Canadian Underwriter April 2008

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www.canadianunderwriter.ca

April 2008

PROVINCIAL BROKER SURVEY

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Cover Story 14 Turf Wars Just when it seemed like politics had gone out of style, Canada’s brokers have been forced to be more political than ever before.

VOL. 75, NO.4, APRIL 2008

www.canadianunderwriter.ca

PUBLISHED BY BUSINESS INFORMATION GROUP

24 Profile: PUBLIC TO PRIVATE — As the

58 FUTURE IS NOW — Canada’s first real-time inquiry

Insurance Bureau of Canada (IBC)’s new representative for Ontario, Bonnie Lysyk has moved to Canada’s largest private auto insurance market at a time of pending reforms.

transaction is available and does not require scripting or carrier portals.

BY VANESSA MARIGA

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Insight: MIDDLE MARKET — Large brokers are looking to find more business in the so-called “middle market,” traditionally the preserve of Tier 2 brokerages.

BY LESLIE LACROIX

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Contents

BY DAVID GAMBRILL

BRANDING TRANSFORMATION — Aviva Canada is embarking on a bold new communications and branding initiative that seeks to transform the way people think about insurance.

BY AVIVA CANADA

BY CRAIG HARRIS

62 PIECEMEAL SALES — Brokers should be careful about

NEWS FEATURES

BY J.R. (BOB) TISDALE

selling off portfolios to insurers, with or without inducements.

30 APPRAISING BROKERS — B.C. brokers are receiving mixed messages from the province’s courts, regulators and insurers about the role of the broker in the appraisal process.

BY TED LEWIS

36 BROKER SURVEY — More profitable brokerages tend not to have as many problems with staff turnover and retention as their less profitable counterparts, despite offering the same pay.

BY MICHAEL BERRIS AND VANESSA JACKSON

40 CAP REMOVED — Alberta’s Court of the Queen’s Bench has opened Pandora’s Box by blowing the lid off the province’s Cdn$4,000 cap on minor auto injuries.

64 XTREME COVERAGE — Canadians are risking life and limb to engage in extreme sports with inadequate or no insurance.

BY GREG SUTTON

66 TECH ROLE — Technology can help companies with their

organic growth, marketing campaigns and client acquisition, but the real drive has to come from broker management.

BY PATRICK DUREPOS

68 FIT TO SIZE — The objective of any (ERM) program should be to create a plan appropriate for a company’s risk culture.

BY DARRELL LEADBETTER, PAUL KOVACS AND JIM HARRIES

BY DON MCGARVEY

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ONLINE SHOPPING — Ontario’s broker association is poised to launch a new Web site, allowing consumers to get online quotes and contact brokers at their own convenience.

BY RANDY CARROLL

50 NEWFOUNDLAND TAX— Newfoundland brokers and insurers have stepped up their 10-year-long battle to get the province to eliminate a 20% tax on insurance premiums.

BY VANESSA MARIGA

54 OUTSOURCING CLAIMS — Tier 2 commercial brokerages in the future might consider outsourcing part or all of their claims-handling services to third-party providers.

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EXCESS COVERAGE — Can an insured obtain the benefit of excess coverage when a settlement exceeds the limit of liability available under the primary policy?

BY JORDAN S. SOLWAY AND CHRIS RAIN

SPECIAL FOCUS

6 Editorial 8 Market Watch 81 Moves & Views

BY DAVID GAMBRILL MEMBER AUDIT BUREAU OF CIRCULATION

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Adjusting the Message, not the Volume anada’s insurance industry has initiated a number of ambitious, large-scale communications projects over the past few months, many of them based on the premise that communications are fundamentally flawed between the industry and the public.

The Insurance Bureau of Canada has done research showing most consumers have no idea what the basic concepts of insurance are. Many consumers don’t know whether or not their auto and homeowners’ coverage suits their needs. And clearly some consumers feel their experience resolving a claim is akin to that of visiting a foreign country.

IBC, to its credit, has launched a new public awareness campaign to help clarify some of the misconceptions people have about the insurance industry and its products.

Public regulators of the insurance industry, too, have expressed an interest in promoting healthy communication between the industry and consumers. As a result, regulators have placed a premium on communications and disclosure. Over the past two years, for example, insurance regulators have developed a new set of guidelines for insurers and brokers to use in disclosing the nature of their business to the public.

Without a doubt, the key point in all of this seems to be the necessity for consumers to better understand the industry. And there is never any fault in engaging consumers using public awareness campaigns. Arguably it’s better to have a failed public relations effort than no communication with the public at all.

But has any of the industry’s research delved into the quality of the present communications? What, for example, is the most effective vehicle for communications with the public? What is the best way to impart abstract — and often very technical — policy information? How do consumers wish to hear from their insurers/brokers, and at what frequency? And what would they like to know about their insurers/brokers?

One can make a big deal out of the fact that Average Joe on the street doesn’t know what the word “indemnity” means. But does Joe have to? Isn’t it more important for him to know whether or not his television set in the basement is covered for flooding under his tenant’s package?

Isn’t it more important for him to know he should go ahead and fix the car he damaged in a fender-bender last

C

EDITORIAL

David Gambrill Editor david@canadianunderwriter.ca

www.canadianunderwriter.ca • April 2008

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week, because, contrary to what he believes, his auto insurance rates won’t go up if he decides to take advantage of the insurance product for which he pays?

In truth, there is a lot of gobbledygook that passes for communications and disclosure in this industry. Insurers are dismayed that consumers don’t read their policies, for example, but who can blame the consumers? Quite often it’s impossible to understand insurance policies written in pure legalese. Clearly even trained trial lawyers can’t understand the language used in policies, otherwise why would there be so many coverage disputes going to the courts and/or arbitration?

How is it possible, insurers might ask, that consumers do not know whether or not their basement floods are covered? Well, no doubt part of that is explained by simple consumer ignorance. Or could it be the fact that often policies contain so many exclusions and endorsements — often employing code words like “full” versus “replacement” value — that who knows what a policy truly covers?

In theory, regulators are correct in believing that disclosure might help the public make informed choices based on: (1) true knowledge of a carrier’s financial capacity for handling claims, and (2) knowledge of an insurer’s ownership relationship with the brokers that distribute their products to consumers.

But who can make sense out of the press releases insurers send out about their finances? Financial results should be disclosed to consumers using a clear, uncluttered form consistent across the industry (in the same way that Web pages have been standardized to include consistent features and functions familiar to all Internet users). All reports and policies for public consumption should use plain language.

Basic insurance concepts should be better explained in order for disclosure to be effective. What member of the public, for example, knows what a “combined ratio” means in the context of a figure in a financial report? And if consumers don’t know the difference between a broker, an agent and an insurer, will it truly make any difference whether the industry discloses these relationships or not?

In short, the industry needs to establish a better quality of — and not necessarily more — communications with the public in order to foster better relationships with the consumer.

STEVE WILSON

PAUL AQUINO

GERALD HEYDENS

GARY WHITE

Senior Publisher, (416) 510-6800 steve@canadianunderwriter.ca

Associate Publisher, (416) 510-6788 paul@canadianunderwriter.ca

Editorial Art Director

Production Manager (416) 510-6760

DAVID GAMBRILL

MIKE WELLS

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

Account Manager, (416) 510-5122 mike@canadianunderwriter.ca

VANESSA MARIGA

CHRISTINE GIOVIS

Associate Editor, (416) 510-6793 vanessa@canadianunderwriter.ca

Advertising Sales, (416) 510-5114 christine@canadianunderwriter.ca

HOWARD ALEXANDER

Fax: (416) 510-6809

Director of Creative Advertising Services

PHYLLIS WRIGHT

BRUCE CREIGHTON

ALEX PAPANOU

President

Vice President

Print Production Manager

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Taking on the responsibility of risk is what we do at ACE. With our expert underwriting, superior claims handling, and local market experience, you can focus on the possibilities, not the liabilities, to make progress in your business. For more on ACE Canada, visit www.ace-ina-canada.com P R O P E R T Y & C A S U A LT Y

A C C I D E N T & H E A LT H

LIFE

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Canadian Market Profits of Canadian property and casualty industry drop 3.6% he net income of Canada's property and casualty industry dropped to Cdn$4.008 billion in 2007, a 3.6% decrease over the Cdn$4.158 billion it recorded in 2006.

MSA Research Inc. posted its year-end, aggregate financial data for 2007. In addition to reduced profits, MSA figures also show increasing loss ratios and combined ratios.

The 2007 net loss ratio of 65.1% increased 1.58% over 2006, and the combined ratio of 94.6% exceeded the 2006 COR of 92.4%.

The direct loss ratio in Ontario auto lines went up almost 7% between 2006 and 2007 (from 71.6% to 78.5%, respectively). In Alberta, the loss ratio in 2007 declined from 64.3% to 62.9%.

MSA's report includes data for 129 Canadian insurers, represents more than 85% of Canadian primary writers when measured on a premium volume basis (as filed with MSA).

Key observations from the data, accord-

M A R K E T WAT C H

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ing to an MSA release, include: • direct and net premium growth at 3.2% and 3.4%, respectively, which MSA described as “somewhat anemic” after economic growth and inflation are taken into account; • net claims incurred were up almost 6% over 2006; • underwriting income in 2007 was down by more than 26% over the previous year, due primarily to increased claims and a very modest up-tick in expenses; • investment income* was up 8.1%; • net income for the companies represented here declined by 4.8%, reflecting factors noted above, and after adjusting the prior year result for fair value accounting; and • sixty-three companies reported lower net income in 2007 while sixty-five companies reported higher net income*. (* Unless otherwise noted, 2006 results do not include the effect of fair value accounting.)

Summarized year-end statistics by company will be available after Mar. 24. ■

Desjardins General Insurance offers direct home and auto insurance in Ontario esjardins General Insurance (DGI) is now offering direct home and auto insurance in Ontario. “We've been planning and researching our launch into the Ontario mass market for some time,” Jean-Francois Chalifoux, general manager and senior executive vice-president at DGI, said in a company release.

“We believe there is a significant opportunity for a true direct provider because Ontario is far behind the U.S., Europe and even Québec in the penetration rate of direct insurance,” he said.

“That being said, even in Ontario the trend is clearly in favour of the direct model, and we feel that we are well-positioned as a low-cost provider to both accelerate and benefit from that trend.”

As of 2006, DGI held 9.4% of the

D

market share for “damage insurance” in Quebec, according to a 2007 Autorite des marches financiers (AMF) release.

In Quebec, direct writers deliver about 52% of property and casualty insurance.

In Ontario, about 51% of insurance consumers buy their insurance products through the independent broker channel, whereas 38% buy from agents or direct markets, according to a 2007 independent consumer survey commissioned by the IBAO. “We are launching in a big way and will be blanketing the province with the Desjardins General Insurance name,” Chalifoux said. “That's because we recognize that we have a big job to do creating awareness of this new insurance brand in Ontario.” ■

Canadians haven’t learned their insurance ABCs surprising number of Canadians lack a basic understanding of some of the most fundamental concepts of insurance, according to research conducted on behalf of the Insurance Bureau of Canada (IBC).

In a study of 3,220 Canadians, undertaken by the research firm Pollara, only a small majority (58%) of respondents knew that when a person pays for home and car insurance, the insurance company pools the money with other people’s premiums in order to pay claims for all of a company’s customers.

A total of 41% of respondents believed their money was: • set aside to cover future claims by the individual who paid the premium (14%); • used in some way unknown to the survey respondent (26%); • used in some other fashion (1%).

Only 28% of respondents correctly defined the word “indemnity” as “providing financial compensation for losses.”

Almost all (90%) of Canadian policyholders interviewed expressed confidence they had the right auto insurance coverage, even though 32% of the respondents said they had never read their insurance policy.

Among the most prevalent myths among Canadians about insurance is that a person's health condition matters for the purpose of calculating car insurance premiums. Only 18% of Canadians knew that this to be untrue.

(Policyholders must only sign a declaration that they are medically fit to drive.)

Another error, believed by 40% of survey respondents, is that the colour of a car has a bearing on insurance premiums. ■

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FSCO temporarily suspends HCAI at request of insurers inancial Services Commission of Ontario (FSCO) has temporarily suspended the Health Claims for Auto Insurance Guideline (HCAI) at the request of the Insurance Bureau of Canada (IBC).

In a letter to the Ontario insurance regulator dated Mar. 10, 2008, IBC recommended the suspension of the operations of HCAI by the close of the business day on Mar. 12.

F

IBC's letter confirmed many Ontario insurers were experiencing serious disruptions in their claims adjustment process as a result of technical problems encountered by HCAI. HCAI, which employs new technology that cost insurers up to Cdn$20 million to build, was designed to represent a significant upgrade over the standardized, paper-based, medical-rehab insurance system implemented in 2001.

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We’re working hard to make your choice for the right claims partner that much easier.

Visit our website at www.cunninghamlindseycanada.com or email us at corpservices@cl-na.com.

All health care practitioners were required by Ontario law to submit claims to insurers through HCAI’s electronic claims-processing system.

“Most users are confronting persistent and pervasive difficulties in accessing and using the system, while a minority is having relatively few issues,” IBC president and CEO Mark Yakabuski wrote in a letter to Bob Christie, FSCO's CEO and superintendent of financial services.

“Based on information we have obtained from Ontario auto insurers and other users, IBC is concerned that HCAI is impeding normal claims adjustment and might have implications for the provision of care to injury claimants.”

In order to protect the interests of consumers, providers, facilities and insurers — and to enable HCAI Processing to focus on resolving these difficulties without undue delay — FSCO temporarily suspended operation of the HCAI guideline “until further notice.”

“The future operation of HCAI will be reviewed in consultation with insurers, providers and other stakeholders,” Christie noted in the bulletin. ■

Royal & SunAlliance reports underwriting profits in 2007 oyal & SunAlliance Canada has reported a 2007 net income of Cdn$183.6 million. (The company's net income above was calculated according to Canadian GAAP rules; elsewhere, figures are based on accounting rules in the United Kingdom.).

Royal & SunAlliance reported net written premiums of Cdn$1.5 billion (£702.7 million), up 8.7% over the prior year. Its underwriting profit of Cdn$106.3 million (£49.7 million) in 2007 was 6.1% ahead of its result last year.

The company’s combined operating ratio (COR) of 92.4% was comparable to last year, the company said in a

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Cover Story 2008 PROVINCIAL BROKER SURVEY

URF TWARS Insurance brokers across Canada are engaged in regional political discussions to defend their professional integrity against a variety of territorial incursions

By David Gambrill

www.canadianunderwriter.ca • April 2008

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hen Parliament put the finishing touches on the Bank Act revisions in early 2007, Canada’s brokerage profession breathed a collective sigh of relief, secure in the knowledge that — for another five years at least — banks would not be allowed to sell insurance products from within their local branches. Thus ended a nation-wide, collective political lobby, in which brokers were encouraged to reach out to national Members of Parliament and Members of Provincial Parliament to inform them about the value of the independent broker proposition.

That task completed, brokers across Canada appeared to focus much of their attention inward, using the time to work on issues such as marketing the profession, succession and broker ownership issues. As this was happening, brokers still heard the occasional suggestions from their broker associations, urging members to continue to stay in contact with their local, provincial and federal politicians. But after the Bank Act issue was done and gone, what would brokers have left to talk to politicians about? The End of Politics for brokers seemed imminent; exhortations to the contrary sounded like cheerleaders encouraging a collective sis-boom-bah long after the big game was over and the crowd had gone home.

Enter 2008, which appears to spell the end of the End of Politics for brokers. What once was a relatively quiet, serene political landscape has morphed into a number of regional political discussions and skirmishes. Now more than ever, brokers find themselves buffeted by the contrasting professional interests of a variety of different market participants — governments,

W

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Cover Story regulators, credit unions, insurance companies, car dealers and more. Having fought for the identity and integrity of the broker profession at the national level, brokers are now seemingly engaged in many regional, guerrilla ‘turf wars,’ battling in each province to uphold the integrity of their own professional and political turf.

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BROKER OWNERSHIP AND CONTROL: CREDIT UNIONS In both Western and Eastern Canada, credit unions are causing brokers to refine their arguments against financial institutions offering insurance products inside their local branches.

Saskatchewan credit unions, for example, are establishing insurance operations within the same buildings as their financial operations, arguing that these two functions are “separate and distinct.” Saskatchewan’s Credit Union Insurance Business Regulations state: “No credit union shall carry on business in Canada in premises that are adjacent to an office of an insurance company, agent or broker unless the credit union clearly indicates to its members and customers that the credit union and its premises are separate and distinct from the office of the insurance company, agent or broker.”

Saskatchewan’s brokers are skeptical: they believe establishing interior “glass walls” between offices is a disingenuous interpretation of the regulations. “What they are doing at the present time is allowing credit unions to run their insurance operations out of the same building and premises as their financial services, with basically just a glass wall between the two of them,” Mark Stockford, the president of the Saskatchewan Brokers Association, says. “Our argument is that, ‘No, that does not constitute separate and distinct.’ And so we are working with the regulators to get an interpretation out there that we feel is more accurate.”

Stockford says a credit union’s insurance operations should be located in a completely separate building. There should not be any adjoining walls, and no openings between its financial and insurance operations.

“Our big concern is we don’t think the consumers recognize it as ‘separate and distinct’ as it is,” says Stockford. “They [consumers] walk into the credit union to do their financial services, then they walk across the hall to do their insurance. We feel that exerts undue pressure on people to buy their insurance from the same people they get their mortgage from.”

Thus far, Saskatchewan’s brokers have provided the provincial regulator with a legal opinion on the matter. The discussions are ongoing.

New Brunswick brokers have undertaken similar discussions with their regulators, based on the news that one local credit union, the Fédération des caisses populaires acadiennes, has recently incorporated a new subsidiary property and casualty insurer,

Acadia General Insurance, to sell insurance products to consumers. Acadia General Insurance reportedly plans to create 12 new offices over a period of five years.

New Brunswick’s Credit Union Act states: “No credit union shall carry on business in premises that are adjacent to an office of an insurance company, agent or broker unless the credit union clearly indicates to its members that the credit union and its premises are separate and distinct from the office of the insurance company, agent or broker.”

“Our regulations in this province, the networking regulations, talk about ‘separate and distinct’ and not using client files,” Linda Dawe, executive director of the Insurance Brokers Association of New Brunswick, says. “We want to make sure that those regulations are enforced or adhered to by the credit unions, for sure.

We’ve been trying to work with government to make sure that the federation’s brokerage follows those guidelines.”

To date, New Brunswick’s broker association has initiated a grassroots effort to lobby MLAs and requested an audience with the premier, Shawn Graham, to express their concerns.

Credit unions also seem to be making a splash in Alberta, where provincial legislation does not allow credit unions to sell or promote insurance brokerages at all — at least, for now. Section 46(6) of the Alberta Credit Union Act states: “A credit union or a person acting in the person’s capacity as a director, officer or

“What they are doing at the present time is allowing credit unions to run their insurance operations out of the same building and premises as their financial services, with basically just a glass wall between the two of them. Our argument is that, ‘No, that does not constitute separate and distinct.’”

— Mark Stockford, president, IBAS

employee of a credit union shall not act as an insurer, insurance agent or adjuster, within the meanings respectively ascribed to those expressions by the Insurance Act.” Alberta’s prohibition is a stricter approach to credit unions than the direction taken by legislation in Saskatchewan and B.C., where credit unions are allowed to own insurance brokerages and sell and promote insurance products under limited circumstances.

Harold Baker, CEO of the Insurance Brokers Association of Alberta, fears his province’s regulatory prohibition may soon come tumbling down, a casualty of the current ‘free trade’ negotiations between Alberta and B.C. “As a result of the recent and ongoing discussions, there’s a door opening for credit unions to have mobility between provinces, with the government’s desire to ensure that business powers are equitable,” Baker says.“So in other words, if they are going to allow a British Columbia credit union to come into Alberta and do business, they will allow them to ensure that the business powers for that British Columbia credit union exist on the same playing field here in Alberta. Conversely,

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Cover Story if they want to encourage a credit union to go into British Columbia, they have to give them certain business capacities. Well, obviously one of the things that we’re concerned about is the ability for a credit union to own and operate an insurance brokerage.”

Alberta has been negotiating with B.C. about the elimination or reduction of trade barriers between the two provinces for the past several years. This year, in 2008, the provinces have reached a stage in their discussions involving financial services. Baker feels the Alberta government has some sympathy for the position of eliminating its prohibition to create a level playing for B.C. credit unions. In response, Alberta brokers point to analogous restrictions existing in Canada’s free trade agreement with the United States and Mexico that serve the purpose of maintaining the integrity of certain economic segments within Canada.

“Brokers that do not meet the control-in-fact standard should be regulated as agents.”

