Canadian Underwriter August 2008

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C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U UN ND DE ER RW WR R II T TE ER R .. C CA A

August 2008 A Business Information Group Publication Publications Mail Sales Agreement #40069240

Danger in the Skies

BY VANESSA MARIGA

Soft Market Buyer’s Guide

BY CRAIG HARRIS

The Rise of Future Care Costs

BY VINCENT CHAIGNET AND KEVIN O’TOOLE

Private Health Care Risks Nanotech Challenges Unnamed Insureds Insuring Carbon Credits ERM as Rock Star Managing the Weather

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EVEN IN THE FACE OF FOUR TYPHOONS, THE FORECAST FOR AMI S

© 2008 FM Global. All Rights Reserved.

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MI SEMICONDUCTOR WAS REMARKABLY

A true story: In 2006, four typhoons pounded the Philippines within weeks of each other. But thanks to a recommendation from FM Global, AMI Semiconductor (now ON Semiconductor) was practically unaffected. By fastening simple roof reinforcements, it kept its facility running while many others nearby were damaged beyond repair. And customers the world over had orders filled as if the storms had never happened. To read more true stories, visit fmglobal.com/insuranceevolved

Insurance Evolved

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VOL. 75, NO.8, AUGUST 2008 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY:

Danger in the Skies

40

A common misconception is that any and all asteroid hits on the earth would result in Armageddon, obviating the need to discuss any possible insurance and risk management implications. But scientists have identified objects that may hit, and will soon predict where. The insurance industry may soon be able to talk about excluding coverage of some ‘fallen objects’ from space.

BY VANESSA MARIGA

FEATURES

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50

Best Terms

Power of Small

Some feel risk managers, by focusing on getting the best price in this soft market, may in fact be overlooking some useful coverage ‘extras.’

Nanotech particles are so small they can easily be ingested or pass into our bodies, raising concerns they might become the next asbestos exposure.

BY CRAIG HARRIS

BY JOHANNY CRUZ

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56

26 Fortune-telling Tornado Damage

60 Admiring Without Emulating

Scientists in London, Ontario are using debris patterns and downburst damage to help determine tornado wind speeds.

ERM may well be a “rock star” in risk management circles, but why aren’t more companies humming the tune?

BY PERRY BRAZEAU

BY GREGORY A. KOPP

64 The Navigator 30 Changing Health Care Risks Risk managers in the health care field need to adjust to Canadian healthcare models that now include health-carepractitioner-owned, multi-disciplinary clinics.

Don Forgeron,the Insurance Bureau of Canada’s new Ontario region representative, has vast experience in auto insurance reform, which he gained on the Atlantic coast over the past decade.

BY VANESSA MARIGA

BY KATHERINE IONNI

68 Weather Risks 36 Unnamed Insureds Raising the Bar

Carbon Credits

A recent cluster of very high catastrophic bodily injury awards in Ontario has raised the bar for future care costs.

BY VINCENT CHAIGNET AND

Using carbon credits to encourage international emissions reductions might open up a whole new world of commercial and political risk.

KEVIN O’TOOLE

BY DAN RIORDAN

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Canadian Underwriter August 2008

Policy drafters need to be absolutely clear who is insured under a builders’ risk policy.

Canadian insurance markets have a vastly improved ability to use weather management contracts to protect against weather-related risks.

BY RONALD SILVERSON

BY BRIAN O’HEARNE

Think to innovate … innovate to sustain. www.swissre.com Swiss Re didn’t invent diversification. But it did expand the risk management model. Pushed the edges of the envelope.

And today, Swiss Re’s thought leadership is again pioneering a new era: one in which traditional and financial risk solutions are taking on ever bigger risks in an ever smaller world. Swiss Re partners long-term with you to develop reliable, innovative solutions for the risks that threaten your profitability and growth. If you find yourself cornered by risk – talk with Swiss Re.

Expertise you can build on. © 2008 Swiss Re

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VOL. 75, NO. 8, AUGUST 2008

PROFILE

12 Risk Revitalization Joe Restoule, vice president of the Risk and Insurance Management Society (RIMS), gains energy and enthusiasm from meeting challenges posed by risk.

BY DAVID GAMBRILL

SPECIAL FOCUS

8

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

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

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

Art Director Gerald Heydens

Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793 Account Manager Mike Wells mike@canadianunderwriter.ca (416) 510-5122 Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114

Art Consultation Pylon.ca Production Manager Gary White (416) 510-6760 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou

Editorial

10 Market Watch 72 Moves & Views 74 Gallery

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EDITORIAL

Cadillac Insurance for a Cadillac Price

The real question is whether such a cap on the GRC is necessary at all, since the premium should reflect the risk of paying out on a GRC policy.

David Gambrill, Editor david@canadianunderwriter.ca

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“The man who invented the GRC should be taken out of the room and severely disciplined.”

This is perhaps the least charitable expression of a prevailing sentiment among Canadian insurers about the Guaranteed Replacement Costs (GRC) issue. The GRC debate came to a head in B.C. five years ago, when about 200 homes burned down at once during the 2003 wildfires in Kelowna, B.C. All told, the Kelowna wildfires resulted in 3,385 claims totalling Cdn$200 million, or an average of Cdn$59,084 per claim.

GRC policies pay policyholders the full replacement cost of their homes, even if the replacement costs exceed policy limits. So, for example, if a house that burns down is insured up to a limit of $300,000 and it costs the insurer $350,000 to replace it, the insurer will pay the full $350,000 under a GRC policy.

GRC is called the “Cadillac” of home insurance, since it offers the maximum protection for consumers. Insurance brokers typically defend GRC for this reason.

Insurance companies and reinsurers, on the other hand, are more inclined to see GRC as a problem. (As noted in the quote above, which was expressed, ironically enough, at an insurance brokers’ association conference held this year in Kelowna, B.C.) Insurers face a conundrum on this issue. They risk look-

ing miserly if they abandon the GRC altogether, and so they often fall short of publicly calling for its elimination.

But certainly they face increased claims costs paying out on such policies; for this reason, many are suggesting a percentage cap be placed on GRC policies.

If insurers do start capping GRC policies, the inflationary effect of demand surge should be among their pricing guides.

If insurers do in fact start capping GRC policies, the inflationary effects of demand surge on costs should be among the pricing guides used to determine the percentage of the cap.

Demand surge is typically associated with rebuilding a large number of homes at once after a natural disaster.

To put it simply, a large demand at once for a shrinking pool of resources (building materials, contractors, etc.) often leads to increased costs. Material costs increase because it costs more to manufacture the resources to keep up with the demand; also, building contractors are able to charge more for their services when more people are requesting them.

The key for insurers is to ascertain from their previous claims experiences just how

much “demand surge” drives up their costs, on average, in worst-case disaster scenarios.

They can then use this percentage to establish a baseline for percentage caps to be applied to GRC policies.

The real question is whether such a cap is necessary at all, since the price of the insurer’s premium for a GRC policy is supposed to reflect the risk of making a potentially larger payout than indicated by the policy limit.

Insurers have suggested that since GRC policies pay the ultimate replacement cost of the home, no matter what that cost may be, consumers lack incentive to declare additions that increase the value of their homes. This contributes to the risk that the policyholder may be underinsured, thus making it harder for insurers to determine the proper insurance premium rates for the risk.

Brokers are skeptical about this argument, preferring to believe most people are honest with insurers about the value of their home.

Assuming most policyholders are honest, insurers might consider charging Cadillac rates for Cadillac GRC policies — especially if this is one way to keep GRC policies around. This logic would probably sound okay to most rational consumers: after all, in so many other financial service areas, the consumer is well aware of the dictum: You get what you pay for.

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MARKETPLACE

Canadian Market COMPETITION REVIEW PANEL CALLS FOR END TO BAN ON CROSS-PILLAR MERGERS The Competition Policy Review Panel is calling on the federal minister of finance to “remove the de facto prohibition on bank, insurance and cross-pillar mergers of large financial institutions, subject to regulatory safeguards, enforced and administered by the Office of the Superintendent of Financial Institutions [OSFI] and the Competition Bureau.”

Canada’s ministers of industry and finance announced the creation of the panel on July 12, 2007. The panel was asked to review Canada’s competition and foreign investment policies and to make recommendations to the Minister of Industry “for making Canada more competitive in an increasingly global marketplace.”

The panel presented its 140-page final report to the minister, and its recommendations include the possibility of allowing cross-pillar mergers between banks and insurance companies. [The report does not speak to the issue of banks selling insurance from their retail branches.]

To date, the federal government has reportedly said only that it will be giving the

10 Canadian Underwriter August 2008

recommendations serious consideration.

QUEBEC SUMMER STORMS RESULT IN CDN$56-MILLION WORTH OF INSURED DAMAGES Insurers expect to pay more than Cdn$56 million to customers after storms swept through parts of Quebec on June 10, according to a survey by the Insurance Bureau of Canada.

To date, more than 6,000 claims for damages to residence and personal property and 10,000 automobile claims have been filed due to the Quebec storms, according to insurers.

The intensity of the winds and the localized hail showers caused extensive damage to property in a short period of time, the IBC reports.

These most recent storms in Quebec follow on the heel of a severe winter, which resulted in more than Cdn$172 million in damages to homes.

By comparison, during the winter of 2006-07, property damage totalled only Cdn$58 million, the IBC notes.

CANADIAN INSURANCE MARKET FLUSH WITH CDN$11 BILLION IN EXCESS CAPACITY Canada’s insurance market has Cdn$11 billion in excess capacity, enough to underwrite another replica of Canada, which could fuel a soft market well into 2012.

Joel Baker, president of MSA Research, made the observation as a panelist at

the Standard & Poor’s June 24 panel discussion, “Canadian P&C Insurance Sector— What The Future May Bring.”

His fellow panelist, Bruce Thompson, the director of the monitoring and analytics and support division of the Office of the Superintendent of Financial Institutions (OSFI), said he didn’t want to comment on Baker’s Cdn$11 billion figure. He did agree the Canadian insurance industry is “very well capitalized.”

Thompson cautioned that Canada’s solvency regulator isn’t necessarily concerned about the excess of capital, per se. “Good, solid, stable earnings, in my opinion, far outweigh the level of capital, after you have a certain amount, of course,” he said.

“Capital exists for companies in the case of uncertainty or mistakes, in the absence of perfect certainty — and we all live in those days.”

Baker noted the current soft market has been driven to a large degree by rate cutting in the commercial lines, which started to soften in 2002-03.

THE SHUMKA GROUP BUYS CGI GROUP’S P&C CLAIMS UNIT AND RISK MANAGEMENT SERVICES The Shumka Group has acquired the property and casualty insurance claims and risk management services from CGI Group Inc. The transaction will create the largest independent insurance services company in

Canada, according to a Shumka Group release.

Expected to close in early August, the transaction was for an undisclosed amount.

CGI’s claims adjusting and risk management services has approximately Cdn$70 million in revenue, according to a CGI release.

“With this acquisition, we are better positioned to serve our clients with a broader array of professional insurance services,” Larry Shumka, president and CEO of The Shumka Group, said in the release. “This strengthens our existing operations in all parts of the country, particularly Quebec and Ontario. Furthermore, the transaction will result in additional service capacity, which provides greater stability for both our company and our clients.”

CANADIAN INDEPENDENT BROKER CHANNEL PREDICTED TO SEE CONTINUED EROSION Canada’s independent broker channel can expect to see continued erosion into their market share by direct writers over the next few years, Joel Baker, president and CEO of MSA Research, told a Standard & Poor’s industry overview panel.

Baker observed direct-linked agencies and companies held 37% of the auto insurance market share in 2002 — a figure that now stands at 43% in 2008.

Similarly in personal property

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lines, Baker noted, the market share of direct writers increased from 35% in 2002 to 46% now.

“If you add in the insurercontrolled brokers, you’re probably looking at over 50% direct agency-type control of the marketplace on the personal lines,” Baker observed. “And I see that trend continuing.”

Baker said the independent broker channel is likely to “hold the line” in Western provinces because of the public auto insurance models in B.C., Saskatchewan and Manitoba.

Bruce Thompson, director of the monitoring and analytics support division of the Office of the Superintendent of Financial Institutions (OSFI), noted the broker channel still appeals to the higher-income financial bracket, which uses more insurance products and therefore benefits from the advice brokers can provide.

CANADIAN 2007 RESULTS CONSTRAINED BY LACK OF PREMIUM GROWTH, DIMINISHED RETURNS IN ONTARIO AUTO Lack of premium growth nationwide and diminished results in the Ontario auto segment have constrained results for Canadian property and casualty insurers in the past year, according to a recent report published by Standard & Poor’s Ratings Services.

Although 2007 results were generally good, a number of

factors will play a part in dragging down industry results throughout 2008 and beyond, says the S&P’s commentary, “Industry Report Card: Canadian Property and Casualty Insurers Face Deteriorating

Results Due To Ontario Auto Segment.”

Such factors include declining premium growth rates, deteriorating results in Ontario auto, worsening weather-related conditions

and intense pricing pressures in commercial lines.

In addition, Ontario auto insurers face obstacles from regulations that govern the pricing and availability of the product, S&P’s says.

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PROFILE

Energized by Risk David Gambrill Editor Risk is the fuel that energizes Risk and Insurance Management Society (RIMS) vice president Joseph (Joe) Restoule.

As vice president of RIMS, Restoule, who works at NOVA Chemicals Corporation in Calgary, is in all probability next in line to become RIMS president in January 2009. If he becomes president, he would not be the first Canadian to head up the Society, although he would be the first Western Canadian to do so. Aware of Restoule’s trajectory within the RIMS organization, Canadian Underwriter finally caught up to Restoule in late July for a profile interview.

Restoule is anything but idle, so he is not easy to reach. Leading up to the interview, his travel schedule had him placed in Alberta, Detroit and Sarnia during a 48-hour span. But although Restoule has every reason to sound weary, you can hear the excitement level rising in his voice when he talks about risk management — even though he is being interviewed on the phone from his hotel room only 10 minutes after wrapping up an all-day, eighthour meeting in Sarnia. “If you ever get to meet me, you will find out that I am a really enthusiastic person when it comes to our profession, because I just get so turned on

12 Canadian Underwriter August 2008

by it,” Restoule says on the phone.

For Restoule, it’s been that way from a fairly early point in his professional background.

He grew up in Thunder Bay, Ontario and instead of following his friends out East after high school, he followed the old adage of heading West (to Calgary). He graduated from the University of Alberta with a Criminology degree in 1979, at which point he had two job opportunities from which to choose.

In an alternate universe, Restoule could have opted to work for Alberta Government Telephones (later to become known as Telus), selling new technology that Restoule believed at the time sounded too “crazy” for the average consumer — selling personal computers.

Instead he chose to work in the claims and adjusting department of State Farm Insurance. He worked there 10 years, at which point destiny led him into the hands of none other than William H. McGannon, one of the country’s first risk managers to set up a full service risk management department in Canada.

McGannon established loss prevention agencies and statistical support at NOVA Chemicals Corporation in Alberta in 1979. He is the namesake of a foundation Restoule now leads as president, the William H. McGan-

non Foundation, which provides grants to advance risk management by means of education, research, mentorship programs and work experience programs. The foundation was established following a 1999 RIMS Canadian Risk Management Council (since re-named RIMS Canada Council) study that identified the need for a Canadian organization to advance the profession of risk management in Canada.

Persuaded by McGannon, Restoule made the jump to NOVA in 1989. Restoule was impressed by McGannon’s loss prevention and engineering work, which Restoule

describes as “ahead of the curve” in risk management.

Specifically, Restoule admires McGannon for having established NOVA Chemicals’ own actuarial and statistical team to do loss forecasting and analysis in the service of managing risk.

For Restoule’s part, he did a fair amount of mergers and acquisitions work for NOVA Chemicals — work that he says appealed to his sense of “the Art of the Deal.” Not surprisingly, given his outgoing nature, Restoule says he loves working in teams, brainstorming and conflict resolution. All of these skills (and more) he used to close a

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deal he still remembers from early in his career — building a pipeline through several Latin American countries that required no fewer than 200 contracts to complete.

The role of the risk manager has evolved a great deal since that time, Restoule observes. “When I started in risk management in 1989, my understanding of the financial balance sheet and how to assist in the understanding of the strength of the balance sheet is totally different than today,” he says. “The needs are really different. If you just think of the signing process in 1989, we didn’t even sign off on those financial sheets, right?

The auditors did. But now, when a chief financial officer and a chief executive officer sign off, they need to know that all of the risks associated with them doing business have been identified.

And so risk managers today are being asked to be involved in the process and sign off.”

Restoule cites a financial issue — the subprime mortgage and asset-backed commercial paper issue — as one of many important emerging issues facing the risk management profession. His list of other hot-button issues is long and includes: • “silica,” or silicon dioxide, which he observes could become the next asbestos-

style exposure (along with nanotech); • hurricanes (“The winds are starting to blow again,” Restoule says, referring to the first hurricane to make landfall in 2008. “Hello Dolly.”); • research and development will be generating new risks; and • the increasingly multi-jurisdictional nature of mergers and acquisitions.

“I don’t know what will be the single biggest one [issue],” he says. “But when you look at all of those, maybe it won’t be one big bang, but it will be an accumulation of a number of these issues that will keep risk managers very busy.”

Clearly on a roll, Restoule’s enthusiasm takes over. He lists cyber-risk and climate change as other major issues to confront both Canadian and American risk managers.

