, on which insurers have tended to rely in the past, are not as much of an option anymore. It will be hard for these reports to stand up to scrutiny and get around conflict or bias issues.

Justice Moore has made several rulings on the appropriate roles of experts in the courts. In Frazer v. Haukioja (2008), he seemed to anticipate the new code of expert duties in his decision: “Whatever role the expert may have undertaken during the course of the litigation in assisting counsel to a fuller appreciation of the facts in dispute and the inferences that might be drawn from them, the expert must set aside that role upon entering the witness box at trial. From

the witness box the expert speaks only to assist the court. . . Independence and impartiality; the court expects nothing more and it will accept nothing less.”

In a case involving insurance and medical examinations, Bakalenikov v. Semkiw (2010), another Ontario judge commented on the new duty of experts.

“Each court expects and relies upon frank and unbiased opinions from its experts,” noted Master D.E. Short. “This is a major sea change, which requires practical improvements to past opaque processes. How are long-time plaintiffs’ and defendants’ experts to be ‘trusted’ to change their stripes? At the initial stages, skilled, licensed professionals clearly must be taken at their word that on principle they take their Form 53 Undertaking to Court seriously. They are clearly promising to bring a new, transparent and objective mind set to the drafting of their reports and to their subsequent testimony.

In a medical malpractice case, Gutbir v.

University Health Network (2010), Ontario Superior Court Justice Darla Wilson ruled a treating physician was not permitted to be an expert witness on the cause of a newborn infant’s brain injury and disability. She questioned the impartiality of a neonatologist to testify about his treatment in the case at hand. “[T]o the extent that the physician has any personal interest in the outcome of the case or lacks the objectivity and independence essential to the medical expert, this may adversely affect the weight to be given to the expert testimony,” she wrote.

FINDING EXPERT WITNESSES As articulated in case law, courts are showing an increased awareness of the possibility of bias and advocacy when it comes to expert witness reports and testimony. Lawyers say insurance companies need to recognize this potential for a finding of bias and put more time into finding the right experts for trial.

One key strategy is to look beyond the usual array of experts known by counsel — and judges. “I think we are moving away from the typical ‘bank’ of

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experts,” says George. “There are, for example, lots of medical examination facilities that insurers have relied on in the past. But they have to get away from that, by looking at referrals from other sources such as medical colleges, university networks and colleagues. It can be more difficult to find these experts, but it pays off, especially in more complex cases.”

Insurers also need to scrutinize the historical tendencies of experts carefully, well before trial and even pre-trial discovery. “It is important to look for skeletons in the closet,” notes Srebrolow.

“This information can come from various sources, including previous decisions and case law, unfavourable comments by a judge, professional discipline or action by a health college or general medical reputation.”

One consequence of the new rules is a greater reluctance on the part of some medical professionals to testify as experts or prepare reports, George observes. “Some are finding the process too complicated and risky for them,” he says. “There are a number of people who have simply walked away.”

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with the expert will be disclosed in court.”

“It is a delicate balancing act,” adds George. “You have to be consistent and standardized with instruction letters and ensure as much neutrality as possible.”

Srebrolow says the old way of retaining experts often involved multiple drafts, letters and correspondence back and forth between experts and counsel or clients and revisions. “Some lawyers might still be doing that,” he notes, “but if they get caught, it will come out in court.”

ADAPTING TO THE NEW LANDSCAPE

INSTRUCTING EXPERT WITNESSES Another new element of the amended rules for expert duties is the requirement that all instructions and correspondence between lawyers and expert witnesses will be producible before or at trial.This means any attempt to influence or conceal the opinions of expert witnesses can be brought into the courtroom, much to the potential detriment of a plaintiff’s or defendant’s case. Overt attempts to guide an expert — either by counsel or insurer — can backfire, according to sources.

“You have to be careful and give the expert proper instructions,” says Srebrolow. “You can’t guide them, but you have to set out what you want them to do. The best approach is to give them the information and have them tell you what they think. I think lawyers have to be as hands-off as possible and adopt a ‘less is more’ approach. Assume that all your instructions and correspondence

24 Canadian Underwriter May 2011

far in advance as possible. Lawyers may be working on the case for two years, but this is the first time the expert has seen the file.”

Advance preparation is critical, given an amended time period for disclosing expert witness reports under Rule 53.03. In the past, expert reports had to be served at least 90 days before trial.

The new rules require lawyers to provide the reports 90 days before the pre-trial conference, with responding reports to be served at least 60 days before the pre-trial conference.

Another key element of the new expert duties lies in educating the experts about their new roles and responsibilities. As Beasley demonstrated, it is not enough simply to gather signed forms acknowledging expert duty. Professionals must understand their duty and the implications of acting as an expert witness under the new rules.

Another new element of the amended rules for expert duties is the requirement that all instructions and correspondence between lawyers and expert witnesses will be producible before or at trial.

Giving experts lots of time and an organized file on the case can help streamline the process, reduce costs and improve the odds of getting a balanced and comprehensive report, according to sources.

“It is important to bring experts up to speed on a certain file,” notes Srebrolow. “This means giving them records in an organized, indexed manner.You have to prepare the material as

The changes to expert witness duties under Rule 53.03 may have fallen under the radar screen for some insurance companies and claims examiners, who often presume the old rules of finding the right ‘advocate’ for personal injury cases still apply, according to sources.

However, it would be in their best interest to understand how these new rules will affect health-related claims, particularly in more complicated cases.

“The litigants, such as insurance companies, are the real ‘consumers’ of these expert reports and they spend a considerable amount of money on them,” notes Srebrolow. “I think they would be better and more informed consumers if they know more about the new process and can avoid the pitfalls.”

Adds George: “I think insurers need to be prepared to bite the bullet on getting an objective report that will stand up to the scrutiny of the court and the new rules for expert witnesses. If that costs more and involves more research, then so be it.The old way of relying on medical assessment ‘mills’ for experts involves too much risk.”

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Seductive Solution?

J. Brian Reeve Partner, Cassels Brock & Blackwell LLP

Laurie LaPalme Partner, Cassels Brock & Blackwell LLP

Funds withheld arrangements offer a tempting, but not riskfree way to obtain credit for unregistered reinsurance under OSFI’s new Guideline B-3.

As the July 1, 2011 implementation date for the new form of unlicensed reinsurer security arrangement approaches, cedants and unregistered reinsurers are looking for simpler ways to take capital/asset credit for unregistered reinsurance. A funds withheld arrangement may offer an attractive alternative to other forms of security, provided that both cedants and reinsurers fully understand the implications of entering into such an arrangement. Many cedants and unregistered reinsurers are concerned about the prospects of negotiating and settling a Reinsurance Security Agreement (RSA) in time, as well as the additional cost that may be involved.

The Office of the Superintendent of Financial Institutions (OSFI) issued its final version of Guideline B-3: Sound Reinsurance Practices and Procedures

26 Canadian Underwriter May 2011

(Guideline B-3) and its new Guidance for Reinsurance Security Agreements (Guidance) in December 2010. Guideline B-3 and the new Guidance fundamentally changed the reinsurance regime in Canada. In particular, OSFI has changed the manner by which a federally regulated insurance company is eligible to take credit for reinsurance placed with unregistered reinsurers. As of July 1, 2011, all new collateral arrangements involving unregistered reinsurance must comply with Guideline B-3 and the new Guidance.

REINSURANCE SECURITY AGREEMENTS Starting July 1, 2011, in order for a cedant to take credit for unregistered reinsurance, the unregistered reinsurer will be required to pledge assets to the cedant to secure payment of potential liabilities under one or more reinsurance agreements pursuant to an RSA made under provincial law. As a result, on or before July 1, 2011, the cedant will be required to negotiate and enter into a suitable RSA in order to create and maintain a valid and enforceable security interest in the pledged assets that has priority over any other security interests. The pledged assets must be held in Canada by a collateral agent.The

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agent must be a Canadian financial institution not affiliated with the unregistered reinsurer. OSFI will not be a party to the RSA, and the cedant and unregistered reinsurer will not require OSFI’s approval to withdraw funds held by the collateral agent. However, the cedant must obtain a legal opinion, on which both the cedant and OSFI can rely, confirming that such a security interest has been or will be created in the cedant’s favour.

THE FUNDS WITHHELD ALTERNATIVE As an alternative to an RSA, Guideline B3 also provides that credit for unregistered reinsurance is permitted for a ‘funds withheld’ arrangement.The reinsurance agreement must clearly provide that, in the event of the cedant’s insolvency, the funds withheld (less any excess amount due back to the reinsurer) must form part of the property of the cedant’s general estate (or part of the assets in Canada of a foreign insurance company) as defined under the WindingUp and Restructuring Act (Canada) (WURA) and the Insurance Companies Act (Canada).

FUNDS WITHHELD ARRANGEMENTS A funds withheld arrangement generally consists of a contractual arrangement (usually set out in the reinsurance agreement) whereby assets, generally the premiums, that would normally be paid to an unregistered reinsurer as consideration under the reinsurance agreement are instead withheld and retained by the cedant as a form of security permitting credit for the unregistered reinsurance. In a funds withheld arrangement, there can be no encumbrance on the pledged assets; the cedant must have exclusive control over such assets. Funds withheld arrangements are commonly used in the life insurance sector. Guideline B-3 now contemplates their use in the property and casualty sector as well.

Advantages A funds withheld arrangement would likely be a cedant’s preferred method of collateralizing reinsurance obligations,

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since the cedant would retain full control over the applicable assets at all times. Funds withheld arrangements have the following additional advantages: • fewer implementation steps; • no collateral agent is involved; • no legal opinion is required (however, the cedant may wish to request a legal opinion from its Canadian legal counsel as to whether or not the funds withheld arrangement ensures that the funds withheld form part of the property of the cedant in the event of an insolvency); and • they can be documented within the body of the reinsurance agreement itself.

A funds withheld arrangement provides a simpler, lower-cost alternative to an RSA. A funds withheld arrangement is also attractive to OSFI since 100% of the withheld funds are maintained in

Funds withheld arrangements are generally less attractive to unregistered reinsurers than to cedants, because the unregistered reinsurer assumes the credit risk of the cedant.

Such an arrangement may be convenient, but offers little protection to the unregistered reinsurer. the general funds of the cedant in Canada for the benefit of Canadian policyholders in the event of insolvency.

Disadvantages However, there are also significant disadvantages to a funds withheld arrangement. Funds withheld arrangements are generally less attractive to unregistered reinsurers than cedants, because the unregistered reinsurer assumes the credit risk of the cedant. Such an arrangement may be convenient, but offers little protection to the unregistered reinsurer. In the event of insolvency, the unregistered reinsurer assumes the role of a general creditor.

Moreover, the unregistered reinsurer is prevented from asserting the assets are held in trust on its behalf (as that would be contrary to the WURA). An unregistered reinsurer cannot have a priority over other creditors with respect to the pledged assets in the event of an insolvency of the cedant.

In a funds withheld arrangement, the only protection for an unregistered reinsurer is to rely on the set-off provisions in the reinsurance agreement. In a non-insolvency situation, the reinsurer must argue the funds withheld should be set-off against the amounts the reinsurer owes to the cedant for incurred claims [as well as incurred but not reported (IBNR)]. A set-off provision may only provide partial protection to the reinsurer: the cedant may be in a position to retain more funds (representing unpaid premiums) than are necessary to satisfy incurred losses. In addition, the form of set-off provision OSFI now mandates for reinsurance agreements may provide further limitations on the ability of an unregistered reinsurer to rely on set-off provisions in the event of the insolvency of the cedant.

USE OF A SEPARATE FUNDS WITHHELD AGREEMENT A properly documented funds withheld arrangement should delineate the rights and obligations of the cedant and the unregistered reinsurer. Funds withheld provisions are sometimes included in unregistered reinsurance agreements.

A standard funds withheld provision generally includes: • the cedant’s agreement to deliver a statement showing the proportion of reserves applicable to the unregistered reinsurance; • an agreement to fund reserves by funds withheld; ∑ the maximum amount of funds withheld at any time; • any adjustments or reconciliation of the funds withheld, commonly at the end of each quarterly accounting period; and • a statement that the funds withheld do not create a trust or fiduciary rela-

May 2011 Canadian Underwriter

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Funds withheld arrangements offer an attractive alternative to unregistered reinsurers that have very good long-term relationships with Canadian cedants with high levels of regulatory capital. The material risk of a funds withheld arrangement is the loss of control of the funds.

tionship between the cedant and the unregistered reinsurer, but rather a relationship of debtor and creditor.

Although these standard funds withheld provisions may be adequate, it may be preferable for the parties to enter into a separate Funds Withheld Agreement. Such a Funds Withheld Agreement could provide for the provisions set out above, but should also include more detailed provisions as to: • the funds withheld, and any adjustment mechanisms; • the rights and obligations of the parties participating in the funds withheld arrangement, including the unregistered reinsurer’s rights to any surplus funds; • use of funds withheld, including payment of claims; • audit rights; • set-off provisions; • ownership of interest accrued on funds withheld; • insolvency provisions; and • a right of conversion to an RSA at the option of unregistered reinsurer based on certain triggers.

A Funds Withheld Agreement would be a separate legal agreement governed by the laws of the applicable province in Canada. It would be referenced in and/or attached as a schedule to the main reinsurance agreement (which may not be governed by Canadian law).

One of the most significant advantages of a separate Funds Withheld Agreement is that it would allow the parties to include specific provisions and mechanics for the operation of the arrangement.