— Rod Hancock, president, IBAO

“We think it’s important to understand that where it’s in the best interests of Albertans, [the province] can have a prohibition,” Baker says. “It does not have to be part of a free trade agreement.

I mean that’s the substance of NAFTA, right? There are restrictions and there are areas or sectors that are not part of the agreement, and we think this is an important part of what needs to be discussed in the free trade agreement between Alberta and British Columbia.”

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BROKER OWNERSHIP AND CONTROL: INSURANCE COMPANIES Ontario’s broker association is also waging a political battle around the ownership and operation of brokerages. In this context, it’s a battle to prevent insurance companies from owning more than a 50% controlling interest in an insurance brokerage.

At its 2007 annual convention in Toronto, the Insurance Brokers Association of Ontario (IBAO) stepped up its campaign against insurers buying brokerages, announcing its intention to involve the regulators in the debate if need be. Specifically, the IBAO asked the provincial brokers’ regulator, the Registered Insurance Brokers of Ontario (RIBO), to adopt a ‘control-in-fact’ test to assess the independence of insurance brokers in Ontario.

“Brokers that do not meet the control-in-fact standard should be regulated as agents,” said IBAO president Rod Hancock in a speech to delegates at the association's annual general meeting in Toronto on Oct. 19. Second, Hancock said, “the insurance intermediary market must be regulated by a single independent body, and that RIBO is best suited to that role.”

Prior to 2002, Ontario had a ‘control-in-fact’ test enforced by

the Financial Services Commission of Ontario (FSCO). That rule prevented non-broker entities from owning more than 49% controlling interest in an insurance brokerage. The regulation was officially eliminated in 2004. Sources say the regulation was eliminated in part because there were too many ways for non-brokers such as insurers to get around it; also, disclosure of brokerage ownership was deemed an acceptable means to achieve the same purpose served by the regulation, which was to ensure consumer protection.

The broker ownership issue came to a head just a few weeks after the IBAO convention. Royal & SunAlliance’s direct writing subsidiary, Johnson Inc., in early November 2007 acquired Kingston-based brokerage Thomson Jemmet Vogelzang.

Following the news, Dominion of Canada General Insurance Company and Aviva Canada, both citing the importance of maintaining the independence of the broker channel, cancelled their contracts with the Kingston brokerage.

Randy Carroll, CEO of the IBAO, says his association is currently in discussions with insurers about the brokerage ownership and control issue. Should these negotiations “hit the brick wall,” he says, the IBAO is poised to lobby politicians and regulators to institute new regulations concerning the ‘control in fact’ of a brokerage. Carroll notes establishing ‘control in fact’ relies on using a range of criteria, including the percentage of ownership, the owning company’s participation in the brokerage’s board decisions, the right of first refusals concerning business decisions, etc.

“We would really prefer not have to go to either [FSCO or RIBO],” Carroll says. “We would rather have those insurers [that own brokerages], because they are the minority, actually work with us and come up with an agreement in principle.” Having said that, Carroll says, if no agreement is reached, that’s when the regulators must be called in.

“We continue our discussions with insurers, but at the same time we continue making sure we keep our regulators informed,” Carroll says. “We have to make an informed decision in 2008 as to whether or not there’s a possibility as an industry to resolve this, or whether we just throw our political lobbying into effect and start to talk to our MPPs across the province so they understand what the concern is and then push for the change. That’s where we are right now. We have to make that decision and I would say that decision would have to be made over the course of early spring leading up to the summer of 2008.”

PUSH FOR LEGISLATION: POLITICIANS At the same time IBAO is pushing for legislative change, B.C. brokers and Newfoundland brokers are pushing for legislative change as well.

For some time, B.C. brokers have been lobbying alongside the Insurance Bureau of Canada (IBC) for changes to the province’s Insurance Act. British Columbia’s politicians recently undertook a

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re-write of the Insurance Act, prompted by a 2003 Supreme Court of Canada decision in which the court observed the limitation periods for individual perils in B.C. did not square with the contemporary reality of multi-peril policies. The B.C. Insurance Act, the Supreme Court said in its decision, was “ incapable of coherently addressing the modern multi-peril policy. It may have made good sense in the 1930s, when insurance was offered in discrete packages, each containing its own special type of coverage, [but] it makes much less sense now ... In an insurance era dominated by comprehensive policies, it is imperative that Canada’s Insurance Acts specifically and unambiguously address how these statutes are to operate and the rules by which comprehensive policies are to be governed.”

B.C.’s insurance industry has been negotiating with the province for some time, and is now keenly observing the clock. Brokers are concerned about a scheduled provincial election in early 2009 that could derail or further delay efforts to make the required legislative changes.

“We met with the caucus back in October and we’ve had meetings with ministry officials over the last several years, and we’re urging them to get the Insurance Act re-write passed this spring session,” says Ted Lewis, the president of the Insurance Brokers Association of B.C.“The old act is so out of date …That’s a really big issue for us, and it affects all of the insurers as well and the consumers, because it’s in the best interests of everybody to get a new act. That for us is a big issue and we’ve been pushing it.

Every indication is that it will hit the spring session and that’s why we’re pushing it, because there’s an election scheduled for May 2009. If it doesn’t happen this session, it’s unlikely it would happen until after the next election. We just think this is in the best interest of everybody consumers, insurers, brokers, the courts, everybody.”

Will the re-write be ready in time for the spring? It’s not a good sign that B.C. brokers have not yet seen any draft legislation.

To date, they have only made comments on the government’s consultation paper, the basic principles of which they generally support. But, as Lewis points out, the “devil is in the details,” and brokers would prefer to see any draft legislation prior to its introduction into the B.C. legislature in spring.

In Newfoundland and Labrador, brokers are seeking to eliminate, rather than encourage, a government initiative. Specifically, insurance brokers want the Newfoundland government to eliminate its 20% tax on insurance premiums. For the past 10 years, in fact, the province’s insurers and brokers have argued the tax is too high and puts Newfoundland businesses at a competitive disadvantage with businesses operating in other jurisdictions. Brokers and insurers collect the tax from consumers and pass it along to the government, putting them in the unenviable position of justifying a tax that brokers and insurers alike would rather see eliminated.

“We’re daily having to justify that tax when it’s something that

we have no control over,” says Robert Dunne, the president of the Insurance Brokers Association of Newfoundland.“We can understand that it’s an issue we have to fight on behalf of consumers, because it’s something we have to explain [to them] every day in terms of why [their] insurance premiums are as high as they are...

“At this point, we have requested the elimination of the tax.

We have also requested that the government come to the table and talk to us about that. But, they haven’t responded to our written request.”

“We’ve had meetings with ministry officials over the last several years, and we’re urging them to get the [B.C.] Insurance Act re-write passed this spring session.”

-Ted Lewis, president, IBABC

Dunne remains pessimistic about the possibility of any relief.

“We feel that the provincial government is going to ignore it at this time,” he says.“They’re likely going to take a stand that if they do anything on reducing the taxes, then it’ll mean a reduction of provincial revenue and [there would have to be] a reduction in services or some other way to find the tax to make up the loss revenue.”

PRODUCTS AND SERVICES: GOVERNMENT AND CAR DEALERS Prince Edward Island brokers also find themselves in a position of having to justify the unintended outcome of a government proclamation over which the brokers had no control. Prior to the provincial election in May 2007, the government of the day announced its intention to introduce a new Stay Safe Drivers Discount, an auto insurance discount that would be in addition to any other existing insurance discounts.

As announced, the specifics of the discount were left vague.

The government did not legislate insurers to offer the discount, which was intended for “inexperienced drivers.” The category was presumed to include young drivers as well as drivers new to the country. It was left up to individual insurers how to apply the discount — including whether driver training would be factored into the discount, or whether the discount would be delivered on a “sliding scale” (i.e. drivers with three years of experience would receive a different discount than drivers with no training).

After the May election, the new government under Premier Robert Ghiz announced in September 2007 that, as of Jan. 1, 2008, the new discount would be offered. Thus far, however, only a few direct writers and only one carrier distributing through the broker channel, the Dominion of Canada General Insurance Company, offers the Stay Safe Driver Discount in Prince Edward Island, says Karen Doiron, the president of the Insurance Brokers Association of P.E.I.

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What happened? “[The provincial government] went to the facility association and the facility association declined to offer a risk-sharing pool for P.E.I.,” Doiron says. “I think most of the insurance companies were hoping that [FA] would come through, and were waiting for that to happen before they went forward with the discount. But [facility association said] the volume in P.E.I. is too small to offer a risk-sharing pool. They felt that it could be done without the costs involved for a risk-sharing pool.”

The problem now, says Doiron, is that the government has announced the new program, which is voluntary, insurers have not taken it up, and brokers have been left holding the bag, explaining to the consumers why the Stay Safe Driver Discount is only available in limited supply.

“The government was concerned,” says Doiron. “They wanted information on what is currently happening, the implementation [of the discount] and our present views on whether the discount can be successfully implemented with the current arrangement.”

Doiron says the association has contacted the province’s insurers and “we’re quite optimistic that by the end of this year, we will see the discount in place…The concern is that when the spring comes, out comes all of those vehicles and summer jobs and young drivers. We hope the discount is going to be available by then rather than in the fall.”

Quebec brokers, represented by the Regroupement des cabinets de courtage d’assurances du Québec (RCCAQ), are similarly engaged in political lobbying around a product offering. In this situation, the product is not offered by government or insurance companies, but rather by car dealers. And at the heart of the matter is whether the offering is an “insurance” product at all.

A document produced by the Insurance Bureau of Canada, the Groupement des assureurs automobiles and Option consommateur, ‘All About Automobile Insurance,’ outlines the difference between a ‘Replacement Cost’ endorsement (offered by insurers and brokers) and a ‘Replacement Warranty’ (offered by Quebec’s car dealers).

Both contracts are similar, but they are not identical, the document notes. “For example, in the event of a total loss, insureds that have a ‘replacement cost’ endorsement can usually purchase a new vehicle of like kind and quality regardless of the make of the car. Those who have bought a replacement warranty must purchase the same make of vehicle from their dealer as the vehicle involved in the accident.” In addition, to benefit from a replacement cost endorsement, policyholders simply need to continue their premium payments; warranties, however, must be re-purchased upon expiry.

RCCAQ notes the purchase of warranties can get rather pricey for consumers — and quite lucrative for car dealers. “There is a lot of money involved because, with the dealers’ [replacement warranty], that coverage can cost [Cdn]$1,200 for four years’ protection,” says RCCAQ executive director Johanne Lamanque.

“They make a lot of money with these types of sales features.

They have profits of more than 50-60% on each replacement warranty sold.”

Car dealers also have an edge over brokers in selling the warranties because consumers meet car dealers earlier in the sales process. For example, consumers will be working with car dealers to purchase the car prior to meeting with a broker to buy the insurance for the car. As a result, consumers will not be able to benefit from the advice of an independent broker on options that exist for buying a replacement cost endorsements available from carriers.

“RCCAQ pleads that [the warranty] has to be distributed by brokers, not by car dealers, in order to get a better protection for the consumer,” says Lamanque. “If the consumer gets the right explanation [about coverage], they can make the right choice. But when you buy a car, you talk to the broker usually at the end of the process.”

RCCAQ in 2006 entered into discussions with the AMF about replacement warranties, arguing they were insurance products; as such, car dealers were not licensed to sell them.

THE NATIONAL SCENE: REGULATORS The discussion around replacement warranties figures prominently in a recent announcement by the Canadian Council of Insurance Regulators (CCIR) that they intend to review what they call the “incidental sale of insurance.” Which brings us back to the national scene, where Canada’s insurance regulators are now contemplating how best to make the move from a rules-base approach to a principles-based approach for regulating the financial services industry. The discussions are front and centre on the Insurance Brokers Association of Canada (IBAC)’s current agenda.

“Job 1 at IBAC is to try and understand the regulatory and legislative environment in which we have to operate, because insurance is such an important part of the economy that we know we are going to continue to be very highly regulated,” says Dan Danyluk, IBAC’s CEO. “One of the challenges with things like principles-based regulation is to make sure that it’s practical. We have some reservations about that.”

But the country’s current political and regulatory environment might be complicating the expression of those reservations.

IBAC is working within an environment currently predisposed to increasing — not decreasing — financial services regulation.

“We’ve just seen a huge failure, a major failure, in the subprime mortgages in the United States,” Danyluk notes. “I understand that’s not insurance, but the reality is consumer confidence in the United States, from what I read, has been shaken. We want to make sure that any regulatory change that we make is done in a way that we don’t throw out the baby with the bathwater.”

And so, while lobbying around Bank Act may have been temporarily suspended, the political life of Canada’s brokers appears to be in full gear. Everywhere in Canada, brokers are fully engaged in the politics of asserting their professional value and integrity.

In many situations, this involves defending against intrusions on their professional turf by a variety of different players, including governments, regulators, credit unions, insurance companies, car dealers and more. It’s the end of the End of Politics as we know it, but do brokers feel fine?

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PUBLIC MEETS

PROFILE

PRIVATE

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Bonnie Lysyk, IBC's new vice president, Ontario, has left her home province of Manitoba and its public auto insurance system to help reform Ontario’s private auto insurance market

By Vanessa Mariga nsurance Bureau of Canada (IBC) vice president, Ontario Bonnie Lysyk, a woman who grew up in a province next door to Canada’s largest private auto insurance market, has been selected to fill the shoes of Mark Yakabuski, who became president and CEO of IBC last year.

Some may wonder why a woman who forged a career in a public auto sector located at the gateway to Canada’s West would want to leave what’s familiar and represent a completely different type of auto market, one in the midst of negotiating a major regulatory overhaul.

Ask her and she’ll tell you that she loves a good challenge.

I

PUBLIC VS PRIVATE SECTOR Lysyk’s career began with Coopers & Lybrand (now PricewaterhouseCoopers) in Winnipeg, Manitoba, where she obtained her chartered accountant designation. She was born, raised and schooled in Winnipeg.

When asked what she misses the most about Manitoba after making the move to Ontario this past January, she chuckles.

“Everyone told me that the winters here in Toronto would be so much easier than in Winnipeg, she says. “But I’m still waiting for that.”

Not long after completing her articling at Coopers & Lybrand, she accepted a job at Manitoba Hydro in internal audit. She then moved on to the provincial liquor board as manager, internal audit and security. She subsequently returned to Manitoba Hydro and spent more than a decade there in an array of positions involving finance, audit, process improvement training, special projects, overseas work, business integration, and govern-

ment relations, and worked as the assistant to the president and CEO on Manitoba Hydro.

Manitoba’s auditor general poached her from her post at Manitoba Hydro to be the deputy auditor general and COO. Six and a half years later, she moved to The Wawanesa Mutual Insurance Company, where she worked as vice president and CFO. A glance at Lysyk’s curriculum vitae, shows variety has been the spice of her professional career. Even so, one might wonder how Lysyk is adapting to the move from Manitoba, which has a public auto insurance system, to IBC in Ontario, which has Canada’s largest private auto insurance market. At face value, her experience in each of the two auto insurance markets couldn’t appear to be more different. But Lysyk says she likes the challenge inherent in the move to Ontario. Her new role as IBC’s vice president of Ontario appealed to her, she says, because it has variety: it has “financial components, private sector components and public sector components that are interfaced with meeting a lot of stakeholders.”

As for adapting to the differences between the markets, “the work here touches on a lot of things that I have experience with over the years,” she says.“I understand the regulator’s side. I understand where the government’s coming from on their requests. I also understand the industry in terms of what’s important.”

Manitoba’s government sets the tone for its auto insurance

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using a directive approach, Lysyk observes, when asked to enumerate some similarities and differences in the two distinct types of markets. In contrast, absorbing the 1,200-plus pages of legislation surrounding the Ontario market appeared daunting at first, she says. But with the help of her co-workers at the IBC, and calling on past experience with Wawanesa, which writes auto in Ontario, she has been able to adjust to the complexities of the Ontario market.

“When you’re in a public-sector environment, the government makes all of the choices,” she says. “When you’re here [in Ontario], you have an interplay between a lot of stakeholders and you have a lot of competition so you have a lot of discussion and debate, and that’s good.”

Photo: Simon Cheung

WHAT GOES UP MUST COME DOWN Lysyk assumes her new role at a time when the Ontario auto insurance industry is discussing reform. The five-year anniversary of Bill 198 and its November 2003 reforms is approaching, and stakeholders are now preparing for the required review of the legislation. Lysyk is charged with the task of representing the province’s insurance industry in proposing any adjustments to the legislation. She’s still relatively new in her role and so she is not in a position to tip the insurers’ hand and reveal specifically what IBC will seek in these negotiations. “The important thing is that there’s stability, availability and affordability of insurance for consumers in Ontario,” she says.

But certainly Ontario’s upcoming discussions about auto reform will represent Lysyk’s first major challenge in her new job.

25 www.canadianunderwriter.ca • April 2008

Regardless of whether or not the government is the only player on the field, she says, “you’re dealing with people in both systems, so a big part of your work is making sure that you have good relationships.”

She expects the negotiations will cause her to draw upon her experience in all aspects of the industry’s landscape — including her previous experience working in the government — to help hammer out a workable solution that satisfies all parties in the debate. She stresses the importance of open and frank discussions between the stakeholders so that the provincial government gains a complete perspective on how Bill 198 has affected the Ontario auto insurance market since its adoption in 2003.

“I think people are becoming more aware that, since 2003, there’s been about Cdn$5.3 billion in savings for consumers,” Lysyk says. “After the legislation was changed, there was a period of time when claims costs were reasonable. But now that the system has been in place for awhile, you can see a trend in the rising costs of accident benefits. So part of the discussion will be around the accident benefit costs and why they’re going up. Are they going up for a reason that helps the claimants?”

Lysyk observes Ontario has the highest auto loss ratio in Canada. According to MSA Research Inc.’s preliminary industry results for 2007, Ontario had a loss ratio in auto of 78.5% — a 7% hike over its 2006 results. In comparison, Alberta, the province with the second-highest auto loss ratio, experienced a decline its loss ratio from 64.3% in 2006 to 62.9% in 2007.

Lysyk observes the surge in accident benefit costs could be due to an increase in assessments occurring in the system. “Probably the intent was that more injuries would be handled through the PAF process for WAD I and WAD II, and what they’re finding is that there are treatments happening outside of the PAF,” she says.

In addition, increasing costs for attendent care and home care could be adding insult to injury.

Although claims costs have continued to climb, the average auto insurance premium in Ontario has decreased from Cdn$1,499 in November 2003 to Cdn$1,260 in June of 2007.

That’s a reduction of nearly 16% for the consumer, representing the largest premium reduction in Canadian history, according to IBC. This translates to aggregate Ontario consumer savings of approximately Cdn$5.3 billion.

But, Lysyk cautions, it may only be a matter of time before the inverse relationship could ultimately spell a disaster for both insurers and consumers. “I think initially there’s going to be discussion to make people aware that the costs are going up,” she says. “And if you have a period when the costs are going up, those higher claims costs do translate into premium increases. So, in order to avoid that situation, I think it’s assumed there would be discussion around how to address the rising costs.”

Lysyk notes the five-year anniversary of the Ontario reforms mandates the opening of the current round of discussions, but the legislation does not speak to outcomes. “While the Insurance Act requires FSCO to analyze the reforms within a five-year timeframe, it doesn’t mean that there has to be changes to legislation or regulations completed by the end of this year,” she says. “It just means that they have to start a process of at least assessing what changes are needed.”

Some might call this first challenge baptism by fire. But Lysyk is confident that with the support of her colleagues at IBC, as well as fellow industry experts, together a viable solution will be found, satisfying all needs. No doubt, it will be quite the inaugural feather in her cap.

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In Search of Smal

Larger commercial insurance brokers are starting to troll for clients in the so-called “middle market,” previously the preserve of regional and local intermediaries

By Craig Harris ompetitive pressures in the commercial market mean insurance brokers are looking everywhere these days for good accounts. For many larger brokers, their target sights are increasingly focused on the vague but profitable “middle market” — traditionally, the domain of regional and local intermediaries. As the multinational brokers single out mid-market accounts for organic growth the question becomes: can the regional players hang on?

Long referred to as the “sweet spot” for brokers, the middle market is an elusive customer base. The definition seems to shift constantly depending on vantage point — is it the privately-held manufacturing company with 25 employees paying premium of $10,000 or the biotech firm launching an IPO for dual listing on the TSE and NYSE? Both definitions can fit, contingent on the broker’s resources, appetite and expertise.

“Every brokerage, depending on its size and status, will have a different definition of the middle market, “ notes Rick Hynes, president and CEO of Willis Canada Inc. “I think you will find that a large global broker like Willis will have a different spin on what we define as the middle market, compared to a Tier 2 broker.”

“The areas we have grown most in the last five years are the larger accounts, which for us are anywhere from $10,000 to $100,000 in premium,” notes Robin Durrant, president of Kelowna, B.C.based Capri Insurance. “These are what the larger houses would probably classify as mid-market accounts.”

