Canadian Underwriter March 2008

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RISK MANAGEMENT

Moving into the

C-Suite A A BUSINESS BUSINESS INFORMATION INFORMATION GROUP GROUP PUBLICATION PUBLICATION Publications Publications Mail Mail Sales Sales Agreement Agreement #40069240 #40069240

March 2008

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And the other fires that never burned because of it.

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On a quiet April morning, a fire swept through Ball Packaging Europe’s facility in Hassloch, Germany.

Within days, FM Global was on the scene, finding ways to help minimize the company’s loss of production and working closely with Ball management to better equip its other European plants. But that’s not where this story ends. The experience has helped FM Global work with other corporations

on better ways to protect against fire, too. So it’s more than the true story of one factory that didn’t survive a fire. It’s the story of many businesses that are better protected today because of it.

To read more true stories about how FM Global’s unique approach keeps small problems from becoming major headaches for businesses, visit www.fmglobal.com/insuranceevolved.

Insurance Evolved

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Cover Story VOL. 75, NO.3, MARCH 2008

There’s a new class of chief executives sitting PUBLISHED around the boardroom table these days called ‘Chief Risk Officers.’ Many applaud the new position because it gives risk managers desired influence at the executive table. But some say the position is antithetical to ERM’s holistic principles, since it concentrates all of the responsibility for risk management into one position.

www.canadianunderwriter.ca

BY BUSINESS INFORMATION GROUP

BY VANESSA MARIGA

18 Profile: KNOWLEDGE EXCHANGE — RIMS Canada Conference co-chairs Susan Meltzer and Nancy Chambers are promising a focus on education through collaboration and networking at ‘The Exchange,’ the theme of the 2008 RIMS Canada Conference in Toronto.

BY DAVID GAMBRILL

20 Insight: ECO-INSURANCE — Canadian insurers are starting to create insurance products designed to help clients adjust to the effects of climate change.

BY CRAIG HARRIS

40

CYBER-RISK — The evolution of communications and data management technology brings with it new risks and liabilities.

BY DAVID TURNER

46 NO SMALL RISKS — Nanotechnology, climate change and the effects of an eroding urban infrastructure are dominant themes for insurers in 2008.

BY ROBERT LANDRY

50 RISK HOUSE — By expanding the role of the captive to that of the “risk house,” establishing one focus for all risks, a captive allows for a more integrated and effective management of risk.

BY PAUL BARLOW AND MICHAEL BADDELEY

NEWS FEATURES

24 CAPITAL PROXY — Risk managers can help companies forestall a credit crunch by using the purchase of insurance as a proxy for capital.

Contents

10 At the Table

56 DATA QUALITY — When feeding information into a catastrophe model, missing information is relatively easy to spot. But identifying wrong data that appears complete is more challenging.

BY GARRY MCDONELL

BY MATTHEW GRANT

26 BUSINESS CONTINUITY — Effective business continuity

60 GREAT WALL NO LONGER — After a recent series of

planning is more than just a plan: it’s a broader, holistic management process.

BY PERRY BRAZEAU

30 IF YOU CAN’T TRACK IT — Technology supporting realtime catastrophe exposure modelling has now fully replaced the old-style, stick-pin method of tracking exposures.

BY PAUL BREHM

product recalls and warnings about certain goods manufactured in China, a growing number of Canadian companies are working to recognize and assess their potential risks there.

BY STEPHEN CHARNLEY

67 DRIVER’S SEAT — Doing a comprehensive risk analysis at the start of an insurance purchase will make the risk manager a driver in the process, not a passenger.

36 PREVENTION AND INVESTIGATION — Risk man-

BY CEES VAN DER SLIKKE

agers should focus their financial and internal resources not only on preventing corporate fraud, but also on ensuring their employers have an effective detection and investigation program in place.

SPECIAL FOCUS

BY STEPHEN TURNER

MEMBER AUDIT BUREAU OF CIRCULATION

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6 Editorial 8 Market Watch 74 Moves & Views

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The New Class of Disability pparently the Court of the Queen’s Bench of Alberta has carved out a new category of ‘disabled’ people — those who have suffered minor whiplash injuries in car collisions — who have apparently been discriminated against in ways in which other marginalized groups in Canadian society can only imagine.

Witness this passage from Court of the Queen’s Bench Associate Chief Justice Neil Whittmann, who recently obliterated Alberta’s Cdn$4,000 cap on damages for minor injuries sustained in car collisions: “The evidence before me suggests strongly that minor injury victims, particularly those suffering from a whiplash associated disorder, are subjected to stereotyping and prejudice. In sum, they are often viewed as malingerers who exaggerate their injuries or their effects in an effort to gain financially. The fact that these injuries are often not objectively verifiable may contribute to this perception.”

How did this stereotype come to pass? Apparently, according to the court, proof by assertion is all it takes to be a minority group suffering Charter discrimination. “I would simply note that the existence of a stereotype does not require that it be universally accepted,” Whittmann wrote. Maybe so, but more evidence of negative stereotyping should exist than merely victims declarating that it is so.

Regardless, Alberta’s Cdn$4,000 minor auto injury damage cap is no more — swept away as unconstitutional because it discriminates against a new sub-category of people with disabilities. Never mind the fact that the court incorrectly compared minor whiplash victims to a supposedly analogous group of injury victims who apparently have Charter rights to sue insurers for more money. “Simply put,” Whittmann wrote, “the [appropriate] comparator group consists of those accident injury victims whose injuries are not within the definition of minor injury.”

Alas, the learned judge seems to have a better grasp of the population of this category than most. Exactly who is this group of people not covered under Alberta’s legislative regime for minor auto injuries, but who nevertheless could have sued for more than Cdn$4,000?

It’s quite possible the court decision here is conflating injury classes. Is the court saying, for example, that the comparator class includes catastrophic injury victims? Why would it be appropriate to compare the treatment and legal rights afforded to these two distinct classes of auto collision injury victims?

Indeed, the point of Alberta’s 2004 auto reforms was to differentiate the treatment of the pain and suffering of “minor” auto collision victims, as defined in law, with the

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EDITORIAL

David Gambrill Editor david@canadianunderwriter.ca

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treatment of the victims who suffer major — indeed, permanent and catastrophic — injuries sustained in car collisions.

For this class of people with catastrophic impairments, the Cdn$4,000 litigation cap does not apply.

One of the main differentiations between these two classes of auto collision victims is that in minor auto injury cases, the ‘disability’ is more often than not of a temporary nature. In catastrophic cases, the injuries are more likely lead to permanent disfigurement and/or disability. Thus the duration of the disability and the severity of the disability’s consequences for the victim makes the different classes of injury distinct.

It’s doubtful an ordinary policyholder would say it’s constitutionally unjust or ‘discriminatory’ to distinguish between these two classes of victims. No one would argue, for example, that minor injury victims should receive the same financial compensation as catastrophic injury victims. And no one would argue that catastrophic injury victims should be subject to a Cdn$4,000 litigation cap.

Where the Alberta Court went wrong is that it didn’t compare the right groups. And no doubt this is likely one of the points that will be raised on appeal.

Insurers and politicians established the cap for public policy reasons, the court notes — namely that of helping to keep everyone’s auto insurance rates down (including those of the minor injury victims, it should be pointed out).

But the court says this doesn’t constitutionally excuse the discrimination against minor injury claimants. Why? Because claims costs aren’t the only factor in premium pricing. It’s also about cycle management as well, the judge says. And so, the logic goes, minor injury victims have been unfairly targeted by insurance companies that should be making better business decisions when it comes to managing the cycle.

Whatever one thinks of this argument, pricing is also about predictability of costs. So now two people have had their claims go from predictable Cdn$4,000 payouts to unpredictable Cdn$21,000 and Cdn$15,000 payouts — with no real sense of how high these limits may go until more cases without a cap are heard. The decision will no doubt make it impossible for the Alberta government and insurers to figure out how high these damage awards for minor injury sufferers might go, resulting in rate increases for everyone in the province.

The interesting thing will be to watch a similar case coming to trial in Atlantic Canada. If the courts there keep the cap, and say minor injury victims do not suffer discrimination under the Charter because of the cap, we can expect this one to make it to the Supreme Court in no time.

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LIFE

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Canadian Market ING Canada’s 2007 Q4 net income drops NG Canada Inc. reported net income of Cdn$95.8 million for 2007 Q4, down from $109.4 million in 2006 Q4, mainly due to lower results from invested assets, the company notes.

“Our investment activities continue to generate substantial interest and dividend income, but recent unfavourable capital markets conditions led to a net loss of Cdn$3.3 million on invested assets,” Charles Brindamour, president

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and CEO, commented in a release.

“Despite a more challenging environment in 2007, our profitability for the year remains strong with a net income of Cdn$508.3 million and a 15.4% return on equity.”

The company’s 2007 net income is down from its 2006 net income of Cdn$658.1 million.

Increases in underwriting income in personal property and commercial

EGI Financial Holdings sees 2007 profits slip GI Financial Holdings Inc. reported a profit of Cdn$15 million for 2007, a decrease of 11.3% over 2006.

For 2007 Q4, the company reported a net income of Cdn$3.7 million, a decrease of 28.3% from 2006 Q4.

Underwriting income decreased 31.2% (to Cdn$10 million) for the year, compared to Cdn$14.5 million in 2006, an EGI release says.

For 2007 Q4, total underwriting income decreased 82.6% to Cdn

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$600,000.

“The primary reason for this result is the increase in the loss ratio in the quarter to 65.1% compared to 61.0% in 2006,” the statement says.

This increase, the company said, is due to the loss ratio for its niche products division climbing to 73.4% in the quarter, primarily due to losses in the emergency travel health line of business.

The combined ratio for 2007 Q4 increased to 98.2%, compared with 85.6% for the same period of 2006. ■

‘Favourable’ auto claims development boosts The Co-operators’ 2007 Q4 profit o-operators General Insurance Company has reported a 2007 Q4 consolidated net income of Cdn$60.8 million, up from the Cdn$18.5 million it reported in 2006 Q4.

“The improvement was due to favourable automobile claims development, higher investment returns and tax recoveries,” the company announced in a release.

Net income for the entire year of 2007 amounted to Cdn$148.2 million, compared to Cdn$118.1 million for the same period last year.

The company said an “excellent claims development experience and higher realized investment gains” con-

C

tributed to the increase in annual results.

CGIC’s 2007 Q4 combined ratio was 93.6%, compared to 99% for 2006 Q4.

For the whole year of 2007, the combined ratio was 98.3% (the 2006 COR was 99.8%).

CGIC said its gross written premium in 2007 Q4 increased to Cdn$523.1 million, compared to Cdn$518.7 million in 2006 Q4, “primarily due to growth in policy count and insured values in the auto and home lines of business which was partially offset by lower commercial premium rates.”

The company reported its 2007 return on equity (ROE) was 13.5%, as opposed to its 2006 ROE of 12%. ■

non-auto largely offset lower results in auto insurance, the company reported.

For the year 2007, underwriting income fell 48.3%, to Cdn$208.9 million.

The company attributed its 94.7% combined ratio to more claims in personal auto and in property. Overall the combined ratio increased by 1.7 percentage points during the quarter to reach 95.3%. ■

Northbridge in 2007 reports 76.6% increase in profit orthbridge Financial Corporation (TSX: NB) reported 2007 profits of Cdn$295 million, a 76.6% increase from its 2006 net income of Cdn$167.1 million.

Underwriting profit for 2007 increased to Cdn$84.3 million, compared to Cdn$23.5 million in 2006, a company release says.

The company’s combined ratio for 2007 was 92.3%, compared to 98.0% for 2006.

Profits for 2007 Q4 were Cdn$79.5 million, a 114.4% increase from net earnings of Cdn$37.1 million for 2006 Q4, the statement says.

Underwriting results for 2007 Q4 reflected a loss of Cdn$2 million, compared to a profit of Cdn$16.9 million over the same period of 2006.

Northbridge also included financial results of its subsidiaries. Underwriting incomes and combined ratios (COR) for 2007 (respectively) were as follows: • Lombard Canada Ltd., Cdn$43.9 million, 93.7% COR; • Markel Insurance Company of Canada, a profit of Cdn$9.2 million; 95.2% COR • Commonwealth Insurance Company, a profit of Cdn$25.1 million, 77% COR; and • Federated Insurance Company of Canada, Cdn$6.1 million, 94.1% COR. ■

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Cover Story

RISK MANAGEMENT

Moving into the

C-Suite

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By Vanessa Mariga

The old saying ‘full-time risk, part-time risk management’ has become a thing of the past: with the creation of the new CRO (chief risk officer) designation, risk managers have now climbed the next rung on the corporate ladder, eyeing the executive’s proverbial corner office

f some risk managers have their way, another set of letters will soon be added to the C-suite soup — i.e. the ‘CRO,’ or Chief Risk Officer. For some time, risk managers have said at conferences that their profession will not have truly arrived until it is recognized at the board level. But it’s difficult to tell if the profession has collectively edged itself into the corner office, or if they’ve been left on the sidelines.

A clear definition of the CRO model, the perceived feather in enterprise risk management (ERM)’s cap, is still a work in progress. Nonetheless, risk management representatives argue that in order for ERM to be effective, an organization needs a risk management representative at the senior level. When decisions are made, they argue, risk management is an inherent part of the process; ultimately, by having a seat at the table, the profession will have gained the recognition for which it has strived for over the past decade or so.

The CRO model does have its critics: some say the position itself is counter to ERM principles. ERM is supposed to aim at holistic risk management, for example, whereas the corporate boardroom often breaks down into ‘silos’ headed up by the so-called C-types — CEOs CFOs, COOs and CTOs (Chief Technology Officers). Does a seat for the CRO actually alleviate the other chief executives sitting around the table from shouldering responsibility for the organization’s risk management?

