Canadian Underwriter August 2013

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

A UG U S T 2 0 1 3 A Business Information Group Publication #40069240

Overland Overhaul

BY ANGELA STELMAKOWICH

Power Play

BY NEIL SMITH

Supply and Demands

BY TRACY KNIPPENBURG GILLIS

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RESILIENCE GETS BACK UP. How your business recovers from a disruption has a lot to do with how it prepared for it in the first place. At FMGlobal, our goal is to make our clients resilient before, during and after an event.

We’re a commercial property insurer that offers the expertise of 1,800 engineers worldwide and a $125 million research facility to ensure you overcome even the hardest of hits. Learn more at fmglobal.com/resilience. WHEN YOU’RE RESILIENT, YOU’RE IN BUSINESS.

YOUR FACTORY

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TYPHOON Š2013 FM Global. All rights reserved.

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VOL. 80, NO. 8, AUGUST 2013 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

18 UBI as a Risk Tool Telematics, or usage-based insurance, offers promise as a way to monitor and underwrite risk for vehicle insurance. That said, processes must be in place so consumers using the tool understand criteria, choices and how rates can be affected.

COVER STORY

Overland Overhaul

BY BRENDA ROSE

28 Pipeline Safety Canadian-based pipeline operators have projects under regulatory review on both sides of the border. Some carriers are open to insuring the risks — such as vehicle strikes, fines and historical contamination — while others are not.

BY GREG MECKBACH

32 3-D Printing Despite being around for decades, 3D printing is now becoming commonplace in manufacturing. With every new product comes benefits, but also the need to adapt to what may be new and different circumstances.

36 60 Telematics Will telematics put an end to age and gender discrimination in setting auto insurance rates?

Canada’s high court ruled in 1992 the insurance industry could continue to use certain discriminatory criteria as a bona fide means of assessing risk, but not indefinitely.

BY WILLIE HANDLER

BY TIM WOODS

50 Nat Cat Preparedness

63 Megatrends

Canada’s geography is exposed to various high-hazard zones.

Even with that knowledge, are Canadian businesses and insurers prepared? Do they recognize the issue is larger than one disastrous event?

Is the insurance industry prepared to effectively address the rise of social media, big data and other megatrends?

Results of a recent global survey from Towers Watson indicate that the insurance industry is lagging behind.

BY ROHAN DIXON & AL TOBIN

BY HÉLÈNE POULIOT

54 Kidnap and Ransom Officers, directors and staff of Canadian companies in the extractive industries with operations around the globe are increasingly in need of kidnap and ransom coverage.

BY LALITA MOHABIR

4 Canadian Underwriter August 2013

If ever Canadians needed proof of the potential devastation of overland flooding, the recent event in southern Alberta — followed by another in and around Toronto — offered clear examples. What needs to be done to tackle overland flood in this country, and what mix of risk management and insurance measures will help meet that objective?

BY ANGELA STELMAKOWICH

FEATURES

14

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Supply Chains

Cyber Risk

The collapse of the Rana Plaza in Bangladesh, among the world’s largest clothing exporters, has companies and their insurers exploring how to protect against the risks of complex global supply chains.

With its concentrations of assets, Canada is an important market for cyber risk insurance. But insurers must raise awareness of the advantages of managing these risks adequately.

BY TRACY KNIPPENBURG GILLIS

BY NILS DIEKMANN

22

56

Geomagnetic Storms

Ontario Auto

Geomagnetic storms can induce currents in power lines that can overload the electric grid and trigger voltage collapse, or worse, damage extra-high voltage transformers.

Ontario auto insurance has been in a state of flux for about three decades now, a situation that is exacerbated with each and every change to the product.

BY NEIL SMITH

BY WILLIAM STAR

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VOL. 80, NO. 8, AUGUST 2013

PROFILE

Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793 Associate Editor Greg Meckbach gmeckbach@canadianunderwriter.ca (416) 510-6796

12 Risky Business John Phelps, president of Risk and Insurance Management Society Inc. (RIMS), wants his organization to focus on adding more international chapters and on encouraging more young professionals to enter the field.

BY GREG MECKBACH

SPECIAL FOCUS

8

Editorial

10 Marketplace 66 Moves & Views 68 Gallery

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EDITORIAL

Runaway Risk

“It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment.”

Angela Stelmakowich, Editor astelmakowich@ canadianunderwriter.ca

8

Canadian Underwriter August 2013

Stated intentions and actual changes have been swift after a runaway train brought parts of a small Quebec community to complete ruin in early July.

The shock delivered by the Lac-Mégantic derailment was just starting to round into hope for recovery when the first lawsuits were filed. These are perhaps a good thing if they serve to reveal how best to avoid risks that contributed to the tragedy in the future, but will surely take years to unfold and keep the wound exposed for a community striving to heal.

The early morning of July 6 was transformed into a disaster zone when an unmanned Montreal, Maine & Atlantic (MMA) train, parked uphill from Lac-Mégantic, started to move down the 1.2% grade, picking up speed as it did so.

The train derailed near the centre of Lac-Mégantic, and the locomotives separated, ending up a half mile away.

The contents of several cars carrying crude oil from a shale deposit exploded, destroying much of the surrounding property and claiming the lives of almost four dozen people.

The disaster has raised questions around rules and procedures, work practices and preparedness. And many of the issues laid bare by the devastation have insurancerelated costs or ramifications.

Consider the hit to company reputation, potential D&O liability and effects (short and long term) on the environment.

Already the Lac-Mégantic derailment is revealing itself

as cost, beyond the extraordinary toll paid by the victims.

Much of damage that resulted is covered under home insurance policies. As one example, Intact Financial Corporation recently stated that the derailment will have a $25 million impact on its third-quarter results.

For its part, MMA has announced its divisions north and south of the border have filed petitions for creditor or bankruptcy protection. “It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment,” Ed Burkhardt, chairman of the companies, says in a release.

“The filing will provide the proper structure to permit the companies to serve customers, to preserve well-paying jobs, to provide for the payment of post-filing obligations, and to ensure that all creditors are treated equitably and in accordance with well-established laws,” the release adds.

It is hoped the filings do not divert the spotlight away from factors that led to the incident.

Light will likely be shed by the Transportation Safety Board of Canada investigation now under way, perhaps including thorough recommendations on how to manage risk in future.

Within days of receiving advisory letters from the board, Transport Canada issued emergency directives.

Among other things, all rail operators in Canada must

ensure that “no locomotive attached to one or more loaded tank cars transporting dangerous goods is operated with fewer than two qualified persons on a main track or sidings.”

Quebec’s environment minister issued a directive of his own July 29, notes a briefing from the law firm Norton Rose Fulbright. The environmental clean-up and decontamination order was issued to Montreal, Main & Atlantic Canada Co., Montreal, Main & Atlantic Railway Ltd., Western Petroleum Company and World Fuel Services Corporation (the last two being the owners of the spilled oil). They had 30 days to contest the order.

Among other things the ministerial order requires the corporations to recover the oil and other contaminants discharged into the environment (including in the town and nearby river); prevent the spread of the spilled oil; and submit a comprehensive action plan, together with a timetable, notes the briefing.

“These measures indicate the Quebec government’s clear intention to exercise its powers under the Environment Quality Act to force the owner of the spilled oil and the corporation which had custody and control of it to take responsibility for the environmental clean-up and decontamination work.”

It can only be hoped that clearer intentions, matched by clearer risk management, apply some kind of positive to this tragic negative.

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MARKETPLACE Sign up to receive Canadian Underwriter’s free Insurance Headline News Email Alert: http://bit.ly/cuenews

Canadian Market GREATER TORONTO AREA SEES RECORD RAINFALL The Greater Toronto Area (GTA) experienced rainfall on July 8, eclipsing Hurricane Hazel almost six decades earlier, that resulted in flooding and power outages.

Pearson International Airport is reported to have recorded 126 millimetres of rainfall, slightly more than the 121 mm during Hurricane Hazel in 1954. The onslaught resulted in, among other things, transit and commuter rail delays from flooded subway stations, buses and train tracks; flooding of roads and throughways; cancelled flights; closed city services; and power outages affecting 300,000 homes in Toronto.

An update from Standard & Poor’s Ratings Services says “early reported estimates suggest that insured losses could be comparable with those from the 2005 Toronto wind and rainstorm, which were about $590 million.”

BUREAUCRACY TOP PROBLEM WHEN DOING BUSINESS IN CANADA Government inefficiency and an environment not conducive to innovation are among the top issues Canadian executives view as barriers to doing business here, notes a new briefing from the Conference Board of Canada.

Generally, Canada is a good

10 Canadian Underwriter August 2013

place to conduct business, notes the briefing, based on data from the World Economic Forum’s executive opinion survey. But the responses “point to potential areas for improvement that could enhance business performance and competitiveness.”

For example, 16.4% of those polled said inefficient government bureaucracy was the top problematic business issue. That issue was followed by insufficient capacity to innovate, access to financing, an inadequately educated workforce and tax rates.

Risk Management IMPROVED DISASTER MITIGATION NEEDED Canada’s premiers are calling on the federal government to create a “distinct Canadawide disaster mitigation infrastructure initiative,” as well as ensure liability insurance requirements for railroads are sufficient.

The cost for a new mitigation program would be split evenly between the provincial or territorial governments and Ottawa, notes the Council of the Federation.

The premiers also agreed there is a “clear lack of information on hazardous materials travelling on the rail network,” after discussing the event in Lac-Mégantic.

The federal government should put in place a system to monitor rail convoys transporting hazardous materials.

“This system would provide real-time data on the location and content of the trains, which would be shared, for public safety purposes, amongst the relevant authorities of the federal, provincial and territorial governments.”

The premiers also called on Ottawa to take action and ensure the safety and liability insurance requirements for railroads are sufficient.

SMALL BUSINESSES AT PARTICULAR RISK Small business in the United States is particularly at risk from climate change and extreme weather, contends a new report released jointly by Small Business Majority and the American Sustainable Business Council.

“The median cost of downtime from a small business affected by an extreme weather event is $3,000 per day,” the groups report.

“Small businesses’ physical assets tend to be more concentrated: A single building or factory could represent most of the book value of a small business, whereas large businesses benefit from greater geographic diversification.”

Among the other factors of concern are that 57% of small businesses have no disaster recovery plan; for those that do have continuity or risk management plans, 90% spend less than one day monthly preparing and maintaining them; and small businesses tend to operate out of one location and derive most of their business from within a few miles of those locations.

TOTAL COST OF RISK UP 5% IN 2012: RIMS Driven mainly by firming market conditions, the average total cost of risk (TCOR) increased by 5% in 2012 over a 1.7% climb in 2011, notes the latest RIMS Benchmark Survey.

The annual survey includes benchmark statistics with industry data for more than 52,000 insurance programs from almost 1,500 organizations. Advisen was a partner in producing the survey report.

In 2012, TCOR rose from $10.19 per $1,000 of revenue to $10.70 per $1,000 of revenue, the result of hard market conditions, reports RIMS, the Risk Management Society. Although rates are rising, the research shows that improving rates attract new capacity, which makes it difficult to sustain the trend towards progressively higher rates.

Regulation INSURER LOSES BID IN DISPUTED ATTENDANT CARE AUTO CLAIM Some lawyers say a mid-July ruling by Ontario’s appeal court is significant because it does not define “economic loss” in the auto insurance regulations governing attendant care benefits, when the person caring for the accident victim is a family member and not a professional.

Ruling in favour of Tyrone Henry, who was left a paraplegic after a motor vehicle

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de minimis financial or monetary loss,” Daniel Strigberger, a partner with Miller Thomson LLP, says on a company blog.

A Dutton Brock LLP bulletin adds that “by failing to define ‘economic loss,’ the court has left the term open to a wide range of interpretation.”

Technology POLICYHOLDERS WANT MORE ONLINE SERVICES Very few insurers allow policyholders in Ontario and Quebec to change their billing information and conduct other transactions online, identified by respondents to a new survey as something they want.

The Deloitte LLP report is based on a phone survey of 384 residents in Quebec and 384 in Ontario who purchased home or auto insurance, or both, within the last five years. In all, 28% of respondents younger than 40 with a post-secondary education reported they used an online service (such as a general web search, aggregator, insurance company website or social media) to select an insurer.

Deloitte reports customers want online capabilities to handle “simple tasks” that do not require a live conversation with a carrier representative, but “virtually none” of their carriers provided the online services they wanted.

In all, 52% of respondents noted that they would switch insurance companies if they could get “greater online capability,” Deloitte adds.

CYBER CRIME LOSS TO ECONOMY ESTIMATED AT AS MUCH AS US$500 BILLION Cyber crime and espionage could leach US$100 billion to US$500 billion from the global economy, notes a new report released on July 22.

Sponsored by McAfee, a subsidiary of Intel Corp., loss estimates are based on an economic model and methodology built by the Washington, D.C.-based Center for Strategic and International Studies. The report posits a $100 billion annual loss to the U.S. economy and up to 508,000 U.S. jobs lost as a result of malicious cyber activity, McAfee notes in a statement.

Malicious cyber activity was classified into six areas: loss of intellectual property and business confidential information; cyber crime; loss of sensitive business information; opportunity costs, including service and employment disruptions, and reduced trust for online

activities; the extra cost of securing networks, insurance and recovery from cyber attacks; and reputational damage to the hacked company.

Reinsurance INSURED LOSSES IN FIRST HALF OF 2013 $20 BILLION Insured losses for 2013’s first half were US$20 billion, down from US$25 billion in the same six months of 2012, an amount that equals the 10-year average, Impact Forecasting reported in July.

Total economic losses for the first six months of 2013 were approximately $85 billion, up from $75 billion in 2012, but about 15% lower than the $100 billion average for between 2003 and 2012, notes the catastrophe model development arm of Aon Benfield.

Approximately half of the insured losses were from natural disaster events in the United States, Impact Forecasting notes.

CORRECTION In the article, Adapting to Change, which appeared in the June 2013 issue, we incorrectly labeled the legend for the first chart appearing on page 51. The correct legend, as well as the chart, appear below.

Canadian Underwriter apologizes for the error.

AB - Home and Mortgage Insurance (Stats Can)

Index 2004 = 100

accident in 2010, the Court of Appeal for Ontario upheld a lower court finding that Gore Mutual Insurance Company’s obligation to pay for Henry’s attendant care benefits “was not restricted to care provided during the 40 hours per week of paid work foregone” by his mother, who quit her job to care for him.

In a lower court ruling in 2012, Henry’s attendant care needs were assessed at about $9,500 per month based on a Financial Services Commission of Ontario Assessment of Attendant Care Needs form.

Section 19 of Ontario’s Statutory Accident Benefits Schedule notes the maximum payable for attendant care is $6,000 per month, if the victim sustained a catastrophic impairment and if the policyholder did not buy optional additional medical, rehab and attendant care benefits.

Gore Mutual argued its liability is limited “to the number of hours that the applicant’s mother had been working as a proportion of the total attendant care hours assessed as reasonable.” It calculated attendant care at about $2,120 per month.

Henry argued he should get the maximum $6,000 per month. The lower court ruled in his favour, Gore Mutual appealed and the appeal court upheld the ruling.

“Gore argued that because ‘economic loss’ is not defined in SABS-2010, insurers risk facing claims for attendant care benefits founded on wide and expansive interpretations of economic loss, or

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PROFILE

Risky Business Greg Meckbach Associate Editor

John Phelps, president and a director of Risk and Insurance Management Society Inc. (RIMS), wants his organization to focus on adding more international chapters and on encouraging more young professionals to enter the field.

As John Phelps approaches his fifth decade in the insurance and risk business, he wants to ensure that Risk and Insurance Management Society Inc. (RIMS) is prepared to bring younger professionals into the field and into the senior ranks.

“The pipeline of professional risk managers that are going to replace me and people like me when I retire... they are the future of this discipline,” says Phelps, who was appointed RIMS president on January 1, 2013. “I want to make sure, when I leave this year, that we have structures in place that will assure us that we have a strong pipeline that will assure the future of this discipline for many years to come,” he adds.

12 Canadian Underwriter August 2013

Giving young professionals opportunities for networking and mentoring is one area that Phelps has asked RIMS staff to make a focus. Beyond the new blood, he has also asked RIMS executives to look beyond and to concentrate on improving its “international reach.”

“We are increasing that footprint either in chapters or in services as we support risk professionals around the globe in more than 125 countries,” he says, noting the addition of the newest chapters — the Melbourne-based Australasia chapter and the Lima-based Peru chapter — were “great accomplishments” for RIMS over the last year.