The parties could define how to determine the quarterly reductions or increases of the amount of funds required

28 Canadian Underwriter May 2011

to be withheld. The parties could also provide for who will receive credit for the investment income on the funds that are withheld; how disputes over claims and reserves will be resolved; and what events will trigger the termination of the arrangement.

By creating a separate Funds Withheld Agreement, the parties could at least partially mitigate their credit risk exposures and better define their respective obligations under the arrangement.

One of the most significant advantages of a separate Funds Withheld Agreement is that it would allow the parties to include specific provisions and mechanics for the operation of the arrangement. The parties could define how to determine the quarterly reductions or increases of the amount of funds required to be withheld.

SUMMARY Funds withheld arrangements offer a tempting, but not risk-free way for credit for unregistered reinsurance to be obtained pursuant to the requirements of Guideline B-3. Although funds withheld arrangements are very appealing due to their simplicity and low implementation costs, unregistered rein-

surers must carefully evaluate these cost advantages against inherent risks.

For example, it is obvious an unregistered reinsurer must be very comfortable with the credit risk it is assuming with respect to the cedant. An unregistered reinsurer should perform comprehensive due diligence on the financial condition of the cedant before agreeing to a funds withheld arrangement. An unregistered reinsurer should also carefully monitor the MCT or BAAT margin of the cedant in order to ensure that the cedant is maintaining adequate regulatory capital at all times. A drop in the MCT or BAAT margin of the cedant below a predetermined level could be used as a trigger to either terminate the funds withheld arrangement or convert it to an RSA. Funds withheld arrangements offer an attractive alternative to unregistered reinsurers that have very good longterm relationships with Canadian cedants with high levels of regulatory capital. The material risk of a funds withheld arrangement is the loss of control of the funds. The unregistered reinsurer will assume the role of an unsecured general creditor as compared to a secured creditor with a first charge security interest under an RSA. It is important to note this loss of control over the funds can affect the negotiating position of the unregistered reinsurer in the event of a dispute with a solvent cedant. By employing a well-drafted Funds Withheld Agreement that includes triggers and termination provisions, the unregistered reinsurer may be able to mitigate this loss of control.

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Language Divide A government blue-ribbon panel of medical experts has produced a proposed new draft of Ontario’s catastrophic impairment definition, including a welcomed “line in the sand� against combining physical and psychological impairments to determine whole person impairment. But how will the medical terminology in the new definition be translated into the language of case law?

By Vanessa Mariga

30 Canadian Underwriter May 2011

?

The

catastrophic impairment designation under Ontario’s Statutory Accident Benefits Schedule (SABS) has long been a contentious point for the insurance industry. Court decisions have created ambiguities in how this definition should be interpreted and essentially opened the floodgates to a much richer set of benefits, prompting abuse (particularly when it came to psychiatric impairments).

In its five-year review of auto insurance, completed in March 2009, the Financial Services Commission of Ontario (FSCO) announced it would be striking a panel of experts to examine and propose a new definition for catastrophic impairment, one that draws a clear line in the sand. FSCO named its panel experts in December 2010. Dr. Pierre Côté, an associate professor of epidemiology at the Dalla Lana School of Public Health at the University of Toronto, headed up the Catastrophic Impairment Expert Panel, which included the following members: • Arthur Ameis, M.D., Physiatrist (Toronto, Ontario); • Linda Carroll, Ph.D., Clinical Psychology/Epidemiology (Edmonton, Alberta); • J. David Cassidy, Ph.D., Dr.Med.Sci., Senior Scientist, Epidemiology (Toronto, Ontario); • Ronald Kaplan, Ph.D., C. Psych., Neuropsychologist (Hamilton, Ontario); • Michel Lacerte, M.D., Physiatrist (London, Ontario); • Patrick Loisel, M.D. Orthopedic Surgeon, Professor (Toronto, Ontario); and • Peter Rumney, M.D. Paediatrics (Toronto, Ontario).

May 2011 Canadian Underwriter 31

COVER STORY

Language Divide The panel has prepared the first draft of its definition of catastrophic impairment, which has been met with mixed reviews from the insurance industry.

The panel took a hard line on how the calculation to reach the catastrophic threshold should be derived (i.e. physical injuries should not be mixed with psychological injuries to determine the 55% threshold for whole person impairment). But the panel introduced a new uncertainty by creating a new tier within the designation (i.e. an “interim” catastrophic designation). This is the first of many drafts before the definition becomes law, and insurance industry experts are proceeding with a cautious optimism.

Ambiguity and Mixed Messages The definition of a catastrophic injury currently in use under the SABS was first drafted in 1996. Since that time, it has been subject to broad interpretations by the courts and FSCO arbitrators. Perhaps the most notable and hotly contested of these decisions was the 2004 Ontario Superior Court case Desbiens v. Mordini.

In Desbiens, Ontario Superior Court Justice Harvey Spiegel (as he then was) determined separate ratings for a claimant’s physical and psychological impairments — as defined in ss. 2(1.1)(f) and (g) of the SABS, respectively — could be combined to reach the 55% whole person impairment (WPI) threshold for catastrophic impairment designation.

Much to the consternation of the insurance industry, since Desbiens, a string of court and FSCO arbitration decisions have reinforced Justice Spiegel’s view.

FSCO’s arbitration decision in Aviva and Pastore (2010) essentially widened the definition of catastrophic impairment further. In Pastore, FSCO director delegate Lawrence Blackman ruled there is no inconsistency in defining an auto injury victim as “catastrophically impaired” even though she suffered only a single Class 4 impairment and her physical and psychological injuries fell well below the 55% threshold.

In a bulletin released in the wake of Pastore, legal firm Dutton Brock likened the decision to ‘double-counting.’ “In 32 Canadian Underwriter May 2011

other words, when assessing physical impairment, the impairment ratings have already taken into consideration issues relating to pain and therefore, when examining the mental behavioural impairments under Chapter 14, you cannot recount pain as a grounds for a mental behavioural disorder,” the bulletin said.

But later in the same year, the tide seemed to turn in favour of the insurance industry. In October 2010, the Ontario Superior Court of Justice handed down a decision in Kusnierz v The Economical Mutual Insurance Company that dealt with the combination of physical and psychological injuries. Kusnierz found that psychological and physical impairments could not be combined when calculating the WPI rating.

!

Industry members are relieved FSCO took a stance on the combining or cross-rating front, but Kusnierz and Jaggernauth are headed towards the higher courts, and that line in the sand might easily be blown away in the wind.

Ontario Superior Court Justice Peter Lauwers outlined three reasons for his decision. In a nutshell, they were: “(i) The [4th edition of the American Medical Association] Guides deliberately do not permit the mental and behavioural disorders in Chapter 14 to be assessed in percent terms and combined with the percentage values derived from impairments assessed under the other chapters of the Guides for the purpose of determining whole person impairment; “(ii) The structure of the SABS re-

inforces the bright line demarcation between mental and behavioural disorders referred to in Chapter 14 of the AMA Guides — specifically referred to in clause 2(1.1)(g) of the SABS — from the impairments assessed under the other chapters of the Guides which are referred to in clause 2(1.1)(f) of the SABS; and “(iii) This interpretation is consistent with the purpose of the specific provisions of Bill 59 and the SABS that this issue engages,” Lauwers wrote in his decision.

The decision marked a victory for the insurance industry. But it wasn’t long before that sense of victory receded back to uncertainty. Within two months, FSCO released another arbitration decision, Jaggernauth and The Economical, that recognized Kusnierz but nonetheless carried on with the cross-rating method of calculation established in Desbiens. Both Kusnierz and Jaggernauth are under appeal.

As these interpretations of the catastrophic impairment definition filtered their way through the court and arbitration systems, industry loss ratios in Ontario personal auto accident benefits soared. According to the Insurance Bureau of Canada, the loss ratio for this line reached a staggering 172% in 2009 Q4. In other words, for every dollar the industry took in premium, the industry paid out $1.72 in claims. One year later, following the implementation of the provincial auto insurance reform package in 2010 Q4, this figure had been reduced to 155%. This drop marked an improvement, but not a good result by any industry standard.

Drawing the Bright Line FSCO struck its panel of eight medical experts in December 2010 to review and, ideally, clarify the catastrophic impairment definition. The panel released its proposed revisions to the definition on Apr. 15, 2011. By the time the panel was through, not one element of the current definition was left untouched. Three major elements on the revisions included: • The panel found no basis for combining the physical and psychological impairments when determining the WPI. • The panel recommended doing away

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COVER STORY

Language Divide with the use of the Glasgow Coma Scale (GCS) score of less than nine to determine impairment. Instead, it recommends using tests and measures that focus on outcome and offer a greater sensitivity to the spectrum of injury.

• The creation of an “interim” catastrophic determination designation.

Although the industry appreciates FSCO’s clear line in the sand against combining physical and psychological impairments to determine WPI, the overall report is receiving initial mixed reviews from industry. Industry members are relieved FSCO took a stance on the combining or cross-rating front, but Kusnierz and Jaggernauth are headed towards the higher courts, and that line in the sand might easily be blown away in the wind. In the meantime, the industry remains torn on the benefits of using different measures and the creation of a new tier within the system. The panel’s use of language and the approach it took to write the report have also generated debate.

Language Barriers Even before addressing the specific provisions within the report, industry experts point to the fact that it is essentially a medical definition being used in a legal context.

“I like the fact that they [the panel] used a scientific approach,” says Steve Smith, president of the Farm Mutual Reinsurance Plan. “It’s not emotional, it’s not irrational. I think that, hopefully, will take some of the discretion away from the courts. [The definition] becomes much more consistent. And consistency is absolutely important for companies evaluating their reserves.”

George Cooke, president of The Dominion, agrees. He says using scientific evidence creates “cleaner, more certain edges” around the definition, which will in turn reduce costs for insurers by simplifying the determination process. For an insured, “they will very quickly know if they are in or out of that definition,” he says.

“And perhaps, more importantly, now that we have a much wider selection of choice in the auto insurance prod34 Canadian Underwriter May 2011

uct, it will be easier for someone to explain those optional coverages to a client, because we now have a much clearer definition.”

But whereas some see a clear-cut definition, others see muddy waters.

Philippa Samworth, partner at Dutton Brock, says she appreciates the panel’s scientific approach. But she expresses concern about the new complexity she thinks the panel’s draft report has introduced. “The five year review said to look at whether the changes will in-

x The five-year [auto insurance] review said to look at whether the changes will increase the complexity and regulatory burden. This definition has basically more than doubled in length. And with the addition of the new tests to be used, it has introduced a whole new set of documents within it. crease the complexity and regulatory burden,” she says. “This definition has basically more than doubled in length.

And with the addition of the new tests to be used, it has introduced a whole new set of documents within it. I look at some of these things and we see phrases like ‘reasonable medical certainty,’ ‘public hospital,’ ‘participating as an in-patient,’ and these are all qualifying diagnosis. The more words we throw in, the more words that become subject to interpretation and the more complex and difficult it becomes to interpret the legislation.”

Although the panel experts are specialists in the medical field, writing “legs and regs” in the legal profession is a completely different matter, Samworth points out. Simple nomenclature — using an ‘or’ instead of an ‘and,’ for example — can have huge ramifications when interpreting the definition in the courts and before arbitrators. To illustrate her point, Samworth points to the panel’s draft psychiatric impairment definition and notes that there isn’t an “and” or “or” anywhere in the first draft.

Debbie Laxton, national client service manager, accident benefits, at Crawford & Company (Canada) Inc., says that it is still early in the process to determine whether or not the proposed definition will be sufficient. “As with any legislative changes, it takes time to review and analyze whether the proposals will meet or satisfy the ultimate goals.”

The next step of the process will be to bridge the language divide and figure out how to transfer the definition from its medical context into to an insurance context. FSCO has asked for stakeholder feedback, “backed by scientific evidence,” by mid-May of 2011.

“Although the first report is released, we’re still at the initial stages of this,” says Kadey B.J. Schultz, a partner at Hughes Amys LLP. “Stakeholders are now going to contribute to this definition and the criteria and it’s going to include lawyers and other vested parties to give their two cents about it. Starting with the medical practitioners was a perfectly appropriate starting point, but it certainly is not the ending point.”

Ultimately, as is the case with any new piece of legislation, litigation will be required to gain an understanding of new terminologies, Schultz observes.

“We need the litigation to understand what the true definition is, and what the courts and FSCO believe is meant to be in effect. The same thing will happen with the new cat regime.”

Just Say ‘No’ to Cross-rating In terms of substantive issues, the industry is praising the panel’s line in the sand against combining physical and psychological impairments to determine WPI.

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COVER STORY

Language Divide “The expert panel did not find that combining physical and mental/behavioural conditions can be achieved in a valid and reliable way with the currently available methods of impairment cross-rating,” the report says. “Moreover, the expert panel did not find sufficient evidence that combined impairment ratings are more clinically meaningful than using separate criteria. While 55% physical impairment establishes paraplegia as a prime example of catastrophic impairment, we did not find evidence for an equivalent threshold when physical and mental/behavioural impairments are combined. The panel had difficulty understanding how combinations of physical impairments and psychological conditions that independently do not meet the criteria outlined in the revised version of 2(e) and 2(f) could be equated to a severe injury to the brain or, spinal cord or to blindness.”

Lisa Fazzari, The Economical’s accident benefits claims technical advisor, believes this stance is not necessarily a “revision,” so much as it represents a reinforcement of the SABS original intent. “It was clear the first time the SABS was written that it was always an ‘or,’” she says. “It was never an ‘and.’”

Claims manager Les Cabell, who heads up the risk management and auto claims Canada segment at Chartis, describes the decision as prudent.

