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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

S E PT E M B E R 2 0 1 3 A Business Information Group Publication #40069240

Rail Risk BY GREG MECKBACH

D&O Dispute BY TIMOTHY J. McGURRIN

Pricing Safety BY KYLE URECH


IBAO

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THE BROKER IDENTITY PROGRAM – 25 YEARS AND COUNTING... ...thanks to you. 1988 saw the birth of the identity program that put a face on the Canadian insurance broker profession, and gave a voice to our advocacy on behalf of insurance consumers. One of the most important ongoing achievements of the Insurance Brokers Association of Canada, it flourishes and succeeds in large part because of your invaluable support, for which we pay tribute to you and the partnerships we mutually enjoy.


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Proud Supporter of Brokers Displaying this Symbol

2013 IBAC Full Partners

  

Participants Northbridge, Lloyd’s Underwriters, Pafco


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VOL. 80, NO. 9, SEPTEMBER 2013 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Rail Risk

28

Montreal, Maine and Atlantic Railway, whose train with 72 oil tanker cars derailed and killed dozens, met the federal government criteria for insurance coverage at the time of the Lac-Mégantic, Quebec tragedy. Now some politicians are asking whether or not the current insurance coverage rules are tough enough. BY GREG MECKBACH

FEATURES

40

16 Reasonable Expectations

Hiring Clients

If a court finds that a clause in a policy is ambiguous, it is important to consider the context in which it was negotiated, as well as the intentions and expectations of both parties.

When brokers do business separately — on the side — with clients, they need to approach such deals with caution. Learn some tips from industry experts on how to avoid ethical problems.

BY TIMOTHY J. MCGURRIN

BY THE CIP SOCIETY

48

24 Online Self- Service

Safe Restoration

As a group, property and casualty insurance carriers are not as modern as banks in the services they offer over the Internet, especially to mobile device users.

With hazards such as asbestos and the need to cover workers' compensation premiums, the cost of restoring damaged properties is greater than some might think.

BY MARK PATTERSON

BY KYLE URECH

4 Canadian Underwriter September 2013

20 Proactive Prevention

53 Ontario Auto

In addition to investigating losses, root cause analysis can also be used to help prevent or mitigate future risks. RIMS offers guidance on how risk managers can be forewarned.

The Ontario government has revealed some details on how it plans to reduce average industry-wide private passenger auto premiums by 15% over two years. Last month’s announcement got mixed reaction from insurance industry associations.

BY ANDREW BENT & CAROL FOX

44 Aggregators Comparison insurance shopping sites, or aggregators, are on the rise in Britain and a similar trend is taking place in Canada. Why brokers should not see this as a threat. BY KARL GREENLAW

BY GREG MECKBACH & HARMEET SINGH


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VOL. 80, NO. 9, SEPTEMBER 2013

PROFILE

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

14 Opportunity Knocks Ken Myers, president-elect of the Insurance Brokers Association of Canada (IBAC) and president of Gateway Insurance Brokers in Halifax, explains how technology is among the things that can help level the playing field between brokers and direct writers. BY ANGELA STELMAKOWICH

SPECIAL FOCUS

8

Editorial

10 Marketplace 56 Moves & Views 58 Gallery

Online Editor Harmeet Singh hsingh@canadianunderwriter.ca Twitter: @CU_Harmeet (416) 442-5600 ext. 3652

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EDITORIAL

Computing the Risk A recent report on cyber risk by Ponemon Institute LLC should pique some interest among carriers and brokers, as well as anyone concerned about the ability of businesses and government agencies to operate in the event of a telecommunications or information systems breakdown. When respondents There is a general awareness without cyber coverage in the insurance industry that a significant number of were asked why they organizations have no cyber did not buy policies, insurance. But do industry professionals and the general 26% said they are public really understand why? “unable to get The Ponemon report — insurance underwritten titled Managing Cyber Security because of current risk as a Business Risk: Cyber Insurance in the Digital Age and profile.” announced in August — was based on 638 responses to a Greg Meckbach survey of individuals involved Associate Editor in their organizations’ cyber GMeckbach@canadianunderwriter.ca security risk mitigation and risk management activities. Respondents were from both government and private-sector organizations. The fact that 69% of respondents said their organizations did not have cyber insurance policies — or sets of policies — is probably old news to property and casualty professionals. More than half (52%) of the 69% of respondents without policies said the premiums were too expensive. That might also be old news, given that most companies operating in competitive markets probably encounter prospective clients objecting to price. What may not be old news is that when respondents without cyber coverage were asked why they did not buy

8

Canadian Underwriter September 2013

policies, 26% said they are “unable to get insurance underwritten because of current risk profile.” Also, 26% said “coverage is inadequate based on (their) exposure.” Multiple responses were allowed. When respondents without cyber coverage were asked why they do not have it, nearly half, or 44%, said such policies had “too many exclusions, restrictions and uninsurable risks.” If the responses to Ponemon Institute’s survey are representative of the business community as a whole, then it seems that 18% of companies (26% of the 69% without coverage) could not qualify for cyber coverage — even if they wanted to buy it — because insurance carriers do not want to share their risk. Almost one in five respondents are unable to buy a policy that covers their exposure while nearly a third (44% of the 69% without coverage) seem reluctant to purchase the coverage available due to the policies’ exclusions and restrictions. Cyber insurance is an emerging market, noted Michael Bruemmer, vice president at Experian Data Breach Resolution, which sponsored the Ponemon Institute survey. Bruemmer predicted that a year from now, more than 50% of companies will have cyber policies. He added that nearly two-thirds of the respondents surveyed indicated that “just by going through the process of applying for a cyber insurance policy, they felt better prepared.”

In the United States, Bruemmer said, carriers tend not to cover public sector organizations with a “high concentration” of personal information on individuals, distributed among multiple computer networks. He also suggested more companies are not only forming computer security incident response plans, but they are also becoming more sophisticated by practising their response plans. This way, he added, they are able to comply with the minimum criteria to qualify for coverage. But are companies that now qualify for coverage eager to buy it? When Ponemon asked those with cyber coverage what is covered, only 11% said their policies cover attacks against business partners, vendors or other third parties that have access to the company’s information assets. Only about half — 54% — reported their policies cover malicious or criminal insiders. How many risk professionals really want those risks excluded from their organizations’ cyber policies? On the one hand, customers should not blame underwriters if they are unwilling to bet their money on the security of policyholders’ business partners, or on the honesty of all of a policyholder’s employees. But on the other hand — as with any other line of insurance — it will not always be easy to sell a policy to a client whose main concerns are the risks that carriers are unwilling to cover.


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

Canadian Market HUB INTERNATIONAL AGREES TO BE ACQUIRED Insurance brokerage firm Hub International Ltd. has agreed to be acquired, for US$4.4 billion, by funds advised by Hellman & Friedman of San Francisco. Hub International, which was formed in 1998 through the merger of 11 Canadian brokerages, moved its headquarters to Chicago in 2001. Recent acquisitions include Brantford, Ontario-based The Dorsey Group Inc. and Steinbach, Manitoba-based Southeastern Insurance Services Ltd. Under the terms of the acquisition agreement, investment funds managed by Hellman & Friedman would hold a majority interest in Hub International. The transaction is subject to customary closing conditions and is expected to be completed before the end of 2013.

Risk Management MIT SURVEY INDICATES RISK MANAGEMENT METHODS Only 41% of companies surveyed are considered to have “mature” supply chain risk management processes, but nearly four in five mitigate against disruptions by implementing a dual sourcing strategy, notes a recently released report.

10 Canadian Underwriter September 2013

The report — titled 2013 Global Supply Chain and Risk Management Strategy — was published by the Massachusetts Institute of Technology’s Forum for Supply Chain Innovation and written in collaboration with PricewaterhouseCoopers. It was based on a survey of 209 participants whose firms have a “global footprint.” Respondents were asked how their firms mitigate against disruptions. A large majority (82%) said they create and implement a business continuity plan, 79% said they implement a dual sourcing strategy, 78% use both regional and global suppliers, 59% establish distribution centres in multiple regions and 48% use a component substitution strategy. The report also categorized “supply chain and risk management process maturity” into four levels, where Level 1 is the least mature and Level 4 is the most mature. Based on the survey responses, the authors noted, 17% of respondents were at Level 1, 42% were at Level 2, 32% were at Level 3 and 9% were at Level 4. The respondents at Levels 3 and 4 — 41% of the total — were considered to have “mature processes.”

Claims IBC STARTS VIN DATABASE OF NON-REPAIRABLE FLOODED VEHICLES The Insurance Bureau of Canada (IBC) recently

launched a database of vehicles that have been reported and branded as non-repairable after severe flooding in southern Alberta and the Greater Toronto Area. Consumers can enter a vehicle identification number (VIN) on the IBC website to check whether or not a vehicle has been branded as non-repairable following the storms and flooding. Vehicles that were subjected to flooding to the level of the bottom of the dash “must be branded as non-repairable and can no longer be operated on any Canadian road,” IBC stated on its website.

Regulation B.C. GOVERNMENT AUTO CARRIER PROPOSES 4.9% RATE INCREASE The Insurance Corporation of British Columbia (ICBC) is seeking a 4.9% increase to basic auto insurance rates, due mainly to a sharp increase in bodily injury claims. ICBC, which is run by the provincial government, filed August 30 a proposed rate increase with the British Columbia Utilities Commission (BCUC). If approved by BCUC, the rate increase would take effect November 1. In B.C., vehicle owners are required to buy, from ICBC, a basic package that includes third-party liability, accident benefits, underinsured/uninsured and inverse liability. They have the option of buying collision, fire and theft coverage from either ICBC or

private-sector carriers. ICBC noted that bodily injury claims costs rose more than $165 million in 2012 to $1.9 billion, and are more than $400 million higher than five years ago.

Technology TELEMATICS A HARD SELL FOR U.S. CONSUMERS Progressive Corp., an auto carrier based in the United States, is still seeking to get more consumers on board with its usage-based insurance (UBI) program, Bloomberg recently reported. Bloomberg quoted Progressive CEO Glenn Renwick as saying about 40% of potential users of Progressive’s Snapshot program are saying “no way” to the offering. The rest are evenly divided between consumers who are willing to try the program and those who want to find out more. “Our Snapshot advertising campaign, which is set outside of the Superstore construct, ran most of the second quarter,” Renwick noted in a letter to shareholders on the company’s financial results. “The intent was to raise awareness that an individual’s rates set without the benefit of their specific driving profile, the option Snapshot provides, may well mean they are contributing a subsidy to those with poorer driving behaviors,” he said. As of last December, Mayfield Village, Ohio-based


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MARKETPLACE

Progressive owned six UBI patents in the U.S.

SURVEY INDICATES RISING CONSUMER AWARENESS OF TELEMATICS Half of surveyed consumers are likely to sign up for a usage-based insurance program that would provide at least a 10% discount, while 36% would actually change carriers for that discount, notes new research from LexisNexis Risk Solutions Inc. One in three consumers is aware of UBI programs or telematics, showing a rise in awareness over the past three years, notes the study, based on a web survey of 2,072 residents in the United States conducted in March by Lynx Research Consulting. That is up from 10% of respondents knowing about such programs in 2010. Its research also suggests that 61% of consumers are more likely to accept telematics programs if their insurers offer a trial period for three months. Even more (72%) are likely to accept a program if an insurer offers an automatic discount of 10% for the first six months. About a third of consumers would also be likely to use a smartphone for collecting and transmitting telematics data, the study results suggest.

INSURERS NEED UNIFIED COMMUNICATIONS STRATEGY: REPORT Establishing a unified digital communications platform will be key for insurers looking to evolve into more customer-

centric companies, argues a new paper from research firm Strategy Meets Action (SMA). Insurers are now devoting “significant energy and resources” into transitioning from product-focused to more customer-oriented in recent years, but are still moving away from old methods of doing business, states the SMA paper. Among its recommendations, the paper notes technology used to communicate with an insurer’s channel partners and customers have tended not to be cohesive. “When communications are viewed from a customer’s vantage point, it has become apparent that insurers need a strategy to unify their communications so that they are recognizable as being from one company with a consistent brand, and with information that is available and updated real-time,” report author and SMA partner Mark Breading writes. Such a unified system could bring together portals, websites, mobile and social media capabilities, the report suggests.

Reinsurance CAT BOND TRANSACTIONS ON THE RISE: AON BENFIELD There was an “unprecedented demand” for catastrophe bonds during the 12 months ending June 30, with no loss activity resulting in cat bond payouts for that period, while several new bonds cover Canadian earthquake risk,

notes a paper from Aon Benfield Securities Inc. Chicago-based Aon Benfield Securities released last month a 76-page paper that aims to review and analyze insurancelinked securities (ILS). As of June 30, annual issuance volume reached $6.7 billion and total bonds at risk were $17.5 billion, surpassing the previous record of $16.2 billion as of June 30, 2008, notes the report, titled Capital Revolution — ILS Market Expands to New Heights. All figures are in U.S. currency. Aon Benfield Securities noted that 27 transactions (including three covering life and health) closed during the year ending June 30. Recently issued cat bonds whose covered perils included Canadian earthquake risk were: a $270-million transaction, issued by Lakeside Re II Ltd., providing Zurich Insurance Company Ltd. with annual aggregate coverage over three years; a $75-million transaction issued by Blue Danube II Ltd. on behalf of Allianz Argos; and a $75-million issuance by Tramline Re II Ltd. on behalf of Amlin AG. “Despite such an active quarter, investor capital kept pace with primary market issuance,” Aon Benfield Securities stated of the three months ending June 30. “Many transactions were upsized, and oversubscription for issuances allowed a number of transactions to close at or below the low end of marketed price guidance,” the company added.