“Our mid-size accounts range from $5,000 to $500,000 in premium,” says

INSIGHT

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Christina Wilson, vice president of commercial lines for Toronto brokerage KRG Group. “This is non-complex, non-risk managed business that could be $5,000 basic coverage for a small manufacturing firm or a $500,000 property schedule.”

Industry Canada shows that out of the more than 1 million employer businesses registered in Canada, 97.5% have fewer than 100 employees, 2.2% have 100-499 employees and only 0.3% has more than 500 employees. Firms with fewer than 50 employees contribute about 22% to Canada’s GDP. LOOKING FOR A CHANGE A recent study by Greenwich Associates, a Connecticut-based research firm, found at least 20% of middle-market accounts in the United States were looking to change brokers in 2007. The consultancy interviewed more than 1,300 American

middle-market companies and found less than half of the clients characterized their brokers’ service as “excellent.” Greenwich also noted about one in three mid- and small-market customers changed insurers in the past two years, saving a median of $25,000 in premium.

While no such research exists in Canada, one thing is for certain: competition for the middle market is heating up here as well. This is partly a reflection of persistently soft conditions in the marketplace; partly it is a reflection of insurance carriers seeking creative ways to drive revenue. But the main reason for heightened competition is the visible strategy amongst large, multinational brokerages such as Aon, Marsh and Willis to concentrate on this key element of the Canadian economy.

“Once you get through the Top 100 companies, Canada is really a middle-

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aller Fish

fully educated his or her client on exactly what the market is doing.”

Several large, mid-sized brokers say they have seen an increased presence of the “alpha houses” in the mid-market. But they ascribe other reasons for the relatively new strategy.

“I don’t think there is any question the (larger brokers) have made a concerted effort to come downstream,” notes Mark Terrill, president of Toronto-based Jones Brown Inc. “The reason is, they are not meeting their sales objectives at the risk managed-level. They are getting the daylights kicked out of them by the risk-managed accounts that are negotiating their fees down.”

“I have been bumping up against the larger brokers in the last year much more than in the past, “ says Wilson. She adds insurance companies not known for their small- to mid-market focus are also show-

MIDDLE-MARKET DIVERSITY Part of the challenge of defining the mid-market for Hub is the diversity of its brokerages within the network, according to James. “We have 22 Hub brokerages throughout North America and they all define the middle market a bit differently,” he says, noting the recent acquisition of Toronto-based HKMB. “We tend to look at the buyers of insurance. If clients have dedicated risk managers, we look at that as a larger account. The true middle market account would be those clients where the president, CFO or COO handles the insurance. That approach works well because in a company like ours, a mid-market account may look a lot different from interior B.C. than the middle of Manhattan.”

Several brokers concur with this assessment. The advice-driven nature of the business and the reliance of these clients on brokers to guide them through risk management and loss prevention can

27 www.canadianunderwriter.ca • April 2008

market, small-commercial country,” says Neil Mitchell, managing director at Marsh Canada and a practice leader for middle markets in the company’s central region.

“If you are interested in growing organically, you do it by focusing on (this) segment. In Canada, following the J&H and Sedgwick acquisitions, Marsh became more focused and interested in the middle market segment. Our external marketing efforts have been very prevalent over the last five to seven years.”

Certainly as the insurance market has become more competitive in recent years, Willis is also finding the middle market “a major opportunity,” Hynes adds. “What tends to happen is the Tier 2 brokers don’t really want to give into the soft market and deliver that 15-18 point rate reduction, as this is mostly commission business. So often the opportunity comes for us when you have an incumbent broker that hasn’t

ing interest. ”Companies like Chubb or Ace, five years ago, you wouldn’t send them a $15,000 account because it was too small; now they are looking at those accounts. That could be because of the market conditions.”

Jim Aston, president of Toronto-based Sinclair Cockburn Financial Group, observes the competition “is getting pretty cutthroat. I know that a lot of brokers are cutting commission, scrambling to get that account and hoping that the rates are going to rebound so they can hang on to it. What I find interesting is that the markets are dragged into these bidding wars.

We are sometimes saying: ‘Where did that broker and that market come from (to compete) on this account?’”

As a broker consolidator, Hub International’s strategy has been to focus on the middle market “sweet spot,” says Kirk James, president of Hub’s central region. “It is a large part of what we do, but we also have an increasingly broad range of risk management professionals who deal with larger accounts.”

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INSIGHT

spring some big opportunities in this market space.

“I would define the middle market in Canada by the needs of the buyer and how they view insurance services, versus assigning an actual sales threshold or premium amount,” notes Mitchell.“The middle market, then, are commercial insurance buyers who look to a broker to be their ‘outsourced’ risk advisor and procurer of insurance solutions. Marsh's differentiation for the middle market comes in the form of its expansive knowledge, experience and the intellectual capital we have built up from the risk management side of our business.”

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SEPARATING THE TOP FROM THE MIDDLE Hynes says he sees similar opportunities for Willis in the high end of the middle market through “wedge” products.

“Many clients are now thinking of expanding their business into the U.S. and overseas, and they are looking at new ideas and new products,” he notes. “These could be trade credit on overseas products, D&O liability, E&O. These are products we hone in on because they provide us with an entry point into that kind of business — a wedge. We developed specialties and practice groups that deal only in those products to create opportunities.”

Indeed, knowledge of industry “verticals,” whether in areas such as health care, construction or aviation, coupled with practice specialties such as executive risk, have the potential to differentiate larger brokers from their smaller counterparts.

And there is some acknowledgement from Canada’s Tier 2 and regional brokers that the complexity and global exposures of some mid-to-large accounts are best handled by larger brokers.

“We have the expertise, the access to markets and we provide a superior level of service,” says Durrant. “That is how we differentiate ourselves. However, if we are out of depth in terms of knowledge or ability to service an account, we will absolutely walk away. For example, some of the accounts we deal with may have an aviation aspect. We have no expertise in that area and we are happy to refer that to an international brokerage we have a good comfort level with.”

Likewise, Terrill says his firm is “a relationship firm, and I don’t apologize for that. It has taken us this far and it will take

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us the next leg of the journey. We make the decision based on whether or not we can meet the prospective client’s expectations.

If a client has deliverables that we haven’t evolved to meet properly, we will respect that. There is no point in fighting a battle you can’t win.”

Yet when it comes to their core business, Tier 2 brokers show little concern about a mass customer exodus or attrition. Several brokers point out that although mid-market accounts may be “looking” to move their business, the customer retention rates don’t show heavy switching. With retention rates above 92%, Aston says his brokerage is looking at doubling its account size over the next three years and leveraging the success it has had with program/affinity business.

“It is a lofty goal, but we will be definitely targeting more mid-market business,” says Aston. “We realize we need to populate that area more heavily.”

James says an important aspect of Hub International strategy’s moving forward will be to more closely measure profit margins and service levels in key customer segments.

“We are trying to be a little more scientific about segmenting our lines of business and the kinds of activity we do on certain accounts,” says James. “You can have an account that might generate $10,000 of revenue for us, but our margin is considerably less than another similar account.”

This segmentation and an emphasis on continued consolidation will keep Hub a strong player in the mid-market space, according to James. “The way the insurance brokerage world works is that everyone goes after every piece of business at first glance to see if they can place the business.

The smaller brokerages, I think, will have more difficulty competing in a complex world on some accounts, because they don’t have expertise or market access.

That is why consolidation will continue, and there might be fewer entities competing for the same business – and that includes mid-market accounts.”

For others, the relationship-driven nature of the regional broker will continue to offer value to the middle market client. “I think the mid-market sector may look at the larger brokers and feel they would rather stay with the local, mid-size brokerage because of the relationships and

more personalized service,” says Wilson.

“We know our clients very well. We don’t see them just at renewal.”

Wilson adds the mid-market broker could also feel the same way about the newfound interest of some carriers. “As a broker, you tend to stay with the markets that are familiar with your client and offer the right products. I certainly don’t want to put [clients] with larger companies and suddenly next year [the larger companies] kick [the business] out because they have changed their market focus.”

Indeed, Terrill says he has the same uncertainty about the long-term commitment of larger brokers to the mid-market.

“Frankly, I don’t believe they are set up to handle this business because their cost structure is too high,” he notes. “I think when the market hardens, as it inevitably will, you will see them gravitate almost instantly back to their comfort zone. I have seen this movie before.”

The multinational brokers say they are committed to serving the needs of a growing and vibrant sector of the Canadian economy for the long haul. “I think there is a lot of room for growth in the midmarket in Canada,” notes Hynes. “I think you will find the Canadian economy is very much a mid-market economy, especially around manufacturing. There is tons of room for us to share market space with other people.”

COMPETING WITH THE BIG PLAYERS “What you learn as you spend more time in this space is how deep and broad the opportunities are for growth,” concludes Mitchell. “There are a surprisingly large number of great middle market businesses out there that you find unknowingly. It could be a business tucked away in North Bay, Markham or wherever that is just a great middle-market operation. And they have been traditionally well-served to a certain point by a local broker. Once a broker like Marsh starts to focus on it and find out what is out there, the opportunities are significant.”

As the Tier 2 brokers reach for larger accounts, stepping up the rungs of the ladder, they will be increasingly entering into direct competition with larger brokers in the expansive mid-market space. It should prove to be fertile grounds for competition as the soft market continues its steady pace in the months ahead.

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IBABC’s ‘The Right Value’ Symposium, Vancouver, February 2008

Apprai$ing Brokers Will recent court decisions in B.C. force brokers to take on the unfamiliar (and undesirable) role of appraisers?

By Ted Lewis, President, Insurance Brokers Association of B.C.

www.canadianunderwriter.ca • April 2008

30

hat do you get when you put 150 insurance industry representatives in a room to discuss insurance to value and guaranteed replacement cost (GRC)? You get strong opinions, agreement on problem areas (including the consistency and frequency of home evaluations), some disagreement on solutions and a consensus that solutions require all stakeholders to work together. This pretty much sums up what happened at The Right Value, a symposium hosted by the Insurance Brokers Association of B.C. in Vancouver on Feb. 21.

Steve Sache, a partner of Atkinson & Terry Insurance Brokers in Delta, B.C., presented a broker’s perspective on the panel. Representing insurers were:

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Graham Haigh, general manager for B.C. of the Gore Mutual Insurance Company; Doug Edward, assistant vice-president and manager of the Sovereign General Insurance Company’s Vancouver branch, and David Sheppard, manager, head office claims of the Canadian Northern Shield Insurance Company. Speaking to issues related to evaluation software were Peter Morris, vice-president, Canadian business, Marshall Swift & Boeckh (MSB), and Chris Lang, president of PowerSoft Development Corp.

The goal of the event was to seek areas of agreement in order to formulate a set of industry guidelines or best practices to be followed when establishing insurance to value for residential properties. The audience was mostly made up of brokers, with

several attending from other provinces. In addition, 12 general insurance companies were represented, as well as inspection firms, adjusters and the Insurance Council of B.C. INCONSISTENT EVALUATIONS Broker Steve Sache described the problems, the first of which is an inconsistent approach when it comes to insurers requiring a home evaluation. For renewals, some insurers require them every five years; others require inspections every three years, while some prefer every two years. Not every insurer asks for an evaluation with new business. Similarly they don’t all request evaluations when building limits change or when they accept letters of brokerage.

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Another issue is the inconsistency of results from evaluation tools, due to brokers receiving updates and information from one another at different times, and the different factors being used within the same region. Factors such as overhead and profit may be applied to different degrees or not at all. The result is confusion for the applicant when trying to make a decision on coverage. In a test undertaken for the symposium, eight evaluations performed on the same house by three different brokers using tools supplied by two different

Page 32

premium and requested reversal of the change. The insurer refused to provide GRC and preferred rating if the higher limit was not maintained. The client took the position that he had a contract prior to the evaluation being done and he took his complaint to the Insurance Council of B.C., which found fault with the broker on two points. First, since the insured responded to the broker with less than the required 30 days to go before expiry, Council stated the broker did not meet guidelines for proper renewal procedures.

Many discrepancies arise from the inconsistent application of different overhead and profit factors.

vendors produced eight different answers.

The lowest valuation was Cdn$584,538.

Two evaluations were in the high Cdn$600,000s, three in the Cdn$700,000 range, one at Cdn$800,000 and one at Cdn$1.3 million. Any one of these estimates would have met underwriters’ requirements.

www.canadianunderwriter.ca • April 2008

32

CONSUMER SUSPICION Consumers view the cost estimates with suspicion due to differing points of view as to what figure is being calculated.

Brokers often write builder’s risk policies for customers constructing new homes.

Upon completion of the homes, the broker writes a new homeowner’s policy with a limit based on the recent cost, plus debris removal and expected future inflation. However, more often than not, the insurance valuation is a considerably higher figure: the customer views the proposal as an attempt to gouge for extra premium; understandably, they often reject the higher proposed limit.

Regulators are stepping into the fray. In one example cited, a direct-billed client received his renewal from the insurance company. The broker made repeated attempts to contact the insured to update the building evaluation. Contact was eventually made and a new evaluation was sent to the insurer prior to the renewal date. The customer rejected the additional

Second, since the customer was insured with a company that only required an evaluator once every five years, the Council questioned whether the broker was acting in good faith since an evaluation was not required by the insurer during the period in question.

Underinsurance on contents, another important issue, led to a recent court case involving a total fire loss on Vancouver Island. Although the building was underinsured by almost 100%, it was fully covered under the GRC. However, because the building limit was so low, the contents were substantially underinsured and the

meet the estimated replacement cost.”

Brokers are not appraisers, yet the court stated the broker has a duty to estimate the replacement cost (note the ruling did not state reconstruction cost). The decision implies brokers must persist in contacting their customers in order to complete an evaluation. However, if the contact period is less than 30 days prior to renewal, and the insurance company doesn’t require a new evaluation for five years, then Council may determine the broker has not acted in good faith.

However, if a loss occurs and the customer is underinsured, the court will say he breached his duty. How does one square that circle?

OVERHEAD AND PROFIT FACTORS Haigh pointed out there are big differences in the results obtained from the inspection firms that insurers use. Many discrepancies arise from the inconsistent application of different overhead and profit factors, he noted.

Edward said an analysis of Sovereign’s last 10 total losses showed the dwellings were underinsured by 44.8%.

Furthermore, in 50 random valuation checks, the buildings were undervalued by an average of 29%. Edward expressed concern about the effects of undervaluation on re-insurance. If entire books of business have understated values, a catastrophic loss threatens the stability of the entire industry. He reminded the audience GRC is designed to act as a buffer against inflation, not to cover large gaps due to underinsurance.

Brokers are not appraisers, yet the court stated the broker has a duty to estimate the replacement cost (note the ruling did not state reconstruction cost).

customer sued the broker. On the particular facts of the case, the judge did not find the broker negligent, but did state clearly that the broker’s duty of care was to “exercise reasonable skill and care in estimating the replacement cost” of the house and that the insured should be able to rely on the broker to “estimate the approximate cost of replacing” the house, and “to obtain insurance coverage that would

MSB and Powersoft described the challenges they face in the area of evaluation software. Morris acknowledged the 15% MSB has in its calculator for overhead and profit is a national average; a high-cost area like B.C. should currently have an additional 10% added for both overhead and profit, he added, and the architect’s fees should always be included in any evaluation along with the addition of debris

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removal. Morris projected that by 2008 Q2, these additional overhead and profit factors will be built in.

B.C.’s housing market is dynamic, but not unique. Saskatchewan has seen some of the highest inflationary cost increases recently, according to Lang. He said his firm has already built in regionalized factors for overhead and profit, and undertakes monthly as opposed to quarterly updates. In addition, brokers who already have completed worksheets on PowerSoft’s Web system can request batch evaluations 60 to 75 days ahead of a renewal month.

Page 34

They also keep the number of data points to no more than 25 — the level of information that a client can reasonably be expected to know about his or her home.

Panel members presented a number of possible solutions to some of the issues the panel raised.

EVALUATION TIMELINES Sache, for example, urged insurers to be consistent about how often evaluations are required. He recommended every year or two years should be the standard. Also, he added, insurers need to be consistent in

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the application of inflation factors.

Haigh made a strong case for developing a basic calculator that would provide consistent results within a reasonable time period (many brokers in the audience said it was common for an evaluation to take 45 minutes). He also suggested an industry task force should be formed to explore solutions. He cited the example of Germany, where valuation ranges are legislated.

Edward suggested it might be time to evaluate the evaluators, with a view to simplifying the process.

Sheppard called for more analysis of real-life reconstruction costs, citing a claim in which a dwelling insured for Cdn$160,000 cost Cdn$560,000 to replace. The ‘soft costs’ involved — permit fees, engineering costs, taxes — alone totalled Cdn$60,000.

Morris also favoured industry-wide standards and annual re-evaluations, adding that it’s the best way to factor in the increased valuations resulting from Canada’s huge renovation industry (estimated to be in the order of Cdn$50 billion).

Lang said the factor triggering a dwelling to be considered ‘high value’ should be its square footage, not its assessed value.

The symposium yielded several suggestions that stakeholders will use to develop recommended best practice guidelines for proper establishment of residential building values. It is hoped brokers, insurers, regulators and software vendors will accept and support such guidelines in order to serve the best interest of our customers.

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Profitable brokerages pay roughly the same wages as struggling brokerages, but employees in successful brokerages are far less frustrated with their workloads, a recent profitability survey notes

The Art of

Retaining

By Michael Berris, CEO, Berris Mangan Chartered Accountants Insurance Consulting Group

www.canadianunderwriter.ca • April 2008

36

Employees

obvious and not so obvious problems that

By Vanessa Jackson, ultimately mean more work for you.

Executive Assistant, If this is familiar to you, please read on...

Berris Mangan Chartered Accountants Employee retention is the single most Insurance Consulting important factor that drives brokerage Group success. You may be surprised to learn that some business system changes designed to improve profitability will have t is Friday afternoon and your long- a direct and positive impact on employee time personal lines manager is nerv- retention. This in turn will increase broously standing outside your office. She kerage productivity and profitability. asks if she can speak with you as she closes In our work as brokerage business anathe door. Although you’re not quite sure lysts, we are often asked to perform due what she is going to say, you’re pretty sure diligence and operational reviews. Part of that it won’t be good news. It is worse than this review always involves a visit to the bad news: she is leaving to go to a competi- brokerage. Before we ask for one piece of tor. Your pleas, wage offers and vows to financial data, we observe and note how change all fall on deaf ears. This is the third we were greeted, how the counter is servgood person you have lost in the last five iced and is there a phone-answering sysyears. Although it is not a crisis, you have tem. We also try to observe how engaged not been able to replace them with equally employees are with their work.

Next, we have an informal discussion qualified people. This has created many

I

with the managers, asking them about their job and the strengths and challenges of their team. Although unscientific, these observations and discussions give us a good indication of what we will find when we look at the data. In our experience, a brokerage’s bottom is line is affected by its systems and work environment. How does this affect employee retention? Well, good people want to work for good organizations.

DOES MONEY EQUAL HAPPINESS? When we were designing our 2008 Insurance Brokerage Profitability Study, we wanted to shed some light on the issue of employee retention and profitability.

We decided to ask owners, managers and employees some specific questions on wage levels, training and other issues that affect their work environment. We also asked employees specific questions about their work environment, focusing on their

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brokerage’s customer orientation, office procedures, management style and culture. Our goal was to identify specific issues that have an impact on brokerage profitability and employee retention.

Two hundred and eight brokerages participated in our study; from this group, we received more than 100 completed employee survey questionnaires. Some of the responses were predictable and some surprising. For example, employee turnover and the resultant replacement with less-qualified employees was the single biggest frustration for team members.

Respondents also cited heavy workloads and a lack of meaningful training as issues. Only 9% of respondents expressed wage levels as a frustration. On the other hand, more than 50% of employees considered customer interaction as the best part of their job, followed by the social aspect of staff relationships.

Top 3 Frustrations: % of respondents High employee turnover - 30% Heavy workload - 24% Lack of meaningful training - 18% Top 3 Positives: % of respondents Dealing with the customers - 56% Working with their colleagues - 32% Variety of work - 13%

www.canadianunderwriter.ca • April 2008

38

Most managers and brokers probably already know what their employees like and don’t like, so the second step in our analysis involved the comparison of the survey results to brokerages of different profitability levels. We grouped our employee sample into two groups: (1) those who work for organizations in which profitability exceeded 20% of sales

Page 38

60.7% of [more profitable] brokerage employees reported they enjoyed dealing with clients, while only 48.7% of [less profitable] brokerage employees reported finding client interaction enjoyable.

Class B brokerage employees were frustrated by lack of training, whereas only 19.6% of Class A employees were frustrated by this issue. Heavy workload seemed to be an issue with both groups — 21.4% of Class A and 28.2% of Class B respondents reported being frustrated by high workloads.