Founded in 1950, RIMS has more than 11,000-plus members. As of April, when the non-profit organization held its annual conference and expo in Los Angeles, RIMS had 82 chapters in 60 countries, including 10 chapters in Canada, where RIMS has scheduled another conference in early October. For its part, the upcoming RIMS Canada conference in Victoria will feature Canadian astronaut Chris Hadfield as a keynote speaker.

ROAD TO RISK This is not the first time Phelps has served as president — he was president of RIMS’ North Florida chapter, one of 68 in the United States, in 1999,

and has been on the RIMS Board of Directors since 2003.

He was chair of the RIMS enterprise risk management development committee from 2004 until 2007, and before becoming president earlier this year, was vice president and board liaison to the external affairs committee and RIMS Canada Council.

By day, Phelps is the director of business risk solutions at Blue Cross and Blue Shield of Florida Inc. in Jacksonville, the health insurance provider

“I wanted to look at a client’s needs holistically and see insurance as one tool in the toolbox rather than the toolbox.” known by its trade name, Florida Blue. He spent three years with Blue Cross and Blue Shield in Rochester, New York, before joining Florida Blue 23 years ago.

What led Phelps to pursue a career in insurance? He says he was inspired by his grandfather. “I always thought it was an industry that provided well for the family, and was the kind of activity where people liked to see him,” Phelps says of his grandfather. “So I decided to pursue an insurance career at an early age.”

After graduating with a business degree from the Rochester Institute of Technology, Phelps began his insurance career in 1974 as a commercial account analyst with The Travelers Companies Inc. He stayed there for three years before being hired by an agent with whom he had worked at Travelers.

Phelps spent the next 10 years in the brokerage industry, but decided to move into risk management after becoming frustrated with what he perceived as a narrow focus on insurance as a solution to risk.

“I knew there was a lot more that could be brought to bear on a risk than just the application of insurance, so I went into risk management with Blue Cross and Blue Shield.”

Insurance cannot always be a “total solution” to a risk, he suggests, because insurance policies have exclusions and conditions. “I found myself many times recommending not to purchase insurance, to self-fund a risk, because it was a better application of their assets,” Phelps reports.

“I wanted to look at a client’s needs holistically and see insurance as one tool in the toolbox rather than the toolbox itself,” he adds.

At Florida Blue, he works on business continuity management, emergency response and the firm’s enterprise risk management (ERM) program.

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PROFILE

When Phelps started implementing the program, many people referred to ERM as a fad, he recalls. “I think it’s pretty obvious this is not a fad,” he says. “This is a new way of thinking about and understanding risk to create advantage at a company,” says Phelps. “That’s something they want to have as... part of how they do business every day.”

There are more regulations “requiring enterprise risk management-like features,” suggests Phelps, pointing to the Risk Management and Own Risk and Solvency Assessment (ORSA) Model Act published by the National Association of Insurance Commissioners. “Corporate America has more of an understanding of what enterprise risk management is, and an appreciation of the benefits it can generate,” Phelps says.

explosion in Lac-Mégantic, Quebec that claimed more than 40 lives. Canada’s tremendous increase in oil production and the risks associated with moving that oil are “bound to have a constricting effect upon the availability of coverage for those exposures,” he adds.

Photo: Courtesy of RIMS

STRENGTHENING THE RANKS

DEVELOPING ISSUES Because Florida Blue deals with confidential patient records, computer security is one major priority, he says.

“We have a lot of restrictions in how we behave and what we can do with our data and our devices. For example, I cannot take a thumb drive and put it into a company computer. It has to go through a process to be cleansed and inspected before it can be used, and then it has to be encrypted,” Phelps notes.

It is a risk that is on the minds of many. “Who on earth does not have a very significant cyber risk?” Phelps asks, adding that the issue is “pretty high on everybody’s attention list, especially the C-Suite because of the incredible damage that can be done to a company’s physical assets and their reputation just with the click of a mouse.”

It is also a developing area.

“A lot of the cyber products are broadening coverage to pick up some of the new exposures so that’s one area of insurance where we’re seeing a lot more development,” Phelps says.

In Canada, he suggests the increase in petroleum production is changing the risk landscape, alluding to the July 6 train derailment and

In an effort to support educational opportunities in Canada for budding risk managers, RIMS last April donated $30,000 to the William H. McGannon Foundation, which is accepting applications for scholarships in Canada from students majoring or minoring in a risk management or insurance discipline and who have a career objective in risk management.

Phelps suggests that risk managers need to reach out to professionals in other fields — such as audit, finance and business continuity — and encourage them to consider getting into a risk management organization.

“We’re also encouraging (RIMS) chapters to reach out to these young professionals,” he says. “Look for ways to engage them from companies in their chapter area. Invite them to chapter meetings and allow them to come for free.

Pick them up at their business, bring them to a chapter meeting. Get them engaged.”

August 2013 Canadian Underwriter

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Tracy Knippenburg Gillis

Global Reputational Risk and Crisis Management Practice Leader, Marsh Risk Consulting

This spring’s deadly collapse of the Rana Plaza in Bangladesh, claiming the lives of more than 1,100 people, has served as a wake-up call. Companies and their insurers are now taking a renewed look at how to protect against the risks of operating complex global supply chains and how to insure against those risks.

heavy competition.These low wages help maintain low prices for Western consumers, and stable and profitable margins for producers and retailers.

Despite significant progress over the last 20 years to improve working conditions, the April 24 collapse of the Rana Plaza — in which more than 1,100 workers tragically lost their lives and many more were injured — served as a wake-up call to the manufacturing industry, governments and consumers alike. And it has led companies and their insurers to take a renewed look at how to protect against the risks of operating complex global supply chains and how to insure against those risks.

Bangladesh’s low-cost production capability has turned the South Asian nation into one of the world’s largest clothing exporters. In 2012 alone, the country’s textile exports topped $20 billion — including, as the Government of Canada reports, $1.1 billion to this country — and represented about 80% of its total annual exports.

With one of the world’s lowest minimum hourly wages, the outsourcing of garment production to Bangladesh is affordable and attractive to companies facing tight margins and

MANAGING THE RISKS

14 Canadian Underwriter August 2013

The globalization of supply chains adds higher degrees of complexity than ever before, including the reliance on more tiers of suppliers, which can add more vulnerability to the system when events occur. Many companies expect their suppliers to manage risk to the same degree that they do; some may put clauses in contracts with direct suppliers requiring that similar risk management protocols be put into place. Fewer, however, understand or apply this rule beyond

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first-tier suppliers, which may be located in countries that have different operational structures and practices.

In the months since the Bangladesh tragedy, governments and the garment industry have taken steps to address how business is conducted in Bangladesh and elsewhere, and have taken additional measures to help improve working conditions and prevent similar incidents from happening in the future.

The Bangladesh government moved to guarantee labour rights while simultaneously stepping up inspections of the estimated 5,000 garment factories in the country. But the process is difficult, and slow.

The New York Times reported in a July 2 article that the Bangladesh government is not certain precisely how many factories operate in the country, or their locations. Often, building plans do not match the actual structure, if the plans exist at all.

This is complicated further by a severe lack of qualified inspectors — it has

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ments, which did not receive reduced duty rates).

The European Union (EU) is said to be considering trade sanctions as well.

On July 10, 17 North American apparel retailers joined forces to develop and launch an alliance, Bangladesh Worker Safety Initiative — a five-year binding effort to improve safety in the Bangladeshi garment factories. The North American alliance includes inspection and safety standards programs for almost 500 factories within the year.

It also includes efforts to create consistent inspection standards and empower workers to report unsafe conditions.

Similarly, a number of largely European unions and retailers signed the Accord on Fire and Building Safety in

Organizations should take a broad view of all the risks they face, as well as their consequences. The health and safety of workers and surrounding communities should certainly be examined, and non-physical risks, such as reputational, political and supply chain, considered.

Bangladesh, including the world’s largest retailer, Inditex. The European accord is designed to improve fire and building safety in Bangladesh. The group is creating a team of inspectors that will be sent in to evaluate fire, electrical, structural and worker safety in those factories producing goods for the group’s members.

been reported that the capital city of Dhaka, for instance, has 40 inspectors charged with inspecting as many as one million structures in the city.

Other governments have taken action as well. In late June, the United States government suspended some of the trade benefits previously provided under the Generalized System of Preferences (GSP), raising duties on a range of consumer items (though not gar-

16 Canadian Underwriter August 2013

THE FUTURE From companies in industries ranging from automotive to technology to retail, the ability to consistently deliver products and services quickly, reliably and at low cost is essential to their value proposition to customers and shareholders. Given the increasing role that third-party manufacturers in low-cost production countries play in feeding de-

mands for affordable consumer goods, it is unrealistic to think that manufacturers will — or can — cease outsourcing to countries like Bangladesh all together.

The issues at work in the Rana Plaza collapse go back decades. Likewise, wholesale change in places such as Bangladesh will take years to fully accomplish. While governments play a critical role in this process by instituting new health and safety standards for workers, companies themselves must

take a leading role in enforcing operational changes among their suppliers.

What can companies do today to minimize operational, financial, insurance and reputational risks, and safeguard human and physical assets?

Know the risks, and plan for them Company leadership is faced with an increasing array of threats to its company’s operations. Completely eliminating risk is not possible, but understanding and planning for the risks — what they are, what impacts and consequences they could cause, and understanding what the company can do to prepare and protect itself before it happens — will enable leadership to better manage against inevitable disruptions and potential crises.

Organizations should take a broad view of all the risks they face, as well as their consequences. The health and

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safety of workers and surrounding communities should certainly be examined.

But also consider the non-physical risks, including reputational, political, supply chain and so forth.

Keep in mind that these issues are not static; they evolve and change over time. Continual monitoring and assessment of both conditions on the ground, as well as perceptions from stakeholders (e.g., customers, investors, government regulators, insurers, etc.), must take place. Armed with a clear view of the risks, consequences and what the worstcase scenario could look like, companies can make sound decisions on whether or not to locate or maintain operations in a given area.

And more important, once sourcing decisions are made, companies can put the proper response, continuity and crisis management plans in place that will provide prompt visibility to problems, and employ immediate response and effective continuity and crisis management as needed.

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their causes and impacts understood quickly. The timeliness and the appropriateness of a company’s response can have a dramatic effect on how it is perceived by customers, shareholders and regulators.

The Rana Plaza event was extreme — and preventable.While initial steps have been taken to help ensure that the tragic scene is not replayed in Bangladesh or elsewhere, more needs to be done.

Manufacturers need to take this time to fully identify their risk exposures, revisit and strengthen workforce safety practices, enhance internal crisis preparedness and enhance resiliency processes for themselves and their suppliers at every level.

The cost of not taking action or failing to conduct the appropriate risk due diligence, and taking the necessary steps to mitigate them, is too great.

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Improve crisis response and compliance frameworks Manufacturers must review, and if necessary enhance, their response and resiliency programs and capabilities, as well as their audit processes and procedures. Enhanced programs on corporate and regulatory compliance, supply chain risk management, corporate preparedness and response programs, and reputational risk are necessary to clearly effectively manage, respond to or, ideally, prevent potential threats to the health and safety of human and physical assets, operations, reputation and the bottom line.

Respond in a timely and appropriate way in a crisis As has been seen with the Rana Plaza event, what happens in one part of the world has the potential to have an impact elsewhere in today’s interconnected marketplace. Even those not immediately affected can suffer by virtue of doing business in the affected environment or with an affected organization.

Problems need to be identified, and

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Controlled

Risk

Telematics, well-suited to documenting vehicle usage, offers promise as a means of monitoring and underwriting risk. But telematics will only fulfill its loss reduction potential if consumers looking to govern and manage their own risk have a clear understanding of defining criteria, how rates can be affected and what their choices are.

At its most fundamental, insurance is a risk management strategy. Insurance consumers — businesses or individuals — transfer their potential for loss to insurers, creating a balance between the amount of risk transferred, their own premium tolerance and appetite for hazard, and the insurer’s assessment of the danger.

Risk management, however, is also about reducing the overall potential for loss, with less Brenda Rose total risk to be transferred or retained. The Vice President/Partner, most successful scenarios occur when informed, FCA Insurance Brokers, Technology Champion, engaged policyholders understand the direct impact that their risks have on other factors, Insurance Brokers such as cost and insurer inclinations, and take Association of Canada steps to mitigate their exposures.

The balance changes, of course, whenever new ways are devised to measure risk. By changing how the factors that define exposure are evaluated, that equilibrium among hazards, mitigation and transfer, premiums and other possible costs are also affected. Recognizing the interrelationships among all these elements is crucial to any risk management model, new or old.

If consumers are to effectively govern their own risk, they must understand what the defining criteria are, how they impact their rates and protection, and what their choices are.

18 Canadian Underwriter August 2013

One relatively new school of thought, evolving out of predictive analytics, has the potential to greatly enhance consumers’ ability to manage their exposures.Telematics, or UBI (usage-based insurance), is a means of monitoring and underwriting risk, which has been made possible by mobile technology and insurers’ burgeoning capacity to analyze vast quantities of raw data.

The technology is particularly well-suited to documenting vehicle usage.

Telematics devices collect information “live” and report electronically on a slew of details deemed to characterize the individual auto and its drivers, such as patterns of motion, locations or time of day.The information might be used in a variety of ways — overseeing corporate fleets, extracting information following an accident, monitoring road conditions or documenting individual driving habits. Insurers could employ it in place of more traditional formulas to provide a more individually tailored assessment of risk and, consequently, of the required premiums.

As a risk management tool, the potential power of the immediate feedback is obvious. If drivers and vehicle owners can see the plain facts about their own driving patterns and the hazards resulting from those patterns, they can also act to

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adjust behaviour identified as unsafe.

Subsequently, once they have amended their conduct, they should also be able to see the effect in the information collected and the conclusions drawn.

For any new insurance telematics model to succeed and stay true to insurance’s original purpose as a means of controlling risk, this participation by consumers who are informed and empowered to affect their own situations is key.

Telematics information is powerful, but power can create other vulnerabilities. The data collected is also intensely personal. Consumers could, in fact, be disadvantaged if data is handled improperly or without due control resting with its subjects.

For example, customers who do not have access to the details of their own information will have no means to amend driving patterns and mitigate their exposures, frustrating any desire for self-management. If they cannot select where to direct their personal data, including any accumulated history, and share it with the insurers of their choice, their options for transferring risk will also be curtailed.

Similarly, clients’ risk management decisions will be impaired if they are based on information that is biased, edited without regard to the client’s best interests, or does not indicate all the available options. Also, if a consumer’s personal data is redirected and used for some other, unintended purposes — such as targeting marketing efforts for other products — that individual will be forced into a more vulnerable position.

Recognizing the potential of telematics for both the benefit or detriment of consumers, the Insurance Brokers Association of Canada (IBAC) has recently released a position paper on the topic.

The paper outlines principles that brokers believe are essential to ensure the protection of the consumer, and their empowerment to manage their own risk within telematics insurance models.

There are three key concepts: • Consumers have the right to control and ownership of data relating specifically to themselves, their families and their businesses.

20 Canadian Underwriter August 2013

As the kind of data collected by telematics devices, such as driving habits and patterns, is personal and identified with individuals, IBAC asserts that is “personal information” as understood by the Personal Information Protection and Electronic Documents Act (PIPEDA) and parallel provincial statutes. Telematics data is, therefore, subject to the same privacy guarantees, and consumers must be able to choose whether or not to share their personal information with an insurer or, for that matter, any third party.

Further, customers will expect clarity and transparency regarding any conclusions drawn from that information, so they can be proactive in mitigating their exposures. While, of course, insurers’ own algorithms would be proprietary, consumers who decide to share their

Telematics information is powerful, but power can create other vulnerabilities.

The data collected is also intensely personal. Consumers could, in fact, be disadvantaged if data is handled improperly or without due control resting with its subjects. data would still have the right to know how their information is used, what factors determine their risk status and generally how variables may impact them. Consumers would need to have that educational opportunity to be able to amend their driving behaviour and improve an assessed risk profile.

As no system is perfect, a mechanism to challenge the veracity of information collected would also be necessary, to allow customers to correct or halt the collection of information at any time.

• Information must not be collected and used for any purpose other than that for which it was intended.

As PIPEDA clearly states, consumers must be guaranteed that their personal information accumulated for one reason, such as assessing insurance risk or credit granting, will not be used for any other purposes.

This precept goes beyond the simple and obvious necessity for trust between insurance purchasers and their providers, but speaks to society’s overarching responsibility to protect consumers from unfair practices.