REINSURERS FACE PRICING PRESSURE Reinsurance firms are “capable of absorbing significant losses from a combination of events,” but are also facing pricing pressure because of investments from third-party capital, a new report from A.M. Best Company suggests. Though global reinsurers are “well capitalized,” Oldwick, N.J.-based A.M. Best “remains concerned that reinsurance pricing, terms and conditions may come under increased pressure as excess capacity continues to build and the convergence between capital market capacity and traditional reinsurance capacity evolves.” In its report released last month, titled The Capital Challenge: Reinsurance Capacity Overshadows Market, A.M. Best noted “various reinsurance brokers reported” that “as much as” US$45 billion of “additional capacity entered the market in recent years.” Sources of this money included hedge funds, pension funds, endowments and trusts. When ranked by gross written premiums in 2012, the top five reinsurance groups were Munich Reinsurance Co., Swiss Reinsurance Co. Ltd., Hannover Rueckversicherung AG, Lloyd’s and Berkshire Hathaway Inc. Despite several cat losses in 2012, including Storm Sandy, “most reinsurers delivered underwriting profits and solid earnings,” states the report.

September 2013 Canadian Underwriter

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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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PROFILE

Opportunity Knocks Angela Stelmakowich Editor

Ken Myers, president-elect of Insurance Brokers Association of Canada, sees plenty of opportunity: in technology, in perpetuation and in self-belief. Some may take a “doom and gloom” view of existing and emerging challenges facing brokers across the country. But not Ken Myers. The president-elect of the Insurance Brokers Association of Canada (IBAC), and past president of the Insurance Brokers Association of Nova Scotia, sees opportunities in those challenges. Among the developments currently causing some unease are demographics: brokers are getting older and need to draw up game plans for who will take over their businesses, says Myers, president of Gateway Insurance Brokers Ltd., a 100% locally owned brokerage in Halifax. These conditions, though, are causing some brokers to see the bogeyman, Myers suggests. They are concerned that if they

14 Canadian Underwriter September 2013

do not sell now, that either the multiple they receive in “a year, two years, five years” will be lower — or worse — that their businesses will be bought out by enormous organizations, he says. “Frankly, I don’t think either one of those things is true,” Myers adds. “There’s a reason why large organizations — insurers, venture capital companies — want to buy into brokers. It’s a good business to be in,” Myers says. Whether banks or direct writers, these competitors “are very much trying to present themselves as feet-on-theground, local organizations,” he says, but points out that in such large organizations, “organic growth is difficult because people aren’t engaged like small business owners (such as brokers) are.”

CALL TO ACTION That said, there is unlikely a broker in the country who does not understand more can be done. “That’s the call to action. As engaged as you are now, get more engaged with your clients,” Myers emphasizes. The current environment also offers a call to action to insurers, he suggests. When Myers got started in 1988, much was done through the mail, requiring a whole set of infrastructure to be in place that was expensive to maintain.

In 2013, much of the work is done online, he says. “There’s a lot of insurers out there whose costs to actually transact that business has to be a lot less than it used to be.” Suggesting there is “money on the table,” Myers contends there is no reason “the price for a broker/insurer can’t be as competitive or lower than it is for a direct insurer.” This, in turn, offers a chance to inform people “that you don’t have to give anything up in terms of price to deal with a broker.” Sometimes, however it is necessary to “rally the troops and get them to recognize that there’s a huge opportunity,” says Myers. “Technology has the ability, as far as I’m concerned, to level the playing field to some degree, give us some of the tools that some of those competitors use very effectively and then add in that extra component that we can add that they simply cannot.” Technology-related costs can contribute to doom and gloom feelings, he says, but emphasizes those concerns can be allayed through planning and investing back into the business. “The reality is you can afford (to invest),” he argues. Set aside some money so that when the time comes to make a major investment, there are funds available and there is no need to rely entirely

on the earnings of the current year, Myers advises. “Be ready to keep everything you’ve got up to date and fight the fight when it comes,” he adds. Brokers must ready themselves to address conditions that are already well under way: the customer’s fast- and ever-changing expectations of what good service is. But even in this, Myers sees

“If something happens this year that is outstanding, it won’t be because of me. It will be because I was part of the team that made that happen.” opportunity. He cites the hypothetical 21-year-old who purchased auto insurance online and whose needs have changed a few years later. “It’s fine to buy that policy online, but at the end of the day, if you have to deal with somebody, call them back more than once, hold someone accountable for what they told you, that’s when they want to start to deal with us. Then they quickly realize they haven’t given up anything in terms of price. That is happening more and more,” Myers reports.


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PROFILE

Photo courtesy of the Insurance Brokers Association of Canada

the direction of what’s been happening,” Myers says. “There’s a lot of good work that IBAC has been doing on behalf of brokers,” he says. As one example, Myers cites eDocs. This was put forth with the help of insurers, with the help of the Centre for Study of Insurance Operations “and, in large part, by the technology committee at IBAC,” he says. Now, it is “actually making a difference in the way that brokers can transact their business.”

COLLECTIVE VIEW As IBAC president, Myers is not looking to impose a new way of doing things, saying he has no grand vision. “If something happens this year that is outstanding, it won’t be because of me. It will be because I was part of the team that made that happen,” he says. Myers says someone who did have a grand vision for IBAC

was Dale Rempel, former IBAC president and a dear friend who passed away in October 2012. “I think Dale did have a grand vision and, frankly, I think we’re continuing that on.” That vision revolves around the notion of broker perpetuation. Calling it an abstract thought, the objective is to now turn “that into reality to give brokers some tools to change

MEETING THE CHALLENGE IBAC’s educational efforts will also be among the ways to help chart a change of direction. For example, Elite Force: Best Practices Producer Academy is a specialized sales training program that inspires brokers who exhibit particular promise, and represents life-long learning in key business building areas. The idea is to take these individuals (they may be good candidates to become brokerage owners) and “give them that lift up through exposing them to some of the things that are going on across the country,” says Myers. A current challenge is that as brokers get bigger, it becomes more and more difficult for owners who reach retirement age to pass along the business to, say, their children. Because the sums are so large, buyers

may not want to be exposed to that perceived risk, Myers says. “It goes back to the perpetuation point. What can we do to try and bridge that gap to help move people along and help them recognize this is not an insurmountable problem, that there is a way around it?” he asks. Myers started his insurance career in 1988 in the family business, Myers Insurance Brokers Ltd., which he bought when his father retired in 1992. In 1998, the brokerage joined with Stanhope Insurance Ltd. and Simpson-Hurst Ltd. to form Stanhope Simpson Insurance Ltd., where Myers remained for 14 years. In 2012, he withdrew Myers Insurance Brokers from the cluster organization and re-established his business as Gateway Insurance Brokers. “I’ve seen small to large to small through different lenses,” Myers says. Those views have offered a real appreciation of how a national association such as IBAC can help, he adds. “A lot of the relationships that various associations across the country have with their regulators, with their legislators, with members of parliament — that takes a long time to build,” Myers says. “It doesn’t happen with any one broker on their own. It’s collectively that that voice is really where it comes to bear.”

September 2013 Canadian Underwriter

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Timothy J. McGurrin

Partner, Miller Thomson LLP

Why would words matter less than expectations? American Home Insurance has been taken to court by private equity firm Onex over a disputed D&O claim. Cases of this nature show that intentions and negotiations should be monitored carefully while any policy or contract is being prepared. The legal principles governing the interpretation of an insurance policy are said to be well-settled in Canada. Over the past 20 years, our highest court has heard several appeals and provided much guidance as to the proper approach. Yet there remains room for disagreements rooted in unique fact patterns and variations in contractual language. For example, decisions in the ongoing

16 Canadian Underwriter September 2013

dispute between Onex Corporation and American Home Assurance Company with respect to coverage under several directors’ and officers’ (D&O) policies continue to demonstrate that factual context and reasonable expectations can impact liability determinations. Such cases teach that intentions, negotiations, and expectations should be carefully monitored and considered when any contract or policy is being prepared or construed. In the instance of Onex and American Home Assurance, proceedings were originally commenced in Georgia by a litigation trust on behalf of unsecured creditors as a part of Chapter 11 bankruptcy measures when Magnatrax Corporation, a former subsidiary of Onex, became insolvent. It was alleged that Onex and four of its officers and directors had enriched themselves at the expense of Magnatrax, contributing to its failure. After close to US$35 million in reported defence costs, the claims were ultimately settled for US$9.25 million. Under a D&O “run-off” policy issued to Magnatrax in anticipation of its possible sale by Onex, American Home paid

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2013-08-14 1:39 PM


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out US$15 million against the defence costs. However, Onex and the four directors and officers (two of whom were also directors and officers of Magnatrax and the other two of whom had been alleged to be de facto directors and officers of Magnatrax) commenced an action in Ontario seeking coverage under other policies issued to Onex. At the time of this writing, the Supreme Court of Canada still has yet to determine whether it will grant leave and hear challenges to findings of the Court of Appeal for Ontario made earlier this year regarding motions for summary judgment and its ruling that more evidence was needed in order to resolve the dispute as to how specific terms of the policies should be interpreted. Apart from the somewhat complex but interesting web of policies, endorsements, and terms in this case, it clearly stands out that the Court of Appeal declined to resolve an issue of contractual interpretation between these sophisticated parties by a review of policy language and background information. Instead, this case serves as another reminder that there can be much more to the contractual interpretation of an insurance policy. When giving meaning to a policy as a contract, the first principle of law to be considered is that the parties to an agreement sought to put their intentions into words. A court then, in reading and imposing an understanding of that contract should be seeking to give force to the parties’ intentions. Finding the meaning that was intended by the parties when they entered into the contract is the goal. If it can be said that the language of the contract is clear and unambiguous then that is the end of it. But that may not be quite as simple as its sounds. As determined in 2006 by the Supreme Court of Canada, in its ruling in Jesuit Fathers of Upper Canada vs Guardian Insurance Co.of Canada, an insurance policy must be considered in its context to assess the intent of the insurer and the insured. The Ontario Court of Appeal’s reasons, in paragraph 104 of its February 25 deci-

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sion in Onex v.American Home Assurance, remind, that the very exercise of determining whether or not the language is ambiguous must include an assessment of “...the words of a contract in light of the factual matrix in which the agreement was written.” The court held, in paragraph 105, that “[i]t is important to

When giving meaning to a policy as a contract, the first principle of law to be considered is that the parties to an agreement sought to put their intentions into words. A court then, in reading and imposing an understanding of that contract, should be seeking to give force to the parties’ intentions. distinguish what is meant by the factual matrix from extrinsic evidence that it is admissible to resolve an ambiguity.” In determining whether there is an ambiguity, rather than in resolving such an ambiguity, it is important to consider the

factual matrix arising from the “genesis of the agreement, its purpose, and the commercial context in which the agreement was made,” held Justice Doherty of the Court of Appeal, in 2008, in Dumbrell v.The Regional Group of Companies Inc. Consequently, if it is determined that there is any ambiguity having considered this factual matrix, then one must turn to rules of contract construction such as preferring interpretations that are consistent with the reasonable expectations of the parties, and for this purpose extrinsic evidence may be considered. Of course, other rules may also be said to come into play, such as the well-known principle of broad interpretation of coverage and narrow interpretation of exclusions (which might be said to have greater importance in cases with more unequal negotiating power and less actual negotiation) and the rule meant only as a last resort, contra proferentem. Providing further guidance, the Court of Appeal observed in paragraph 108 in Onex that “...the admission of extrinsic evidence does not mean that the parties’ subjective views of what was intended by the agreement will be used to resolve the ambiguity.” Instead it was held that the courts must look for the interpretation that gives effect to the reasonable expectations or intentions of the parties at the time the contract or policy was made. Having found, contrary to the urging of both sides, that in fact the policy language was ambiguous, the Court of Appeal determined that the evidence necessary to determine the reasonable expectations or intentions of the parties with respect to a specific endorsement (with two different but commercially reasonable alternatives) was not entirely before it. It did, however, reference that the evidence might include discussions and correspondence. Thus, such extrinsic evidence beyond the four corners of the written agreement itself and regarding the parties’ reasonable expectations becomes not only relevant, but required to determine the contractual issues.