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BENCHMARKS AND PLACEMENTS Before debating the perfect model for the CRO, Canadian risk managers need to gain a sense of where they collectively sit within their respective employers’ organizational structures. Kim Hunton, Risk & Insurance Management

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Society (RIMS) Canada Council chair, says earlier this year the council established as a target for the next decade the transition of the risk manager position into the C-suite.

The first hurdle, says Hunton, is to find out where RIMS members are currently placed within their organizations’ corporate governance structures. This information would then be used for benchmarking purposes. “Currently we don’t necessarily know where our members are,” she says. “So one of our first challenges is to find out where RIMS members are today, and then to track those member position levels as they move through their working life.”

The Conference Board of Canada’s Corporate Finance and Risk Management division in 2005 published the survey Enterprise Risk Management: Inside and Out. The report surveyed 86 organizations (81 were Canadian), examining the role ERM plays in each company. A majority of respondents were government organizations (25%), followed closely by publicly-traded companies (23%) and crown corporations (21%).

Slightly more than half of the respondents reported having a CRO. The majority of companies that did have a CRO could be found in the financial, utilities and insurance industries.

Karen Thiessen manages the Conference Board of Canada’s Strategic Risk Council — a council composed of senior executives (CFOs, CROs, CIAs, COOs and vice presidents of risk management) with responsibility for ERM. She explains that the position is more prevalent in those sectors that tend to be much more heavily regulated. But, she adds, in the past three of four years, she has noted other sectors — both private and public —including healthcare, manufacturing, telecommunications, Crown corporations and federal government are appointing risk executives to the C-suite.

Thiessen hypothesizes that this recent shift toward increased implementation of ERM by Canadian companies may be a result of two developments: the regulatory dust of the Sarbanes Oxley Act of 2002 (SOX) settling south of the border and credit rating analysis of ERM at nonfinancial companies.

The US was knee deep in complying with SOX for the past few years, and Canadians’ interest in ERM was at an even keel for year one of SOX, but then started to grow over the next couple of years, she says. Canadians could have been waiting to see the final outcome of SOX before supporting a major initiative such as ERM or improving on their existing process. “Sure enough, after the first year of SOX implementation, the Strategic Risk Council grew by more than 50%,” she notes, adding that more Canadian companies will be breathing ERM as a result of the ratings evaluation process of S & P/Moody’s Investors Service.

David Price, regional vice president of financial institutions and professional liability for Arch Insurance (Canada), says that when underwriting a director’s and officer’s liability risk, the presence of a CRO in an organization is generally a sign of complexity in the risk. He notes CROs are commonly found in financial institutions, energy companies and large complex organizations that allocate and manage capital on a risk basis.

A CRO role is “a growing cornerstone” of ERM, Price says.

“I believe that if you have someone who is evaluating risk, and assisting the CEO and the board in assessing how much risk they can take for given activities, that is a very strong underwriting risk characteristic.” But the existence of CROs in smaller, lesscomplex organizations is not a trend Price has observed in the Canadian marketplace. In a smaller, less complex organization, it may not be necessary to have the CRO position, he says, “but it would be a positive addition.”

A SILO OR A BRIDGE? Susan Meltzer, the assistant vice-president of risk management at Aviva Canada, admits she’s not entirely sold on the concept of a CRO. “I think it takes away the embedding of accountability for risks in the jobs of all of the [other] senior executives, in particular,” she says. “All senior executives have accountability for risk in one way or another. By carving it out, I believe it can create a culture where if you have a risk event, then it was the chief risk officer’s fault.”

Assessing risk holistically should be encouraged as a way of thinking, she stresses.“I think having a CRO takes away from that.”

Thiessen, can see Meltzer’s point of view if, for example, it’s a smaller company whose business processes are highly integrated and relies on all individuals to be owners of risk in their own

One hurdle is to find out where RIMS members are currently placed within their organizations’ corporate governance structures.

department. A CRO, on the other hand, she says, formalizes, coordinates and oversees an ERM process. An organization that practices enterprise-wide management of risks, including the setting of corporate risk tolerances and risk profiles, collectively coordinating and overseeing the process and providing written and verbal reports to the executive team and board, needs a CRO to keep the momentum of ERM. Doug Brooks is the senior vice president and chief financial officer at Equitable Life Canada. He says that although his title says CFO, he is officially the organization’s CRO. It’s not the job of the CRO to do day-to-day risk management, he says. “The real key is that there are people who are making decisions day-to-day that have to make good risk-adjusted business decisions.” The role of the CRO, he added, “is to create the tools and the culture to make risk management happen within the organization.”

Meltzer says in an ideal world, a company’s top risk manager would have access to the board room table, have a senior-enough position to influence strategy, manage risk at all levels (both high and at ground level) and must be able to “help executives

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Cover Story manage their risks, but also challenge the way that they’re managing their risks.”

She compares her notion of the risk manager to the cartoon illustration of the conscience — a devil perched on a person’s left shoulder and an angel on the right.

Senior executives aren’t wired to think pessimistically she says, so it’s up to the risk manager to offer all sides of a risk. “It’s not our job to ensure executives make the decision we think they should make. Our job is to ensure that the right people at the right level of the organization have the right information — both the upside and the downside — to make a decision.” Whether or not that warrants a spot in the C-suite, she added, “well, I’m not entirely convinced.”

Still, many in the risk management community maintain the profession needs to be in the boardroom, rather than on the outside waiting for an invitation in. For years, risk managers have

it is really adding value.”

Buy-in at the business level is key, he suggests. But it can be tricky to achieve that buy-in before a problem erupts. “I know some companies have gotten into it [ERM] because of a burning platform, and there was an issue that had to be dealt with,” he says. “But I think over the past few years, people have come to realize there have been failures or frauds. These things can and do happen, and companies need to put proper things in place even if they believe that things are under control.”

John Fraser, Hydro One’s CRO, says that when he was asked to take on the role of head of risk management in 2000, the biggest challenge he faced was establishing credibility and adding value.

To overcome this obstacle, Fraser explains, he worked with one of the organization’s subsidiaries and ran a series of workshops on the company’s top risks. Using anonymous voting technology, (similar to that used on the game show Who Wants to Be

“All senior executives have accountability for risk in one way or another. By carving it out, I believe it can create a culture where if you have a risk event, then it was the chief risk officer’s fault.”

- Susan Meltzer, assistant vice-president of risk management at Aviva Canada

been battling to gain executives’ ears, says Hunton. Placed in a middle-management position, a risk manager is constantly worried about garnering buy-in from the upper ranks rather than just being able to focus on the job at hand.

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EARNING YOUR SPURS Whether or not they wear the executive threads, risk managers must overcome hurdles before either sitting at the executive table or advising the C-types. The Conference Board’s 2005 report suggests most CROs have moved into their positions from within their own organizations; the departments of finance and administration/financial services predominantly serve as the springboard into the position (18% of the cases).

The very nature of risk management creates a challenge unto itself when it comes to demonstrating the value of the position to those in the upper ranks of management, Meltzer says. “The biggest obstacle is, [risk] isn’t measurable. It’s kind of esoteric.”

The whole point of the profession is to avoid “the big loss,” Meltzer observes. But how can anyone say ‘I averted the big loss’ when no one knows what that loss might have been? “What you’re trying to do is stop big, bad hairy things from happening,” Meltzer says. “And if you’re successful, then they don’t happen.

But that’s difficult to measure.”

Brooks says if ERM is driven top-down, it might be viewed internally as just so much more bureaucracy, particularly in a large corporation. “If it’s not properly done, then it can feel like another corporate requirement,” he says. “People will question if

a Millionaire?) Fraser and his staff ran the workshop, it was a hit, and the president of the subsidiary asked them to add another workshop with additional risks. “If it was not successful that probably would have been the end of ERM for the company,” he says.

“That’s what I mean about credibility, you have to earn your spurs.”

Fraser was invited to bring his anonymous voting technology to the senior management team. He put together a series of miniworkshops, each about 40 minutes long. Each one tackled one of the Top 10 risks facing Hydro One.“It was funny, because the first time we ran this workshop, when we asked each person to vote and press his or her key pad, everyone looked to the president to see what she was thinking,” he recalls. “But what this anonymous voting allows you to do is to be really anonymous and express your opinion in an unbiased fashion. And then you could engage in this great dialogue without the ‘who-said-what.’”

Thiessen agrees with Fraser that if risk managers are going to elevate themselves professionally, they need to find a way to create value for themselves. “I think all risk managers are struggling with this. I also think all risk managers know they are valuable, but that they have to find an innovative way to convey this message to the right people who will let them sit in on the decisionmaking,” she says.

To gain credibility within an organization, risk managers must not try to do everything at once and keep it simple, Meltzer says.

“By bringing in a consultant and working with fancy models right away, and coming up with fancy numbers that no one understands — it doesn’t work,” she says. “You need to take the

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Cover Story time to build people’s confidence that you know what you’re doing. If you call the meeting, and you set the agenda and take the minutes, then you’ll be in charge.”

SOFT FOCUS To start an ERM program and earn the respect of the upper ranks requires a person to have a skill set that allows them to influence others. Too often, Meltzer says, people will focus on a person’s technical skills. But, “influencing people to do things when you don’t have any authority over them is a very difficult thing to do,” she says. “I don’t believe there’s a roadmap to success if you’re trying to embed risk management into the culture or DNA of an organization. You really need those people with that skill set to influence.”

Thiessen explains that the Conference Board is finalizing a briefing that includes the latest opinions from Canadian directors on what constitutes a good CRO. What are their attributes?

Among them, she says, is for the CRO to“play a real challenge role and push back questions onto the executive team and board. A

10-YEAR PLAN Hunton says RIMS Canada is still hammering out exactly how it plans to elevate the profession. Already the council has taken on a few initiatives to help risk managers reach the next level of their professional career. The education committee is working towards having more Canadian universities offer undergraduate risk management degrees. The University of Calgary is currently the only school to offer such a program; the RIMS Canada council would like to see two or three more Canadian universities offer risk management degrees.

Thus far, the initiative is still in the feasibility study phase, Hunton says. Should it be successful, undergraduate students will develop an awareness of the risk management profession at a much earlier stage; they won’t have to wait until after they start their careers.

“We also want more recognition of the RIMS fellow designation,” Hunton says. To increase awareness and visibility in the Canadian marketplace, the council has been advertizing in financial services trade publications, targeting accountants specifically, she says. “We want to do more outreach in those areas so that

While a good CRO looks at what can be measured and uses the mathematical modelling tools available, he or she also pays attention to whatever is not being measured. “The CRO should be able to tell executives that they need their eye on the intangibles, like reputation.”

— Karen Thiessen, Conference Board of Canada

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good CRO should be able to speak his mind in a very diplomatic fashion and understand that there may be consequences for doing so.

The CRO must be able to challenge the current paradigm and thinking process within the organization. How else can a company remain competitive, anticipatory and innovative?

“A good analytical ability” and someone who is really a “third eye of the organization” also topped the list, she continues. “That means that the person has an inside and an outside perspective and protects the organization from the downside of risk.”

He or she, says Thiessen, citing the report, focuses on what is not being measured. While a good CRO looks at what can be measured and uses the mathematical modelling tools available, he or she also pays attention to whatever is not being measured.

“The CRO should be able to tell executives that they need their eye on the intangibles, like reputation.”

An effective CRO also conducts forecasts and assessments when things are going really well so that he or she understands the drivers and is able to speak at multiple and conflicting views.

“So, you’re not afraid to always research and find out exactly what your view is even if it’s contrary to where the view of the organization or executive team is,” she explains. “It’s like driving a car.

You always have to know where your blind spots are.”

there is more familiarity with what the RIMS fellow designation entails. Then hopefully, when bosses are hiring one day, they’ll say: ‘Gee, I’d like a RIMS fellow.’”

Finally, she says, the council is striving to ensure the annual RIMS Canada conference offers material specifically intended for future CROs. “We’re planning to deliver to our members regular, practical and high-quality educational offerings and risk management tools on a day-to-day basis through RIMS, enabling technology to give risk managers the tools they will need to move into the C-suite one day.”

The jury is still out on what the head of risk management position should look like (if indeed there should even be one), and where the position should appear within an organization’s corporate governance flow chart. Hunton maintains the CRO’s move into the proverbial corner office would solidify the recognition that risk managers have an important role to play within an organization — as important a role as that of the CFO, the COO or the CTO. “If the CRO is there when the executive committee has its regular meetings, they would know what’s going on, they would be able to influence decisions and they wouldn’t have to try to go up and sell it [risk management]. They would already be there. That’s the goal: that there is recognition the profession warrants a seat at the table.”

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KNOWLEDGE

EXCHA

By David Gambrill

o hear RIMS Canada Conference co-chairs Susan Meltzer and Nancy Chambers speak to each other in a telephone conference call is to understand why the theme of this year’s September 2008 RIMS Canada Conference is ‘The Exchange — Where Great Ideas Come Together.’

This year’s RIMS Canada Conference will held Sept. 21-24 at a sold-out Sheraton Centre in downtown Toronto.

Education through collaboration will be the predominant purpose of the conference, which would be no surprise to anyone who hears Meltzer and Chambers speak to each other on the phone.

In a free-flowing conversation, the two former RIMS Canada presidents discuss the value of their own professional education and development. During the conversation, Meltzer and Chambers listed a number of well-known names of influential RIMS members who served as their mentors and teachers — including each other.