In a similar vein, IBAC suggests that the data used to evaluate a customer’s driving profile for risk management purposes should not affect that same individual in the event of a claim. Further, no one should be obligated, nor penalized, for refusing to relinquish his or her privacy.

Of course, there are always exceptions to this rule, as there are under PIPEDA, including situations where law enforcement or national security requires information to be disclosed.

• Consumers have the right to choice, to qualified and objective advice, and to autonomous advocacy.

IBAC’s position is that personal information used for risk assessment purposes should be communicated in a common standard format so that consumers can more easily access, share or consult about their own data. Consumers must be able to seek advice from the advisors and providers that they choose, moving freely between providers if they so desire, to best govern their own risk situation.

Clients must know whether or not they are making educated decisions using objective information, and must also be informed if any advice they receive comes from those who are proposing to assume their risks — as that counsel should not be considered impartial.

Insurance products are not simple, and the risk management function they serve is complex. Telematics models could prove a useful tool to handle some of the complexity, that is if they are designed and implemented with a clear prime directive of mitigating risk, with empowered consumers as proactive and informed partners.

In Canada, insurance telematics plans are still largely in development, but some early adopters are starting to reach the market. As the science matures, it remains to be seen whether or not the market participants will capitalize on telematics’ fullest potential.

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Neil Smith

Emerging Risks & Research Manager, Exposure Management Team, Lloyd’s of London

Geomagnetic storms have the potential to create long-term, widespread power outages and could devastate the North American power grid.

Faced with an aging electric infrastructure and growing dependence on electricity, insurers would be well-advised to prepare for catastrophic events.

It took less than two minutes for a 1989 geomagnetic storm to collapse the Hydro-Quebec power grid. The storm resulted in the loss of electric power to more than six million people for nine hours, with an estimated total economic cost of approximately $13.2 billion, notes a study published in 1998 in Advances in Space Research. The Canadian government has since invested $1.2 billion in protecting the grid infrastructure.

22 Canadian Underwriter August 2013

While the Quebec storm was not the most powerful on record — that distinction goes to the 1859 storm called the “Carrington Event,” so named for observations made by solar astronomer Richard Carrington — the economic cost demonstrates the destructive power of geomagnetic storms.

Geomagnetic storms are severe disturbances in the upper layers of the earth’s atmosphere caused by intense solar activity. These disturbances induce currents in long conductors on the earth’s surface, such as power lines. The additional currents can overload the electric grid system and trigger voltage collapse, or worse, damage the extra-high voltage transformers through which as much as 90% of consumed power passes, notes information posted on the U.S. Department of Homeland Security’s website.

With the aging of the North American electric infrastructure and our dependence on electricity, geomagnetic storms have the potential to create long-term, widespread power outages.

The economic costs of such events would be catastrophic. In the United States, the system of generation, transmission and distribution facilities was built over the course of a century. The

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American Society of Civil Engineers notes that centralized electric generating plants with local distribution networks were started in the 1880s and the grid of interconnected transmission lines in the 1920s.The majority of the distribution system was built between the 1930s and 1970s, adds a press release from the University of Pittsburgh, issued this past April.

The risk of intense geomagnetic storms and their destructive effects are elevated at the peak of a solar cycle.

Solar activity follows an 11-year cycle.

For the current cycle, the geomagnetic storm risk is projected to peak in early 2015. While the probability of an extreme storm occurring is relatively low at any given time, it is almost inevitable that one will occur eventually.

Historical records suggest a return period of 50 years for Quebec-level storms and 150 years for very extreme storms, such as the Carrington Event, which occurred 154 years ago.

MILLIONS OF PEOPLE, BILLIONS OF DOLLARS AT RISK Weighted by population, the highest risk of storm-induced power outages in the U.S. is along the Atlantic corridor between Washington, D.C. and New York City. Other high-risk regions are Midwest states, such as Michigan and Wisconsin, and regions along the Gulf Coast.

Throughout the United States, the total population at risk of extended power outage from a Carrington-level storm is between 20 million and 40 million, with potential durations ranging from 16 days to one to two years, notes Lloyd’s 2013 report, Solar Storm Risk to the North American Electric Grid. The duration depends largely on the availability of replacement transformers.

If new transformers need to be ordered, the lead time is estimated to be between five and 12 months for domestic suppliers, and six to 16 months for international suppliers, suggest estimates from U.S. government and U.S. international trade sources. If spares are readily available, the total transportation and set-up time for a large power transformer can range from a few weeks

24 Canadian Underwriter August 2013

to months, depending on distance and logistical issues, adds Large Power Transformers and the U.S. Grid, a June 2012 report from the Office of Energy Delivery and Electric Reliability.

The total economic cost for a modernday Carrington-level solar storm is estimated at between $600 billion and $2.6 trillion. (The economic costs of the outage scenarios are estimated by calculating the percentage of residential, commercial and industrial customers

Improvement in forecasting earth impacts will only be made by funding research targeted at providing timely predictions and continued investment in the infrastructure needed to measure impulsive space-weather events. without power by state, and using the average amount of electricity consumed by each segment in each state per hour.

The total amount of electricity “lost” for each sector in each state is then the product of these items.)

But smaller solar storms also have the potential to be highly disruptive and costly. Storms weaker than Carrington could result in fewer damaged transformers (about 10 to 20), but the total number of damaged transformers is less relevant than their concentration. The failure of a small number of transformers serving a highly populated area is enough to create a prolonged outage.

MAJOR IMPLICATIONS FOR INSURANCE A severe geomagnetic storm or other space-weather event that causes major disruption to the electricity network in North America would have major implications for the insurance industry.

If businesses, public services and utility companies are without power for sustained periods of time, insurers could be exposed to significant business interruption claims, particularly as back-up supplies are likely to last only for a limited period.

Typically, business interruption coverage under standard property policies will require physical damage. However, in the event of a major space-weather event, transformers could be damaged, leading to a physical damage trigger and potential claims from energy companies. Even in a case of pure voltage collapse without equipment damage, the incapacity of the grid itself could be deemed “physical damage” because it is unable to perform its essential function.

Business interruption is likely to be only one aspect of potential insurance exposure. A major space-weather event could disrupt supply chains and this might trigger contingent business interruption coverage. Again, there could be issues relating to physical damage triggers.

Major disruption to the power network is also likely to lead to wide-scale cancellation of events, such as entertainment and sporting events, which could affect insurers offering this type of coverage.

It is conceivable, as well, that major power outages could result in liability claims if, for example, employees’ safety was compromised or the public was put at risk. Furthermore, if companies and other organizations affected by a spaceweather event were viewed as not taking appropriate preventive action, they could be vulnerable to directors and officers claims.

On the more extreme end of the spectrum, loss of power for a period of several weeks — as a result of a Carrington-type event — would cause major disruption to transport, food supplies and emergency and hospital services,

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to name just a few sectors. For example, if pumping operations had to be suspended, that would quickly affect water and fuel supplies, sewage systems and flood defences.

The absence of such fundamental services could lead to major and widespread social unrest with ramifications for the insurance industry as well as for society in general.

It is also likely that financial markets (especially given the concentration of financial services in northeast U.S. — one of the regions most at risk) could be significantly disrupted by a severe space-weather event, which would have major impact on global financial flows.

PREPARATION AND MITIGATION The insurance industry can play a key role in helping businesses and communities better understand the potential risks they face from geomagnetic storms and assist in mitigating these risks. The industry can play an important role, also, in working with energy and utility companies, governments and others on

strengthening preparation and mitigation efforts.

Better forecasting is essential. There are currently several space satellites in operation that can provide warnings of incoming bursts of plasma from the sun, which are termed coronal mass ejections. These warnings, which could arrive hours to days in advance, could allow grid operators to take preventive measures, such as switching off parts of the system, before the storm hits.

However, magnetic field strength and orientation of incoming plasma — key ingredients in forecasting earth impacts — can only be measured with a lead time of 15 to 30 minutes. Additionally, these satellites are all past their mission lives and replacements are essential for monitoring solar activity in the near future.

Improvement in forecasting earth impacts will only be made by funding research targeted at providing timely predictions and continued investment in the infrastructure needed to measure impulsive space-weather events.

The electric grid can be hardened against the flow of geomagnetically induced currents (GIC) in regions with the highest risk of outage. Current blocking capacitors and GIC monitors can be installed to protect transformers and regulate power flow. While these measures represent additional costs to grid companies, the cost of prevention is much smaller than the price of damage that a single storm can create.

RISK INCREASES WITH SOLAR CYCLE PEAKS Given the essential role electricity plays in society today, it is crucial to understand how natural hazards impact the reliability of the grid.The hazard posed by geomagnetic storms is one of the most troubling given the potential for long-term, widespread power outages.

The question is not if a geomagnetic storm will occur, but when. As the infrastructure ages and society becomes more and more dependent on electricity, the risk of a catastrophic outage increases with each peak of the solar cycle.

Restoration Industry

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Down the

Greg Meckbach Associate Editor

Pipe

Canadian-based pipeline operators have several projects under regulatory review on both sides of the border, activity that is not without criticism, especially related to the potential for spills. Insurance officials say pipelines are safer than rail transport, but acknowledge that strikes from vehicles and landslides, fines and historical contamination still present risks for carriers that cover pipeline companies.

As the regulatory review process continues for proposed energy projects such as Keystone XL, Northern Gateway and the modification of Enbridge Inc.’s Line 9, the federal government is moving forward with new regulations to increase pipeline operators’ financial responsibility. Insurance officials agree ruptures are not caused by faults in the pipelines themselves, but nonetheless add that some carriers are more interested than others to cover pipeline risk.

28 Canadian Underwriter August 2013

“If the pipeline system is constantly monitored for thickness and corrosion, a rupture should only happen rarely,” notes an e-mail from Munich-based Allianz Global Corporate and Specialty AG (AGCS), which insures property, but not liability from oil pipeline spills. The majority of ruptures are caused by impacts from moving objects, such as rocks, cars and trucks, AGCS reports.

Impacts from vehicles are “notorious” for damaging pipelines, comments Gary Hirst, national director of Burns & Wilcox Canada, a Farmington Hills, Michigan-based brokerage that has opened an office in Calgary to sell to Canada’s energy sector. Factors that can contribute to this damage include whether or not the pipeline is buried, and how it “intersects either a road or a railway line,” Hirst notes.

But are pipeline risks in line with cautions voiced by pipeline opponents? “If you had talked to me a couple of years ago, I would have said, ‘It’s blown out of proportion due to politics and so forth,’ but there’s definitely an exposure there,” says John Welter, managing director of Aon Risk Solutions’ environmental services practice, part of London-based Aon plc. “There have been a number of documented releases from pipelines,” Welter says, adding that these seem to have increased in the last several years.

Some carriers, he reports, “suffered some very large losses insuring pipelines, so they have

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The Province of British Columbia argued in its submission to the joint review panel that Enbridge’s spill plans “remain preliminary,” the pipeline would run through remote areas that would be difficult to access in the event of a spill, and “the rugged topography of Western British Columbia is prone to slope failures.”

dramatically pulled back on that appetite, and maybe even to the point where they won’t even consider a risk. But other insurers with better loss experience on pipelines will still entertain it.”

For his part, Hirst says his view is that in Canada, pipeline insurance coverage is usually very broad. “I have found that the carriers tend to fall over themselves to insure the pipelines because it’s just a method of transportation and they view it actually as one of the better risks,” he notes.

“I think it actually is a very safe mode of transporting petroleum or natural gas. My perception is pipeline transportation is a lot less fraught with risk then sticking it on a truck or on a railway,” Hirst adds.

To illustrate, Hirst cites the derailment of a Canadian Pacific Railway train carrying flammable cargo over a Calgary river bridge that was damaged as a result of the severe flooding in June. He made the comment the day before the deadly derailment in Lac-Mégantic, Quebec involving a Montreal Maine and Atlantic Railway train.

An investigation by the Transportation Safety Board of Canada (TSB) is continuing, and the federal government has announced changes will be made to help avert a similar occurrence in future.

CAREFUL CONSIDERATION The results of the TSB investigation are sure to get close scrutiny at TransCanada Corp., which is seeking permission

30 Canadian Underwriter August 2013

from the United States government to build its proposed 1,400-kilometre Keystone XL pipeline. “TransCanada is not involved in shipping oil by rail, but we pay close attention to any recommendations and lessons from incidents such as this to help improve the safe, reliable operation of our own assets,” notes an e-mail from TransCanada.

The company applied more than five years ago to build Keystone XL, which if approved, would cross the U.S. border near Morgan, Montana and then connect with existing pipeline facilities in Nebraska. The U.S. State Department is currently publishing and reviewing comments that were received during a public meeting in April.

On this side of the border, Enbridge’s Northern Gateway is going through the approval process.This project would include a 1,170-kilometre crude oil pipeline from Bruderheim, Alberta to a marine terminal on the Pacific Ocean near Kitimat, British Columbia, allowing tanker ships to then carry crude oil to Asia.

A joint review panel, established by the National Energy Board (NEB) and the Canadian Environmental Assessment Agency, completed hearings in June and is working on an environmental assessment report.

Enbridge is also looking to make changes to the company’s Line 9 — which runs more than 800 kilometres from Sarnia, Ontario to Montreal — to allow crude oil to be sent east.

NEB has already approved the reversal of flow on part of Line 9, and plans to hold hearings on Enbridge’s application to reverse the flow of the remainder, as well as to increase the line’s capacity.

Oral hearings are now scheduled after October 1.

Line 9 has been plagued with protests from activists concerned about spill risk, which is also a concern to opponents of Northern Gateway.The Province of British Columbia argued in its submission to the joint review panel that Enbridge’s spill plans “remain preliminary,” the pipeline would run through remote areas that would be difficult to access in the event of a spill, and “the rugged topography of Western British Columbia is prone to slope failures.”

Enbridge reports it is “considering a number of measures to protect the pipeline where it crosses terrain exposed to avalanche and other slope hazards.”

Pipelines and storage facilities are exposed to natural hazards such as earthquakes, ice storms, landslides, avalanches and forest fires, the Raincoast Conservation Foundation notes in its submission to the Northern Gateway joint review panel.

Commenting on pipelines in general, Welter warns that even the best pipelines can fail. Citing an example in California, he reports that “it was one of the most well-engineered pipelines that I had ever seen, but because of a landslide, part of the line was exposed, basically hanging over a cliff and it finally gave

way and then a lot of the crude ended up in an environmentally sensitive area, so there was a lot of cost associated with that.”

NECESSARY COVERAGE To deal with spill risks, the joint review panel has imposed several “potential conditions” on Enbridge should Northern Gateway receive approval. “Northern Gateway’s financial assurances plan must provide a total coverage of $950 million for the costs of liabilities for, without limitation, clean-up, remediation and other damages emanating from project operations,” the panel ruled in April.

Enbridge would also be required to have a “core financial coverage” of at least $600 million, which would need to include “third-party, stand-alone liability insurance and other financial assurance instruments deemed appropriate.”

Obligations of this nature will not necessarily apply solely to the Northern Gateway pipeline. Natural resources

minister Joe Oliver announced June 26 the federal government has plans to introduce new requirements that would, among other things, oblige operators of major crude oil pipelines to have “minimum financial capability” of $1 billion so they can respond to incidents and repair damage.

Once the changes come into force, the thought is NEB will stipulate if this “financial capability” must include a certain level of insurance coverage.

BEYOND SPILLS Having access to $1 billion should be “more than adequate” for pipeline spills, suggests Welter. “I’m not familiar with pipeline losses going that high,” he says, adding that when there is a spill, the costs to the company can range from $5 million to $50 million.

Welter warns that many firms with pipeline and terminal assets rely on sudden and accidental coverage within their casualty program.This, however, is

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not always enough, he points out.

“A lot of times, once there is a release and they’re in there doing the clean-up and they discover other things that are not maybe attributable to the release, but gradual contamination over time... that would be excluded,” Welter says.

As such, he adds, Aon advises clients to consider whether or not they have coverage for gradual contamination, fines and penalties.

Effective July 3, NEB is able to impose “administrative monetary penalties” of as much as $25,000 per day on individuals and up to $100,000 per day on companies that fail to comply with pipeline safety rules.

“99.9996% of crude oil is safely transported, but we must strive to do even better with a goal of no serious spills,” Oliver said during a press conference announcing the new federal requirements. “As technology advances and as regulations become even tighter, safety standards are raised.”

Thirty minutes was all the time Kate had to spend with her CNA Underwriter, Phil Samms. And in that instant, Phil helped Kate unlock the code to a deeper understanding of her clients’ business insurance needs. Kate was able to deliver the products and expertise her clients depend on to work the bugs out of their exposures. Way to go, Kate.