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Looking elsewhere for guidance on the consideration of reasonable expectations or intentions of the parties, it deserves note that the Supreme Court of Canada has previously considered the American doctrine of “reasonable expectations.” In1992 in Brissette Estate v. Westbury Life Insurance Co. , the highest court held, at paragraph 102, that the reasonable expectations doctrine generally aims to “...make certain that insurance policies provide the coverage which the insured can reasonably expect to receive.” As noted in Brissette Estate, it has even been suggested, at least in some American academic circles, that this doctrine should take strong precedence over policy wordings. Unlike in the U.S., where often the focus has been on expectations of the insured, in Canada, reasonable expectations of both insurer and insured may receive more equivalent attention. Interestingly, the dissenting reasons of Justice Cory in Brissette Estate might be said to support a notion that reasonableness should be a constraint or limit on construing any ambiguity in favour of an insured, as in the 1984 Court of Appeal for Ontario decision in Wigle v. Allstate Insurance Co. of Canada. However, cited in the Onex appeal decision in support of a norm that reasonable expectations should be considered in cases of ambiguity is also the 1993 decision by the Supreme Court of Canada in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co. It included a finding that an insured’s reasonable expectation is, at a minimum, that an insurance plan will provide coverage for legitimate claims on an ongoing basis. As Justice McLachlin wrote for the court in paragraph 271: “The presumption must be that the intention of the parties is to provide and obtain coverage for all legitimate claims on an ongoing basis, whether through renewal with the same insurer or through securing new insurance with a different insurer.” Although not specifically noted in the decision, evidence in a particular case, whether it be of negotiations between the parties or otherwise, that goes to the

reasonable expectations should be able to overcome this presumption. Certainly, it has been held to be material when commercial reality cannot support an insured’s interpretation. As an example, see the Supreme Court of Canada’s decision in 1999 in The Guarantee Company of North America v. Gordon Capital Corp. Where an ambiguity is found upon consideration of a policy within its fac-

tual matrix, what people did, said, and reasonably expected becomes important in the process of resolving the ambiguity. This is driven by the objective of finding the result that is most faithful to the fact that what the parties really were doing when they entered into a written agreement was putting their intentions into words. It is actually those intentions then, rather than the words, that matter the most.

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September 2013 Canadian Underwriter

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RCA(Sept13)AS_GM.qxp

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Andrew Bent Risk Coordinator, Suncor Inc.

Carol Fox

Director, Strategic and Enterprise Risk Practice, RIMS the Risk Management Society

This article is based on a nine-page 2013 RIMS Executive Report by the same authors, titled Root Cause Analysis: More than Just Cleaning Up the Mess, available from the RIMS website at www.rims.org/rimstore

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Forward Thinking Root cause analysis includes several techniques and approaches, such as the five whys approach and cause-effect diagrams. The analysis is traditionally used after a major risk event or loss, but can also be used, in a predictive way, to manage future risks and to figure out what could cause an initiative to fail — or to succeed. Root cause analysis (RCA) has traditionally been viewed as an assessment method most appropriately used following a major risk event or loss. Increasingly, though, savvy risk managers with more mature risk management programs are using the same techniques to support business and strategic planning as a means of proactively managing risks before they can affect planned objectives.

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WHAT IS ROOT CAUSE ANALYSIS? Root cause analysis (RCA) refers to a series of techniques and approaches designed to allow practitioners to identify the underlying cause or driver of risks. A significant number of the techniques were originally developed in the process engineering and safety fields. These techniques were intended to not only identify potential safety hazards and points of failure during the design of new engineering processes, but also to determine why risk events occurred following significant losses. While it is beyond the scope of this article to address all of the techniques or explain them in detail, risk professionals would benefit from learning about them. The use of RCA has typically been associated with reactive, rearwards-looking review situations. Typically, a significant loss event will have occurred (such as a process failure leading to damage, loss or injury) or a planned activity will not have achieved its expected outcomes. In this type of application, various techniques will be used to try and identify what failure mode gave rise to the loss event, with this information used to support recovery or future preventive actions.


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By developing a picture of the potential risks associated with a planned activity, initiative or objective, planners are able to better incorporate risk treatment activities right up front, rather than as an “add-on” after the fact.

APPLYING ROOT CAUSE TECHNIQUES In more straightforward cases, this might simply use what is known as the five whys approach of RCA. The problem can be analyzed sequentially by asking “why” a factor contributed to the loss event until no further explanation can be found. In more complex cases, this approach may be nested inside a cause and effect analysis (sometimes called Ishikawa or fishbone) diagram. The use of cause and effect diagrams support the analysis of more complex situations, particularly where there are multiple drivers of risk present, each of which requires a more detailed analysis in order to develop a comprehensive picture of the situation. These same techniques can also be used to identify the potential sources of risk during business or strategic planning processes. By developing a picture of the potential risks associated with a planned activity, initiative or objective, planners are able to better incorporate risk treatment activities right up front, rather than as an “add-on” after the fact. When used proactively, the focus of the analysis shifts from the question of what caused a loss to happen to what could cause something to fail — or, perhaps more important — what will cause something to succeed.This type of analysis can also include a range of other RCA techniques such as force field analysis (designed to identify driving and restraining forces in the environment) and influence diagramming, which is designed to pictorially show how the relative strengths of the risk or source interdependencies can impact each other. Both force field analysis and influence diagrams allow the experienced user to align specific actions with specific risks

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(or people) as a means of leveraging (or overcoming) existing dependencies. The proactive application of RCA techniques can be problematic in some situations, particularly where there is cultural skepticism about the value of future casting. One method of overcoming this skepticism is by conducting a solutions effect analysis following the use of other RCA techniques. This approach is similar to the cause and effect technique, but sees the proposed “answers” grouped thematically rather than the risks. These solutions are then analyzed again to reveal any unintended consequences — or untapped success levers — resulting from the combination of proposed actions. By including the proposed solution or action owners in this process, they are often able to see where their ideas may need refinement, as well as giving them greater confidence that the process used to get to those answers was robust. Other extensively used approaches to root causes analysis include concept fans, hazard and interoperability studies, solution effects analysis, life cycle value analysis and hazard identification/environmental identification.While this list is not exhaustive, it provides a good starting point for risk managers looking for a deeper understanding of their exposures.

SELLING ROOT CAUSE ANALYSIS Root cause analysis, when done in a comprehensive and planned manner, provides organizations with the opportunity to not only fully understand the causes of their past losses, but also to proactively plan to prevent similar losses in the future.When used to identify the true cause of past losses, the use of RCA techniques enables organizations to

identify, and then treat the “disease” rather than simply applying a temporary Band-Aid solution to the “symptoms.” In doing so, most organizations will find that their total cost of risk is reduced, as they are no longer required to repeatedly address the same problem. Equally, by applying RCA techniques to the analysis of proposed actions, initiatives and objectives while they are still in the planning phase, organizations are typically able to improve those solutions through the integration of effective risk controls from the outset. This tends to not only improve the effectiveness of the solutions themselves, but also helps to prevent the need (and cost) associated with adding additional layers of risk control after implementation. This helps to reduce costs further, as post-implementation application is often less effective, and is sometimes too late to save a promising opportunity from failure.

CONCLUSION A root cause discipline is a key attribute or competency for mature enterprise risk management programs, as highlighted in the RIMS Risk Maturity Model. Employing root cause analyses in a predictive way for future initiatives, in addition to conventional post-action assessments, facilitates actions that remove, exploit or mitigate the uncertainties associated with those initiatives. Organizations can improve the odds of successful future outcomes by applying risk controls — and previously unrecognized success levers — that most effectively deal with “bottomline” sources of risk. In doing so, they reduce their overall cost of risk by reactively and proactively addressing the root causes of their risk exposures.


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Catching

Up

Senior Manager, Deloitte

Canadian insurers are not meeting their policyholders’ expectations for managing their insurance online. Carriers that do not meet policyholders’ expectations risk losing them to competitors and may incur higher operational costs. In a recent Deloitte survey of Ontario and Quebec auto and home policyholders, 79% of respondents indicated that interacting online with their insurer is important; however, only 4% felt they had access to these capabilities. Less than 5% of policyholders indicated that their last interaction with their insurer or broker was online. More than 90% of policyholders surveyed

24 Canadian Underwriter September 2013

relied on the phone to interact with their carrier or broker, while the remaining policyholders either relied on e-mail or communicated with their broker or carrier in person.

ENABLE SELF-SERVICE Insurance carriers need to develop websites that provide self-service functions to policyholders, including processing payments, updating contact information and changing policy coverage. In developing these online strategies, carriers should not assume that their policyholders will be using traditional computers — rather than tablets or smartphones — to access their websites. Instead, carriers need to consider mobile apps. However, the majority of Canadian insurers offer little to no online self-service functionality. The limited capabilities typically offered are locating a broker, generating a quote, retrieving copies of policy documentation and basic billing capabilities. With mobile capability/availability accentuating these online limitations and providing even fewer options, it is not surprising that less than 1% of Canadian policyholders have used a mobile app for their insurance company.

INSURERS FALL BEHIND BANKS IN ONLINE SERVICES Customers are becoming increasingly frustrated with their insurance providers as they have become accustomed to a high degree of online services from their financial services providers. Retail banks have advanced their online plat-

Illustration by Sandy Nichols/Threeinabox.com

Mark Patterson

A recent Deloitte survey of auto and home policyholders in Ontario and Quebec indicates that few Canadian carriers who use the broker channel let personal lines customers change policies or conduct other business over the Internet.


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Retail banks have advanced their online platforms to allow customers to perform the majority of transactions or inquiries online and through mobile platforms. Canadian insurers have not followed the lead of their financial services peers, instead choosing to continue servicing their customers via the phone, in person or deferring service to their brokers.

forms to allow customers to perform the majority of transactions or inquiries online and through mobile platforms. Canadian insurers have not followed the lead of their financial services peers, instead choosing to continue servicing their customers via the phone, in person or deferring service to their brokers. This has resulted in a large difference between the online capabilities of banks and insurers — banks allow customers to perform complex equity trades online while most insurers struggle to manage billing online. Direct insurers are best positioned to meet customers’ needs as they usually have an established brand and relationship with their policyholders. In addition, most Canadian direct insurers are associated with a bank and, therefore, their customers are accustomed to interacting with their brand online. Unfortunately a review of direct insurers’ online capabilities show that while they are further along than most broker-based carriers, they are still not providing customers with what they expect. The majority of carriers do not allow for changing policy or coverage options online, managing renewals, or allowing customers to manage billing online.

INVOLVE BROKERS Almost all the major Canadian brokerbased carriers have no online policy self-service capabilities for their personal lines policyholders. The few broker carriers that offer online capabilities do not meet the needs or expectations

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INSURERS AT RISK OF LOSING CUSTOMERS

of policyholders. Broker-based carriers have historically delegated the majority of policy servicing to their brokers and, therefore, have not built any online capabilities to service their customers. In addition, brokers have typically wanted to own the relationship with the policyholder and there are concerns that if policyholders are interacting directly with the insurer’s website and brand that it may erode this relationship. Unfortunately, these assumptions can result in a failure on the part of broker-based carriers to meet customer expectations.

Investment is required by direct and broker-based carriers to provide the online capabilities customers demand or they risk losing customers. A recent survey from Deloitte Canada showed that more than half of policyholders indicated they would switch carriers if they were offered greater online services. When looking at younger generations, such as millennials, there is a growing trend for limited loyalty to organizations they interact with, demanding a strong self-serve online and mobile capability. The younger generation is more likely to switch providers based on product and servicing capabilities. This places significant pressure on carriers to not only provide competitive prices to their customers, but also to ensure that they offer innovative and engaging services to their policyholders. Carriers need to develop online strategies to deploy self-serve capabilities. This will ultimately benefit the bottom line and help retain and attract policyholders while simultaneously reducing the operating expense ratio by two to five percentage points. Findings from a Deloitte survey show that policyholders were clear on the types of capabilities they are looking for: managing their billing information/processing payments, updating contact information, changing policy coverage (including adding and removing drivers), comparing prices and submitting/inquiring about claims. Surprisingly, while policy-


holders were interested in being able to produce quotes online, most were not focused on completing their new business transaction online. With this is mind, carriers need to focus their strategy on servicing existing policyholders. Broker-based carriers should consider how they can partner with their brokers to offer online services that meet policyholders’ needs while continuing to emphasize the broker channel and brand. This can include offering portals that are branded by brokers and integrated into the brokers’ websites while being run and managed by the carrier. However, the broker and carrier will need to come to an agreement on determining who policyholders contact if they are having difficulty with the website. Is it the broker for whom the site is branded? Or is it the insurer that created and maintains the online capability?

CARRIERS MUST CONSIDER MOBILE Developing a web strategy without contemplating mobile apps or mobile web

The broker and carrier will need to come to an agreement on determining who the policyholder contacts if they are having difficulty with the website. would be foolish in any industry in this day and age.Therefore, insurers need to consider their online capabilities in the context of current and potential future mobile use. This introduces challenges and opportunities for enhanced capabilities. For example, while regulations are still unclear on electronic pink slips, insurers should assume that being able to produce pinks slips on a mobile phone will be expected by policyholders. Conversely, when designing a quoting application, insurers should consider that customers may be using a mobile device which adds complications when entering large amounts of data and, there-

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fore, creating a need to simplify quoting capabilities. Similarly, carriers should not assume that their policyholders will be able to access their website using a computer; many consumers rely solely on their tablets or smartphones. The majority of large Canadian property and casualty carriers are currently in the process of modernizing their core systems through replacement of inflexible legacy technology with more modern agile systems.While these programs are already daunting in size, complexity and risk, they do offer the opportunity for carriers to align their core system strategies with their online strategies. Based on policyholder opinion and reviews of other online capabilities of financial services, it is clear that, as a group, insurers are underserving their customers online. This is putting them at risk of losing customers to insurers that act first and is consuming a significant amount of time for staff and brokers who manually handle low-value routine tasks.