When asked about the risk manager’s role with regard to climate change, Restoule responds: “If you’re not reducing your emissions, directors are exposed to liability, personally exposed. So what sort of coverage do you provide to directors and officer for environmental risks? You can see that directors would want risk managers to talk about purviews of coverage and those types of issues.”

Environmental risk is about more than personal liability,

he adds. For example, what might happen if a company does not fall in line with emission reduction targets?

“Could your operating permits be constrained, so you’re not getting the revenue you’re expecting because you have to work in a constrained environment?” Restoule asks.

“When I started in risk management in 1989, my understanding of the financial balance sheet and how to assist in the understanding of the strength of the balance sheet is totally different than today.”

“You can see the impact not only on the governance of the corporation but also to revenue and its ability to generate income.”

Restoule believes risk managers in the future will be called upon to become even more involved with a company’s strategic thinking than they are already with enterprise risk management (ERM). He sees risk managers getting more involved at the company’s executive-level structures, known as the socalled ‘C-suite.’ In the future,

he predicts, risk managers will be “working more with the CROs, the CFOs, CEOs and the boards of directors, getting involved in the strategic planning for the organization. Being part of that, to me, is ultimately where we need risk management.”

Participating in RIMS is the perfect vehicle for preparing risk managers for their future, whatever it may be, says Restoule, who also joined RIMS at the behest of McGannon in the early 1990s.

Restoule has been a member of the RIMS board of directors since 2000. He was chair of RIMS Canadian Risk Management Council from 1997 to 2000.

“RIMS as an institution provides a lot of the resources and tools necessary for these risk practitioners to do their jobs and do them well,” he says.

He cites RIMS publication of ERM for Dummies as one example. He also notes that RIMS has provided a number of important industry benchmark and training resources such as the new Professional Growth Model career tool and the Risk Maturity Model for Enterprise Risk Management that, in addition to risk management professionals, is being used by auditors, security executives and other practitioners traditionally outside the risk management discipline.

August 2008 Canadian Underwriter 13

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Craig Harris Freelance Writer

Some risk managers are satisfied with taking advantage of the lower commercial rates offered in the current soft market cycle, but others insist more perks are available for the taking Risk managers are taking advantage of what some call “cut-throat competition” in the commercial insurance market by clearly articulating their risk transfer needs.A prolonged soft market means not only rate cuts and better terms, but also the flexibility for risk professionals to negotiate a broader palette of offerings from their brokers in everything from risk retention analysis to actuarial services to captive feasibility studies. Some are using this period to restock their risk arsenal; others are just taking the rate.

THE BUYER’S MARKET The soft commercial market, now going on three years, is accelerating a shift in broker-risk manager relationships, according to some sources. While this transition has been taking place for several years and includes a move to more fee-based services, the competitive conditions mean risk managers can ask for, and get, a bigger bang for their buck.

14 Canadian Underwriter August 2008

This can translate into several things for the individual risk manager or purchaser of insurance, such as more information about potential risk-takers on their programs, better access to property and casualty insurer results, access to more high-quality data, improved benchmarking tools or more in-depth consulting services related to enterprise risk management. Or it can just mean getting the cheapest deal on the market.

“Today’s soft market has the buyer in the driver’s seat, looking at brokers to differentiate themselves through pricing models, service offerings and high-touch relationships,” notes David Bradford, executive vice president with Advisen Ltd. Advisen published a Broker Services and Remuneration Survey together with the Risk and Insurance Management Society (RIMS) in April. It also publishes jointly with RIMS the quarterly benchmark survey; as of April 4, the benchmark survey observed that, if anything, the soft market is gaining momentum. In its review of first-quarter results, the benchmark survey showed that property premiums fell on average 6% – the largest quarterly decrease since Hurricane Katrina. General liability rates continued a string of modest rate declines, dropping by 2%.

In Canada, the MSA/Baron Outlook Report, also released in April, notes the “commercial lines arena ... is in the midst of cut-throat competitive pricing. Despite the plummeting pricing, underwriters have yet to bear the consequence due to

Illustration: Greg Stevenson

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relatively benign claims activity in the year.Without any real pain, the soft-pricing saga is expected to go on for awhile yet to the dismay of brokers and underwriters alike.”

Some sources say certain industries and lines of business are showing early signs of rate stiffening, but no one is predicting a hard market anytime soon. Plenty of capacity, solid loss ratios in commercial property and liability, relatively cheap reinsurance and intense competition between large commercial players and multi-line companies mean that, barring any kind of catastrophic loss, lower premiums are here to stay for at least the end of 2008 and well into 2009.

In addition to observing decreased rates, risk managers are also witnessing a willingness on the part of underwriters to negotiate attachment points and sub-limits on liability policies. In fact, instead of taking rate reductions, many risk managers are seeking higher retentions on excess and umbrella policies.

“Many are looking at the upper level of their protection to see if it is, first, consistent with what others are doing and, second, sufficient for their own operations,” says Michael Stonehouse, a risk consultant with Armour Riley Inc. “They have tended to rationalize the level of liability protection. That kind of assessment has been a factor during the soft market.”

Joe Restoule, leader of risk management for NOVA Chemicals Corporation, observes the following: “When we entered the soft market over two years ago, underwriters were prepared to relax on pricing, but wanted to hold fast on attachment points. They felt that on the books they were underwriting, they had done a good job of getting people to take the right deductibles. Last year and this year, I am finding a relaxation of that.”

Underwriters’ willingness to compromise is further illustrated by their retreat on terms such as margin clauses. For example, at the height of the previous hard market, margin clauses — which impose a cap on loss recoveries for each covered location equal to a percentage of the values declared for the location —

16 Canadian Underwriter August 2008

Page 16

were placed on many blanket property coverages. This diluted or reduced the single blanket amount of coverage available to any one specific location. Today, the margins are up for negotiation.

“In the softer markets, some of the things implemented in the past, such as margin clauses, are more open to change,” notes Phil Corbeil, risk and insurance coordinator for the City of Calgary. “We are trying to get our margin clauses taken off our property policies, or at least to get the cap increased.”

Risk managers also see a greater flexibility on forms and wordings due to plentiful capacity. “The coverage forms

When the soft market emerged over two years ago, underwriters were prepared to relax on pricing but wanted to hold fast on attachment points. Last year and this year, there is a relaxation of that. and some of the extensions the companies offer as standard vary, and that can make a big difference,” says Nowell Seaman, manager of risk management and insurance services for the University of Saskatchewan. “We can look and say: ‘The pricing is very much the same, but somebody has a better form.’ Today, you have a better selection in coverage forms.”

This kind of “open-for-business” marketplace means the deck is heavily stacked in favour of risk managers, who know they have room to maneuver in

current conditions and ask for better and improved services — or switch brokers.

“I am not sure if risk managers are demanding more services from brokers, or demanding better quality of service,” says Restoule. “I actually see it as a great opportunity for brokers to show clients how they are different through quality of service in such areas as loss reserve analysis for captives and exploring alternative risk financing.”

Seaman agrees risk managers are clearly spelling out their wish lists when it comes to dealing with brokers. “I think your expectations are more defined or better-defined in the current market,” he says. “You are seeing this in terms of it being more clearly articulated in broker agreements. I think that holds true whether you are changing brokers or staying with the same one.”

Corbeil adds risk managers must be able to benchmark or rate their brokers to see how their brokers are doing when it comes to exploring opportunities that exist in the marketplace.

Brokers confirm they are well aware of the heightened demands of risk managers in the current marketplace. “There is competition in the market to enhance services, to provide better value and to do different things for clients,” notes Peter Cleyn, vice chairman of Marsh Canada Ltd. “I would suggest this is being driven more by the supply than demand side.”

Bill Besse, senior vice president and regional manager of client services in Ontario for Aon Reed Stenhouse Canada, says competition is a natural consequence of a soft market. “So we try to differentiate ourselves with the value propositions we bring to our clients that other brokers may not, especially in terms of loss and retention analysis and risk control work.”

John Chippindale, president and managing principal for Integro (Canada) Ltd., argues that risk managers are looking beyond the usual services associated with brokers. “Risk managers expect you to have industry experts who understand their business,” he says. “They expect you to have claims experts. They expect

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you to be able to do retention analysis.

But two areas we see they increasingly want help with are first, ‘substantiated analytics,’ which help them make accountable, quantifiable decisions and second, evolving an enterprise risk management philosophy within their company.”

Bradford acknowledges the bar has been set higher for many brokerages in the risk management arena. “For a number of years now, brokers have come to the conclusion that insurance placement is not really going to be how they differentiate themselves,” he says. “Whether they will win and retain clients now hinges on all the ways they can provide risk-related services to them.”

The same is true for insurers as well, according to sources. “Risk managers are not looking for insurers that simply offer insurance product,” says John Nolan, senior vice president of specialty commercial lines at Aviva Canada. “They are looking for claims management, risk control services [and] sometimes actuarial expertise. They are looking for ways to control their own costs, to manage their claims.”

Chippindale says Integro “spends a lot of time and effort collecting data so we can help clients understand exactly what their risk exposure is, what their susceptibility to a claim is, and then exactly modelling it. If someone buys a $200million casualty limit, they want to know the right cost of capital that should layer all the way up.They want to be educated on what the exact nature of their risks are and how to make empirical decisions based on that.”

Cleyn believes risk managers in today’s market are much more savvy about identifying their information needs. “It is night and day with risk managers from 10 years ago,” he observes. “The degree of information they ask us to provide them with respect to potential risk-takers on their programs — they are much more astute and driven on the information they are requesting on their risk partners.”

And yet, in spite of all of these heightened demands and the positive market

18 Canadian Underwriter August 2008

Page 18

conditions existing for insurance buyers, Advisen says its broker services survey reveals there is a comparatively large gap in services delivered to risk managers across various industries. Bradford notes Advisen’s study of risk managers showed “an unexpectedly large number of respondents said they do not receive core broker services such as program structure benchmarking, premium benchmarking and policy wording comparisons within the standard services covered by normal broker compensation.”

Risk managers are increasingly seeking help in two areas: 1) ‘substantiated analytics,’ and 2) evolving an enterprise risk management philosophy within a company.

The fact that 40% of respondents said they did not receive these services surprised Bradford. “We assumed that something like program structure benchmarking was a standard thing that brokers would be providing on a routine basis,” he says. “Perhaps some buyers are not aware of it, but should be asking for it.”

Advisen also notes the most common “non-core” services purchased by risk managers include property loss control, claims administration, captive management and actuarial services. In fact, risk managers are eager for brokers to offer even more fee-based services such as enterprise risk management consulting, Bradford points out.

In response, some brokers say the generally lower rates offered during the current soft market might make it possible for insurance purchasers to take their eye off the target of loss reduction and risk management. “The softening of the market has, in some cases, driven deductibles down, which devalues some added services that are available like loss control and claims administration,” notes Cleyn.

“That is a subtle change that happens over time.”

Jim Aston, president of Sinclair-Cockburn Financial Group, is more blunt.

“There is less motivation when the cost of the insurance comes down to introduce risk management tools, so they lose their value as a consequence of premium reductions,” he says. “It is hard to get an audience with them (buyers); they appreciate the effort, but I find there is not a lot of follow-through. It is not on the radar anymore as an important issue.”

This fickle view of loss reduction is short-sighted given the cyclical nature of the property and casualty insurance industry, several sources point out.

They add now is the time to secure relationships and focus on risk reduction strategies, before the market turns.

“We are always saying to our clients: ‘We are in a soft market mode and your broker has been able to get reductions, but we know this will change,’” notes Stonehouse. “It might not be this year or even next year, but the question is not if, but when. The other question is what factors insurance purchasers should be looking at when things start to change.”

Besse says his company’s longer-term clients understand the insurance cycle and its typical features of excess capacity, declining premiums and increased competition. “They also believe they have to be proactive and build those relationships with the insurers during these times,” he says. “The market pressures are there, but they also understand they are accountable for their own claims history.”

For risk managers, loss reduction is a goal to be achieved in addition to securing low insurance rates. “The issue of loss reduction is not just driven by your insurance premium, but by your reputation,” concludes Seaman. “At the end of the day, a loss doesn’t just have a financial effect, it also has a reputational effect on your organization — and perhaps most importantly, it has a human effect.

There needs to be more marketing done to convince people to do more on the loss reduction side. Because that is what is going to keep the market stable, isn’t it?”

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Page 20

The Floating Summit of Future Care Costs

Vincent Chaignet

Has the bar for tort catastrophic bodily injury Assistant Vice President, claims in Canada taken a significant leap higher, Claims, or does it just seem that way? Certainly the trend Munich Reinsurance over the past 18 months in the Ontario judiciary Company of Canada might lead one to believe the bar is higher.

During that period, the courts granted a cluster of four unusually large bodily injury awards.

Very recently, one of the seminal cases, Sandu v.

Wellington Place Apartments, received a resounding stamp of approval from the Court of Appeal.

Since the awards in these cases are largely fact-driven, the appeal process is difficult and uncertain. In light of the Sandu decision, should any of the other cluster cases be appealed, it seems Kevin O’Toole unlikely appeal courts will radically change Manager, Claims, the landscape.

Munich Reinsurance The cluster has certainly convinced Ontario Company of Canada plaintiff lawyers the bar has been raised on all similar claims. In the wake of these decisions, we have seen claimants in Ontario amend pleadings to increase damages to the $15-million to 20-mil-

20 Canadian Underwriter August 2008

lion range. Settlement expectations likewise have dramatically increased.

Whether or not higher catastrophic injury awards are necessarily a trend, time will tell. In the interim, insurers will have to consider seriously whether they are now facing substantially higher damage exposures for catastrophic injuries and whether their pricing is adequate for these risks.

THE “CLUSTER” These cases involve three claimants with brain injuries (Sandu v.Wellington Place Apartments, Gordon v.

Greig, Marcoccia v.Gilt) and one claimant with quadriplegia (Morrison v. Greig). In each case, the plaintiff’s award was in the double-digit, million-dollar range.

The true driver behind the increase in these awards is the cost of future care — in particular, the cost of 24/7, life-long attendant care.

Significantly, these cases came in quick succession. They involved four different trial judges (including one in front of a jury) and, most recently, a full panel of three appeal court judges.

An appearance of consistency in the judiciary’s handling of these cases will certainly make the defence of these cases even more challenging in the future.

If there is a trend towards higher damages arising from the cluster cases, it will likely apply for the most part, if not exclusively, to claims involving

Illustration: Greg Stevenson

A recent cluster of very high catastrophic bodily injury awards in the Ontario courts have suggested the summit for future care costs is not fixed

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catastrophic brain injury or quadriplegia in children and young adults with long life expectancy.

CONVERGENCE OF FACTORS Any trend towards much higher catastrophic injury awards might just be the inevitable outcome of a convergence of numerous factors that have been developing in Ontario for some time. These factors include: • The substantial expansion of ‘no-fault’ automobile accident benefits in Ontario. Such an expansion has contributed to very large future care cost demands in tort catastrophic bodily injury cases due to the development of a broad range of treatments, therapies, services and equipment related to quality of life issues.

• Ontario’s long accident benefits history has permitted development of a broad range of expertise in all areas of health care services, giving the plaintiff bar access to a wide range of and choice in experts.

• The rate of inflation for health care services under Ontario’s automobile accident benefits coverage dramatically surpasses the rate of inflation for the same health care services covered by Ontario’s public health care system.

This affects the cost of care under accident benefits claims; it also influences the costs associated with tort injury litigation.

• Advances in and accessibility to medical care and treatment continue to extend/improve the lives of catastrophically injured claimants, making the cost of daily living more expensive for a longer time.

• Ontario’s plaintiff bar, more organized and skilled today, is increasingly networked. Knowledge and case-building strategies of leading plaintiff counsel are more readily available to the plaintiff bar generally. The defence bar has been slower to respond in kind; some argue that by imposing very onerous cost controls on defence counsel, insurers may not be helping here.

• Quality-of-life expectations of catastrophically injured claimants and

22 Canadian Underwriter August 2008

Page 22

society in general have grown in terms of independence, mobility, social interaction, self-expression, education and careers.

• Sympathy and compassion are factors requiring little comment. Courts are concerned that a trial may be a claimant’s best and only opportunity to obtain adequate compensation to pay for needed medical care and to maintain quality of life for many years.

Based on projections, future care costs and the money required to pay them are subject to tremendous uncertainty.

A critical factor in the cluster awards may be changing societal expectations related to the quality of life for catastrophically injured parties.

If there is concern as to whether a claimant will have access to enough money, a bias towards erring on the side of caution is natural and readily understood. One result of such ‘erring’ can be inflationary pressures on future care cost awards and settlements.

SELF-LIMITING OR FAR REACHING IMPLICATIONS Historically, there have been large catastrophic injury awards in Canada. These have tended to be case-specific, with limited implications for bodily injury costs generally.

Two of these earlier cases — Crawford v.

Penney (2003) and New v. City of Moose Jaw (2004) — yielded awards in excess of $10 million, but appear to have had limited implications for subsequent catastrophic injury cases. In Crawford, the court was very critical of the actions of the defendants both prior to and during

trial. In Moose Jaw, the defence faced a selfaccomplished and compelling claimant.

By comparison, the cluster cases do not demonstrate any particularly egregious conduct by the defendants or involve unusually sympathetic claimants.

There are no obvious characteristics that suggest anything exceptional. Yet, both jury and non-jury trials produced damage awards similar to these ‘exceptional’ earlier awards.