Chambers, for example, remembers having Meltzer as a teacher for one of her courses on risk financing. Despite Meltzer’s self-acknowledged reputation for tough marking, Chambers nevertheless managed to win an award from RIMS for the highest level of academic achievement in the early 1990s.

In fact, Meltzer and Chambers almost sound like university students as they recall snippets of favourite RIMS conferences, seminars, helpful gestures by colleagues, as well as words of wisdom they have received over the course of their careers. They even share an unvarnished glimpse into a few of their recent administrative triumphs related to the organization of the 2008 conference. In some ways, the unguarded banter between them is indicative of the kind of collaboration

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they say they witness daily in their risk management profession.

“At my first RIMS meeting [in 1983], I walked into it and I met Drew Douglas who was then the soon-to-be-retired risk manager of Shell,” Meltzer recalls. “He decided, since it was his last meeting and it was my first meeting, that he was going to introduce me to absolutely everybody he knew. It was an interesting approach. The reason I’m saying this is because [it illustrates] the same thing that Nancy [just] said: it’s a very collaborative profession, both internally, within the organization, and externally, with the people you meet and the things that you get to do. We risk managers share.”

That’s because a broad base of knowledge and experience is a fundamental pillar of the profession, Chambers says. “You never know when that phone rings what’s going to be on the other line. It’s a challenge.”

Chambers says attending RIMS Canada meetings and conferences has been invaluable in providing the kind of knowledge and experience required to do risk management well. “Susan, do you remember the guy [at a previous risk management meeting they attended]?”

Chambers suddenly asks Meltzer during the conference call. “He stood up at the meeting and said, ‘I’ve had an implosion.

I’ve dealt with explosions before. But I’ve never dealt with an implosion.’ And another guy stood up and said: ‘Yep, I’ve had one of those. Come talk to me afterwards.’”

The above exchange demonstrated the fundamental value of learning from colleagues in the profession, Chambers says.

She still remembers something Meltzer told her a long time ago: “Susan made a comment that stuck in my mind forever and ever,” she says. “It was: ‘I don’t have to be an engineer. I don’t have to be a lawyer.

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HANGE When Toronto hosts the September 2008 RIMS Canada Conference, expect the focus to be on education, collaboration and networking Canada president in 1999-2000. Meltzer figures that she has obtained no fewer than three jobs since 1983 because of her network of contacts at RIMS. Chambers’ professional background is very much a product of the educational environment. She started working in the University of Guelph’s finance department in 1986. “At that time, the insurance market was very tight and the universities in Canada were looking at alternatives,” she says. “That’s when they started thinking about the universities reciprocals, or CURIE [Canadian Universities Reciprocal Insurance Exchange].” A reciprocal is one of a variety of self-insurance arrangements.

“So I worked for the [university’s] assistant director of finance, who was responsible for insurance, and I got involved in this at the university. I figured this was an area that I am really interested in and I thought if it’s evolving, then I should evolve, too. My broker at the time was at Aon. And he said, “Nancy, you should join ORIMS.’ And I said, ‘What’s that?’ And he said, “Well it’s an organization of risk managers. You should go.’ So I went to my first meeting and I was hooked.”

Through her association with ORIMS, Chambers helped develop the university’s first risk management program.

Chambers went on to become RIMS Canada president in 2004-05.

Given the prominence of education in shaping their professional careers, it is not surprising that as RIMS Canada Conference co-chairs in 2008, Meltzer and Chambers are stressing the educational and networking opportunities available at the conference this year. They have opened up the Monday afternoon plenary sessions at a reduced rate to more junior-level people in brokerage houses and large risk management departments. The idea is to give people who may not otherwise attend

the RIMS sessions an opportunity to meet and learn from each other and the profession’s senior members.

Meltzer says the 2008 conference will have more plenaries than usual, “because we think you can provide higher quality [of education] when you promise someone a larger audience.” Also, the committee has taken a different tack at developing the concurrent sessions and the programs.

“They didn’t take a call for papers,” Meltzer says. “They approached risk managers across the country to design, develop and participate in the programs to add to the relevance [of the conference].”

In keeping with ‘The Exchange’ theme, and also in keeping with Toronto’s reputation for having a diversity of cultural backgrounds, conference delegates will note the education this year comes with an international flavour. Meltzer confirmed one plenary will have risk managers from Belgium, Brazil and the United States speaking about the profession’s best practices in various parts of the world.

There will not be a traditional insurance CEO panel as in other years. Instead, the sessions’ themes will focus on economic issues, “C-suite views on risk,” [i.e. perspectives on risk from chief executives, chief financial officers, etc.], as Meltzer describes it, as well as a discussion about the evolution of enterprise risk management.

And there will be fun, of course. “Our mission is to prove that people from Toronto aren’t stuffy,” Meltzer says, tongue in cheek. Torontonians are “also very elegant, too, as you know,” Chambers chimes in. And so delegates can expect to see a very elegant, “virtually-black-tie” gala.

They can also expect to see a Hollywood theme at the exhibit hall, recognizing that the 2008 RIMS Canada conference will be held right around the time of Toronto’s International Film Festival.

19 www.canadianunderwriter.ca • March 2008

I don’t have to be a hedge fund expert. I have to know when I need one.’”

From her very first days as a commercial insurance broker for Morris & McKenzie Ltd. in 1975, Meltzer has proven adept at learning and working with others to help her achieve her broader professional goals. “When I graduated university, I came to Toronto,” Meltzer recalls. “I was looking for a job. I got a job as a filing clerk in an insurance brokers office. I cut my teeth in the brokerage industry and, several years later, I was off work because my son was born. I got a call and somebody said to me: ‘There’s a job opening in the risk management department and I don’t know what that is, but I think you’d be really good at it.’

“So I applied for it and it was at Canada Development Corporation. I took the job — that was in 1983 — and I never looked back. I was their coordinator of risk and insurance. I had no idea what it was. All I knew was that it had something to do with insurance. I didn’t even know if I actually realized I’d be buying their insurance programs when I took the job…

“I started my first risk management job in April 1, 1983. April 1 also happens to be Douglas Barlow’s birthday. And with Douglas being the grandfather of risk management, I always thought that was kind of symbolic to have started April 1st.”

Within two months, Meltzer quickly started networking within RIMS, attending her first ORIMS meeting. At that meeting, Barry Shakespeare came up to her and said: “If you really want to get what you need out of RIMS, you should volunteer, because that’s when you get the most out of what you need.” Meltzer took the advice: in 1985, after her work at the committee level, she joined the ORIMS board in 1985. She became the ORIMS president in 1989-90 and then RIMS

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By Craig Harris

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Eco

he scientific consensus on climate change has spurred some insurance companies to act by introducing products that deal with the causes and exposures of global warming. While ambitious insurance coalitions have been formed in the United Kingdom and United States to address the long-term impact of climate change, individual insurers have taken the coverage lead in areas ranging from renewable energy to hybrid cars to “green-certified buildings.” Is this real progress or just the tip of the proverbial iceberg?

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ADJUSTING TO CLIMATE CHANGE It seems hardly a month goes by without the announcement of a bold initiative from either industry or government to reduce greenhouse gases and address the issues surrounding global warming. A good example of this happened in September 2007, when a group of 16 global insurers, reinsurers and brokers — many of them parent companies of branch operations in Canada, such as AIG, Aviva, AXA, Munich Re, Royal &SunAlliance, Swiss Re and Zurich — outlined far-reaching commitments through the British-based ClimateWise program. Twenty-one additional insurance groups have since joined on.

The six goals of ClimateWise do not shy away from making the insurance industry a focal point for change, and even advocacy, regarding action on global warming. The insurers’ goals are to: • lead in risk analysis; • inform public policymaking; • support climate awareness amongst customers; • incorporate climate change into investment strategies; • reduce the environmental impact of their businesses; and • report/be accountable.

“The principles set a framework for us taking up this exciting challenge of changing behaviour, raising awareness and encouraging new ways of working,” asserted Peter Hubbard, chief executive of AXA Insurance and chairman of the industry working group that drew up the ClimateWise principles.

Three U.S. insurer groups (ACE, The Hartford and Travelers) have joined Climate Leaders, a program of the U.S. Environmental Protection Agency in which corporations complete an inventory of their greenhouse gas emissions, set long-term reduction goals and report annually on their progress. Another project called the U.S. Climate Action Partnership, which includes AIG and Marsh alongside other corporations like General Electric and Ford Motor Company, is calling on the American federal government for legislation to require significant reductions of greenhouse gas emissions.

Many of these and other projects, such as the United Nations Environmental Programme Finance Initiative (36 insurance signatories as of September 2007, including two from Canada) and the Global Roundtable on Climate Change (five insurer signatories), are looking at measurable results in the timeframe of years, not months.

It is hard to ignore the fact that the insurance industry is becoming more involved in green issues.

In Canada, no such coalition of insurers promoting the reduction of carbon emissions exists (the National Roundtable on the Environment includes no insurance members). Instead, the focus of industry groups such as the Institute for Catastrophic Loss Reduction has been on building more resilient communities and

buildings to withstand natural disasters. The Insurance Bureau of Canada has recently expanded this focus on disaster prevention by calling on governments across the country to fix aging infrastructure, revamp building codes to build in climatic design values, consider sweeping land use revisions and improve disaster management.

Zurich Canada is also furthering research by funding Simon Fraser University’s Adaptation to Climate Change Team (ACT).

Announced last September, the joint program will examine ways to cope with the ongoing challenges of extreme weather events caused by global warming.

“Climate change is obviously of tremendous importance to Zurich Canada,” says CEO Robert Landry.“Supporting ACT gives us an opportunity to actively assist in the development of policies that will benefit our customers and society as a whole.” With the program kicking off in May, the company expects to have preliminary research results later this year, according to Zurich sources.

Beyond lobbying for public policy changes and research into disaster mitigation/adaptation, increasing evidence shows that insurance companies in various countries are taking individual approaches to manage risks. They are introducing new products geared to more environmentally friendly practices, addressing

I

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Insurance With so many different opportunities for insurers to use their products as a way to promote a sustainable environment, are Canadian insurance companies in fact “going green?” exposures that come with issues like carbon trading, corporate disclosure and directors and officers insurance, and providing risk management services to help organizations integrate environmental issues into daily decision-making processes.

An updated version of the most comprehensive report on the subject, From Risk to Opportunity: Insurer Responses to Climate Change, was released in November 2007. Written by Dr. Evan Mills, a scientist at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory, and commissioned by Ceres, a national coalition of investors, environmental groups and other public interest organizations dealing with climate change issues, the study cites 422 real-word examples of environment-related products and services initiated by 190 insurers, reinsurers, brokers and insurance organizations from 26 countries. This is more than 15 times the number of products and services since Mills’ first report on this issue in 1999, and more than twice the number since a similar report released in August 2006.

“The context of the climate change debate — and the insurance industry’s relationship to it — has shifted dramatically.” Mills notes.

“There is growing recognition within the insurance community that the impact of climate change on future losses is likely to be profound. . . Leading insurers are mobilizing a wide array of creative and proactive strategies to get in front of the climate change problem.”

21 www.canadianunderwriter.ca • March 2008

GREEN INSURANCE PRODUCTS Although highly varied in nature, insurance products have tended to concentrate in areas of energy efficiency, including clean-air energy, hybrid vehicles or pay-as-you-drive programs, and greencertified buildings. “Some insurers perceive a ‘halo effect,’ in which insureds that adopt climate-change mitigation technologies are viewed as low-risk customers,” Mills observes.

One of the main areas of insurance activity is in the renewable energy marketplace. The global market for renewable energy is predicted to increase from US$55 billion in 2006 to more than US$225 billion by 2016. The global insurance market for wind energy in 2006 was US$495 million in gross written premium; that is forecast to grow to nearly US$2 billion by 2015.

The wind energy opportunity prompted Royal & SunAlliance Canada in 2006 to launch its ClearSky Solutions insurance products, designed around renewable energy. The first product focused on wind energy, which now holds a 20% market share in Canada, according to Royal’s senior vice president of commercial and personal insurance, Shawn DeSantis.

“Canada’s wind energy sector is currently growing at a rate of 30%, or 5% higher than the international average of the past 15

years,” DeSantis notes.“From a global position, R&SA has been writing wind energy, solar, water to energy, biomass and hydro for more than 25 years, so we are able to draw on that global expertise to write renewable business locally.”

Chubb Insurance is another player in the renewable energy insurance space. Last August, it formed a green energy team to respond to the increasing development of environmentally friendly energies, products and technologies.

“Chubb has served the energy sector for decades,” says Peter Thompson, vice president and worldwide energy manager for Chubb Commercial Insurance. “As the marketplace has become more environmentally aware, we have broadened our expertise to meet its insurance needs. The creation of Chubb’s green energy team will allow us to look beyond traditional renewable energy product and distribution risks and explore the insurance and loss control issues facing our other commercial customers.”

The worldwide renewable energy market is one in which “hundreds of billions of dollars will ultimately be spent on clean-energy technologies and other responses, which in itself represents an enormous new capital base with associated business operations requiring insurance,” Mills says. He notes examples of other insurers in this line of business, including AIG’s global alternative energy practice, Allianz’s climate solutions team and Aon’s agri-fuels group.

Energy-efficient vehicles have also come under the spotlight. In some markets, insurance companies are offering premium discounts for the use of hybrid cars. Hybrid sales in Canada in 2007 jumped by 60%, although the vehicles still represent less than 1% of the market. There were close to 14,000 hybrids in Canada by the end of 2007.

J.D. Power and Associates predicts hybrid sales in the United States will grow 268%, reaching 4.2 market share in light vehicle sales.