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Rail Risk Montreal, Maine and Atlantic Railway, whose unattended train with 72 crude oil tanker cars derailed and killed dozens, met the Government of Canada’s criteria for insurance coverage at the time of the Lac-MÊgantic tragedy. But its licence was initially suspended, it has received no indemnity from its insurers and politicians are now asking whether the current insurance coverage rules are tough enough. Meanwhile, some railway risk experts agree toxic inhalation hazards actually present a greater risk than crude oil.

AP Photo/The Canadian Press, Paul Chiasson

GREG MECKBACH

28 Canadian Underwriter September 2013


D

espite the railway accident that killed at least 39 in Lac-Mégantic, Quebec, some commercial brokers suggest that toxic inhalation hazards, rather than crude oil, remain a greater risk to insurers covering freight train operators. However, the July 6 derailment of 63 tanker cars near the Maine border has prompted federal officials to question whether the government should tighten its requirements for rail insurance coverage. “I think that the tragedy of Lac-Mégantic has brought the question of liability squarely into focus,” says David McGuinty, the Liberal Party of Canada’s critic for transport, infrastructure and communities. “I think we can improve the regulatory regime in Canada. We can probably even improve insurance coverage, but we need to examine this in detail.”

September 2013 Canadian Underwriter 29


COVER STORY

Rail Risk

QUEBEC TRAGEDY On July 5, a Montreal, Maine and Atlantic (MMA) Railway train with 72 oil tanker cars had been stopped before midnight near Nantes, uphill from Lac-Mégantic, about 180 kilometres south of Quebec City. At about 1 a.m., the train started to move down a 1.2% grade into Lac-Mégantic, picked up speed and 63 tanker cars derailed. At press time, published reports indicated officials identified 39 of the people who died; another eight were missing. The Transportation Safety Board of Canada (TSB) was still investigating. Six weeks after the derailment, the Canadian Transportation Agency (CTA) suspended MMA’s certificate of fitness effective August 20, finding that MMA had not demonstrated that its thirdparty liability insurance “is adequate for ongoing operations.” CTA later ruled MMA had “adequate third-party liability insurance coverage for short-term operations from August 20 to October 1, 2013, conditional on securing their self-insured obligations.” As of press time, the suspension of MMA’s certificate of fitness was scheduled to take effect October 1. The Canada Transportation Act requires anyone wanting to build or operate a railway line under federal jurisdiction to apply to CTA, which is an independent federal quasi-judicial agency, for a certificate of fitness. “The agency issues such certificates if it is satisfied that there will be adequate third-party liability insurance coverage for the proposed construction or operation,” a CTA spokesperson wrote in an e-mail, though federal regulations do not require a specific dollar amount of coverage.

NO SPECIFIC LEVEL OF COVERAGE REQUIRED “There’s no regulation that mandates the amount of insurance that’s purchased,” says Dan Bancroft, senior vice president and transportation practice leader at Willis North America Inc., referring to regulations on both sides of the border. 30 Canadian Underwriter September 2013

In Canada, CTA uses several criteria to determine, on a case-by-case basis, whether a railway firm has adequate third-party liability coverage. For example, CTA is mandated to confirm the firm has “fully disclosed” its risks and the amounts and nature of its coverage. CTA is also required to determine the

For freight, “I would say toxic inhalation hazard would be the greatest risk from an insurance carrier’s perspective,” says Evan Garner, vice-president of Marsh Canada Ltd. “Derailments causing pollution spills, causing the release of toxic inhalation substances, and business interruption caused by, say, flooding — those are the key insurable risks that a railroad has.” financial capability of the railway company to “sustain its self-insurance portion and the financial strength of the insurance company to pay its contractual coverage.” CTA must further confirm that the “proposed coverage is not out of line with similar railway operations.” It was not clear at press time whether this will continue to be the case in Canada. On August 13, CTA stated that this

fall, it will “undertake a consultation and review of adequacy of insurance coverage requirements for the issuance of certificates of fitness” for railways regulated by the federal government. “The tragic derailment in Lac-Mégantic has raised important questions regarding the adequacy of third-party liability insurance coverage to deal with catastrophic events, especially for smaller railways,” CTA stated in a press release August 13. Nine days later, the Standing Senate Committee on Energy, the Environment and Natural Resources recommended that Transport Canada “apply appropriate minimum liability coverage thresholds to ensure rail companies have the financial capacity to cover damages caused by a major incident.” The Senate committee’s recommendation was contained in a report — titled Moving Energy Safely: A Study of the Safe Transport of Hydrocarbons by Pipelines, Tankers and Railcars in Canada. At press time, officials with the office of Transport Minister Lisa Raitt had not responded to a question from Canadian Underwriter as to whether the government plans to mandate a specific level of insurance coverage or financial capacity for railway operators. In its report — based on a study commissioned last November — the Senate committee notes the Lac-Mégantic tragedy “raises concerns about the adequacy of the rail industry’s safety system when transporting petroleum products and other dangerous goods.”

TOXIC INHALATION HAZARDS Speaking generally, railway risk experts from Marsh Inc. and Willis Group suggest crude oil is not the top concern for insurance carriers covering freight train operators. “For freight, it certainly would be a derailment causing the release of hazardous substances,” says Evan Garner, vice president of Marsh Canada Ltd. “I wouldn’t say crude oil would be the worst. I would say toxic inhalation hazard would be the greatest risk from an insurance carrier’s perspective.”


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COVER STORY

Rail Risk

Garner adds that the core risks for railways include pollution, directors’ and officers’ liability and business interruption. “Derailments causing pollution spills, causing the release of toxic inhalation substances, and business interruption caused by, say, flooding — those are the key insurable risks that a railroad has,” Garner says. For carriers covering passenger rail operators, the greatest concerns would be a collision or a derailment causing injury, he notes. “Typically if you look at the largest quantified losses that have occurred in the industry over the course of the last 10 years, from a North American perspective, they would certainly be the release of toxic substances,” Garner says.

tank cars. The eighth, 12th and 13th cars, which contained propane, exploded and were sent flying. Car 7, which contained chlorine, “suffered a hole in its shell 2.5 feet in diameter.” What followed is described in published reports as the largest peacetime evacuation in North America prior to Hurricane Katrina in 2005.

CLOSE CALL AT MISSISSAUGA

“I have been practising environmental and energy law for 28 years, on and off, and there are a lot of questions around this concept of ‘polluter pays,’ a lot of questions around the sufficiency of coverage,” says David McGuinty, the Liberal Party of Canada’s transport critic and MP for Ottawa South.

One such release about 30 kilometres west of downtown Toronto resulted in the evacuation of more than 200,000, mainly in Mississauga. On November 10, 1979, a Canadian Pacific Railway (CPR) train with 106 cars was hauling chlorine, propane, toluene, caustic soda and styrene from southwestern Ontario. Its intended destination was a freight classification yard in northeastern Toronto, but the train never made it there. The 33rd car, which was carrying toluene, had developed a “hot box” in its right rear journal, notes a report by Mr. Justice Samuel Grange, the commissioner who presided over an inquiry ordered by the federal government. Rail car axles at their extremities are known as journals and they bear the weight of the cars, Judge Grange noted in the Report of the Mississauga Railway Accident Inquiry. Inside journal boxes are bearings resting upon constantly revolving journals, and those on the 33rd car carrying the toluene were of the friction or “plain bearing” type. Judge Grange did not make a conclusion on the cause of the hot box. Regardless of what caused the failure, the 33rd car with toluene derailed near Mavis Road in Mississauga and took 23 other cars with it — 21 of which were 32 Canadian Underwriter September 2013

“A large portion of Mississauga, together with a small part of Oakville to the west and isolated pockets of Etobicoke... to the east” were evacuated on Sunday November 11, Judge Grange noted. “Where the train derailment was, is on an area of higher ground and the Cooksville area to the southeast was (in) the biggest danger,” says Mississauga Fire Chief John McDougall, who was a young firefighter at the time of the 1979 derailment. “There are all kinds of areas in Mississauga now that are totally developed, so if it happened there (today), the risk is a lot higher.”

Although 45 square kilometres remained evacuated six days after the derailment, “miraculously no casualties were suffered,” Judge Grange wrote. Unfortunately, that was not the case in a more recent derailment south of the border involving chlorine. On January 6, 2005, a Norfolk Southern Railway freight train near Graniteville, South Carolina “encountered an improperly lined switch that diverted the train from the main line onto an industry track, where it struck an unoccupied, parked train,” states a report from the U.S. National Transportation Safety Board. Three tank cars containing chlorine derailed, and one was breached. The train’s engineer was one of the nine who died of chlorine gas inhalation while more than 554 others were taken to local hospitals. “That loss was of a very, very significant magnitude,” says Willis Group’s Dan Bancroft. “Following that, you saw underwriters becoming more focused on the transportation of toxic inhalation hazards and poison inhalation hazards, gases and liquids.” But considering the volume of hazardous materials that gets transported by rail, it is still relatively safe, he adds. “There’s no way of getting around the fact that railroading is probably considered the best... and probably the most safe way to move hazardous materials.” Others insurance professionals agree. “Overall, railroads are still a safe means of transportation, but, of course, accidents (similar to aviation accidents) can have a large impact, which is why the first interest of both operators and insurers is the safety of the operation,” a spokesperson for Munich-based Allianz Global Corporate and Specialty (AGCS) AG states in an e-mail. “Generally, the tendency is for smaller railroad operators to purchase insurance since claims can have a substantial impact on their business (especially with respect to business interruption) and often larger operators decide to self insure.” Class 1 railways, which include CPR and Canadian National Railway Company, normally have professional risk


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COVER STORY

Rail Risk

managers and buy from global markets, Bancroft says. He notes that depending on their line of business, the Class 1 railways may have a self-insured retention that “could be as high as $50 million per accident.” Bancroft adds liability policies for large railways tend to be “very customized,” and can include injury, property damage liability, damage to the cargo being transported, sudden and accidental pollution, and damage to or loss of rail cars owned by a different company. “If you can imagine a derailment scenario where you have all five coverages involved, and you have the potential for expenses that could be quite excessive, you’re putting more demands on the limits that are available,” he says, adding that the railway and insurance industries are still dealing with Hurricane Sandy, the disaster that struck the West Indies and U.S. northeast last October.

HURRICANE EXPOSURE “It was very clear that underwriters pulled back their cat limits, increased their deductibles and retentions, and that has had a material impact on programs and how insurance is bought,” Bancroft says of Hurricane Sandy, which made landfall about 200 kilometres south of New York City October 29. “Rail operators have property exposures and cat-prone areas. From a capacity and pricing standpoint, that’s probably the most significant thing that they’re dealing with right now. I would say that any fallout from... the derailment in Quebec... perhaps it’s too soon to really see what that may be.” After the Lac-Mégantic derailment, CTA reported that in 2005, it had been “satisfied” that MMA had “adequate third-party liability insurance coverage, including self-insurance.” CTA’s August 13 announcement of the suspension of MMA’s certificate of fitness came five days after a Quebec court granted MMA Canada protection from creditors under the Companies’ Creditors Arrangement Act (CCAA). At press time, the order was in effect until September 6. Mr. Justice Martin Castonguay, 34 Canadian Underwriter September 2013

a judge with Quebec’s Superior Court Commercial Division, declared that no proceeding or enforcement process could be started or continued against or in respect of MMA Canada.

“Rail operators have property exposures and cat-prone areas. From a capacity and pricing standpoint, that’s probably the most significant thing that they’re dealing with right now,” says Dan Bancroft, senior vice president and transportation practice leader at Willis North America Inc. NO INDEMNITY PROVIDED In its petition to the court, MMA notes it had a policy with Dublin-based XL Insurance Company Ltd. with a per occurrence limit of US$25 million. That policy covered evacuation expenses, fire suppression expenses, pollution clean-up expenses, bodily injury and property damage. MMA also reported it had an inland marine policy with Traveler’s Property and Casualty Company of America, covering property, rolling stock, track and repairs and business interruption.

But MMA claimed in its court submission it had not received any indemnity either from Travelers or from XL, “notwithstanding claims presented.” A spokesperson for XL confirmed that the carrier had written a policy for MMA, but would not comment on whether or not there was a dispute over a claim. MMA has about 820 kilometres of track in Quebec, Vermont and Maine. The track going through Lac-Mégantic goes from the Montreal suburb of SaintJean across the border to Brownville Junction, Maine. The firm was formed in 2003 when Rail World Inc. of Rosemont, Illinois acquired the assets of the Bangor and Aroostook Railroad. At the same time MMA Canada filed for creditor protection in Quebec, MMAR Ltd. also filed for protection under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Maine.