“I can’t see that the medical profession will ever be able to come up with any criteria that can adequately bring [physical and psychological impairment ratings] together,” he says.

“They are too fraught with very distinct measurements and it has been a problem and it’s probably best that they be distinct.”

Smith says he believes this wording will lend itself to the Court of Appeal upholding Kusnierz. “But then FSCO’s arbitrators have to walk the walk and talk the talk, because if the arbitrators don’t approach it on a consistent basis, with the proper intent in mind, that’s where the fragmentation can lie.”

Samworth observes that whenever a piece of legislation is introduced, there is always a transition between what came before and what came after. “The 36 Canadian Underwriter May 2011

new legisation would only apply to accidents that occur on or after the date of implementation. For all cat cases for accidents occurring prior to the implementation of the new reg, Kusnierz will likely be the defining case. Pastore is going to judicial review with intervention from the Ontario Trial Lawyers Association, so it will also be a defining case regarding the old regulations,” Samworth says.

...

I don’t like situations where people have to pay and then dispute later. At first glance, it seems that’s what this interim definition will lend itself to.

New Tools in the Box In addition to its instructions not to combine physical and psychological impairments, the panel’s draft definition significantly modifies how these categories of injuries are assessed. The new tools added to the assessment toolbox include the: • American Spinal Injury Association (ASIA) classification, to assist with assessing spinal cord injuries; • Extended Glasgow Outcome Scale (GOS-E), to assist assessing traumatic brain injury in adults; • King’s Outcome Scale for Childhood Head Injury (KOSHI), to assist with assessing traumatic brain injuries in children; • Spinal Cord Independence Measure, to assist with assessing ambulation dysfunction; and • Global Assessment of Functioning (GAF), to be used in assessing psychiatric disorders.

Section 2(d)(i) was the only section of the current definition escaping major revision. This section says that for

traumatic brain injuries, a score of 9 or less on the Glasgow Coma Scale (GCS) automatically meets the catastrophic impairment threshold. In fact, rather than revising this section, the panel did away with it altogether. In doing so, the panel said it doubted the ability of the GCS to predict the long-term outcomes associated with catastrophic impairment. In its place, the panel suggests the use of the Extended Glasgow Outcome Scale (GOS-E) for adults and the KOSHI for children.

Laurie Walker, director of Ontario Auto Accident Benefits at McLarens Canada, notes the GCS test was straightforward. This made it easy for a trained adjuster to find the relevant results within ambulance and hospital reports. “But if the medical team on this panel feel that this is a more accurate way to measure, then by all means change it,” she says. “It will be something for which adjusters will have to be trained internally.”

Samworth supports doing away with the GCS and replacing it with the GOS-E. The problem with the GCS is that the initial injury and not the long-term affect of that injury are taken into consideration, she says. But, someone who scored a ‘5’ on the GCS immediately following an accident may have a remarkable recovery from those injuries, Samworth continues.

And a remarkable recovery no longer requires catastrophic impairment benefits.

Samworth also points to the new requirement of having a GAF 40 or under to meet the psychiatric catastrophic impairment threshold. Having such a score basically precludes being able to function outside of the home or making decisions for oneself about finances or treatments.

Both claimants in Pastore and Jaggernauth had GAFs well over 50, she observes, so neither would meet these criteria.

Fazzari says the tools being recommended, like the language used to draft the proposed definition, are intended for a medical context and not an insurance context. “The problem with those tools, while they are validated in how they are used today in rehab medicine, they’re not validated in the context in which we’re going to be using them — which is to

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COVER STORY

Language Divide measure entitlement to benefits,” she says. The tools that would be required simply don’t exist, creating an ‘inherent’ problem in the system.”

Public Treatment The potential for ambiguity also comes up in reference to the use of the term “public.”

For example, the panel insists that insureds use ‘public’ rehabilitation programs. References throughout the report include: • “currently participated in, or has completed a period of, in-house spinal cord injury rehabilitation in a public rehabilitation hospital” (paraplegia/tetraplegia); • “currently participating in, or has completed a period of in-patient rehabilitation in a public rehabilitation facility” (severe impairment of ambulatory mobility); • “in-patient admission to a publicly funded rehabilitation facility” (paediatric traumatic brain injury); and • ongoing supervision and direction by public health agencies providing community support systems…” (psychiatric impairment).

Samworth suggests the intent of the emphasis on public programs and facilities is to create neutrality. Someone treated in a public facility is there because they need to be, not because a plaintiff’s lawyer suggested that they go. But there is no clear definition or description of what ‘public’ programs or facilities are, Walker and Samworth point out. Walker points to the terms “hospitalization” and “in-patient” program and wonders what they might entail. “A person could go to the hospital at midnight, and be checked out at 8 a.m. the next day, and technically that constitutes a hospitalization,” she says.

Fazzari says the heavy reliance on the “public” and acceptance into inpatient programs is problematic. “I just wonder if health facilities will be influenced to take in people that aren’t necessarily severely injured, as they were before, because now there are funding sources available outside of the Ontario Health Insurance Plan (OHIP) system [i.e. private insurers paying for a person’s accident benefits].” Economic incentives will drive admission acceptances.

38 Canadian Underwriter May 2011

The [Interim?] Grey Zone Maybe the greyest zone in the report is the suggestion of an “interim” catastrophic designation. The panel’s intent is to “improve the fairness of the process of determination for catastrophic impairment,” particularly for “insured adults with traumatic brain injuries and for those with major physical impairments who unequivocally require intensive and prolonged rehabilitation.”

The theory is that, by ensuring “these individuals have access to the rehabilitation services that are necessary to maximize their chance of achieving a lower final impairment level,” their injuries may not turn out to be catastrophic.

I can’t see that the medical profession will ever be able to come up with any criteria that can adequately bring physical and psychological impairment ratings together. They are too fraught with very distinct measurements.

Cooke sees this as a measure that “responds to truly injured people.” He goes on to say that early intervention may prevent a small percentage of the people within this tier to become catastrophic, which is a win-win for both the insurer and the insured in the long run. “I think it helps the cat definition stay cleaner, more restrictive and more certain,” he adds.

Schultz agrees. “Front-end loading the file with rehab to a seriously injured person is absolutely the appropriate thing to do,” she says. “We know the vast majority of gains are made in the first two years or so. If you’re caught between a rock and a hard place in those two years before the designation can be made, then it’s problematic for the claimant’s recovery if resources are limited.”

But the issue with the interim designation is how it will be implemented. Controls need to be established

so that benefits accruing from such a definition will not be “harvested,” as Schultz suggests.

“I have a difficult time seeing how this will be restrictive in any shape or form,” Fazzari says. “The interim cat designation becomes a real difficulty in managing those types of claims and [in defining] how many times you’re going to assess the people within it.”

Walker sees this as a critical issue. She envisions scenarios in which insureds are hospitalized and require 24-hour attendant care — care beyond the resources of the hospital staff to provide — so the insurer foots the bill. “If these individuals are on an interim designation, do they receive catastrophic rates — monthly attendant care rates of $6,000?” she asks.

And ultimately, if the insured is not deemed to be catastrophic, there is no recourse for insurers to recover the funds they paid out during that two-year period, Smith says. “I don’t like situations where people have to pay and then dispute later,” he says. At first glance, it seems that’s what this [interim definition] will lend itself to. That, to me, has all kinds of issues associated with it. It drives costs up. It creates ambiguity.”

Adding in another category to the cat definition only creates another opportunity for erosion and abuse, Smith adds. “With a tiered designation, all you’re going to have are people fighting to breach the next level.

It becomes costly and then eventually that erodes and it becomes the norm.”

Mixed Reviews Overall, based on a quick first impression of the report, the industry appears to be proceeding with cautious optimism.

There is hope, they say, that the restrictions placed on the measurement of impairments and how the WPI is to be calculated will help to control costs and ensure those who really need the treatment receive it.

But all agree that in order to prevent this line in the sand from being blown away in the courts and arbitration chambers, ambiguities around phrasing and terminologies need to be tightened up, so as not to leave the door open for the kind of abuse that catastrophically impaired the meaning of the current definition.

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Reading the Opinion/Analysis

Tea Leaves

The IBAO reflects on some early trends arising out of Ontario’s auto insurance reforms, including the ongoing need for brokers to inform clients about the reforms and the continuing need to close the door on opportunities for fraud.

Paul Taylor

Director of Operations, Insurance Brokers Association of Ontario (IBAO)

The Ontario automobile insurance product reforms have been in place for nine months. Based on the expected two-month renewal lead time under which the industry operates, almost all consumers’ policies in the province have been processed and seen their standard level of benefit reduced — unless consumers have purchased some of the new optional accident benefits created.

One recurring question is this: “How many Ontario policyholders have purchased the new optional accident benefits?”

Each year in April, the Insurance Brokers Association of Ontario (IBAO) hosts regional update meetings with our members across the province to update them on industry news, market trends and the association’s activities and upcoming initiatives.This also provides us with a great opportunity to discuss issues like the take-up of optional accident benefits directly with our broker members.

40 Canadian Underwriter May 2011

The difference in uptake of these options from region to region around the province is quite dramatic. It depends on the customer base of the brokerage, whether it responds to blue-collar, white-collar, industrial or rural demographics.

Each of these segments will have different answers.

STANDARD PRACTICES One point we stress to our members when talking about the reforms is that presentation of the options available to consumers must be an ongoing standard practice during any automobile insurance transaction. I would suggest the second and third renewals following the implementation of these reforms demand just as much attention as the first.The industry, working with Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), and the brokers’ self-regulating body, Registered Insurance Brokers of Ontario (RIBO), developed a plan providing communications to all Ontario policy-

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holders about the reforms. Three separate notices reached each policyholder prior to changes occurring to their coverage.

There is no such required communication taking place on the second and third renewal. This means brokers are proactively continuing to make clear to consumers they have options available.

Each time they contact their broker, consumers will need reminding the auto product has changed. Consider the consumer who, 12 months from now, has an accident and says they didn’t know their coverage had been reduced.

They have no recollection of a flier or mailer they received more than two years ago. Our members are working to ensure such a scenario doesn’t take place. Each interaction with a client, on an ongoing basis, brokers should reinforce their clients’ options and make them aware of their choices.

In an effort to support members’ ac-

Presentation of the options available to consumers must be an ongoing standard practice during any automobile insurance transaction. The second and third renewals demand just as much attention as the first. tivities during this upcoming second renewal cycle, the IBAO is providing template flyer materials through an online, “members only” service.These flyers can be customized with brokeragespecific branding and contact information, electronically, right from the broker’s office. The broker can then order a desired quantity of the finished print job through the IBAO’s integrated print service. Or brokers can download the PDF file they’ve created and take it to a local printer. These types of support tools ensure the language IBAO member brokers provide to their consumers is consistent, making it easy for member brokers to inform their consumers.

These auto insurance reforms brought

42 Canadian Underwriter May 2011

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with them workflow and process changes that brokers know will be an ongoing part of the sale and service of the auto product. The IBAO will continue to support broker operations with ongoing training materials and seminars as brokers add new staff, or support existing staff with refresher training.

CLAIMS PROCESSING AND DELIVERY The reforms’ longer-term affects on the affordability of the product are continuing to unfold. Recent rate filings we’ve seen suggest the reforms are stabilizing consumers’ premium costs, with much more modest increases being sought in the last 12 months than during the two years prior to the changes. This is good news for the Ontario consumer, who is paying more for auto insurance coverage than any other provincial resident in Canada.

The reforms have now had eight months to affect the processing and delivery of claims services. On this basis, insurers are now asking for some items within the structural and procedural guidelines of the Statutory Accident Benefits Schedule to be addressed.

The reforms have now had eight months to affect the processing and delivery of claims services. On this basis, insurers are now asking for some items within the structural and procedural guidelines of the Statutory Accident Benefits Schedule to be addressed.

One such requirement is for the insurer to respond to a proposed treatment plan submitted by a health care provider within 10 days. If the insurer is unable to meet this timeline, then any treatment plan submitted is “deemed approved” and the insurer must pay in accordance with the plan. This mechanism is a fraud magnet, with some unscrupulous medical treatment facilities taking full advantage.

Reliable industry sources have reported incidents of treatment plans being submitted to underwriting offices in Hamilton or Thunder Bay by fax for an injured claimant in Toronto. The intent is clearly to provide what would be considered notice to an insurer, but in an indirect way, thus potentially running

down the clock on the insurer’s ability to properly assess the treatment plan.

IBAO has also been made aware of a submitted treatment plan that included a relaxation CD of forest soundscapes to help the injured insured relax — at a cost of $300. Unfortunately in this case, the submitted plan didn’t get to the ap-

The 10-day deadline for an insurer to respond to a proposed treatment plan, after which time it will be “deemed approved,” is a fraud magnet, with some unscrupulous medical treatment facilities taking full advantage. propriate adjuster in time. No doubt, this was the goal of the treatment centre; the plan was “deemed approved” and the insurer had to pay it.

The need for injured parties to get quick access to treatment dollars is obvious to all. This should always remain the highest priority when considering any review of these procedural requirements. That said, there should be some review of this and similar requirements that can make the product an obvious target for fraudsters.The recent reforms include provisions that require insurers to notify injured parties with open claims of the monies that have been paid and for what services. But to date, one could suggest this is not being used as effectively as it could be. Insurers should look at these types of provisions to help make consumers aware, if they are unaware, that the treatment centre they’re attending is billing for services not provided.

The reforms are still very recent.There will be ongoing reviews of the overall adoption of the new product structure by consumers, the insurers and the greater insurance industry.These considerations are already before the regulator, and they will be monitored as the new product ages. In the meantime, ensuring consumers are continually made aware of their options is paramount.