To learn more about our comprehensive portfolio of insurance products and services, and the industries we serve, visit www.cnacanada.ca.

Construction • Manufacturing • Oil & Gas • Life Sciences • Renewable Energy

CNA is a registered trademark of CNA Financial Corporation. Copyright © 2013 Continental Casualty Company. All rights reserved.

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AllAround View

Tim Woods

Assistant Vice President, Engineering and Risk Management, Aviva Canada

Why should the equipment breakdown insurance industry care about 3D printing?

Despite being around for decades, 3D printing is now becoming commonplace in manufacturing. And with every new product made comes not only benefits, but also the need to adapt to new and different circumstances.

While 3D printing may not be a frequent topic of conversation at your typical summer barbeque, industry experts are predicting it will revolutionize the manufacturing industry the same way the Internet changed the way everyone communicates. A pretty lofty comparison when you think about it. So why? What is 3D printing and how will it affect the insurance industry?

32 Canadian Underwriter August 2013

MADE FOR MANUFACTURING Although it has been around for decades, 3D printing is really starting to hit its stride and becoming commonplace in manufacturing. In the simplest of terms, 3D printing is a process that enables a tangible 3D object to be created by way of digital data and various materials — everything from plastic to rubber to metal.

Unlike the 2D printer that outputs simple ink on paper, 3D printers can place the various substances in layers to construct a three-dimensional solid object. The 3D models are painted from the bottom up, depositing layers of modelling and support material. There is no curing time, as the models emerge hard right out of the printer with minimum to no raw material waste.

Any support material that was required to take the object through the printing process can be removed by washing, dissolving or simply breaking off.

Currently, this technology is used for both prototyping and distributed manufacturing.

Products such as toys and jewellery are being created using 3D printers and are entering the

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With all the evident advantages of 3D printing, the technology will continue to improve and transform, thereby requiring a deeper understanding within the insurance industry, and will require frequent updating.

marketplace on a regular basis. In Paris’ recent Fashion Week, for example, 3D clothing fashions were on full display.

Recent media reports have focused on the fact that the parts for a gun could be printed. But we should not be worried about a widespread crime uptick as some pretty expensive equipment and significant know-how would be required to produce a plastic gun capable of firing one bullet at very short range.

In the medical field, 3D technology is hailing a new advance in prosthetics. In 2012, an 83-year-old woman suffering with a severe jaw infection received a full 3D printed titanium jaw implant that allowed the patient unrestricted mandible movement within days of the procedure.

Several industries, including auto, industrial design, construction, aerospace, engineering, biotech and food production are also among those benefiting from the use of 3D printing.

This is just the tip of the iceberg; we can only imagine how applications of the technology will develop in the future. Add smart machine technology (machines that self-monitor, diagnose and adjust) that print out worn parts as required, and manufacturers will be able to prevent downtime waiting for new parts. Combine this new agility with other unforeseeable benefits and we could see major changes to supply chain management and the economy in general.

What does this mean for the equipment breakdown insurance (EBI) industry?

NEW BENEFITS, NEW CIRCUMSTANCES 3D printing is set to transform the insurance market as brokers and insur-

34 Canadian Underwriter August 2013

ance firms grapple with new concerns around not only equipment breakdown, but also professional indemnity, product recall and product liability risks.

With every new product comes a host of benefits, but also new circumstances that must be adapted to. For EBI professionals, 3D printing can allow for the speedy delivery of replacement parts for the various machines that their insurers cover. It may significantly reduce claim exposures — through a declining scale in manufacturing — as a result of production equipment being removed from large manufacturing hubs.

With all the evident advantages of 3D printing, the technology will continue to improve and transform, thereby requiring a deeper understanding within the insurance industry, and will require frequent updating.

EBI professionals will need to be increasingly diligent in asking thorough questions to new additive manufacturing clients (including at the renewal stage), specifically with regard to the equipment used in product development through 3D printing and what steps they have in place to avoid equipment breakdown losses.

A vigilant and biddable attitude is essential to properly assess and mitigate risk.

EBI professionals are well-aware that electronic equipment and computer exposures will continue to be on the increase for the industry. Insurers must bring their engineering specialists both in underwriting and claims roles up to speed with this technology and its space in all affected sectors.

As with most new products, EBI rating for additive manufacturers will also

require attention, as little or no actuarial data exists for this advancing technology.

In addition, EBI insurers will need to guard against potential contingent business interruption losses in this sector.

At the very least, it is necessary to assess the extent to which the insured’s operations rely on another entity and the degree of disruption that a long-term computer/printer outage may have in hampering the insured’s ability to maintain normal business operations.

A continuous monitoring of policy wordings will be required as we move through this new era to reflect changing exposures from a direct, resultant, consequential, or business interruption standpoint.

As with any technology change, information is the key to success. Insurers will have to educate themselves, brokers and clients on both the changes in exposures, along with possible changing techniques to manage the risks to business.

Although some EBI insurers may initially pass on this technology, the sector as a whole most likely will embrace the 3D process and applications through sound underwriting, adequate pricing and stringent loss control.

Ultimately, the worldwide EBI insurance sector will play a major role in the unfolding story of 3D technology. Insurance brokers should contact their respective insurers to learn and better understand the question set required to properly and adequately insure the exposures presented by this 3D manufacturing revolution.

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Overland Overhaul While standing alone can be a point of pride, is Canada out of step with what most other G8 nations are doing when it comes to overland flooding? This flooding does occur and, no doubt, will continue to occur in light of severe weather events that seem to now be part of the norm. Is there a need for related insurance? Or should insurance be part of a fuller risk management partnership that involves participation, input and cost-sharing from all to keep losses down and uninsurable properties to a minimum?

Angela Stelmakowich

36 Canadian Underwriter August 2013

I

t used to be that Manitoba served as Canada’s poster child for flooding. The image of sandbag upon sandbag lining provincial rivers, hopefully to positive effect, was a reliable marker of the coming of spring.

But events such as the devastating floods in southern Alberta — followed just weeks later by a jaw-dropping downpour in the Greater Toronto Area (GTA) — could help shed Manitoba of that dubious distinction.

Manitoba was never alone in its need to defend against the potential wreckage delivered by flooding, but recent (and not so recent) severe weather events have made it disconcertingly clear that the province now has more company, with more parts of the country experiencing the same brand and severity of potential damage at the hands of the new normal.

But it is not simply about severe weather. It is also about the location of homes and businesses in floodplains and floodways (oftentimes constructed there before the prudence of doing was given as much consideration as today); the urban environment (featuring plenty of hard surfaces and little chance for water to gradually return to the earth); aging infrastructure that may be overwhelmed, and perhaps weakened, with each severe weather event; and, of course, the lack of overland flood insurance in this country (making Canada a have-not compared with some other G8 countries, including the United States, the United Kingdom, Japan, Germany and France).

The recent events here at home have produced some justified concerns and concrete responses that may foreshadow a fuller approach to risk management and response that, it is hoped, will pave the way for improved preparation and less loss in future — whether in Friendly Manitoba or elsewhere in the country.

August 2013 Canadian Underwriter 37

COVER STORY

Overland Overhaul DAMAGE TOLL It has been less than two months since severe weather started with a “blocked” jet stream trapping an area of low pressure over southern Alberta and ended in a drenched and costly mess. Still, there are already loss estimates, albeit some preliminary, of the damage done.

• Intact Financial Corporation reported that its 2013 Q2 financial results reflect a $143 million loss, after tax, net of reinsurance, following the Alberta storms and flooding; • TD Bank Group announced claims costs from the storm and flood damage in Alberta and the GTA will have a pretax impact of approximately $170 million after reinsurance; • Chubb Corp. noted that, outside of the United States, it expects losses of about $65 million before tax, mainly from storms and flooding in southern Alberta, which will be reflected in its 2013 Q2 financial results; • XL Group’s preliminary estimate is a $135 million loss, before tax and net of reinsurance and reinstatement premiums, relating to natural catastrophes, including flooding in Canada; • preliminary estimates from RSA Canada are that gross claims from the Alberta flooding will be in excess of reinsurance retentions of $75 million; • SCOR Global P&C reported for 2013 Q2 alone, it expects a loss of 42 million euros from the Alberta floods; • Economical Insurance noted losses, gross of any reinsurance recovery, for the Alberta and GTA flooding will each likely fall within a range of $45 million to $50 million; • The Co-operators General Insurance Company estimated a $77 million loss resulting from the events in Alberta; • PartnerRe is expecting $67 million in losses related to the Alberta and European floods, pre-tax and net of retrocession reinstatement premiums; and • Allianz Group reported that together with floods in France and Canada, and hailstorms in Germany and Switzerland, the total impact from natural catastrophes on the loss ratio for 2013 Q2 was 5.3 percentage points.

38 Canadian Underwriter August 2013

So soon after these events, the full picture of insurable loss has not been revealed. That said, losses are likely to be high — perhaps ranking second only

“In view of the visible human and economic consequences, we expect the flooding in Alberta and Toronto to further encourage engagement between the insurance industry and the various levels of government in Canada responsible for flood management, in order to find solutions to the limited flood coverage currently available to Canadians,” says Victor Peignet. to Canada’s largest catastrophe loss to date, the 1998 ice storm, with insured losses of about $1.5 billion in inflationadjusted dollars, notes A.M Best.

“There is little doubt that [the Alberta floods] will rank as the most expensive insured loss event in the history of the

Canadian industry,” the Insurance Bureau of Canada (IBC) notes in an e-mail.

It is expected that business interruption will drive insured losses resulting from the severe flooding in Alberta.

“History has shown that current loss estimates also have the potential to increase, particularly with the Alberta floods where more significant damage was done to large commercial risks (claims involving business interruption losses can take time to become clear and ultimately settle),” says Jamie Lyons, senior vice president of Guy Carpenter & Company, LLC, based in New York City.

Overland flooding usually occurs when bodies of water overflow onto dry land and cause damage. That damage is not covered by home insurance policies anywhere in Canada, although some damage from sewer back-up may be covered depending on the add-ons purchased.

Beyond insured costs are monies allocated for disaster assistance and recovery. Within days of the incident, the Alberta government approved $1 billion as part of the first phase of emergency recovery and reconstruction funding for affected families and communities.

There has since been more assistance announced, including for small businesses, agricultural operations and nonprofits to cover uninsured losses.

Even without covering overland flooding, water-related claims are on the rise.

“Many cities have already seen an uptick in the number of basement flooding events as a result in the change of climate. It’s important to note that storm sewer systems just weren’t built to handle the really big, rare events. They were built to handle the day-to-day, run-ofthe-mill rainfalls,” says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR) in Toronto.

“As one expert recently noted, in order to put in a storm sewer system to handle such events as the July storm in Toronto, it would take the entire GDP of Canada just for one city. Sewers are part of the solution, but they aren’t the whole solution,” McGillivray says.

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COVER STORY

Overland Overhaul In a recent report, Munich Re noted that natural catastrophe statistics for the first half of 2013 have been dominated by severe flooding events. Roughly 47% of the overall losses and 45% of the insured losses for the first six months of the year were from inland flooding in Europe, Canada, Asia and Australia.

Rivers need room so flood waves can disperse without causing serious damage. And the flood risk needs to be considered in the designation of land for industrial or residential areas, it adds.

The idea is to have extensive contingency plans to prepare for events and be able to quickly react, suggests Andrew McAllan, senior vice president and managing director for Real Estate Management at Oxford Properties Group in Toronto. Citing the events in Calgary, “we didn’t just have an eye on minimizing damage in the moment — and that was very real — but we were also working in real time to be able to get everybody back up and in business as soon as possible,” McAllan says.

Oxford Properties carries out an annual risk assessment on each property because risks and threats can change.

Things like weather and infrastructure changes — say, a new road or culvert — are among the many things that must be taken into account. “We undertake threat assessments, we look at evolving risks, we try and mitigate those.”

A managed, multi-storey office tower in Calgary, which has several levels of indoor parking, has been designed so that equipment usually put on the lower parking level has, in fact, been put on a higher level, McAllan reports. During the flooding, he notes that a level and half of the tower was flooded. “If we had followed the norms, we would have been in serious trouble.”

Also at the design stage, pumps were available to allow time “to get even bigger pumps in because the rate of water coming in through drains backing up was significant,” McAllan says. “I think the event at Fukushima has made people realize that water, among other things, can knock out mission-critical pieces of equipment all too easily,” he adds.

40 Canadian Underwriter August 2013

URBAN MAKE-UP “The infrastructure and terrain that we have promoted for decades, both in rural and urban areas, has made much of Canada more vulnerable to major precipitation events,” says John Rislahti, director of Manitoba Finance’s Insurance and Risk Management Branch.

“Given that we are one of the only G8 countries that does not have an overland flood program, we should seriously consider what that looks like for the Canadian market,” comments Sharon Ludlow.

Rislahti cites larger areas of pavement in the cities, and less natural ground that can absorb water; elimination in rural areas of wetlands and marshes, which retain water, in favour of agricultural land, and ditches that drain quickly and push the water into streams and rivers; and building residences closer to rivers and lakes. “Because of these patterns, more of Canada is vulnerable to costly storm damage today,” he argues.

“A lot of rain over a long period of time may be a non-event from an urban flood standpoint, whereas a lot of

rain in a short period of time, as happened in southern Alberta and Toronto, can spell disaster. Exceptional rainfall events always have the potential to overwhelm even well-prepared areas, but that doesn’t mean we shouldn’t do our best to prepare,” McGillivray says.

Among other things, Rislahti offers the following suggestions on what stakeholders can do: • homeowners can install back-up valves on drains and sump pumps, slope land away from the house, lead discharge from eavestroughs away from the foundation, and check into the flood history of the area where they are thinking of buying property; • businesses should review the risks with their own business locations, as well as critical suppliers and even customers, and have business continuity plans for the business and critical suppliers; and • governments and insurers can encourage the building of more damageresistant structures through financial incentives and regulations, and influence the location of where people and businesses choose to build.

In that vein, the Alberta government has announced proposed changes, including helping residents pay for improvements to protect their homes against any future flooding and helping them relocate to areas outside of flood-fringe zones, as well as preventing future development approvals on floodways. Legislative changes requiring municipalities to no longer approve future development in floodways are expected to be made this fall.

Should homeowners in flood-fringe zones opt not to implement protective measures, they will not be eligible for reimbursement from the Disaster Recovery Program (DRP) should a future flood occur.

Among the ways to help weatherharden infrastructure is through the introduction of bioswales. Describing this option as a cement ditch a couple of metres wide and 10 to 20 metres long, the structure is open on the bottom, filled with things like gravel and plants, and

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COVER STORY

Overland Overhaul as water from downpours flows into the system, it slowly discharges downwards versus overland, explains Blair Feltmate, associate professor and director, sustainability practice at the University of Waterloo and chair of Climate Change Adaptation Project (Canada).

The adaptation project is currently involved in a pilot project in which various forms of infrastructure, including bioswales, are being constructed at strategic locations in six Canadian cities — Halifax, Montreal, Toronto, Calgary, Edmonton and Vancouver — over the next two years. The idea is to determine their return on investment (compared to avoided losses) so municipalities will incorporate more of these risk management aids within their communities.

“The question our society needs to ask is how much are we willing to spend to mitigate the risks that we face,” says Rob Wesseling, executive vice president, national p&c product for The Co-operators, and chief operating officer of The Sovereign General Insurance Company, The Co-operators’ commercial insurer.

Pointing to Winnipeg, Wesseling says the city has been spending money and implementing measures since the 1950s to protect the city from flood. The city and province “have decided that that is a good use of money and I would concur because it has significantly reduced damage within the City of Winnipeg due to flooding,” he notes.

“What goes along with that is what are we willing to forego in order to avoid these types of damages,” Wesseling says. “We can choose to build in areas that are adjacent to floodways or we can choose not to.”

OVER NOT OUT Recent events in Canada, which follow the devastation of Hurricane Sandy, have put the spotlight on the need to revisit overland flooding and manage related risk. At the heart of the management strategy may be concerted efforts through partnerships.

“The devastating events of recent weeks serve as a stark reminder that weather events are becoming more 42 Canadian Underwriter August 2013

extreme and frequent. An open and transparent dialogue will need to occur between governments, the industry and other stakeholders to ensure that the home insurance product is adapted to today’s climate reality and remains available and affordable for consumers,” Charles Brindamour, CEO of Intact Financial Corporation, says in a statement.

“I believe flood insurance for residences in Canada is a matter of time,” says John Rislahti. “The risk of overland flooding and flash floods is not restricted to a few geographical areas in Canada. This gives the necessary spread of risk and large numbers required for a viable insurance product.”