A critical factor in the cluster awards may be changing societal expectations related to the quality of life for catastrophically injured parties. Do the cluster cases represent a ‘best-care’ model, to be awarded only in exceptional cases, or do they represent a minimum standard of care for all catastrophic injuries?

Consider the settlement of Browne v.Lavery in 2004. At the time, this was described as one of the largest personal injury settlements in Canada. Plaintiff’s counsel later commented that his client would receive the best care available for the remainder of her life.Two years later, in the Gordon and Morrison cases, the court noted the awards would permit the claimants to live with dignity.

The distinction here, if there is one, is interesting. In Lavery, the “best care available” appears to be the basis for an exceptional settlement quantum.

The quantum of the Gordon-Morrison, “living-with-dignity” awards, on the other hand, suggests a new minimum standard for similar catastrophic injuries. Either way, the costs in all of these cases might very well be the same.

The courts in such catastrophic injury cases frequently express concern about ensuring the scope and level of future care is appropriate and that adequate funding is in place. If the appropriate scope and level for “best care” is today “living with dignity,” it may very well be that the amounts awarded in the cluster cases are no more than “adequate.”

CLUSTER LEGACY What will be the long-term affect of the cluster cases on catastrophic bodily injury claims in Canada? And what does it mean for insurers?

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First, all four cluster cases were decided in Ontario. At least theoretically, courts in other provinces are free to set a different, perhaps less-costly outcome in similar circumstances. We would expect, however, the plaintiff bar to advocate strongly for a cluster standard.

In addition, although the implications of these cases are significant, the bar for tort bodily injury claims has technically only been addressed in very specific situations — i.e. catastrophic injuries to parties expected to live a long time.

It would be far more dramatic and farreaching were, for example, the cap

Page 24

for non-pecuniary general damages to be removed.

Nevertheless, at a minimum, it will be extremely difficult to argue in the future that such awards can be dismissed as ‘exceptional’ and ‘extraordinary.’ On the one hand, these developments will require insurers to step up defence efforts. That means using high levels of expertise, skill and experience and spending more money.

On the other hand, and more importantly in the aftermath of these cases, insurers should be taking a long, hard look at their pricing to ensure they are charging adequate premiums for this risk.

It is nothing less than astonishing that these cluster cases have had little or no impact on the insurance market place.

Only about 20 years ago, one Ontario “quantum leap” case, McErlean v.Sarel (also known as the City of Brampton case), generated a frenzy. Liability insurance costs shot through the roof and capacity was scarce. Little changed when that case was later reversed on appeal (albeit on liability).

Here we have four cases, one of which has received unanimous approval from the Ontario Court of Appeal, yet the liability market continues its pricing free-fall.

Who will be the first to restore sanity?

Bodily Injury Awards: The Cluster Cases Date of Loss: 1997

Date of Loss: 2000

Date of Loss: 2003

Trial: 2005 Decision: 2006 Award: Cdn$18-million range Court: Court of Appeal for Ontario Case Citation: Sandu v. Wellington Place Apartments Summary: A 26-month old male claimant fell from a fifth-floor apartment building window, sustaining a closed head injury, fractures and internal injuries. The resultant bodily injury claim and derivative Family Law Act (FLA) claims were brought against the apartment building complex and its owners.

The case was tried by an Ontario jury, which awarded damages of approximately Cdn$12.9 million. Inclusive of pre-judgment interest, costs and disbursements, management fees, coguardianship fees and post-judgement interest, the total claim could reach the $18-million range. The insured was held 90% liable but, under joint and several liability, the plaintiff has the prerogative of seeking all damages from the building owners. The Court of Appeal in March 2008 upheld the damages awarded at trial.

Trial: 2006 Decision: 2007 Award: Cdn$15.5-million range Court: Ontario Superior Court of Justice Case Citation: Marcoccia v. Gill Summary: A 20-year-old male claimant was injured in an Ontario automobile collision. He sustained injury to his frontal and temporal lobes and exhibits left side hemi-paresis. Claimant’s counsel argued that prominent disinhibition, lack of insight, irritability and cognitive impairment leave him ill-suited for a group home or assisted living conditions.

Plaintiff’s lawyer argued that he required 24/7 attendant care for the duration of his life, and that the claimant would never be capable of meaningful employment. These are fundamentally the same arguments used in the Sandu case; the same plaintiff counsel acted in both actions. Following a jury trial, damages were awarded in the Cdn$15.5-million range.

Trial: 2006 Decision: 2006 and 2007 Award: Cdn$11.5 million and Cdn$12.6 million Court: Ontario Superior Court of Justice Case Citation: (1) Gordon v. C. Greig; (2) Morrison v. Greig Summary: The claimants were passengers in an Ontario automobile. The alcoholimpaired driver lost control and the vehicle rolled over. Neither claimant was using seatbelts. Both were thrown from the vehicle. Both male claimants were about 22 years of age. Claimant 1 was rendered quadriplegic. Claimant 2 sustained a catastrophic brain injury.

Both sued the driver and the company from which the vehicle was leased. The damage award for Claimant 1 was about $12.6 million, inclusive of FLA claims.

The court award for Claimant 2 and his family was about Cdn$11.5 million.

Claimants’ costs are in addition to these awards. At press time, the status of any appeal was unknown. The awards will be reduced by the percentage of contributory negligence on the part of each respective claimant. The reduction in either case likely will not exceed 25%. The driver’s automobile tort policy limit was exhausted.

The bulk of this exposure fell to the leasing company.

24 Canadian Underwriter August 2008

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Page 26

Tornadoes:

The Hidden Damage Detailed tornado research has used debris patterns and downburst damage surveys to help determine wind speeds during severe storms Gregory A. Kopp Professor, Boundary Layer Wind Tunnel Laboratory, University of Western Ontario

Knowledge of tornado and downburst wind damage is critical to engineering evaluations of structural performance and, in particular, for the development of appropriate design guidelines for critical infrastructure systems. For example, the design of electrical power distribution systems for wind loads is governed by tornadoes in southern Ontario, so knowledge of wind speeds, tornado size distributions, track lengths, etc. is required.

Tornado sizes and track lengths come from damage surveys. Wind speeds are associated with damage surveys and indicators. These indicators are based on the well-known Fujita Scale.

In the United States, the Fujita Scale was recently revised and is now called the Enhanced Fujita Scale, which includes a wider range of structural damage indicators.The enhanced scale also has a

26 Canadian Underwriter August 2008

new range of (reduced) wind speeds at the higher end of the scale. It is important to realize all of the information we use regarding tornado wind speeds comes from damage surveys and the Fujita Scale.

Thus, there could be a powerful tornado in a particular area, but if it does not hit anything, there is no statistical record of it. In addition, the maximum damage rating depends on the (expected) strength of the structure, so if a powerful tornado hits a weak structure, the maximum rating possible is limited.

None of this is intended as a criticism of the Fujita Scale. Rather, it indicates the truly limited knowledge we have about these severe winds. To aid our understanding, wide-ranging wind damage research is being conducted at the University of Western Ontario — under the sponsorship of the Institute for Catastrophic Loss Reduction (ICLR) and the Natural Sciences and Engineering Research Council of Canada (NSERC), in partnership with Environment Canada — to develop greater numbers of damage indicators, based on scientific testing, to obtain more realistic wind speed estimates for severe windstorms. We are focussing on two aspects that have not previously been explored, namely wind throw of trees and flight of wind-borne debris. In this article, we focus only on the latter.

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Page 28

Well-defined roof failures and debris flight distances allow the possibility of assessing wind speeds.

Wind-borne debris arises when a building element fails and subsequently flies through the air. The main problem with debris is that it often hits down-

wind structures, causing additional damage. This can be particularly severe if a window or door is destroyed, because subsequent internal pressurization could lead to roof failure. It is estimated windborne debris caused about 40% of the damage when Hurricane Andrew hit South Florida in August 1992. However, well-defined failures and flight distances, as observed post-storm, allow the possibility of assessing wind speeds.

We have conducted research of debris flight for particular failure mechanisms by using carefully designed models in wind tunnel experiments. In particular, detailed data have been obtained for common debris types such as roof shingles and tiles and roof sheathing — and even a full woodtruss, gable roof. One limitation of the research is that it has been done only for hurricane-type wind conditions. But a new downburst simulator at the University of Western Ontario will be used to determine the effects of thunderstorm winds. Tornado wind fields are still beyond our current capacity, although details of tornado vortices

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have been obtained at UWO, as well as by full-scale, portable Doppler radar in the United States, and through model scale vortex chambers at other universities.

PROBABILITY Once we have debris flight data from carefully controlled wind tunnel experiments, we have data relating flight distances with wind speeds. One could use this database then to infer wind speeds from full-scale damage observations, assuming conditions were similar between full-scale and wind tunnel.The database might also be used to develop computer models that can predict the flight speeds based on the physics of flight, calibrated against the wind tunnel experiments. This would allow estimation of wind speeds for a much larger range of observations. Data from damage surveys plays a key role in the development of these models.

As this research progresses, we hope to provide new damage indicators for severe wind storms based on such numerical models, and enhancing the usefulness of the Fujita Scale for engineering design of critical infrastructure.

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Page 30

Times are A’- Changing Risk management needs to change as Canadian healthcare models change to health practitioner-owned, multi-disciplinary clinics Bob Dylan’s iconic, 1964 song about social Katherine Ionni change, aptly entitled “The Times They Are Assistant Vice President, A-Changing,” gave a name to the profound upheaval that had defined the 1960s. In doing so, Professional Liability Dylan established an anthem for a period in and Healthcare, Arch Insurance Company which a new generation had emerged to challenge and change existing societal norms, prior(Canada Branch) ities and practices. That very same generation of Baby Boomers is once again poised to act as the catalyst for changes to the Canadian healthcare system; such changes will likely be as profound as those about which Dylan sang more than 40 years ago.

One effect of the impending changes includes the necessity to expand available medical services and ensure time-effective delivery of those services. In the future, this might involve an increasing reliance on new, privately owned clinic models for the delivery of health services. These new models for health care delivery will require a fresh approach to risk management. Specifically, new methods of risk transfer will be required to handle the medical liability exposure entailed by an increase in health-practitioner-owned, multidisciplinary clinics.

BACKGROUND As noted in a recent Report of the Standing Senate Committee of Canada,1 the Baby Boomer generation — generally defined to be those Cana-

30 Canadian Underwriter August 2008

dians born between 1946 and 1966 — is likely to be the most influential age cohort with respect to future demographic change.The retirement of this generation will have significant labour market consequences.

Today, most Baby Boomers are of working age.

Beginning in 2011, however, the Baby Boom generation will be reaching retirement age. Over the next two decades, successive cohorts of this generation will become aged 65 and older. By 2030, most of the Baby Boomers will have retired, the Chief Actuary of Canada notes.The implications to the healthcare system will be staggering. According to the same Standing Senate Committee, per capita public spending on healthcare for those aged 65 and over is estimated to be almost five times greater than spending on the rest of population.

The 1998 Report of the Auditor General of Canada outlined healthcare cost projections to 2031.The auditor’s medium-cost scenario would see spending increase from approximately 6.4% of Gross Domestic Product (“GDP”) in 1996 to 9% of GDP in 2031.The high-cost scenario, based on historical health care cost growth rates in Canada, would result in a doubling of spending on health care as a percentage of GDP over the same period, ultimately reaching 12.5% by 2031.

As Canada struggles to maintain its competitive position in the global economy by adhering to prudent fiscal practices, and as it honours the guiding principle of universal health care access that has formed the foundation of medicare in Canada, it is apparent some degree of privatization and for-profit delivery of health care services may be inevitable. This will be driven in part by consumer demand. Canadian baby boomers, for example, enjoy significant buying power and will generally be in a better economic position to access private medical services that might be

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available. Based on consumer demographic trends, baby boomers would likely want quicker and more effective medical treatment than the public system may be capable of presently providing.

Indeed, it was reported in The New York Times two years ago that so called “private clinics” in Canada were opening at the rate of approximately one each week.2 In light of the significant demographic changes and their anticipated impact on the Canadian health care system, three major government-sponsored commissions have formed to address future health care reform in Canada — The Mazankowski Report3, the Kirby Report4 and the Romanow Report5. Both the Mazankowski and Kirby reports maintain a degree of privatization of the Canadian health care system will be necessary in order for the system to modernize and address the changing needs of Canadians.The Romanow Report adheres to maintaining the present public model of notfor-profit delivery of health care services, suggesting nonetheless that opportunities exist for private sector involvement in non-core health services.

The Canada Health Act6 (the “Act”) allows the federal government to withhold federal transfer payments to any province that violates the principle of universal entitlement to insured health services.

Regardless of whether and to what extent the Canadian federal government is prepared to amend the Act, it is clear a number of provincial governments are nonetheless prepared to promote and advance health care privatization through the establishment and maintenance of for-profit hospitals and clinics, surgery centers, diagnostic clinics and other specialized services such as administration, food cleaning, home care, retirement home, assisted living services and other health-related services. Notably, this is occurring with limited or no effective objection by the federal government; even the courts have recognized that governments cannot ban private health care

32 Canadian Underwriter August 2008

Page 32

unless they are able to guarantee the public system will meet patients’ needs without excessive wait times.7 Although reports about the death of public health care in Canada are perhaps exaggerated, it is clear the system in its present form can no longer function effectively — particularly in light of the shifting demographics that will continue to stress existing resources.

MANAGING MEDICAL LIABILITY For Canadian physicians, who have been at the proverbial centre of the storm about the future of the Canadian health care system, risk management has historically been a function of being a member of the Canadian Medical Protective Association (CMPA). Founded in 1901

A risk transfer solution must address both the vicarious and the direct medical liability exposure created by providing a multi-disciplinary approach to patient care. and incorporated by Act of Parliament in 1913, the CMPA is funded and operated as a not-for-profit corporation that functions as a mutual defence organization. It provides indemnification to its members without limit to the cost or damages that may ultimately be awarded to a claimant.

The CMPA’s promise of vigorous legal defence is not unqualified. There must be “good expert support to do so” and the promise of indemnification is also subject to change based on CMPA policy directives. For example, the CMPA indicated as of Jan. 1, 2004 that it would no longer cover claims made against its physician-members by non-residents of Canada for anything that may have gone wrong during elective or non-urgent

care. Furthermore, if a clinic is physicianowned — a common means by which health care services are provided under a “private” type model8 — the clinic is not necessarily eligible for assistance from the CMPA, particularly where the clinic’s liability is vicarious and arises from the acts or omissions of other health care professionals.

Thus, the increasing number of multidisciplinary clinics owned by health practitioners and physicians — which some have suggested are the harbinger of a form of two-tier health care in Canada — present a number of risk management challenges.Various health care professionals involved in providing services might not be employees of the clinic; they might in fact be serving a number of different clinics as independent contractors. They would thus not be subject to mandatory insurance requirements, depending upon the exact health specialty involved. If the health care professional is an employee of the clinic, the liability of the clinic will be vicarious. In other words, if the employee is found to have been negligent and acting in the course and scope of his or her employment, the clinic is automatically liable for damages awarded against the employee, even if it was not negligent in its own right.

If the employee’s conduct is intentional in nature, such as the sexual assault of a patient, vicarious liability may nonetheless be imposed even if the employee cannot be said to have been acting in the course and scope of his or her employment at the time of the intentional act.This would be the case under present case law if the employer’s enterprise and its empowerment of employee materially increased the risk of the intentional act occurring.9 The clinic might also be liable in its own right for breaching duties owed to a patient such as failing to select or train staff adequately, failing to review staff performance on a regular basis, failing to have appropriate policies and procedures in place, failing to

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adequately supervise staff or failing to provide adequate staffing, resources or equipment.

The limitations on the indemnification available from the CMPA to physicians — particularly with respect to the vicarious liability exposure of the physician-owned clinic, and the desire of health care service providers in the for-profit sector not to limit their market to Canadian resi-

Page 34

dents only — will necessitate a fresh approach to risk management. Specifically, any risk transfer solution must address both the vicarious and the direct medical liability exposure created by providing a multi-disciplinary approach to patient care (including patients who may not be Canadian residents).

As delivery models for health care services in Canada continue to evolve, so too

will the movement towards privatization. Regardless of the ultimate fate of private health care in Canada, and how the debate over the potential compromise of fundamental Canadian values is ultimately resolved, it is clear risk management will continue to be an important consideration for those providing health care services to an aging and affluent population.

1 The Demographic Time Bomb: Mitigating the Effects of Demographic Change in Canada: Report of the Standing Senate Committee on Banking, Trade and Commerce, June 2006.

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2 Krauss, Clifford. Canada’s Private Clinics Surge As Public System Falters, The New York Times 28 February, 2006: http://www.nytimes.com/2006/02/28/ international/americas/28canada.html 3 The Report of the Alberta Premier’s Advisory Council on Health, chaired by former Deputy Prime Minister, Don Mazankowksi, published 2001.

4 The Recommendations of the Standing Senate Committee on Social Affairs, Science and Technology, chaired by Senator Michael Kirby, published 2002.

5 The Report of the Commission on the Future of Health Care in Canada, chaired by former Saskatchewan Premier Roy Romanow, published in 2002.

6 R.S., 1985, c. C-6, as amended.

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7 See Chaoulli v. Quebec (Attorney General) 2005 SCC 35, [2005] 1 S.C.R. 791.

8 Typically, a clinic will charge a patient an annual set fee for medical services which will include the provision of non-insured health services outside of the parameters of the Canada Health Act, such as nutritional, massage, physiotherapy and fitness services.