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Whose Customer?

Given the recent proliferation of mobile access to claims support services, how should consumers proceed when they are caught in an auto collision?

David Gambrill Editor

The proliferation in early 2011 of new mobile applications offering touch-button access to claims processing activities by both insurers and non-insurers alike has raised an interesting question: In an age of expanded choice for consumers, whose customer is the claimant?

Representatives of the Toronto Automobile Dealers Association (TADA) posed this very question to the Canadian Collision Industry Forum (CCIF) in Toronto on Jan. 23, 2011.TADA serves more than 340 new car dealers in the Greater Toronto Area and represents every manufacturer's brand and franchise. It also has a new mobile technology, called ‘Renewit,’ that provides assistance when a person’s car has been damaged in a minor collision.

Anyone involved in an accident can launch the Renewit app on his or her mobile or smartphone. The app will provide a number linking the caller to collision support agents who can provide the caller with instant information about what to do; help coordinate towing services; and can send callers to their own or their nearest dealership for repairs. [A Nissan car owner, for example, would be directed to the nearest

44 Canadian Underwriter May 2011

Nissan dealership if they didn’t want to go to their own.] The Renewit app also includes a form claimants can email to their insurers immediately to provide details about the collision, thus expediting the claims process. Also, once at the dealership, the dealers can help the caller by contacting the insurer to determine what kinds of repairs are covered under the policy.

The Renewit app is intended for use by anybody, but it is particularly useful for people who already have an ongoing relationship with their dealers. TADA representatives say about 60% of dealers maintain a service relationship with their customers after the vehicle is sold.They say the Renewit mobile app allows dealers to enter the collision services space, thus boosting customer retention.

“Dealers have been very good at sales…and service,” says Jerome Flanagan, general manager of TADA’s Renewit program. “But one area they have abandoned, for lack of a better term, is the collision and paint work area of the business.

Dealers saw a need for it and there’s been an effort to assist dealers in helping their customers in this area.”

Flanagan made a presentation about Renewit to

TM

See you at Relay...

By James Daw, Insurance Bureau of Canada

Christina Martin’s first Relay For Life was a landmark event.

Christina Martin

She walked with her life partner and friend during the survivors’ lap, on a night that Linda Hajekerou was never expected to see.

The lung cancer that finally claimed her life at age 56 was so virulent she had been told not to bother to quit smoking; she would be gone within eight months regardless.

Yet there she and Martin were together, 17 months after the dire diagnosis. As they rounded the track at Esther Shiner Stadium in Toronto, friends and family filmed them from the in-field.

“This is very emotional for me, knowing I won’t be back here next year,” Martin recalls Linda saying. “Yet I think it was things like the Relay, and the release of Harry Potter, the movie, that helped.

Attending Relay For Life was poignant for Rowan Saunders and his family.

Rowan Saunders

“At first, the children were quite quiet,” recalls the president of RSA Canada. “They were trying to figure out: What is this? So I walked with them and chatted.”

Matthew was 14 and Sarah was 9 last summer. They and their mother Susan had greeted Saunders at the airport.

But, on the way home from a business trip to London, he wanted to visit colleagues walking in support of cancer research.

“I think it was good for my kids to see the event. I think it had an impact on them to better understand what cancer is and to discuss how it affects people,” he says.

“What added to the emotion for us was something that happened shortly after the event: Matthew lost a

“She wanted to stay alive, and she stayed alive more than two years,” says Martin, the vice-president, commercial lines, at the KRG Insurance Brokers division of RRJ Insurance Group Ltd. When they heard that WICC was encouraging participation in the Canadian Cancer Society event, Linda said: ‘That’s great. Let’s get a team together.’

“She had an extremely positive attitude. She really felt she was doing the walk for other people.”

Linda Hajekerou’s determination, and Martin’s love, have proved to be an inspiration for others.

Friends, family and colleagues have raised more than $100,000 in her name in just two years. They will walk the Relay again this June, says Martin.

classmate to cancer. So the night of the Relay he was thinking about his friend who was sick and what he must have been going through.”

RSA contributed almost $30,000 to Relay For Life last year, and is aiming for more this year. The company paid the registration fees for employees, and they did the rest.

“Thinking about everybody’s commitment, I was very impressed,” says Saunders. “It’s tough to stay up all night and to walk around. It just shows what amazing people we have at RSA, and within our industry.”

Saunders plans to drop by again this year, if he is not travelling on June 24.

Relay Facts: all you need to know to be part of Relay this summer!

• The Canadian Cancer Society’s North York Relay For Life at Esther Shiner Stadium is now one of the biggest industry events in the GTA. • This year it takes place on Friday, June 24. Save the date!

• RFL celebrates cancer survival and commemorates lost friends and family members from 7:00 pm -7:00 am.

• Staying overnight is not mandatory, but it is a unique part of the event.

• WICC is encouraging teams from the insurance industry to raise $440,000.

• Teams can be made up of 10 colleagues, family, friends, clients (it’s ok to have teams that are larger or smaller than 10).

• It’s all online. Go to www.wicc.ca/relayforlife to set up a team or join an existing one.

• When setting up a team, pick ‘WICC’ under ‘Company’ to ensure your team funds count for the industry campaign.

• Registration costs $20 per person.

• Each team member is asked to raise a minimum of $100 in pledges.

WICC at Relay For Life For more information and to register your team(s) go to wicc.ca

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a number of insurers and car collision repair facility representatives at the CCIF, asking: “Who’s customer is the claimant?”

TADA sees an opportunity for dealers to share the claims support space with insurers and their networks of car collisions repair centres. “The dealer doesn’t want to interfere with the insurance company,” Flanagan says in a follow-up interview a few months after the presentation. “The dealer wants to work with the insurance company. It’s their customer, too. Some of these [collision repair] shops with which [insurers] do pre-arranged business, they will probably be doing business with some of our members or dealers…. If the dealer has a relationship with a CARSTAR, a Fix Auto or an independent auto collision centre, that’s where we will send the car.”

Ultimately, Flanagan notes, dealers “want to work with the insurance companies to make that [claims] process as pleasurable, as seamless and as efficient for the customer, because it’s both of our customers.”

Since Flanagan’s presentation in January, the mobile app market has quickly evolved. Insurance companies are rapidly filling the mobile technology space, increasingly linking customers with insurers’ claims support services.

State Farm Canada, for example, has been in the mobile app space for some time, offering The Pocket Agent. The app is available to all Canadians and provides State Farm customers with the ‘My Insurance Card’ feature, allowing them to access their policy information. It also directs the driver to the company’s Select Service program, a network of participating auto repairers in Ontario, Alberta, and New Brunswick. Once directed to a Select Service repair facility, the facility arranges towing services.

State Farm also offers features standard to many insurance company mobile apps, including the ability to locate a claims agent, submit a claim, take and submit pictures using a mobile phone camera and record accident details and vehicle damage.

Johnson Inc., a subsidiary of RSA

46 Canadian Underwriter May 2011

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Canada, launched a mobile app for the iPhone in mid-April. It contains many of the features listed above. Johnson’s iPhone app will soon be made available for Blackberry devices. One day after Johnson’s announcement, Aviva Canada jumped into the pool, launching a new Web site designed for use on smartphones or other mobile devices.

Drivers can access the new site at avivacanada.com from any browser-enabled smartphone, not just iPhones or Blackberries.

So with all of this mobile choice for consumers, who are they going to call first in the event of a collision?

Well, insurers, say the insurers.

“The reason why you go to your insurance company is that’s who the policy of insurance is with,” says Irene

Bianchi, vice president of claims and corporate services at RSA Canada, which also has a mobile app in development.

“You have paid for a policy of insurance and when something happens, when you want to make a claim against that policy of insurance, you have to go to the insurer.”

An insurer is “going to take care of the whole customer,” Bianchi added. “We’re not just going to fix the bumper. We’re going to take care of you if you are injured. We are going to take care of you if you need a replacement vehicle. We will take care of you if you need any kind of emergency assistance, in terms of medical care or counseling, we take care of the entire picture. Not just the bent metal.”

John Bordignon, spokesman for State Farm Canada, emphasizes the ability of insurers to handle complex claims involving injury. “In some cases, an auto accident involves more than vehicle repairs,” he says in an email. “State Farm prides itself on its service to customers who may have been injured in an accident or whose possessions were damaged. Each case or claim is different so it’s best to talk about your particular auto insurance needs with [an insurer].”

Debra Ambrose is senior vice president for national sales marketing and broker distribution at Aviva Canada.

She says insurers’ preferred networks of collision repair centres have high service standards and can guarantee their repairs.

There is also a consideration of which parts to use for repair. Recycled parts cost less for consumers and insurers than Original Equipment Manufacturing (OEM) parts that some dealerships may use. “When we work with a network, thinking about the cost and expenses associated with this is important,” says Ambrose. “We try to drive down the expenses. If you work with a network, you have an opportunity to keep those costs down. It streams through to the customer, which is very important to the customer.”

In fairness, TADA says cars fixed through its Renewit program may not necessarily be fitted with OEM parts, particularly older vehicle models.

As for working with insurers, dealers already do this every day, just as car collision repair centres do. “In a perfect world, the dealer has a relationship with that customer pre-accident, and so why wouldn’t that relationship continue in this [Renewit] example?” says Bob Redinger, president and general manager of Ready Honda Powerhouse and co-committee chairman of Renewit Inc. “Dealers that have body shops deal with insurance companies every day. It’s not like it’s a new relationship.”

Adds Flanagan: “We use a threelegged stool metaphor: If we take the dealer, the customer and the insurance company, everybody wins in this [Renewit] process.”

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Winning Reinsurance Arbitration

Five rules to help make reinsurance arbitrations work for you — or at least help you keep your self-respect.

Angus H. Ross

ARIAS-US accredited arbitrator, Former chairman, Reinsurance Research Council of Canada

How do you win a reinsurance arbitration (or at least keep your self-respect)? Although the number of reinsurance arbitrations in Canada is relatively small (at least in comparison to the United States), Canadian companies — both insurers and reinsurers — do have differences of opinion that sometimes end up in arbitrations.

For many, this venture into the extra-judicial process is a new experience without much guidance available. Here are a few rules that might assist in coming through the process relatively unscathed.

If asked how to win a reinsurance arbitration, I suppose a facile answer to the question would be: “Don’t get into one! You’ll save a lot of grief and expense.”This response is actually not so unreasonable. Invariably, an arbitration arises out of two or more apparently irreconcilable positions

48 Canadian Underwriter May 2011

with respect to cessions or claims under a reinsurance contract, either treaty or facultative, and both parties hold strong beliefs that their view is correct. However, in my 20 years of experience as an arbitrator, umpire, expert witness and even a party to arbitration, I have seen cases that should patently never have gone to arbitration.

Instead, these cases ended up going through the full process and one party lost simply because a senior official got it into his head that his view was correct, despite industry practice to the contrary. This leads me to:

Rule #1: Get an opinion of your position from someone with knowledge in the class of business and type of reinsurance.

Once you get over this hurdle, and it is confirmed you do indeed have a case, you need to come to a realistic assessment of: • the value of the claim or disputed amount; • the likelihood of winning the arbitration; • the expense you will go through in presenting your case to the panel. With respect to cost, it is not unusual for disputes in the United States

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to cost in excess of $1 million to each of the parties. The chance of getting out with less than $100,000 in expenses is very limited indeed (Canadian arbitrations tend to be somewhat less expensive).

• The time taken up by senior management and staff in preparation, deposition and testimony.

With this assessment completed you can then move to:

Rule #2: Compromise is not a dirty word.

Arbitrators are restricted from acting as mediators in a dispute, but there is no reason that — unless relations are so bad that civility is unlikely — parties should not try to agree to a settlement before a hearing even takes place. In fact, a panel should encourage the parties to keep talking but without being

Page 29

Don’t maintain you are right even when evidence seems to contradict you. To persist in an arbitration merely to enforce a principle can be very costly indeed. privy to the discussions. This becomes even more important as evidence, depositions and reports come in from both sides. At this point, sometimes what seemed like a strong position at the outset is now less defensible. Keep Rule 1 in mind: don’t maintain you are right even when evidence seems to contradict you. To persist in an arbitration merely to enforce a principle can be very costly indeed.

Now you have reached a point when

you are convinced your case is strong and the other party won’t budge (and nor will you!). Arbitration is called for and you appoint counsel. This is the time to apply:

Rule #3: Read, understand, and follow the arbitration clause.

Who do you choose as your arbitrator?

Whoever you select should meet the necessary qualifications set out in the clause.You should also be aware of major differences in arbitration practice in different jurisdictions. In Canada, as in the United Kingdom, arbitrators are almost always strictly neutral parties, as is the umpire. In the United States, it is common for party-appointed arbitrators to be selected based on their known views on a topic or a previous successful (arbitration) relationship with a party. However, having said that, it is

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generally understood in the industry that although party-appointed arbitrators can be initially predisposed, they must remain open-minded and render decisions fairly. The choice of umpire can also be from among individuals with a known position on similar issues; this selection frequently comes down to a lottery-type decision, often based on the final digit (odd or even) of the Dow Jones Index level on a specific day! Arbitration clauses usually state the arbitrators select the umpire, but in practice the parties frequently take a very proactive role in the choice.

Keep within prescribed time limits. If you are being taken to arbitration and the other party has already named their arbitrator, ensure your arbitrator is named within the time limit (commonly 30 days) of your being requested to do so. Precedents exist for one party being able to name both arbitrators if the other party fails to respect the deadline. (Universal Reinsurance Corp. v.Allstate Ins. Co.,16 F.3d 125 (7th Cir. 1993)).