“In view of the visible human and economic consequences, we expect the flooding in Alberta and Toronto to further encourage engagement between the insurance industry and the various levels of government in Canada responsible for flood management, in order to find solutions to the limited flood cov-

erage currently available to Canadians,” Victor Peignet, CEO of SCOR Global P&C, says in a statement.

“Given that we are one of the only G8 countries that does not have an overland flood program, we should seriously consider what that looks like for the Canadian market,” says Sharon Ludlow, president and CEO of Swiss Re Canada.

A study by ICLR and Swiss Re, released in 2010, concluded that overland flood is insurable for Canadian homeowners. At its core, governments provide mapping, flood defence and restricted development in flood zones; and the insurance industry includes flood coverage for all property owners (cannot be located in no-development zones).

“I believe flood insurance for residences in Canada is a matter of time,” Rislahti says. “The risk of overland flooding and flash floods is not restricted to a few geographical areas in Canada. This gives the necessary spread of risk and large numbers required for a viable insurance product,” he comments.

Asked if insurance for overland flooding should be made available, Lyons says “it is certainly fair to suggest that coverage should be explicitly offered as opposed to ambiguously or poorly defined in an insurance policy, and appropriately reflected in the premium charged. However, in practice, this may be a difficult concept to sort out in terms of who should be required to buy it and, if it is not made obligatory (especially in high-risk areas), whether it lends itself to anti-selection.”

Adds Desmond Carroll, assistant vice president of Guy Carpenter & Company, “There inevitably will be areas for which the premium for flood insurance will be so unpalatable that the home or business becomes effectively uninsurable. For this small fraction of the total number of structures in Canada, flood mitigation measures are likely to be required for the premium to be reduced to an affordable level.”

Ludlow says that “it’s clear in my mind that, in all jurisdictions, there will be certain pockets that are going to be uninsurable simply because of where

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COVER STORY

Overland Overhaul they are. The point of having the flood mapping and a full transparency — to consumers, insurers and governments — is that it’s acknowledged there may be a very small percentage of the population or availability where it’s uninsurable and the rest should be insurable.”

Wesseling says “some subsidization is required” if there is to be a sustainable flood insurance program for high-risk areas. There needs to be a pool of funds “either through the insurance industry through premiums that are collected or set aside by government so that when these significant events happens, there are funds available to get these people back on their feet,” he adds.

Feltmate reports that more than a dozen high-level executives with some of Canada’s largest property and casualty companies have recently taken part in a 25-question survey, supported by The Cooperators, to gather their views on overland insurance. “Should we offer it? Should we not offer it? If we were to offer it, how would it be established? What are the risks of providing overland flood insurance going forward? How do we address this whole topic effectively?” he says. Survey results are currently being tabulated.

To his mind, a large factor that will determine the provision of overland flood insurance, if it is to be offered at all, will be a well-informed risk/return analysis.

FLOOD MAPPING Being well-informed starts with having access to accurate flood maps. Across much of the country, “there are no flood maps and there are virtually no restrictions to floodplain development — meaning that communities keep being built, and rebuilt, in high-risk flood zones,” notes the IBC e-mail.

“There is some flood mapping available, but it’s certainly not at the granular level necessary for insurance purposes.

We need to take that to the next level, and I think that’s a collaborative effort between the industry, various levels of government and other stakeholders to commit the resources to have that happen and to have an appropriate set of flood maps for Canada,” Ludlow says.

44 Canadian Underwriter August 2013

Asked if there are concerns around sharing of information, she responds “there’s a way for information to be aggregated and shared in a way that doesn’t disrupt a natural competitive environment for the insurers or reinsurers.”

“It’s very difficult to develop a fully probabilistic approach for severe precipitation and inland flooding because flash flooding can occur almost anywhere,” suggests Karen Clark. “Even for mapped flood zones where the risk to an individual location can be assessed, there are no credible tools for estimating portfolio losses for future events.”

“It’s important to keep maps up to date, as the floodplain will change under climate change scenarios (the 1 in 100 year plain of today will not be the 1 in 100 plain 50 years from now),” McGillivray says. “Also, increased development on the floodplain and fringe

changes the hazard. It is imperative that governments keep up on these changes,” he says.

“We have seen a number of events that have tested the limits of the 1 in 100, so I think it’s a healthy thing to revisit that,” Ludlow says. “We need to be careful and cautious, though, because clearly there’s a cost benefit and we shouldn’t be trying to address the other end of the spectrum, which would be a one in 10,000 year event.”

Still, challenges remain. “Precipitation is a highly localized phenomenon and is not explicitly modelled by the catastrophe model vendors,” explains Karen Clark, president and CEO of Karen Clark & Company. “It’s very difficult to develop a fully probabilistic approach for severe precipitation and inland flooding because flash flooding can occur almost anywhere, and there are no robust databases of historical events to use for modelling purposes. Even for mapped flood zones where the risk to an individual location can be assessed, there are no credible tools for estimating portfolio losses for future events,” Clark suggests.

“After an actual event, the flood ‘footprint’ can be defined using satellite imagery and aerial photographs, and an assessment of the overall damage and loss can be calculated,” she adds.

Going forward, “one thing is clear in Canada on the extreme weather file: we cannot cheat nature. We must develop up-to-date floodplain maps, and weather-harden infrastructure — and we should do so rapidly — if we are going to limit management by disaster,” Feltmate argues.

“Given a backdrop of what seems to be a pattern of increasingly severe weather, we should expect these events to continue to happen and, unfortunately, I think we will see worse events than the one that hit southern Alberta,” says Wesseling.

“This isn’t an insurance issue. This is an issue for Canadian society,” he adds.

Consensus on how to go forward is key, Rislahti says. “There should be agreement that risk mitigation is a better investment than paying for damages.”

Risk Solutions

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More Than Meets the Eye All over the world, information technology (IT) has changed the way people live and work. And Canada is no exception: across the country, IT has become a key component in almost every sector. From media, health care and trade to energy, logistics and industry, advances in digital technologies have vastly enhanced speed, convenience and efficiency.

But as IT has been advancing at a breakneck pace Nils Diekmann and the many benefits and new possibilities are Underwriter, being enjoyed, invisible passengers have been along Special Enterprise Risks, for the ride. Cyber risks are here — and growing.

Corporate Insurance It is difficult to imagine a world without comPartner, puters, electronic data processing, the Internet Munich Re and smartphones. As these technologies are so widespread, the associated cyber risks affect companies of all sizes, in every sector, and in departments, organizations and agencies that provide basic services to society.

As a society with a high level of digitization — the 2013 World Economic Forum Global Information Technology Report places Canada 12th worldwide in terms of its openness to adopting IT solutions — and great concentrations of assets, Canada is an important market for cyber risk insurance.

However, evidence suggests that insurers need to

46 Canadian Underwriter August 2013

raise awareness of cyber risks and the advantages of managing them adequately. Results of a Decima Research survey completed in 2012 indicate that 35% of respondents believe their computers are very safe against online threats, while 77% are concerned about the security of personal information. That said, 63% of respondents use the Internet for sensitive transactions and 57% keep sensitive information on their computers.

Cyber risks can lead to a wide range of losses.

Some of the most important types are as follows: • costs for recovering lost or corrupted data; • pure economic loss resulting from physical loss or abuse of data; • copyright and patent infringements through unlawful use of third-party software, images or text; • business interruption (BI) from not being able to use software, impaired access to stored data or non-functioning of IT-based production lines; • violations of privacy or intellectual property rights through the illegal distribution of confidential information or defamatory allegations; • breach of duties under competition law; • loss of future revenues because of reputational

Illustration by Dave Whamond/threeinabox.com

Cyber risks are here — and growing. As technologies become more ubiquitous, cyber risks and the need to protect against these have become increasingly important regardless of an organization’s size, sector or specific offerings.

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damage following an incident; • breach of service agreements of IT providers; and • legal defence and fees, fines or damages.

In most cyber risk scenarios, potential loss events involve information, property, (contingent) BI and liability.

Consequently, there is a growing demand for insurance solutions to cover these risk situations and their potential accumulations, meaning one event or incident can affect a large number of insurance policies. The complex and emerging nature of cyber risks means that highly specialized expertise and experience are needed to develop models for new insurance products to adequately cover these risks.

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ber risks is mastering the related regulatory demands. For example, companies using the Internet as a marketing and sales channel must comply with numerous privacy and supervisory regulations.This becomes even more complex if customers are from different parts of the world governed by different regulations.

IN THE CLOUDS

A MOVING TARGET As emerging risks, cyber risks are challenging to define. It is quite obvious that a company selling its wares through an online platform is susceptible to hacker attacks from the Internet. Less obvious is how vulnerable modern production systems are. Over the years, production, storage and logistics have become increasingly automated and interconnected.

This development increases efficiency, but leads to a very strong dependence on IT systems, even in industries that traditionally have had low IT dependencies. This became quite obvious when the computer virus Stuxnet was discovered in 2010: the virus targeted the devices that monitor and control technical processes (SCADA system) and sabotaged production systems.

To make matters worse, digital connectivity has gone increasingly mobile in recent years, introducing an array of new potential loss situations.

As data is often among a company’s most valuable assets, preventing its loss and the consequences of that loss can be a key success factor. The risks increase when data is stored and transmitted via the Internet and not in closed systems.

Moreover, the growing use of multifunctional smartphones has made it easier to process business outside of the comparatively secure company premises.

A further challenge presented by cy-

48 Canadian Underwriter August 2013

troduced more stringent regulations to protect their citizens against the loss and abuse of their personal data as risks and loss potential have increased. A company’s management can be personally liable for compliance with these regulations. This duty can be delegated only to a limited extent and the company must ensure that both its own employees and external staff are trained accordingly. This has a considerable impact on directors and officers (D&O) covers, and especially on insurance of technical executives.

The great popularity of social networks gives strangers and those with dubious intent easy access to information about people’s private and professional lives. The danger is greatest if users do not restrict access sufficiently, are careless with confidential information, or mix private and professional information.

Despite all efforts to comply with these different — and perhaps partly contradictory — regulations, some degree of legal uncertainty still remains as to the requirements and standards that companies must meet.The different national regulatory frameworks also affect insurers and their coverage concepts for IT risks. Since a uniform worldwide approach is impossible, products must be individually adapted.

Globally, many governments have in-

Cloud computing, the outsourcing of data processing and storage, is an increasingly popular cost-cutting measure.

Depending on the provider’s location, the legal requirements to be met in terms of scope and content not only differ, but are sometimes even contradictory.

One feature common to all cloud services, however, is that the data and software are no longer physically controlled by the companies. As such, it is important to ensure that the providers of cloud computing solutions comply with the security requirements of client companies. Firms should also take note of their provider’s financial soundness (adequate capital base) and how a migration to a different provider would work.

Clearly defined quality requirements and professional interface management are also indispensable. Cloud computing providers often form a value chain where one provider offers services to its customer who use cloud services from other providers. Both the company using cloud computing and the provider are potential customers for insurance against loss of data and the consequences of BI. The cyber policy of the customer might cover losses even if the loss event is to an outsourcing company providing services.The provider can have a Technology Errors and Omissions policy (also known as Professional Liability Insurance) protecting against liability claims from its customers.

A company using outsourced services usually faces the difficulty that, in case

of a major incident at the cloud outsourcing provider, the penalty or liability payments received from the provider seldom match the actual sustained BI losses. In this insurance coverage, covering the gap between the money received from the outsourcer and the actual loss might be attractive. The provider could offer this as an insurance-backed Service Level Agreement enhancement to provide a more attractive product to its clients, or a company using cloud services might want to have this included in its cyber policy.

NOT SO SOCIAL SOCIAL NETWORKS The great popularity of social networks gives strangers and those with dubious intent easy access to information about people’s private and professional lives.

The danger is greatest if users do not restrict access sufficiently, are careless with confidential information, or mix private and professional information. The same applies if providers fail to offer

suitable means of preventing unauthorized access, or make it easy to enter and save information, but not to delete it.

Demand for insurance to protect users against invasions of personal privacy, such as cyber bullying or identity theft, has risen as the use of social networks has become more widespread. Until now, such insurance was only possible in the form of personal injury cover provided under a personal umbrella policy. Since personal injury claims in personal lines have recently increased, many providers have decided to exclude so-called “electronic aggression” from these lines of business.

TAKE UP THE CYBER CHALLENGE When it comes to cyber risks, breaches of personal data are just the beginning.

Cyber risks are spreading further into most aspects of our everyday lives and through all industries. Even today, they represent a complex group of interconnected potential hazards to both physi-

cal and knowledge-based assets.

What they will look like in tomorrow’s digitized world is a matter of speculation, but this much can be said with certainty: cyber risks will increase in number and impact. As they continue to grow and change, the insurance industry will need ever-greater specialized knowledge and innovative drive to develop solutions to master them.

This presents challenges as well as opportunities. Microsoft and Munich Re have entered into a strategic partnership regarding the evaluation and valuing of cyber risks in the field of commercial cloud computing. Since 2012, the two companies have been researching cyber risk management and modelling with the aim of improving underwriting and fostering business innovation.

This type of interdisciplinary project may prove one way for the insurance industry and the organizations it serves to keep pace with this fast-moving and invisible risk.

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n O Rohan Dixon

Executive Vice President and Chief Broking Officer, Aon Risk Solutions

Al Tobin

Managing Principal and National Property Leader, Aon Risk Solutions

e s i R e h t

Canada has had plenty to witness in the way of severe weather events in recent years and months. However, the jury is still out regarding whether or not businesses and insurers here are, in fact, prepared to deal with what seems to be increased nat cat risk.

Often sheltered from the spotlight on global natural catastrophes, Canada is no longer eluding the risk of significant damage and financial impact from severe weather events. It is widely known and accepted that Canada’s geography is exposed to various high-hazard earthquake and flood zones, but are Canadian businesses and insurers actually prepared to deal with these quickly increasing risks?

History has proven not yet.

50 Canadian Underwriter August 2013

Starting June 19, 2013, 200 litres of rain per square metre fell in one day, causing the Bow River in Calgary to swell to a level three times higher than during the 2005 flood in the same region, notes a recent report from global reinsurer Munich Re. The 2005 event resulted in insured losses amounting to $275 million, adds Aon Benfield’s weekly cat report for June 28.

That compares to one preliminary estimate that insured losses from the recent floods in Alberta will likely exceed $1 billion.

To date, there is no recognized stochastic model available for flood in Canada to look into the recovery process now that this flooding has subsided. Beyond that, it appears that despite a need, no one is building such a model.

The key challenge in doing so is getting flood plain data from provincial governments. Add to this challenge that where the aforementioned data is available, provinces are often not willing to share it, never mind questions about the quality.

Models are needed if the insurance industry and businesses can hope to adequately estimate and prepare for catastrophic risks in Canada. It is also important to note policy changes on the part of the Province of Alberta to address these clearly crucial risks to private citizens, businesses and public infrastructure, as well as the resulting impacts on economic performance.

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While the insurance industry in Canada remains financially strong, insurers and OSFI’s actions are intended to proactively protect the interests of policyholders and ensure that the industry is prepared for the significant financial impact of future major catastrophic events. Businesses need to recognize that the issue is much larger than one disastrous event.

PREVENTIVE MEASURES Alberta has recently announced significant legislative changes expected for the fall of 2013 that will restrict the approval of future development within floodways, recognizing the imperative action of mitigating flood damage and expediting recovery efforts. In addition, new government policies will also provide funding through the Disaster Recovery Program (DRP) for homeowners to rebuild or relocate outside floodexposed areas, support certain risk mitigation infrastructure to protect property that remains exposed and confirm that those who do not mitigate the risk of flood to their property against a 100-year flood event will not be eligible for DRP funding if future flooding results in losses.

This approach — one that may now seem necessary in light of the region’s now obvious catastrophic risk exposures to flood — represents a step in the right direction, but comes too late to prevent the already devastating effects of these events.

While this is important progress in mandating flood protection, Alberta is now only catching up with Manitoba, Ontario and Quebec, all of which already restrict the development of

52 Canadian Underwriter August 2013

flood-exposed geographies. Alberta’s changes will further align the province with existing federal flood assistance programs.

CITY SCAPE There are also unique risks and disaster recovery challenges that need to be contemplated for municipalities and businesses in major urban centres. The challenges have become clear over the past year, particularly in the wake of the impact of post-tropical storm Sandy and, more recently, the flooding on July 8, 2013 in Ontario.