Telephone: 416-581-8082 Toll Free: 1-866-981-8082 www.thearcgroup.ca

34 Canadian Underwriter August 2008

9 See Weingerl v. Seo, (2005), 256 D.L.R. (4th) 1 (Ont. C.A.).

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The Invisible Insureds Policy drafters should beware of including unnamed insureds in their builders’ risk policies

Ronald W. Silverson Partner, Gasco Goodhue LLP Gasco Goodhue is a member law firm of the ARC Group of Canada

Drafting an insurance policy is undoubtedly a daunting and challenging task at the best of times.

Insurance companies often rely upon standard policy language. For some readers of such policy language, however, the intended meaning may not be obvious.We recall the critical observation made by former Ontario Superior Court justice James Farley in the 1994 case of Esagonal Construction Limited v.Traina et al., in which Farley, after considering the wording of a builders’ risk policy, stated: “I think it fair to observe that the insurance industry has its own form of relatively incomprehensible jargon which at least rivals that of the legal profession.”

One might not expect any controversy or ambiguity under an insurance policy, for example, when it comes to something as relatively straightforward as identifying an “insured.” But an exception arises when the notion of an “unnamed insured” comes into play.A notable example is the question of whether subcontractors for a construction project are to be covered under a builder’s risk policy, in which the subcontractors have not been expressly designated by name in the Declarations Page or by category (i.e. “all subcontractors having contracted with the named insured for the insured project”).

The courts have consistently inferred from policy language and extrinsic considerations that certain categories of parties, such as subcontractors — and even on occasion, suppliers of materials — are to be considered as insureds even though that might not necessarily have been the intent of the drafter of the policy. Accordingly, those who have the task of defining the parameters of coverage under a builders’ risk policy should take note of the factors the courts consider, as discussed below.

36 Canadian Underwriter August 2008

It might be argued that, in light of a series of decisions emanating from the common law provinces, the status of subcontractors as unnamed insureds under a builders’ risk policy is settled law.1 But the issue has received scant judicial consideration in the province of Quebec until recently.

There have been a few decisions by the Quebec Courts over the past year in which the Canadian common law decisions on the notion of unnamed insured have been considered and, thus far, followed.2 Such cases deal with a number of issues that are not only of interest to underwriters in respect of policy wording but also to claims examiners, insurance brokers and counsel for insurers and insureds, among others.These issues are important factors in considering whether a subrogation action may validly be brought against a party that participated in a construction project covered by a builders’ risk policy.

Here is an overview of the principle issues the courts have examined in determining whether or not a party is an unnamed insured under a builders’ risk policy. They include: • the significance of the phrase “property owned by others,” often found in the insuring agreements; • how “intention” of the parties is to be dealt with; • the consequences of a “covenant to insure” benefiting parties that are not named or additional insureds; and • the “necessary implication” principle.

The courts have observed that the mere fact an insuring agreement provides for a policy to insure property in the course of construction, installation, reconstruction or repair that is owned by others than the named insured implies the insurer contemplated providing coverage to such other entities.At the very least, the reference to property “owned by others” gives rise to an ambiguity that is to be decided in favour of the insured, assuming the court applies the contra proferentum rule (in which ambiguity is resolved contrary to the interests of the party that drafted the contract — in this case, the insurer). In the Esagonal Construction Ltd. case noted above, it was held the party seeking the status of an unnamed insured under a policy, a supplier of materials, could invoke the contra proferentum rule.

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On the other hand, it might be argued the mere fact a policy specifically designates one or more named insureds necessarily reflects the intention of the parties to the insurance contract that coverage is to be restricted to those entities.

The courts have often noted that when interpreting an insurance contract, as with any contract in general, one must look to the nature of the contract and the circumstances in which it was concluded.This principle is incorporated in article 1426 of the Civil Code of Quebec and has been invoked by some of the Canadian common law courts (i.e. Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd.). In the specific context of a builders’ risk policy, this rule of interpretation supports the argument that, in addition to the policy wording, one must necessarily take into account the underlying construction contracts to determine which entities the parties “intended” to be the insureds.The courts expect underwriters are or should be aware of their named insured’s contracts and subcontracts, because the insurer’s rights may be affected by them (such as where there is an express or implicit waiver of subrogation).

In the event a general contractor undertakes to obtain insurance coverage for the benefit of a subcontractor, that covenant is consistently construed as constituting a waiver of subrogation in favour of the beneficiary subcontractor.

Such a waiver is opposable to the builders’ risk insurer, since the insurer can have no greater rights than that of its insured.

In situations in which the underlying construction contracts are silent on the issue of insurance, and the evidence shows there was no particular discussion of that topic between, for example, the contractor and the subcontractor, such “silence” may be considered to be a factor indicative of the parties’ intentions in the circumstances.

Courts have long considered the particular nature of a builders’ risk policy and the commercial policy considerations that favour the principle. In doing so,

38 Canadian Underwriter August 2008

The courts have consistently inferred from policy language that certain categories of parties such as subcontractors — and even on occasion material suppliers — are to be considered as insureds, even though that might not necessarily have been the intent of the policy drafters. they have frequently found that, by “necessary implication,” a subcontractor or other party that participates in the construction project should be considered an unnamed insured. For example, case law in the United States on this issue goes back at least to the 1940s.3 These policy considerations include: • the avoidance of a severe conflict of interest that would arise if an insurer were permitted to recover from one of its own insureds. The conflict arises because an insured is under a duty to cooperate fully with its insurer in the investigation of any loss covered by the policy; • the reduction of litigation; and • the potential financial burden placed on subcontractors if a builders’ risk insurer were permitted to recover against its own insured, since each subcontractor would be required to obtain separate liability insurance to cover the full value of the insured project.

The courts have stated on many occasions that such concerns can be addressed by recognizing all of the participants in the construction project have an insurable interest in the entire project. They have also noted the aforementioned objectives and policy considerations are best fulfilled by recognizing the status of such participants as unnamed insureds under the builders’ risk policy.

Even so, despite various judicial pronouncements that subcontractors should

be considered unnamed insureds by necessary implication, it is nevertheless acknowledged that under any particular policy a different conclusion may be reached if there is sufficiently clear and concise exclusionary language to that effect.4 In Esagonal Construction Ltd., Justice Farley stated: “While I would observe that a builders’ risk policy can be worded in such way as to eliminate both direct coverage of unnamed insureds — i.e., neither specifically named or named by category — and indirect protection from a subrogation clause exception, the insurer did not do so in this case.”

However, caution should be exercised in the drafting of the exclusionary language. The choice of words should take into account other clauses in the insurance contract, such as the “property owned by others” provision in an insuring agreement, which may suggest a broader group of insureds than what is desired from the underwriter’s perspective. Hence, our admonition: drafter beware!

1.Commonwealth Construction Co. v. Imperial Oil Limited, (1978), Sylvan Industries Ltd. v. Fairview Sheet Metalworks (1994) and Madison Developments Ltd. v. Plan Electric Co. (1997).

2. Optimum Société d’Assurance Inc. v.

Plomberie Raymond Lemelin Inc., Superior Court of Montreal 500-17-020901-040 Superior Court;, in appeal; Promutuelle Lévisienne-Orléans v. Ville de Lévis, (2007) Q.C.C.S. 4587 (Quebec Superior Court; conf’d by 2008 Q.C.C.A. 618); Axa Assurances Inc. and Construction de la Croisette Inc. v.

Valko Electrique Inc., ING Assurances, Regulvar Inc. and Lombard du Canada Ltée, 2007 Q.C.C.S. 5449 (Superior Court; in appeal) 3. (e.g., Louisiana Fire Ins. Co. v. Royal Indemnity Co. et al., Lexsee 38 So. 2D 807, (Court of Appeal of Louisiana (1949).

4. Trans-America Ins. Co. v. Gage Plumbing & Heating Co., Inc., Lexsee 433 F. 2D 1051 (U.S. Court of Appeals for the Tenth Circuit, (1970)); Esogonal Construction Ltd. v. Triana et al (supra).

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Danger in the Skies

VANESSA MARIGA ASSOCIATE EDITOR

40 Canadian Underwriter August 2008

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U

)

pon hearing the phrase “threat of asteroid impact,” insurers and risk managers in Canada almost invariably recall the Hollywood movie image of Bruce Willis blasting into space to save the day. Often viewed as a far-fetched natural catastrophe, asteroids, meteorites and comets — or near-earth objects (NEOs), as they are known collectively — are commonly assumed to be more likely to hit the silver screen than Earth, let alone our country’s major urban centres. But, recent research has advanced to the point of identifying specific objects and tracking them, improving our ability to predict an object’s future orbit. Scientists are now able to drum up a specific list of potentially threatening NEOs.The list, the scientific community says, will only get longer over the next decade as technology advances.

Of course not many good things will happen if an NEO collides with Earth.

But the scientific community is careful to point out not all impacts are of the Armageddon-style magnitude popularized in film and books.The truth is that a smaller object, one with a diameter of less than 50 metres, has far greater chance of hitting the earth than an object stretching more than a kilometer in diameter. Even a small object, however, has the potential to cause regional devastation — especially if it hits near an urban area, or if it hits offshore from an urban area, causing a major sea wave.

The odds of such an event happening are miniscule when compared to the likelihood of a tornado or hurricane. It is safe to say NEOs rarely, if ever, come up as seminar topics or even water-cooler discussions within the professional circles of risk managers and (re)insurers. Still, as risk managers know, and as the scientific community is warning us now, just because an event is unlikely, does not make it improbable.

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Members of the scientific community are suggesting that the (re)insurance industry give the matter some thought, since coverage for fallen objects is offered in most basic insurance policies. As a result, damages arising out of an NEO impact and its concomitant ripple effects could be on the (re)insurers’ tab — a cost that could make Hurricane Katrina’s estimated US$40-$60 billion price tag look like a drop in the bucket.

As Paul Kovacs, the executive director of the Institute for Catastrophic Loss

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Danger in the Skies

are referred to as meteoroids,” NASA notes on its Web site page devoted to NEOs. “Today’s asteroids are the bits and pieces left over from the initial agglomeration of the inner planets that include Mercury, Venus, Earth, and Mars.”

Once a meteoroid enters the Earth’s atmosphere and vaporizes, it becomes a meteor (or shooting star), NASA notes.

“If a small asteroid or large meteoroid survives its fiery passage through the Earth’s atmosphere and lands upon the

“It is not even on our risk list, so what would we do to mitigate it? I don’t know.

It’s sort of up there with the end of the world.”

Reduction, puts it: “I believe this is a very real threat that is unlikely, but has serious implications nonetheless.”

WHAT ARE THE ODDS? In 2006, Kovacs received an invitation from the Association of Space Explorers to sit on a panel discussing asteroid threat mitigation. The panel is a two-year exercise; this year, in September 2008, the panel will be finalizing its findings and suggestions for threat solutions so the association can present its recommendations to the United Nations.

Although, as mentioned above, the probabilities of an impact are small, the consequences are too large to ignore, Kovacs believes. The suspected asteroid hit believed to have caused the extinction of the dinosaurs happened 65 million years ago. The Los Alamos National Laboratory in New Mexico suggests there is a 1 in 200,000 chance that a one-kilometer-diameter asteroid will hit Earth in any given year (a 10-kilometer diameter asteroid would carry the same punch as 300-million nuclear weapons, the facility estimates). But while Kovacs notes

42 Canadian Underwriter August 2008

the chance of an Armageddon-style event may only be one in 1 million years, the chances of a smaller object hitting the Earth — an NEO less than 50 metres in diameter, for example — may actually be more in the neighbourhood of a one-in1,000-year event, or maybe even a onein-200-year event, which would put it more in the likelihood category of a major earthquake event.

Earth’s surface, it is then called a meteorite.”

NASA classifies potentially hazardous asteroids (or PHAs) as those that have the potential to make threatening close approaches to Earth. NASA is careful to note that although an approach is “threatening,” that does not actually mean it will hit the Earth. “There are currently 963 known PHAs,” NASA notes on its Web site.

FALLING OBJECTS: ASTEROIDS AND METEORS

SUDDEN IMPACT

The insurance industry therefore should give serious consideration as to whether the majority of basic insurance policies — commercial, personal or auto — cover losses due to “fallen objects,” especially when such falling objects are hitting the Earth at estimated speeds of between 25,000 and 160,000 mph.

Casual conversations about asteroids commonly use the terms “asteroid” and “meteor” interchangeably, although NASA classifies the objects differently.

“In space, a large rocky body in orbit about the Sun is referred to as an asteroid or minor planet whereas much smaller particles in orbit about the Sun

Some international research into the insurance implications of a meteor strike is publicly available. For example, in 2002, in its Topics: Annual Review of Natural Catastrophes, Munich Re published a paper on the topic entitled ‘Meteorites (Another) Underestimated accumulation of Risk?’ The report lists several potential effects of an impact, ranging from direct impact, fire, explosions, air pressure waves and tsunamis or sea waves.

Bringing the risk closer to home, every year in Canada approximately 70 small meteorites fall to the earth, most burning up as they work their way through Earth’s atmosphere, observes Dr. Alan Hildebrand, an associate professor and

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Canada Research Chair at the University of Calgary’s department of geology and physics.These meteors have a diameter of less than 1 metre, usually about the size of a fist, Hildebrand says.

Surely an object of this size would cause minimal, localized damage. But the damage potential of a slightly larger object is a different story. An object with a diameter approximately 50 metres would likely have a 10-megaton release of energy, Hildebrand says. “If you take a rock that size, going 20 or 30 km-second, [once] its energy upon entering the earth’s atmosphere is dissipated, some of it goes into light just like a nuclear device,” Hildebrand explains. “If you’re close enough, that bright flash is searing heat, hot enough to start fires, etc.” For an ‘air-burst,’ which is when an object explodes as it enters the earth’s atmosphere before striking the ground, “the bulk of the energy goes into the shock wave and then the blast wave that radiates outwards.” If such an event were to occur over a city, Hildebrand says, the blast wave would carry the potential to level buildings and everyone and anything in its path.

The centennial anniversary of an event of such proportions recently passed on June 30. On this date in 1908, a meteorite believed to be of a diameter of between 50 and 60 metres exploded over the region of Tunguska in Siberia.

Roughly 2,200 square kilometers of woodland were destroyed in the shock waves, leaving trees felled, charred and pointing outward from the nucleus of ground zero. The area of destruction, notes Munich Re, was equivalent to the sizes of Berlin, Moscow and London added together.

If an NEO larger than a few dozen metres in diameter were to strike a major urban centre, the insurance industry would sustain losses unlike anything it has ever experienced in its history, writes Kovacs and Andrew Hallak in ‘Insurance Coverage of Meteorite, Asteroid and Comet Impacts – Issues and Options.’ Kovacs and Hallak compare a

44 Canadian Underwriter August 2008

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Danger in the Skies

“If you could tell me that in five years, there was going to be an impact of a NEO in a certain town in Manitoba, I might restrict the brokers’ binding rights within that area if we could do that with 100% precision.” potential strike on the scale of Tunguska to the 9/11 terrorist attacks on the World Trade Center.The insurance industry paid approximately US$21 billion for property damage and business interruption related to the commercial airplane strikes of the World Trade Centre, causing destruction in an area of about 0.25 kilometres in size. The Tunguska event, Kovacs’ research team notes, resulted in severe damage over an area 8,800 times larger than that in 9/11. If a similar event were to occur over Manhattan, the damages losses would be in the order of between US$2 trillion and US$4 trillion,

Kovacs and Hallak estimate. “Such losses are well beyond anything the industry has ever faced, and it’s unclear how the industry could continue to function,” they wrote.

They acknowledge, though, the probability of such an object striking a major urban area is quite slim. Only 29% of the earth’s surface is landmass, of which a small fraction is urbanized.

Still, Munich Re notes there have been roughly 100 documented meteorite crashes on Earth between 1900 and 2001, the biggest of which was the Tunguska event.

The Organisation for Economic CoOperation and Development (OECD) estimates there is a one-in-2.5 chance of an asteroid with a diameter of 30 meters hitting the earth during the 21st century.

Damage from such an event would entail “a devastating stratospheric explosion,” the OECD notes. “A shock wave … would topple trees, wooden structures and ignite fires within 10 km; and many deaths would be likely if it occurred in a populated area.”

An object 100 metres in diameter would have a one in 100 chance of striking the earth in the 21st century.

The result would be a “low altitude of ground burst larger than the biggest-ever thermonuclear weapon, regionally devastating with a shallow crater roughly 1 km across,” the OECD estimates.

“Simply pointing to the presumable rarity of such events should no longer suffice in the light of recent experience,” Munich Re warns.

FLYING UNDER THE RISK RADAR Despite all of its well-documented odds-making and potential doomsday scenarios (or perhaps because of them), the scientific community appears to have a tough road ahead if it is to sway the Canadian (re)insurance and risk management communities to take asteroid hit as anything less than a totally cataclysmic event. Many acknowledge coverage for an asteroid hit exists under most broad policies, but they would

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Danger in the Skies

rather wait until the scientific evidence is more developed before they begin to consider possible exclusions or risk-mitigation strategies.

Kim Hunton, chair of the Risk and Insurance Management Society (RIMS)’s Canada Council, says that in her 20 years as a risk manager, she has not given the peril a thought. “The thinking is that it is just so far beyond our control,” she says. “Yes, we have insurance in place, and yes, some of our insurance policies would respond,” she continues, but the sheer magnitude of an impact would totally overwhelm any insurance concerns. “It is not even on our risk list, so what would we do to mitigate it? I don’t know. It’s sort of up there with the end of the world.”