Now you’ve reached the point when the panel is nominally in place and it is time to move forward. This is commonly achieved through a meeting between the parties, counsel and the panel to accept the panel formally and to determine procedures for the process. Rule 4 is now vital: here, the future costs of the arbitration are going to be broadly established.

Rule # 4: Always have a representative with decision-making power attend the organizational meeting.

I have attended organizational meetings when a relatively collegial atmosphere has reigned, enabling procedures to be determined quite quickly. I have been at others when it is clear the atmosphere of the future hearings is going to be vitriolic. It is an opportunity for the panel to set its stamp on the future conduct of the arbitration.

Some of the decisions to be taken at this meeting include: Timing and scheduling: The arbitration 50 Canadian Underwriter May 2011

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clauses frequently require decisions to be made within a fairly short time period — sometimes 90 days — that is unrealistic in light of the dispute. Agreement should be reached on a reasonable schedule for all pre-hearing procedures and for the hearing itself.

Witnesses: How many will be allowed?

Will both fact and expert witnesses be deposed then testify at the hearing?

This is customary in the United States.

In Canada, generally fact experts are deposed, experts provide their reports and are then cross-examined at the hearing.

Ex-parte Communications: When do ex-parte communications — communications by the parties with just their appointed arbitrator, not the entire panel — cease?

Once the hearing is finished and the decision rendered, take some time to reflect on what you have learned from the process. One of the major benefits derived from arbitration is the highlighting of practices and procedures within companies that heighten the likelihood of errors or misunderstandings.

Reasoned decision: Do the parties want just a decision, or do they also want the reasons behind it?

At some point in the meeting, the panel will also be formally accepted and given hold harmless agreements.

(An excellent and more fulsome list of matters at the organizational meeting can be found on the ARIAS-US Web site at http://www.arias-us.org/index. cfm?a=37 ) Continue to remember Rule 2. As long as the process continues, the legal and panel costs clocks keep ticking.

I’ve seen arbitrations in which the “winning” party paid over $1 million to achieve a settlement of less than

$750,000 (and they weren’t awarded costs).

Time has now passed. All the preparatory work completed, discovery has been done and the hearing date reached.

Rule # 5: Always have someone from senior management with decisiontaking power, not just the corporate lawyer, attend the hearing and try to assess your position dispassionately as testimony and evidence come out (Remember Rule 2) Be sure of the competence of your witnesses and do a final analysis of the strength of your case. I arbitrated one case in the United States in which the main witness for one of the parties appeared to give evidence before the panel in a state that would have had him banned from driving! Needless to say, his evidence was also somewhat incoherent and he did little to aid the company’s case. As your witnesses testify, listen to what they actually say — don’t hear what you want them to say.

Once the hearing has finished and the decision rendered, take some time to reflect on what you have learned from the process. One of the major benefits derived from arbitration is the highlighting of practices and procedures within companies that heighten the likelihood of errors or misunderstandings. (One of the most frequent is looseness in Managing General Agency contracts). You can actually improve your internal procedures as a result of taking part in an arbitration, whether you win or lose.

Move on! The only arbitration in which I was involved as one of the parties was with one of my major clients.

In resolving our issue, each of us were we each of us were reasonably certain our position was correct. We agreed on an expedited arbitration in which no external counsel were involved.

After the decision, we continued doing business.

GOLF FORE THE CURE

12th Annual

WICC Ontario Golf Tournament on July 11th, 2011

Held at the prestigious Angus Glen Golf Club For entry and sponsorship opportunities,

go to www.wicc.ca to register Design donated by

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Ontario has embraced the potential of claims data collected by Health Claims for Auto Insurance (HCAI) to fight auto insurance fraud.

James Daw

Senior Writer, Insurance Bureau of Canada

A collision is staged, a police report is purchased, injuries are faked and a charade is performed by a therapy clinic to boost revenue.The fakers claim for disability income and other cash benefits.This is one of the worst forms of the insurance fraud, well-organized and increasingly common in Ontario.

So insurers were relieved when the province’s finance minister vowed recently to help insurers step up fraud detection. Just how far the government is prepared to go remains uncertain.Yet insurers are optimistic, and hopeful concrete action will come in short order. They want the government to better arm fraud investigators and help insurers turn off the flow of money to suspected fraudsters and other opportunists.

Ontario Finance Minister Dwight Duncan’s March 2011 budget pointed specifically to the potential role of a central processing service called Health Claims for Auto Insurance or HCAI.

52 Canadian Underwriter May 2011

HCAI is operated by HCAI Processing, a notfor-profit corporation. It was developed with financing from members of Insurance Bureau of Canada, initially for use in Ontario. After several months of adding insurers and treatment clinics, regulators made the system the mandatory clearing house for treatment claim forms starting Feb. 1, 2011.

Duncan’s budget provided no details of how HCAI could be made more useful to fight fraud.

Those details are to be worked out later. The government proposes to appoint an antifraud task force and working groups of various stakeholders.

“While we didn’t get anything tangible to fight fraud, the fact that we now have an awareness at Queen’s Park is brilliant…a massive opportunity,” says Maurice Tulloch, president and CEO of Aviva Canada. “We want this task force to make strong recommendations, and quite frankly, get the findings in before the election, on the basis that with any election there is the possibility of a change of government.”

Tulloch says the fight against fraud is essential to consumers who are finding the cost of coverage is becoming unbearable. He and others base their optimism for a speedy outcome on three factors. Duncan’s policy advisers have been re-

Illustration by Claire Manning/www.threeinabox.com

Fraud Detection

The Blue Goose is coming to Vancouver Island!

What is the Blue Goose?

We are a fraternal organization of men and women who work in the property & casualty insurance industry.

Every Pond has its own unique blend of members and activities.

Before we become a Pond we must start out as a Puddle. Each Puddle or Pond, in its own way, provides needed support for a variety of charities through various fundraisers.

Vancouver Island will soon have its own Puddle of the Blue Goose.

If you would like some influence on the formation of this Puddle please contact us ASAP. Contact us for more information about the Vancouver Island Puddle, coming soon.

www.bluegoosevi.ca Email: bluegoosevi@yahoo.ca

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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 CRU Adjusters Calm in the face of a storm. www.cruadjusters.com 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

54 Canadian Underwriter May 2011

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INSURANCE COMPANIES 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

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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

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ceptive to proposals regarding fraud.

The Official Opposition has focused on fraud in statements about auto insurance. The Superintendent of Financial Services has shown a determination to get insurance issues resolved. “Phil Howell has done more on auto insurance in the past 15 months than has been done in the past 15 years,” says Tulloch.

Darcy McNeill, a spokesperson for Duncan, says elements of Ontario’s changes to auto insurance last September were directed at combating fraud and abuse in the field of medical assessments and treatment of minor injury.

“We know more can be done to fight fraud in the auto insurance system,” he adds. “To that end, HCAI is a great tool that can be used to detect fraudulent activity.”

McNeill said the province would work with the insurance industry and an array of stakeholders, including the justice sector and the fraud task force, “to develop HCAI further so fraud can be detected, then to ensure we have the right mechanisms in place to follow up and investigate based on the data generated.”

Already a few insurers have obtained health claims data related to their own policyholders. More than 6,500 health care facilities registered to use the billing service had submitted more than 2.2 million claims forms by the end of April 2011.

Larger insurers expect their share of the data will be sufficient to help identify clinics with abnormal treatment and billing practices that might warrant increased scrutiny by adjusters and inhouse investigators.

“If you are asking me, ‘Is HCAI useful to help fight fraud?’ the answer is: ‘Oh yeah!,’” says Steve Whitelaw, vice president of underwriting and claims at The Dominion. “It’s got everything in there that we need. We’ve got some hurdles, but it’s got everything we need.”

Randy Bundus, IBC’s chief counsel and vice president of operations, foresees other potential uses for data from the system. Some relate to combating fraud; other relate to the impact of fraud on

the cost and sustainability of the Ontario auto insurance product. The first hurdle will be to obtain industry support for proposals to enhance the way HCAI manages health claims data:

Identity theft The data could be useful to regulatory colleges. They could confirm whether the names and identification numbers of medical professionals have been mis-

We want this anti-fraud task force to make strong recommendations and get the findings in before the election, on the basis that with any election there is a possible change of government. used by clinics to fabricate medical treatment claims. Three insurance groups have sued several Ontario clinics since last November, alleging the names of 17 medical doctors, chiropractors and other professionals have been misused to support fraudulent treatment claims forms. Their allegations have yet to be proven in court. But a mechanism for addressing identity theft would be like shining a flashlight in a basement, says Bundus. “The cockroaches would tend to run away.”

Billing patterns HCAI could deliver monthly reports to insurers on how much each clinic has billed them.

Integration with insurers An automatic process for integrating treatment claims submitted via HCAI with insurer claims management systems could improve claims processing efficiency and free up adjudicators’ time.

REDUCING THE NEED FOR WRITTEN COMMENTS HCAI could offer descriptive treatment diagnoses and recommendations via drop-down menus. This would provide clinic staff and medical professionals with tools that clarify individual patient needs while speeding up the treatment form completion process.

“We are going to make sure we build this new HCAI system so that it has enough flexibility to accommodate all of these new features, not necessarily on Day 1,” says Bundus. “There will be a timetable. We want to make sure we build the foundation big enough that we can be sure we can fit in all of the information that we want. It’s more cost-effective to make the foundation large enough to begin with than to be constantly tearing down walls for additions.”

HCAI and the data bank were designed at the outset to ensure the privacy and security of individuals’ identity, health status and financial information, as required by law. So detection of dishonest claimants may be more difficult than in the case of individuals conspiring with medical facilities to commit fraud.

Meanwhile, lawyers Adam Kardash and Ruth Belcher of Heenan Blaikie LLP have reassured their corporate clients that privacy laws do permit corporations to erect a “strong and effective defense against fraud, identity theft and other illegal activity.”

Bundus says it was important to have Duncan highlight the value of a common electronic platform to track the treatment services for motor vehicle injuries. “We are pleased the government understands HCAI and realizes it does have the potential to combat fraud, while streamlining the claims management process.”

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Immobilizing Auto

Theft

Success in installing immobilizer technology to prevent vehicle theft in Manitoba could be replicated elsewhere in Canada, with the right incentives from insurers.

Anthony Mannella

Sales and Marketing Manager, Ontario Security Solutions

It is a well-known fact the Number 1 claim issue plaguing insurance companies today relates to accident benefits. Ontario’s latest auto insurance reforms have been designed to help control rising costs related to an ever-increasing number of claims and incidents of fraud. This is a large issue requiring ongoing attention, but it tends to dwarf another equally important concern in the industry today — namely, theft. Recent statistics rank Canada fifth out of seventeen countries when it comes to the highest rates of auto theft in the world.

Vehicle theft is a problem that tends to receive little fanfare, yet losses across Canada are astronomical. In 2009, auto theft cost Canadian insur-

56 Canadian Underwriter May 2011

ers $540 million. If you factor in ancillary costs related to theft — for example, emergency response, court, policing, legal and out-ofpocket expenses such as deductibles — the total cost of auto theft each year in Canada approaches $1 billion.

Auto theft has always been considered a victimless crime. However, the media are full of stories that indicate the opposite. Stolen vehicles are used for a whole gamut of unrelated crimes such as home invasions, break-and-enter and the funding of organized and terrorist groups worldwide, to name a few.

Many incidents of car theft now end in police chases, often causing damage to property as well as injury and loss of life. Forty people die and 65 people are injured each year as a result of auto theft in Canada.

ANTI-THEFT SOLUTIONS Standard 114 of Canada’s Motor Vehicle Safety Act was implemented in November of 2007 to enhance the security of cars, thereby reducing theft. Factory installed immobilizers were and still are

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the mandate for all vehicles entering Canada. All manufacturers have complied. However, car theft has not disappeared. Although the standard is welcome, it does not mandate effective theft deterrents for heavy/farm equipment or trucks and cargo.These types of vehicles have sizeable costs associated with them when claims are payable.

Some insurers have been proactive, demanding the installation of theft deterrents on vehicles when the client’s claims have been excessive. Such theft deterrents include GPS tracking systems, which are effective in theft recovery but not in theft prevention. A stolen

Similar or better success could happen in Ontario and the rest of the provinces with the right incentives. Insurance companies can be proactive by encouraging clients to install approved immobilizers.

Providing a financial incentive through a premium discount could provide a tipping point for consumers. vehicle with GPS tracking can still end up as an insurance claim if it’s not recovered. Even when recovered, stolen vehicles could be damaged or stripped, resulting in a claim related to repair or write off.

Many simple anti-theft systems exist today in the marketplace. Solutions range from mechanical wheel boots and clubs to more high-tech GPS tracking and car alarm systems. Although they all

provide a measure of security, they do not stop professional thieves. Organized rings walk the streets of most cities with shopping lists in hand, stalking innocent vehicle owners.These professionals wait for the right opportunity to steal someone’s car and ship it to paying customers around the world. Many car thefts occur right in the driveway of the owner.The violation of having one’s car stolen is compounded by fear for one’s safety, since the thief now knows where the owner lives.

PREVENTING THEFT A relatively simple and cost-effective solution exists to prevent auto theft. Approved, ULC-certified, Level 3 security immobilizers are being used around the world to stop vehicle theft. Factory-installed immobilizers isolate the ignition; approved aftermarket systems use multi-circuit control. Coupled with tamper-proof construction, all black wiring and multi-code RFID technology, these units are the first line of defence for an owner who is serious about securing his or her vehicle.