ENVIRONMENTAL CLEAN-UP ORDER In its filing with the Quebec court, MMA Canada referred to a class action lawsuit commenced in the province against the railway, and to a claim from the Municipality of Lac-Mégantic for nearly $7.8 million. It also referred to a clean-up order issued by Quebec’s Ministry of Sustainable Development, Environment, Wildlife and Parks. An article posted by law firm Norton Rose Fullbright notes that the province ordered MMA — along with Western Petroleum Company and World Fuel Services Corp. — to recover oil and other contaminants discharged into the environment, including oil spilled into the Chaudière River, along its banks “and in any other area where they may have migrated.” The Quebec environment ministry also ordered the firms to prevent the spread of spilled oil. But Judge Castonguay’s August 8 order stayed and suspended the environmental clean-up order against MMA, and authorized MMA “to continue to carry on its business and financial affairs in a manner consistent with past periods...”


Risk Solutions

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COVER STORY

Rail Risk

The court order also suspends all other proceedings against MMA, its corporate group, its liability insurer and the directors, officers and employees of MMA and its corporate group in connection with the derailment. In its petition under CCAA, MMA noted it received a letter of demand from CPR for more than $1 million for equipment lease, among other things. CPR had taken the oil from North Dakota to a yard near Montreal, where MMA picked it up. The intended destination was Saint John, New Brunswick. Published reports indicated officials were concerned about hydrogen sulphide in the oil. TSB plans to analyze metallurgical samples, damage records and photographs to determine the crashworthiness of the tank cars involved in the derailment, the board stated in August when it released preliminary results of its ongoing investigation. The board also plans to process, analyze and compare numerous fluid samples “in order to verify the properties of the petroleum product” on the train. “This analysis is being carried out to help investigators determine why the oil created such a fierce fire that night,” notes the press release from TSB. While Transport Canada administers policies and regulations, TSB is an independent federal agency whose mandates include investigations, identifying safety deficiencies and making recommendations.

NEW RAIL SAFETY RULES The federal government is already tightening safety rules in the aftermath of LacMégantic. On July 23, Transport Canada issued several emergency directives. One requires railway operators to ensure “all unattended controlling locomotives on a main track and sidings are protected from unauthorized entry into the cab.” Another new directive requires that directional controls be removed from any unattended locomotives on main tracks or sidings to prevent them from moving forward or backward. In addition, two new rules apply to brakes. Railway companies now must ensure that their special instructions on 36 Canadian Underwriter September 2013

hand brakes are applied to any locomotive attached to one or more cars left unattended for more than an hour on a main track or siding. They must also ensure that automatic brakes are set “in full service position and the independent brake is fully applied for any locomotive attached to one or more cars that are left unattended for one hour or less” on a main track or siding.

“Increasing shipments of crude oil and other hazardous materials by rail highlight the need to determine how best to ensure that railways, small and large, have appropriate levels of third-party liability coverage,” the Canadian Transportation Agency states in a press release. The same day those new rules were announced, the House of Commons Standing Committee on Transport, Infrastructure and Communities voted to conduct a study of rail safety when more findings of the TSB’s investigation become available. “We’re waiting on the interim findings of TSB,” says a committee vice chair, Liberal MP David McGuinty. “The committee has committed to undertaking to do a study and I’m betting that will be in the fall.”

Those measures were not enough for the New Democratic Party, which on July 10 called on the federal government to phase out the use of DOT-111 tank cars — the type MMA was using in the Lac-Mégantic derailment — in the transport of hazardous materials. DOT-111 — known in Canada as CTC-111A — refers to specifications for rail tanker cars established by the U.S. Department of Transportation and the now-defunct Canadian Transportation Commission (CTC), says the Senate energy, environment and natural resources committee in Moving Energy Safely. The committee recommended that Transport Canada review the DOT-111 standard in conjunction with the U.S. government. “According to the TSB, these types of tank cars ‘do not have head shields and are pressure-tested at relatively low pressures... they can be constructed of carbon steel, aluminum alloy or alloy steel (stainless). They do not have protective housings to safeguard the top fittings from impact damage,” states the Senate committee report. “The TSB has had a long-standing concern with the use of these tank cars in transporting liquid dangerous goods due to a high incidence of tank integrity failures when involved in derailments.”

MORE ENGINEERS NEEDED? In addition to calling July 10 for the government to phase out DOT-111 tank cars, the NDP is demanding an end to the practice of having only one engineer aboard a train when dangerous goods are being transported. Then, during the July 23 Commons transport committee meeting, NDP transport critic Olivia Chow (the committee’s other vice chair) tabled a motion calling for the committee to start a study that would examine, among other things, whether or not the phasing out and replacement of cars such as the DOT-111 is required. Chow’s motion, which was defeated, also proposed that the committee examine TSB recommendations on rail safety that the board had “not deemed fully satisfactory in terms of the actions taken by Transport Canada.”


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COVER STORY

Rail Risk

“Generally, the tendency is for smaller railroad operators to purchase insurance since claims can have a substantial impact on their business (especially with respect to business interruption) and often larger operators decide to self insure,” Allianz Global Corporate and Specialty AG states in an e-mail. Six Conservative transport committee members — in addition to McGuinty — voted against Chow’s motion. Chow, MP for the Toronto riding of Trinity-Spadina, said during the committee meeting that she did not believe the committee should wait until the Lac-Mégantic investigations are complete before undertaking a study. “I believe we have enough information before us... to begin to look at some previous recommendations, such as implementing additional back-up safety defences to help ensure that signal indications are consistently recognized and followed, that there be voice recorders in locomotive cabs, that safety assessments be carried out at level crossings on high-speed passenger rail along the Quebec-Windsor corridor, and that positive train controls be in place, meaning automatic braking systems,” Chow said during the meeting. But other MPs on the committee argued they should wait until TSB makes further findings about LacMégantic. In addition to TSB’s inves38 Canadian Underwriter September 2013

tigation, McGuinty noted at the time, there was also an ongoing criminal inquiry and coroner’s investigation, as well as investigations by Transport Canada, Environment Canada and Quebec’s environment and sustainable development ministry.

ONGOING INVESTIGATIONS “The railway’s own internal railway investigation is pending, and the Quebec government is possibly going to be pursuing a public inquiry,” McGuinty said during the meeting, adding the Commons transport committee should let the authorities continue their investigations “without political intervention or disruption.” McGuinty taught environmental law at King’s College at the University of London before he got into politics. “I have been practising environmental and energy law for 28 years, on and off, and there are a lot of questions around this concept of ‘polluter pays,’ a lot of questions around the sufficiency of coverage,” he says, suggesting politi-

cians need to find out more about the costs of past disasters involving hazardous material spills. “To what extent have those costs been met by insurance back-up or by corporate expenditures?” McGuinty asks. “I know more or less what it cost when it came to BP,” referring to the April, 2010 explosion of British Petroleum’s Deepwater Horizon offshore drilling platform. BP notes it is required under the terms of a plea agreement to pay US$4 billion, including criminal fines and payments to the National Fish & Wildlife Foundation and to the National Academy of Sciences. “I think we have a lot to learn, as legislators, based on past accidents,” McGuinty says. “I think we need to govern ourselves accordingly, looking forward, to make sure the question of sufficiency of coverage will be central. I think it’s now incumbent upon the transportation committee to do what it said it would do when it unanimously supported a motion to conduct a serious study on rail safety. I think that study is going to have to embrace these insurance... questions.”


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Side Deals

The CIP Society Insurance Institute of Canada

In a mid-sized town, the majority owner of a well-established insurance brokerage had develThe CIP Society represents oped many business connections resulting from more than 17,000 graduates years of cultivating solid relationships.The conof the Insurance Institute of nections included both personal and commercial Canada’s Fellow Chartered clients, plus service industry suppliers and other Insurance Professional insurance-related contacts. (FCIP) and Chartered After many years of contemplation, the broker Insurance Professional decided it was time to commence a major home (CIP) Programs.The CIP renovation project. He discussed this notion Society, through articles with someone who happened to be a longsuch as this, is working standing client for both his commercial and to bring ethical issues to personal interests. The client happened to be a the forefront and provide general contractor that specialized in home learning opportunities that renovations. The client/contractor advised the enhance the professional broker to look no further and that he would proethics of all insurance vide the best value and quality.The broker knew professionals. of the contractor's excellent reputation for both quality and price. A close friend to the broker wished him well on the forthcoming renovations and asked if he thought about all of the ethical considerations of hiring an existing client. Puzzled by this comment,

40 Canadian Underwriter September 2013

the broker asked him to clarify. “Well,” said the friend, “here are a few to get you started.” 1) The transparency of the deal, that is, what might other long-standing clients/contractors think if they were not given an opportunity to bid? 2) Will other shareholders in your brokerage feel that they are subsidizing the renovations through reciprocal arrangements made on the client’s insurance file? 3) Will you be beholden to the contractor if the deal is better than typical? 4) If the renovations do not meet your expectations, yet the contractor feels that they meet the requirements of your agreement, how will you manage the dispute without jeopardizing your existing relationship? Not wanting to discourage the broker, his friend indicated that there are many other considerations that may be unique to this situation. What might some of these be? Should the broker dispense with this arrangement with the client, or how might he address the foregoing items and also prevent other complications?

Illustration by Sandy Nichols/Threeinabox.com

The CIP Society Ethics Series

A broker is thinking of hiring a client in the construction business to work for him or her personally on a home renovation project. Doing business with friends and clients is not forbidden, but what are some of the ethical and business-practice considerations?


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Maurice Audet Senior Vice President, Regional Resource Leader Risk Research & Solutions Aon Reed Stenhouse Inc. With respect to the scenario presented, the words of caution provided by the broker’s friend are definitely justified. However, we do business with people who can get the job done. Doing business with friends and clients is not something that should be shunned, but it should be approached with caution. In reviewing the Registered Insurance Brokers of Ontario’s (RIBO) Code of Conduct, there is nothing prohibiting brokers from doing business with clients or friends. What is important is that the transaction be transparent, in that it be treated as a proper contract and not as a handshake deal. The payment for the work cannot be a waiver of insurance premiums in return for the work. Based on the information provided, the contractor does excellent work at a good price.This is the type of person we

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want to deal with, both professionally and personally. So that there are no misunderstandings as to the scope of the work or the quality of the work, the expectations must be spelled out in a proper industry-accepted contract showing the scope of the work, the price, the term of performance and the procedures for dealing with disputes.

Randy Bushey Broker Consultant Whether a broker chooses to buy goods and services from a client, or makes a corporate policy decision prohibiting such transactions, the terrain is littered with potential ethical and businesspractice landmines. That is because different people can have very different standards of what ought to take precedence in guiding the right business decision. The practice of ethics involves “the standards and principles of right conduct,” that is, how one determines the

principles — or behavioural “ought-ness” — to apply in a given situation. The principle is easy to understand. The application is usually much more difficult! Sometimes, a written code — such as an employee manual — is a solution. However, if no such objective standards exist, the prevailing business culture may be determinative — and business culture ethics can be very different according to region and context. In my corner of the world (northeastern Ontario), reciprocity is the expected standard and is rooted in the culture for generations. Clients paying a premium to a broker also expect that the broker buy from them when and if the opportunity arises. So how does one avoid the landmines articulated by the broker’s friend in the example above? A mentor of mine summarized all in his idiom, business is business. Among other things, this means the following: - Think through the implications of

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Stephen Wilson (left), Commercial Underwriting Manager , Central Region Terry Samson, Commercial Underwriting Manager, Pacific Region Yar Ziolkowski (right), Commercial Underwriting Manager, Prairie Region

The Sovereign is an “A” rated Canadian Insurer.

September 2013 Canadian Underwriter

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selecting the contractor before you enter into the transaction, so you will be ready to provide an answer if another client asks why he or she was excluded. - Always expect and provide good value for the dollar; never expect — or allow your client to expect — more by way of a special deal. - When dissatisfied with the goods or services provided by a client, explain so clearly, honestly and respectfully — just as you would expect someone to express his or her disappointment with broker services that fall below expectations. - Maintain transparency and apply the “mother sniff test.” (If my mother were to sniff around in my file, would she approve?)

As with any contractual agreement, there has to be a clear understanding of what each party expects of the other. The contract should define the terms — such as the extent of the work to be done, price, materials, schedule of payments, ongoing progress review and timelines.The contract should also specify that in the event unforeseen issues arise as a result of the renovation, the

Nadine Austin Senior Investigator Complaints and Investigation Department Registered Insurance Brokers of Ontario (RIBO) In this scenario, the client and the broker have enjoyed a long-standing relationship based on ongoing trust. The client has received the benefit of the broker’s knowledge and service over the years and in return, the broker has made money. Business protocol would encourage the broker to afford his client the same opportunity. The broker is aware of his client’s reputation for quality work and he has heard from others that his work is fairly priced. Why would he not consider him to do the work?

value of the contract may be adjusted. In addition, a letter should be attached to the contract that clearly indicates that this is a normal business agreement and that no special discounts have been applied.This document and the contract should be signed and dated by both parties.The broker should make it clear that this is a standard business deal. From a regulatory perspective, taking these extra steps removes the potential that favours are being done.

42 Canadian Underwriter September 2013

A letter should be attached to the contract that clearly indicates that this is a normal business agreement and that no special discounts have been applied.

THE LAST WORD When a broker hires a client, it is important to recognize that the nature of the business relationship changes.