One very important issue is the level of communication between employees and management. We focused on communication characterized as clarity about office procedures, as well as professional and social attention. Only 8.9% of Class A felt this was a problem, whereas 30.8% of Class B employees considered this to be a major frustration.

Let’s look at two other interesting results. First, 60.7% of Class A brokerage employees reported that they enjoyed dealing with clients while only 48.7% of Class B brokerage employees reported finding client interaction enjoyable. This may be a reflection of the stress faced by Class B employees or it could indicate a lack of appropriate fit for the job. It would be beneficial for both Class A and Class B brokerage management to review employees in a customer service position to ensure the appropriate fit. A re-allocation of duties could increase job satisfaction and in turn increase the profitability of the brokerage.

A second interesting finding is 20.5% of Class B brokerage employees enjoyed the variety in their job, while only 7.1% of

Employees who worked at [more profitable] brokerages were 62% less likely to be frustrated by high turnover and the resultant hiring of unqualified employees.

[Class A] and (2) those who worked for organizations in which profitability was under 20% [Class B].

We observed that employees who worked at Class A brokerages were 62% less likely to be frustrated by high turnover and the resultant hiring of unqualified employees. Thirty-three per cent of

Class A brokerage employees indicated they enjoyed variety in their daily job.

Class B employees may enjoy variety but the traits of a profitable brokerage usually involve consistency in daily processes and activities. In our experience, employees that know what is expected of them are more focused and work more efficiently.

We also asked our survey respondents to rate their employers on a scale of 1 to 10 on customer service, management style, service and system. The results between Class A and B brokerages were not significantly different: Class B employees gave their employers an average overall score of 6.63, compared to the Class A employee score of 7.28. Another striking similarity is that the average salary paid in the Class A and Class B brokerages are very similar at $39,000 and $38,400 respectively. We concluded there are no significant differences in wages levels, employees overall view of management or workload.

MONEY ISN’T EVERYTHING The previously mentioned salaries do not include commission producers’ salaries. We found there has been a trend away from commissioned producers. Also, if non-commissioned producers are given adequate training, sales support, marketing materials and are paid adequately, on average they tend to handle more premium volume and have less turnover than the 100% commissioned producers.

Now let’s compare employee turnover and the financial success of the two groups. In our study, employee turnover in Class B brokerages is almost twice as high as in Class A brokerages. More importantly, Class A brokerages earn average profits of 30.3% on sales compared to an average profit of 11.4% for the Class B brokerage.

The real difference is that Class A brokerages provide a consistent work environment with training and good communication. This is turn reduces turnover, making the entire organization more effective and profitable. The good news is that these changes can be made within the particular context or environment in which your brokerage is working. A publicly-traded company with 500 offices will undoubtedly have to employ different techniques than a locally-owned, singlebranch brokerage.

In the end, work environment is what drives employee turnover and ultimately profits.

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B

Page 40

lowing the Lid Off the

CAP Alberta’s Court of the Queen’s Bench has rejected the province’s Cdn$4,000 cap on auto insurance minor injury claims. In doing so, the court has effectively called into question the use of a cap as the linchpin of many of Canada’s auto insurance reforms.

By Don McGarvey, Partner, McLennan Ross LLP (Alberta)

McLennan Ross LLP is a member of the ARC Group Canada Inc., an affiliation of independent law firms across Canada practicing in the areas of insurance law and risk management.

www.canadianunderwriter.ca • April 2008

40 ssociate Chief Justice Neil Wittmann of the Court of Queen’s Bench of Alberta in February 2008 issued his long-awaited decisions in Morrow v. Zhang et al and Pedersen v.

Thournout et al. (collectively “Morrow”), the ramifications of which are sure to stoke the firestorm of debate surrounding insurance reform — not only in Alberta, but across Canada.

The issue in Morrow was whether s. 6 of Alberta’s Minor Injury Regulation (MIR) was contrary to Sections 7 and 15(1) of the Canadian Charter of Rights and Freedoms. S. 6 of the MIR imposed a Cdn$4,000 cap on non-pecuniary general damages for “minor injuries” caused by

A

the use or operation of a motor vehicle.

In the MIR, minor injury is described as follows: (h) “minor injury,” in respect of an accident, means: (i) a sprain; (ii) a strain; or (iii) a WAD injury caused by that accident that does not result in a serious impairment.

After hearing evidence led at trial, Wittmann found that, if it hadn’t been for the Cdn$4,000 cap, Peari Morrow’s injuries would have yielded non-pecuniary general damages of Cdn$20,000.

Similarly, in Pedersen, the judge found the injuries of Brea Pedersen would have

yielded non-pecuniary general damages of Cdn$15,000.

Of particular importance to the outcome of this case was what the court described as the cyclical nature of the insurance industry, characterized by periods of “soft markets” and “hard markets.” A soft market, for example, is characterized by periods of strong competition among insurers, in which underwriting standards are relaxed and insurers keep premium prices relatively stable or reduced in order to increase market share.

During this time, premium pricing will often not allow insurers to fully recover their expenses; they will rely on investment income to be profitable. When

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profitability inevitably declines, or reaches an unacceptable level, the hard market cycle gradually begins.

In hard markets, insurers seek to increase profitability by being more selec-

Page 42

THE CHARTER CHALLENGE Section 7 The court analyzed whether the MIR violated s. 7 of the Charter. Section 7 reads as follows: “Everyone has the right to life,

injury claimants, including the prospect or prevalence of soft tissue injury fraud and malingering by soft tissue injury victims. In his decision, Wittmann emphasizes media quotes from Jim Rivait of the

The court found the government had attempted to finance the resolution of what it perceived to be an insurance crisis on the back of a discreet group of injury victims who were disabled but not seen as being worthy of compensation beyond Cdn$4,000.

www.canadianunderwriter.ca • April 2008

42

tive about the risks they insure. Premiums often increase sharply during hard market times, since the insurers clamour to recover their underwriting expenses.

Historically, Alberta reached a peak hard market cycle in 2003, at which time the industry cycle began moving towards a new soft market. This caused a decrease in premiums written, it has been argued, likely due to the rate freeze the Klein Government imposed in 2003 as well as the introduction of the premium grid, which set maximum amounts for premiums based on driving records.

In analyzing the rationale behind Alberta’s 2004 insurance reforms, including changes to the MIR, Wittmann recognized the “all-comers” rule in s. 613.1 of the Insurance Act, which provides that all Albertans, subject to some exceptions, will have access to insurance at a cost less than or equal to a premium capped under the premium grid. Insurance premiums have decreased since the implementation of the reforms, which included a premium freeze, mandated rate reductions and the impact of the premium grid system.

Wittmann found that: “It is clear from the evidence that, in the years preceding the insurance reforms, the Government of Alberta had good reason to be concerned about the significance of non-pecuniary damages with respect to bodily injury costs. However, it is also clear that premiums do not vary solely as a function of bodily injury costs. There are other significant factors that influence the rates, including the cyclical nature of the insurance market which, if not regulated, will affect premiums differently depending on whether the period is a soft market or a hard market.”

liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”

The court found one’s right to life, liberty and security of the person as guaranteed by s. 7 of the Charter is not violated by the Cdn$4,000 cap on non-pecuniary general damages. Specifically, the court found s. 7 of the Charter does not protect the civil right to bring an action for damages for personal injury beyond the statutory Cdn$4,000 cap.

Section 15 Section 15 of the Charter and its relationship to s. 6 of the MIR constitutes the heart of the decision in these two cases.

Section 15(1) of the Charter reads as follows: “Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.”

In attempting to determine whether the MIR was discriminatory in nature, the court compared two groups: 1) individuals who suffered motor vehicle accidentrelated injuries defined as “minor injuries” under the MIR, and 2) motor vehicle accident victims who suffered injuries other than those defined as “minor injuries.”

This comparator group was selected because it was the definition of “minor injury” that distinguished one group from another and this distinction was the basis of the MIR. Evidence was led at trial concerning the views of society towards soft tissue

Insurance Bureau of Canada that were less than complimentary to minor injury victims. The court saw these quotes as evidence of the stereotypical views held in society in relation to soft tissue injury claimants.

Based on this evidence, the court found that: “By limiting the amount of non-pecuniary damages available to those suffering from minor injuries, the legislature has effectively categorized the group of injury victims as less worthy of nonpecuniary damages. The basis of this distinction is the type of injury from which they suffer. In limiting non-pecuniary damages in relation to the complainant group, the MIR effectively signals that the pain and suffering resulting from these medically unverifiable injuries are less deserving of damages than that caused by other injuries. As a result, the MIR perpetuates the unfortunate stereotype that I find exists in relation to minor injury victims.”

The court went on to find that the purpose of the 2004 Alberta insurance reforms — including the MIR — was to reduce automobile premiums. This purpose was seen as having nothing to do with needs of the claimant group (minor injury victims) and everything to do with keeping the costs of insurance premiums down for policyholders not suffering any loss.

The court found the government had attempted to finance the resolution of what it perceived to be an insurance crisis on the back of a discreet group of injury victims who were disabled but not seen as being worthy of compensation beyond Cdn$4,000. In other words, Alberta drivers at large — and more specifically,

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high-risk drivers — could obtain more affordable insurance due to the imposition of the “cap” imposed on minor injury victims.

Wittmann therefore held s. 6 of the MIR contravened Section 15(1) of the Charter. He then went on to determine whether the discriminatory limitation found in s. 6 of the MIR was saved by s. 1 of the Charter. Section 1 of the Charter saves laws otherwise contrary to Charter principles so long as such laws represent “reasonable limits” that could be justified in our society.

Section 1 Section 1 of the Charter reads as follows: “The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.”

In assessing whether the imposition of the cap was reasonable, having regard to all of the circumstances, the court again highlighted the objective of the cap was to

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reduce insurance premiums — a saving realized by all, except perhaps those who suffered minor injuries. The judge specifically rejected the Crown’s submission that the cap was a measure imposed to control rising claim costs relative to soft tissue injuries. Bodily injury costs were a legitimate cause for concern in the years before the insurance reforms were implemented, Wittmann observed, but they were not the only factor causing premium rates to rise.

The court found it was reasonable for the government to perceive an insurance crisis existed or was imminent and that mandatory automobile insurance was becoming inaccessible to many Albertans.

However, although maintaining affordable mandatory automobile insurance was a pressing and substantial objective, it was not justifiable to place the burden of widespread premium decreases on the shoulders of minor injury victims, the court found. The court noted other available alternatives were less intrusive and would also fulfill the underlying objective of the legislation. In short, the court found the cap “plainly overshoots the mark” in

terms of the interference it entails in relation to the rights of the claimant group (minor injury victims).

The court thus found s. 6 of the MIR — the provision instituting the Cdn$4,000 cap — was unconstitutional, since it violated s. 15(1) of the Charter and could not be saved under s. 1. The court also held that without s. 6, the MIR could not independently survive. Therefore, the entire regulation was struck down on a retroactive basis. As a result, all claims dating back to Oct. 1, 2004, when the “cap” went into effect, survive without the limitation of the cap. Now an opportunity exists for claimants to seek and obtain retroactively more than Cdn$4,000 for non-pecuniary general damages.

THE MORROW EFFECT This decision has many significant implications. Literally thousands of claims that had been held in abeyance — and that otherwise would have been capped at Cdn$4,000 for non-pecuniary general damages — are now expected to move forward.

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Literally thousands of claims that had been held in abeyance — and that otherwise would have been capped at Cdn$4,000 for non-pecuniary general damages — are now expected to move forward.

Furthermore, some unrepresented minor injury victims who settled their claims for Cdn$4,000 or less due to the cap may attempt to have their cases reopened. To do so, they would seek to demonstrate that insurers misled them into believing their Charter challenge would not be successful, or that they had no chance of recovering more than the Cdn$4,000 cap.

It is also worthwhile noting the Morrow decision was issued less than a month before the Mar. 3, 2008 Alberta provincial election. Consequently, it is perhaps understandable the province elected to appeal the judgment as of Feb. 12, 2008 rather than impose new legislation.

Wittmann recently heard and, as

expected, denied a stay of the decision.

The basis for refusing the stay was that there was no evidence of irreparable harm brought forward by the applicants; further, the balance of convenience favoured the plaintiffs. As such, the decision that the MIR is unconstitutional remains in effect and will remain in effect subject to the decision of the Court of Appeal either in relation to a further stay application and the appeal of the judgment.

No mainstream political party appeared to have any appetite to make insurance reform an election issue during the campaign leading up to the Feb. 28 provincial election. Now that the Conservatives have regained a majority government in the Alberta legislature, it remains to be seen whether it will have the

political will to try to re-write the legislation before the appeal is heard.

Meanwhile, certain other Canadian jurisdictions such as Nova Scotia, New Brunswick and P.E.I. have Cdn$2,500 caps on non-pecuniary general damages; they will no doubt have taken notice of this decision. Other jurisdictions may also heed the words of Wittmann and his strongly written judgment. The ultimate outcome of these issues remains uncertain, but one thing is clear: interesting times lay ahead for the automobile insurance industry. Insurers will begin the task of determining the best strategies for dealing with these types of claims pending further legislative reform or determination of these issues on appeal.

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Online

Insurance That Fits The Insurance Brokers Association of Ontario (IBAO) is launching a new Web site designed to allow consumers to obtain online quotes and information from brokers in a way that will put the independent channel front and centre in the quest for online business

By Randy Carroll, Chief Executive Officer, Insurance Brokers Association of Ontario

he Insurance Brokers Association of Ontario (IBAO) in Spring 2007 decided to survey its 10,200-plus members, asking them what kind of assistance they wanted from their association in the future. Thirty per cent of the membership responded and their primary answers were: 1) help them become more profitable and 2) help them better educate the consumer about the value proposition brokers provide. So what do the phrases “become more profitable” and “educate the consumer” mean?

Let’s look at this from the point of view of the consumer.

After surveying its membership, IBAO asked consumers in a formal study why they opted to buy insurance using a selected method of distribution. What was the perceived value of their chosen distribution method? Their answers validated what we have thought and said for years: brokers needed to do a better job at delivering their message. And that message is: only true independent brokers

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can provide choice, insurance that fits and advocacy.

MY INSURANCE SHOPPER That’s where www.myinsuranceshopper.ca comes into the picture.

IBAO on Apr. 3 provided industry stakeholders with a first glance at a new marketing and technology initiative developed by the association and its wholly owned subsidiary, Independent Broker Resources Inc. (IBRI). IBAO has developed a new consumer-focused Web site that provides consumers with a single point of entry for advice, knowledge, surveys, contests and an easy way to locate a broker and obtain an online quote from the broker of their choice.

One of the principal features of the Web site, My Insurance Shopper, will provide consumers with an online experience that offers more than just a quote and connection to a call center located miles away. My Insurance Shopper connects the consumer with an independent broker

that works for the consumer (not an insurance company). The broker will provide personal attention, ‘Perfect Fit’ coverage and expert advice consumers can trust. This is in keeping with the results of our consumer survey, which showed consumers need an online insurance site that they can trust; is transparent; and provides consumers with the peace of mind that they will be treated fairly and not be taken advantage of. www.myinsuranceshopper.ca is designed to deliver just that.

When consumers visit www.myinsuranceshopper.ca, they will be taken to a new consumer-friendly Web site that offers a re-vamped version of the IBAO’s ‘Locate a Broker’ feature. From here, consumers will be given an opportunity to view individual brokers’ online information and either choose a broker or continue with a search of other brokers. Once a broker has been selected, consumers will be given the opportunity to obtain a quote for their auto or property insurance immediately.

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After they obtain a quote, consumers may choose to continue shopping, repeating the process with a different broker.

Alternatively, if they choose to work with a particular broker, they have the option of getting in touch with the broker or having the broker call them. If the consumer wants to inquire further about a price, everything will feed electronically to the broker and the broker can get in touch with the consumer and finalize the process.

Compu-Quote, a household name in the insurance industry, built the technolo-

gy that drives the Web site’s quoting tool.

IBRI in June 2007 sent out a request for proposal to key industry technology providers; in December, Compu-Quote was chosen to partner with IBRI to provide a broker-focused product. This technology will be provided to each of IBAO’s 700-plus independent member brokerages to compliment the My Insurance Shopper revamp of our existing Locate a Broker Web site tool.

Affinity members will not have access to this offering.

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LOCATING A BROKER ELECTRONICALLY So what will drive consumers to visit www.myinsuranceshopper.ca? That’s where the marketing comes in. In addition to introducing the Web site and the technology, IBRI is launching a province-wide advertizing campaign to deliver the broker value proposition to the consumer, while at the same time capitalizing on IBAO and IBAC’s national BIP advertising campaign. An Ontario-wide advertising campaign on May 5 will drive consumers to the new site, marking the introduction of the independent broker to the consumer.

This will lead off a 28-week advertising campaign combining radio, street-level and local and community newspaper advertising with an online initiative and community cruiser campaign that will raise the awareness at the grassroots level throughout the province. www.myinsuranceshopper.ca goes live on May 5.

In the past, IBAO has developed advertizing material for its member brokers and contributed funds to support its national BIP advertising campaign. But it had not done enough provincially to educate consumers on behalf of its brokers. This campaign is a change in direction. With the assistance of IBRI, this initiative will go a long way in bolstering the value proposition and provide consumers with a better understanding of the value of dealing with an independent broker.

In addition, brokers will be given the tools they need to add to the campaign locally both at the affiliate and brokerage level. Brochures, flyers, postcards and advertorials will be made available to IBAO’s independent members through “print-on-demand” technology that will enable them to customize print material for their personal use. IBAO has come a long way, and it still has a way to go. Now that the association has taken a leadership role, brokers need to follow.

IBAO has taken a number of steps to get to where it is today: • a survey of its membership; • a survey of consumers; • “affinity” or non-voting member status for brokerages that are not independent; • BIP exclusivity for independent members in Ontario; and now • a marketing and technology initiative that favours independent brokers.

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A

TAXING ISSUE Newfoundland and Labrador brokers and insurance industry reps are urging the provincial government to slash and/or eliminate its tax on insurance premiums

By Vanessa Mariga

s budget time approaches in Newfoundland, the Insurance Bureau of Canada (IBC) and the Insurance Brokers Association of Newfoundland (IBAN) are reiterating their belief that the provincial government should scrap its tax on insurance premiums.

In Newfoundland and Labrador, a person or company maintaining an insurance contract related to property, risk, peril or events in the province must pay nearly 20% tax on the premium for that insurance.

While it is common practice among insurers, agents or brokers to arrange the payment of premiums with the consumer, the seller of the insurance is required to levy and remit the tax upon the full premium amount at the time of the sale, regardless of the payment terms, the Government of Newfoundland and Labrador’s department of finance says.

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The provincial government in April 1997 decided to harmonize its provincial sales tax with the federal GST. But the GST is not applied to insurance premiums, and so the insurance premium tax was applied. The premium tax was raised from 11% to 15% to ensure provincial revenue was still being generated, information from the department of finance says.

TAKING ITS TOLL The tax is not only the highest of its kind in Canada (Quebec has a similar tax that is 9% on property and 5% on auto), it is actually the highest tax of this kind in all of the G8 countries, says Don Forgeron, IBC’s Atlantic representative.

He says the issue is not the existence of the tax, but rather the fact that the high level of the tax creates an imbalance.

“For every dollar of home, car and business insurance [consumers] buy, the

provincial government charges them 19.6 cents in tax,” Forgeron says. “This adds up to [Cdn]$80 million annually. That really cries out for addressing, just because of the incredible imbalance it creates for local businesses that, for example, are competing with businesses in other jurisdictions that pay nowhere near the extra 20% on the insurance products they purchase.”

Robert Dunne, president of IBAN, resents the situation in which the tax puts brokers. “We’re daily having to justify that tax when it’s something that we have no control over,” he says. “We understand it’s an issue we have to fight [for] on behalf of consumers. If we can find some sort of relief there, then we can better address our insurance concerns and assure [consumers] that we’re fighting the issue on their behalf.”

The issue is not new, in the sense that IBAN and IBC have been lobbying to

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The tax is not only the highest of its kind in Canada, it is actually the highest tax of its kind in all of the G8 countries.

reduce and/or eliminate the tax for the past decade. But this year, other voices are chiming in with their support, Forgeron and Dunne say.

“This has been on our radar screen for many years in Newfoundland and it’s a constant theme in our pre-budget sub-

missions,” Forgeron says. “I think what’s different this time around is that other voices are being heard now, not just [those of] the industry. Small businesses, the volunteer sector in Newfoundland, the Chamber of Commerce have all come out opposed to the tax and are calling on the

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government to do something.”

Dunne says the Atlantic representative for the Canadian Federation of Independent Businesses has written to the finance minister, as well as to committee members representing the superintendent of insurance for the volunteer/non-profit sector.