Over a two-hour period, 95 millimetres of rain fell in and around the City of Toronto, causing extensive flooding in the downtown core and surrounding areas. Some reports have indicated that the insured losses are expected to exceed $700 million, but could be as high as $1 billion, suggests one analyst for Aon Benfield.

It became evident that the scale and complexity of infrastructure, including transit, coupled with population size, presents specific challenges to disaster efforts and the time needed to recover.

In Toronto’s case, this included extended rolling black-outs and shutting down much of the city’s transit system.

INCREASING LIKELIHOOD The unprecedented flooding — along with recent changes to the Office of the Superintendent of Financial Institutions’ (OSFI) earthquake guidelines and a robust forecasted hurricane season in the United States — are keeping insurers and businesses on high alert.

Although the Canadian insurance market recovered well from record losses in 2011, 2012 marked the third straight year of losses in excess of $1 billion, and 2013 is on track to exceed this benchmark by a significant margin.

Globally, catastrophic losses have been on the rise and the cost of insured losses from weather-related events has trended upward over the past 30 years, notes 2011 Natural Catastrophe Year in Review, released by Munich Re in January 2012.

The concern remains that such events and costs will not be rare in the future and, in fact, are likely to increase.

While the insurance industry in Canada remains financially strong, insurers and OSFI’s actions are intended to proactively protect the interests of policyholders and ensure that the industry is prepared for the significant financial impact of future major catastrophic events. Businesses need to recognize that the issue is much larger than one disastrous event.

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The risks in Canada are changing. It is imperative for companies to recognize this changing landscape and become proactive towards risk management, leveraging access to industry expertise, technical risk analysis and leading risk control measures.

To accomplish this, companies should look to the lessons learned in the U.S. and elsewhere. The North American hurricane season has begun and businesses with assets or operations, particularly in Atlantic Canada, should pay attention. Forecasters at the U.S. National Ocean Atmospheric Administration are looking at almost 20 named storms for this season, with a 70% probability.

This type of anomaly puts Atlantic Canada in a strong risk profile, but insurers do not have a decent handle on exposures for New York and north into Canada. Current models do not account for inland flooding and surface water run-off, except in the flood loss leakage into the wind model.

Companies also need to focus on exposures in Canada’s high-hazard earthquake zones, specifically along the St. Lawrence Seaway and in the Vancouver area of the Pacific Northwest, where the accumulation of property values is of particular concern to insurers and regulators. Insurers are now taking direct action as a result of OSFI’s recently released Earthquake Exposure Sound Practices, revised guidelines that seek to emphasize and strengthen the approach for insurers to manage earthquake exposures in Canada, as well as to update industry practices based on knowledge and improvements to technology, and increased exposure information in recent years. These measures will help insurers in Canada be prepared financially to deal with the ramifications of a major earthquake event.

In response, insurers have actively looked to reduce policy count and capacity in the Vancouver area, which is directly impacting policyholders, availability of coverage and rate.

Preparation is crucial to avoiding com-

mon challenges after a natural catastrophe strikes. Having the right plan in place will result in robust risk management strategies, ease immediate disaster response planning, crisis management and business continuity. It is business interruption and contingent business interruption that have the most significant impact on the long-term success

and viability of a business.

Brokers today have invested more in people, technology and forecasting than ever before. Senior leadership should be utilizing these resources to be fully prepared for natural catastrophe events, protecting their people, product, property and supply chain — the core of a company’s success and essence.

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Under Wraps Lalita Mohabir

Senior Personal Accident Underwriter, Burns & Wilcox Canada

The officers, directors and employees of Canadian companies in the extractive industries are increasingly a target as kidnapping and ransom grow as a criminal enterprise. Among the factors contributing to this trend are increased global demand for resources, and the resulting bonanza of new business opportunities for Canada.

Iraq — An engineer and two workers are killed, while two other workers are kidnapped,when gunmen linked to al Qaeda launch an attack on a Korean Gas Company operation in the Akkas gasfield in western Iraq.

Indonesia — A 61-year-old British oil worker with Medco E&P is kidnapped by an armed group in Aceh as he travels from the mine site back to his home.

India — Criminals posing as Maoist militants abduct the supervisor of a private mining company in Garla mandal. He is still missing.

54 Canadian Underwriter August 2013

Papua New Guinea — Kidnappers take Gu Yuxiang, CEO of RAMU NiCo Management Ltd. and demand a ransom of US$175,600. Driven to a remote area, he is tortured, but manages to escape.

These kidnapping and ransom incidents have occurred within the last six months, as reported

by Unity Resources Group, a global organization that helps companies to mitigate risk in their foreign operations.

GROWING ENTERPRISE These incidents represent the proverbial tip of the iceberg. Kidnapping and ransom is a growing criminal enterprise, and the officers, directors and employees of Canadian companies in the extractive industries — mining, oil and gas — are increasingly the target. “Our top 20 ranked kidnapping countries all have significant natural resources and have drawn considerable interest or commitment from resource sector companies. But they also possess high to extreme country security risk ratings and moderate to extreme kidnap risk ratings,” notes a report published in July by Unity Resources Group.

There are a number of factors contributing to this trend. One is simply increased global demand for resources, and the resulting bonanza of new

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business opportunities for Canada. More than three-quarters of the world’s mining and exploration companies are headquartered here, and the country’s mining companies operate in more than 100 countries around the world.

Rich in resources but underdeveloped, many of these markets are precisely the kind of challenging yet lucrative environments that are attractive to Canadian mining companies and their shareholders.

GROWING THREAT The increasing rate of kidnapping and ransom incidents is being fuelled by war, terrorism, economic crisis and political unrest. Civil war in Somalia has spawned a rash of piracy off the Somali coast.The recent military coup and subsequent international intervention in Mali has increased the risk of kidnapping in the region. In nearby Nigeria, the Jihadist terrorist group Boko Haram is waging a campaign to establish an Islamist regime across the country. The list goes on.

A disturbing trend seems to be developing — the use of kidnapping and ransom by insurgent militias and terrorist organizations to raise both money and profile.

Despite the increased risk, kidnapping remains in the shadows. Given the nature of the crime and the instability of the regions in which it occurs, statistics are very difficult to gather. Often victims are reluctant to report a kidnapping because of fear of retaliation from kidnappers themselves or police corruption. As well, some countries either refuse to publish or downplay kidnapping statistics to protect their international reputations.

The resolution of a kidnap incident is, of course, fraught with difficulty and conflicting interests. Gary Noesner, retired chief of the Federal Bureau of Investigation’s Crisis Negotiation Unit, was recently quoted on this subject in a 2013 Forecast by KR Magazine, a publication dedicated to identifying global trends in kidnapping for ransom. “Gov-

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ernments often feel that the payment of a ransom encourages future kidnappings. While true, failure to bargain or allow a family or corporation to pay a ransom usually condemns the victim to prolonged captivity or even death.”

MITIGATING THE RISK Companies can mitigate the risk to their employees and contract workers by purchasing kidnap and ransom (K&R) insurance. Coverage can range from $500,000 to $20 million, and can last from two days to two or more years.

Policies are customized to each situation.

Despite the growing risk of kidnapping and the compelling case for mitigating the risk with insurance, K&R insurance is both undervalued and undersold. This is, in part, as a result of the hidden nature of the crime and the lack of reliable statistics.

Some companies provide these services directly while others work in partnerships. Burns & Wilcox Canada, for example, provides the insurance, while Unity Resources Group would respond by flying in a crisis response team to provide expert counsel and support as the kidnapping incident unfolds and in its aftermath. Unity Resources also has field agents in hot spots around the world who can report daily on local events that could increase kidnapping risks, reports that can be made available in real time to K&R insurance customers.

Despite the growing risk of kidnapping and the compelling case for mitigating the risk with insurance, K&R insurance is both undervalued and undersold.This is, in part, as a result of the hidden nature of the crime and the lack of reliable statistics. There are also heightened security risks for individuals should it become public knowledge

that they carry K&R insurance, leading most companies not to disclose to their employees that the insurance has been purchased on their behalf.The upshot is that there is low “consumer” awareness of the insurance and, subsequently, little “consumer pull” for the product.

Another factor particular to mining companies is that many of their people working at offshore mine sites are contract employees who may not regard insurance coverage as a top priority.

Finally, human nature comes into play.

People either believe that such an incident “won’t happen to me” or they fail to fully understand the nature of the risks they incur while visiting or working in potentially volatile environments.

The proverbial wisdom that insurance is sold, not bought, has never seemed more relevant than with K&R insurance.

Interestingly, some of the steadiest customers for this insurance are news organizations and NGOs — two types of organizations that are very familiar with the day-to-day risks their people may face in unstable regions of the world.

A DELICATE BALANCE The question naturally arises as to how to enhance the perception of the value of K&R insurance among obvious customers — such as mining and oil and gas companies — without raising the profile of the product to the point where it attracts the attention of potential kidnappers.

What does the future hold for K&R insurance? Given the risks previously noted, it will likely become more prevalent while remaining low profile. As companies become increasingly focused on their corporate responsibility to stakeholders — notably employees and contract workers — they will look more closely at this insurance coverage for their people working abroad.

Insurance brokers can play a key role by becoming better informed about kidnap risk and by advising corporate clients who operate in high-risk regions how best to insure against it.

August 2013 Canadian Underwriter

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Opinion/Analysis

William Star

President & CEO, Trillium Insurance Group Inc.

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No-Fault Faults Ontario auto insurance has been in a state of flux for decades, a situation fuelled by each successive change to the product. Every time the product changes, it requires more people to administer the changes and educate the public, staff and insurance industry employees.

Ontario automobile insurance has been in a state of flux for about 30 years — and there is still no end in sight. For many years, insurance — especially automobile insurance — has been a political football.

Back in the 1980s, the superintendent of insurance’s department of the Financial Services Commission of Ontario was a small, well-run department. Now, it is an overpopulated monster seemingly focused on controlling everyone.

56 Canadian Underwriter August 2013

CHANGE AND MORE CHANGE Every time a change is made to the automobile insurance product, it requires more people to administer the changes and educate the public, staff and other employees in the insurance industry. Developing proper rates for a changing product is also difficult without the benefit of statistical evidence.

To make rate development even more difficult is the fact that in Ontario, it frequently takes six to nine months for rate approval and an actuary must assume the premiums charged will remain in effect for 12 to 18 months after the approval has been received.

When automobile insurance was first sold, it was based on the tort system.The person at fault in an accident was required to pay for the damage to the injured parties and the person at fault was only compensated for the damage to his or her car if he or she had purchased physical damage coverage. At-fault parties did not receive any benefits for injuries under their own automobile insurance policy.

In the early 1980s, the industry was encour-

Illustration by Dave Whamond/threeinabox.com

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aged to provide a token benefit for the loss of income as a result of an automobile accident.That was the beginning of no-fault.

Over time, the benefits have become much larger and vehicle damage was brought in to ensure an insured person would deal with just his or her own company. The concept was on a knockfor-knock basis, thereby eliminating the need for insurers to recover vehicle damage from the insurer of the driver who caused the damage. This was another extension of no-fault.

Now people cannot understand why they are required to pay some part of the damage to their cars even when they were not at fault. Many people are confused and unhappy with the way the system has evolved.

The main benefactors are those who stage accidents and collect for nonexistent injuries. Unlicensed clinics

People over the age of 65 have a limited need for the coverage, but are required to buy it. In most cases they cannot collect the income protection, which is an expensive part of the benefit.

Most of the benefits for injuries, as well as prescription drugs, are covered under the Ontario Health Insurance Plan. thrive in this system; fraud is rampant and getting worse.

A committee or study will not solve the problem. A serious change must take place to lower insurance costs and to reduce fraud.

A MATTER OF CHOICE When compulsory liability insurance was introduced in Ontario, it was intended to compensate the innocent person. In the event that a person was responsible for damage to property and injuries or death to others, the province wanted the person to be financially responsible.

Motorists did not have to buy protection for damage to their own vehicles, or for injuries to themselves. If they were negligent and caused injuries to passengers in their car, the occupants could receive benefits under the compulsory liability coverage.

Now, people must buy accident benefits and no-fault property damage with a deductible.They must pay the deductible even if they are not responsible for an accident. Injured people in all vehicles involved can receive substantial benefits.

It is no wonder that insurance is far

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more expensive in Ontario than in any other province in Canada.

As a result of the way accident benefits evolved over the years, the cost has become excessive. In many cases, people are paying for benefits they cannot use.

For example, people over the age of 65 have a limited need for the coverage, but are required to buy it. In most cases they cannot collect the income protection, which is an expensive part of the benefit. Most of the benefits for injuries, as well as prescription drugs, are covered under the Ontario Health Insurance Plan. Still, they must pay for coverage since they need liability insurance, which is compulsory. Should seniors not have a choice?

The 2012 Ontario Populations Projection Report indicates that seniors represented 12.4% to 26.8% of the population, depending on the specific region, in 2011.

By 2036, the range will be as high as 30.4% and 44.1% in some parts of Canada.

In spite of the demographic studies, little consideration has been given to seniors. They are becoming an important part of the voting population and elected members of government would be well-advised to consider this fact.

To simply suggest that auto insurance rates should be reduced by 15% is not adequate.There must be greater thought given to how to accomplish the reduction. It is as foolish as elected officials saying they want to reduce taxes by 15% without a plan.

TAKING THE TIME Now that no-fault is in place, it would be hard to eliminate it entirely. However, it is not too late to make changes — consider that the product has been altered many times over the past 30 years.

It is necessary to take the time to examine the groups that would be better off without no-fault. Some jurisdictions in the United States have tested no-fault and, in many cases, returned to the tort system. Some still continue a limited no-fault benefit, but the main portion of compensation is still under the tort system. Rates in most states are much

58 Canadian Underwriter August 2013

lower than those in Ontario and fraud is under control.

Since it is unlikely that Ontario will ever revert back to the tort system, it is possible to introduce an alternative for motorists. People who do not need no-fault should be able to opt out of the system, although they would need liability insurance to cover third parties in

It would work in the same manner as in the past before no-fault. Insurance was much cheaper and fraud was much less of a problem. It worked in the past and still works in most jurisdictions in the U.S. at a much lower cost.

Under the current system, seniors are helping to subsidize younger drivers since they are paying for coverage that is of limited value to them. When they are living on a limited income, the cost of car insurance can be a hardship.

The political leaders in Ontario should recognize the fact that a high percentage of the population will reach age 65 very soon and will want fair treatment. Seniors now represent about 20% of the voters, while 20% of the population is 17 years or younger — and do not vote. This is an area that needs immediate attention, especially since the 45 to 64 age group represents another 27%.

ACTION NEEDED

Under the current system, seniors are helping to subsidize younger drivers since they are paying for coverage that is of limited value to them. Political leaders in Ontario should recognize the fact that a high percentage of the population will reach age 65 very soon and will want fair treatment. an at-fault accident.Their insurer would pay for the damage and injuries to the innocent parties, and physical damage coverage would pay for the damage to their car, subject to a deductible. If a third party was responsible for the accident, then that person’s insurer would pay for the damage, and injured persons would be compensated by the thirdparty insurer.

In addition to seniors, there are other groups that should not be forced to carry accident benefit coverage. Taxi owners are having difficulty buying insurance in Ontario. Their rates have doubled in recent years. This is one segment that should be allowed to opt out of no-fault.

Many accident benefit claimants are non-residents and are taking advantage of no-fault benefits. As paying passengers, they should be required to prove fault, not simply claim damages. Eliminating accident benefit coverage for taxis would reduce this problem.

As well, truckers who provide workers’ compensation for their employees should not have to pay for accident benefits.They should be able to decline the coverage.This is just another example of where no-fault is not as good as the tort system.

The evolution of no-fault has turned automobile insurance into an inefficient product: it does not work, it is too expensive and it requires an immediate fix. Voters will expect some action very soon since so many people are, or will be, in the senior age group.