Because of the change, new sets of expectations should be defined in advance of any work being completed. It is also important to recognize that the broker’s other clients and co-workers may misinterpret the relationship as one where favours are being traded. In this situation, the broker’s actions can help ensure he maintains the trust of the people around him. A standard contract can help outline the terms of the agreement between the broker and contractor and should include the scope of the work and timeline. If either party is unsatisfied with the outcome of the relationship further down the road, the original document can serve as a good reference for resolution. Being aware that other clients and coworkers may question the nature of his business relationship, the broker can help dispel the uncertainty. He can ensure that all of his transactions are transparent and that he follows normal business practices. Part of being ethical is recognizing that there may be an appearance of unethical behaviour, even if untrue. In the end, the broker should be prepared to answer questions about his new working relationship. He should take a proactive approach and mitigate future problems by entering into a contract with his client that defines expectations from both sides. He should make it clear that he understands what a conflict of interest is and be able to demonstrate, with evidence, that one does not exist.


You might say “seamless integration.” We just call it a good fit.

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All in the

Delivery

Karl Greenlaw Founder and CEO, Brovada

As more customers buy insurance through aggregators, price will become a key differentiator. But brokers who are good at delivering insurance will be in the best position to compete. Travel agencies have all but disappeared thanks to the convenience of online purchasing through travel websites such as Expedia, Travelocity and Priceline.Video rental stores were thriving in the 80s, 90s and 00s, but most have disappeared in the last three to five years due to the success of video streaming services such as Netflix, Google Play and iTunes. Likewise, newspapers and print media have either embraced the digital format or have had to adjust to a sharply declining readership. That is not to say that the feel of an actual newspaper has lost its appeal; it is just that the ease of digital delivery is making traditional print a thing of the past. As social and technology trends alter the dynamics of these industries, so too are the effects felt by those in the insurance sector.

44 Canadian Underwriter September 2013

The adoption of online insurance continues to grow and is fundamentally changing an industry that, since its inception, has remained virtually untouched. Today in the United Kingdom, roughly 50% of all personal lines business is done online. Although the adoption in Canada and the United States is not as strong, there is a similar movement occurring here. Comparison sites, also known as aggregators, are a big part of the online explosion in the U.K. In 2011, Google Inc. purchased aggregator BeatThatQuote Ltd. Google’s move into the insurance space, though a cause concern for the other 15-plus U.K.-based aggregators, provides confirmation that online aggregation sites are here to stay. Realistically, it may take a couple of years before online sales overtake the traditional selling channels, but it is now only a matter of time. Canadian aggregators such as Insurance Hunter Services Inc. and Kanetix Ltd. are well-positioned to become as embedded in the Canadian insurance market as their counterparts in Britain without coming close to saturating the market. British aggregators have been successful by utilizing a combination of television advertising, Google Adwords and search-optimized website designs to ensure a strong and dominant brand


Does your wholesaler have their hands in your pockets?

At Burns & Wilcox Canada, we do not have a retail division. Why? Because we know that every time you acquire wholesale insurance from a company that also has retail offices, your competitor becomes stronger. As the largest independent wholesale broker and underwriting manager, we do not compete against you, we partner with you. If you want a fair shake, call Burns & Wilcox Canada, not your competitor.

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Some brokerages and insurers may argue that they are in the customer service business which, although being a crucial business practice, is only part of the puzzle. Being really, really good at the delivery itself will facilitate the sales process and provide good customer service.

presence. Will Google decide to build upon their success in the U.K. and make similar moves into Canada and the U.S.? And what effect would that have on the Canadian market? For one thing, insurer branding becomes less relevant when a consumer utilizes an aggregator. Most aggregators, while giving the consumer the ability to compare different insurers head-to-head, place the majority of the comparison emphasis on price. As the aggregation approach garners more traction, price will increasingly become the key differentiator between insurer offerings. Direct writers will continue to fight the aggregators by selling and advertising their brand individually but, without comparison capabilities, consumers will be wary of whether or not they are receiving the best possible price. Those who argue that combined ratios will suffer without the personal interaction of a broker or agent at the time of purchase will be surprised to know that companies in the U.K. were able to maintain their combined ratios while at the same time growing their book by more than 10%. I spoke with a broker recently that has been successful in using a strategic online offering to substantially grow his business over the last few years. Unlike many of his counterparts, who are seeing their books erode, he has found the shift towards online purchasing has allowed him to sell into a larger prospect base and attract clients who

46 Canadian Underwriter September 2013

prefer virtual interaction over face-toface or phone meetings. He recounted a conversation that he had with a group of brokers that were critical of the online approach. They commented that the online brokerages were starting to take market share away from those who have not yet made the leap to online commerce. It was suggested that brokerages should stay away from the online space and grow their business by increasing community involvement and doing things such as putting on an annual barbecue. While being a part of the local community is important, brokers cannot have their heads in the sand and rely solely on what has worked in the past. Nor can they rely on their associations and insurers to save them from extinction by providing policy or products that will give them a competitive edge against the directs. Insurers may feel that if the directs take a large enough hit on their combined ratios that the business will fall back to the broker distribution channel. The reality is that once the aggregators have gained a solid foothold, they will be the ones in control. At a recent event, I spoke about how it is important for brokers and insurers to understand that although they are in the business of insurance, they are even more so in the business of insurance delivery. I strongly believe that focusing and acting on this perspective will position them for success.

Some brokerages and insurers may argue that they are in the customer service business which, although being a crucial business practice, is only part of the puzzle. Being really, really good at the delivery itself will facilitate the sales process and provide good customer service. During my presentation, I used the example of Domino’s Pizza and how it understood itself as being in the pizza delivery business. Because of this understanding, the company has become the number 1 pizza delivery company in the world. It has been able to accomplish this by embracing and adopting technology that enables a highly efficient delivery infrastructure. At a minimum, it is clear that brick and mortar businesses must adapt and embrace the online world. Those who do not adapt will face significant pressure as other, more tech-savvy competitors will happily gobble up their business. The real question is whether the aggregators will dominate this market as much as they do in the U.K., and if so, when will this change occur? Who will win and who will lose is yet to be seen, but those companies focused on delivery will be in the best position to grow their business and compete. Brokers and insurers need to understand that they are in the business of insurance delivery and they need to take measures to embrace the movement towards digital interaction as the preferred way of doing business in an ever-growing online world.


93 Annual Convention rd

Wednesday, October 23 — Friday, October 25, 2013 The Fairmont Royal York Hotel, Toronto, Ontario For complete program details and to register online, visit our website: ibao.org and click on Events.

IBAO’s Annual Convention is the biggest and most exciting insurance broker event on the Canadian insurance industry calendar.

Thursday, October 24, 2013 KEYNOTE SPEAKER:

Terry Jones, Founder and Former CEO, Travelocity.com, Chairman of Kayak.com and CIO of Sabre, Inc. Travel agents and insurance brokers share common innovation challenges... Meet Terry Jones. Terry turned his local travel agency into a little something known the world over as Travelocity.com Terry will unlock the mystery of how to create a culture of innovation. He will teach you how to set winning ideas apart, connect with existing and new customers online, and how to create a new future for your brokerage. Using real world examples drawn from his experience at Travelocity.com, Kayak.com, and his consulting work, Terry will illuminate all phases of the digital conversation.

CSR SEMINAR:

Stand Up, Stand Out, Get Ahead Paul Copcutt, Founder of Square Peg Solution Inc (RIBO CE – 3 Personal Skills Hours)

MEMBER’S SEMINAR: CEO PANEL (RIBO CE - 3 Personal Skills Hours)

This year’s CEO Panel includes five high-profile company executives. We look forward to welcoming Jean-Francois Blais, President, Intact Insurance; Alister Campbell, CEO, The Guarantee Company of North America; Karen Gavan, President & CEO, The Economical Insurance Group; Brigid Murphy, President & CEO, The Dominion; and Maurice Tulloch, President & CEO, Aviva Canada.

Friday, October 25, 2013 The 2013 IBAO Convention is more than just a convention and trade show. Education Seminars offer an opportunity to learn about new industry trends and hone your skills based on the standards expected of today’s professional insurance broker.

EDUCATION SEMINARS:

FOLLOW THE CONVERSATION

@IBAOntario #IBAOConvention13

Banquet & Ball

• Operational Inefficiencies – The Seven Deadly Wastes Facilitator: Sean H. Mulcair Co-Founder of Gradient Solutions (RIBO CE – 3 Management Hours) • The Branding Highway Facilitator Gair Maxwell Co-Founder of The Seamless Brand™ (RIBO CE – 3 Management Hours) • Coaching for Success Facilitators Ellen Melis, Owner & President of Unlimited Potential; Bruce McLeod, Certified Executive Coach (RIBO CE – 3 Management Hours)

Magenta Sponsors

6th Annual Awards of Excellence Gala will acknowledge brokers for their contributions to the industry. Award categories include: Broker of the Year, Brokerage of the Year, Young Broker of the Year, and Broker Affiliate Achievement. This is the premier function recognizing the merits and qualities of general insurance brokers, brokerages, and affiliates. Be one of more than 400 guests who will be on hand to support the nominees, cheer for the winners, and celebrate our shared success.


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Kyle Urech

President, Restoration Contractors Organization of Canada

Contractors who clean, remediate, repair and renovate properties that have undergone insured losses have little to no say in their top-line revenue. But with hazards such as asbestos, flammable materials, toxic chemicals and damaged but live electrical components, the cost of ensuring the safety of employees and the occupants is significant and this is eroding the margins of restoration contractors. Property restoration projects can be far more complex — and hazardous — than many might think. Recent weather-related catastrophes serve as a reminder that property restoration projects pose numerous health and safety threats to both restoration workers and building occupants.

48 Canadian Underwriter September 2013

Contractors undertaking restoration work on behalf of property insurance clients have little input into determining their own prices and overhead allowances. However, the cost of ensuring the safety of this work is significant, especially when one accounts for the cost of personal protective equipment, employee training, compliance with industry best practices, provincial workers’ compensation premiums and incident investigation. The ever-growing list of safety requirements adds cost and complexity to even the simplest of restoration projects. Take a basic water loss, for example. Obvious hazards include exposure to bacteria from sewage and the risk of slipping or falling on wet surfaces. However, look more closely and there are a number of additional hazards that could be present. Examples include electrical hazards, the potential for blowback from compromised furnaces, heat stroke when such work occurs during periods of high temperatures and hazards relating to the use of chemicals.These are issues that restoration contractors face every day. During catastrophic events, restoration contractors employ large numbers of temporary workers. More recently, we have seen large,

Illustration by Sandy Nichols/threeinabox.com

Safe at all Costs


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independent groups of volunteers tearing out water-damaged building materials. Regardless of who does the work, workers must be aware that older building materials may contain asbestos in varying degrees, and both regular and temporary workers must be trained to identify potential exposures, and to take appropriate measures to deal with them. This is true of all regulations affecting the industry, be it the identification of designated substances, complying with accessibility laws, workplace harassment regulations, and the Ontario Ministry of Labour’s proposal to mandate training for occupational health and safety (OH&S) awareness. The restoration industry is highly regulated and compliance comes at a cost. In order to ensure compliance, restoration contractors invest heavily in the development of (OH&S) programs for their businesses. There is no “one-sizefits-all” solution. Many restoration companies have expanded beyond traditional fire/flood/wind remediation and offer specialized cleaning services such as trauma scene restoration. Others offer hydrocarbon remediation. With each new area of expertise comes additional complexity and additional OH&S costs.

OH&S PROGRAM COSTS THAT CAN BE INCURRED Development of OH&S programs — The cost to develop these programs is significant and in many cases, involves the expertise of outside resources to ensure maximum effectiveness. Best practices, American National Standards Institute (ANSI) standards and the cost of complying with federal/provincial/municipal regulations are all part of the equation. Training — Once OH&S programs are developed, the appropriate personnel must be trained and ongoing training programs must be developed. Training in the restoration industry is continuous, not just for new employees, but for everyone in the organization.