Desjardins General in February 2006 became the first Canadian company to offer a 10% discount on auto insurance premiums to hybrid vehicle drivers. The company said the initiative was “in line with the sustainable development policy adopted by Desjardins Group . . . in October 2005.” Aviva Canada adopted a similar discount for hybrid drivers in Quebec in May 2006.

Pay-As-You-Drive (PAYD) Insurance is another environmentally friendly policy option that some companies are pursuing in Europe and the United States. According to the Ceres report, 19 insurers worldwide offer PAYD insurance products, which tests show can reduce overall miles driven by 10-15% or more. About 20% of new customers of the French insurer AGF have used the PAYD option, with 250,000 policies in force. Progressive Insurance and GMAC are offering PAYD polices in parts of the United States.

INSIGHT

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There is currently no formal PAYD insurance program in Canada.

While much of the focus of environmentalism has been on cars and transportation, green construction standards are emerging as a major point of action. According to the Canada Green Building Council (CaGBC), it is estimated buildings and associated construction activities currently account for about 30% of greenhouse gas emissions in Canada — and the volume is growing annually.

The CaGBC has established a Leadership in Energy and Environmental Design (LEED) green building rating system.

Buildings are certified Silver, Gold or Platinum based on a point system that takes a whole-building perspective. As of January 2008, there were 91 LEED-certified projects across Canada; more than 300 are registered and waiting to be built. The CaGBC strategy is for an overall 50% reduction in average energy and water use by 2015, with targets of 100,000 commercial buildings and 1 million LEED certified homes.

La Capitale General Insurance offers a 15% discount on insurance premiums for LEED-certified buildings. Headquartered in Quebec, La Capitale has two building projects in Quebec City, both of which meet the LEED certification standards. According to spokesperson Audrey Bouchard, the company has written a small amount of premium based on the certification.

Energy-efficient buildings certified through LEED standards are also attracting interest from insurance companies elsewhere. The insurers’ interest is based on the LEED buildings’ sustainability and resiliency to severe weather. Fireman’s Fund, a subsidiary of Allianz, became the first U.S. insurer to provide specialized coverage for commercial clients through its Green-Gard program, introduced in 2006. The coverage is geared to customers who have built green from the ground up, made green renovations to existing buildings or need to rebuild after a loss. The coverage, which will likely be extended to personal lines clients in 2008, has also been expanded to include Builders Risk.

AIG subsidiary Lexington Insurance Company was the first to launch a green buildings insurance product for residential customers in 2007. Used as an endorsement to standard homeowners policies, it allows properties to be rebuilt to higher green standards following a partial or complete losses.

The Upgrade to Green Residential policy is

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supplemented with a similar commercial coverage.

Property and vehicle exposures are not the only insurance concerns related to climate change. Directors and officers’ (D&O) risks have recently garnered attention on the liability side. Several insurers are worried about the increased number of shareholder resolutions related to climate change.

Shareholders have filed more than 150 climate-change resolutions in the last five years, including a record 45 proposals in 2007, according to Institutional Shareholder Services. While none of these have proceeded to lawsuits, there is a concern amongst several insurers that the groundwork is being laid for potential legal action that could trigger D&O defence costs and indemnity.

“Insures providing directors and officers policies may face claims against their customers from shareholders,” notes Mills.

“Conversely, insurers themselves could be found liable for not disclosing climate risks — both from their insurance business and their investments — to their shareholders.”

In an April 2006 publication, Climate Change: Business Risks and Solutions, Marsh pointed out “the insurance industry itself has received attention from investor groups concerned about the overall impact climate risk has on the industry’s total portfolio.”

To better educate corporate board members about the potential liabilities of global climate change, Marsh, in collaboration with Yale University and Ceres, launched a program in September 2007 called the Sustainable Governance Forum on Climate Risk.

THE FUTURE OF GREEN INSURANCE These kinds of products and services are only the tip of the iceberg of many potential insurance responses to climate change issues, according to Mills. Others could include

carbon trading and carbon-offset projects, climate risk management services and sustainable asset management In the conclusion of his Ceres report, he cites 10 insurance best practices that range from “lead by example in minimizing the insurer’s own carbon footprint” to “invest in strategic R&D and re-balance investment portfolio to recognize climate-related risks to investments.”

Despite all of the documented activity, Mills’ overall assessment of the insurance industry’s response to climate change is not favourable, with some notable exceptions.

“Most insurers are behind the curve in developing forward-thinking products and services in response to climate change,” he notes.“Only about one in 10 of the insurers in our compilation are working in a visible way on contributing to understanding the mechanics and implications of climate change, with a similarly small proportion incorporating these considerations into asset management.”

These comments apply equally to the Canadian market, where examples of climate change awareness and action are sparse in the Ceres report. Just five Canadian examples of climate change initiative are cited, and only one for “innovative insurance product.” This is perhaps surprising given the level of activity of many foreign parent companies in Europe and the United States on climate change and insurance exposures.

Similarly, property and casualty insurer responses to the Carbon Disclosure Project have been less forthcoming than other industries. The CDP is an investor coalition that requests information on corporate risks and opportunities associated with climate change from more than 2,000 companies globally. Of the 204 insurance groups that were asked to fill out the survey in 2006, four were Canadian property and casualty companies or brokers (four life insurance companies were also polled). All four property and casualty entities either declined to participate or did not respond.

Whether insurance companies in Canada and abroad actively take the issue of climate change into their own hands or are prodded into action by external sources, such as regulators, institutional investors or plaintiff lawyers, is a question that will be answered in the years ahead.

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Proxy for

Capital How publicly-traded companies can use insurance as a means to beat a coming recession

By Garry McDonell, National Director, Risk Management Services, Aon Reed Stenhouse Inc.

our company has a problem. The United States is facing a insurance as a line-item expense — and perhaps an expensive credit crunch, which means debt may become very costly one at that. Moreover, many would avoid purchasing insurance if or virtually unavailable. Or it could be worse: a recession lending institutions didn’t require it. In this regard, insurance has might be unfolding, potentially inflicting collateral damage glob- traditionally been used as a means to help access capital. Bankers ally, in which case you can be fairly sure your company and its and other lenders will generally only provide capital if what’s being purchased is insured, such as customers will also be affected. Dealing machinery or property against typical with a recession of uncertain depth and hazard risks. Insurance in such cases is breadth can be a risk management exercise Without insurance: Capital required: $100 million just considered part of the cost of par excellence. To help buffer its effects, Capital cost: $5 million (at 5 % doing business. your CFO is thinking of ways to cut costs However insurance can also without imperiling productivity or losing interest) become a form of capital itself. customers or market share.

Progressive thinkers have come to see There are many ways to address these With insurance: Cost of insurance: $200,000 how insurance has a value that goes issues. However, in a moment of inspired ($50-million liability policy) beyond covering a loss or for meeting a thinking, you suggest your CFO consider a Capital required: $80 million bank’s requirements for a loan. But risk management strategy designed to save Capital cost: $4 million (at 5% how does that work? It starts with money through the purchase of insurance. looking at your company’s debt, equity Assuming the CFO doesn’t scoff outright, interest) Savings: $800,000 and risk capital. there might be an opportunity to explain (Derived from subtracting the capihow insurance can be a much more fungital cost with insurance from the ble instrument than many realize — it can DAS CAPITAL 101 capital cost without insurance, take on a different form. In this instance, All organizations need capital to subtracted by the cost of the insuryou’ll get to explain how it can be a proxy operate. They need operational capital ance premium) for capital. to meet day-to-day expenses, and risk Typically, business leaders only regard capital as a buffer to protect against

Y

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unusual losses or expenses. Publicly-traded companies also need signalling capital to “signal� to investors and analysts that the company is a well-positioned going concern, and that it can capitalize things like investments in new operations, new products, or possibly the acquisition of other companies.

Most public companies are capitalized on the basis of both debt and equity. In some cases, the debt to equity ratio may be 50/50 — capital that is 50% debt and 50% shareholders’ equity. In other cases, the ratio may be 80/20, with only 20% of capital coming from equity.

Both debt and equity cost companies money. Debt usually carries a fixed interest rate that today could be between 4-6%. Equity, however, comes at a higher cost than debt because shareholders require some risk premium above the “limited� risk rate. So, equity may carry a cost of between 8% and12%. When the interest rates are combined, depending on the debt-to-equity split, the cost of capital for the firm may be between 5% and10%.

For example, if a company has a total of $100 million in combined debt and equity capital at a cost of 5%, it would cost that company $5 million — minimum — per year for the cost of that capital.

ROLE OF INSURANCE So how does insurance play into this?

Many publicly-traded companies do not buy insurance for every eventuality. For instance, if insurance is not purchased for hazard-type risks such as fire, lawsuits, auto accidents, etc., then a certain amount of capital would need to be set aside for these events should they occur. That capital has a cost. Now, if an insurance policy can reduce the amount of capital required to be set aside, then it may be possible to reduce the overall cost of capital.

For instance, take the example above, in which a company has a $100-million capital requirement and a capital cost of 5% (or $5 million). The risk and signalling capital requirement could be reduced by the purchase of insurance if the premium for the insurance is lower than the cost of the capital it replaces. If a $50-million liability insurance policy, at a cost of $200,000, reduces the company’s capital requirement from $100 million to $80 million (5% of $80 million = $4 million), the company would save $1 million in capital costs by spending $200,000 on

Page 25

insurance. [See Figure 1.] A wise CFO would thereby reduce the company’s annual capital costs by $800,000 simply by accessing insurance capital rather than debt or equity capital. All of a sudden, insurance has become something more than it is traditionally believed to be, and in such a scenario makes excellent sense.

In effect, the company saves money while it receives non-recourse financing, which is the insurance to cover against whatever losses the policy is intended to cover.

Although the exact amount of capital offset by an insurance policy is not known, one can determine the minimum

amount of capital reduction and calculate the savings on that basis. If it is a positive number, then insurance, regardless of whether a loss ever occurs, has been a good investment.

The capital and insurance needs of companies can differ enormously. Based on what your company’s capital and insurance needs are, it’s worthwhile looking at what can be done to maximize savings on capital costs. Understanding how insurance can become something else — a proxy for capital — can make a significant difference to buffering the effects of a credit crunch or a recession.

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Holistic

Protection Effective business continuity planning is more than just having a plan. The plan should reflect a wider, holistic business continuity management culture.

By Perry Brazeau, Senior Vice President, Manager, Canada Division, FM Global

www.canadianunderwriter.ca • March 2008

26

t’s a perilous world. Fires burn, winds blow, lightning strikes, water rises, computer systems crash and people make mistakes, among a myriad of other unexpected misfortunes. If that weren’t enough, accidents and nasty natural catastrophes are not the most gracious of guests, rarely arriving with any predictability, leaving you little time to prepare and never offering to help clean up the mess they make. With so much calamity knocking at the door, and so much potential for weakening the links on already stretched supply chains, more and more organizations today are recognizing the importance of business continuity management (BCM).

In a study commissioned by FM Global, more than 95% of 600 financial executives surveyed reported BCM was of moderate or high priority in relation to other management functions within their

I

companies (www.protectingvalue.com).

Half of those same executives cited property-related risks as being the greatest threat to their companies’ revenue.

WHAT IS BCM? The Business Continuity Institute defines BCM as a holistic management process that identifies potential impacts threatening an organization. It provides a framework for building resilience and the capability for an effective response that safeguards the interest of an organization’s key stakeholders, reputation, brand and value-creating activities.

BCM is a business culture rather than a project. It’s a continual effort by all members of an organization to help build resilient processes. It’s a framework that combines various elements of risk management and related disciplines, ultimately leading in some instances to an action-

oriented document called the business continuity plan (BCP).

It’s important to differentiate between business continuity management and business continuity planning. Business continuity planning, or a business continuity plan, is just one element of business continuity management. A BCP is drawn from information-gathering and risk assessments; it involves assigning responsibilities to key individuals, who then create recovery strategies based on specific objectives.

WHY IS BCM IMPORTANT? Many organizations fail to recognize there is plenty to do even before they develop the plan. This is where BCM comes in. Why is BCM important? Within any business, certain products and services are deemed critical to continued success because they generate or help generate a

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large proportion of value for the business.

It follows, then, that anything (either inside or outside the organization) enabling the delivery of the critical products and services will, itself, be considered critical to the business. Since the failure of any critical part of the business might prevent the delivery of products and services, a business needs to identify and protect all things critical if it hopes to withstand a disruption. The business must be sufficiently resilient in order to achieve this.

How does BCM work? The ideal outcome of BCM is called Design for Resilience, which occurs when an organization has internalized BCM to the extent that all strategic decisions — such as the development of new products, services and markets — are made with a view towards making critical enabling processes resilient from the beginning. BCM should not be an afterthought. It should be considered in every step of the process.

Many savvy companies develop a recurring process of analysis, planning and implementation. That process includes six key components: strategy, culture, understanding your business, developing your continuity strategies, implementing your continuity strategies and keeping continuity alive.

www.canadianunderwriter.ca • March 2008

28

Strategy At the outset of the BCM, it is essential to obtain support and secure sponsorship from the company’s senior executives.

Given the strategic nature of this process, the lack of such support is likely to result in failure. Selling BCM to senior management is crucial.

Culture Business continuity must be supported at the executive level, but it must also must be owned throughout the organization.

Communication of the benefits of BCM must be organization-wide.

Understand your business In the context of an organization’s strategy, various risk assessment tools are used to identify the critical products, services and enabling processes. They’re also used to gain a full appreciation of the complex relationships between — and potential vulnerabilities of — extended disruptions within your own organization, within your suppliers’ organizations, to customers and to the economic environment

Page 28

in which your company operates.