Representatives of Canada’s major primary insurers all echoed Hunton’s view that NEOs are not on their respective risk maps. But some did comment on the state of existing coverage, and whether or not exclusions might need to be drafted in the future.

Bob Fitzgerald, executive vice president and chief underwriting officer of Aviva Canada, agrees that under most broad policies, coverage for an asteroid hit would exist under the rubric of a ‘fallen object.’ But every form is different, he cautions.

In a commercial policy, the vast majority of “traditionally fallen objects are not excluded on a broad-form wording unless there’s an excluded peril like war,” Fitzgerald says. “But on named-peril forms, the damage from a fallen object is only covered if the fallen object was dropped from a space craft or an air craft, so it would not include natural objects. But most buyers of commercial insurance are not buying named peril, they’re buying broad form.”

Personal lines policies present a similar situation, he continues. “On the homeowner’s side, the named perils form, the fire and extended coverage form does cover falling objects.”

Darryl Irwin, the national auto and property underwriting leader of RSA

46 Canadian Underwriter August 2008

Canada, agrees there is generally no exclusion for NEOs on broad-form policies.As for the events that may follow an impact, including flooding from sea waves or fires, he says: “We always look to see what the actual cause of the accident was. Certainly if something were to land on your house and knock out a natural gas main and cause a fire, fire following the impact wouldn’t be something that would be excluded.”

Gilles Gratton, vice president of corporate communications at ING Canada, also noted this particular peril is covered under broad forms, with no specific

exclusions. However, he adds, it is not covered under a named-peril form. He goes on to note that “in both commercial and personal lines, the ripple effects of flooding or earthquakes are not covered, but a resulting fire would be.”

Base coverage, he explained, includes fire and excludes flooding and earthquake, but both perils can be underwritten and priced separately if requested.

William Lloyd, chairman and CEO of Willis Inspace (the space insurance division within Willis Group), has also not heard of any exclusions being created along these lines. “I think it’s a fairly rare instance [in which] something happens and the premiums charged do not contemplate any significant loss

activity from these objects,” he says. “But if a catastrophic impact happened, I could see insurance changing very quickly after that — not unlike what happened with terrorism after 9/11.”

Rather than writing in exclusions, however, insurers may be more apt to restrict the binding power of brokers, Irwin suggests. But for this to occur, the science would have to be indisputable, he adds. Irwin points to the example of the 2003 forest fires in Kelowna, B.C., which caused an estimated Cdn$200 million in damage losses. “What we chose to do as an industry was restrict the binding authority of brokers [within] a certain distance of the perimeter of certain fires.”

But if a policy already existed, adding in an exclusion for a forest fire would be out of the question, he says. “So if you could tell me that in five years, there was going to be an impact of an NEO in a certain town in Manitoba, I might restrict the brokers’ binding rights within that area if we could do that with 100% precision,” Irwin says.

To achieve this kind of predictive accuracy, the science surrounding asteroids will have to be stronger, Irwin notes. And even then, unless the insurance industry acts as a whole, an exclusion may never be developed, he says.

“There was a recent example in which insurers looked to put exclusions in for Y2K [based on] the possibility of data going crazy because of systems not being programmed,” he recalls. The industry as a whole, at the recommendation of the Insurance Bureau of Canada — the IBC produces a high-level policy that most companies use as a basis for their own specific policy wordings — developed an exclusion to protect against the unknown, he says. “So, unless the industry as a whole was to do something like that at the advice of our advisory organization, we wouldn’t see it happening,” Irwin says. “[The risk] would have to be really crystal clear in order for it to happen, and I just don’t see a situation where that could be so specific.”

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COVER STORY

Danger in the Skies

MAPPING THE FUTURE Many suggest the science required to pinpoint asteroid hits is decades away.

But Kovacs cites the work of NASA’s program Spaceguard, and wonders whether the insurance industry is aware of the research and findings developed as a result of this program. Spaceguard was set up in 1991 with the explicit intention of identifying and tracking potentially dangerous NEOs. More specifically, SpaceGuard’s mandate is to identify and

been identified and named, and there’s published material saying a particular object could hit us on a particular date.

There is now emerging research that says it might hit these locations.”

If an object is identified and scientists are able to predict when and where it will hit, the peril becomes an entirely different risk, Kovacs asserts. “And it’s not clear to me that that should be included in an insurance policy,” he says.

“I think the insurance industry should

pass within 36,350 kilometres from earth in April 2029, zipping closer than geostationary satellites. “If it enters a keyhole — a corridor of space barely wider than the asteroid itself in which gravitational forces would give it a tug — it will end up on a trajectory that would assure a collision seven years later — Apr. 13, 2036, Easter Sunday,” Science predicts.

Should Apophis hit earth, it has the potential of destroying an area the size of Costa Rica.

“We have insurance for earthquakes, and for earthquakes, there’s always the probability that it will strike somewhere, even if the exact spot is a little unknown. And so at this point is a detected asteroid impact still insurable?” track the orbit of 90% of the large space objects — i.e. objects with a diameter of more than one kilometer — by the end of 2008. By June 2007 Spaceguard had identified roughly 5,000 NEOs, of which 715were larger than 1 kilometer in diameter.

The 715large NEOs identified by Spaceguard account for roughly 65% of the estimated 1,100-1,200, one-kilometresized NEOs, the scientific journal Aerospace America reported. Although it’s highly unlikely that any of these super-sized NEOs are on a collision path with earth, Spaceguard managed to identify more than 4,000 smaller NEOs that pose a greater threat. Smaller objects vastly outnumber larger ones and because of this are more likely to collide with our planet, Aerospace America says.

“I think the insurance industry’s current coverage could continue as it is, if it is applied to objects that had not been previously observed,” Kovacs suggests.

“In contrast, though, in the last 10 years… there are some objects that have

48 Canadian Underwriter August 2008

actively think about whether that’s a different kind of risk and what, if any coverage, it should offer.”

The industry may get its first chance to ponder a specific object with Apophis, an NEO stretching roughly 250 metres in diameter (about the size of a sports arena). It was identified in 2004, just a day or two after the Boxing Day Tsunami.

In its March 2008 issue, the journal Science observes Apophis is projected to

The odds of Apophis “threading the needle” are currently one in 45,000.

“But dozens of factors influence asteroid orbits,” Science continues. “Researchers will get a better look during Apophis’s next appearance in our neighbourhood in 2012.”

Kovacs admits current scientific knowledge is not yet quite so precise as to pinpoint an exact location for a potential impact. “But at this point it’s precise enough to say there’s a probability that [Apophis] will hit somewhere on the earth,” he says. “Well, we have insurance for earthquakes. And for earthquakes, there’s always the probability that it will strike somewhere, [even if] the exact spot is a little unknown. And so at this point, is a detected asteroid impact still insurable? I don’t know. I think the insurance industry over the next few years will need to look at the growing detection knowledge and see if this is still an insurable risk for detected objects.”

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Small Tech,

BIG

By Johanny Cruz Research Analyst, Advisen Ltd.

The world’s population will expand by 50% in the next 50 years, according to United Nations forecasts. This growth will be accompanied by a 500% rise in the use of energy and a 300% increase in the use of materials. Nanotechnology — the manufacture and manipulation of materials at the atomic and molecular levels — represents a promising new approach to meeting the demands produced by this explosive growth.

Many consider it the driving force behind a new industrial revolution.

Private spending on nanotechnology already exceeds US$3 billion worldwide, comparable to the biotechnology sector. Lux Research estimates nanotechnology products will rise from less than 0.1% of global manufacturing output today to 15% in 2014, totaling US$2.6 trillion — about the size of the information and telecom industries combined.

Although nanotechnology holds enormous promise, the risks are still largely unknown.

The insurance industry is only now beginning to assess the potential liabilities of these new processes and materials.

ORIGINS OF NANOTECH Modern nanotechnology originated in the 1930s and has been used in products ranging from

50 Canadian Underwriter August 2008

self-tinting window glass and sunglasses to car bumpers and paints. Physicist Richard Feynman anticipated a powerful form of chemistry in 1959 that could be unleashed through the manipulation of individual atoms. Norio Taniguichi of Tokyo University coined the term “nanotechnology” in 1974. The earliest use of nanomaterials, however, dates back to the ninth century when Arab potters used nanoparticles in glazes to make objects change colors from different viewing angles.

Nanoscale materials are generally less than 100 nanometers in diameter (a sheet of paper is 100,000 nanometers thick), and exhibit very different properties from those same materials at a larger scale. Nanomaterials have a larger surface area than larger objects, making them more chemically reactive. Additionally, below the size of 50 nanometers, the laws of classical physics give way to quantum effects, resulting in optical, electrical and magnetic behaviours different from the same materials at a larger scale.This allows for unique properties such as exceptional electrical conductance or resistance, high capacities for storing or transferring heat and even new biological properties. Silver, for example, becomes a powerful bactericide on a nanoscale.The harnessing of these new qualities can help researchers

Illustration: Greg Stevenson

Risks

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develop materials, devices and systems superior to those in use today.

Nanotechnology is also used to improve existing products, such as materials for golf clubs and bicycle frames, stain and water-repellent clothing and wear-resistant paints.Advances have led to increasingly diverse applications in fields such as materials manufacturing, computer chips, medical diagnosis, energy, biotechnology, space exploration and security. In the long term, nanotechnology is likely to result in revolutionary advances ranging from more effective diagnosis and treatment of cancer to alternate fuel sources.

Page 52

health risks akin to those resulting from asbestos contamination. Asbestos, once considered a wonder material, turned into a curse when it was discovered after decades of use that asbestos fibers could lead to lung disease. The size and shape of certain nanotubes were found to cause lesions similar to those that appear on the lungs after the inhalation of asbestos. In the case of asbestos, such le-

RISKS AND OPPORTUNITIES As new nanomaterials are developed, there is growing concern about knowledge gaps surrounding the safety of these materials.This lack of information could negatively impact businesses and become a major barrier to innovation.

Risks associated with nanotechnology are potentially substantial. Growing evidence suggests nanoparticles — the basic building blocks of nanotechnology and the tiniest materials ever engineered and produced — may pose environmental, health and safety risks. Of main concern is the small size of certain nanoparticles, which makes them hard to measure and control. Nanoparticles can easily be inhaled, ingested or enter the body through the skin. In the environment, nanoparticles can pass through soil and or seep through groundwater, whereby they may be absorbed by plants and enter the food chain.

Analogies have been drawn between the possible ill effects from exposure to nanomaterials and exposure to asbestos.

A study published in the May 2008 issue of Nature Nanotechnology suggests nanotubes, a type of nanoengineered material comparable in shape to asbestos, may pose

52 Canadian Underwriter August 2008

the International Council on Nanotechnology estimates only about one in three nanotechnology manufacturers conduct monitoring for exposure to substances.

Private and public funding can help advance knowledge concerning nanotechnology risks. Transparency, access to results of research and ongoing dialogue between insurers and commercial clients is also necessary. Risks should be communicated to consumers adequately to allow for public trust and the successful introduction of products into the market. Currently, most businesses in the consumer market do not advertise that their products contain nanoengineered materials for fear of bad publicity and consumer backlash.

REGULATION

Analogies have been drawn between the possible ill effects from exposure to nanomaterials and exposure to asbestos. sions eventually become mesothelioma, a deadly cancer.

Current exposure to manufactured nanoparticles is concentrated in workers in nanotechnology research institutions and companies. It is estimated more than 11,000 employees, working at more than 800 entities, are in the field of nanotechnology in Canada. Around 20,000 work in the field in the United States. And yet, a report released by

Existing regulation may prove to be inadequate in addressing the safety concerns associated with nanotechnologies.

Regulators have not yet taken into account the health and safety implications of nanoparticles; thus, no meaningful policies or standards exist to deal with the risks of potentially dangerous nanoproducts. Although future regulatory standards in areas such as medical products and the environment will need to account for nanoproducts, nanotechnology as an industry or a discipline may defy efforts at regulation. A recent editorial in Nature magazine posited: “There may well be dangers in nanotechnology, as in any emerging area of research. But nanotechnology is a diverse field, united only by the factor of scale. So it is not even clear how one would go about regulating nanotech in a manner unique to the discipline.”

UNDERWRITING ISSUES The recent study published in Nature Nanotechnology comparing nanotubes to asbestos, among others, is worrisome to

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the insurance industry. Asbestos contamination in the past has resulted in large employee claims and class action suits, resulting in large losses to asbestos producers and contractors, as well as their insurers. The unknown consequences of exposure, as well as the

Page 54

uncertainty surrounding delayed reporting of large claims, underscores the risk surrounding nanotechnology as well.

Nanotechnology could potentially affect the following lines of insurance: • workers compensation: employees involved in developing engineered

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materials, as well as workers using nanomaterials in their jobs; • general and products liability: exposure to loss from products containing or releasing nanomaterials; • product recall: the cost of recalling a nanotechnology product with safety defects; • environmental liability: damage caused to the environment from nanomaterials released intentionally or accidentally; and • property: the fine particle size of nanomaterials could cause ignitable dust to form.

Underwriters will increasingly be called upon to address the following challenges related to nanotechnology: • few underwriters are familiar with nanotechnology products or processes; • risks are difficult to assess because of no long-term experience; • similar to asbestos, delay between exposure and damage is likely; • cause-and-effect relationships between exposure and damage may be difficult to establish; and • substantial accumulation of losses across industries and geographic territories is possible.

Some insurers are likely to be innovators in addressing nanotechnology exposures, but most will wait to see how the market develops. Some insurers will likely seek segments or niches they already understand and in which they have confidence. However, given the expected prevalence of nanoengineered products, it is unlikely any commercial lines insurer will avoid confronting the risks posed by nanotechnology.

The insurance industry can play an important role in stimulating innovation by helping businesses manage the emerging risks associated with product development. While care needs to be taken to protect bottom lines from runaway losses, a lack of support by underwriters could severely hamper innovation and the introduction of important new products into the market.

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Risk managers face a number of challenges when their companies enter the fledgling carbon credit market

Dan Riordan President, Surety, Credit and Political Risk, Zurich North America Commercial

The passage of the Kyoto Protocol, which became effective in February 2005, signalled a growing consensus on the need to control and reduce greenhouse gas (GHG) emissions. One of the more interesting consequences of Kyoto has been the creation of an entirely new branch of international commerce — the carbon credit trading market.

This is a serious, global market valued at US$60 billion in 2007. It is projected to be valued at US$200 billion by 2020. And while the financial and environmental gains associated with the carbon credit market can be significant, a number of risk management issues warrant consideration.

That being said, currently available insurance products and new approaches in the development can help organizations address many of these risks.

CARBON CREDITS Carbon credits are key components of various GHG emission-trading schemes nations have employed following the enactment of the Kyoto Protocol. Under Kyoto, based upon a number of factors, emission targets are allocated by country under the auspices of the United Nations. Some of these targets are challenging, reflecting a growing sense of urgency about global GHG emissions.

Ideally, a nation will attempt to reduce directly its GHGs through the application of new technologies in power generation, industrial production,

56 Canadian Underwriter August 2008

transportation and other key segments. However, countries may also mitigate challenging domestic carbon-reduction targets by investing in “clean development mechanisms” (CDMs) in developing nations.This means participating in carbon credit projects that would not have occurred in the absence of Kyoto.The UN must certify such projects as CDMs for the projects to qualify for Certified Emission Reduction (CER) credits. Examples of these projects include renewable energy power plants, waste-to-energy plants, re-forestation initiatives and other activities.

Carbon credits earned through investments in CDMs can be applied against a nation’s or a company’s own GHG reduction targets, ultimately contributing to aggregate reductions of emissions on a global scale. Investors participating in the carbon credit market will benefit from credits monetized by national governments and paid out as investment gains.

In today’s global economy, any company with operations or business interests in countries that are signatories to the Kyoto Protocol must take into account regulations limiting GHG emissions.

In some cases, companies will find emissions directly regulated, with legal and financial ramifications if targets are not met. Even companies that are not directly regulated under the Kyoto agreements must take to heart the marketing and public relations implications of non-compliance, given the widespread public support for Kyoto.

The benefits of the carbon credit market are many, but there are also a number of genuine risk management concerns. Chief among them is the political risk associated with projects in developing and potentially unstable parts of the world.

Illustration: Greg Stevenson

Giving the Environment Credit

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Investors could face expropriation, nationalization or confiscation of a project, its assets and the stream of carbon credits it would generate. Political violence or civil unrest could also damage a project or prevent it from operating effectively.

A related risk is the potential of contract frustration by a government ministry or agency with the responsibility to approve the issuance of carbon credits. The possibility exists that a controlling agency might deny the issuance of credits for purely political reasons, rather than bona fide commercial reasons, preventing investors from realizing anticipated returns. There may also be a need for more comprehensive credit insurance associated with the export of goods and services, which can include the sale of carbon credits.

Investors must also contend with the spectre of regulatory or legal risk. Since the carbon credit market would not exist in the absence of the Kyoto Protocol, any significant change in the international regulatory or legal framework related to Kyoto â&#x20AC;&#x201D; such as, for example, expiration and non-renewal of Kyoto â&#x20AC;&#x201D; would have an immediate and profound impact on the economic viability of carbon credit projects.

Finally, the global response to Kyoto is driving the development of many technological innovations.As is generally the case when new technologies are involved, there are risks that innovations may not perform as designed, with resultant financial loss to investors.