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OH&S Audits — There are typically three types of audits to ensure that OH&S programs are as effective as they can be. External audits are usually conducted by third-party experts, outlining areas of strength and areas where improvements can be made. Maintenance audits are typically conducted by in-house staff charged with maintaining OH&S programs. These audits focus on compli-

ance and training, again to ensure that programs do not become out of date and remain effective. Finally, peer audits can be conducted by other restoration firms, or by other restoration locations from within a national network. Workers’ compensation benefits — The benefit of workers’ compensation regimes is that they provide on-going


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monitoring and a host of resources aimed at reducing workplace hazards and workplace injuries. However, these programs are complex and bureaucratic, and require the expertise of outside consultants to navigate the myriad rules that exist. The bureaucracy in some regimes has led to confusion over benefits and premiums. In the case of Ontario, the Workplace Safety and Insurance Board, as of March 31, had an unfunded liability of more than $13.3 billion.This is money that WSIB forecasts is required to meet future obligations, but which WSIB currently does not have. The provincial government has no appetite to use taxpayer money to fill the gap, so the Ontario workers’ compensation regime is looking to new avenues to increase revenue. Options include across-the-board rate increases, reduction of benefits and finding new participants to include in the program. Accident investigation and documentation — No industry has a perfect safety record. When incidents do occur, there is a significant cost to investigating and documenting the details. In part, this is required to ensure compliance with regulations, but good health and safety programs include an intelligence component, where incidents are analyzed and operations are adjusted to mitigate future exposure to similar events. Personal protective equipment (PPE) — PPE is required for working either with certain substances, or in confined spaces, or both. In the past, the need for PPE has sometimes been questioned by industry stakeholders. However, the use of PPE is well-documented in the many standards employed by the restoration industry. Stakeholders have access to these standards, and are in a position to plan for the use of PPE when certain types of losses occur. PPE is an absolute must for restoration workers, and the cost of PPE is always justified. While not an exhaustive list, each of the above costs are unavoidable and must be absorbed into the operating overhead of all restoration firms. The

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challenge for the restoration industry is that it traditionally has had little input into determining market prices and overhead allowances.Third-party (nonrestoration) companies act as pricing aggregators, and the mechanism to convey overhead cost increases to these companies has historically been a chal-

Regardless of who does the work, workers must be aware that older building materials may contain asbestos in varying degrees, and both regular and temporary workers must be trained to identify potential exposures, and to take appropriate measures to deal with them. lenge. As a result, cost increases do not always correlate to increased line item prices, and restoration contractors see margins continue to dwindle. In some instances, new requirements or regulations are implemented without seeking input from restoration firms, giving them little or no time to plan for the changes.The Henry B.Tippie School of Management at the University of Iowa notes that the average Canadian

property and casualty insurance industry profit margin is 9.7%.Were this true of the restoration industry, any new regulation that resulted in a restoration company paying, for example, an additional $2,000 per annum would have to be paid for from the proceeds of $20,650 in additional revenue.Without the opportunity to plan and seek new sources of revenue, the only steps that could be taken would focus on costcutting, with human resources costs potentially being a prime target. Such steps would place additional pressure on maintaining existing service levels. Even more challenging than unplanned regulation is the issue of everyday costs versus revenue. An internal study conducted by RCOC documented the trajectory of both costs and revenues over the last three years. It found that the rise in costs has outpaced the rise in line item pricing. Adjusted for inflation, the restoration industry has actually seen a decrease in revenue, all things being equal. As a result, RCOC has hired an outside consultant to conduct a more thorough review of these issues and to make recommendations to all industry stakeholders, including restoration companies themselves. This will assist the restoration industry in positioning itself for future changes and the probability of additional regulatory costs. It is difficult to find any industry that does not operate under the shadow of increasing costs. Inflation is something that all businesses have to deal with. Occupational health and safety costs are significant in the restoration industry. With more regulations on the horizon, Canada’s full-service restoration industry has launched a bold initiative to understand how health and safety costs, among its many costs, will affect the long-term sustainability of the industry. In the meantime, stakeholders need to be aware of the challenges that the restoration industry faces, and are encouraged to participate in a joint effort that will ensure long-term sustainability, and continuing levels of service excellence.


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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 PROedge Seminars: Ottawa – Financial Literacy for Insurance Professionals . . . . . . . . . . . October 1 Vancouver – Boiler & Machinery: Equipment Breakdown . . . . . . . . October 16 Nanaimo – Liability Claims: Avoid Getting Caught in the Middle . . . October 24 Saskatoon – Telematics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 30 Ottawa – Business Continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 28 CIP Society Events: Hamilton – Ralph Palumbo Luncheon . . . . . . . . . . . . . . . . . . . . . . . November 4 London – Annual Speakers’ Breakfast . . . . . . . . . . . . . . . . . . . . . . . November 20

Convocations: CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country: IIPEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 30 IINB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 1 IINL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2 IIO – Cambrian Shield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 4 & 5 IINS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 7 IIO Southwestern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 7

Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety


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Auto Backgrounder

Greg Meckbach Associate Editor

Harmeet Singh Online Editor

Machination When Ontario carriers propose private passenger auto rate changes to the government, they must now show how their proposed rates and risk classification systems contribute adequately to achieving a 15% premium reduction over two years. The Ontario government recently revealed some details of its plans to reduce private passenger auto rates, pledging to require insurers to re-file rates, with the aim of reducing premiums by 8% next August and by 15% over two years. In response, the provincial brokers’ association suggests mandated reductions in auto premiums must be made in a “responsible fashion” or there is a risk that insurers will leave the segment entirely. The Ministry of Finance announced August 23 it will expect a report in January 2014 from the Financial Services Commission of Ontario (FSCO) to show an approved rate reduction of 3% to 5%. Currently, carriers must submit proposed rate changes — along with supporting actuarial data — to FSCO for approval. FSCO and its actuaries then review the data and insurers’ assumptions regarding claims costs, expenses and investment

income to ensure that the proposed rates are not excessive, but are also not going to impair the carrier’s long-term solvency. Until August 23, FSCO’s return on equity benchmark was 12% and that has now been reduced to 11%.The same day, the finance department announced it is giving its Superintendent of Financial Services the authority to require insurers to re-file rates — a measure the government promised May 2 when it tabled its budget. In the budget, the minority Liberal government promised it would aim to reduce private passenger auto premiums by 15%.

INDUSTRY-WIDE TARGET Then on August 16, amendments to the Automobile Insurance Rate Stabilization Act (AIRSA) came into effect. The act “establishes an industry-wide target reduction” by 15% of the “average of the authorized rates that may be charged by insurers” for private passenger auto, with a two-year target. The law now requires carriers, when filing an application, “to propose rates and a risk classification system that contribute adequately to the achievement of” the 15% target. “Our expectation... was that we would see progress made in identified cost reductions resulting from fraud, but what we heard were more promises of change and not enough action,” states Randy Carroll, CEO of the Insurance Brokers Association of Ontario, in a press release. “There is an inherent risk that the result of to-

September 2013 Canadian Underwriter

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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

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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

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Canadian Underwriter September 2013

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day’s announcement could result in future availability and affordability concerns for consumers in this province. Regardless of the type of business that you are running, you cannot reduce revenue without implementing cost reduction measures and expect to succeed, it just doesn’t work.” The goal of cutting premiums by 15% came at the behest of the New Democratic Party (NDP), which has 20 out of 107 seats in the legislature. The ruling Liberals have 50 seats and the government survived because the NDP voted in favour of the budget.Two months before the budget was tabled, the NDP called on Premier Kathleen Wynne to direct FSCO to gradually reduce average, industry-wide private passenger auto premiums by 15%. At the time, NDP politicians said that auto reforms implemented in 2010 resulted in $2 billion in savings.

REFORMS CUT CLAIMS COSTS The Insurance Bureau of Canada (IBC) has noted that in 2010, carriers lost a combined total of about $1.7 billion on Ontario auto, and made a profit of $233.2 million on written premiums of $10.3 billion in Ontario auto in 2011. The return to profitability in 2011 followed a series of reforms, including a $3,500 cap on injuries falling under the Minor Injury Guideline (MIG), which can include a variety of injuries including sprains, strains, whiplash associated disorders, contusions, abrasions and lacerations. In addition to the cap on the MIG, the reforms that took effect in 2010 included reductions, for non-catastrophic injuries, to medical, rehabilitation and attendant care benefits. The standard auto policy now mandates $50,000 (down from $100,000) in medical and rehabilitation benefits and $36,000 for attendant care (down from $72,000). Then on August 23, 2013, the Ministry of Finance announced it plans to reduce unexpected costs by making the Superintendent’s Guidelines on accident benefits binding. It also plans to “explore” other cost reduction initiatives, such as provincial oversight of the tow-

ing industry and “addressing collision repair practices.” The government also plans to “crack down on fraud.” That commitment to fraud reduction “is a good first step; however it will still be some time before these measures are in place producing savings,” IBC stated last month in a press release. “On a positive note, the government has signalled its intent to implement further reforms in order to resolve longstanding problems that plague the current auto insurance product. That is a welcome development,” it adds. The Auto Insurance Anti-Fraud Task Force, which released its final report last November, recommended that the province “require the licensing of health clinics that treat and assess auto insurance claimants” and to give FSCO the power to regulate their business practices.

“Our expectation... was that we would see progress made in identified cost reductions resulting from fraud, but what we heard were more promises of change and not enough action,” states Randy Carroll, CEO of the Insurance Brokers Association of Ontario. It also recommended the early assignment and continuity of Crown attorneys in large complex auto insurance fraud prosecutions and called on the province to ask the federal government to “move quickly” to pass Bill C-12. If passed into law, Bill C-12 would amend the federal Personal Information Protection and Electronic Documents Act (PIPEDA) so that a company could disclose personal information about a person without his or her knowledge or consent if the disclosure was made “to prevent, detect or suppress fraud when it is reasonable to expect that the disclosure with the knowledge or consent of the individual would undermine the ability to prevent, detect or suppress the fraud.” The goal of changing PIPEDA would be to remove any “undue limitations”

on the ability of insurers to pool claims information to combat fraud, the antifraud task force noted in its report. The task force also recommended the province move “aggressively” to “address the current backlog of mediation cases” before FSCO and to “develop a more robust dispute resolution framework.” On August 19 of this year, FSCO announced that it had eliminated the backlog of applications for mediation, though applications for arbitration are increasing. In 2012-2013, FSCO received 10,510 arbitration applications, nearly double the 5,260 received in 2011-2012.

TASK FORCE RECOMMENDATIONS Other recommendations from the task force included: • providing a “range of sanctions” for FSCO to apply “in cases where clinics are not following FSCO’s businesspractice standards, including giving FSCO the ability to limit or curtail a regulated facility’s access to the Health Claims for Auto Insurance system”; • developing “protocols” for active information sharing about suspicious cases among the investigative divisions of FSCO, the Workplace Safety and Insurance Board (WSIB) and the Ontario Health Insurance Plan (OHIP); and • having FSCO “explore the development of protocols” to permit its investigators to exchange information with investigators from the federal government, including Canada Revenue Agency. Some of the recommendations have already been implemented in regulations that took effect June 1 of this year. For example, the Unfair or Deceptive Practices Act, now makes it illegal to request, require or permit an insurance claimant to sign an incomplete claim form. The Statutory Accident Benefits Schedule (also known as Ontario Regulation 34/10) now gives carriers the right to request confirmation — in writing — that goods or services were provided to the insured person, when either the claimant submits an invoice to the carrier for payment for goods or service, or when someone else submits an invoice on a claimant’s behalf.

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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

EGI Financial Holdings Inc. announced in August it has reached an agreement to sell the company’s non-standard automobile insurance operations in the United States. It has entered into a stock purchase agreement with Michiganbased White Pine Insurance Company, in which White Pine Insurance will purchase EGI Insurance Services, Inc. and all subsidiaries, including American Colonial Insurance Company and EGI Insurance Services (Florida) Inc. “The exit from the U.S. is expected to add $0.30 per share to our annual 2014 earnings and will allow management to concentrate its time and resources on our profitable Canadian and European businesses,” Steve Dobronyi [1], CEO of EGI Financial, notes in a company statement.

2

Mark Dutton [2a] will assume responsibilities as president of Coast Capital Insurance Services Ltd. (CCIS) by the end of the year, notes a recent statement from Western Financial Group. Western Financial acquired CCIS from Coast Capital Savings Credit Union in early July. Succeeding Rick Parent [2b], who is retiring after more than three decades with CCIS at the end of 2013, Dutton’s previous roles include Western Financial’s regional vice president for southern Alberta, director of

casualty and claims (West Region) for Intact Insurance, northern regional manager, claims (Alberta) for Axa Insurance and as a disability management consultant for Arthur Grey Consultants. CCIS offers property, casualty and commercial insurance products through 32 retail insurance offices and a call centre.

1

2a

5

6

3

Bob Murray [3] recently took on duties as vice president, surety for Zurich Canada. Murray brings surety and specialty insurance management experience and 14 years in the banking world of commercial lending and account management to the post. “Bob’s understanding and knowledge of the surety and finance business will complement our already deep commitment to meet and surpass the expectations of our bonding- and construction-focused brokers and customers,” Patrick Lundy, president and CEO of Zurich Canada, says in a statement.

4

Hamilton, Ontariobased CARSTAR Automotive Canada has introduced a real-time, online appointment-booking tool for customers and insurers. The proprietary uSelect tool offers “a turn-key solution to our customers and insurance and franchise partners by eliminating the uncertainty of

56 Canadian Underwriter September 2013

online bookings, which most of the time end up in a phone call or duplicated efforts,” Lisa Mercanti-Ladd, CARSTAR’s executive vice president, says in a statement. The tool can sync realtime online bookings with calendars in more than 180 CARSTAR locations across Canada, the statement notes.

5

Daniel Moses [5] recently joined Everest Insurance Company of Canada as vice president of specialty commercial. Reporting to company CEO David Crozier, Moses has more than 10 years of experience in the insurance industry and most recently served as vice president, Ontario and Central Region for one of the country’s largest managing general underwriters. At Everest Canada, he will have

primary responsibility for the new lines expansion class initiative, notes a statement from the company. “Everest Canada has a broad appetite for a wide range of more specialized casualty coverage and is also building significant property capacity,” the statement adds.