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Burns & Wilcox Canada Provides Robust Personal Lines Offering

by Burns & Wilcox Canada – Aug 7 Burns & Wilcox Canada Provides Added Protection with Commercial Umbrella Coverage

by Burns & Wilcox Canada – Aug 2 Burns & Wilcox Canada Offers House Flippers Program

by Burns & Wilcox Canada – Jul 31 National Brokerage Services Enhances Underwriting Expertise: Shane Neil Appointed Director of Professional Liability

by National Brokerage Services Inc. – Jul 24 PAUL DAVIS SYSTEMS CANADA, LTD. Announces New Franchise Location in Okanagan Valley, British Columbia

by Paul Davis Systems – Jul 24 Burns & Wilcox Canada Strengthens Commercial Marine Offering

by Burns & Wilcox Canada – Jul 24 Burns & Wilcox Canada Launches Excess Environmental Liability Product

by Burns & Wilcox Canada – Jul 23 Canadian Boiler and Machinery Underwriters Association announces the 40th Annual Engineering Insurance Conference – October 10th, 2013 in Toronto

by Canadian Boiler and Machinery Underwriters Association – Jul 23

2013 RIMS Canada Conference To Focus On Discovery & Exploration

by Risk and Insurance Management Society (RIMS) – Jul 22 RSA expands availability of electronic document download using CSIO XML standards

by RSA Canada – Jul 18 Sean Burkett joins the PAUL DAVIS SYSTEMS CANADA, LTD. team as Business Development Director – Ontario Region

by Paul Davis Systems – Jul 17 National Poll Indicates 90 Per Cent of Industry Professionals Report Having a Low Familiarity with the Recent DSM-5 Changes

by SCM Insurance Services – Jul 12 RSA appoints new national leader for small to medium business lines

by RSA Canada – Jul 11 Burns & Wilcox Canada Offers New Product for Logging Contractors

by Burns & Wilcox Canada – Jul 11 Paul Davis Systems Adds Symbility’s Cloud-Based Estimating Solution to its Operations

by Paul Davis Systems – Jul 11 Transatlantic Reinsurance Company (Canada) Appoints Raymond Davidson as Regional Vice President Treaty Underwriting

by Transatlantic Reinsurance Company (Canada) – Jul 11

To Read the Full Story for Each Press Release visit insPRESS.ca

INSPRESS COLUMN AD AUG 2013.indd 1

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Willie Handler Consultant, Willie Handler and Associates

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Auto Static There is no escaping talk of telematics these days and what that may mean for automobile insurance.

But will telematics put an end to age and gender discrimination?

Telematics has been one of the most talked about issues within the automobile insurance sector over the past several years. Recently Desjardins General Insurance Group launched Ajusto, the first widely available automobile insurance program in Ontario that offers savings to drivers centered on usage-based insurance (UBI) technology. This is ground-breaking territory in Canada despite the fact that pay-as-you-drive insurance has been available in the United States and Europe for some time.

Automotive telematics refers to the technology that uses hardware and software applications with remote communication devices, such as cellphones, GPS and wireless devices, to obtain

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information about vehicles. Automotive telematics has been in use, mostly in high-end vehicles, for quite some time. But today newer technologies are helping unfold many opportunities for all stakeholders, and more importantly, in emerging economies.

Telematics enables vehicle owners or customers to constantly be in touch with service providers through incorporated software and hardware in their vehicles. In turn, service providers, too, can offer a host of new services based on their customers’ preferences.

Also, data sent remotely from a vehicle allows stakeholders such as automakers, dealers, fleet managers and insurance providers to build better customer-relationship strategies.

There have been tomes written on the benefits of telematics and UBI, including lowering premiums for good drivers¸ reducing traffic congestion, allowing parents to monitor teenage drivers and combating auto insurance fraud.

What we have not heard much about is that UBI will allow insurers to begin to move away from historical rating criteria such as age and gender, both of which have been contentious over the years.

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What we have not heard much about is that UBI will allow insurers to begin to move away from historical rating criteria such as age and gender, both of which have been contentious over the years.

HISTORY LESSON In 1983, Michael Bates alleged that he was discriminated against because Zurich Insurance charged him higher premiums for his automobile insurance than a young, single, female driver with the same driving record or than drivers over age 25. Bates alleged that the rate classification system discriminated by grouping drivers by age, sex and marital status and determining their premiums based on these factors.

Moving forward to 1992, a majority ruling by the Supreme Court of Canada found that Zurich did not discriminate against Bates contrary to the Ontario’s Human Rights Code by charging him higher premiums for automobile insurance because of his age, sex and marital status.

The high court reasoned that charging higher premiums to young, unmarried, male drivers was discriminatory and contravenes the Human Rights Code.

However, section 21 of the code permits discrimination in automobile insurance because of age, sex, marital status, family status or handicap, and the court determined statistical evidence showed that young, male drivers are involved in proportionately more — and more serious — accidents than other drivers.

The insurance industry, however, was not totally absolved by the Supreme Court ruling. The high court encouraged the industry to begin looking more closely at non-discriminatory alternatives in rate-setting in the automobile insurance industry. It ruled that the insurance industry could continue to use discriminatory criteria such as age and marital status as a bona fide means of assessing risk, but that the industry could not do so indefinitely.

To a certain extent, insurers have used

the Bates v. Zurich decision as a green light to base automobile insurance premiums on age, sex, marital status and other socioeconomic factors where statistical evidence supports higher rates. It may be a matter of time before there is another court challenge.

However, the next time it would be difficult to defend the existing practices now that non-discriminatory alternatives actually exist.

CLEAR TREND The move away from rating based on age, sex and marital status has already begun. It is prohibited to use gender in considering rates for automobile insurance in five provinces, with Alberta only allowing its use for private policies, not through the government-mandated scheme. Ontario, with the largest share of the privately delivered automobile insurance market in Canada, still uses age, sex and marital status in determining premiums.

In the U.S., California recently joined 11 other states that prohibit gender rating in the individual health insurance market. Consumer groups south of the border have been battling insurance regulators to prohibit or restrict non-driving factors in setting automobile insurance premiums. As it stands, insurers have been able to maintain the status quo while developing UBI programs that provide an alternative.

The European Union recently outlawed gender-based insurance premiums.

The European Court of Justice’s ruling, which follows a 10-year legal battle against the proposals by insurers, will put an end to women getting better deals on car insurance.

The ruling has increased pressure on

the industry to adopt better discriminating factors, like those available through telematics.

THE HOME FRONT It is not just rating based on age, sex and marital status that is under the microscope, but other socioeconomic factors like credit scoring as well. Ontario, Alberta and Newfoundland and Labrador have banned the use of credit scoring in auto insurance as a result of pressure from politicians. Politicians, supported by insurance brokers, have begun to turn their attention to the home insurance market, where the use of credit information is also used.

The Office of the Privacy Commissioner of Canada recently released a report stating it did not object to the use of credit information for purposes of assessing insurance risk. It was noted section 8 of Ontario’s Consumer Reporting Act confirms that credit information may be disclosed for the purpose of underwriting insurance. However, the commissioner also noted there is no obvious link between credit information and insurance premiums — and little transparency in the use of credit information.

So while the use of age, sex and marital status, as well as other socioeconomic factors, in rating drivers has been upheld by courts and tribunals, their continued use attracts criticism and, in some cases, legislative action.

Although UBI is still not available to many drivers, insurers who are considering moving towards UBI ensures that predictive criteria continue to be available as governments prohibit or restrict traditional criteria. In Canada, automobile insurers are keeping a close watch on developments at Desjardins.

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INSURANCE INTERNET DIRECTORY ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org

CLAIMS ADJUSTING FIRMS Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Granite Claims Solutions Global Adjusters and Marine Surveyors www.graniteclaims.com

PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com Quelmec Loss Adjusters Identifying, Investigating, Resolving... for over a quarter century! www.quelmec.ca

CONSTRUCTION CONSULTANTS MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca

DAMAGE COST CONSULTANTS SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca

EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination. www.i-hire.ca

ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com

GRAPHIC COMMUNICATIONS Informco Inc. Integrated Graphic Communications Specialists. www.informco.com

INSURANCE COMPANIES

INSURANCE LAW

Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com

The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca

Catlin Canada Underwriting Ambition. www.catlincanada.com FM Global The leader in property loss prevention. www.fmglobal.com National Bank Insurance Auto | Home Home and Auto Insurance in Quebec. www.nbc-insurance.ca RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com

REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com

RESTORATION SERVICES Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca

RISK MANAGEMENT The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management. www.thearcgroup.ca

Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

Your Breaking Insurance News Source...

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Canadian Underwriter August 2013

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Mega issues

With Megatrends

Hélène Pouliot

Canadian Risk Consulting and Software Leader, Towers Watson

Will the insurance industry be ready to effectively respond to the rise of social media, big data and other megatrends?

Results of a recent global survey from Towers Watson indicate that while new challenges are emerging, the insurance industry is lagging behind.

The insurance industry has faced major changes throughout its history, but the risks posed by emerging technology and other megatrends pose challenges of a different kind.

One example relates to a new generation of buyers raised on Facebook, Twitter and other social media who have an entirely new approach to how they make buying decisions. What then are the implications for insurance product development and distribution channels?

Unfortunately, many insurance companies believe they are ill-prepared to face the challenges of looming “megatrends” like social media, advanced technology (big data) and changing demographics. That is the main finding of a recent study conducted at Towers Watson.

As part of the company’s 2013 Insurance Megatrends Survey — conducted in co-operation with New York City-based International Insurance Society — more than 500 industry executives from around the world were asked to identify issues they felt would be of greatest concern in the next two and five years, and how prepared they were to deal with them.

SOME RESULTS PREDICTABLE, SOME NOT Predictably, the three top megatrends that they identified for the short term were capital management challenges resulting from sustained low interest rates and a volatile investment environment (66%); increased regulatory and legislative constraints (61%); and volatile economic conditions (50%).The survey also found most respondents felt they were well-positioned to deal with these concerns (75%, 63% and 76%, respectively).

However, the same executives admitted to being much less prepared to face evolving issues, such as the impact of social media, the role of advanced technology and recruiting/retaining talent.

The fact that insurers are well-prepared to focus on capital management and regulatory constraints is not surprising. A lot of work has been done in the last few years to improve risk management framework, identify and quantify risks, and complete ongoing stress testing.

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CU Seminar ad August 2013_Layout 1 13-07-17 11:07 AM Page 1

Putting the pieces together.

Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.

CIP Society Events: Hamilton – Beach Volleyball Tournament . . . . . . . . . . . . . . . . . . . . . . August 28 Saskatoon – Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . August 29 Charlottetown – Annual Golf Tournament . . . . . . . . . . . . . . . . . . September 12 London – Adventure Car Rally 2013 . . . . . . . . . . . . . . . . . . . . . . . . September 12 Ottawa – Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . September 20 London – Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . September 20 Kelowna – Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . September 20 London – Annual Speakers’ Breakfast . . . . . . . . . . . . . . . . . . . . . . . November 20

CIP Society PROedge Seminars: Kitchener – Environmental Losses . . . . . . . . . . . . . . . . . . . . . . . . . .September 10 London – Financial Literacy for Insurance Professionals . . . . . . . September 10 Hamilton – Financial Literacy for Insurance Professionals . . . . . . September 12 London – Social Media Workshop . . . . . . . . . . . . . . . . . . . . . . . . . September 17 London – Cyber Crime: Protect Your Clients . . . . . . . . . . . . . . . . . . September 17 Victoria – Environmental Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 19 Ottawa – Financial Literacy for Insurance Professionals . . . . . . . . . . . October 1 Edmonton – Advanced Business Interruption . . . . . . . . . . . . . . . . . . . . October 3

Keeping you at the forefront of the P&C industry.

The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety

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Slightly more than a quarter of the North American survey participants, 27%, viewed talent attraction and retention as a serious concern, while the equivalent figure for Canadian respondents was 41%.

The survey results, however, also revealed that there is not sufficient attention being paid to emerging trends that are predicted to have a tremendous effect on the insurance industry in the near future.

For the most part, of the 42 Canadian insurers who participated in the survey, their opinions align with their international counterparts and the general survey findings apply to the Canadian market. For example, Canadian executives ranked capital management and regulatory constraints as their number one and two megatrends.

However, there were some differences between the responses from life and property and casualty insurers. For example, p&c insurers felt more strongly about the increased role of advanced technology/big data and the impact of increased extreme weather/climate changes than volatile economic environment or the attraction/retention of talent. Those insurers, who have traditionally used predictive modelling more extensively than life insurers, recognize the benefits of such techniques and predict that they will play a more significant role in the near future.

FOCUS ON TALENT Interestingly, Canadian survey respondents appear to be more concerned about talent retention and attraction over the next five years as compared to other survey participants. Slightly more than a quarter of the North American survey participants, 27%, viewed talent attraction and retention as a serious concern, while the equivalent figure for Canadian respondents was 41%.

In Europe, only 14% of insurance executives polled thought attracting and

holding on to talent was going to be an issue during the same period. In Asia/Pacific, however, about one-third (31%) of the responding executives felt talent would be a long-term problem.

The difference in perspective is not easy to explain. Designing and selling insurance products to future generations will be very different from what it is today. Insurers will need creative and innovative employees who understand the changing dynamics of the customers’ motivation to buy insurance, and the profitability drivers under the new upcoming accounting rules. In a small and competitive market, Canadian insurers may be at a disadvantage when it comes to finding and keeping the talent they will need.

PREPARATION WANTING In addition to identifying and ranking trends, the survey also asked respondents to rate how well-prepared they were to address them.

Canadian respondents tracked closely to their international counterparts when it came to capital management and changing regulatory environment. They also share some of the concerns on being able to leverage volatile economic conditions.

Though the Asia/Pacific respondents displayed confidence in their ability to meet demand for new products in emerging markets, they confessed to being ill-prepared when it comes to dealing with the increasing power of consumers using social media.

In all, 43% of Asia/Pacific executives reported that their companies were not prepared at all and probably would not be for some time.

Likewise, Canadian respondents also

acknowledged being unprepared to deal with social media-savvy customers (44%) — compared to 34% for North American executives, and 21% for European respondents.

As part of the survey, executives were also asked if there were other industry or market trends they believe will have a transformational impact on their business. Responses from life and p&c insurers included big-picture issues, such as the following: • the convergence of megatrends — i.e., the use of advanced technology/ big data in regards to demographics, extreme weather events, and longerterm risks like carbon footprints and nanotechnology; • product commoditization, non-traditional competitors and the use of usage-based insurance for risks other than auto; and • changing consumer demand.

Canadian executives also listed shorterterm, more tactical concerns, including the following: • broker consolidation and the emergence of direct writers; • increased competition, including from the banks; and • p&c industry consolidation.

Results show that surveyed industry executives believe that capital management, low interest rates and regulatory constraints will almost certainly continue to be challenges over the next five years. However, talent management — at least for Canadians — appears set to become a growing issue, while other megatrends, such as the increasing role of advanced technology and the impact of social media, may yet become just as important.

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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

RSA Canada announced in July that Julie Pingree [1] is the property and casualty insurer’s new vice president of commercial insurance. Pingree’s mandate will be to grow RSA’s small to medium commercial book profitably, while enhancing the company’s broker service model and evolving ePolicy, its electronic trading platform, notes a statement from RSA. Starting her career with RSA in 1987, she most recently served as senior vice president of corporate underwriting at Northbridge Insurance, and before that, commercial lines vice president for Intact Insurance from 2007 to 2011.

She is a Chartered Insurance Professional (CIP), member of the organizing committee of the Insurance Institute of Canada’s annual CIP Symposium and sits on the institute’s national council.

2

Burns & Wilcox Canada, which has opened an office in Halifax, has welcomed Brett Graham [2] as the company’s Nova Scotia representative.

Graham comes to the new role from his duties as regional director for Montreal and Quebec City with RSA. Previous roles with RSA include as commercial underwriting manager and Specialty Risk Solutions team leader, Burns & Wilcox Canada reports. An experienced and bilingual insurance executive, he

66 Canadian Underwriter August 2013

specializes in commercial multi-line underwriting, sales, team management and customer service, and is a Fellow Chartered Insurance Professional (FCIP). Burns & Wilcox Canada has locations in Halifax, Toronto, Ottawa, Calgary and St. John’s.

3

Transatlantic Reinsurance Company of New York named Raymond Davidson [3] as regional vice president for treaty underwriting earlier this year.

Davidson is now responsible for developing and managing TransRe’s casualty treaty portfolio in Canada, notes a statement from the reinsurer.

Fluently bilingual, Davidson started his career with Aetna Casualty in 1977 in Montreal and brings several years of management and underwriting experience to TransRe. He most recently was assistant vice president, casualty for a major international reinsurance organization.

4

The Co-operators General Insurance Company of Guelph, Ontario announced in July that it has launched QuickQuote, a tool on its website to provide auto insurance quotes to users who enter basic underwriting information. A user is provided with estimates after giving his or her name, date of birth, sex, postal code and vehicle make and model.

The tool also includes “slid-

1 ers,” which allow consumers to test the effect that factors such as kilometres driven per year, commute distance and years licensed to drive in Canada have on their rates. After an estimate is given, the website directs users to information about how to connect with The Co-operators, providing an estimate ID number. The company reports that in the “near future,” applications will be developed to also provide home and life insurance estimates.