Insurance carriers with sufficient global capabilities and product portfolios will be important participants in the continued viability and growth of the carbon credit market. Political risk coverages of the types needed to insure CDMs have long been staples of multi-national risk management programs. Insurance products for emerging and alternative energy technologies are already available from forward-looking insurance carriers, with future products in the pipeline.

Whatever the rewards and risks of the carbon credit market, the most encouraging aspect is a recognition that the private sector can be a progressive force in achieving important environmental goals. The Canadian experience is an example.

Canada has always been a society with highly developed environmental sensibilities, due largely to the country's transcendent natural beauty. As a signatory to the Kyoto Protocol, those sensibilities are now codified in environmental regulation.

However, many Canadian companies have long demonstrated genuine environmental awareness, even extending to the adoption of voluntary commitments to reduce their carbon footprints. For many Canadian companies, participation in the carbon credit marketplace is providing an important bridge to a greener future, while ensuring economic viability and competitiveness in the present.

Global insurers with the presence, knowledge and resources to support this effort will be challenged to deliver innovative products to help manage the risks of a shifting environmental paradigm. If history is any guide, we have no doubt the industry will be up to the challenge and will be a major contributor to the greener future that all of us hope to achieve.

58 Canadian Underwriter August 2008

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ERM’s Opinion/Analysis

Rock Star Status

Is ERM a triumph of reputation over substance?

Although discussion about ERM is all the rage at the moment, companies have been slow to leverage ERM’s Perry R. Brazeau strategic approach to risk Senior Vice President, Manager, FM Global (Canada Division)

During the past few years, reams have been written in insurance-industry journals about enterprise risk management (ERM). Much of the ink has been spent alternately attributing its prominence to government regulations, explaining how to adopt an effective ERM program at a company and dispensing tips on how to “sell” ERM to senior executives. At the same time, risk management membership organizations have seized on the topic and their ERM seminars are selling out almost as fast as Rolling Stones concerts.

Not surprisingly, the concept of addressing risk holistically within a single, integrated framework is also gaining new traction in the boardroom.

This can be attributed to a number of factors, including increased scrutiny from regulatory and ratings agencies, the growing interdependency of businesses and economies and the increasing complexity of the global risk landscape. Likewise, there’s increased pressure on companies’ senior management to assure to their many stakeholder groups that business risks are being properly managed.

60 Canadian Underwriter August 2008

But is ERM for real, or is it all just a big show?

ERM is very much the rock star of current industry trends; at its best, it represents a useful tool for responsibly managing a broad spectrum of risk. At its worst, however, it has the potential to devolve into an overwrought exercise that misses one too many trees for the forest.

Part of the problem is that ERM has yet to enjoy a definition or approach that neatly gets its arms around a vast process — one that involves measuring, in aggregate, strategic, operational, financial and hazard risks across the entire enterprise.

Furthermore, in this complex world of ERM — one in which silos are broken down, key interdependencies are evaluated and risks are integrated — companies can often get bogged down trying to quantify everything that could threaten their organization. The problem being, these risks could be highly interrelated. If your CEO behaves poorly, for example, it may hurt your company’s reputation. But what may not be so top of mind is that your firm’s reputation can also suffer if one of your plants burns down and leaves you unable to meet customer demand.

And what if your business strategy is such that, in order to stay competitive, you have to establish a plant or a relationship with a third-party vendor in China? There’s a risk, of course, associated with that strategy: as you expand your supply chain, how do you prudently protect your investment? How do you evaluate that vendor plant, pinpointing its key exposures and the potential impact to your organization? Keep in mind, though, it’s a calculated risk: the return could be significant. ERM can be an intimidating undertaking. In fact, FM Global’s findings indicate most

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global FORTUNE 1000-size companies have not yet formally adopted an ERM approach to risk management.

Having said that, a significant and growing number of these companies are planning to implement one at least to some degree — some, perhaps, begrudgingly. A leading industry media outlet recently reported that 23.4% of risk managers who said their companies had or were planning to implement an ERM program believed new government regulations motivated the decision. Indeed, in the wake of corporate scandals and recent crises in the credit markets, many companies’ operations and accountability are being examined under a much more powerful microscope. Whatever their motivation, however, and despite any dilemmas they might have analyzing a raft of emerging risks, companies need not be discouraged about implementing an ERM program.

The good news is that ERM, while holistic in scope, collapses neatly, like a telescopic tin drinking cup, into a base of fundamental risk management. At its core, ERM follows the time-honored four- or five-step risk management process. Such a process advises to: • identify and assess risk; • avoid and reduce risk; • accept and transfer risk; and • manage and monitor risk.

This should no doubt be a comfort to risk managers who are considering adopting an ERM program.Whether the ERM cup holds water depends on the integrity of that base.

One does not need Monte Carlo simulations or stochastic modelling to narrow the risk or the range of outcomes: science does that. When it comes to protecting against the damaging effects

62 Canadian Underwriter August 2008

of windstorms, for example, it’s proven that if you nail down the roof properly, it won’t blow off. If you board up your windows with wood of a certain thickness, wind-blown projectiles won’t pierce your building’s envelope.Applying what’s scientifically proven, you can eliminate or substantially minimize hazardous risk. In doing so, you can help maximize your competitive advantage.

Since no two organizations are alike, no two will manage risk the same way.

Some companies will content themselves

At its best, ERM represents a useful tool for responsibly managing a broad spectrum of risk. At its worst, it has the potential to devolve into an overwrought exercise that misses one too many trees for the forest. with traditional risk management; others, seeking a more intense program as their businesses expand across the globe, will take a more strategic approach. ERM is intended to take just such a strategic approach.

At the same time companies desiring an intensive risk management program are wrestling with their risk appetite (what they can tolerate from a frequency and severity standpoint), others may choose to start by conducting a business impact analysis (BIA), often associated with business continuity management (BCM). A BIA can help an organization better understand the business interruption exposures its operations face. The company can then use this information to communicate to the board of directors the impact of each exposure, or they can

use the information to assist in prioritizing risk management strategies.

Of course, ERM itself exists along the same continuum that includes traditional and what some have called “progressive” risk management. It can be applied to different degrees, or modified to suit an organization’s business plan. Some risk managers suggest the wide range of ERM practices should no longer be referred to as ERM, but rather as ERM-oriented.

Thus, for each ERM-practicing or ERMoriented company that invests millions in rigorous, computational risk analyses, another simply gathers senior managers in a room, asks for a show of hands regarding the potential impact of each risk on the business and then plots the results on a graph.The idea behind both methods is the same: to arrive at a threshold below which the company can absorb the risk, and above which it must either reduce the loss potential or transfer the risk via an insurance policy.

Needless to say, the implementation of an effective ERM program takes a good deal of time and significant resources.

Plus, the program must now stand up to the external scrutiny of an organization’s many constituencies. But if you’re considering ERM, you can start simply enough: first, take a hard look at just the relevant risks. Understand the key vulnerabilities of your extended enterprise that could seriously affect your bottom line.

Then, apply the traditional risk management process to them.

Companies that take such actions — accounting for their organization’s business objectives, as well as their stakeholders’ needs — better ensure they are running their businesses with a safety net. In today’s high-risk world, that can contribute greatly to your organization’s overall resilience.

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The

Navigator Associate Editor

Don Forgeron, the new vice president of IBC’s Ontario region, has navigated the industry through auto reforms in the Atlantic provinces in the mid-2000s. Now he will use that experience to help steer through reforms to the Ontario auto product.

Don Forgeron is no stranger to turbulent and uncertain times in the insurance industry. Having spent 15 years as vice president of the Insurance Bureau of Canada (IBC)’s Atlantic region, he has negotiated the East Coast insurance industry through rocky times associated with various auto reforms throughout the mid-2000s. He believes the agreements reached in each province laid the foundation for vibrant and healthy insurance industries in each of the respective jurisdictions.

This experience will serve him well, no doubt, as he takes the helm as the vice president of IBC’s Ontario region. The province’s auto insurance segment is at a crossroads: claims costs have increased beyond the rate of inflation, trial lawyers want to go after cost containment deductibles

64 Canadian Underwriter August 2008

CURVE BALLS AND GOOD CATCHES Forgeron’s career in the insurance industry was founded in happenstance. A native Maritimer, he was born, raised and schooled in Cape Breton, eventually graduating with a degree in chemistry.

Shortly after graduation, he heeded the call of an Alberta oil boom, packed up and headed west.

“I hadn’t intended to get into insurance,” Forgeron chuckles. “Life is funny. I certainly didn’t come out of school thinking the insurance industry was a place that I would wind up. But, I guess that life throws us some curve balls sometimes and we just roll with them.”

While living in Alberta, he worked for the provincial department of the environment for a few years before moving back to Halifax in 1987.

He remained there until accepting his current role as IBC’s Ontario representative, which took him to Toronto. Upon his return to Nova Scotia in 1987, Forgeron made his foray into the insurance industry, accepting a position as regional manager

Photo: Simon Cheung

Vanessa Mariga

and thresholds established by the province during the last round of auto insurance reforms and the provincial government is about to undertake its mandatory, five-year review of Bill 198. Forgeron’s first task as IBC’s Ontario rep was to develop a set of recommendations for auto insurance reform to the Financial Services Commission of Ontario (FSCO). Having accepted his post in May, and with recommendations due by July 14, some might say that Forgeron was ushered in at the final hour.

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for a personal insurance company (now a part of the Desjardins Group). He remained with the insurance company until 1993, when he accepted his role as vice president of IBC’s Atlantic section.

“It’s been interesting seeing [the industry] from both sides — from the [individual] insurer’s side, and the challenges [individual] insurers face, and from the association side and the challenges that the trade faces,” he says.

His father was a full-fledged politico, exposing Forgeron throughout his entire life to the nuances of the political arena.

“I’ve always been around [politics], but I’ve preferred to be involved in politics from the perspective where [the IBC] is, which is sort of on the periphery,” he says. “I don’t know that I have the stomach to experience it from the inside.”

Although he won’t be running for office any time soon, Forgeron does not shy away from addressing sticky government issues related to auto insurance reform. The Maritimes, like Ontario, is no stranger to such issues.

“There are a lot of similarities between the Atlantic market and Ontario,” he says. “And certainly in terms of government relations, the needs and desires of elected officials don’t differ much when you go from jurisdiction to jurisdiction,” he adds.

AFFORDABILITY IS KEY CONCERN “While the Ontario auto insurance product is one of the most complicated pieces of legislation that I’ve ever seen — I think it makes the equalization formula look simple by comparison — there are a lot of similarities in terms of what constitutes a healthy and vibrant insurance system, which I think is in the Maritimes right now, and I think we in Ontario can have too.”

From province to province, the basic principles of auto reform remain the same, Forgeron says. It’s the product that

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changes from jurisdiction to jurisdiction.

“At a high level, the issues at play are pretty much the same. Key stakeholder groups have viewpoints they are going to try to advance. But in the end, elected officials are trying to strike a balance. They all acknowledge that we need a strong and vibrant insurance industry.”

While the Ontario auto insurance product is one of the most complicated pieces of legislation I’ve ever seen — I think it makes the equalization formula look simple by comparison — there are a lot of similarities [with the Maritimes] in terms of what constitutes a healthy and vibrant insurance system.

Forgeron believes the Maritimes provinces achieved such a balance, and he’s hoping the experience he gained during those sets of reforms will aid his efforts in Ontario.

“There’s a focus on making people well in the Maritimes, and that the product is affordable,” he observes. “In fact, rates in the Maritimes today are some of the lowest in the country.”

Based on his perspective and past experiences, Forgeron believes the IBC needs to approach the government with fact-based arguments that clearly identify and illustrate the problem areas.

The Ontario government, he notes, established during the review process that its Number 1 goal is to have an affordable product.

IBC has filed its recommendations with FSCO, but as of press time, they

were not yet made public. Forgeron indicated the IBC’s recommendations identified affordability as a key goal as well.

When describing the lay of the land in the Ontario market, Forgeron notes Ontario’s auto insurance market last year crossed the break-even threshold into negative territory in terms of profitability. At the same time, he says, as the industry loses ground on profitability, “Ontario has a compensation program with levels well beyond community standards as measured by either the public health system or the Workplace Safety and Insurance Board, or any other insurance system in North America.”

As a result of the frequent use of Ontario’s rich system of benefits, the industry is facing increased financial pressure related to the payouts of tort and accident benefits. “The last series of reforms in Ontario have only resulted in temporary relief on the claims side,” he says. “So, we see a very short-term and modest drop in claims costs before we’ve returned to a period of rising claims costs.”

Forgeron notes Ontario consumers today spend roughly 5% of disposable income on auto insurance premiums — a figure 25% higher than that of the next-highest jurisdiction in the country.

He references a May 22, 2008 speech

by Superintendent of Financial Institutions Julie Dickson to the Langdon Hall Property and Casualty Insurance Industry Forum. In it, Dickson notes Ontario “accident benefits have deteriorated badly” and the 2008 Q1 auto results were “less than positive.”

“We’re already at a stage where affordability is going to be called into question by many consumers,” Forgeron says.

“We’re faced with the situation described by the federal superintendent, so we really need to be focused on solutions that address some of these key problems.”

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Hedging Your Bets Given the increasing strength of the weather risk management market, there’s no need for the weather to rain on your profits.

Brian O’Hearne Managing Director, Environmental and Commodity Markets in North America, Swiss Reinsurance Company Ltd.

Given the increasing number of opportunities for managing weather-related risk, Canadian markets have a vastly improved ability to use weather risk management contracts to protect against a myriad of weather-related risks that trigger earnings volatility.

The weather risk management market has experienced significant growth over the last decade.

This is due in large part to increased awareness of the benefits of this form of risk mitigation. The Weather Risk Management Association (WRMA), the weather industry’s trade organization, last month reported the notional amount of weather risk contracts increased from US$4.5 billion five years ago to more than US$32 billion this past year.

A significant amount of the growth in the weather market can be attributed to the increased creditworthiness of dealers and their strong balance sheets. In addition, the clearing of contracts on the Chicago Mercantile Exchange has provided greater market transparency and liquidity.

The weather market in Canada has expanded over the last several years. Some players in the market have underwritten crop yield risk for a number of years in Canada’s grain producing

68 Canadian Underwriter August 2008

regions. Grain processors and transporters are particularly vulnerable to adverse weather conditions. By creating a product tied to crop yield, companies absorb the basis risk that is inherent in a pure weather hedge tied to temperature and/or precipitation.

By creating weather indices specifically tailored to a client’s needs, companies that provide weather risk management can offer two types of customized solutions: 1) hedges for pure-volume risks based on weather measures and 2) hedges for volume and price risks based on a combination of weather and energy commodity price measures. Volume-related solutions are based on cumulative weather indices over a specified calculation period. The hedges can be structured as swaps, floors, caps or collars.

The strike is the index value at which payment occurs. The per-unit payment from the strike is specified by the tick amount (the value per unit of weather).The payout is the positive differential between the index and the strike amount multiplied by the tick.The maximum payout is defined by the limit.

WEATHER TRIGGERS FOR PURE VOLUME HEDGES According to the National Oceanic and Atmospheric Administration, the top five warmest winters in the Northern Hemisphere, based on 125 years of records, have occurred since 1995.

Due to the risks associated with climate change and warmer winters in recent years, weather risk management companies have received significant interest from energy and utility companies

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interested in hedging against a warmer than normal winter.Warm winters result in lackluster demand and lower-than-expected revenues.

One way for a company to hedge against a warm winter is through the purchase of a weather derivatives contract.Assume a utility company wants to hedge against a warm winter; it chooses Heating Degree Days (HDD) as its weather index for a put structure [a “put structure” refers to the computational formula for valuing a hedge portfolio]. An HDD is 65F (18C) less the average daily temperature (in Fahrenheit).

Thus, 65F (18C) is used as a reference point because it has been shown that, if the temperature is this value, there is neither heating nor cooling demand.

The tick is set to the company’s incremental revenue per HDD, assuming

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Figure 1

Sample Floor Structure Objective:

Limit revenue shortfall

Strike:

3,200 HDD

Actual HDD:

3,100

Tick:

Cdn$50,000 per HDD

Payout Formula: Min {Max (Strike-Actual HDD,0) *Tick, Limit} Period:

Dec.1 – Feb.31

Limit:

Cdn$10 million

Payout =

Cdn$5 million

temperature is the main variable driving power demand. The strike is chosen to reduce the company’s downside risk related to drop in energy sales volume during a warm winter to a level com-

mensurate with its risk appetite and the costs it is willing to pay for the hedge.An example of a formula for determining the floor structure of a warm weather hedge is provided in Figure 1. Note in this example that if the actual HDD falls above the strike, no payment is made.

In addition to HDDs, weather structures can also be based on other indices such as wind, cumulative snowfall, rainfall or average temperature. Take, for example, the following cumulative snowfall structure.

SAMPLE SNOW REMOVAL HEDGE STRUCTURE With the fall and winter seasons quickly approaching, local and city governments should be aware that winters with excessive snowfall strain snow removal resources. These events receive media

The right partner can help you get a leg up on the competition.

If you’re looking to make the most of your business opportunities, CNA is there for you with an industry-wide reputation for integrity, diversity, financial strength and customer focus. We offer brokers the resources and support to help them succeed. Global presence.

Local underwriting authority.

Financial strength and stability.