6

Leanne Jefferies [6] has joined the Automotive Industries Association (AIA) of Canada as its new director of collision programs. As part of the senior management team, Jefferies will play a key role in organizing and administering the Canadian Collision Industry Forum (CCIF), notes a press release from AIA, a national trade association representing the automotive aftermarket industry in Canada. She will also help with integrating a


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MOVES & VIEWS

2b

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range of new and existing collision industry initiatives, tying CCIF to I-CAR Canada, devising and implementing recruitment and retention programs, developing marketing and communications tools, and developing relations with Canadian colleges, the statement adds.

7

The Reliance Group of Vancouver has acquired Pat Anderson Agencies, which specializes in small to medium size commercial insurance, homeowner and automobile insurance and supporting insurances, such as mobile home, motor home, boats and seasonal. Reliance Group CEO Jim Ball [7] notes in a statement the Pat Anderson name will remain on the two Burnaby locations. Since

Anderson passed away in late 2011, the business has been run by his widow, Sharon Hardy, and his long-time business partner and friend, Paul Towriss, both of whom will remain with the combined agency. “This acquisition was important to us because there are few independent commercially oriented brokerages of any size left in the greater Vancouver region that fit our profile. The resulting synergies, economies of scale and strengthened insurer relationships will enable us to more effectively compete against our bigger rivals,” Ball says.

8

Software provider Applied Systems Inc. has acquired software and connectivity solutions company Insurecom, a move that expands the former’s opera-

tions into the United Kingdom and will help with delivering enhanced customer support and new products to the U.K. market. Insurecom, which will now operate as Applied Systems UK, has been the exclusive distributor of Applied TAM to insurance brokerages in the U.K. Applied TAM has a user base of more than 100,000 insurance agents and brokers across the U.K., the United States and Canada. Jeff Purdy, senior vice president of international operations for Applied Systems, will oversee Applied Systems UK, working with the Insurecom management team.

9

Crawford & Company (Canada) Inc. has named Caryl McKay as provincial manager for Manitoba and Cheryl Hanson as provincial manager for Saskatchewan. With more than 17 years of experience working in the Winnipeg office, McKay will be the leader and mentor for staff in Winnipeg and Brandon. Hanson, previously managing professional of the Saskatoon and Regina offices, will continue to work with the operations teams in Saskatchewan to promote new business and nurture existing relationships, notes a statement from the company.

10

Western Financial Group announced in August that Jeff Burke [10],

who leads the company’s brokerage network, will replace founder and Senator Scott Tannas as CEO January 1. Burke became president effective September 1. Tannas will work with Burke during the transition period, Western noted in a statement. After January 1, Tannas is scheduled to assume the new role of vice chairman, focusing on governance, community relations and employee relations, as well as providing counsel on acquisitions. High River, Alberta-based Western Financial Group is owned by Desjardins Financial Group. Since 2012, Burke has been president and CEO of Western Financial Group’s network of insurance brokerages. In his new role, Burke will also lead all of Western’s core business units, including Western Financial Group Insurance Solutions, Western Financial Insurance Company (Petsecure) and Western Life Assurance, which was originally the Canadian arm of Federated Mutual. In addition to those units, Western Financial Group also owns a chartered bank (Bank West), a direct writer (Western Direct Insurance) and Marlin Travel. Before he joined Western Financial, Burke was senior vice president at Allstate Canada Group.

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GALLERY

This year, 214 golfers attended the 14th Annual WICC Ontario Golf Tournament on July 8 at Angus Glen Golf Club in Markham, Ontario. Attendees enjoyed shopping for their giveaway in the Pop-Up store, a gourmet box lunch, silent auction, raffle and delicious dinner. A WICC cheque in the amount of $125,000 was presented by Golf Committee Chair, Kim Hrycko to the Canadian Cancer Society.

58 Canadian Underwriter September 2013

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$332,170(17

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

&ROLQ 5REHUWVRQ $&,, &50 9LFH3UHVLGHQW 2SHUDWLRQV DQG 5LVN &RQWURO Jacinta Whyte, Deputy Group Chief Executive of Ecclesiastical Insurance Group plc and General Manager and Chief Agent for Canada, is pleased to announce the appointment of Colin Robertson to the position of VicePresident, Operations and Risk Control. In his new role, Colin will lead Ecclesiastical’s regional operations with Pacific, Western, Central and Eastern Regions, as well as Risk Managed & National Accounts practices reporting to him. As a member of the Canadian Leadership Team, Colin will play a key role in the achievement of Ecclesiastical’s business goals. With over 15 years of experience in both the UK and Canada, Colin has a proven track record in building solid relationships, management, underwriting, risk control and marketing. In Canada, he has been responsible for the growth and evolution of Ecclesiastical’s risk management practice and for developing innovative and proactive risk control solutions for broker partners and customers. 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.

September 2013 Canadian Underwriter

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

Giffin Koerth held its annual golf tournament, the “Giffin Koerth BIG DIVOT” on July 19 at The Club at Bond Head in Bond Head, Ontario. On the links, players were treated to dramatic hole elevation changes and beautiful fairways. TSN has used the famous north course sixth hole in commercial shoots. Guests also enjoyed a fabulous lunch, a wonderful assortment of prizes and the ceremonial presentation of the “BIG DIVOT” trophy.

60 Canadian Underwriter September 2013


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Cornerstone Insurance Brokers held its 3rd Annual Charity Golf Tournament at Angus Glen Golf Club in Markham, Ontario on August 16. The tournament brought in a record amount of money raised for three local York Region charities. “We are just amazed at the enthusiasm of our golfers. It was an excellent day all around, and we could not have asked for a more generous group to join us,” said Wendy DaSilva, CEO of Cornerstone. In the past two years the tournament has raised more than

Insurance brokerage W.W. Smith Insurance Ltd. of Swift Current, Saskatchewan celebrated its 100th Anniversary by holding an Open House on June 20. According to the company, “We had a fantastic day and served over 400 people “Beef on a Bun”. The event raised over $1200 for the local United Way

The 25th Annual Red River Mutual Golf Tournament, held on June 26th, 2013 at Pine Ridge Golf Course in Winnipeg raised $10,000 for the Firefighters’ Burn Fund. Brian Esau, President and CEO of Red River Mutual, presented a $10,000 cheque to Martin Johnson, President of the Firefighters’ Burn Fund. Red River Mutual is a major

$57,000, is supporting three local charities this year – Autism Ontario York Region, Moving Forward 2015 Foundation, and the family of Noah Facecchia. Cornerstone’s corporate charity of choice, Moving Forward 2015, has helped hundreds of struggling

and the highlight of the day was an announcement that Will Smith will be

sponsor of the Firefighters’ Burn Fund – Fire Safety Trailer Program. This program will see up to 15 Fire Safety Trailers, deployed throughout the province of Manitoba. The trailers will be provided to fire departments and mutual aid districts, which will deliver interactive fire safety education to young people at schools and public events.

residents since its inception in 2010 by providing a new start by aiding in financial security. Cornerstone Insurance Brokers is a multi-line full service privately owned brokerage with offices in Woodbridge, Markham and Barrie, Ontario.

joining the office this fall as the 4th Generation in the family business.

Jeff Somerville, President of Strategic Underwriting Managers Inc. (SUM), is pleased to announce that Andre Charbonneau has joined the Company as Assistant Vice President, Montreal. Prior to joining SUM, Andre was Casualty Manager and Senior Underwriter at a major international insurance company. He brings to SUM his 40 years of experience in all facets of commercial casualty underwriting. Andre will focus on SUM’s growing Commercial General Liability and Excess/Umbrella Liability practices, situate the Company’s Montreal office. Andre can be reached at andre.charbonneau@ suminsurance.ca. SUM Insurance is an independent and 100% Canadian Managing General Agent. Serving Canada coast to coast with offices in Toronto and Montreal, SUM Insurance works collaboratively with first class insurers and reinsurers to design, underwrite and deliver commercial insurance products to its customers insurance brokers. For information about SUM and its product offerings please visit www.suminsurance.ca.

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Totten Insurance Group held its 18th annual Dog Guides Charity Invitational Golf Tournament in support of the Lions Foundation of Canada Dog Guides on August 29 at the Glen Cedars Club in Pickering, Ontario. Since 1983, more than 1,700 Canadians between 4 and 90 years of age have successfully graduated with a dog guide from Lions Foundation of Canada Dog Guides. The impact these dog guides have had on their handlers’ lives ranges from

simplifying everyday tasks, such as picking up a dropped item, to getting help when it is needed most. Dog guide skills include canine vision; hearing ear; special skills; seizure response; and autism assistance to name a few. Heather Masterson, President & CIO of Totten Insurance Group commented, “We are so pleased with the turnout at this year’s annual tournament. The Lions Foundation of Canada Dog Guides plays a crucial role in the lives of Cana-

dians with disabilities and we are very proud supporters of such a valuable charity. Thanks to all of our sponsors and attendees for making the tournament such a success, we couldn’t have asked for a better day!”

ADVERTISERS’ INDEX ACE Canada

9, 39

AIG Canada

31

Applied Systems Aviva Canada Inc. Blouin, Dunn LLP

25 68 (OBC) 66

The Boiler Inspection and Insurance Company of Canada

35

Burns & Wilcox Canada

45

Canadian Broker Network

7

CARSTAR Automotive Canada

43

Catlin Canada

21

Chubb Insurance Company of Canada

17

CNA Canada

27

Ecclesiastical Insurance Canada FM Global

59 12, 13

The Guarantee Company of North America

19

Guy Carpenter

37

insPRESS.ca Insurance Brokers Association of Canada (IBAC) Insurance Brokers Association of Ontario (IBAO) Insurance Institute of Canada Insurance Internet Directory Opta Information Intelligence The Sovereign General Insurance Company SUM Insurance

61, 62 2, 3 (IFC) 47 23, 52 54 67 (IBC) 41 63, 65

Swiss Re

33

WICC

51

WINMAR

49

XL Insurance

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

Jeff Somerville, President of Strategic Underwriting Managers Inc. (SUM), is pleased to announce that Mary Georgas has joined the Company as Assistant Vice President, Toronto. Mary has worked in commercial property casualty insurance for 35 years, most recently as a Senior Underwriter at a National MGA, managing it security program team. She is informed by her experience in all facets of the industry, from brokering to company underwriting. Mary will underwrite Commercial General Liability insurance as well as lead our Security & Protection Industry Practice in Toronto. Mary can be reached at mary. georgas@suminsurance.ca SUM Insurance is an independent and 100% Canadian Managing General Agent. Serving Canada coast to coast with offices in Toronto and Montreal, SUM Insurance works collaboratively with first class insurers and reinsurers to design, underwrite and deliver commercial insurance products to its customersinsurance brokers. For information about SUM and its product offerings please visit www.suminsurance.ca.

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7HVVLH .DORJHUDV Claude Blouin and Jamie Dunn, Partners at Blouin, Dunn LLP, are extremely pleased to announce that Tessie Kalogeras has joined the firm as an associate lawyer. Tessie graduated with an Honours B.A. in English Literature from the University of Toronto in 2003 and subsequently completed her M.A. in English Literature at York University in 2004. She obtained her LL.B. from the University of Windsor in 2007 and was called to the Ontario bar in 2008. Tessie articled at a civil litigation firm and then workedinprivatepracticeataboutiqueinsurance defence firm before joining Blouin,Dunn LLP. Her practice primarily focuses on insurance defence litigation, including first and third party claims, disputes between insurers, occupier’s liability claims and property damage disputes. Tessie is a member in good standing with the Law Society of Upper Canada. She is currently a member of the Canadian Defence Lawyers, the Toronto Lawyers’ Association and the Hellenic Canadian Lawyers’ Association. Outside of work, Tessie enjoys spending time with her family, playing basketball and tennis and traveling. Tessie’s contact information is: tkalogeras@blouindunn.com (416) 365-7888 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.competitive rates.

www.blouindunn.com

66 Canadian Underwriter September 2013

Over 30 supporters from the insurance industry rallied and attended a Wine Tasting and Silent Auction fundraising event for Team Mammosa (including industry participants Dawn Finnegan & Carri Wells) in their efforts to walk in the The Shoppers Drug Mart Weekend to End Women’s Cancers Benefiting The Campbell Family Cancer Research Institute at Princess Margaret Cancer Centre – a 2-day, 60-kilometre or 1-day 32-kilometre walk through the neighbourhoods of Toronto. The event was held at Toni Bulloni’s Restaurant in Toronto and raised $5,000 for the team.


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Choice. Service. Expertise. At Aviva, our focus is simple – it’s on helping our broker partners win in the marketplace by providing what’s needed to serve and support customers.

Choice At more than 20 times the size of a common restaurant menu, our selection of over 2,000 products – including leisure and lifestyle and Ovation™ from Aviva – offers you the depth and breadth of products you need to meet your customers’ needs. Service We’re committed to helping you do business easier and faster. That’s why each year our Business Development teams travel over 1.7 million kilometres – the equivalent of 150 trips across Canada on the Trans-Canada highway – and our Concierge teams interact with our broker partners over 1.2 million times. That’s once every 26 seconds, 365 days a year.

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Canadian Underwriter September 2013  

Canada's Insurance and Risk Magazine. Since 1934 Canadian Underwriter, Canada's leading insurance journal, has provided insurance profession...