5

National Brokerage Services Inc., a specialty commercial insurance provider, has welcomed Shane Neil [5] as director of professional liability. Working out of the head office in Montreal, Neil previously was national manager of life sciences for Toronto-based Creechurch International Underwriters Ltd., which he joined in 2006. He was responsible for the property, casualty and professional lines of the firm’s life science products. Before that, Neil was a commercial and technology package un-

2

10 derwriter for Chubb Insurance Company of Canada. He is an FCIP, holds the Canadian Risk Management designation and is pursuing his broker’s licence.

6

The Insurance Brokers Association of Canada (IBAC) announced in July that Farmers’ Mutual has maintained its support of the Broker Identity Program (BIP) at the full partner level.

BIPPER, BIP’s centrepiece symbol, captures the value that insurance brokers bring to clients: choice, coverage, security and peace of mind, IBAC reports. By investing in BIP, Farmers’ Mutual supports a campaign whose purpose is to raise awareness of the value of the insurance broker distribution network. BIP is a branding campaign for more than 35,000 brokers.

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MOVES & VIEWS

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7

The Restoration Contractors Organization of Canada (RCOC) has announced the composition of its new board of directors.

RCOC’s new treasurer is Matt Johnson, replacing Stephan Roy, who remains on the Board of Directors. Johnson was also a director before being named treasurer. Ken Robinson remains chair of RCOC’s board while Lou Abbruzzese will continue to serve as vice chair. The other board members are Glenn Woolfrey, Mike Sully, Ken Tucker and Will Cook. RCOC’s president is Kyle Urech.

8

RSA Canada noted in July that brokers using The Agency Manager software from Applied Systems will be able to transfer RSA

5 policy documents using CSIOnet, an electronic data interchange network provided by the Centre for the Study of Insurance Operations (CSIO).

RSA announced in 2012 that it would transmit policy documents using CSIO XML standards to brokers using PowerBroker, sigXP and The Broker’s Workstation systems.

“Now brokers using TAM (version 12) will also be able to receive copies of eligible policy documents daily via CSIOnet, for attachment in their system without manual intervention,” RSA reports.

9

Three Canadian carriers were among those to announce donations to the Red Cross to help people in Lac-Mégantic, Quebec, where almost four dozen individuals died as a result of the July 6 freight train derailment and explosion. The community is located about 100 kilometres east of Sherbrooke, near the United States border.

Intact Insurance is donating $100,000 to help the residents of Lac-Mégantic, the Guarantee Company of North America is donating $10,000

through the Canadian Red Cross and Industrial Alliance Insurance and Financial Services Inc. is donating $50,000 to the Red Cross.

“The Guarantee’s donation will be used to help meet the most critical needs of evacuees and support the Red Cross as it mobilizes volunteer teams and provides emergency services and supplies, including beds, blankets and pillows,” notes a statement from the insurer.

Intact, for its part, also set up a community response centre in Lac-Mégantic to help customers process claims and arrange for temporary accommodation. At about 1 am July 6, a Montreal, Maine and Atlantic Railway train containing 72 oil tanker cars that had been parked uphill from Lac-Mégantic started to move down the 1.2% grade, picking up speed and resulting in 63 tanker cars derailing.

The subsequent explosions and fires destroyed much of the surrounding property and prompted the evacuation of at least 2,000 people.

10

Maksym Stolyarevskyy [10] has been hired as a commercial account executive for Bryson & Associates Insurance Brokers Ltd., located in Ajax, Ontario.

Stolyarevskyy, who is fluent in English, Ukrainian and Russian, has been in the financial industry for eight years, notes a statement from

Bryson & Associates. He graduated from Ryerson University with a bachelor of commerce, and is a CIP.

11

First Durham Insurance & Financial Ltd. announced its $5,000 Possibilities Grant in July.

Over the course of five years, the Pickering, Ontario-based brokerage plans to donate to a family in the region who has a disabled child under the age of 18. The donation will be made through a registered education savings plan or a registered disability savings plan. “For families who have a child with special needs, oftentimes the short-term costs related to managing a child’s disability limit their ability to invest in RESPs or RDSPs,” Bryan Yetman [11], vice president of First Durham Insurance, says in a press release. To be eligible, the recipient must be under 18, have a disability or a sibling with a disability, live in the Regional Municipality of Durham and have “been inspirational in their efforts to raise awareness of children with special needs.” Nominations opened July 16 and will be accepted until September 15, with the grant being awarded October 15 at the Grandview Children’s Centre in Oshawa, Ontario.

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More than 100 young brokers attended the 9th Annual IBAO Young Brokers Council (YBC) Conference held June 5-7 in Niagara Falls, Ontario. YBC Exhibitor Casino / Hospitality Night held at Niagara Fall’s Planet Hollywood on June 6 provided an evening of games, fun and networking. YBC attendees played at various company and vendor exhibitor-hosted gaming tables.

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

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

The Restoration Contractors Organization of Canada (RCOC) held its inaugural Annual General Meeting and Supplier Exposition at the Sheraton on the Falls Hotel in Niagara Falls, Ontario on June 17–18. RCOC was formed two years ago by eight contractors - Winmar, Canadian Disaster Restoration Group, DKI Canada (then Disaster Kleenup Canada Ltd.), BELFOR, FirstOnSite Restoration, Service Master of Canada, First General Services Ltd. and Paul Davis Systems – to represent contractors in matters such as safety and regulatory affairs. As of mid-June, RCOC had 35 members.

70 Canadian Underwriter August 2013

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

Brovada hosted insurers, brokers, and industry partners at their second Brovada Innovation Day on Jun. 11 at 1 King West in Toronto. At the event, Brovada announced the imminent addition of quoting to their P&C transaction suite.

“Innovation is at the heart of everything we do,” said Karl Greenlaw, founder and CEO of Brovada. “Giving brokers the ability to launch quoting from their BMS is a natural evolution for Brovada. We have over 12,000 brokers using our solution every day for the majority of their insurer interactions. Quoting makes our offering that much more complete.”

Heather L. Brown appointed VP, Insurance Operations Peter Flattery, CEO of the Healthcare Insurance Reciprocal of Canada (HIROC) is pleased to announce the appointment of Heather Brown as Vice President, Insurance Operations. Heather began her career with HIROC in 1990 when she joined the Underwriting & Client Services Department and was soon appointed Manager, Marketing & Underwriting. When the Reciprocal’s Underwriting Department and the HIROC Brokerage were merged in 2003 to form Insurance Operations, Heather was appointed Manager of the department. She holds a RIBO licence and is now Principal Broker of HIROC Insurance Services Limited. She has also obtained an RPLU (an international professional liability underwriting designation) and an MBA from the Rotman School of Management, University of Toronto.

Heather has played a key role in the development of HIROC’s rating methodologies, as well as building the capacity and expertise of the Insurance Operations department.

Her experience will ensure HIROC’s Insurance Operations department continues its tradition of specialized knowledge, financial stewardship and responsive client service.

HIROC works in partnership with healthcare organizations across Canada to provide innovative insurance and risk management solutions supporting safety, stability and collaboration in healthcare. As a reciprocal, any profit, or excess surplus, is returned to the memberowners. Since 1987, HIROC has returned over $91 million to its subscribers - funds that have been re-invested in programs that improve patient care and outcomes.

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Ralph Palumbo, vice president for Ontario at the Insurance Bureau of Canada discussed the hot button issue of Ontario auto reforms, as well as government promises of insurance premium cuts, during a presentation in downtown Toronto on June 18. Reforms spelled

out in Ontario’s recent budget “are all helpful – but as I have stated several times – they are not enough to bring costs and rates down now to meet the government’s own premium target reductions,” Palumbo said during the At the Forefront Breakfast, presented by the Insurance Institute of Canada.

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On Jun.e 17, McKellar hosted its Annual Women’s Charity Golf Day in support of WICC (Women in Insurance Cancer Crusade). This year’s event saw a sold-out tournament of 148 golfers and raised a total of $24,850 for WICC. Special thanks was given to all of the event sponsors:

Financial Horizons Group (Title Sponsor), Sun Life Financial (Platinum Sponsor), BMO Life Assurance Company (Gold Sponsor),The Standard Life Assurance Company of Canada (Gold Sponsor) and The Riordon Design Group Inc. (Bronze Sponsor). To date, McKellar has raised $217,900 for WICC.

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APPOINTMENT

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

Jacinta Whyte Deputy Group Chief Executive

Mark Hews, Group Chief Executive of Ecclesiastical Insurance Group plc, is pleased to announce the appointment of Jacinta Whyte to the position of Deputy Group Chief Executive. Jacinta has also been appointed an Executive Director of the Ecclesiastical Group Board and a Member of the Board of Ansvar, Ecclesiastical’s subsidiary in Australia.

In her new role as Deputy Group Chief Executive, Jacinta will be responsible for the Group’s general insurance operations worldwide, covering the UK, Ireland and Australia. Jacinta will also retain her position as General Manager and Chief Agent for Canada and continue to lead the growth and development of Ecclesiastical’s Canadian business.

With over 35 years of property and casualty industry experience in Canada and Ireland, including executive positions, Jacinta has a proven track record in developing underwriting and marketing strategies, building operational excellence in personal and commercial lines business, and creating innovative, value added services.

Founded in 1887 and with offices in Canada since 1972, Ecclesiastical is a specialist provider of insurance solutions and services designed to protect and preserve Canada’s distinct communities, cultures and heritage. Working closely with the independent broker network, Ecclesiastical provides customized insurance solutions to faith organizations, retirement communities, education facilities, arts & culture institutions, heritage properties, funeral services providers, and registered charities and non-profit organizations.

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Insurance broker Canfinse Group Inc. held a cocktail & hors d’oeuvres event on June 19 to celebrate the opening of its new office, its 15th anniversary and the launch of Canfinse Group’s new venture – a broker intermediary company named CFSU. Representatives from various insurer markets attended and enjoyed the chance to toast the new Canfinse offices, as well as the launch of the new wholesale firm CFSU.

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

Aviva Complex Risk and Aviva National Special Risk Casualty divisions hosted a Soccer Event (FIFA Confederations Cup) for some of its local brokers at The Duke of Westminster Pub in Toronto on June 19. Broker guests enjoyed food and refreshments while watching some of the soccer action on the big screens.

Guy Sanders Claude Blouin and Jamie Dunn, Partners at Blouin Dunn LLP, are extremely pleased to announce that Guy Sanders has joined the firm as an associate lawyer.

Guy received his B.Sc. in Law followed by his Juris Doctor degree from Western State University in 1986 and 1988, respectively. He was called to the California Bar in 1989 and to the U.S. Federal Bar in 1990. He practiced at a successful insurance litigation firm in California from 1993 to 2010, then moved to Ontario, where after passing his Barrister and Solicitor Exams, was called to the Ontario Bar in 2011.

Over the last 24 years, Guy has tried numerous judge and jury trials to verdict. As well, he has briefed and argued many cases before appellate courts. He has defended national trucking and transportation companies in negligence actions. His clients included global hotel chains, nationwide grocery stores and other commercial establishments in claims for premises liability and catastrophic injury.

He has successfully defended product liability suits involving, for example, motor vehicle rollovers and accusations regarding tainted foods.

He has also defended developers, construction companies and property owners against allegations of defective construction.

Guy is a member in good standing of the Law Society of Upper Canada and the Advocates’ Society. He is also a member of the Canadian, Ontario, American and California Bar Associations. He has lectured to university students, taught continuing education to lawyers and sat as a judge pro tem in the Los Angeles Superior Court.

Outside of work, Guy enjoys travelling the world with his lovely wife Gloria, cooking and surfing.

Guy’s contact information is: gsanders@blouindunn.com (416) 365-7888 ext. 161 Blouin Dunn is one of Ontario’s leading insurance defence firms whose members have been providing quality legal support to the insurance community for over 30 years. We offer services in Ontario to property and casualty insurers throughout North America, at all levels of experience, at appropriate and competitive rates.

www.blouindunn.com

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The 2013 version of the Canadian Cancer Society's Relay for Life featured one of the largest-ever number of insurance industry participants. The Relay is a tribute to the lives of loved ones who have been touched by cancer.

Teams took part in the 12-hour, overnight, noncompetitive relay, taking turns walking, running or strolling around a track.

In Ontario, more than 1,000 friends and members of the insurance industry formed teams under the ‘WICC Ontario Relay For Life’ banner,

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participating in the Ontario Relay of their choice across various locations.

Dozens of teams raised more than $269,300 in pledges; sponsorships raised the total to $383,300. Relay For Life is now WICC Ontario’s largest fundraising activity. WICC Ontario’s headquarters Relay event was Relay For Life in North York held at Esther Shiner Stadium on June 21.

Approximately 440 team members participated on over 60 teams at this Relay location (Photos taken at Relay For Life North York, June 21).

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GALLERY …(Cont’d from Page 77) WICC Ontario at Canadian Cancer Society’s Relay For Life North York, June 21

ADVERTISERS’ INDEX ACE Canada

47, 84 (OBC)

AIG Canada

43

A.M. Best Company The ARC Group Canada Inc. Aviva Canada Inc. AXIS Reinsurance Company (Canadian Branch) Blouin, Dunn LLP

5 7 19 35 75, 81

The Boiler Inspection and Insurance Company of Canada

45

Burns & Wilcox Canada

23

Canadian Litigation Counsel

49

CNA Canada

31

Ecclesiastical Insurance Canada

74

Elliott Special Risks LP

33

First General Services FirstOnSite Restoration FM Global

73 26, 27 2, 3 (IFC)

The Guarantee Company of North America

17

HIROC

71

insPRESS.ca

59

insNews.ca

72

inswire.ca Insurance Institute of Canada Insurance Internet Directory

72 64, 83 (IBC) 62

Liberty International Underwriters

25

Opta Information Intelligence

21

QBE Canada

29

RSA – Royal & Sun Alliance Insurance Company of Canada

9

ServiceMaster of Canada Limited

57

SPECS Limited

51

Swiss Re

39

Travelers

41

WINMAR

53

XL Insurance

15

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Canadian Underwriter August 2013

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

August 2013 Canadian Underwriter

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

The Newtron Group hosted its annual Summer Picnic at Albion Hills Conservation Area on July 6.

Guests were treated like family and spoiled with a BBQ feast, live music and the now famous “Italian Grape Juice.�

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Canadian Underwriter August 2013

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APPOINTMENT

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

In June, RSA hosted an exclusive broker preview of this year’s visiting exhibition at the Royal Ontario Museum, The Wonders of Ancient Mesopotamia, for which RSA is the presenting sponsor. In addition to a private viewing of the exhibition, brokers enjoyed a cocktail reception and hors d’oeuvres from the Middle East, while hearing from Rowan Saunders, RSA’s President and CEO, and Tony Hayes, Vice President, Sales & Marketing. The museum was closed to the public for the preview of this exhibition, which officially launched on June 22.

Aaron J. Wachna Claude Blouin and Jamie Dunn, Partners at Blouin Dunn LLP, are extremely pleased to announce that Aaron J. Wachna is now an associate lawyer at the firm.

Aaron received an Honours Bachelor of Arts degree in Political Science from the University of Windsor in 2007. From 2007 to 2009, he worked in the field of personal injury law.

Aaron obtained his Juris Doctor in 2012 from the University of Windsor Law School, where he graduated in the top 20% of his class. While attending law school, Aaron was an intern mediator at the University of Windsor’s Community Mediation Clinic.

He gained valuable insight and experience as a summer student at a Toronto insurance defence firm during the summer months of 2010 and 2011.

Aaron articled at Blouin, Dunn LLP and was called to the Ontario Bar in 2013. During his articling year he was responsible for all Small Claims Court files and motions, legal research and he appeared in the Superior Court of Justice on numerous occasions.

Aaron is a member in good standing of the Law Society of Upper Canada, the Canadian Defence Lawyers and the Toronto Lawyers Association.

Outside of work, Aaron’s interests are largely focused on travelling with his wife and enjoying golf, baseball, volleyball and snowboarding.

Aaron’s contact information is: awachna@blouindunn.com (416) 365-7888 ext. 153 Blouin Dunn is one of Ontario’s leading insurance defence firms whose members have been providing quality legal support to the insurance community for over 30 years.

We offer services in Ontario to property and casualty insurers throughout North America, at all levels of experience, at appropriate and competitive rates.

www.blouindunn.com

August 2013 Canadian Underwriter

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The Toronto Insurance Women’s Association (TIWA) celebrated summer in style with its 10th Annual Summer Social entitled “Solstice Celebration” on June 20. Insurance industry guests enjoyed a summer evening at The Hyatt Regency hotel in downtown Toronto.

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Canadian Underwriter August 2013

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