Develop your continuity strategies Strategies to maintain the effective delivery of products and services in the event of an impaired process need to be established and evaluated at the following levels: • organization (corporate); • process; and • resource recovery.

Such strategies derive from three core types of solutions: physical, operational and those relating to response and recovery. These solutions are not mutually exclusive. For example, you may choose to physically protect a critical process to the maximum feasible extent, but still provide operational backup.

Implement your continuity strategies After you’ve gained a sound understanding of the business, established critical processes, determined priorities and identified the BCM strategic choices, your attention should turn to implementation.

Some strategies — ones relating to opera-

so a plan can quickly become out of date.

Design for Resilience is an iterative management process, not simply the one-off development of a set of plans.

WHO’S INVOLVED? Everyone within an organization must embrace BCM for it to be effective. It it must be embedded in the culture, beginning at the top and working its way down through continual communication. That said, there are a few key people involved in business continuity planning: • executive management designates a business continuity coordinator; • senior operational managers work with business continuity coordinators to ensure each entity develops a plan for its critical functions and suppliers; • senior department managers designate someone to develop a BCP within an agreed-upon timeframe and approve a specific BCP for their entity; and finally • business continuity coordinators work with each level of the organization to ensure individual BCPs are aligned with

Many savvy companies develop a recurring process of analysis, planning and implementation.

tional solutions, for example — will be implemented pre-incident, to increase the resilience of the process. Others will be implemented post-incident; as such, they will require effective and efficient planning. The BCP transforms all the conclusions and judgements applied during the information-gathering process and business impact analysis into direct action. It should be clear, concise and well-organized. In addition, it should address the five key areas of any organization: people, facilities, data/processes/information technology, supply chain and distribution channels.

Keep continuity alive Two elements in particular are necessary if BCM is to become more than just another initiative. First, the BCP must be exercised at least once a year to gauge a company’s ability to continue business in the event of a major incident. Second, the BCP must be altered in response to changes in key processes. Organizations are dynamic, and

the overall objectives of the business.

Where and when should BCM begin?

BCM is a function of good risk management, so it begins and ends at the risk manager’s desk. The risk manager’s role is increasingly complex, but with the right approach to business continuity management, the tools are provided to demystify those complexities.

No is the time to embrace BCM. Implementing BCM in an organization can be a very complicated matter, but the benefits far outweigh the efforts. The fact is, too many organizations today are one business interruption away from permanent shutdown. It is prudent for companies to prioritize mitigation action, develop and support proposals for capital expenditure, and develop cost-effective, strategically focused risk management programs.

For organizations looking to protect the value their businesses create, proper business continuity management supports that goal.

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Real-time Catastrophe Exposure Modelling Thanks to the introduction of real-time cat exposure modelling, the days of stick-pin exposure monitoring are gone

By Paul Brehm, Managing Director, Guy Carpenter & Company LLC

www.canadianunderwriter.ca • March 2008

30 nsurance companies are in business to assume the financial risk of various hazards their clients face. In so doing, insurers have been practicing risk management in one form or another by their very nature. However, regulators and rating agencies are increasingly looking for more than just tactical risk management.

Companies are being evaluated based on their enterprise risk management (ERM), including new elements such as a strong culture of risk management, consistency across the company in the identification and measurement of risks and an enterprise-wide view toward the management of risk.

I

Risk arising from the accumulation of insured exposures to catastrophes — either natural or man-made — typically represents one of the biggest risk factors facing a property and casualty insurer. In a January 2008 white paper outlining its rating methodology, Risk Management and the Rating Process for Insurance Companies, A.M. Best states: “[We] consider catastrophic loss, both natural and man-made, to be the Number 1 threat to the financial strength and policyholder security of property and casualty insurers because of the significant, rapid and unexpected impact that can occur.”

Clearly, prudent risk management as applied to catastrophe risk should be an integral part of a company’s overall ERM program. So then what should a company do in the way of catastrophe portfolio management as applied in an enterprisewide framework? A variety of tools and processes currently define a set of industry best practices: • a high level of data quality; • use of advanced catastrophe models; • identification of key risk factors; • explicit articulation of corporate risk tolerances; • constant monitoring of aggregate and individual exposures against risk tolerances;

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Page 32

Figure 1. Map showing insured locations and TIV clusters.

• risk underwriting discipline and compliance; • real-time catastrophe monitoring and operational response; • strategic portfolio optimization; • use of internal capital models to integrate cat risk with other company exposures; • an integrated reinsurance program; and • financial strength and flexibility.

The remainder of this article will touch upon several key elements of the above list.

www.canadianunderwriter.ca • March 2008

32

found that data quality issues caused models to understate the Florida hurricane loss estimates by 20% to 30%. The point is this: there is little sense establishing a state-of-the-art portfolio management or ERM practice if your company does not have the input data to support it.

EXPOSURE MONITORING If good data is a first step, then simple exposure monitoring is a necessary second step. It is difficult to know whether or not your company has “too much” exposure if you don’t know what you have at all.

Computer systems have provided a modern-day alternative to an old stick-pin map of exposures. (Please see Figure 1.) In this view, the insured portfolio is shown by location, with an overview of clusters

CAT MODELS AND DATA QUALITY Models describing the frequency, severity, and consequences of natural catastrophes such as earthquakes, hurricanes, severe storms, winter storms and floods have become increasingly sophisticated over the past 20 years. Although far from perfect, they are a powerful class of tools in portfolio management.

That said, cat models are no exception to the rule of “garbage-in, garbage-out.”

Data quality is of the utmost importance in the application of cat models; this is increasingly the focus of scrutiny by industry observers. Following the 2004 hurricane season, in which four hurricanes struck Florida, cat model vendor RMS conducted a post-season review of actual losses versus predicted losses. Their research Figure 2. TIV by 3-digit Postal Code.

by total insured value (TIV).

Alternatively, exposures can be aggregated to a particular geographical region. (Please see Figure 2.) Colour coding quickly identifies hot spots of concentrations.

Queries can be run against portfolio attributes such as construction type, protection class or insured value.

Exposures can be accumulated around key locations — for example, a potential terror target (Please see Figure 3) or an earthquake epicenter — to evaluate exposures to specific events.

Catastrophe models can be run against these specific locations to help identify the largest risks facing the company.

Exposure management systems such as these are useful and go beyond traditional monitoring of existing exposures. New risks can be mapped and evaluated using the same system; in this way, new exposures can be judged not just on their own merits, but also based on the marginal impact to the company’s existing portfolio.

REAL-TIME EVENT MONITORING The functionality of a best-practice portfolio management system is not restricted to aggregate portfolio monitoring or risk underwriting. Real-time event

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Page 34

Figure 3. TIV by accumulations within defined radius. monitoring allows a company to trace the development of an actual occurrence — a hurricane, for example, or an earthquake, wild fire, thunderstorm, etc. — and superimpose it on the insured portfolio. (Please see Figure 4.)

Such a tool enables the company to respond to catastrophes quickly. Teams of claims adjusters can be mobilized, for example. Reinsurers can be notified and informed. Financial departments can make provisions for appropriate liquidity or even capital depending on the expected impact.

www.canadianunderwriter.ca • March 2008

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portfolio tune-up should include all the tools at management’s disposal, such as pricing, terms (deductibles, limits), agency management, and reinsurance to name a few.

CAPITAL MODELLING Inclusion of cat model output into an internal capital model is probably the clearest departure from the traditional risk management of catastrophe exposure.

Inclusion of catastrophe risk distributions — integrated with all other meaningful company risk distributions — allows insurers to better judge the level of required capital for the company or, alternatively, judge the adequacy of the capital on hand.

In this enterprisewide context, risk tolerances can be best expressed. It is often the case that a significant risk to one business unit is not, in fact, significant to the company as a whole.

Or the risk is hedged or diversified away by the firm’s other activities.

Reinsurance strategies are best devised at this company-wide, integrated level because the true risks to the firm are understood.

Furthermore, since reinsurance reduces the volatility of the company’s results, it is a tool in the company’s overall capital management strategy.

The integration of portfolio management tools into the operations of the company (including underwriting, claims, reinsurance or finance) is an important element to outside observers. Rating agencies and regulators look for evidence that the tools and processes defined in the company’s ERM program are actually put to use. Use is self-evident when a tool is engrained into the fabric of the company. In the end, the use of these bestpractice tools and processes is not really an issue of compliance, but of good management.

PORTFOLIO OPTIMIZATION Perhaps the ultimate use of a portfolio management system is the optimization of the portfolio’s expected performance subject to certain constraints. For example, an insurer may wish to maximize profit or minimize losses in a layer, subject to volume constraints in any one postal code.

Best-practice portfolio optimization tools can identify the exposures that should be eliminated from the current portfolio, as well as the sorts of exposures that should be added to the exposure. Optimizing or even just incrementally improving the expected performance of a portfolio is not simply an issue of writing some new business or non-renewing Figure 4. Sample real-time earthquake monitoring. some existing business. A full

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Detection or Prevention?

Should risk managers focus limited financial and internal resources on prevention of corporate fraud, or should they ensure an effective detection and investigation program is in place? In fact, they should do both.

By Stephen Turner, Assistant Vice President, Senior Account Manager, MJM, Inc.

isk managers are faced with difficult decisions during the course of establishing an effective internal risk management program. Do they focus limited financial and internal resources on prevention, or do they ensure there is an effective detection and investigation program in place? In fact, it is often advised that they can and should do both.

R www.canadianunderwriter.ca • March 2008

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FRAUD ASSESSMENT Employee malfeasance usually represents the largest single factor of risk exposure for a company or organization. It can take a toll in dollar terms, but it can also negatively and severely impact a company’s brand and reputation, resulting in potential costs several times those of the illicit act itself.

Many organizations throughout North America have been very proactive with their risk management and anti-fraud programs. Most recently, the Sarbanes-

Oxley Act of 2002 initiated some extremely onerous and legal responsibilities on company auditors and management.

Based on the act, the U.S. Securities Exchange Commission developed a set of “Final Rules.” In section (II)(B)(3)(d), the rules state: “The assessment of a company’s internal control over financial reporting must be based on procedures sufficient both to evaluate its design and to test its operating effectiveness … and controls related to the prevention, identification and detection of fraud.”

In this global economy, if public companies in Canada want to do business south of the border, they cannot afford to be complacent or fail to develop protocols and procedures necessary to help them comply with the new reporting laws and rules in the United States. Although Canada does not yet have legislation as powerful as the Sarbanes Oxley Act, it is only a matter of time before similar

principles are legislated in Canada. For those organizations involved in North American trade, compliance is already a requirement.

Today, conducting a comprehensive fraud risk assessment is more than just a sound business practice; it is now mandatory in the United States. Public companies must now perform them on an annual basis. Such assessments within an organization should not simply be restricted to the more obvious forms of fraud — i.e. employee theft, embezzlement or vendor fraud. They should also encompass a far broader spectrum to include every aspect of the business operation from senior management, to external vendors, to supply chain management.

Once risks have been identified, antifraud programs and controls need to be designed, implemented, monitored and investigated. It is fundamental to the success of the plan to show that the programs

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In summary, it is simply not enough to identify and assess the risk by implementing procedures to prevent an occurrence.

Prevention should and must be conducted in concert with detection and investigation.

are adequate and that they meet the overall objectives of reducing the financial risks and exposures to an organization.

www.canadianunderwriter.ca • March 2008

38

BEYOND PREVENTION Recent articles in the press and on the Internet promote the importance of proactively protecting assets from a loss based on the argument that recovery after the loss makes little financial sense. Costs can be significant when adding up the costs of reporting the loss, adjusting the loss and investigating it. The same argument notes that in the event of property or product recovery, there are issues surrounding refurbishing, employee handling, reshipping, warranties, product safety, etc. The original wholesale costs could be dwarfed by the additional costs noted above. It is therefore considered easier to make an insurance claim and move on. In fact, many manufacturers or retailers do not even carry the necessary insurance coverage and simply absorb the costs as the price of doing business.

During my tenure with the metropolitan police in London, England in the 1980s, I investigated many frauds. One in type of fraud in particular demonstrates the prevailing corporate philosophy about fraud that existed as recently as the 1980s.

An electronics store had a very popular program providing customers with an instant, on-the-spot credit of _1,000 pounds (about Cdn$x,000). To be eligible, customers needed only two pieces of identification showing their “address.” No photo ID was required. Thieves would steal a wallet or break into a house, steal utility bills to prove their address and then would walk out of the store with _1000 pounds worth of electronics.

As a result of a fraud investigation, I apprehended one suspect and requested a representative from the store to come

down to the police station to press charges. The store declined. The success of their promotion had been phenomenal; the costs of attending court — lost employee time, legal fees, etc. — were seen as throwing money away. Furthermore, since the program had a “shrinkage” or fraud allowance built into it, the store was not interested in charges, recovery or prosecution.

Ignoring the problem does not make it go away. Initially it may make financial sense not to pursue investigation or recovery. However, in the long term, an organization may be subjected to reputational risk, employee theft, loss of market, loss of equipment, product tampering, loss of client relationships, higher insurance costs, product liability issues, as well as warranty and refunds on products they never actually sold. In addition, the organization may also be the victims of organized crime — they may inadvertently be involved in money laundering.

LIMITS TO FRAUD AUDITS: SUPPLYCHAIN THEFT Risk managers might not even consider one additional issue: supply chain theft or frauds. Consider this example: a national company, “Widgets ‘R Us,” operates a chain of retail outlets. Each store is individually owned and operated. Widgets ‘R Us distributes all products through its head office and central warehouse operation. They receive products from a variety of manufacturers and distributors; they do not pay for manufacturers’ or distributors’ products until they have been physically received at the head office/warehouse facility. Once Widgets ‘R Us reships the product, it is then “owned” by the retail outlet.