When you want solid support for your business, we’re ready to give you a hand.

www.cnacanada.ca One or more of the CNA insurance companies underwrite the products and services described. Information is for illustrative purposes only and is not a contract. This document is intended to provide a general overview of products and services described. Remember that only the policy can provide the actual description, terms, conditions and exclusions. All coverages not available in all provinces. CNA, the OneWorld design, and the One Product One Source design are registered trade-marks of CNA Financial Corporation that are used under license. © 2006 Continental Casualty Company, Toronto, Canada.

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coverage, causing not only political pressure but also budgetary pressures affecting speediness of event correction or a reduction in services in other government-managed sectors.

A recent example is the near-record, 2007-08 winter snowfall in Eastern Canada. A number of cities and their airports quickly exhausted their snow removal budgets. A weather derivative structure based on the cumulative seasonal snowfall could have covered the

A payment trigger based on a predetermined seasonal snowfall amount exceeding a specific threshold is an objective way to hedge risk. It would also pay out without having to prove losses and file a claim. increased snow removal costs for the city — i.e., automated melting, hauling and plowing. A payment trigger based on a predetermined seasonal snowfall amount exceeding a specific threshold is an objective way to hedge risk; it would also pay out without having to prove losses and file a claim.

The winter season snow removal example can also be extended to businesses interested in advertising sales promotions with rebates tied to weather events.

A prime example occurred earlier this year when thousands of Quebec vacationers who booked a promotion on a major online travel retailer won a free vacation because snowfall exceeded a predefined threshold (12.7 centimeters) at Montreal Pierre Elliott Trudeau International Airport.

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HEDGES FOR VOLUME AND PRICE RISKS In addition to hedges based on pure weather triggers, structures exist for volume and price risks. These doubletriggered hedges, known as quantos, can be structured as swaps, floors, caps, or collars. Under these structures, the payout formula is equal to the weather risk multiplied by the price risk. Quanto structures are based on both cumulated weather indices and commodity price risks over a specified calculation period.

For example, in a Cooling Degree Day (CDD) structure, the fixed tick amount per CDD is substituted with a variable power price index, reflecting the actual value of the drop in energy sales volume during a cool summer. The structure of this superior — i.e. reduced basis risk — solution can be tailored to the specific needs of a company.

For example, a significant Canadian exposure is tied to hydro-electricity and power prices. Hydro-electricity is the dominant power source in Canada, representing close to 60% of the nation’s power supply. It is a low-cost and environmentally friendly (emissions-free) source of power. Lack of precipitation, both rainfall and snowfall, lead to reduced sources of hydro-electricity.This in turn drives the need for a replacement power supply, either through imports or through firing of thermal power capacity that has inherently higher levels of emissions.

Another kind of weather protection exists for hydro-electricity producers to help hedge their risks. The structure involves measuring a hydro-electricity producer’s tolerance level with respect to rainfall, stream-flow or lake-level amounts. Using rainfall as an example, the payout formula might translate into

a payout by number of millimeters below this tolerance level, paid in megawatts of power. Because of the temporal diversification involved with multi-year structures, hydro-electric producers frequently consider three- or five-year structures. See Figure 2 for a sample floor calculation for a volume and commodity price hedge. In this example, if an aggregate rain falls above the weather strike, or if the power price falls below price strike, no payment is made.

Figure 2

Sample Floor Structure Weather Strike: 76.2 cm rain Aggregate Rain: 50.8 cm Price Strike:

Cdn$50/MWh

Power Price:

Cdn$80/MWh

Notional:

709 MWh/cm

Limit:

Cdn$10 million

Payout Formula: Min(Max (Weather Strike – Agg Rain, 0 *Notional *Max (Power Price – Price Strike, 0), Limit) Payout =

Cdn$540,000

TAMING THE WILD CARD Using financial products to hedge risks has been widely recognized as an acceptable and efficient means to achieve a balanced portfolio and reduce volatility of an organization’s revenues and earnings. Environmental events have always been a ‘wild card’ affecting an organization’s financial plan, but severely adverse weather conditions can have a devastating impact upon an organization’s balance sheet.They should be properly managed using a hedging plan uniquely tailored to an organization’s needs.

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MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

The National Insurance Conference of Canada (NICC) has chosen Women in Insurance Cancer Crusade (WICC Ontario and WICC Quebec) as its official charity. As part of this partnership, WICC will hold a fundraising silent auction at the conference. Also, NICC will make a donation to WICC on behalf of each speaker and moderator at the conference. Finally, WICC’s honorary chairman, Claude Dussault, will deliver an address to conference delegates about WICC’s important activities in the area of cancer research. “As NICC attracts leaders of Canada’s insurance industry, it is fitting that we have chosen to support WICC, one of the industry’s premier causes,” says NICC president and CEO Joel Baker. The conference will be held at the Hilton Lac-Learny Hotel in Gatineau, Quebec, from Oct. 1 to Oct. 3.

2

The Automotive Refinish division of PPG Canada Inc. has hired Stan Siemens [2a] to serve as business development manager for Western Canada and Paul Weeks [2b] as the territory manager of British

72 Canadian Underwriter August 2008

Columbia. Siemens will be responsible for managing and developing relationships with multi-shop operators and key accounts from Manitoba to B.C. His career spans 34 years in the automotive refinish industry, including technical, training and sales.

Weeks will be responsible for managing Nexa Autocolor accounts in British Columbia.

His experience is international: he spent the first 20 years of his career in the United Kingdom, working his way up from the position of sales representative to sales director for a multi-line distributor in England. Since moving to Canada four years ago, Weeks has worked in a collision repair centre in Saskatchewan.

3

Stephen J. Mallory [3] has been appointed a member of the Standards Council of Canada (SCC) by industry minister Jim Prentice, the minister responsible for the SCC. “I am very pleased to welcome Mr. Stephen J. Mallory to the SCC, and we look forward to his contribution to the board,” Prentice said in a release. “There is no doubt his insights and experience will be very valuable in helping to

2a guide the SCC in the years ahead.” Mallory has more than 27 years of sales, management and service leadership experience within the insurance industry. In 2007, he founded the Directors Global Insurance Brokers Ltd., which focuses on providing risk management services to corporate clients.

4

Aon Reed Stenhouse’s Global Rapid Response program saw its Canadian launch during the 2008 Risk and Insurance Management Society (RIMS) conference in San Diego, California. The program is designed to provide a guaranteed on-site evaluation of a major property loss within 72 hours at any location around the globe. In addition, it provides: 40 hours of consultative business recovery and loss mitigation guidance; co-ordination of all emergency and temporary repairs/restoration procedures and vendors; preliminary reports estimating the total direct and indirect financial exposures and overall property claims; and

2b real-time access to all claim documentation and digital photographs. An insurance policy could cover the fees associated with Rapid Response. The service is available to non-Aon clients as well.

5

York Fire & Casualty Insurance has appointed Lori Corrigan [5] to the position of vice president and chief operating officer. Corrigan brings to the post more than 20 years of insurance industry experience, from both a company and broker perspective, says a York Fire release. Her senior management experience spans marketing, claims and underwriting. In her new position, she will be accountable for maintaining and shaping the operational and strategic direction of York Fire. “Ms. Corrigan’s promotion recognizes the material contribution she has made to the leadership and direction of the company since joining the York Fire team in the fall of 2007,” said York Fire president and CEO Colin Simpson.

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MOVES & VIEWS

3

5

7

10

6

CARSTAR Automotive Canada raised more than Cdn$80,000 for the Canadian Cystic Fibrosis Foundation (CCFF) through its 5th annual ‘Soaps it Up!’ national car wash day. There were more than 55 car wash events across the country this year. CARSTAR volunteers, community groups and local CCFF chapters soaped up more than 4,000 vehicles during the event, which surpassed to last year's fundraising total by Cdn$15,000. All of the money raised at the June 14 event will go to support the CCFF, local sports teams and community groups. The funds raised for the foundation will be directed toward research and treatment.

Brokers are now able to upload customer and property information directly into SaversCL, ING Insurance’s broker application, to request a quote using Keal Technology’s commercial management system comXP. Using Centre for Study of Insurance Operations (CSIO) XML standards, Phase 1 of the data integration project announced earlier this year has been initiated, according to a Keal release. Expected to begin in 2008, Phase 2 will include uploading coverages from comXP to ING’s SaversCL. Later in the year, the integration will include downloads from SaversCL to comCP, creating a two-way data exchange, the release notes.

8

RSA is offering a second term of its Making Partner Program in January 2009. The program has been designed in conjunction with the Executive Development Centre at Queen’s School of Business

to provide customized senior management leadership and business skills to RSA brokers. Brokers selected for the program show a high potential to become senior managers and aspire to “make partner” one day in their brokerages, says an RSA release. Sixteen RSA and CNS brokers from across Canada were selected for the first run of the program, which began with a week-long executive education course at Queen’s on June 8. Seventeen brokers have been selected for the second run of the program.

“We were very impressed with the number of high-calibre applicants we received,” said Shawn DeSantis, RSA’s senior vice president of personal and commercial insurance.

9

The Women in Insurance Cancer Crusade (WICC) has received a Cdn$1,000 personal donation, symbolizing the first WICC Tribute donation. The WICC Tribute is an initiative developed by WICC Ontario, giving industry members a tangible and meaningful way to commemorate colleagues who lost the fight with cancer and honour those who continue to live and beat cancer every day. Paul Martin of KRG Insurance Group made a personal donation of Cdn$1,000 to honour fellow colleague Linda Hajekerou, who was diagnosed with terminal lung cancer. “What I

liked about the Tribute,” says Martin, “is that it is not a memorial. I saw it as a chance for me to express my admiration of Linda’s approach to living her life even after having been diagnosed with cancer, and my appreciation for the group of people who are supporting her throughout her illness.”

News of the donation spread; the KRG running team has also directed their sponsorships for the ING Ottawa Marathon to Hajekerou's tribute. The team raised Cdn$16,500.

10

Stefan Lippe has been appointed deputy CEO of Swiss Re and has assumed the function of chief operating officer of Swiss Re, effective Sept. 1, 2008. Lippe will succeed board director Andreas Beerli, who intends to retire in mid-2009 after 20 years at Swiss Re. Lippe is currently head of (re)insurance products and member of the executive committee.

He has 25 years of experience in reinsurance at Swiss Re. Brian Gray [10] will become chief underwriting officer, join the executive committee and report to the CEO. Currently head of property and specialty underwriting, Gray will ensure the continuity of Swiss Re's underwriting standards and focus on quality and selective underwriting as a priority.

August 2008 Canadian Underwriter 73

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Friends and family gathered at Quotes in Toronto on May 28 to celebrate the retirement of Don Roach. More than 100 guests heard stories about Roach’s 47 years working in the insurance industry. He spent the first seven years of his insurance career with a few different outfits, and then spent the next 39 years of his career at Aon. He said he started off as a “plebe” doing marine insurance claims, before moving through the different roles to assistant manager and then vice president.

Roach moved to the general claims department about 20 years ago and spent the remainder of his career there, working as the assistant manager and retiring as the vice president. What will he miss most? “Basically my friends,” Roach said. “The people that I have associated with over the years, they are a good bunch of folk and I’ve made a lot of good friends. It’s not that it’s over.

I’m going to keep in touch with a lot of the people. In fact, I may even be back in the industry doing some contract work or part-time work depending on what comes up.”

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GALLERY

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XL Insurance

Tony C. Trost,

CIP

XL Insurance, XL Capital Ltd’s global insurance operations, is pleased to announce the addition of Tony Trost to its Canadian underwriting team. Tony joins XL Insurance as Vice President and Canadian Aviation Manager to launch its aviation practice in Canada.

According to Cindy Guyatt, Canadian Country Manager: “By attracting highcaliber people like Tony, XL Insurance continues to give our brokers and customers access to some of the most knowledgeable people in the specialty markets we serve.”

“Tony is a welcome addition to our growing team,” said Cindy. “Our aviation customers can take advantage of tapping into Tony’s local expertise or seeking his guidance to access our global capabilities.”

Tony brings to XL Insurance more than 25 years of aviation and property/ casualty industry experience. Tony will service Canada’s aviation and aerospace businesses from the Toronto office — 100 Yonge Street, Toronto M5C 2W1. He may be reached by phone at 416-623-8835 or via email at Tony.Trost@xlgroup.com.

The XL Insurance companies provide professional liability, casualty, property and specialty coverages, including fine art, cargo & marine, aviation, and environmental insurance, to a growing number of Canadian businesses and industries.

“XL Insurance” is the global brand used by member insurers of the XL Capital Ltd (NYSE: XL) group of Companies.

Through its operating subsidiaries, XL Capital is a leading provider of insurance, reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. More information about XL Capital Ltd is available at www.xlcapital.com.

August 2008 Canadian Underwriter 75

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Swiss Reinsurance Company Canada held its annual Golf Tournament and Dinner on June 19 at Woodington Lake Golf Club in Tottenham, ON. Insurance and reinsurance industry clients, partners and guests enjoyed the day, which was organized by Swiss Re’s Rob Mittertreiner.

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XL Insurance

Nathalie Durante XL Insurance, part of XL Capital Ltd’s global insurance operations, is pleased to announce the promotion of Nathalie Durante to Vice President of its Canadian Excess Casualty operations.

Nathalie previously held the position of Senior Underwriter, Excess Casualty.

“XL Insurance is well-known for its Bermuda beginnings in the excess casualty market,” according to Cindy Guyatt, Canadian Country Manager. “It is a reputation that has been built and maintained by professional and knowledgeable underwriters like Nathalie.”

“Nathalie’s promotion is well-earned.

Today’s very competitive market continues to draw strong demand for quality coverages,” continued Cindy.

“Meeting that demand relies on having professionals with Nathalie’s experience, working alongside our other product lines experts, to give clients full access to XL Insurance’s broad scope of products.”

Nathalie, a member of the Chartered Insurance Professionals (CIP), joined XL Insurance in 2006, bringing more than 15 years of excess casualty underwriting experience. Working from XL Insurance’s office — 100 Yonge Street, Toronto, M5C 2W1 — Nathalie may be reached by phone at 416-6238839 or via email at nathalie.durante@ xlgroup.com.

“XL Insurance” is the global brand used by member insurers of the XL Capital Ltd (NYSE: XL) group of Companies.

Through its operating subsidiaries, XL Capital is a leading provider of insurance, reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. More information about XL Capital Ltd is available at www.xlcapital.com.

August 2008 Canadian Underwriter 77

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The Insurance Brokers Association of Ontario (IBAO) held its 4th Young Broker Council (YBC) Conference at the Sheraton on the Falls Hotel and Conference Centre in Niagara Falls, Ont. between June 4 and June 6. More than 70 YBC members attended the conference, which included a mini trade show and networking event. The YBC team leaders are already in the planning stages for next yearâ&#x20AC;&#x2122;s conference. Stay tuned for dates and location in early 2009 or visit the IBAO website â&#x20AC;&#x201C; www.ibao.org for upcoming YBC events.

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GALLERY

Appointment Notice

Louis Durocher, BSc, FCIA, FCAS, ASA

J

orge Arruda, Senior Vice President, Operations of The Economical Insurance Group is pleased to announce the appointment of Louis Durocher, BSc, FCIA, FCAS, ASA, to the position of Vice President, Quebec region. Louis is accountable for all aspects of operations of The Missisquoi Insurance Company, a member of The Economical Insurance Group.

Louis was Vice President, Actuarial Services at The Group, since 2004. Under Louisâ&#x20AC;&#x2122; leadership, The Economical Insurance Group has successfully developed new products across Canada for both Personal and Commercial Insurance.

Louis has an Honours Bachelor of Science degree from Concordia University. He is a Fellow of the Canadian Institute of Actuaries, a Fellow of the Casualty Actuarial Society, and an Associate of the Society of Actuaries (ASA).

The Economical Insurance Group is one of the largest property and casualty insurers in Canada with more than $1.9 billion in annual premium volume and $4.3 billion in assets. Based in Waterloo, Ontario, this Canadianowned and operated company services customersâ&#x20AC;&#x2122; needs through branches and service offices across Canada and in the United States.

August 2008 Canadian Underwriter 79

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GALLERY

More than 100 friends and members of the Property Casualty Underwriters Club teed up at the Cardinal Golf Club in Kettleby, ON on June 9 for the PCUC Annual Golf Tournament. Participants enjoyed a dinner afterwards, raising a total of Cdn$510 for the Childrenâ&#x20AC;&#x2122;s Wish Foundation.

See all of our Insurance Industry Event Photos Online within the ONLINE PHOTO GALLERY at

canadianunderwriter.ca/gallery

80 Canadian Underwriter August 2008

IBAO CUW SEPT 08

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INSURANCE BROKERS ASSOCIATION ONTARIO

Page 1

88 th Annual Convention

Wednesday, October 22nd – Friday, October 24th, 2008 The Fairmont Royal York Hotel, Toronto, Ontario IBAO’s Annual Convention is the biggest and most exciting insurance broker event on the Canadian insurance industry calendar.

There is simply no other event quite like it!

Thursday, October 23, 2008 KEYNOTE SPEAKER:

Mitch Joel, Marketing & Personal Branding Expert When Google wanted to explain online marketing to the top retailers in the United States (including Wal-Mart, Costco, Sears and Sephora), they brought Mitch Joel to the Googleplex in California. Mitch Joel is President of Twist Image – an awardwinning Digital Marketing agency. He is a marketing and communications visionary, interactive expert, community leader, Blogger and Podcaster. Joel is a Board Member for both the Canadian Marketing Association and the Interactive Advertising Bureau of Canada. He is an executive for the National Advertising Benevolent of Quebec and an instructor of the CMA eMarketing professional certificate course.