“I myself, as a representative of IBAN and all of the insurance brokers of Newfoundland, have written the minister of finance as recently as January,” Dunne says. “So all of these groups have written in the past 60 to 90 days to the minister expressing all of their concerns about the tax and requesting its elimination.”

Forgeron believes the province has a number of means at its disposal to deal with the premium tax. “They could consider a phase-out over a period of time,” he says. “They could also consider targeting specific sectors, for example, exempting small businesses and the volunteer sector,” he suggests.

LEVELLING THE PLAYING FIELD “Our key message to the government is: the relative tax burden in Newfoundland and Labrador is completely out of step,” Forgeron says. “Not just with other jurisdictions in Canada, but also with other jurisdictions around the world. Something needs to be done to bring it back into line.”

The provincial government declined to comment on whether or not it intends to reduce or eliminate the tax in this spring’s budget, but Dunne remains pessimistic.

“We feel the provincial government is going to ignore it at this time,” he says.

“They’re likely going to take a stand that if they do anything on reducing the taxes, then it’ll mean a reduction of provincial revenue. And then there would have to be a reduction in services or some other way to find the tax to make up the lost revenue.”

At this time, IBAN is calling for the elimination of the tax. “We have also requested that the government come to the table and talk to us about that, but they have yet to respond to our written request,” Dunne says.

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Tier 2 Canadian commercial brokerages may soon be contemplating the predominantly U.S. tactic of outsourcing a brokerage’s claimshandling processes to a third-party provider

Outsourcing

Commercial Claims

By David Gambrill ommercial brokerages are in basic agreement that their ability to walk clients through the claims process is what “separates the boys from the men.”

But in Canada, a new twist on the claimshandling process has commercial brokers talking about the best way for the country’s Tier 2 commercial brokers to come of age.

That new twist involves a Tier 2 commercial brokerage outsourcing some or all of its claims-handling process to a thirdparty specialist (a claims adjuster, for example). The phenomenon has been seen in the United States, but its occurrence in Canada appears to be novel and, for the most part, relatively unknown.

In the U.S., The Insurance Brokers’ Monthly and Insurance Adviser (IBMIA) in late 2006 issued its “guide to outsourcing claims,” in which it noted “placing part or all of a claims function with a specialist provider can be rewarding and can ease the administrative pressure which many brokers now find themselves under.”

Rick Messier, the vice president of the Toronto Insurance Conference and a commercial broker with Pearson Dunn Insurance, concurs with this line of reasoning. He notes his brokerage is a “test case” for using this model in Canada to help commercial clients navigate their way through the claims process. At Pearson Dunn, clients with a claim are directed to a third party, a claims adjuster, which then

C

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informs the client what to expect when it comes to the claims process.

A third-party adjuster would not comment on policy coverage, which would go against a commercial broker’s errors and omissions (E&O) coverage. Nor would it necessarily adjust the claim itself, although the possibility of doing so would remain open. [If the third-party provider was an adjuster, for example, the insurer might opt to go with the brokerage’s third-party adjuster to handle the claim, or the carrier instead might choose to work with its own adjusting firm.]

WALKING CLIENTS THROUGH THE CLAIMS PROCESS The essential purpose of the brokerage’s third-party adjuster would be to walk an A-list commercial client through the claims process, giving the client an outline of what to expect. For example, the thirdparty adjuster might tell a client with a claim to expect a call from an adjuster within 24 hours. It might then follow up with the client to make sure an adjuster has called within the expected time period.

The third-party adjuster would collect the contact information from the client, and discuss the need to have to fill out business income loss sheets. It would then help clients fill out those sheets.

In other words, the third-party adjuster would do all of the things a brokerage

firm’s in-house claims team would do with a client, but at a fraction of the cost. “I think it will become the norm [in Canada] in a year or two from now, only because hiring an in-house claims manager is going to cost you, with all of the overhead, about $100,000/year, and [the third-party service provider] can do that for $20,000,” says Messier.

“And if [the third-party provider] can help us retain a large account, it will pay for itself. If they help us win a new prospect, again, it will pay for itself. If they do that once every year, it will pay for itself. It was a no-brainer when it got presented to me.”

Messier notes outsourcing claims service is not for all brokerages. “It’s more based on that commercial brokerage targeting A-clients of Cdn$100,000 of premium or above,” he says. “It’s not for your Cdn$15,000 restaurant account, that’s for sure...”

Messier says outsourcing a brokerage’s claims-handling service allows Tier 2 brokerages to better compete with “the alpha houses” such as Marsh, Willis or Aon in bids for large business contracts. This is especially important in a very competitive environment such as the Canadian market, he notes. “I go in against alpha homes and I come in with my claims team and they go in with their claims team, but I might have a better relationship or rapport with the guy,” Messier says.“We get the account, and that has happened.”

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Not everyone is sold on the concept, however. Even the IBMIA’s guide to outsourcing cautions brokers not to focus solely on the cost-savings. “The decision to outsource should not be governed by pure financial reasons, as is often the case,” the guide notes. “The best approach is to take a more strategic view to outsourcing, using the process to initiate change and drive innovation.”

Paul Martin, president of KRG Insurance Group, notes his Tier 2 commercial brokerage does contract an adjustment firm, Shumka Craig (now SCM Adjusters Canada Ltd.), to facilitate 24-hour, after-

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hours claims service. Clients calling the 24hour hotline are routed to SCM Adjusters, which answers the call, and may dispatch an adjuster after-hours. SCM Adjusters may later retain the claim at the discretion of the insurance carrier. But the 24-hour service is a value-added, notes Martin. It does not obviate the need to have an inhouse claims team at the brokerage.

“As for KRG ever relinquishing [its claims-handling service to a third-party provider], if a call came into me or one of my account managers, to be honest, I would never say: ‘I’m sending you to a third party to tell you how to do it.’ I would

never do that because to me, that’s what a broker’s role is. That’s what a broker’s job is. This is where you separate yourself from other brokers by offering this service.”

Helping a client through the claims process, Martin adds, “should be offered by the person who put the insurance program together.”

The IBMIA guide notes “outsourcing relationships need to be well managed in order to succeed, as a lack of integration between the parties often has a negative impact on customer service.”

Brenda Rose, vice president of Firstbrook Cassie & Anderson Ltd., makes this same point in expressing her initial reservations about outsourcing the claims function in whole or in part. She notes Firstbrook Cassie, a Tier 2 brokerage firm, has had at least one dedicated, in-house claims person on staff since the days when the company had only 15 staff members.

“We have always had dedicated claims staff here,” she says.“It’s not something we see as a luxury add-on.”

KEEPING IT UNDER ONE ROOF Like Martin, Rose sees walking a client through the claims process as a fundamental part of what a broker does, and therefore should not be contracted out to a third party except in exceptional circumstances.

For example, she could see outsourcing being an advantage in circumstances in which a third–party provider might be able to provide a more specialized knowledge than in-house claims staff at a brokerage.

Having said this, the value of having inhouse claims staff is that they will know the culture of the brokerage and have instant access to the group of people that might be required to coordinate the resolution of a claim, Rose notes. This is particularly helpful in situations in which the client’s commercial policy wording has been customized.

“When there is a claim, if there are any discrepancies at all, you need to go back, rehash what was said, what wasn’t said and who was involved,” says Rose. “It’s not just the claims departments [involved with a claim]. Quite often the underwriting departments have to get involved. If it’s any custom wordings or any customization of the coverage at all, sometime a few different people have to be part of the conversation. The more individuals [at the brokerage] who were there at the outset [of policy creation], the more easily the claim is going to be resolved.”

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Around the

WORLDin

EIGHT seconds (Or Less) Real-time inquiry transactions are now possible for brokers without scripts or detours through carrier portals

By Leslie Lacroix, Regional Vice President, Operations HUB International Ontario Limited.

www.canadianunderwriter.ca • April 2008

58

e had to see it to believe it. After years of less-than-successful carrier attempts to take SEMCI to the next level, the real-time tide is finally turning, thanks to the first true realtime inquiry transaction that does not require scripting or landing in a carrier portal. Now that a carrier has stepped up to enable this solution, brokers and carriers are experiencing the staggering improvements and appreciating their business value.

This new solution comes in response to a group of brokers united in their commitment to the industry and their frustration at the status quo.

For years, “much ado about nothing” was the modus operandi for ongoing realtime and SEMCI adventures in Canada.

Carriers occasionally offered real-time solutions that posed as SEMCI, but bro-

W

kers resisted because the processes were slow and inefficient. We wanted transactions to be fast and blend seamlessly into our workflow. We grew more and more disappointed as the goal of a true roundtrip SEMCI transaction from within a broker management system remained an elusive target.

The Applied Systems Client Network (ASCnet Inc.) in early 2007 formed an ad hoc group to work with the ASCnet Interface Committee to better understand Canadian carriers’ development and deliverables in the area of real-time SEMCI insurance transactions. The ad hoc group includes many top-tier brokerages in Canada that need a SEMCI workflow in order to compete and grow in a changing business environment.

The committee conducted a study that showed:

• brokers did not really understand the initial impact of the deliverables from various carriers; • workflows had become even more convoluted, complex and inconsistent; and • brokers wanted a solution enabling and empowering them in their chosen business tool, which is the brokerage management system.

The committee sifted through available offerings to verify insurance companies had not already delivered what is needed. We decided to conduct a program of focus meetings to educate major carriers on broker requirements. At every opportunity, we affirmed our position: scripting and multiple carrier portals are not viable, long-term solutions; they do not support the efficiencies required by brokers to compete in this marketplace.

A number of carriers started to under-

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stand. One Toronto-based carrier subsequently made a significant investment to provide the technology for which brokers have longed.

York Fire has recently implemented a true real-time, round-trip transaction, starting and ending in the broker’s TAM system, without a portal landing. It is based on industry standard XML, and provides brokers with the prized ease of doing business. What used to be a painfully slow scripting transaction taking well over one minute is now accomplished in less than 10 seconds.

The breakthrough solution first covered a broad range of personal lines transactions. The carrier quickly began focusing on commercial lines. Other carriers are now working on their own real-time alternatives to scripting.

What finally convinced carriers and brokers alike that the real-time technology is worth the time and financial investment? Experiencing the lightning-fast transactions.

Case Study:

kers’ time,” said Jeff Roy, vice president of P.A. Roy Insurance Brokers, based in Clinton, Ontario.“This simple transaction will improve broker efficiencies and allow us to spend more time focusing on advising our clients.”

As a result of the transaction beginning and ending in the broker management system, three key benefits increase customer satisfaction and employee productivity: Speed The XML transaction averages 8-10 seconds for delivery, whereas scripting takes 30 seconds or longer.

No Portal Landing No passwords to remember (or write down), no company screens to navigate and no additional keystrokes. All actions are completed within a familiar system.

Reduc ed E&O Exposure and Transaction Costs Brokerage staff experience consistent workflows.

One key to successfully developing the transaction was the participation of the carrier’s senior management in the process. Colin Simpson, York Fire president & CEO, said he became involved because he personally supports efforts to strengthen the independent broker channel. “We understand the competitive market our brokers face, and we are firmly committed to finding solutions to help them successfully compete and grow their businesses,” Simpson said. “It is an absolute priority within York Fire to provide the technology necessary to help bro-

kers compete and win against direct writers and affinity groups.”

Also key was the carrier’s commitment to working with the brokers on the ASCnet Interface Committee and its ad hoc group. The carrier and brokers engaged in numerous meetings and research studies to ensure all parties understood what was needed. A roundtrip transaction was not a first initiative, but rather the culmination of many activities that preceded it.

“We appreciate the leadership York Fire has shown in providing a true realtime transaction — one the entire marketplace can follow,” said Brian Bartosh, president of Top O’Michigan Insurance and chair of the ASCnet Interface Committee.

“ASCnet will continue to work with the industry to provide quick and efficient real-time transactions.”

Finally participants are feeling the power of developing true XML transactions. Development on a pre-existing platform is being done quickly and smoothly, with the multi-part goal of strengthening the independent broker channel/insurer relationship, undertaking business process redesign, streamlining underwriting and strengthening technology to enable ease of doing business.

There is work yet to be done to deliver other round-trip SEMCI workflows that enable brokerages to compete and grow more effectively and efficiently. Brokercarrier automation must continue to expand and extend so the independent broker channel can continue its strong tradition of delivering high value to insurance consumers.

Setting the stage for change?

The first action York Fire undertook was to develop a broker-facing portal to handle automobile new business. The portal, called the Gateway, offered quoting and policy binding. It was combined with EDI download services so that policy information could be downloaded directly into broker management systems.

Now commonplace, this action represented a starting point for a series of initiatives that demonstrated York Fire could deliver as promised and was willing to invest in its delivery channel.

The next phase was to develop real-time connectivity with broker management solutions, including Applied Systems and Compu-Quote.

The solution accesses third-party data such as motor vehicle reports in real time and, with pre-set rules, validates information. It identifies errors, gaps or omissions and launches a browser window in TAM, directly linking to the policy editor, all in real-time.

This automation streamlines actions, removes underwriters from much of the administrative work they had done in the past, and allows them to focus on exceptions. From the broker perspective, the ease in submitting new business is improved, responsiveness is enhanced, and lead times are dramatically reduced. With this connectivity in place, the move to a round-trip transaction was the next logical step.

59 www.canadianunderwriter.ca • April 2008

Round Trip The action is straightforward: A real-time inquiry transaction was changed to deliver an account summary page from the carrier’s mainframe. Brokers no longer have to navigate the carrier portal to review billing, policy and claims information.

The data is now delivered directly into Applied Systems’ TAM (The Agency Manager) along with a supporting activity record to register the transaction.

“Without this solution, these transactions are extremely time-consuming and can take up a significant amount of bro-

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Dealing with insurance is: Aviva Canada is seeking to increase its brand awareness at the same time its research shows consumers are indifferent about insurance and view it as a “necessary evil.” The result is an ambitious new public communications plan.

a) Annoying b) a c)a

Changeinsurance.ca Home, Auto & Business Insurance

BRAND

Building a in Dangerous Times

By Aviva Canada ow consumers really feel about insurance companies is not where it needs to be. So Aviva Canada has launched an ambitious campaign that will spark conversations and offer a different way of looking at insurance. It is a bold growth strategy for Aviva and its broker partners, but also an overdue step by insurance companies to raise the bar of customer expectations and delivering on value and trust.

When you ask average consumers about their perceptions of insurance, it’s difficult for many in the industry to accept the answers. Even given a lengthy soft market characterized by generally lower premiums, most consumers still view insurance as a “necessary evil.” Although there is no consumer crisis at the moment, we have to ask: how much longer will insurance retain the current low profile? And more fundamentally, are current perceptions a good place to be at all?

Scratch below the surface and you get a range of consumer responses: indifference, residual distrust around the complexity of insurance, as well as a sense that basic needs are just not being met. After extensive consumer and broker research, Aviva believes that, simply put, most consumers don’t feel they get value for their insurance dollar.

So Aviva Canada faces a challenge: If it wants to build its brand with consumers, how should it gain their attention in the first place? How might the company overcome the underlying issues and start to build more positive connections?

The answer is an ambitious and visionary awareness campaign. First, build credibility by acknowledging things really should be better for consumers. Second, make the commitment

H

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On a scale of 10 to 10, how irritating is insurance?

Changeinsurance.ca Home, Auto & Business Insurance

to fix it. Our mission is to change how the consumer views Aviva Canada and our industry. Our tagline is ‘Let’s change insurance.’

“This campaign is very simply the right thing to do for consumers and the right time to do it,” says Robin Spencer, president and CEO of Aviva Canada. “We need to give consumers a unique and compelling proposition to ensure they feel absolutely confident that what they buy is what they need — and that they get full value for their money.”

PROVOCATIVE CAMPAIGN The campaign is a significant investment for Aviva, and a new direction. When Aviva’s brand was created in 2003, the initial focus was on employee and broker awareness. Now, Aviva will establish a closer connection with consumers, helping its broker partners to sell products and solutions from a recognized company.

For years, Aviva Canada’s employees have asked why the com-

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We [build awareness] by acknowledging consumers’ frustrations with our industry, by declaring we believe positive change can happen, and by standing up to take the lead on making it happen.

and have a sense of humour — a very human trait in an industry that many consider to be faceless,” Fletcher says. “Most of all, however, we aim to deliver a consistent message consumers can believe in.”

Aviva’s intent is to stimulate meaningful conversations among consumers, between consumers and brokers, and between consumers, brokers and Aviva employees. We need to acknowledge how people feel about insurance. Over time, Aviva’s aim is to address those feelings and concerns. Potentially this can be done through the use of simpler, less-complex language, demonstrating the company appreciates its customers are real people who have busy lives, and by delivering superior value for money.

Some would say this is easier said than done. We recognized early on that any branding campaign would have to be about much more than simply throwing a trademark out into an increasingly noisy financial services marketplace.

Fundamentally it is about how everyone at Aviva operates every day, how its employees interact with consumers and its broker partners, and how the company is stretching to do both the simple and difficult things better. Aviva knows that in order to be successful, it needs to partner closely with brokers and claims service partners to meet consumers’ needs.

Changing how consumers feel about insurance is ambitious; it’s not a challenge with a single answer. The business strategy is multi-faceted, involves all aspects of the business and will be a multi-year journey. It will align all operating companies, branches and employees under a common goal and a united Aviva message. Although this campaign is part of the push to build Aviva’s global presence, it is definitely a ‘made-in-Canada’ campaign. The payoff comes once Aviva has been established in the minds of consumers; at that point, the campaign can develop in different directions in the years ahead.

INVESTING IN THE BRAND The current campaign is driven by a hard business reality: Aviva and its broker partners want to grow, and a brand that stands for something positive helps drive a growth strategy. The branding campaign can help attract and keep the kind of consumers Aviva wants; it can also act as a magnet for increasingly scarce talent. To gain traction quickly, something bold and different is needed; hence the provocative and amusing elements to the campaign. True success will only come if Aviva Canada and its team deliver on the ambition driving the campaign. Spencer concludes: “At Aviva we are completely dedicated to our shareholder commitment and we know this campaign will be long term — it will be a marathon, not a sprint.”

Ultimately only one group of people can truly judge the value of a company’s brand — the consumers.

At Aviva, the conversations have begun.

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pany hasn’t invested in the consumer brand. The turning point came in 2006, when the company’s key broker partners started challenging the company to help the brokers grow by developing Aviva Canada’s own brand. The brokers’ logic is simple: it is easier to recommend and sell policies from an insurer of which customers have heard.

Accordingly, we embarked on a mission to understand what was Insurance can driving consumer behaviour. be confusing: This unearthed insights that now drive the current brand Frue strategy.

The research showed conTalse sumers who consider switching insurance are almost twice as likely to choose a name they know. This migration to a prefChangeinsurance.ca Home, Auto & Business Insurance erence for more recognized names is a change from just a few years ago; many brokers are keenly aware of this trend. So Aviva is now stepping up to the plate to deliver its brand to the consumer.

Aviva has involved its broker partners as it has developed key insights and thoughts about what was needed for success. This included discussions about how broker office staff — CSRs and producers, for example — could capitalize on the Aviva campaign as a springboard for conversations with consumers, and what support would be needed to achieve that.

Many people have likely seen the launch of this Aviva initiative through a full “surround-sound” campaign. The company invested in television, print, digital media and a microsite — www.changeinsurance.ca — to get its message across and engage consumers. Tactically, Aviva is going to the market with provocative positioning to break through the underlying passivity of consumers regarding insurance.

“This first phase aims to build awareness of Aviva and to earn the right to engage the consumer about who we are and what we stand for,” notes Paul Fletcher, senior vice president of marketing for Aviva Canada.“We do this by acknowledging consumers’ frustrations with our industry, by declaring we believe positive change can happen, and by standing up to take the lead on making it happen. It’s a very public commitment and it certainly raises the bar for us.”

The campaign captures consumer attention and generates interest with simple, yet sophisticated devices to share the message. “This amusing approach also helps us stand out from the crowd by showing we are grounded in the reality of our business

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Opinion/Analysis

Fishing for

New BUSINESS

By J.R. (Bob) Tisdale, President and CEO, Pembridge Insurance Company

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hat continues to impress me as I meet more and more broker partners is the innate power of the broker distribution channel. No other channel can buy insurance for their clients. Only an independent broker can truly offer consumers the best product at the appropriate price. This is a significant competitive advantage that brokers can and should continue to leverage as they wage the war of product distribution often against the very partners they support.

Watching this battle deepen, I have made it a point to travel into the trenches to see first-hand what brokers are facing.

During the past two and a half years, I have travelled across Canada and had the pleasure of visiting more than 80% of the broker’s offices with which Pembridge is contracted. By the end of 2008, I expect

W

Independent brokers should be cautious about insurers engaged in portfolio acquisitions with or without inducements such as override and financial compensation

to have personally visited every main and or key office of every Pembridge broker partner.