Many insurance companies recognize the value of this type of system: it passively arms and disarms with no input from the driver. Approved immobilizers are setting above-average standards for quality, reliability and effectiveness.

Consequently, many insurance companies now offer discounts to clients who install such a device.

In 2007, Manitoba became the only province that enforced Standard 114.

Manitoba Public Insurance allocated $55 million in funding to implement an immobilization program. The government’s focus was on the Top 10 most-atrisk vehicles; nevertheless, immobiliza-

tion was made available to anyone concerned about the security of his or her vehicle. Manitoba was successful in reducing auto theft significantly.Theft reductions of up to 75% were recorded in Winnipeg alone.

Similar or better success could happen in Ontario and the rest of the provinces with the right incentives. Insurance companies can be proactive by encouraging clients to install approved immobilizers. As in Manitoba, initial attention should be paid to vehicles that have the highest claims for theft. Providing a financial incentive through a premium discount could provide a tipping point

Some theft deterrents include GPS tracking systems, which are effective in theft recovery but not in theft prevention.

A stolen vehicle with GPS tracking can still end up as an insurance claim if it is not recovered. for consumers. Financial benefits to insurance companies are obvious, since theft claims can become less common.

If you compare accident benefits and theft claims, accident benefit claims are indeed the greater issue of the two facing insurance companies. However, when comparing effective solutions to each, vehicle theft is easier to control when proper immobilization is implemented. Furthermore, effective immobilization for vehicles does not interfere with an insurance company’s accident benefit cost reduction program; rather, it complements this initiative.

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The Evolution of Auto Reforms

James I. Cameron

President, Cameron & Associates Insurance Consultants

Just a few weeks ago, one insurer announced a record loss of $1.2 billion on Ontario auto insurance, increasing the entire industry’s loss ratio by almost 5%, up to 99.4%. How did we get to this point?

If we review the convoluted history of Ontario over the past 20 years, we may better understand the myriad pressures on a complex system with so many stakeholders with opposing vested interests. Increasingly difficult to understand, and more difficult to explain, Ontario auto insurance is without peer in its complexity. Litigation and dispute resolution outcomes continue to expand the scope of benefits and medical and rehabilitation costs continue to escalate at double digit inflation.

Ontario has reformed its auto insurance regime as of Sept. 1, 2010. The question is, though, did we get it right this time?

NO FAULT: BEGINNING OF THE END? After a series of public inquiries, David Peterson’s Liberal Government enacted the Ontario Motorist Protection Plan (OMPP) in 1990. This introduced a verbal bodily injury “threshold” to eliminate smaller claims. As a trade-off, no fault

58 Canadian Underwriter May 2011

income replacement benefits (IRB) doubled from $70 to $140 per week and some medical rehabilitation benefits were enhanced.The reasoning here was this: with quicker access to treatments, injured accident victims would recover faster and resume their active place in society.

The first few years of the plan appeared to keep accident benefit and bodily injury (tort) costs in check. But just months after implementation, the NDP were elected.

The NDP’s platform included government auto insurance, modeled on the success of the Insurance Corporation of British Columbia (ICBC).

Thousands of insurance workers marched on Queens Park, attempting to dissuade then-Ontario premier Bob Rae from creating a new branch of the civil service, which they argued would displace 30,000 insurance workers during a recession.The insurance file was one of the issues leading to Rae’s downfall.

BILL 164 The NDP changed tack from its platform, introducing Bill 164 in January 1994. Caregiver benefits, housekeeping and home maintenance benefits, attendant care benefits, residual earning capacity benefits were now available regardless of fault. In addition, concepts such as “pay now, dispute later” were introduced. IRB of up to $1,000 per week and generous benefits were available for non-earners.

Illustration by Claire Manning/www.threeinabox.com

After tracing a brief history of auto insurance in Ontario, a key question arises: Can we learn from the past?

Your Breaking Insurance News Source... .ca www.canadianunderwriter.ca • Headlines • News Stories • Magazine • Archives • Insurance Marketer • Careers • Events • Photos follow us on twitter: www.twitter.com/CdnUnderwriter

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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 and Seminars Regina – PROedge Seminar: Ethics and the Insurance Professional . . . . . . . . . . . May 17

Moncton – Managers’and Supervisors’Training . . . . . . . . . . . . . . . . . . . . . . . . . . June 15

St. Catharines – CEO Luncheon with George Cook . . . . . . . . . . . . . . . . . . . . . . . . . May 17

Toronto – Advanced Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 16

Saskatoon – PROedge Seminar: Ethics and the Insurance Professional . . . . . . . . May 18

Ottawa – PROedge Spring Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 16

Surrey – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 25

Victoria – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 22

Nationwide – Application Deadline for Rhind Scholarships . . . . . . . . . . . . . . . . . May 31

Halifax – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 12

Nationwide – Nomination Deadline for National Leadership Awards . . . . . . . . . . June 1

Moncton – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 11

Toronto – PROedge Seminar: Emerging Liability Issues . . . . . . . . . . . . . . . . . . . . . . June 8

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This was a huge paradigm shift.Tight deadlines were imposed on insurers to issue bi-weekly cheques for IRB and to pay for medical rehab services promptly.

To arbitrate disputes over medical entitlement, Designated Assessment Centres (DAC) were established as “neutral” assessors, paid by insurers, to balance the interests of insurers and claimants.

The potential long-term effects of Bill 164 terrified insurers and reinsurers.

They scrambled to elicit promises from both Liberals and Conservatives in back rooms to rescind Bill 164 quickly should they succeed the NDP. Bill 164 lasted only 22 months, but its legacy lives on. Many benefits and procedures problematic for insurers were hatched. It is significant that from this point onwards, all subsequent changes would reduce or eliminate some no fault benefits to try and achieve cost controls on claims.

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auto rates had increased 43% from 2001 to 2003.

The Liberals promised an immediate rate freeze and rate cut of 10% within 90 days of taking office. But when the Liberals took power, the changes introduced under the Harris government had only just begun to reduce insurers’ loss costs. The Liberals went ahead and imposed the rate freeze. By March 2004, as many as 60% of insurers reduced their rates by filing 10% reductions.

BILL 198 Bill 198 highlights included: • Pre Approved Framework (PAF) for treatment of minor whiplash injuries without prior approval.

• A one-year ban on cash-out settlements.

• Any denial of a benefit would require the insurer to set up a medical assessment or DAC. Three weeks later, Dalton McGuinty’s Liberals, who had campaigned on auto insurance reforms, took the reins.Their platform, Lower Rates for a Change, noted

ONTARIO AUTO REFORMS: O. REG. 34/10 Soon after the Liberals were re-elected in 2007, the Financial Services Commission of Ontario (FSCO) recommended changes after hearing submissions from stakeholders. The new Statutory Accident Benefits Schedule (SABS), O Reg. 34/10, is the product of that FSCO report. The government’s key objectives were to: • help keep premiums affordable for most drivers; and • provide consumers with more choice and flexibility.

WHAT NEXT?

BILL 59 The NDP lost to Mike Harris’ Conservatives in 1995. The Harris government quickly introduced its new auto insurance scheme, Bill 59, effective Nov. 1, 1996. DACs stayed, but were placed under regulation of a government-appointed committee. IRBs were slashed from $1,000 to $400 per week unless optional benefits were purchased.

Bill 59 was called the Ontario Auto Insurance Rate Stability Act, which did not live up to its name. From 1995 to 2002, auto insurance loss costs continued to climb.

Medical and rehabilitation costs increased 400%.

Premier Harris resigned in 2001, but the Conservatives introduced further changes contained in Bill 198 on Oct. 1, 2003.

• Disability income benefits increased 20%.

Moreover, catastrophic impairment applications increased, with significant costs to assess.

THE DEMISE OF THE DAC: O. REG 403/96 Keeping an election promise, the Liberals eliminated DACs when they implemented Ontario Regulation 403/96 on Mar. 1, 2006. A virtual explosion of assessment clinics for both sides sprung up everywhere as a result.

The new medical rebuttal provisions, aimed at restoring fairness, drastically increased the number of assessments per file.The cost of assessments expense per vehicle increased 258%, from $39.31 in 2004 to $140.89 in 2009.

On an AB claims file with $60,000 total costs incurred, insurers often spent $30,000 for cost of examinations. More money was going to assessment clinics than for treatment.

Other benefits paid increased sharply from 2004 to 2007.The costs of coverage per vehicle increased as follows: • Attendant care benefits increased 101%, half of which was going to family or friends.

• Caregiver benefits increased 146%.

The changes took effect on Sept. 1, 2010. Critical to the new product, a Minor Injury Guideline (MIG) replaced the PAF.The MIG is intended to capture 70% of all injuries within a $3,500 cap.

Very early indications suggest at least some insurers are able to reach this target. The number of assessments is down, and problematic benefits like housekeeping and caregiving are eliminated unless optional coverage has been purchased or the injury is catastrophic.

Since benefits are reduced, most changes apply only at renewal. Given a 10-month backlog in the dispute resolution arena, the new wording has not yet been tested. Attaining some certainty may take at least another 18 months.

Ontario will have a provincial election in October 2011. If the incumbent government falls, will the new one resist tinkering with auto insurance? Are we destined for another round of changes within five years?

Will history repeat itself? If so, any benefits to insurers of the current reforms will be short-lived; abusers of the system will ultimately discover and exploit loopholes.Transaction costs for insurer examinations and dispute resolution costs will again increase.

After 21 years of turmoil, hold on, here we go again.

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Insuring Right Hand Drive

Opinion/Analysis

A trend of importing right-handdrive vehicles to Canada has raised concerns that underwriters and insurance companies will walk away from coverage.

Michael Kent President, Right Drive Inc.

A trend of importing right-hand-drive vehicles to Canada has raised concerns that underwriters and insurance companies will walk away from coverage due to the perceived risks of insuring vehicles not originally intended for the Canadian market.The concerns have been widely misinterpreted.The question most companies should be asking is not: “Why would I write this policy?” Rather, it should be: “Who do I lose if I don’t?” The loss of clients associated with the rejection of such vehicles is creating a divide between insured and insurer, all due to risks that may not actually exist.

Transport Canada classifies such vehicles as part of the “Grey Market.”This includes vehicles of at least 15 years of age that are allowed exemption from meeting existing Canadian Motor Vehicle Safety Standard (CMVSS) crash safety standards, but still compliant with current Safety and Emissions requirements.

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According to Transport Canada, there are no plans for amending the rules of import for these vehicles. Finding a common ground in the insurance marketplace is therefore pivotal, since more of these types of cars are imported each year.

Currently 95,000 of them are in Canada, according to JEVIC, the Japanese Export Vehicle Information Centre. Most of these vehicles are coming from Japan, where the status quo is Right Hand Drive (RHDV).

RISK EXPOSURE The risks associated with insuring right-handdrive vehicles might be greater than those of insuring newer, left-hand-drive vehicles (LHDV), but the absence of CMVSS documentation does not suggest right-hand-drive vehicles are not compliant with Canadian crash standards. For example, a 1993 Mitsubishi Montero received a 3.5-star National Highway Traffic Safety Administration (NHTSA) crash rating when tested in 1994 (a three-star driver rating and a four-star passenger rating).The domestic market Japanese version of the Montero is the Mitsubishi Pajero.

They both have the same chassis code, both are built in the same manufacturing plant and both consist of identical body panels and structures.

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However, the Pajero was optionally fitted with a 2.8-litre turbo diesel engine.

So it seems safe to assume the crash test results of these two vehicles would be the same. Sure enough, according to both the Insurance Corporation of B.C. (ICBC) and the Société de’lassurance automobile du Québec (S’AAQ): “… from the perspective of occupant protection, no evidence could be found to suggest that the RHD vehicles were inferior.”

ICBC’s 2008 Study of Right Hand Drive Vehicles in British Columbia, which published these results, also suggests right-handdrive vehicles are 40% more likely to be involved in a collision. But Dr. Mohua Podder and Rick White, both with the University of British Columbia’s department of statistics, suggested “caution [with] the use of the ICBC report as anything more than an indication that further study is needed.”

In particular, Podder and White looked at the methods of tabular analysis used in the study and noted they do not equally measure the smaller RHDV sample groups and the much larger LHDV sample groups. “In addition to data issues, there are some issues with the analyses themselves,” Podder and White write in The Assessment of the ICBC Report regarding the Study of Right Hand Drive Vehicles.

“The relative risk analysis completely ignores the repeated measures within each subject. This analysis is easily corrected by using a Cochran-MantelHaenszel test instead of a Chi-squared test.”

ICBC’s study also fails to recognize several other important factors, including the characteristics of the people purchasing RHDVs and their vehicles.

For example, many owners or operators of these specialty imports choose their vehicles based on the mentality of a “collector” or aficionado. In countries such as Japan, tax credits are dispensed for travelling few kilometers each year.

Given also a generally ‘winter-free’ climate, Japan is among many prime markets for the exportation of older vehicles.These vehicles are therefore largely in pristine condition, rust-free and showing low levels of recorded mileage.

This is a primary attraction for North

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American car owners looking to add a secondary or tertiary vehicle to their family, collection or business.

Even though right-hand-drive vehicles in Canada demonstrate low levels of risk in traditional underwriting risk categories, insurance companies in Ontario have nevertheless showed reservations about underwriting such risks.