If the distributor experiences a cargo theft en route to Widgets ‘R Us, the dis-

tributor or shipper is usually financially responsible for the loss. They notify Widgets ‘R Us that there was a delay in shipping the product and promise to reship soon. Unless there is a contractual obligation for the shipper to notify the client of an actual theft or robbery, Widgets ‘R Us may not even be aware that their product or branded product had been stolen and is likely being sold on the black market.

For all of the reasons discussed above, failure to investigate could result in significant financial losses to Widgets ‘R Us, even though their own internal audit and anti-fraud program has not been compromised.

Taking this example further, the retail outlets might now be issuing warranty repairs or refunds for products they never actually sold. They are not aware of the manufacturers’ loss; therefore, they are not on the lookout for this product entering their store. Further still, if a store encounters a theft problem — i.e. major thefts after recent shipments — and they do not disclose this fact to Widgets ‘R Us, the retail outlet may not be made aware of a theft ring operating in that area, where other stores are also being hit.

As illustrated in the above example, the manufacturer or distributor may have its own internal anti-fraud program. Widgets ‘R Us and the retail stores may also have their own internal anti-fraud programs.

Even so, Widgets ‘R Us may never know the true extent of fraud and loss the company absorbs. Companies must think outside of the box to counter the significant effects of not managing their risks effectively.

To successfully manage these risks, companies must ultimately reduce the opportunity and incidents of malfeasance.

So how do they balance the limited finan-

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cial and internal resources on prevention and make sure there is an effective detection and investigation program in place?

This is the ultimate risk management question.

WHAT TO DO Risk managers of the future will need to know not only how to identify and assess risk, and develop the protocols and procedures to combat it, but they will also have to arm themselves with the latest information about how to go about detecting and investigating, post-loss.

Should they conduct the investigation themselves? Is this effective? If so, do they have the necessary skills? Should employees in positions of authority within organizations place themselves in situations in which their own impartiality and biases might be called into question?

By engaging the services of external forensic auditing investigators or special investigators, risk managers ensure impartiality and a definite purpose of identifying and reporting the facts of the loss.

Page 39

Hiring an outside agency should be based on a due diligence process. Does the company have qualified staff to conduct such an investigation? Clearly define the budget, the expected parameters and the outcomes of the investigation: is it designed to identify the perpetrators? If so, is the company prepared to go through the judicial process? Are they trying to identify the factors that allowed the loss to occur? If so, are they developing additional programs and protocols to prevent further instances?

Vendors can assist with some of the external investigation tasks such as: • employee interviews; • witness interviews; • vendor interviews; • interviewing police officers and liaising with their investigation; • employee background checks; • scene documentation and preservation of evidence; • recorded interviews; • CCTV reviews; • security reviews; and

• overall risk assessment.

The overall costs involved with detection and investigation can be effectively managed to produce a significant return on investment if the objectives are clear, the parameters for the investigation are understood and the results are communicated clearly in an unbiased and courtready document. This emphasizes the requirement for risk managers to have clear protocols, procedures and objectives in place so that when a loss or incident does occur, the organization is already in a position to deal effectively with the situation and minimize its exposure, risk, damage to its reputation and loss of its financial and employee resources.

In summary, it is simply not enough to identify and assess the risk by implementing procedures to prevent an occurrence.

There must be a clear and defined process in place in the event the unthinkable does occur. Prevention therefore should and must be conducted in concert with detection and investigation. You can’t afford not to.

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

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.

39 www.canadianunderwriter.ca • March 2008

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Cyber-risk:

Getting Personal

By David Turner, Senior Associate, Integro Insurance Brokers (Toronto)

t is Monday morning and the risk officer receives notice that the company’s network has been breached. There now exists a high probability that hundreds, if not thousands, of customer records have been compromised and are in the hands of a third party.

Immediately, thoughts of public outrage, business disruption and reputational damage go through your mind. What do you do next in order to mitigate damage — notify customers, advise the board, issue a press release or source the weakness within the system? For hundreds of companies, this scenario could transpire on any given Monday, regardless of their level of preparedness.

We live in a world where information is exchanged instantly and local companies now have global reach via the Internet. It’s become a primary channel through which we communicate and do business. This evolution brings with it new opportunities and rewards, as well as new risks and liabilities. The advances of technology accelerate how we transact business, and provide those with dubious intentions the tools and access to cause a material disruption to both business continuity and consumer confidence.

Traditionally, corporate risk officers have been charged with protecting the tangible assets of the company. But their job becomes more complicated when this oversight extends to risks related to network security, intellectual property and brand reputation.

I

www.canadianunderwriter.ca • March 2008

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CYBER-RISK Network security has become a critical risk concern for businesses, as revenues generated through online channels have

grown as a percentage of total revenue, and strategic outsourcing partnerships are forged. Where traditionally corporate risk officers have been charged with protecting the tangible assets of the company, their job becomes more complicated when this oversight extends to risks like intellectual property and brand reputation.

Cyber-liability exposures and data breaches, especially those that involve the integrity of personal information, are well publicized, creating the potential for putting a company’s reputation at risk. In the past 12 months, governments, financial institutions and healthcare providers alike have all been exposed to data breaches resulting in significant settlements and reserves; not to mention the resulting panic from major stakeholders — specifically, customers. As fast as a system can be breached, news of that breach can spread across the globe in seconds. It can take months to repair the damage arising from losses that stem from just seconds of disruption. Any business that collects and stores its customers’ personal information exposes itself to additional risks. Not-for

profits, educational institutions and retailers are also at higher risk, since the standard of care regulators impose on companies is stricter now than in the past. Data is also more sensitive: it’s shared across multiple networks and portable.

One also must consider the risks existing inside an organization. A data breach is not limited to a network failure, but to any compromise of the security, confidentiality or integrity of personal information. Employees have access to sensitive information on a daily basis and through fairly simple means, such as a Universal serial bus (USB) memory stick, can easily download customer or patient data or compromise company trade secrets. Given the breadth of these databases and the prices paid on the black market for personal information, this can be a tempting source of supplementary income for line employees. With employees becoming more mobile in today’s business environment, a single laptop can be a window into accessing thousands of customer records. The costs per record might be in the hundreds of dollars once charges for investigation, record recreation and customer notification are tallied.

Companies face many types of costs, both tangible and intangible, resulting from a security breach or privacy incident.

These costs include: • loss of current and future customers;

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• loss of income; • reputational loss; • share price drop; • public relations costs; • notification expenses; • legal expenses; • fines and penalties; • judgments and settlements; and • internal and external IT costs to repair system.

MANAGING CYBER-RISK Risk avoidance is not a viable option for many companies, but steps can be taken to mitigate further liability risks

Page 42

from data breaches. These steps include: • reviewing legal/network audit — Review existing protocols and align them with current laws regulating the collection, storing and disclosure of personal information. Ensure that protocols extend to any third-party service providers charged with assuming responsibility of critical piece(s) of the corporate network infrastructure; • establishing an effective privacy policy; • disaster recovery planning and business continuity planning — Regularly complete and test the plans corporation-wide; • establishing mobile device protocols —

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Corporate information is readily available from laptops and Blackberries and other mobile devices. Consider implementing encryption software and establishing password protection protocols for employees; • training employees — Educate staff about the risks and importance to adhering to corporate information protection policies.

• developing data classification standards — Establish protocols for access to highlysensitive information; and • the possible purchasing of insurance — As with all risks, loss control measures are often insufficient. Given the range of products available to provide coverage for data breaches and privacy liability, consider an insurance solution.

INSURANCE MARKET RESPONSE Insurers of traditional policies recognize the specialized nature and scope of cyber-risks, but often they do not have the resources to underwrite them. Some of the policy wordings in standard policies that are inadequate for insuring cyberrisks include: • exclusions and definitions in policies that limit or fully exclude network-related losses; • definitions of property that exclude electronic data; • business interruption/extra expense is triggered only if the direct loss is insured; and • property direct losses that were designed for physical assets and physical perils; not information assets and electronic risks.

Insurance companies are increasingly addressing these issues by providing specifically-designed coverage; at the same time, standard forms are clarifying intent with data and cyber-risks exclusions in both property and liability forms. The reinsurance market implemented the virus exclusion in 2001. Realignment of the insurance industry around emerging risks has been going on for years, resulting in the development and prevalence of specialty products in the market such as equipment breakdown and environmental policies. It is therefore no surprise to see the same reaction to privacy and network security risk.

The market has been addressing cyberrisks in a focused way for the past decade.

Yet only in recent years has it focused on privacy liability arising from both

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network- and non-network-related losses.

Some insurers have taken this further, offering coverage for breaches of personal information for any reason.

Historically, securing insurance was an onerous, time-consuming and costly exercise that typically involved a third-party network security audit. Also, the coverage was limited to claims arising from unauthorized access or use of a computer system, and not for losses arising from broadly-defined data breaches. Nowadays, insurers typically require details on revenue, scope of services and customer base, details on the disaster recovery plan, security audits, privacy plan and contracts, and interviews with IT, legal and risk management.

Insurers offering specialty cyber-privacy products include AIG, ACE-INA Insurance, Lloyd’s of London, Chubb Group of Insurance Agencies, CNA Insurance and St. Paul Travelers. Other insurers might address components of the exposure through extensions to errors and omissions (E&O) and General Liability policies. Capacity available from a single carrier could range up to Cdn$25 million,

Page 44

depending on the nature of a specific risk.

A significantly higher amount is available through excess layers.

Network security and privacy liability coverage can include: • liability for media/content on an insured Web site; • cyber-extortion monies; • failure to properly handle, manage, store, destroy or otherwise control personal information in any format; • damage caused by retransmission of a computer virus due to inadequate network security; • infringement of intellectual property for media or software on the Internet; • identity theft response fund, covering customer notification expenses and crisis management expenses (including legal, public relations and/or crisis management services to restore corporate reputation); • loss or corruption of data caused by hackers, malicious codes or rogue employees; • business interruption (BI) for network attacks and loss income if Web site is shut down;

• contingent BI losses caused by network outages due to problems at a service provider.

In the end, the development of these products will be tied to regulatory and legal responses to some of the larger breaches that have occurred. Each jurisdiction will likely have different rules and regulations as it relates to privacy protection protocols and customer notification.

Thus, insurance products must keep pace with the various liabilities and costs that companies incur from any security violation and resultant damages.

It might be argued that the tighter the network security and audit requirements imposed on insureds, the less need there would be for insurance at all. But loss prevention and insurance are not meant to be mutually exclusive. Ultimately, the harsh reality is that the risks companies must manage are getting more complex and the consequences more severe. It is encouraging to see the insurance industry’s response to risks arising from data breaches — specifically privacy-related losses — has evolved to the point where meaningful risk transfer solutions are available.

www.canadianunderwriter.ca • March 2008

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Opinion/Analysis

ecently, every time I pick up a newspaper or listen to the radio, I am struck by how certain issues that might severely affect our industry are continually hitting the headlines. Technological advances, environmental changes, decaying urban infrastructures — all of them have risk implications of which we should be aware and, more importantly, preparing to address. The challenge for our industry is to take a proactive approach towards research-ing, understanding and managing these emerging issues to the benefit of our industry and customers, both now and in the future.

R

www.canadianunderwriter.ca • March 2008

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NANOTECHNOLOGY Small is huge, especially when it comes to nanotechnology. A nano is one billionth of a metre and 10 times the size of an atom. For fiction writers, nano possibilities have kept their imaginations running wild for years — from the threat of vicious nanobots taking over the world, to nano materials healing our bodies from within.

Rapid advances in modern research are quite literally bringing these possibilities to life. By 2008, the total global demand for nanoscale materials, devices and tools is expected to reach US$28 billion. Uses of nanotechnology to develop products are wide-ranging, allowing us to create ultra-efficient catalysts, detoxify wastes, assemble useful molecular machines and efficiently convert sunlight into energy. One example is “Nikitabot” — a nanobot about the size of a pinhead that, when used by the thousands, can eat up an oil slick in minutes. There is also the storage and transfer of energy using “nanoionics” and many other environmentally positive uses in development.

No Small Risks

producing nanomaterials and people using nanomaterials. It is difficult for insurers to pinpoint which industries use potentially harmful nanomaterials, as we don’t yet have a full understanding of the affects to health, safety and the environment. But we ignore this potential large-scale risk at our peril, as some would say we did with asbestos.

WEATHERING CLIMATE CHANGE Arguably the most topical issue of the moment, our changing environment, is making its way into the political arena and onto the business agendas of many organizations at a lightningquick pace.

You don’t have to look very far for evidence of how accelerating climate Nanotechnology, climate change continues to affect different change and eroding urban parts of our world. We saw in 2007 exceptionally heavy monsoon rains and infrastructures are top of mind floods in South Asia; severe flooding in for the country’s insurers Britain, fuelled by the wettest May to July on record; unusually heavy snowfall in South Africa and parts of South

By Robert Landry, America, and swell waves up to 4.5 Immediate Past meters (15 feet) causing serious floodPresident and CEO, ing and extensive damage in the Zurich North America Maldives. These extreme weather Canada events cause a severe impact on ecosystems, human infrastructure, economies and our general well-being.