Throughout my travels, I have taken advantage of the opportunity to sit down with broker principals and customer service representatives to hear first-hand what is — and what is not — working in their markets. This interaction, along with the work our regional directors and broker sales managers do in the field, has resulted in the implementation of several of our brokers’ recommendations. Following through on these suggestions is the right thing to do to support the maintenance of broker independence.

Unfortunately, the threat to independence continues at an alarming rate. What’s more unfortunate, the threat is primarily from companies masquerading as sup-

porters of the independent broker, whereas in fact they are aggressively exploiting alternative ways to grow their business.

For example, there has been an increase in portfolio acquisitions, fuelled by inducements such as override and financial compensation. Excessive portfolio acquisitions within an office shrink the stable of companies from which a broker can choose and marginalizes consumer choice, ultimately devaluing the brokerage.

TRANSFERRING PORTFOLIOS From a strategic standpoint, portfolio movement by a broker makes sense; Pembridge does not oppose any actions an independent businessperson takes to foster perpetuation of his or her enterprise. But Pembridge will not induce a transaction or acquisition by providing

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A BALANCING ACT Second, once a broker has established the right balance of markets, it is important to consider how much business each of those partners should receive. If a broker has several companies of a similar size from which to choose, the broker is less exposed to the impact of consolidation or re-underwriting. On the other hand, when companies have a significant share of the broker’s business, each are protected from the volatility large losses can bring to a smaller book of business within a broker’s office.

Creating the right balance in terms of the size of companies and how much business they receive protects the broker and creates more stable markets for brokers to choose from on behalf of their customer. Without such stability, the consumer may not always be presented the best product at the appropriate price, which is the advantage brokers provide to customers.

One of the biggest obstacles a broker faces in striking the right balance is consolidation. In the past several years, consolidation has tightened its grip within the industry; brokers are feeling the impact.

The price of brokerages has increased and brokers’ ability to expand their influence in their community has been stifled.

Historically, brokers have competed with other brokers when looking to expand through acquisition. In most

In doing so, the broker not only has more access to all markets, but also retains more control. Brokers have earned the right to be in the drivers’ seat when they are mapping out their future. They deserve not to be unduly influenced by financial incentives. At the same time, the proper balance gives the broker more options in working with its partners should acquisition opportunities arise. It gives the broker some leverage in helping to compete against companies that simply want to drive the independent broker out of business.

THE ROAD AHEAD One way Pembridge is trying to counter the creep of consolidation is through the offering of its partial portfolio rollover program. Pembridge has worked with many brokers to ensure they are not too

Once a broker has established the right balance of markets, it is important to consider how much business each of those partners should receive. If a broker has several companies of a similar size from which to choose, the broker is less exposed to the impact of consolidation or re-underwriting.

cases, brokers had relatively similar time frames for the payback of the required investment, so a relatively stable market was created and well-defined price ranges were established.

But once insurance companies entered into this market, pay-back periods were extended and costs went up. In the short term, this was acceptable for the selling broker. But over the long term, smaller independent brokers simply cannot compete with the multiples certain insurance companies are prepared to pay to buy up market share. The longer this continues, the greater the threat to the many entrepreneurs who have formed the backbone of this channel.

Pembridge will continue to do its part to promote and preserve the independent broker. But brokers must also play a role by ensuring that no one company dominates their book of business. If there is an imbalance, and a broker recognizes a strategic partner is under-represented, then it is entirely appropriate for a broker to consider moving a portion of the business.

heavily dependent on just one or two markets. The success of the program has not only helped established balance within a broker’s office, but has also provided customers in many cases with better coverage at the same or less cost.

Pembridge is also providing brokers with no-obligation financing options, in which brokers can access funds loaned at commercial rates to help pursue an offensive strategy of acquisition, a succession perpetuation or to remove an equity partner.

Pembridge firmly believes the way to grow over the long-term lies in a commitment to independence and consumer choice. That’s why it will continue to be very active in helping brokers create the right balance of partners within their office. By doing so, it will provide every opportunity for Pembridge’s current and future broker partners to grow, prosper and remain independent, while ensuring that consumers continue to receive the professional expertise and service that brokers have been providing for over a century.

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financial incentives that effectively “buy” the transfer of business. If a broker chooses to transfer all or part of a portfolio to Pembridge, the necessary financial support to offset broker costs will be provided to ensure a smooth and seamless migration.

Pembridge is committed to opening doors and creating enduring relationships that ultimately foster growth. That’s why one of the key discussions I am having with our broker partners of late is about maintaining the right balance of markets within the office.

The right balance has two equally important aspects. The first is the number of partners a broker has. The second is the relative size of each of the partners to the broker’s operation. Striking the right balance of markets is a fundamental aspect of retaining independence and protecting the future by leveraging all partnerships to your advantage. In this context, for most brokers, two critical questions need to be answered: who are the right partners to have; and how much business should each market be given?

First and foremost, the right balance of partners begins with a stable of companies that support the independence of brokers — companies that are sincerely interested in creating a healthy long-term picture for the broker. Over the past few years, consolidation and market softening have combined to blur the lines between companies supporting and promoting independent brokers and those that continue to create bigger ‘captive agent’ channels. If a traditional broker company wants to go ‘direct,’ then go. It is time to stop muddying the waters.

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Xtreme Sports:

TOO HOT to Handle?

Greg Sutton, President, Sutton Sportscover Ltd.

t is not surprising that, given our climate and natural geography, Canada is one of the top spots for both domestic and international travellers looking for fun in the snow. A short time ago, when someone said that they were off on a winter sports holiday, it meant they were going skiing, snowboarding or possibly tobogganing. Now the choice of activity has increased; the list is getting longer — and more extreme — each year.

More and more people want to go iceclimbing up frozen waterfalls or heli-skiing off remote mountain peaks or ice-sailing on frozen lakes. Weird and wonderful winter sports activities are now available for those looking for a more intense thrill.

This means the risks associated with winter sports are also changing; in many cases, they are becoming more severe. So are these adrenaline junkies getting the insurance cover they need?

The Canadian Institute for Health Information (CIHI) in 2006 released a report showing that snowmobile incidents were the Number 1 cause of winter sports and recreation–related injuries treated in specialized trauma units. They accounted for 41% of these types of seri-

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As people travel to more remote areas and engage in more extreme activities, it is highly likely the risk of sustaining an injury and the severity of the injury will increase. Some are concerned people are taking part in high-risk activities without adequate insurance — or worse, without any insurance at all.

ous injuries as compared to snowboarding (20%), skiing (20%), hockey (9%), tobogganing (7%) and ice-skating (3%).

Most of these patients sustain multiple injuries, with orthopedic injuries and head injuries the most frequently-occurring traumas. In 2003-04, the average length of stay in a specialized trauma hospital for these injuries was almost 11 days — nearly double the length of stay for admissions with less-severe injuries. More than one in five of these patients required respiratory support with a ventilator.

EXTREME LACK OF COVERAGE As people travel to more remote areas and engage in more extreme activities, it is highly likely the risk of sustaining an injury and the severity of the injury will increase. It is a concern that people are taking part in high-risk activities without adequate insurance or, worse, without any insurance at all.

Some people travel without any travel insurance in place. A November 2005 survey for the U.K. Foreign and Commonwealth Office shows 31% of U.K. travellers on winter sports holidays do not take out travel insurance that cov-

ers skiing, snowboarding and other sports in which they intend to take part. Many people do not even consider insurance as part of their preparations; instead, they concentrate on making sure they have appropriate clothes and researching the nightlife. Yet the costs of medical treatment and repatriation can run into many thousands of dollars — and that does not include possible loss of income if the injured party is unable to work for some time.

Even for people who do buy insurance that specifically covers winter sports, it may only cover the mainstream sports.

More extreme activities could well be excluded. Even if they are able to get travel cover for an extended range of winter sport activities, it will generally only cover the usual travel insurance benefits of lost luggage, delay, cancellation and international medical costs. Many of the accidents arising from winter sports can result in individuals being incapacitated for a long time and unable to work. Ideally, both domestic and international travellers should have cover that includes loss of income protection and/or personal accident benefits. These benefits are rarely

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Personal accident and loss of income insurance that covers all of the intended activities — with perhaps the exception of some of the most extreme — should be part of the holiday package and included in the cost of the holiday.

BEYOND TRAVEL INSURANCE No doubt, travel insurance should continue to be the mainstay for the standard traveller; even so, appropriate additional cover can be made available to holidaying sports enthusiasts. Personal accident and loss of income insurance that covers all of

the intended activities — with perhaps the exception of some of the most extreme — should be part of the holiday package and included in the cost of the holiday. If the organizers and/or venue operators of winter sports activities purchased the insurance as a package for all of their clients, the costs per person would be minimal.

But the potential advantages to the client would be substantial should they sustain a serious injury in an accident. The organizer might also promote the insurance package as a value-added benefit for the traveller.

Another advantage of offering cover on this basis is that, unlike in the situation with travel insurance, insurers can rate this product based upon the venue or organizer’s safety record and approach to risk management. It would take account of the assessment of risk at that particular venue; it would also assist in promoting high standards of risk management amongst operators, since those with better

records and risk management processes would pay less for the cover. Specialist sports insurers are working to try to change the traditional view of insurance provision for winter sports.

People will continue to seek more extreme experiences. These activities will generally have a much greater level of risk attached to them. Climate change will also have an impact on winter sports.

Changing climate conditions may make extreme sports more hazardous, or they might encourage people to travel to higher altitudes or more remote places.

Insurance cover needs to adapt to these changing circumstances. Travellers are not necessarily aware of all of the risks involved; they may not have appropriate insurance cover before they leave on their holiday. Having the correct policy cover at the venue or through the organizer will enable them to make sure they are protected before going out for their fun in the snow and ice.

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We’re a young, friendly approachable team who welcome enquiries no matter how SMALL, LARGE or COMPLEX.

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offered as part of the travel insurance. This is where tailored winter sports insurance comes into effect.

As an industry, we need to do more to draw the potential risks to the attention of the travelling public and make clear the limitations of the standard travel policy for such activities. This is particularly important for brokers and agents who are advising customers at the point of sale. We also need to work with travel agents and tour organizers to assist them in educating their clients as to the cover afforded by travel insurance and the desirability of obtaining extended cover for personal accident and loss of income.

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Showing Brokers

The

Discussions about broker technology have advanced to the point that they now include the roles of management and worker productivity — and not just technology — in increasing the profits of a brokerage

By Patrick Durepos, President, Keal Technology

ure, brokerage employees are busy in today’s soft market.

But are principals making sure their employees are spending time on productive work — organic growth, marketing campaigns and client acquisition? Technology can help provide the tools to do these things right, but the real drive has to come from broker management.

Technology discussions about the modern brokerage often confuse the means with the end. People talk about the “paperless office” and single-entry, multiple-company interface (SEMCI) as goals, but these are really means to an end. The end is increased productivity and efficiency, which directly translate into higher profitability. That is the bottom line, and broker investments in technology should be carefully focused here.

Easier said than done, of course. Many different measurements of efficiency and productivity commonly involve finding the right combination of people, process and technology. Is it revenue per employee? Revenue per transaction? Number of policies per CSR? Workflow efficiency in terms of application processing and servicing? Client retention rate? Client acquisition rate? Expense/cost control? Rate of organic growth? The list goes on, and one could endlessly debate the true indicators of productivity.

But the reality of today’s soft market is that premiums are declining, commissions are eroding and competition from direct sellers (and other brokers) is increasing. The stakes are raised when it comes to finding the right ways to achieve best practices in productivity. Brokers are increasingly looking at technology that will give them the tools to enhance efficiency, particularly when it comes to employee productivity and human resources.

There is no time like the present to start finding answers.

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REVENUE V. EXPENSE For brokers, one rule of thumb for beginning the process of measurement is the percentage of commission dollar revenue that goes to expenses, including both human resources and operating and administration costs. Human resources, in terms of compensation and benefits for all staff (including principals), should be no higher than 55% of commission revenue. Similarly, administration and operating expenses should account for no more than 25% of commission dollars. That gives a brokerage an EBITDA (also before overrides or contingency profit commission) of 20 points. How many brokerages meet these targets?

If they are not, where is the breakdown in productivity and efficiency?

Here, technology enters into the equation as an important tool — but not a replacement — for management and decisionmaking. It is rare when one ‘silver bullet’ causes a slowdown or bottleneck in productivity; rather, in most brokerages, a series of small things contribute to inefficiency. Frequently the issue is workflow or process management, not technology. It therefore makes sense to look at broker management systems as workflow solutions that can help streamline routine customer service and administrative tasks, stimulate organic growth through marketing campaigns and standardize operations and data entry/management.

PORTAL PRODUCTIVITY The increased prevalence of insurance company Web portals is a good example. How far have brokers gone in measuring the impact of these portals on their internal operational efficiency?

While portals have huge potential, if they are not properly integrated into a brokerage’s workflow they can create time delays in

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MONEY MARKETING MODULE A technology system cannot create and run a sound marketing campaign for a broker. The design, focus and execution of client acquisition strategies must come from broker management. However, a solid BMS should offer marketing modules that make sales and marketing campaigns easier, more efficient and more likely to succeed. In particular, technology should provide brokers with a client database management system that can give them the data they need when they need it and a platform to measure results and ensure accountability for producers and sales staff.

On the topic of marketing, clearly independent brokers are competing with financial institutions, direct writers and Internet providers that for years have been taking advantage of certain “integrated” technology. This integration of technology between

telephone and computer is commonly referred to as “telephony.”

Until recently, the costs incurred by smaller businesses to introduce this kind of technology were prohibitive. But in February 2008, Keal announced a deal with Alcatel-Lucent to integrate voice-over-Internet-protocol (VoIP) technology with sigXP for Canadian brokers. Now the benefits previously and exclusively experienced by larger organizations are available to smaller brokerages at an affordable price, providing the smaller brokerages with another tool to make them more productive.

This applies to serving clients internally, as well as to external marketing campaigns.

VOIP ADVANTAGE Brokers can now use this integrated technology to improve client support by re-directing calls to an assistant if the CSR is busy, or to a designated individual in the case of a VIP client. In addition, brokers can analyze incoming/outgoing call volume and duration between employees, as well as listen to and coach staff during calls without clients knowing.

In terms of marketing and sales efforts, a brokerage can maximize telemarketing campaigns by scheduling outbound calls in sigXP and pushing leads to the sales team in real-time. Inbound or outbound telemarketing will become integrated with the marketing campaigns in sigXP to establish real-time, entirely measurable actions that can be monitored and help achieve the financial results required to grow organically.

These are ways in which technology is contributing in more meaningful ways to efficiency gains. Brokers in Canada are increasingly appraising technology not for the look and feel of a particular BMS product, nor for the bells and whistles of automation, but rather as a fundamental driver of productivity and profitability. Many are asking how these tools can help increase efficiency in measurable areas, such as revenue per transaction, policies written per CSR and success of client acquisition or marketing campaigns.

This is a different dialogue than what’s transpired in the past; it is now largely about management and productivity. It is about looking at the brokerage from the outside in, knowing where to pinpoint workflow breakdowns and deciding how to get started on fixing them. It is about establishing goals, measuring results and improving profitability.

This is where the broker technology game will be played in the future.

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familiarization, errors due to duplication of data entry and data management problems.

With the right technology, however, CSRs can streamline interaction with multiple portals, whether it involves new business, policy changes or requests. Given that endorsements, inquiring and claims, uploading, new business, renewals and totals and averages occur on a daily basis in any broker’s office, it is crucial to measure how efficiently these tasks are performed and where opportunities exist for time or cost savings.

A solution like nexisys connects Keal’s BMS sigXP to multiple company portals without the need for any modification.

Information is inserted in the appropriate fields of an insurer’s Web portal; each file is processed live with one single connection, one single entry and one single interface. This is one way brokers can use efficient SEMCI to measure costs with revenues and automate workflows to ensure fast, consistent information processing in the office. In fact, a Keal study shows that using nexisys on a typical $17-million personal lines book of business can save the equivalent in salary and overhead of 1.5 people, amounting to a reduction of almost $77,000 in transaction activity.

Organic growth is another good technological space to examine for brokers who are suffering from client turnover and increased competition in a soft market. The fact of the matter is that brokers are the ones who have lost clients over the past five to 10 years to direct sellers. They have the renewal expiry dates in their systems; if they want to regain those clients, they can mount effective, measurable marketing campaigns.

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Solvency Matters

Making

ERM

Work for You

By Darrell Leadbetter, Paul Kovacs (Executive Director), Jim Harries, Property and Casualty Insurance Compensation Corporation (PACICC) nterprise Risk Management (ERM) has been receiving a lot of attention recently in the financial services sector. Our focus is to answer to some key questions about how ERM can apply to the property and casualty insurance industry.

Let’s first review a few basic principles.

When properly implemented, ERM provides an integrated framework for managing all of the material risks identified by an organization. Material risks need to include all potential high-impact events, even when the likelihood of occurrence is considered low. The ERM process involves identifying, assessing, measuring, rating, monitoring, controlling and mitigating risks facing the enterprise as a whole. By comparison, more traditional approaches to risk management tend to be restricted to the “silos” of individual business units; for this reason. Traditional methods may fail to measure and comprehend the full impact of some risks, or miss opportunities to reduce risk across the entire enterprise.

Why is ERM of value to property and casualty insurers? The acceptance of risks transferred by policyholders is fundamental to the insurance business. In this respect, insurers must maintain the ability to respond effectively to unexpected and sometimes volatile events. And because effective response for property and casualty insurers involves both a high degree of financial and operational preparedness,

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Connecting risk measurement to corporate governance and tailoring ERM models to suit your business culture are key to successfully implementing ERM

the value of ERM “done right” may be even greater for the P&C industry than it is in other industries. What are some of the key benefits property and casualty insurance companies may realize by investing in ERM? Aside from a net reduction in enterprise risk, specific benefits could include more efficient deployment of capital, enhanced financial strength ratings and possible competitive advantages.

If properly implemented, ERM should also strengthen an insurer’s corporate governance.

REGULATORY GUIDANCE What guidance are insurance supervisors providing about ERM? A timely answer to this question can be found in a guidance paper issued in October 2007 by the International Association of Insurance Supervisors (IAIS) entitled “Enterprise Risk Management for Capital Adequacy and Solvency Purposes.” (The paper can be found on the IAIS website at www.iaisweb.org). As the title of the paper suggests, supervisors understand the desire of property and casualty insurers to use ERM as a means of deploying capital more efficiently. Accordingly, supervisors are beginning to clarify their expectations regarding what an effective ERM framework should contain. The IAIS has done this by way of “key features” addressing such factors as the need for quantification of risks related to (at minimum) underwriting, credit, market, operational and

liquidity risks; direct involvement and leadership by an insurer’s senior management and board of directors; and clarification of risk tolerance and methods of monitoring risks. Because regulatory guidance is often a precursor to more specific policies, property and casualty insurance companies (including PACICC members) should reasonably expect insurance supervisors in Canada to develop their own ERM-related standards in the near future.

Rating agencies are also providing strong advocacy and guidance for ERM. In fact, all of the major rating agencies have developed methods of assessing the adequacy of risk management capabilities in the financial strength ratings they produce for individual property and casualty insurers. Underscoring the importance of ERM, A.M. Best stated in its 2007 Canadian Property/Casualty industry review: “companies that engage in sound risk management typically are less likely to fail.”

PACICC’S INTEREST IN ERM PACICC is interested in ERM for two key reasons. First, the evidence is clear an effective ERM program can reduce the risk that a member insurance company will encounter solvency problems. For guarantee funds, any reasonable business practices that can lower the risk of member company failures and help promote public confidence in the industry are to be

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encouraged. Second, PACICC has recently implemented its own ERM plan. It is a good business practice, and we are committed to “leading by example” concerning broader advocacy of ERM within our membership. We also circulated an issue paper to members earlier this year discussing the current state of ERM and describing details of PACICC’s own risk assessment. (PACICC’s ERM issue paper is available on our website at www.pacicc.ca).

INSURERS IMPLEMENTING ERM An insurance company seeking to develop and implement its own ERM plan can “build from within” using in-house expertise if this is available, or it can engage ERM consulting expertise.

PACICC used a combination of both approaches, using the skills of Keith Old, managing director of Bishop-Phillips Consulting while developing our own capacity. Either way, the objective should be to create a plan appropriate for the risk culture and profile of the particular company. As the IAIS guidance paper puts it: “… the appropriate ERM framework is

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heavily dependent on the nature, scale and complexity of the risks of the insurer. The approach should be proportionate and fitfor-purpose. A ‘one-size-fits-all’ approach should therefore be avoided.”