There appears to be an assumption that in a predominantly left-hand-drive environment, a right-hand-drive vehicle is simply too dangerous to operate. Some say a lack of available claims data exists to disprove such an assumption. In fact, right-hand-drive vehicles have been safely operating on Canadian roads for more than 30 years, according to the Transport Safety Commission. From collector vehicles to Canada Post delivery trucks and garbage disposal trucks, tens of thousands of right-hand-drive vehicles are on Canadian roads on any given day. No significant claims statistics suggest these vehicles are any more dangerous to drive than LHD counterparts. In addition, insuring all three of the aforementioned vehicle types requires no additional driver training. All comply with all Canadian Safety, Emissions and Highway Traffic Act standards.

INTERNATIONAL ISSUES In the United Kingdom, Japan, South Africa, Australia and much of Europe, left-hand-drive and right-hand-drive vehicles share the same road space. Domestic dealerships in the United Kingdom, where right-hand-drive vehicles are common, offer newer prestigious models like the Cadillac CTS and Chevrolet Corvette only in a left-handdrive trim. Gerry Bucke is the underwriting manger at Adrian Flux Insurance, a brokerage in London, England that underwrites both left-hand-drive and right-hand-drive vehicles. He reports that in his experience, claims numbers are no higher for left-handdrive vehicles than right-hand-drive vehicles. Even though the number of right-hand-drive vehicles in the United Kingdom is greater than the number left-hand-drive vehicles, the claims ra-

tios are no worse for the left-hand-drive vehicles, he says. As for how to underwrite the business, he says: “We calculated our rate groups by uniquely pairing the insurable vehicle against the next closest counterpart, and then adding or deducting points accordingly for differing performance characteristics.”

For Canadian insurers, the crossover between the international context and the domestic context presents some administrative difficulties related to Vehicle Identification Numbers (VIN).

Some point to difficulties entering data

From collector vehicles to Canada Post delivery trucks and garbage disposal trucks, tens of thousands of right-handdrive vehicles are on Canadian roads. No significant claims stats suggest they are any more dangerous to drive than their left-hand-drive counterparts. into the Ministry of Transportation of Ontario’s system if a vehicle has fewer than 17 digits on its VIN plate. Given that some imported right-hand-drive vehicles have only 12 or 13 digits in its VIN code, some insurance underwriting programs may not physically allow a manual override even though Ontario’s Compulsory Automobile Insurance Act does not specify a vehicle insured in Canada is required to have a compliant SAE 17-digitVIN. Asked about this issue, John Vu, PLP coordinator at the Ministry of Transportation of Ontario, said: “Assigning a new VIN would effectively be VINwashing this vehicle and deleting valuable information and history for this vehicle. VINs are not just an algorithm used to verify the make, model, motive power or number of axles on a vehicle, or a check-digit system.VINs also speak to the safety features installed on the vehicle — i.e. supplementary restraint systems, anti-lock braking systems, etc. In the interest of cradle-to-grave tracking

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of vehicles, this is information that we would not want to compromise…Altering the VIN to 17 digits is more of an internal insurance industry problem rather than a Ministry or legality problem.”

Some concern has been raised about how to decode the international VIN and classify vehicle characteristics such as gross vehicle weight, wheelbase, length, engine size, fuel type, owner history, etc. The way Transport Canada deals with each import is as follows: the Vehicle Export Form contains these details and is required at the time the ministry generates the vehicle’s ownership.

This information can be recalled at anytime by the Ministry’s Freedom of Information office.

PARTS AVAILABILITY AND REPAIR LENGTH If it can be shown that any potential problems related to insuring righthand-drive vehicles can be answered or overcome, that begs the following question: What is the real problem with insuring right-hand-drive vehicles?

One reason may be the size of the overall marketplace. This plays a role in claims, by shaping parts support and thus the length of the repairs. Some would argue that because the market is small, the consumer — and the insurer — must wait longer for parts to become available.Where a rental vehicle is part of the coverage, longer repair times drive up the claims costs for insurers.

If this was indeed an issue, today it is a red herring. As mentioned above, roughly 95,000 private, non-commercial, right-hand-drive vehicles exist in North America. Approximately 88 dealerships specialize in right-hand-drive sales, 15 of which carry parts inventories worth more than $250,000.

For the majority of right-hand-drive vehicles imported into Canada, a North American dealer can make parts acquisition easily available, with one or two parts sellers in every province. The Nissan Figaro, of which only 20,000 were produced, can have each and every part ordered from a local Nissan dealership.

This is true of any Original Equipment

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Manufacturer (OEM).

John Hamilton is the owner of Rocky Mountain Imports in B.C. His operation specializes in parts and diesel truck sales. “We have over $500,000 worth of parts inventory from body panels to glass to engine components,” he says.

“We also have a linked-in network with other RHDV dealerships across the country should a quick order come in and we cannot fill it. If it’s something extremely specialized, it can take on average two to three weeks — unless the part required is major (engine assembly, transmission, etc) — to ship directly from Japan… [This is] no different from an OEM on a vehicle produced more than five years ago.”

Another point to make is that, apart from the specialized shops, most Canadian original equipment manufacturers can locate any repair part for a righthand-drive vehicle using the vehicles’ shorter 12- or 13-digit VIN numbers.They do this through the same programs they use to quote parts for North American vehicles (i.e. Nissan F.A.S.T., Mitsubishi AXA, etc).

LOSING BUSINESS Some companies have expressed concern 18-year-olds are buying ‘souped up’ sports cars for a cheap price, but it might be argued the polar opposite is true. For people older than 50 who are more likely to be turned on by fuel savings than status, diesel powered Mitsubishis and Toyotas are attractive — and these sales outnumber sports car sales nearly two-to-one. But where insurance underwriting is concerned, the right-hand-drive issue seems to cut against the grain of their driving experience, claims history and loyalty.

For example, Erik Blance, a 40-year-old employee of the City of Toronto, says: “I’ve had a claims-free relationship with my insurance company for my entire life.When I wanted to add a right-handdrive diesel truck to ease my fuel bill in and around the city, they quoted me facility rates, which is what I had to settle for at the time. I’ve moved all of my business away from them now, but even that has been tough and time-consuming.”

The average assumed age of the righthand-drive owner is 42 years, with a near 50-50 split between male and female drivers. With the perspective of a female driver, Emily Jones states: “With over 20 years of driving, I am claimsfree and we own six vehicles total. Only after fighting with my current insurance company for days did they come back with a rate group that seems far too high to be true. For my right-handdrive 1995 Honda CRV, I am being

The hope for right-hand-drive owners is that an insurance company will look towards how these vehicles are being insured in other international markets and adopt a suitable rate group in Canada. placed in the same risk category as a 20year-old male wanting a 1000cc motorcycle. I’ll switch my house, life and other vehicles as soon as a better deal comes along.” A better deal did come along, and she switched her business.

Consumers who possess these vehicles are feeling unfairly penalized for owning a product that is in all ways compliant with Canadian standards, but deemed to be uninsurable in a regular market. As noted above, for every one right-hand-drive vehicle policy lost, potentially another three regular market policies might be lost.This should be of concern to companies that might lose clients who have shown years of servitude and a claims-free history over a problem that is more perceived than real.

The hope for current right-hand-drive owners is that an insurance company will look towards how these vehicles are being insured in other international markets and adopt a suitable rate group in Canada. It is safe to assume clients in search of a competitive rate for their right-hand-drive vehicles will have no issue transferring all of their existing business just to have their right-handdrive vehicles fairly covered.

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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

Catlin Canada has appointed Stan Chlon as its product manager of property. Chlon has more than 35 years of experience in the insurance industry as a commercial property underwriter and manager. He has been employed at a major commercial insurer for the past 25 years.

Most recently, he held the position of national practice leader for property insurance. He has extensive experience in underwriting a wide range of commercial property business, including risk management accounts and large construction projects.

2

The Insurance Brokers Association of Ontario (IBAO) has launched a pilot program designed to educate and challenge brokers by examining and exploring cutting-edge business ideas. Beyond Best in Class (BBiC) aims to set a new standard of excellence for brokers, an IBAO release says. The five-day program encourages brokers to change the way they think about their employees, clients, insurance company partners and day-to-day business operations. A group of eight brokerages, sponsored

by Gore Mutual Insurance Company, has been selected as the pilot group. The program will be made available to IBAO's other insurers and

66 Canadian Underwriter May 2011

full membership later this year. “This program is about implementing meaningful long-term change,” said IBAO CEO Randy Carroll.

3

XN Financial has named Keith Doan vice president of business development. Based in Toronto, Doan will report to XN Financial executive vice president Paul Coleman.

Headquartered in Montreal, XN Financial provides insurance and financial products designed specifically for the needs of international assignees, high net worth individuals and directors and officers of privately owned companies. In his new role, Doan will be responsible for market development, growth initiatives and client relations. This appointment became effective Apr. 18, 2011. Prior to joining XN Financial, Doan held senior positions with Aon Ltd., Marsh USA and Chubb Insurance.

4

Christine Lithgow has been appointed president of Aon Risk Solutions in Canada. She will be replacing retiring outgoing president Chris Fawcus.

Lithgow began her career at Aon predecessor Reed Stenhouse in the United Kingdom before moving to Canada in 1981. In her 30 years with

1 Aon and its predecessors in Canada, she has held several senior positions in national, regional and branch management roles. Most recently, she served as chief broking officer. She is based in the firm's Toronto office.

5

FirstOnSite Restoration has expanded its presence in Quebec and Alberta. The emergency restoration company opened a Quebec City branch, which will be led by Daniel Jean, a 25-year veteran in the construction and restoration industry. “FirstOnSite has already been active in the province with several jobs in the last year, including recently rebuilding parts of Bishop's University after serious flooding,” said Bruce Derraugh, FirstOnSite's chief operating officer. In the West, FirstOnSite launched a branch in Medicine Hat, Alberta — an area facing a high flood risk. Jamie Mackie will lead the team in the new Medi-

3 cine Hat branch as territory manager.

6

SUM Insurance, an independent managing general agent formed

by Travis Budd, Rick DeGrace, Stan Lam, Serge Melanson and Jeff Somerville, is now serving Canada coast-to-coast with offices in Toronto and Montreal. Formed in March 2011, Strategic Underwriting Managers Inc. (SUM Insurance and/or Gestionnaires d'Assurances) works collaboratively with insurers and reinsurers to design, underwrite and deliver casualty insurance products to insurance brokers.

7

Signature Risk Partners Inc., a Canadian golf club and winery insurer, has welcomed former Canadian PGA Championship winner Ashley Chinner [7] as its director of golf. “Ashley brings nearly 10 years of commercial golf insurance

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director and counsel of new claims, responsible for assessment and management of the company's portfolio of new claims. Bellacicco was most recently senior claims counsel in the new claims unit.

4

7

experience and he will be a tremendous resource for our partner brokers as they work with their golf club clients,” James Grant, president and CEO of Signature Risk Partners Inc., said in a press release. Chinner is a past champion of the Canadian PGA Championship. He had the lowest score of any Canadian in the 1998 Bell Canadian Open, finishing with a five-under-par 283 at Glenn Abbey Golf Club. In his new role as director of golf, Chinner will help Signature's broker partners provide the best coverage available to their golf course clients.

tunity to compare even more quotes, further cementing our commitment to help Quebec drivers find the best priced auto insurance.”

8

Kanetix has added The Co-operators to its auto comparison service in Quebec. “Kanetix offers drivers a quick and easy way to comparison shop their auto insurance needs,” said George Small, co-founder of Kanetix Ltd. “With the addition of The Co-operators, shoppers will have an oppor-

9

Simon Bernstein has joined the underwriting and customer service department of LawPro as assistant vice president of underwriting. Bernstein brings extensive experience as a practising lawyer and in the insurance sector, including risk assessment, loss control and claims management.

Gerry Gill recently joined the claims group as unit director and counsel of litigation. Gill was most recently assistant vice president and in-house counsel for GCAN Insurance Company, responsible for E&O and D&O claims management — including coverage analysis, policy development and interpretation, as well as coordination of in-house counsel. Domenic Bellacicco was recently promoted to the position of unit

10

The Ontario Bar Association has awarded James Simmons and Paul Lee its 2011 OBA Award for Excellence in Insurance Law. Toronto-based Lee is the founder of Paul Lee & Associates, a boutique civil litigation firm. He was called to the bar in 1952 and is considered a leading expert in the areas of personal injury, motor vehicle and property and casualty claims. Simmons moved to Sudbury in 1970 and has practised in Northern Ontario ever since.

His areas of practice include counsel work in civil litigation, insurance, administrative, personal injury, professional negligence and commercial law. He has extensive jury and trial experience in all matters of litigation throughout Northern Ontario.

11

Hagerty Classic Marine has launched a broker referral program for its Canadian product. The initiative allows brokers in Canada to refer collector boat insur-

ance clients and receive commission for new and renewal business. There are no brokerage minimum volume requirements. Key features of the coverage include: agreed value coverage; standard, $1-million protection and indemnity (watercraft liability), including salvage, accidental fuel spill and uninsured/underinsured boaters liability; enhanced coverage for communication and navigation equipment; $1,000 emergency towing coverage and $5,000 personal effects coverage; and instant coverage for existing policyholders for newly acquired collector watercraft up to 15 days after purchase.

12

John Nelson will succeed Lord Peter Levene as the next chairman of Lloyd's insurance market in October 2011. Levene is retiring after nine years as Lloyd's chairman. Nelson spent 15 years at Kleinwort Benson, working in both the United Kingdom and the United States, before moving to Lazard in 1986. At Lazard, he ran the corporate finance division for 13 years.