You can argue about what is causing It’s an exciting future. From a risk per- it, but ample evidence makes any speculaspective, however, some nanomaterials tion as to whether or not it is a reality a could potentially be toxic to humans or non-starter. Climate change is here and the environment. For insurers, the scale now, forcing us to understand the longerand scope of this threat is very much term impact and how we must help our unknown. “At-risk” workers might customers adapt to the inevitable. Already include researchers involved in nanotech- water damage has become the largest nology development, industrial workers cause of loss in residential insurance, a

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product historically designed to cover fire and theft. However, in every challenge there is an opportunity. We simply can’t afford to sit back and let responses to this issue develop around us. Instead, we must proactively look closely at the implications of our changing weather patterns and take timely and appropriate action.

From a risk perspective, some nanomaterials could potentially be toxic to humans or the environment.

INFRASTRUCTURE UNDER PRESSURE There’s a new danger on the roads — a crumbling infrastructure that is deteriorating faster than it can be repaired, and at the expense of human life. It is not just London Bridge that is falling down: the tragedy in 2006 in Laval shows how close to home this issue can hit. Pipes are bursting, levies are giving way and commute times are growing considerably longer.

Clearly, we have a serious infrastructure problem caused by significant underinvestment.

Are we fighting a losing battle? Recent surveys reported in the Canadian Journal of Civil Engineering estimate it would take US$9.4 billion of spending each year for 20 years just to eliminate bridge deficiencies in North America. What’s more, it would take an investment of US$1.6 trillion over five years to bring North America’s existing infrastructure into good working order.

Whether bridges or water systems, TM these issues are clearly going to get worse.

Insurers can’t be the big pockets of last resort. If we’re the ones footing the bill for a growing number of infrastructure-related losses, then we need to be in on the discussions about funding and alternatives.

Get the job. Done.

www.canadianunderwriter.ca • March 2008

48

SMALL CAUSES: LARGE IMPACT Aside from the risks outlined here, insurers must wrestle with something else: the unknown and the unknowable.

Increasingly, we see small causes becoming responsible for widespread impact.

One SARS tourist, for example, shuts down tourism in Toronto. One mad cow cripples the farming industry. One tree falls on a power line and brings down the Eastern Seaboard power grid. One terrorist uses a commercial jet as a missile. One teenager creates a computer virus that brings down an entire corporation.

We must be vigilant, using early-warning systems to help us prepare and tackle these emerging issues head on.

We need to show greater innovation than we have done in the past to devise timely solutions. No doubt we are obliged to take action to protect our shareholders from financial loss, but as an industry we also have a real opportunity to respond to our rapidly changing environment and create compelling value propositions to support our customers and enhance our image.

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The Risk House By expanding the role of the captive to that of the “risk house,” and establishing one focus for all risks, a captive would allow for a more integrated and effective management of risk

By Paul Barlow, Manager Insurance & Claims, South Coast British Columbia Transportation Authority (TransLink)

Michael Baddeley, Principal, Integro Insurance Brokers (Vancouver)

www.canadianunderwriter.ca • March 2008

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s corporations continue to grow through mergers and acquisitions and increased investment in new markets, risk management practices and discipline are also changing. No longer is the main focus on hazard risk, credit risk or foreign exchange risk; now risk management has recognized risk in such areas as human capital, reputation, climate change and supply chain. Risk management practices and traditional uses of captives must adapt to the ever-evolving business environment: this is essentially what is now termed “enterprise risk management” (ERM) — managing all the risks of a corporation through a strategic decision-setting process, identifying potential events that may affect the entity.

Although the global economy affects the way we manage our business process-

A

es, the following fundamentals of risk management continue to be paramount in managing these risks: Risk Identification How can we identify the direct and indirect exposures among the hazard, operational, financial and strategic risks our organizations face?

Risk Assessment Risks might be identical across industry, geographical and company boundaries, but each type of exposure has a unique priority associated with its consequences to the organization.

Risk Mitigation Usually risk mitigation involves using a combination of the following techniques:

understanding the company’s risk appetite, acceptance, using innovative solutions to meet those objectives, insurance programs, captive programs and/or avoiding the risk altogether (getting out of the business altogether, or the country in which the business is run).

So how can a captive be used in the new global economy, and what are some of the challenges risk managers face in managing their captive or risk management processes?

CHALLENGES Changing security environment The Sarbanes-Oxley Act 2002 requires corporations to improve quality and transparency in financial reporting and independent audits and accounting for public companies.

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So what does this mean for the owners of captives? This may require that separate entities control the independence of the auditor, captive management, legal and actuarial services. In addition, it will require more review by the risk manager in managing its captive.

The Canadian Institute of Chartered Accountants has made significant changes to auditing guidelines, including revised auditing standards regarding the auditor’s responsibility to: • consider fraud and error • understand the entity’s control environment, and • audit the policy liabilities of insurance companies.

These changes require more scrutiny

Page 52

mate change, reputation risk and the supply chain.

As risk managers, we need to look at each of these areas and provide solutions to CEOs, CFOs and boards to minimize exposure to the risk of shareholder discontent and consequent class action litigation.

In managing human capital risk, we will need to work more closely with human resources to find solutions to manage the loss of key personnel, labour shortages, succession planning and workers compensation issues. One area that is becoming more challenging is political unrest in countries in which a company’s manufacturing plant is located. How will you fulfill a contract if the workers are unsafe, and how will you get your employ-

Another reputation risk involves thirdparty suppliers: Dell computers, for instance, had to recall some 4 million computers as a result of fires caused by the batteries manufactured by Sony.

Globalization might also affect the supply chain, which in turn would affect risk management. Organizations are outsourcing more, automating their manufacturing process and managing inventories in order to minimize cost and maximize profits. Without a strategy to manage the supply chain risks, significant disruptions of the supply chain can reduce the company’s revenue and market share.

Using good risk management techniques can mitigate the potential for loss of a key component from a supplier. If you review

Globalization might also affect the supply chain, which in turn would affect risk management. Organizations are outsourcing more, automating their manufacturing process and managing inventories in order to minimize cost and maximize profits. They will need a strategy to manage the supply chain risks.

www.canadianunderwriter.ca • March 2008

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by the actuary, the captive and risk manager in providing reasonable assurance that the policy liabilities are reasonable.

This involves making sure the data is 100% accurate, including the assumptions that reserving techniques meet acceptable standards. This will also involve the actuary being audited by the auditor’s actuary.

Proposed changes by the IRS in 2007 would end the allowance of deductions for loss reserves by single-parent captives that file income tax returns on a consolidated basis with their parent corporation.

If this regulation goes through, what impact will it have on a captive domiciled in the United States?

Globalization Many corporations operate on a global basis, and so the need for risk management to become integrated with the strategic planning process requires a greater investment in the risk management function and resources. There will be more focus on non-traditional risk issues including human capital risk, cli-

ees out of the country if it is deemed necessary? A good plan involving risk management, security and human resource will mitigate the potential loss of personnel.

Climate change is affecting all regions of the world and the way in which we conduct business. Changes to government regulations may affect the cost of manufacturing, shipping and distribution of products. How is this risk being managed?

What about the cost of energy or the lack of water? Can we use the captive to manage the incremental cost as a result of regulations associated with climate change?

The damage to an organization’s earnings and shareholder value as a result of an incident that affects the reputation of an organization is sometimes irreversible.

Risk management needs to be integrated into the strategic process to understand the process and offer solutions to minimize these risks. For example, firms using “sweatshops” in their manufacturing processes may lose business within their sector and from organizations that don’t wish to be associated with companies that condone “sweatshops.”

a supplier’s manufacturing plant, for example, and recommend an upgrade to their fire protection system, you might reduce the potential of a fire in the plant, thereby reducing the chances of a disruption to your supply chain.

Risk managers need to understand the value added in each stage of the supply chain (risk identification), assess the risk to delivery of this value (risk assessment) and determine the company’s risk appetite for accepting or mitigating the risk.

Changing risk management practices to realities of a global infrastructure As a result of the complex global business environment, and the demands of various stakeholders who want to understand the broad spectrum of risks facing complex organizations (to ensure they are appropriately managed), boards are driving their management to invest and implement effective, transparent risk management practices. These risk management practices need to go beyond traditional hazard risks: they need to identify and address a complete gamut of risks and

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opportunities encountered by business enterprises in protecting and creating value. This is otherwise known as ERM. ERM is now the standard for achieving stakeholders’ demands for greater disclosure and accountability. ERM can be described as a risk-based approach to managing an enterprise, integrating concepts of strategic planning, operations management and internal control. The approach provides a comprehensive view of risk from both operational and strategic perspectives. The process supports the reduction of uncertainty and promotes

Page 54

the exploitation of opportunities related to the achievement of an organization’s objective.

The concept underlying ERM has been around a long time. The application of this concept emerged in financial institutions and world-class corporate treasuries: they applied at-risk frameworks, capital attribution techniques and other measurement methodologies to the management of market and credit risk. Market developments over recent years have made it clear that volatility isn’t just a matter of currency, interest rate or equity security risk anymore. Customer preferences,

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competitor product offerings, labour markets and technology are all changing with increasing frequency; their behaviours now resemble that of financial markets. Change is no longer linear; it is exponential as the life cycles of organizational business models compress.

No business model is impregnable.

Successful companies must innovate and create new sources of value for their customers and markets over time or they will lose ground to nimbler, more creative rivals. Establishing market strategies is a fluid, dynamic process. Risk management, which augments that process, is equally fluid and dynamic.

Company profits in face of global adversity Risk management can help a business unit achieve its profitability goals through enabling better, risk-adjusted decisions.

For this to be achieved, the risk management culture needs to permeate and be embedded in the business culture, protocols and processes.

Implementing ERM requires buy-in and commitment from all stakeholders within an organization. To start, a proper strategic planning process should be established, in which those responsible for risk management develop partnerships with boards, senior management and across all levels and functions of an organization. This partnership should be expanded to service providers, including brokers, investment analysts, insurers and reinsurers, etc.

A captive insurance program can play a central role in assisting an organization in maintaining and enhancing its profitability, by enhancing management in preparation for the global challenges it faces.

Making sure your captive has the flexibility to respond to marketplace uncertainty is the key. In traditional captive programs, each risk is managed separately, limiting the effectiveness of a captive in the context of an enterprise-wide approach to risk management. In addition, in traditional captive arrangements, coverages are purchased in traditional silos so the covariance effect cannot be captured. By expanding the role of the captive to that of the “risk house,” and establishing one focus for all risks, a captive would allow for a more integrated and effective management of risk, the capture of scaling effects and efficient enterprise risk financing.

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Data Quality Key to Building a Good Cat Model Missing information is relatively easy to spot, but identifying wrong data that appears complete is more challenging

By Matthew Grant, Chief Markets Officer, Risk Management Solutions

www.canadianunderwriter.ca • March 2008

56 fter seven devastating hurricanes spun into the United States between 2004 and 2005, there appeared to be widespread surprise at the significant discrepancies between actual and modelled losses.

The first reaction was to condemn the models. But when companies compared the data they had entered into the models with what they had actually been insuring, a different story transpired.

Descriptions of insured locations were often incomplete and or even erroneous. An infamous example was the destruction of the floating casinos of Louisiana, which cost millions of dollars more in insured losses than expected largely due to business interruption.

A

These huge barges proved highly vulnerable to storm surge but had been incorrectly categorized in the models.

More worryingly, thousands of properties located close to the sea had only been identified by their area zip code, making them appear far less vulnerable than they actually were.

Improving the quality of data entered into models can have a dramatic effect on the models’ output. Changes to loss estimates by a factor of four times on a single building or 25% across a whole portfolio are not uncommon when information is enhanced.

The impact is so significant, rating agencies are now using an organization’s exposure data quality as a proxy

for the effectiveness of management controls. Despite this, some risk managers are still fairly ambivalent about their data — they prefer to go to their broker for advice on what is needed for insurance placement, or they (mistakenly) believe that providing better information might result in higher insurance costs.

SPOTTING AND CORRECTING MISSING DATA Missing information is relatively easy to spot, but identifying wrong data that appears complete poses an even greater challenge. Humans are very good at using intuition to spot anomalies in patterns and can catch some of

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these errors, but accurately reviewing extensive insurance schedules is unrealistic. Even when problems are identified, someone needs to decide how to correct them.

Software can be taught how to recognize and address irregularities in a systematic and auditable way, using predefined rules or heuristics that replicate expert intuition. Designing good heuristics is difficult: they need to be smart enough to decide when data is wrong and how it should be changed, but retain the ability to ask for human intervention where there is ambiguity.

Page 58

The best heuristics can learn from experience, creating processes that get increasingly automated, reliable and accurate.

Combining modelled heuristics with metrics that monitor data resolution and completeness allows companies to understand their progress in improving data quality over time and across business units. Quality cannot be managed until it has been measured.

Ironically, it was probably easier for insurers to get information about properties they were insuring 200 years ago than it has been until now.

Identifying Investigating Resolving ... for over two decades

www.canadianunderwriter.ca • March 2008

58 LOSS ADJUSTERS

Ottawa Canada 1-888-872-6226 Professional Liability General Liability Commercial Property Personal Property Auto Construction Marine Transportation Environmental

Claims, Risk Management & TPA Services

From 1867 to 1970, Sanborn Fire Insurance Maps documented the rise of American cities with building level detail and colour-coded construction classes. But only in recent years — as the cost of computer storage has decreased, and technological performance has increased — has the insurance market been provided with similar levels of detailed information. Having lost the habit of collecting good data, the market needs to relearn how to identify and store the information required to make decisions.

Even the best heuristics need help.

An independent view of the building construction, occupancy type and valuation can provide additional information to complement or even replace the original data. The construction and real estate investment industry has access to robust databases that contain some of the key information underwriters need; this data can be converted into a form insurers can use. Using such data in combination with aerial photographs and building surveys, insurers will have an independent view of what they are underwriting, where it is and what it is worth.