Joel speaks frequently to diverse groups such as The Power Within, Google, Shop.org, Visa, Microsoft and has shared the stage with former President of the United States, Bill Clinton, Anthony Robbins and Dr. Phil. He is frequently called upon to be a subject matter expert for CTV National News, Canada AM, CBC Newsworld, Marketing Magazine, The Globe & Mail, The National Post and many other media outlets.

He is presently writing his first book, Six Pixels of Separation.

EDUCATION PROGRAM AT A GLANCE: CSR SEMINAR: I-Care - Putting the Personal Touch Back into Non Face to Face Business Interactions (RIBO CE - 3 Personal Skills Hours)

Colleen Carruthers, The T-R Group Inc.

MEMBER’S SEMINAR: CEO PANEL (RIBO CE - pending RIBO accreditation) This year’s CEO Panel will be moderated by Evan Solomon - CBC Television Broadcaster, Journalist & Author. We wanted to enhance this annual panel discussion by bringing in one of the best moderators in Canada to participate in a “round table discussion” with our CEO’s. Stay tuned for our line-up of industry CEO’s who will be participating in this popular event.

Friday, October 24th, 2008 EDUCATION SEMINARS: Ethics and the Insurance Professional

(RIBO CE - 3 Management Hours)

Glenn Planert, FCIP, MBA Goldrun Consulting Services Inc.

Mitch Joel, Marketing & Personal Branding Expert

For a complete program and a registration package, please call IBAO at 416-488-7422, 1-888-ASK-IBAO or visit our Website: www.ibao.org

Banquet & Ball

Six Pixels of Separation - Marketing in a Connected World

Connecting to Young Canadians A Generational Difference (RIBO CE - 3 Management Hours)

Max Valiquette, Youth Culture Expert

(RIBO CE - 3 Management Hours)

Insurance Coverage Update: Think Like a Judge (RIBO CE - 3 Management Hours)

Ian Gold, LLB Thomas Gold Pettingill LLP

featuring: 1st Award of Excellence Event This year, don’t question whether or not you should stay for our closing night.

IBAO has embarked on a new format for Friday evening and will be hosting its inaugural Award of Excellence Gala featuring Toronto’s own local celebrity Dina Pugliese, Co-Host of “BT-Breakfast Television” as our Awards Host! We will be recognizing brokers for their contributions to the industry and community.

Be one of more than 400 guests who will be on hand to support the nominees, cheer for the winners and celebrate their peers!

After the awards show, we will be dancing the night away!

Platinum Sponsors:

Gold Sponsors: Gold Sponsors:

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Pat McFadden and the staff at Quelmec Loss Adjusters celebrated the company’s 25th anniversary with a luncheon at the elegant Chateau Laurier Hotel in Ottawa on June 4. The company provides loss adjustment services to insurers and self-insured entities in Eastern Ontario and Western Quebec.

“There have been many challenges over the last quarter century,” McFadden said.

“However, Quelmec continues to thrive on one simple business model: unparalleled customer service.”

Insurance Professionals Know Where to Look for Their Next Career Move.

Winmar Property Restoration Specialists have opened a new office in Peterborough, ON. Randy Chatterton, owner of Winmar General Contractors and Property Restoration Specialists in Belleville, ON took ownership of the Peterborough location in May. “We are excited to attend the many festivals Peterborough hosts throughout the year, and support the community and local teams as well,” Chatterton says.

FOUND MY JOB AT

Get the job.

Done.

TM

Positions posted on i-hire.ca are also featured in the Insurance Careers Section at canadianunderwriter.ca and appear on canadianunderwriter.ca’s twice-weekly Insurance Headline News Email Alert.

82 Canadian Underwriter August 2008

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The Toronto Insurance Womenâ&#x20AC;&#x2122;s Association (TIWA) held their Annual General Meeting on May 20 at the Toronto Board of Trade. More than 70 members enjoyed dinner as the election of officers commenced. Zina Tofano stepped down from her year-long reign as president.

She welcomed Mary Lisi of Firstbrook, Cassie & Anderson into the role.

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More than 470 delegates gathered at the Ontario Insurance Adjusters Association’s Kawartha/Durham Chapter out-of-town meeting on May 29-30 in Peterborough, ON. Seminars discussed the role of reconstructive surgery, changes in restoration and the alternate dispute resolution process. Attendees loved the “cottage-casual” feel of the event. The Friday night entertainment, Canadian comedian Ron James, had the crowd in tears they were laughing so hard. The chapter was proud to have hosted so many colleagues and friends and appreciated the support.

84 Canadian Underwriter August 2008

WWW SERVICEMASTER CA

)XOO 3J 'LVDVWHU $G LQGG

30

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INSURANCE INTERNET DIRECTORY

ACCOUNTANTS

COLLISION SERVICES

Williams & Partners Inc. Forensic and Investigative Accountants. www.williamsandpartners.com

CertifiedFirst Network Consider it done.™ www.certifiedfirst.com

ASSOCIATIONS

CONSULTING FIRMS

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

Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

CLAIMS ADJUSTING FIRMS Crawford Adjusters Canada One Globe, One Company www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters Adjusting Solutions — Depend On Us! www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors www.mclarens.ca SCM Adjusters Canada Ltd. Committed to providing leadingedge claims management services. www.scm.ca

86 Canadian Underwriter August 2008

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

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

INSURANCE COMPANIES AIG Commercial Insurance Company of Canada "THE STRENGTH to BE THERE". www.aig.com Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com/

FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Kingsway General Insurance Company The Specialty Insurer www.kingsway-general.com Royal & Sun Alliance Insurance Company of Canada Forward thinking since 1710. www.royalsunalliance.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

PREMIUM FINANCING Third Eye Solutions Inc. Provides Internet-enabled premium financing/payment plan software solutions. www.thirdeyesolutions.com

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

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

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

RISK MANAGEMENT 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 and brokers in Canada and USA www.trifin.com

The ARC Group Canada Inc. Your Partner in Insurance Law and 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

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Juno-nominated jazz vocalist Emilie-Claire Barlow crooned the evening away at La Marquette Restaurant in Toronto on June 5 for the annual Evening of Jazz. Guests sampled hors d’oeuvres, sipped wine and enjoyed the terrace of the French-inspired restaurant despite the rainy weather.

King Reed & Associates, Beard Winter LLP and McLarens Canada hosted the event.

ca

FIRSTBROOK, CASSIE & ANDERSON LIMITED Insurance Brokers Commercial · Personal · Financial Products Custom Protection from Independent Professionals

Global Vision, Local Focus A Member of the Wells Fargo Global Broker Network

1867 Yonge Street, Suite 300 Toronto, Ontario M4S 1Y5 Tel: 416.486.1421 Fax: 416.486.7035 Toll Free: 1.800.267.0281 Email: info@fcainsurance.com w w w. f c a i n s u r a n c e . c o m

August 2008 Canadian Underwriter 87

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More than 350 golfers enjoyed the Ontario Risk and Insurance Management Society (ORIMS)â&#x20AC;&#x2122;s Annual Golf Tournament at Deer Creek Golf and Country Club in Ajax, ON on June 24. Winners of the Molson Trophy for Low Gross included Keith McNeil, Andy Boulanger, Jeff Ince, Adam Briklyn. Winners of the John Labatt Trophy for Low Net included Sandra Cramb, Marguerite Locke, Richard Nurse, and John Daly. $1,930 was raised for the William H. McGannon Foundation in draws for two mountain bicycles.

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APPOINTMENT NOTICE

Amanda Small It is the pleasure of Steamatic Canada Inc. to announce that Ms. Amanda Small has joined our company as of May 23rd, 2008 in the position of Business Development and Marketing Representative for Ontario.

Amanda has a bachelorâ&#x20AC;&#x2122;s degree with honours from the University of Toronto and has been successfully handling Business Development and Marketing for Steamatic Durham/GTA for the last 18 months. She brings with her a track record of success, an ability to effectively challenge the status quo and plenty of positive energy.

Amanda is an active member of the Ontario Insurance Adjusters Association (OIAA) and Toronto Insurance Womenâ&#x20AC;&#x2122;s Association (TIWA). Amanda is looking forward to meeting you at OIAA and TIWA events as well as other insurance industry functions.

Join us in welcoming Ms. Amanda Small to Steamatic Canada Inc!

Steamatic Canada Inc. 99 St. Regis Cres. North Toronto, Ontario, M3J 1Y9 Tel: 416-291-1493 ext 237 Cell: 416-684-0822

August 2008 Canadian Underwriter 89

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The Toronto Insurance Womenâ&#x20AC;&#x2122;s Association (TIWA) kicked off the summer in style with their 5th Annual Pub Night on June 26. More than 210 insurance industry guests took in a warm summer evening on Montanaâ&#x20AC;&#x2122;s rooftop patio in downtown Toronto. Guests enjoyed a barbecue and drinks while raising more than Cdn$5,000 Sponsors for the evening included MEA Forensic, Crawford Adjusters, King Reed & Associates, Giffin Koerth, Steamatic Canada, Servicemaster of Canada and Investigative Research Group.

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More than 250 participants attended the Canadian Collision Industry Forum (CCIF) on June 21 in Mississauga, ON. CCIF chairman Tony Canade (Assured Automotive) opened the oneday session, “Leading Your Team to Success,” by introducing Mississauga Mayor Hazel McCallion. In her address, McCallion congratulated CCIF for showing leadership in bringing together stakeholders from the collision repair industry to find new and better ways of doing things.

McKellar Structured Settlements Inc. held its 10th Annual McKellar Charity Golf Day on June 16 at Rebel Creek Golf Club in Petersburg, ON. This annual ladies charity golf day event raised Cdn$16,500 for WICC in their fight against cancer. McKellar’s Laura Mullin introduced WICC’s Lyna Newman to speak to the participants from the legal and insurance claims communities.

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WICC Ontario Chapter teed up for its 9th Annual Golf Tournament at Angus Glen Golf Club on July 14 to raise funds for research and education in the fight against cancer. Everyone came out a winner with a Cdn$225,000 cheque presented to Peter Goodhand, president of the Canadian Cancer Society, Ontario Division. A barbecue lunch, fine dinner, draw prizes and two silent auctions kept guests entertained throughout the event. A very hearty thankyou went out to all golfer participants, tournament sponsors, hole sponsors, hole-in-one sponsors, prize auction item donors, outstanding volunteers and WICC corporate sponsors. A special congratulations went out to golf organizing committee chair Heather Matthews (Crawford & Company (Canada) Inc.) and her dedicated organizing committee: Karen Barkley (ACE INA Insurance); Ashley Chinner (Simmlands Insurance Brokers Ltd.); Dororthy Davenport (Zurich Insurance); Karen Forsey (Pinnacle Adjusters Group Inc.); Elizabeth Kepes (Desjardin General Insurance); Hoa La (Able Translations Ltd.); Christina Martin (KRG Insurance Group); Dawna Matton (Insurance Institute of Canada); and Ken Zardo (FirstOnSite).

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August 2008 Canadian Underwriter 93

CU Seminar ad Aug 08

7/17/08

10:27 AM

Page 1

Putting the pieces together.

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

Hamilton

Kitchener/Waterloo

PROedge Seminar: Insurance Relationships: Building Success (a.m.) . . August 27 PROedge Seminar: Management of Change (p.m.) . . . . . . . . . . . . . . . . August 27 Annual Speakers Breakfast - Richard Dubin, IBC . . . . . . . . . . . . . . . September 10

PROedge Seminar: Directors’and Officers’Insurance . . . . . . . . . . . . September 25

Toronto PROedge Seminar: Leading Insurance Coverage & Liability Cases . . September 17

London CIP Society Luncheon: Ontario Auto - The Road Ahead . . . . . . . . . September 25

CIP Society Events Edmonton - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . August 25 Saskatoon - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . September 3 Moncton - Summer Swing Golf Tournament . . . . . . . . . . . . . . . . . . September 17 Ottawa - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . September 26 London - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . September 26 Toronto - Annual Fellows Golf Tournament . . . . . . . . . . . . . . . . . . . September 29

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

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

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Earlier this spring, insurance industry hockey teams, sponsors and organizers came to Fort Erie and Welland, ON to participate in the Ontario General Insurance Hockey Tournament. The annual tournament celebrated its 27th year and raised an impressive and unexpected Cdn$30,000 for the local chapters of Big Brothers Big Sisters and Camp McGovern.

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Mustang Investigations and Belfor Restoration held their Annual Stampede Charity BBQ on July 8 at Cowboys Dance Hall in Calgary, AB. The afternoon started off with a successful silent action and very generous donations.

The BBQ raised more than Cdn$4,000 for The Mustard Seed homeless shelter and Women in Insurance Cancer Crusade (WICC). More than 500 insurance adjusters and service providers attended the BBQ in their best Cowboy attire to support a great cause and to put a little giddy-up in their day.

ADVERTISERSâ&#x20AC;&#x2122; INDEX AIG 47 ACE INA Insurance 9, 43 A.M. Best 7 Aon Reed Stenhouse 17 The ARC Group Canada Inc. 34 Aviva Canada Inc. 99 (IBC) The Boiler Inspection and Insurance 39 Company of Canada Canadian Litigation Councel 49 canadianunderwriter.ca 80 Chubb Insurance 19, 100 CIP Society 65, 94 CNA Canada 69 Crawford Adjusters Canada 21 Cunningham Lindsey Canada 11 e2Value, Inc. 71 Firstbrook, Cassie & Anderson Ltd. 87 FM Global 2, 3 (IFC) Great American Insurance Group 61 The Guarantee Company of North America 28 IBAO 25, 81 i-hire.ca 82 ING Canada 23

96 Canadian Underwriter August 2008

IntegResource Canada Inc. Kingsway General Insurance Company McLarens Canada Oil Casualty Insurance, Ltd. Ontario Insurance Directory Partner Re Peace Hills Insurance Policy Works Quelmec Insurance Adjusters RSA Canada Insurance Group ServiceMaster of Canada Limited South Western Group Starlight Starbright Childrenâ&#x20AC;&#x2122;s Foundation Golf STRONE Liberty International Underwriters Swiss Reinsurance Company Canada Totten Group Insurance Travelers Willis WINMAR XL Insurance Zurich Canada

29 31 33 58 97 59 51 67 54 55 85 37 76 91 63 5 57 35 45 53 15 27

Attention Producers Feel like you are being taken advantage of...or exploited, disenfranchised...

Want to own your book and be given the respect you deserve...

It's time...stop procrastinating and do something about it...

We are a championship team... looking for championship players!

Make it happen and don't be a spectator...get on the field of your life...

Reply in confidence with your resume, your expectations, goals and objectives along with your value proposition statement to: Canadian Underwriter Magazine, Box # 1000, 12 Concorde Place, Suite 800, Toronto, Ontario, M3C 4J2

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PartnerRe held its Broker Appreciation Event at the Mosport Driver Development Center just outside of Toronto on June 16. High in excitement, this day provided a unique opportunity for drivers to test their skills in the new Van Diemen Formula cars.

With 170 horsepower and the ability to zip from 0-60 mp-h in slightly more than four seconds, the adrenaline was certainly pumping.

WHY YOUR COMPANY SHOULD

CONSIDER ADVERTISING IN THE ONTARIO INSURANCE DIRECTORY (O.I.D.):

Ads in the O.I.D. get seen!

Used on a daily basis by all segments of the Industry — the O.I.D. is the Undisputed Source for Insurance professionals to make contact with companies quickly and easily.

(The 2009 edition will be published & distributed in December, 2008)

THE COIL BOUND O.I.D. CONTAINS: • 300+ pages of information • 2,200+ company listings G G G G G G

Insurance Companies / Wholesalers Brokers Independent Adjusters Appraisers Rehabilitation Services Restoration Services

• 130+ advertisers • 12 key sections to advertise in: G G G G G G

Lawyers / Dispute Resolution Engineers / Accountants Bodyshops / Collision Repair Automotive Recyclers Insurance Industry Associations Industry Suppliers Guide

TO ADVERTISE, SIMPLY CONTACT: Paul Aquino:

416-510-6788

Christine Giovis: 416-510-5114 Mike Wells: 416-510-5122 Steve Wilson: 416-510-6800

paul@canadianunderwriter.ca christine@canadianunderwriter.ca mike@canadianunderwriter.ca steve@canadianunderwriter.ca

August 2008 Canadian Underwriter 97

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The Ontario Risk and Insurance Management Society (ORIMS) held its Annual General Meeting and dinner at the Sheraton Hotel in Toronto on June 4. During the evening, 17 of the CRM 2007 graduates received special recognition.

The graduating class numbered more than 180. Carlotta Brown of Aon Reed Stenhouse was awarded the ORIMS CRM Award. This award is presented to the individual who achieved the highest total marks for the three CRM courses during the previous calendar year from across ORIMS membership. ORIMS president Erin Magilton-Morneau noted that her vision for the upcoming year was to work to increase membership involvement, value and enjoyment. Comedian Simon Cotter wrapped up the eveningâ&#x20AC;&#x2122;s entertainment.

98 Canadian Underwriter August 2008

Hybrid cars save: a) Gas b) The environment c) Money on car insurance d) All of the above

From gas, to the environment, to car insurance, owning a hybrid vehicle means that your customers save in lots of ways. And Aviva now offers them a 5% insurance discount just for owning a hybrid vehicle. We call it simply, the Hybrid Car Discount.

Contact your Business Development Specialist or Account Executive today and help your customers save some green!

Not available in Newfoundland and Labrador or PEI

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.