He retired as chairman of Credit Suisse First Boston Europe in 2002 after three years. He then took up a number of board and advisory positions, including deputy chairman of Kingfisher plc.

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Hans A. Schols, P.Eng, MBA, CIP

The Board of Directors is pleased to announce the appointment of Hans Schols to the position of Global President and CEO of Data Insurance Licensing Systems Ltd. (DINS).

CARSTAR Automotive Canada is developing and launching plastic repair training for collision repair centres across Canada. The initiative started in the summer of 2009, when Bill Davidge, mediation and systems specialist for CARSTAR Automotive Canada, thought about how to reduce the amount of plastic parts being replaced instead of

repaired. Davidge wanted to show CARSTAR Collision Centres that repairing the plastic parts of a car would be much more efficient and profitable. “When I saw stores buying remanufactured bumpers, I thought: ‘Why are we buying these bumpers when we can do these repairs ourselves?’

After completing research on a plastic repair process, Davidge travelled to Alabama to learn how to do it

himself. He has since been sharing his knowledge with the CARSTAR network.

Davidge has been travelling across Ontario, Alberta and Quebec for the past year, making scheduled stops at CARSTAR Collision Centres to train 250 collision technicians, insurers and store owners on the new repair plastic system. Davidge will continue to offer this training across Canada throughout 2011.

Siobhan Usher-Post of National Brokers Insurance Services Inc. was awarded the prestigious Economical

Insurance Cornerstone Award for 2010. Giuliano Manazzone, general manager of metro operations, and Bruce Churchman, business devel-

opment manager, both of The Economical Insurance Group, presented industry veteran Usher-Post with the award.

Hans joined DINS in early 2010 and has over 25 years of experience in the insurance industry. He was previously the CEO of both BI&I in Canada and HSB EIL in the UK. Hans obtained a B. Eng. & Mgt. from McMaster University and M.B.A. from York University. In addition to having his CIP, he is also a Chartered Director with the UK Institute of Directors.

DINS is an insurance entity with a patented process that allows it to provide policy holders with multi million dollar coverage against loss of their electronic data. Loss due to virus, hacking, earthquake, flood and accidental deletion are all insured.

DINS distributes its product through both brokers and insurance companies.

For more information, contact Hans at hans.schols@datainsurance.org or visit www.datainsurance.org.

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

The 30th annual Ontario General Insurance (OGI) Hockey Tournament was held in Kitchener, Ontario on Mar. 18-20. A record 50 teams participated in this year’s tournament. All proceeds raised through registration fees and corporate sponsorship will be donated to Camp McGovern and Camp Everton to support the youth programs. This year’s tournament is projected to raise more than $40,000, bringing the nine-year fundraising total to $290,000.

Maureen Fraser

Cunningham Lindsey Canada Claims Services Ltd Senior Vice President, National Business Development, Albert Poon, is pleased to announce the promotion of Maureen Fraser to Vice President, Business Development.

“Maureen has been a long standing member of our sales team and this promotion reflects her commitment and ongoing success delivering superior customer service to our existing clients in addition to developing new customer relationships within Canada,” said Poon.

Maureen joined Cunningham Lindsey in 1996 and has held numerous roles including Accident Benefit Adjuster, Call Centre Manager and Business Development representative.

About Cunningham Lindsey Cunningham Lindsey is a leading independent insurance claims services company, providing a wide range of claims adjusting services throughout Canada including commercial property and liability, personal lines, transportation fleet, accident benefits, third party administration and environmental assessment and remediation. Our global operating platform consists of over 7000 employees in more than 65 countries, including leading positions in most major economies across five continents. For more information, visit our new website at www.cunninghamlindsey.com

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South Barrie Collision Centre has donated a 2007 Chevy Uplander to the David Busby Street Centre Mobile Outreach Program. The communitybased organization aims

Sandra L. Corbett Field Law is pleased to welcome Sandra Corbett to the partnership and as a senior member of our Edmonton Insurance and Litigation Groups. Sandra has dedicated her practice to defence of serious personal injury claims, and resolution of complex tort/liability matters in the insurance area including products liability, municipal and school liability, fire loss and coverage disputes.

Sandra is extensively involved in the civil defence bar in Canada and in the United States, a Member of the Federation of Defense & Corporate Counsel (FDCC), and a Member of the International Association of Defense Counsel (IADC).

www.fieldlaw.com 70 Canadian Underwriter May 2011

to improve the health and well-being of individuals, families and the Barrie, Ontario community by reducing challenges associated with poverty, addiction and mental health issues. Entertain-

ment included the Bob Charter’s Band, food and presentations. Guest speakers included Mayor Jeff Lehman and Barrie MP Patrick Brown. Prior to the event, South Barrie Collision Centre asked its customers to help fill the donated van with nonperishable food items, blankets and winter apparel. “Supporting the community even after Christmas is especially important,” says Alec Smales, president of South Barrie Collision Centre. “People in poverty are in need all year round. The mobile outreach vehicle, now running seven days a week, will also be used to pick up donations, so that David Busby can continue to help those who are homeless and living in poverty.”

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

CCR’s Annual Blues Night was held at Fionn MacCool’s in downtown Toronto on Apr. 13. Guests were treated to an evening of good food and great music with performances from singer, songwriter and harmonica player Paul Riddick.

Growing our team to serve you better!

Craig Smith

Linda Jackson

Director, Business Development

Senior Director, Corporate & Government Relations

Building on our strategic vision of responding to our clients’ needs and exceeding their expectations, SIMAC is proud to announce the appointment of two dynamic individuals to our leadership team.

“These appointments position SIMAC for fast-paced growth, while ensuring that we are able to maintain and improve upon the level of excellence our customers have come to rely upon,” stated Gloria Rajkumar, President & CEO. Linda Jackson brings over 25 years of diverse experience in both the private and public sectors. Most recently, she served as the Mayor of the City of Vaughan from 2006 to 2010.

A 25-year veteran of the insurance industry, Craig Smith spent the majority of his career at Royal SunAlliance Insurance, where he held a variety of senior positions.

“The experience, values, and integrity Linda and Craig bring will only strengthen SIMAC’s already impressive ability as a solution provider for our customers,” stated Gloria.

w w w.s ima c. ca May 2011 Canadian Underwriter

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More than 160 senior insurance industry executives gathered in Toronto for the 2011 Canadian Outlook Breakfast on Mar. 31.

Attendees at the event, cosponsored by Swiss Re and the Insurance Bureau of Canada (IBC), learned about trends in the 2010 Canadian market results.

Speakers included Sharon Ludlow, Swiss Re Canada president and CEO; Christian Mumenthaler, member of the Swiss Re executive committee and chief marketing officer for reinsurance; Don Forgeron, IBC president and CEO; and Gregor Robinson, IBC senior vice president and chief economist.

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See all photos from this event at www.canadianunderwriter.ca/gallery

Jeff Howell, CIP The Ontario Mutual Insurance Association (OMIA) has announced the appointment of Mr. Jeff Howell as Chairman of the Board.

Mr. Howell began his insurance career at Bay of Quinte Mutual in 1991 and is now the General Manager. He has served on the OMIA board since 2004 and has led several key committees.

Jeff graduated from Brock University in 1991 with an Honors Bachelor of Business Administration with a major in Human Resource Management.

He obtained his CIP designation in 2000.

Located in Cambridge, Ontario, OMIA provides member companies with services including government relations, regulatory compliance, SHQVLRQ DQG EHQHÂżWV WUDLQLQJ DQG education, and marketing and product development.

OMIA member companies are proud supporters of the Canadian mutual movement and the core values of policyholder ownership, community involvement, and sustainability.

7KH QRQ SURÂżW WUDGH DVVRFLDWLRQ serves 44 mutual insurance companies in Ontario, commonly referred to as Ontario Mutuals™ or the “farm mutualsâ€?. OMIA also provides services and support to associate members across Canada.

www.ontariomutuals.com

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WICC Ottawa Chapter held a Sugar Bush Breakfast at the National Arts Centre on Apr. 1. More than 230 industry supporters came out to enjoy typical light sugar bush food fare, live music and even maple taffy on snow — in the middle of the city. Special guest Dawn Cooper, manager of the Canadian Cancer Society Ottawa unit, gave a presentation on local CCS initiatives and programs.

Cooper accepted a $25,000 cheque from WICC, representing funds raised during the 2010 WICC Ottawa Chapter

Wine and Cheese event on Oct. 28. An additional $8,500 was raised at the Sugar Bush Breakfast in support of WICC. The Breakfast Committee included Kimberley Jeffries, Novatech; Samantha Iturregui, Kelly Santini LLP; and WICC Ottawa cochair and event chair Sylvie Tremblay, Crawford & Company (Canada) Inc. Special recognition went to all other WICC Ottawa members, including Marcella MacDonald, WICC Ottawa co-chair and Wine and Cheese event chair, ENCON Group Inc., and Barb Reddick, WICC Ontario executive director.

ADVERTISERS’ INDEX ACE INA Insurance The ARC Group Canada The Blue Goose – Vancouver Island CanadianUnderwriter.ca

17

Catlin

21

Chesterfield Canada Inc.

43

CNA Canada

49

ClearRisk

41

Crawford & Company

5 2 (IFC)

Crawford & Company (Canada) Inc.

35

CSN - Collision & Glass

23

Cunningham Lindsey Canada

9, 69

Data Insurance International Ltd.

68

Field Law

70

GroupOne Underwriters

29

The Guarantee Company of North America

15

Guidewire Software, Inc.

19

Impact Auto Auctions

13

instouch.com Insurance Institute of Canada

65 25, 60, 83

Ontario Insurance Directory

81

Ontario Mutual Insurance Association

73

RIMS Canada Conference - Ottawa RSA – Royal & Sun Alliance Insurance Company of Canada

47 33, 84 (OBC)

SIMAC

71

Wawanesa Insurance

37

WICC Canadian Underwriter May 2011

53 59, 72

CARSTAR Automotive Canada Inc.

Compu-Quote, Inc.

74

7 39

45, 51

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The Insurance Institute of Ontario held its 2011 CIP Society Symposium, entitled Change, Advance, Succeed, at the Toronto Board of Trade on Apr. 6. Author and leadership and change expert Alan Deutschman was the breakfast keynote speaker. Intact Financial Corporation president and CEO Charles Brindamour provided an address at lunch on insurance industry trends. The day concluded with an Industry Leaders Panel moderated by Susan Meltzer of Aviva Canada. Panelists included: John Chippindale, HKMB HUB; Shawn DeSantis, RSA Canada; Sharon Ludlow, Swiss Re; Karen Barkley, Specialty Risk Underwriters; and Lynn Oldfield, Chartis.

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WICC Ontario held its 15th annual gala dinner, ICONIC, on Apr. 13, 2011 at The Westin Harbour Castle Hotel in Toronto. WICC dinner co-chairs and evening emcees Michael Butler and Marian Adamson introduced WICC co-chairs Carolyn Horan and Jean Faulkner to present Martin Kabat, CEO of the Ontario division of the Canadian Cancer Society, with a cheque from WICC for $825,000. Gold Flame Awards, recognizing significant contributions to WICC, went to the Insurance Brokers Association of Ontario, Risk Management Counsel of Canada, SIMAC Canada Inc. and Worden Insurance & Financial Services Ltd. Nancy Thorne and Debbie Cyr were 2010 WICC ‘Hall of Flame’ Award inductees. Lyna Newman, who was the executive director, board member and secretary of WICC Ontario for more than a decade, received the Lew Dunn Memorial Award. Marilyn Horrick, past dinner chair, introduced WICC Relay for Life co-chairs Paul Martin and Carla Smith, who spoke about the industry’s commitment to the event and 2011 Relay for Life plans and goals. Since WICC’s inception in 1996, the P&C industry has raised more than $5 million.

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Hannover Re held a retirement celebration for Roy Vincent on Apr. 14 at the Rosewater Room in Toronto.

More than 150 clients, colleagues, partners and guests attended. Vincent began his insurance career at the age of 17 as a Lloyds broker in the blood and livestock business. Having worked at Hannover Re for 28 years, Vincent was based in Germany and was the head of the Canadian and Caribbean Department for the past 20 years. Throughout his career, Vincent logged more than 150 trips to Canada.

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CSN Collision & Glass hosted their second annual Date Night with food, cocktails and a private screening of the hit thriller The Lincoln Lawyer, starring Matthew McConaughey. The CSN Team and its members invited insurance adjusters to join them for a night out. The festivities began in Jack Astor’s at Square One in Mississauga, Ontario, where everyone enjoyed an after-work cocktail and nibbled on great food. The evening continued at the Mississauga Coliseum, where The Lincoln Lawyer was on the big screen for the private audience.

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We’re big on reaching for the stars

The CN Tower is one of the seven wonders of the modern world and it is no surprise it took 1537 workers, working 24hrs a day, five days a week for forty months to complete.

A project of this scope required extensive insurance solutions and RSA along with our broker partners are proud to have been a par t of this monumental achievement.

To ensure we continue to add further value to such par tnerships we have recently welcomed GCAN to RSA. Our shared philosophy of technical underwriting excellence, diversified portfolios and strong broker relationships significantly strengthens our commercial position and makes us one of the largest general insurers in Canada.

With over 300 years of experience, RSA is an established ‘A’ rated insurer offering a complete suite of insurance solutions for small business to multi-nationals through a network of independent brokers.

If you’re big on reaching for the stars, partner with RSA INSURANCE. ©2011. RSA is a registered trade name of Royal & Sun Alliance Insurance Company of Canada.

“RSA” and the RSA logo are trademarks used under license from RSA Insurance Group plc.

rsabroker.ca