SUBPRIME HIGHLIGHTS CHALLENGES The sub-prime credit crisis nicely illustrates some key challenges that still need to be overcome for ERM to realize its full potential. Most of the large financial institutions recently hit with big write-downs due to the reduced value of collateralized debt obligations (including a few property and casualty insurers with parent companies outside of Canada) could claim to have been using sophisticated risk management tools. Citigroup, for example, devoted nearly one-tenth of the content of its 2006 10-K filing to a detailed discussion on “Managing Global Risk.”

So why didn’t these tools prevent, or at least substantially mitigate, the sub-prime debt crisis? Some institutions appear to have been using traditional risk management tools but had not yet adopted an integrated ERM framework. Also, it

appears corporate risk measurement is still too often disconnected from risk governance.

This is the view expressed by Michael Conover, partner in charge of financial risk management for KPMG’s Risk Advisory Services practice. In the November 2007 issue of the KPMG publication Audit Committee Insights, he says of the sub-prime crisis: “If the ERM processes tell you that you have a concentration in low-quality, highly-leveraged deals and you continue to trade and originate in that area, then it’s the governance process that is not working… Both governance and measurement of risk need to be done in real time.”

So a key challenge to be met by P&C insurance companies seeking to implement ERM is not just to develop a welldesigned program that identifies, assesses, measures, rates, monitors, and controls risks across the entire enterprise, but to ensure that such practices are truly, in the words of the IAIS, “led and overseen by the insurer’s board and senior management.”

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In Search of

EXCESS COVERAGE Insureds should be allowed to “fill the gaps” created by a compromised coverage settlement with an underlying insurer, provided it is done with full involvement and consent of the excess insurers and without prejudice to any other coverage terms and conditions under the excess insurance policies

By Jordan S. Solway, Regional Vice President, Claims and Legal, Arch Insurance Company (Canada Branch)

www.canadianunderwriter.ca • April 2008

70

egal exposures have increased over the past several years for directors and officers, and, as a result, more companies are purchasing directors’ and officers’ (D&O) insurance — including excess coverage. Advisors serving those companies have quite properly focused on the terms and conditions of the primary policy; then, when required, they have constructed “towers” of coverage based on essentially standardized excess policy wordings. Commonly referred to as “follow form” policies, D&O excess policies typically incorporate the terms of the primary policy and any other policy that is written above that primary placement. It is readily becoming apparent, however,

L

By Chris Rain, Assistant Vice President, Claims, Arch Insurance Company (Canada Branch)

that potentially significant coverage issues can arise from the form and structure of a D&O excess policy.

Recent decisions by the following three U.S. courts have highlighted some of these issues: • the Massachusetts Supreme Judicial Court, in Allmerica Financial Corporation & Others v. Certain Underwriters At Lloyd’s, London.

• the United States District Court for the Eastern District of Michigan, in Comerica Inc., v. Zurich American Insurance Co. and Houston Casualty Co. , and • the Superior Court of North Carolina, in Bank of America Corp. v. SR Intern Business Ins. Co.

Each of the above decisions considered circumstances in which an insured had settled an underlying claim with the primary insurer and then sought coverage from the excess insurer. Common to each case was the excess insurer’s refusal to allow the insured to access excess coverage in a situation in which a settlement had exceeded the limit of liability available under the primary policy.

CASE 1: ALLMERICA Allmerica Financial in 1999 settled a class action lawsuit for US$39.4 million.

In this case, Allmerica faced allegations that it had engaged in improper business practices with respect to the sale of certain

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life insurance products. Allmerica had primary insurance of US$20 million, with a US$2.5-million retention, and a follow form excess insurance with Lloyd’s for US$10 million. Lloyd’s declined to provide coverage for the settlement due to exclusions in the primary policy, even though the insurer providing the primary coverage had agreed to the settlement. The trial court concluded, later affirmed on appeal, that an excess insurer was not bound by the primary insurer’s decision to extend coverage for a particular loss and settle under the policy. According to the court, an insurance program involving a primary policy and one or more excess policies divides risk into “distinct units,” and each unit is insured individually. Individual insurers do not (absent a specific provision) act as “coinsurers” of the entirety of the risk. Rather, each insurer contracts with the insured individually to cover a particular portion of the risk. The use of a “follow form policy” simply makes an excess policy a “carbon copy” of the primary policy, the only difference being the names of the parties and the coverage limitations.

However, the follow-form language does not bind the various insurers to a form of joint liability should coverage at a prior layer fail.

through payments of loss thereunder.”

Comerica was the subject of two sets of securities class actions. Over the objection of the primary insurer, it ultimately settled those actions for US$21 million. The primary insurer disputed coverage for the settlement, but ultimately contributed US$14 million of its US$20 million limit, presumably in exchange for a full and final release. Comerica then contributed US$6 million to the settlement; in addition, it sought US$1 million of the settlement and US$2.6 million in defense costs from Zurich. Zurich declined coverage, saying the underlying limits had not been exhausted and because US$6 million of the settlement represented amounts that Zurich did not consider to be covered “loss.”

The United States District Court for the Eastern District of Michigan held that although Comerica had settled with its primary insurer for less than the limits of

insured to fill the gap, settlements that extinguish liability up to the primary insurer’s limits, and agreements to give the excess insurer ‘credit’ against a judgment or settlement up to the primary insurer’s liability limit, are not the same as actual payment.” Finally, the court rejected Comerica’s position that the excess policy was ambiguous, noting that the excess policy “plainly requires the [primary] policy to be exhausted by payment of losses by [the primary insurer].” Although the court observed it was open to Comerica to have sought an excess policy requiring Zurich to pay its limit of liability even if the underlying insurer did not actually pay its limit, or which allowed it to “fill the gap,” the policy it purchased did not so provide and could not now be rewritten.

CASE 3: BANK OF AMERICA The Superior Court of North Carolina considered a coverage dispute involving

Excess insurers want to ensure the basis upon which they have structured and priced their placement is not undermined by a compromised settlement that results in a discount for the underlying insurers.

the primary D&O policy, it was not entitled to recover part of the cost of its settlement in the underlying action.

Furthermore, the court found, Comerica could not recover its defense costs from Zurich, since the excess policy stated it was triggered only when the underlying insurance was “reduced or exhausted by payments for losses.”

In so holding, the court first rejected Comerica’s contention that Zurich’s denial of coverage was a repudiation of the excess policy, which, in turn, justified Comerica’s decision to settle in a manner that did not fulfill the condition of exhausting the underlying limits through payment by the primary insurer. The court also rejected Comerica’s position that its contribution of the remainder of the underlying limits should be sufficient to trigger the excess policy. Zurich’s policy language imposed a specific exhaustion requirement and the court reasoned that “payments by the

the Bank of America (B of A) and a number of insurers who had provided professional liability coverage under three excess policies, each of which provided limits of liability of US$50 million, US$75 million and US$100 million, respectively. Multiple insurers subscribed to each excess policy.

Following a US$460 million settlement, into which B of A entered following a series of class action lawsuits related to the collapse of Enron Corporation and Worldcom Inc., B of A sought coverage from the insurers who had underwritten its insurance program. There was no issue with respect to the insurer of the primary policy; B of A was able to settle with all but one of its excess insurers that subscribed to the first, second and third excess layers of coverage. The remaining insurer, SR International Business Insurance Company SE (SR), had an aggregate exposure of US$225 million, which consisted of 40% of the first excess policy, 30% of

71 www.canadianunderwriter.ca • April 2008

CASE 2: COMERICA INC. Comerica Inc. was insured under a primary and excess D&O liability insurance policy. The defendant, Zurich American Insurance Co., issued an excess policy that required the company to maintain the primary insurance policy. The excess policy stated that: “[c]overage hereunder shall attach only after all such ‘underlying Insurance’ has been reduced or exhausted by payments for losses.” The excess policy provided that coverage was available only if the primary policy were exhausted “solely as a result of actual payment of loss thereunder by the applicable insurers.” In addition, the excess policy said it “does not provide coverage for any loss not covered by the ‘underlying insurance’ except and to the extent that such loss is not paid under the ‘underlying insurance’ solely by reason of the reduction or exhaustion of the available ‘underlying insurance’

Page 71

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The increasing size and complexity of D&O insurance placements in particular often necessitates the involvement of numerous insurers, each adhering to slightly different terms upon which coverage is being underwritten.

the second excess policy and 17.5% of the third excess policy.

SR’s principal defence to the request for coverage for the settlement of the class actions was that the amounts paid were simply uninsurable as a matter of law and that certain specific exclusions also applied. The court rejected these defences

outright and then considered whether SR had acted in bad faith by denying coverage when other insurers had ultimately settled and paid discounted amounts. The court concluded the actions of the other excess insurers were “an indication that it was more than likely than not that coverage existed.” The court did not find that the

Don Roach of Aon

is taking a ‘permanent vacation’!

Join us in celebrating his www.canadianunderwriter.ca • April 2008

72

Retirement

Wednesday, May 28, 2008 Quotes (5:00pm) 220 King Street West, Toronto, ON We hope you can join us. Please make your cheque ($25.00) payable to Cunningham Lindsey Canada Mail to: 70 University Avenue, Suite 1000, Toronto, ON M5J 2M4 Attention: Angela Martino R.S.V.P. Angela Martino, 416-596-8020, ext. 403

settlements by the other excess insurers, even if strongly suggestive of coverage existing, supported the view that SR had acted in bad faith since it was simply not probative of the issues of bad faith involving SR. However, that finding was qualified on the basis that the circumstances of some of the other excess insurers differed from SR’s position: the other excess insurers had been insurers on prior policies; therefore they had knowledge of the history of prior claims that SR did not have, which may have resulted in them reaching different conclusions with respect to coverage.

These recent issues surrounding excess insurance, particularly in the context of D&O coverage, raise important considerations for both insureds and insurers alike.

Insureds are increasingly frustrated by what is perceived to be a lack of contractual certainty for a coverage that can be critical for resolving outstanding litigation and protecting personal assets and reputations. The increasing size and complexity of D&O insurance placements in particular often necessitates the involvement of numerous insurers, each adhering to slightly different terms upon which coverage is being underwritten. Excess insurers quite properly want to ensure the basis upon which they have structured and priced their placement is not undermined by a compromised settlement that results in a discount for the underlying insurers without any notification or understanding as to the basis for the compromise. The ability to engineer a better way to structure excess placements is challenging since it could raise potential competition (antitrust) law concerns, as well as pose significant challenges with respect to claims handling. It would seem that one possible way to balance these competing concerns would be to allow insureds to “fill the gaps” created by a compromised coverage settlement with an underlying insurer, provided it is done with full involvement and consent of the excess insurers and without prejudice to any other coverage terms and conditions under the excess insurance policies. .

ING-WICC-CdnUWad 3-08

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A message of

hope And thanks.

From raising awareness to raising funds, thank you for your tireless work in the fight against cancer. It will be beaten.

WICC and ING are teaming up at this year’s ING Ottawa Marathon, May 23-25, to raise money and awareness for WICC. We’re challenging our employees, brokers and others in the industry to form teams, collect pledges and raise funds for cancer research.

Join the challenge, show your support and sponsor a colleague.

For more information, visit www.wicc.ca

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ING Canada

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continued from page 10..

“It's been another strong year for R&SA Canada,” company president and CEO Rowan Saunders said in a press release. “We achieved growth of 8.7%, which is well ahead of the industry average, and continue to focus on sustainable, profitable growth.”

Saunders went on to say 2007 was “a very successful year” for R&SA in part because of the acquisition of B.C.-based Canadian Northern Shield, which closed on Dec. 31. The acquisition represented “the first major acquisition in the industry in the past couple of years.”

As far as Royal’s Canadian results go, the company’s commercial insurance division reported net written premiums of Cdn$391.9 million, a COR of 90.3% and an underwriting profit of Cdn$38.5 million. “On the whole, the commercial insurance book has achieved modest growth, with our small business solutions segment reporting 8% growth,” the company reported.

The personal insurance division,including Johnson Inc., reported net written premiums of Cdn$1.1 billion, a COR of 93.3% and an underwriting profit of Cdn$67.7 million. ■

M A R K E T WAT C H

Insurers should focus on micro-solutions for climate change

www.canadianunderwriter.ca • April 2008

74

Marc Pontbriand Mr. Charles Brindamour, President and CEO of ING Canada, is pleased to announce the appointment of Mr. Marc Pontbriand as Executive Vice President. In his new role, Mr. Pontbriand is responsible for Claims, Information Technology, Human Resources, Planning and Communications. Since joining ING Canada in 1998, he has held a number of senior positions within our insurance subsidiaries and at the corporate level. Prior to assuming his current position in January 2008, he became Senior V ice President and Chief Information Officer in 2004 and was Vice President Broker Services for the Montreal Region from 2002 to 2004. Mr. Pontbriand has also held a number of positions in Sales, Claims, Underwriting and Operations. Prior to joining ING Canada, he was Vice President, Customer Ser vice for a major communications service provider.

Mr. Pontbriand is a graduate of the École Polytechnique de Montréal and a member of the Ordre des ingénieurs du Québec.

ING Canada (TSX:IIC) is the largest provider of property and casualty insurance in the country, offering automobile, property and liability insurance to individuals and businesses through a number of insurance companies.

n order to respond to the rising costs of climate change-related damages, insurance companies are going to have to focus more on micro-solutions (i.e. on a policyholder-by-policyholder basis), Colin Empke, partner at Blaney McMurtry LLP, told delegates at the Canadian Defence Lawyers 4th annual insurance coverage symposium in Toronto in February 2008.

Empke was speaking on behalf of Anthony Saunders, partner with Guild, Yule and Company, who was unable to attend the symposium.

Empke observed an increasing number of weather-related insurance losses, causing the industry to seek ways to deal with increasing costs and solvency issues.

One set of solutions is known as

I

micro-solutions, aimed at the policyholder level, Empke said. Such solutions approach underwriting and claims on an individual, case-by-case basis; they make more realistic assessments about individual risks and how they might be affected by climate change.

Another approach insurers are taking is the macro approach. This focuses on more general activities that try to change the risk environment by actively promoting climate change activities, such as controlling greenhouse emissions or sponsoring research.

These are admirable goals, Empke said.

But while they might assist in slowing the rate of climate change, it's not going to assist in the short-term. And it's not likely to affect risk assessment, he added. ■

Claims Ontario trial lawyers consider court challenge opposing Ontario’s auto injury deductible he Ontario Trial Lawyer's Association (OTLA) is considering a court challenge similar to Alberta's recent Charter challenge that overthrew the Cdn$4,000 cap on minor auto injuries.

Patrick Brown, president-elect of the OTLA, says that in light of the recent Alberta decision in Morrow v. Zhang, the Ontario government should make the appropriate changes to its Cdn$30,000

T

deductible and threshold for determining serious impairments.

In Ontario, if an award is less than Cdn$100,000, then Cdn$30,000 is deducted; family members affected indirectly have Cdn$15,000 deducted from awards of less than Cdn$50,000.

If the Ontario government declines to make changes to or cancel its deductible, Brown said, the association would move

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forward with a court challenge under section 15 and section 7 of the Charter.

“We feel that the present system in Ontario is in fact more discriminatory than what they had in Alberta,” he said.

Brown said Ontario has an injury threshold that specifically differentiates between people in and outside of the workforce.

“Certainly the test that’s afforded people outside of the workforce to determine if there is permanent impairment is much more restrictive than the test for people who are working,” Brown says.

For instance, an elderly senior who is retired has no econom-

ic loss claim, only a claim for pain and suffering and healthcare costs. Both of those types are subject to the regulatory threshold, which means they have to have a serious permanent impairment that interferes with their daily activities before they are awarded anything in either of those two fields.

“Meanwhile someone in the workforce simply has to show that it interferes with their regular employment,” he said.

“So from that standpoint, we feel it is discriminatory against the elderly who are out of the workforce, children, people with disabilities and stay-at-home moms.” ■

Regulation

C

Maurice Tulloch, President, Aviva by more than 350 employees and Pilot Insurance Company is pleased a network of 23 claims branches to announce the appointment of throughout Ontario. Aviva Scottish Tom Reikman to the position of & York is a national specialty Senior Vice President, Aviva Pilot insurer offering its broker partners Insurance Company and Aviva a leading-edge distribution and Scottish & York Insurance Company. delivery model.

In his new role, Tom will be Aviva Canada Inc. is one of the responsible for general manage- leading Property & Casualty insurment of both companies, including ance groups in Canada, providing business development home, automobile and and marketing. Tom business insurance to and his team will focus more than 3 million on continuing to customers. Our group expand the position of of companies has more both companies as than 3,200 employees, leading insurers.

40 locations and more Tom joined Aviva than 3,000 independCanada in March 2007 ent broker partners as SVP, Marketing. He from coast to coast. brings over 18 years Aviva Canada Inc.’s Tom Reikman of extensive industry member companies experience spanning are: Aviva Insurance senior leadership roles in marketing, Company of Canada, Aviva Pilot underwriting and technology for Insurance Company, Aviva Traders major Property & Casualty (P&C) General Insurance Company, Aviva companies. He holds an HBSc Elite Insurance Company, Aviva degree from the University of Scottish & York Insurance Co. Western Ontario and a MBA degree Limited, and S&Y Insurance from the Schulich School of Company. Aviva Canada Inc. is a Business. He is also a Certified wholly owned subsidiary of Insurance Professional.

UK-based Aviva plc, the Aviva Pilot partners with world’s fifth largest insurmore than 300 independent ance group. Visit our web brokers and is supported site at avivacanada.com.

an Aviva company

75 www.canadianunderwriter.ca • April 2008

anadian insurance regulators are considering the regulation of the sales of incidental insurance.

Regulators are worried that if insurance is sold as an ancillary part of a larger purchase, an unsuitable insurance product might lead consumers to pay for insurance they do not need, pay for coverage for claims for which they are not eligible, or obtain a claims result that they did not expect, according to a consultation document issued by Canadian insurance regulators.

The paper, ‘Incidental Selling of Insurance,’ was recently released by The Canadian Council of Insurance Regulators (CCIR) and The Canadian Insurance Services Regulatory Organization (CISRO).

The paper includes discussion about a variety of topics related to incidental selling of insurance: suitability and documentation, coverage and claims, potential conflict of interest, disclosure requirements and availability of statistical information related to the incidental selling of insurance (ISI).

The paper notes many ISI sellers are perceived as having no obvious incentive to ensure product suitability to the specific consumer, though the consumer may not realize this.

The paper is available at: http://www.ccirccrra.org/CCIR/publications/index_en.htm ■

Appointment Announcement

M A R K E T WAT C H

Canadian regulators examine sales of “incidental” insurance

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RIBO supports risk-based approach to regulation he Registered Insurance Brokers of Ontario (RIBO) supports the plan to move forward with a risk-based approach to regulation as outlined in the Canadian Council of Insurance Regulators’ (CCIR) paper, An Approach to Risk-Based Market Conduct Regulation.

The CCIR released the paper in January 2008 with the intent of fostering dialogue between regulators and stakeholders on the basic approaches to riskbased market conduct regulation (RbMCR) in Canada.

In a letter to the CCIR, RIBO noted it

T

shares the same concerns as the CCIR, which led to the establishment of the RbMCR Committee. The concerns include: • the need for more efficient use of finite regulatory resources; • the need to focus on pro-active solutions rather than being totally reactive to market problems; and • the cost of regulation for market participants.

“RIBO completely agrees regulators need the flexibility to adapt swiftly to changing marketplace conditions in order to address market problems effectively,” Jeffrey A. Bear, CEO of RIBO, said in the

letter. “Indeed, RIBO completely agrees with the conceptual aspects of the proposed risk-based approach to market conduct regulation.”

The idea behind risk-based regulation is to move away from prescriptive rules towards a much higher level of reliance on standards,corporate governance and controls.

A better understanding of the regulatory process, achieved through ongoing dialogue with all system participants, over time leads to better management of risk and better governance within each firm, Bear noted. ■

Swiss Re enjoys second-best results in its history

S

the first full-year inclusion of GE Insurance Solutions business,” Swiss Re said in a press release. “These results reflect the quality of

Swiss Re’s insurance underwriting despite the increased frequency of weather events in 2007.”

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77 www.canadianunderwriter.ca • April 2008

wiss Re has reported a net income of CHF4.2 billion (about Cdn$3.96 billion) for 2007, down 9% from 2006, but nevertheless the second-best result in the company's history.

“Driven by an outstanding performance across our key businesses, we delivered the second-best result in Swiss Re’s 144-year-history,” Swiss Re CEO Jacques Aigrain said in a press release. “Property and casualty had its best performance ever, and life and health improved on an already very strong prior-year result.”

The company in 2007 recorded a return on equity of 13.5%, “despite the isolated mark-to-market loss from credit underwriting activities announced in November.”

Swiss Re described its 2007 Q4 net income as “modest” at CHF170 million (Cdn$160.5 million).

The company’s property and casualty unit had what the reinsurer described as “an excellent performance,” achieving a combined ratio of 90.2% (or 88.9% before unwind of discount). This resulted in an operating income of CHF5.9 billion ($Cdn5.57 billion).

Premiums earned grew 2% to CHF19 billion (Cdn$17.9 billion).

“The main drivers were a strong performance, particularly in the property and specialty lines of business, as well as

M A R K E T WAT C H

Reinsurance

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DIRECTORS, OFFICERS & TRUSTEES LIABILITY INSURANCE EXECUTIVE RISK SERVICES LTD Mitigating Risks for Directors, Officers and Trustees www.execurisk.com EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination www.i-hire.ca ENGINEERING SERVICES GIFFIN KOERTH FORENSIC ENGINEERING AND SCIENCE Investigate Understand Communicate www.giffinkoerth.com ROCHON ENGINEERING INC. Forensic Consulting Engineers & Code Consultants. www.rochons.com WALTERS FORENSIC ENGINEERING INC. Uncovering the Truth www.waltersforensic.com GRAPHIC COMMUNICATIONS INFORMCO INC. Integrated Graphic Communications Specialists. www.informco.com INSURANCE BROKERS CANADA BROKERLINK INC. Ontario: CANADA BROKERLINK (ONTARIO) INC. Alberta: CBL OXFORD INSURANCE Insurance In Person www.brokerlink.ca

KINGSWAY GENERAL INSURANCE COMPANY The Specialty Insurer www.kingsway-general.com

SOVEREIGN GENERAL INSURANCE COMPANY Since 1953 www.sovereigngeneral.com SPORTS-CAN INSURANCE CONSULTANTS LTD. Specialist in Annual and Term insurances for Recreational Sports, Fitness, Leisure & Tourism activities www.sports-can.ca WAWANESA INSURANCE Earning your trust since 1896. www.wawanesa.com www.insurancepositions.ca I N S U R A N C E L AW THE ARC GROUP CANADA INC. Your Partner in Insurance Law & Risk Management www.thearcgroup.ca INSURANCE SOFTWARE APPLICATIONS KEAL TECHNOLOGIES Complete technology solutions for insurance brokers. www.keal.com TRITECH FINANCIAL SYSTEMS INC. Provider of an enterprise solution to P&C insurance companies and their agents & brokers in Canada & USA www.trifin.com PREMIUM FINANCING AIG CREDIT CORP. OF CANADA The leader in Financing Commercial Insurance Premiums by offering innovative products & services allowing our Broker Network to experience an instant payment alternative. www.aigcredit.ca

pg78,79CUW April-08-IntNet-AdIndex

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INSURANCE INTERNET DIRECTORY online at www.canadianunderwriter.ca BROKER BUILDER CORP. Convert receivables into revenues with an in house premium finance program www.brokerbuilder.ca

TRANSATLANTIC REINSURANCE COMPANY For all your reinsurance needs. www.transre.com

THIRD EYE SOLUTIONS INC. Provides internet enabled premium financing/payment plan software solutions. www.thirdeyesolutions.com

WINMAR Property Restoration Specialists Coming Through For You! www.winmar.on.ca

REINSURANCE GUY CARPENTER & COMPANY The world’s leading reinsurance intermediary. www.guycarp.com MARINE RE OF CANADA (MRIL) MRIL are a managing general underwriter that specializes in marine reinsurance. www.mril.net MUNICH REINSURANCE COMPANY OF CANADA Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com

RESTORATION SERVICES

RISK MANAGEMENT

PROPERTY CLAIMS ADJUSTER

THE ARC GROUP CANADA INC. Your Partner in Insurance Law & Risk Management www.thearcgroup.ca SPECIALTY INSURANCE FIRSTBROOK CASSIE & ANDERSON LTD. Your Source For Camp Insurance www.nbrown.com WILLIAM J. SUTTON & CO. LTD. Insuring Special Risks since 1978 www.wjsutton.com WHOLESALERS THE WHOLESALE INSURANCE GROUP Canada's First Choice For Timely Wholesale Insurance Solutions www.twig.ca

SWISS REINSURANCE COMPANY CANADA The leading p&c reinsurer in Canada. www.swissre.com

To advertise your website in the Insurance Internet Directory: Steve (416) 510-6800; Paolo (416) 510-6788; Mike (416) 510-5122

ADVERTISERS’ INDEX A.M. Fredericks Underwriting Management Ltd.

i-hire.ca ......................................................................53

ACE INA Insurance ....................................................7

ING Canada...............................................................73

Aon Reed Stenhouse.................................................21 Applied Systems Canada..........................................17

Insurance Brokers Association of Ontario (IBAO) .....................................................9, 29

Avec Insurance Managers Inc. .................................39

Insurance Institute of Canada ...................................35

Aviva Canada Inc............................................88 (IFC)

Keal Technology .................................................12, 13

Berris Mangan Chartered Accountants ....................84

Kingsway General Insurance Company...................55

Best Doctors ..............................................................43

Morgex Insurance......................................................52

canadianunderwriter.ca .............................................56

N.G. Williams & Associates Ltd. .............................77

CG&B Group ............................................................34

Paul Davis Systems...................................................55

Chesterfield Canada ..................................................65

Peace Hills Insurance................................................19

Chubb Insurance.......................................23, 91 (IBC)

PolicyWorks ........................................................33, 47

CIP Society................................................................80

RIMS Canada Conference – Toronto.....................4, 5

Compu-Quote Inc......................................................51

Simmlands Insurance Brokers Ltd...........................57

Crawford & Company (Canada) ..............................41

Thorah Insurance.......................................................81

Cunningham Lindsey................................................10

Travelers ....................................................................37

Friends of Don Roach...............................................72

Wawanesa Insurance.....................................92 (OBC)

Group Medical Services (GMS)...............................69

WINMAR..................................................................49

The Guarantee Company of North America ...........48

York Fire & Casualty Insurance Company..............31

Get the job.

Done.

TM

CU Seminar ad May June 08

3/19/08

1:02 PM

Page 1

Putting the pieces together.

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

Toronto

Attention Industry Decision-Makers:

GTA: Annual CIP Society Symposium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 29 Toronto Seminar: Sexual Abuse Claims - Defending the Next Wave . . . . . June 4

Seminar Series: Institute’s Demographic Research

CIP Society Golf Tournaments Vancouver: 6th Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 5 Halifax: Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 16 Victoria: 2nd Annual Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 25

OTTAWA Annual CIP Spring Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 19

of the P&C Insurance Industry Work Force in Canada Ottawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 27 Vancouver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 28 Halifax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 3 Kitchener-Waterloo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 5 Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 12 Montreal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 17 Winnipeg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 18 Calgary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 19

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

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

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Upcoming Events: for a complete list please see: www.canadianunderwriter.ca and click ‘My Events Calendar’ in the nav. bar on the homepage.

Ted Belton, who dedicated half a century of his life to the Safeco Ins. Cos. In 1974, Belton left Safeco to become the presCanadian insurance industry, died of a cardiac arrest in Toronto ident and CEO of the Insurers’ Advisory Organization, where on Mar. 12. Belton is perhaps best known as the president and he worked until 1986. He served as president and CEO of CEO of Edward F. Belton Enterprises Inc. and Forecast Canadian Insurance Exchange in 1987. He also worked in a variety of senior executive positions at the Pafco Publishers, the publisher of The Belton Report. The Belton Report, discontinued upon Belton’s retirement Insurance Companies in 1987, held a consultant after 52 years in the industry, presented industry results position at Tillinghast (a Towers Perrin Company) and analyzed trends and issues shaping the country’s in 1990 and was the director of research for RBC property and casualty industry. Belton’s career in the Underwriting Management Services from 1994 to insurance industry began in 1949 at the Halifax 2000. Those who wish to make charitable donations in his memory may do so to Providence Healthcare or Insurance Co. in Toronto. He worked at the Halifax Ted Belton Insurance Company until 1972, before leaving to join the Parkinson’s Society of Canada. ■

Insurance Brokers Association of Canada (IBAC)’s Broker Identity Program.

“The broker distribution channel is one that provides unchallengeable value to consumers of insurance in virtually every community across this country. We continue to support its goals,” said Derek Iles, president of ING Insurance. ■

Keal Technology has selected Alcatel-Lucent to integrate Voiceover Internet Protocol (VoIP) technology with sigXP for Canadian brokers — a first-of-its kind integration for the Canadian marketplace. SSP Telecom, a national distributor for Alcatel-Lucent, will perform the distributorship, installation and support. This offer will see Keal’s flagship application, sigXP, integrate with the Alcatel-Lucent OmniTouch Contact Center Premium Edition. sigXP acts as the CRM within an insurance brokerage. Incorporating the OmniPCX Enterprise infrastructure and Omni Touch CC Premium Edition will bring significant workflow enhancements to help brokers increase their customer service levels, says a Keal release. ■

BMO Bank of Montreal and Farm Mutual Reinsurance Plan Inc. (FMRP) have launched a joint

“Great Tan!”

BROKERS:

THORAH INSURANCE can transform your book of business to include a rich, natural-looking portfolio of Suntan Salons - with uniform coverage for your entire body of Suntan Salon prospects and clients.

Monique F. Leroux has been

elected president and CEO of Desjardins Group. She is the first woman elected as president and CEO of Desjardins Group, succeeding Alban D'Amours.“I am thrilled and, above all, honoured to be following in the footsteps of a man who has left a lasting impression on the destiny of this leading group of ours,” Leroux said. ■

Monique F. Leroux

Thorah’s ‘Sunspa Package’ can instantly transform your business to include a quick, natural-looking Suntan Salon clientele that continues to grow throughout the year.

Our Sunspa Package is available in Ontario, Alberta & Manitoba

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Contact us today for a quote:

Phone: (705) 426-7306 Toll Free: (888) 461-0318

www.tibl.ca

81 www.canadianunderwriter.ca • April 2008

financing program designed to assist with the perpetuation of independent insurance brokerages. “There will be increased demand for buyout financing as more and more of our brokers approach retirement age,” said Insurance Brokers Association of Ontario CEO Randy Carroll. Under the financing program, BMO Bank of Montreal would provide buyout financing to qualifying brokers; FMRP would assist with creative financing structures. The product is intended to appeal to individuals seeking ownership, as well as brokerages looking to expand through acquisitions. ■

MOVES & VIEWS

ING Insurance Company of Canada will continue its full partnership in the

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MOVES & VIEWS

Patrick G. Ryan, founder and executive chairman of Aon Corporation, has announced his intention

to retire effective Aug. 1, 2008. Ryan, 70, started a small insurance agency in 1964. After a few name changes, expansions, acquisitions and mergers, the small company evolved into the Aon Corporation in 1987.

“The transition to a new Patrick G. Ryan management team under the sound leadership of Greg Case is complete,” Ryan said. “After 41 years as CEO and three years as executive chairman, it is time to retire from active involvement. I will of course continue to be a dedicated and interested shareholder.” ■ Guy Carpenter & Company LLC presented a series

of seminars on trends in the property and casualty market on a snowy February day in downtown Toronto. Presentations included Kevin Stokes, the global leader of Guy Carp's specialty property initiative, discussing industry statistics for the U.S. property and casualty market, and Paul Brehm, a managing director with Guy Carp, talking about real-time catastrophe exposure modelling. ■

Collision Solutions Network has appointed Flavio Battilana to the newly created posi-

tion of COO. In his role as COO, Battilana will lead the strategic planning process of the network including the marketing, insurance relations and operational divisions. His experience in the collision industry from his former roles as director of insurance and director of operations for a national collision franchisor model, compliments the organization’s future goals, a CSN release says. ■

Flavio Battilana

For more pics visit our online Photo Gallery at canadianunderwriter.ca

Paul Brehm

Kevin Stokes

82 www.canadianunderwriter.ca • April 2008

The Canadian insurance market can expect to see more consolidation in 2008, according to Philip H. Cook of Omega Insurance Holdings Inc. Speaking at a CIP Symposium breakfast meeting at the National Club in Toronto, Cook read off the names of about 22 players in the Canadian insurance industry that have disappeared over the past year as a result of consolidation.

He predicted specialty underwriters in particular would continue to enter the Canadian market. He suggested the result might be a “polarized” market containing at least 10 major insurers doing most of their business in general lines, with another 30 smaller insurers doing most of their Philip H. Cook business in specialty lines. ■

Christopher Guidette is the new director of communications for XL Global Services in the

Americas. Guidette is responsible for planning and executing internal and external strategic communications. His experience in communications spans 25 years and ranges from journalism to public relations in both the private and public sector. His foray into the corporate sector was to support Prudential Insurance Company’s nationwide campaign to reform civil justice. He later joined Insurance Services Office Inc. Christopher Guidette

(ISO) and became head of corporate communications. ■

PPG CertifiedFirst network of collision repair centres now has access to the line of Mitchell management systems as part of a preferred vendor partnership between PPG Canada Inc and Mitchell International Inc. “PPG is pleased to be able to offer CertifiedFirst Members a great choice in management systems,” Jeffery Murphy, marketing programs manager at PPG, said in a press release.

“Mitchell's ABS and ABSe Collision Shop Management Software provides profit-enhancing functions that can turn any shop into a more productive enterprise, something that the CertifiedFirst collision repair centres are looking to do.” ■

OARBIC Solutions Inc. will distribute, install and support Picom Software Systems Ltd.’s content archive and delivery solutions to the

Canadian insurance marketplace and selected regions in the United States. Picom’s enterprise content archive and delivery platform creates centralized audit-proof repository with powerful search and retrieval capabilities to corporate documents, reports and images via portal technology. “I’m amazed at how deep and mature the software is, and it works with any legacy or modern system in place today,” Anthony Kumnick, founder and managing partner of OARBIC, said in a press release. ■

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XL Insurance Company Limited

Douglas E. McIntyre

T

he Board of Directors of Echelon General Insurance Company is pleased to announce the following executive appointments. Mark Sylvia has been appointed Chief Executive Officer of Echelon. In his new role, Mr. Sylvia will be responsible for the company’s Canadian insurance operations. Former Echelon CEO, Douglas McIntyre, has been appointed to the position of Executive Chairman of Echelon and will continue to be an active member of Echelon’s management team, focusing on the company’s investment portfolios and overall strategy. Mr. McIntyre remains Chief Executive Officer of Echelon’s parent company, EGI Financial Holdings Inc. (EGI). EGI is a publiclytraded (TSX:EFH) insurance holding company with subsidiary operations in the United States and Barbados.

www.echelon-insurance.ca Steve Gruler

83 www.canadianunderwriter.ca • April 2008

Ed Mitchell

Mark A. Sylvia

MOVES & VIEWS

unveiled its new product recall insurance for the food and beverage industry on Mar. 18 in downtown Toronto.

“It takes 20 years to build a reputation, and about five minutes to ruin it,” Ed Mitchell, senior underwriter for product recall at XL, told attendees. The coverage is intended to protect food producers against accidental contamination (contamination due to a manufacturer’s problem or associated with a supplier), a malicious contamination (bio-terrorism) or extortion. The program has a primary capacity of Cdn$10 million and an excess capacity of Cdn$25 million (attaching above Cdn$10 million). It covers a risk size between Cdn$10 million through Cdn$5 billion. The new cover also includes pre- and post-crisis consultation to help a company mitigate damage to its brand name in the event of a recall. Steve Gruler, president of Global Quality Consulting Inc., observed some companies have actually seen their stocks increase after a product recall based on how they handled the negative publicity.

“Insurance will only go so far in protecting against a product contamination catastrophe, but effective crisis management can mean the difference between brand damage and brand success,” Gruler noted. ■

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Executive Risk Insurance Services announced the

MOVES & VIEWS

launch of a new type of insurance coverage at a February seminar in Toronto. Armed with an initial capitalization of Cdn$10 million, the company will offer coverage specifically geared towards risks associated with cyber-liability and privacy breaches. ■

www.canadianunderwriter.ca • April 2008

84

2008

Insurance Brokerage Profitability Study Our Study Contains the

Key Elements Found in Successful Brokerages.

Canadian Underwriter Online Poll 46.3%

53.2%

Yes

No

In the latest online poll, we asked canadianunderwriter.ca readers if their organization has a dedicated Chief Risk Officer. As of press time, nearly half (46.3%) of respondents said their company does have an overseer of risk management. About 53% said there is no CRO at their organization. ■ Integro Insurance Brokers has appointed managing principals Mark Rankin and John Haas to the firm's partnership group in Canada. Rankin is client development sales leader for the Toronto and Vancouver offices. He has 23 years of experience in property and casualty insurance, with an emphasis on international placements and captives. Haas is in client development in the firm's Toronto office. He has 19 years' experience in international risk management experience across many industries and risk practice categories — including the manufacturing, automotive, energy, transportation and retail sectors. Also, Integro has promoted Patrick Bourk to be senior associate in the firm's management liability Mark Rankin and legal practices. ■

200

3rd Edition

“Looking at brokerages inside and out”

Over brokerages from across Canada participated in this study.

Highlights: • Analysis of financial performance by brokerage size • Analysis of profit drivers • Analysis of sales and expenses

ORDER TODAY ! $325+GST 2nd copy is $90+GST Berris Mangan, Chartered Accountants 1827 West 5th Avenue Vancouver, BC, V6J 1P5 Tel: 604.682.8492• Fax: 604.683.4782 vjackson@berrismangan.com www.berrismangan.com

Our study will provide answers to the following questions: • What is our position in the industry?

• What are our employees likely thinking about us?

• What standards do we need to achieve to perform at a higher level?

• What expenses most dramatically impact profitability?

• Is our income growing faster than our competitors?

John Haas

Patrick Bourk

For more pics visit our online Photo Gallery at canadianunderwriter.ca

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The WICC Alberta Chapter Gold Flame Awards Lunch was held in Calgary on Jan. 23.

The Palomino Room at Stampede Park again

provided an amazing setting for the event. More than 300 people attended to hear an update on Dr. Hanne Ostergaard’s WICC-sponsored research project, as well as the emotional speech of Peace Hills CEO Diane Brickner, the banter of comedian Jebb Fink and the presentation of the awards to Alberta’s major sponsors through the past year.

WICC Alberta was thrilled that WICC Ontario Chapter Board member Nancy Ng was able to attend. Awards were presented to: Royal and

MOVES & VIEWS

SunAlliance, Peace Hills Insurance, Triad Claims, Toole Peet Insurance, Godfrey Morrow Insurance, The Jim Sinclair Charity Golf Tournament Committee, WFG, Belfor Restoration Services and ING Insurance. ■

85 www.canadianunderwriter.ca • April 2008

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MOVES & VIEWS

The Insurance Institute of Canada helped brokers elevate their game on Feb. 7, with the exciting event ‘Player or Spectator,’ held at Toronto’s historic Roundhouse, home of Steam Whistle Brewing.

The social networking event was complete with food, drinks, contests, prizes, great entertainment and relationship-building opportunities. Special guest Darryl Sittler, the former captain of the Toronto Maple Leafs who still holds the Leafs’ team record for the greatest offensive game in history (six goals and four assists), joined the festivities to watch the Leafs play the Montreal Canadiens. Attendees competed with Sittler in an exciting ‘air hockey’ playoff. ■

www.canadianunderwriter.ca • April 2008

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The Toronto Insurance Women’s Association (TIWA) added an extra splash

MOVES & VIEWS

of red and white to this year’s Valentine’s Day celebrations when it hosted its annual wine and cheese reception on Feb. 14. Guests indulged in fine culinary offerings, enjoyed live music and clinked their wine glasses with fellow industry peers at this year’s reception, held at the Metro Toronto Convention Centre — Constitution Hall. ■

www.canadianunderwriter.ca • April 2008

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The Honourable Order of the Blue Goose, Ontario Pond, held its largest-ever, members-only (Ganders) initia-

MOVES & VIEWS

tion ceremony to welcome more than 30 new members (Goslings) to the flock on Feb. 20 at the trendy Bravi Ristorante on Wellington Street in Toronto. Most Loyal Gander Chris Giffin called the meeting to order, Custodian of the Goslings JP Strasler presented the new members as being all of good repute and social director Dora Coemtzis welcomed 75 participants in all.

The Ontario Pond, chartered in 1908, is celebrating its 100th Anniversary this year and is proud to host the Blue Goose Grand Nest Convention in Niagara Falls in July 2008.

www.canadianunderwriter.ca • April 2008

90

global: adj. relating to the entire world.

Business may begin locally, but often with a view to global opportunities.

When you anticipate client growth, your insurance should be prepared.

Chubb Insurance has 120 offices in 29 countries to provide local expertise at global standards.

If your clients think globally, Chubb is your recommendation.

Chubb Defines Insurance

www.chubbinsurance.com Chubb Insurance refers to Chubb Insurance Company of Canada.

The precise coverage offered is subject to the terms, conditions and exclusions of the policy as issued.

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