To be successful, both the databases and heuristics need to be accurate and timely. Companies excelling at assessing data quality are using systems integrated into the underwriting process, so there is no meaningful increase in analysis time.

MOVING FORWARD All major events provide new insights for catastrophe models, and the hurricanes of 2004 and 2005 were no exception. The models have long since been updated to reflect these lessons.

But the problem of poor quality data still affects the industry and remains one of the biggest barriers to accurate loss assessment, portfolio management and underwriting.

Following another year of relatively quiet hurricane activity, rates are starting to slip; there are worrying indications that risks are again being written with insufficient attention to location, construction type and size. Ultimately, the efforts insurers and reinsurers make to raise the standards of their data will determine how well-prepared the industry is for the next major event.

The 14th Annual Starlight Insurance Gala

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Take a step back in time to the glitz and glamour of the Roaring Twenties.

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Great Wall No Longer Companies that recognize and plan for risks can maximize business opportunities in China

By Stephen Charnley, Managing Director, Asia Client Services, Marsh Canada Limited

fter a recent series of product recalls and warnings about certain goods manufactured in China, a growing number of Canadian companies that are planning to invest or expand their businesses in China are working to recognize and assess their potential risks there.

By developing a business strategy, they can take advantage of the vast opportunities presented by what has become the world’s largest economy.

A recent Mercer survey found more than 90% of multinational companies said China is important to their global strategies, with 52% calling it critical. Multinational corporations directly invested more than US$60 billion in China last year, and in 2008 investment shows no signs of slowing down. For the first nine months of 2007, exports from China were up 27%, to about US$880 billion. Canada imported Cdn$35 billion worth of goods and exported Cdn$8 billion to China.

A www.canadianunderwriter.ca • March 2008

60

Companies today are doing considerably more homework than firms that entered China 10 to 15 years ago. Those that stayed are seeing the benefits today after they learned, as a line from the book Mr. China, A Memoir1 states, to “extract value from difficult situations.”

The following are some recent questions received by Marsh’s supply chain risk practice: • Why did the recall of millions of toys made in China happen in the first place?

• Have the recent recalls of products made in China dampened business interest?

• Are the risks of doing business in China greater today than they were a year ago?

• What is the quality of construction like?

• How does a firm identify and select the right partner?

• How can we protect our intellectual property?

Profitable business opportunities are

available in China if risks are properly assessed; if the company’s leadership is able to keep abreast of the country’s evolving regulatory environment; and if the firm has experienced risk managers to help properly plan the new venture.

China continues to take actions to move toward a more open and liberal economy. It made this commitment in 2001 when it joined the World Trade Organization (WTO). At the five-year review in 2006, a number of organizations assessed its progress. Eighty-five per cent of respondents said they have seen “great” or “considerable” improvement in China’s business environment since it joined the WTO. CHINA: IMPROVING STANDARDS As its manufacturing sector continues to expand and evolve, China is being closely scrutinized by manufacturers and consumers in Europe and North America.

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News media are looking closely at product safety, working conditions, and potential labour issues in countries where goods are manufactured. At the same time, businesses investing in China need to be aware of potential natural hazards, such as the country’s earthquake and flood zones, as well as potential transportation, infrastructure, and workforce issues, including turnover and lack of skilled technical labour in certain emerging regions.

China’s government has tightened up enforcement of quality, safety and environmental regulations. Nonetheless, companies operating in China or purchasing finished goods or components from sup-

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much from a single country: longer lead times mean they can’t respond rapidly enough to meet volatile customer demand. For instance, a consumer goods company was convinced it should source 80% of its goods from suppliers in China.

But a full cost-and-risk analysis showed it would make the most profit by sourcing only 18% from these suppliers.

Still, a growing number of companies find it worthwhile to do extensive business in China, as long as risks and volatility are well-managed. A consumer products distribution and logistics company reports achieving the same lead times, better quality and lower cost from its Chinese suppli-

Companies routinely estimate they will save between 30% and 40% by sourcing components or products from China. But the savings are more typically 12-14% because of unanticipated supply chain costs and volatility.

pliers there must ensure that potential risks are adequately identified, assessed and mitigated.

For many Canadian companies, China presents two major opportunities: • achieving a lower manufacturing cost; and • selling into a new and rapidly growing marketplace.

Both come with significant pitfalls that should be avoided. That’s why companies must balance risk against benefit.

www.canadianunderwriter.ca • March 2008

62

SOURCING FROM CHINA Sourcing from China or other emerging markets has become a core strategy for many companies pressured to lower product costs. Companies routinely estimate they will save between 30% and 40% by sourcing components or products from China. However, the savings are more typically 12-14% because of the impact of unanticipated supply chain costs and volatility. One company, for example, saw its inventory carrying days jump from nine to 44 days, its finished goods carrying costs increase 184% and its freight costs become much greater than expected because of frequent expediting requirements and unexpected fees.

Some companies have found they will actually lose money if they source too

ers than it achieves domestically. The high performance level came from applying rigorous analysis and mitigation of variability and other risks in its China supply chain and quality processes.

SELLING INTO CHINA’S MARKETPLACE China’s domestic market is becoming increasingly enticing. Its rapidly growing middle-income population is expected to surpass 300 million people in a few years.

A recent survey by the European Union Chamber of Commerce in China found the primary reason for European firms doing business in China was to produce goods for the Chinese market. Similarly, a U.S.–China Business Council survey found that 57% of respondents cited having a presence in the country’s massive domestic market as a main reason for being in China.

When selling into the Chinese market, companies’ concerns ranged from infrastructure issues — arranging a reliable network of intra-China transportation and distribution partners — to intellectual property concerns. It’s also important to find the right construction partner. For instance, one company had a new distribution centre built in China, only to find out the building’s designers didn’t include

loading docks.

Given the potential for increasing dependency on their operations in China, forward-thinking companies have spent time identifying and anticipating potential problems or risks. Problems arise when companies haven’t sufficiently evaluated their risks. A recent Marsh survey of European clients with operations in China found only 21% said they had a full business continuity management plan in place, 56% said their plans needed development and 8% said their plans were non-existent.

With this in mind, what framework should you use to assess potential supply chain issues? What should be part of your business planning process once you have determined that China is a place you want to grow? How will you identify the potential impact of an impediment to your manufacturing or product supply chain?

BUSINESS PLANNING A systematic approach should include the following basic steps: 1. Identify critical dependencies.

• Evaluate and map out the risks associated with your product supply chain.

• Identify and prioritize key suppliers and logistics nodes.

• Don’t forget to look for hidden interdependencies, such as too many of your suppliers relying on the same raw material or component supplier.

2. Diagnose key suppliers’ risk exposures and their resilience to supply chain disruptions.

• Identify and prioritize suppliers’ main risk issues.

• Design a risk management program.

3. Conduct an in-depth analysis of critical supplier and logistical risks, and prepare management and mitigation procedures.

• Implement risk management/transfer programs.

• Update sourcing and procurement policies.

• Provide project management support.

4. Monitor and control process.

• Implement reporting and measurement processes and standards.

• Continually test and update the program.

These steps will help you conduct a critical assessment of existing and potential suppliers and help evaluate the risks.

Next, you need to consider the issues associated with bringing your products to market. The world of logistics in China is

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Announcing the

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somewhat different than in North America, where the cost of moving the product is usually less than 5% of the product’s retail value, compared to 10% or more in China.

Location, local government regulations and inter-provincial licences can be significant logistical challenges. The Chinese government has taken many positive steps to improve transportation bottlenecks. It has established a national superhighway system, added 17,000 kilometres of track to the railway network, plans to build 44 new airports between 2006 and 2011 and invested US$80 billion for new ports by 2010. A recent regulatory decision allows foreign logistics firms to establish whollyowned subsidiaries in China.

This will help move China’s logistics industry from a manufacturerowned, local and fragmented array of companies to a more national, streamlined and specialized approach with international expertise.

www.canadianunderwriter.ca • March 2008

64

BRAND AND REPUTATION RISK Last year, the headlines were filled with product-recall announcements, putting into question long-recognized household names. But all of it was due to manufacturing quality. To put this into perspective, let’s take toys as a category that has received quite a bit of press.

Approximately 60% of toys sold worldwide are made in China. In 2006, that amounted to more than US$22 billion in the United States alone. A 2007 study conducted by Bapuji and Beamish looked at which portions of the supply chain were most in need of improvement: manufacturing or design. This study highlighted one recall that blamed problems on design rather than on manufacturing. The study found about 0.25% of U.S. toy recalls related to imported toys manufactured inside China; design-related recalls made up about 0.5% of U.S. toy recalls in 2006.

In comparison, imported toys manufactured outside China accounted for about 0.4% of U.S. toy recalls, whereas designrelated recalls of non-China-manufactured toys amounted to 0.7%. The authors point out an increasing trend in recalls.

This would indicate a broader risk profile should be conducted, without limiting the study to manufacturing issues alone.

Page 64

Chinese President Hu Jintao has vowed to make the quality and safety of Chinese products a top priority. The government has responded with a more robust enforcement of standards.

For example: • 2,150 small chemical companies on the shores of Lake Taihu will be closed by the end of 2008 due to a recent water-pollution scare. Lake Taihu is the third-largest freshwater lake in China; it is the source of

product liability insurance. The questions listed above — i.e. those related to expanding your business to China — should provide food for thought. However, it’s more important for a company to understand how to plan for and resolve potential product safety crises arising from their Chinese operations before there is any impact on their brand or reputation.

Among the steps companies can take to reduce the likelihood and severity of

In North America, the cost of moving the product is usually less than 5% of the product’s retail value, compared to 10% or more in China.

drinking water for about 30 million people.

• In January 2008, China introduced a new labour contract law to deal with a rising number of labour disputes. It will address severance pay, non-compete clauses, probationary periods, part-time employees, mass layoffs, collective bargaining, creating company policies and the role of labour unions.

• Last year, China revoked the licences of 564 food companies as part of a special campaign to ensure product quality and food safety and strengthen food safety supervision.

However, responsibility for quality assurance ultimately rests with the manufacturer. That’s why we’re starting to see companies in all parts of the world penalize suppliers that don’t adhere to proper product safety protocols by not accepting products.

A key challenge for product and component manufacturers in China is to ensure the quality of the product risk management capabilities meets not only the regulations in their local jurisdiction, but the stringent safety standards of the countries where they want to distribute products. This has led to the introduction of new risk management tools and insurance products. One of these products is an integrated product liability package that provides a broad-based, one-stop solution for original brand manufacturers; it includes a risk management analysis/ review, product safety, design audit and

major product or safety events are: • establish a management system for product safety and product liability; • analyze product risk exposures and design and implement product-recall plans; • investigate the availability and pricing of products liability insurance; • develop the capability to track and trace products from manufacture all the way through to the final delivery to the end consumer; • enhance contractual protections with suppliers, vendors, and customers; • audit supply chain production quality; and • understand how to comply with the variety of local, national, and international regulations, treaties and laws.

Once you have done your homework, your business can select the right partner, put the right risk management procedures in place and continually monitor and update them. You will then be in a position to have the right insurance program built around your specific needs.

1 Mr. China, A Memoir by Tim Clissold, Harper Collins Publishers 2 Research Report, Toy Import and Recall Levels: Is there a Connection, by Hari Bapuji, Asper School of Business; Paul Beamish, Richard Ivey School of Business; Andre Laplume, Asper School of Business 3 National opinion poll conducted by the Asia Pacific Foundation of Canada and the Globe and Mail.

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A Nose for Charity:

Page 65

The Blue Goose Raises Some of Scotland’s Finest While Raising Funds for WICC

By William Blakeney

“The proper drinking of Scotch whisky is more than indulgence: it is a toast to civilization, a tribute to the continuity of culture, a manifesto of man’s determination to use the resources of nature to refresh mind and body and enjoy to the full the senses with which he has been endowed.”

- David Daiches

Blue Goose Scotch Nosing Sponsors: Left to Right: Mark English (Masterclean); Max Brugger (Matrix); Bill Blakeney (Blakeney Henneberry Murphy); Claude Blouin (Blouin Dunn); Chris Giffin (Giffin Koerth); Jamie Dunn (Blouin Dunn)

The Honorable Order of the Blue Goose International is a fraternal organization of men and women in the property casualty insurance industry across North America. Its membership consists of executives, claims representatives, auditors, underwriters, adjusters, agents, brokers, investigators, contractors, appraisers, medical and rehab professionals, lawyers and engineers.

The Blue Goose meets socially and is not a part of any insurance or industry group.The mutual link between members of the organization is the career experience that they have acquired in their chosen field and a dedication to raising money for good causes.

The Ontario Pond, chartered in 1908, has its own unique blend of members and activities.

One of the most popular events organized by the Ontario Pond is the annual “Scotch Nosing”. For the past eight years, the Pond has organized a special sampling of rare and expensive single malt scotches together with a theme dinner. All of the proceeds from the Scotch Nosing are donated to cancer research through the auspices of WICC (Women in Insurance Cancer Crusade).

SINGLE MALT PRIMER As some Canadian Underwriter readers know all too well, “single malt” is a scotch whisky produced by a single distillery using malt and barley as the only grain ingredients.This is in contrast to blended whiskies (such as Johnnie Walker or Chivas Regal) which use a mixture of single malt whiskies and ethanol derived from grains. All single malt Scotch whisky must be produced using a pot still and be distilled, aged and bottled in Scotland.

The critical ingredient in many of the steps in the production of single malt whiskies is water.In the Scottish highlands, the soft water that flows through granite on its way to the sea is required for superior whisky. Water adds the tastes of heather and peat and other unique characteristics of the local soil.

During the kilning process, the green malt produced from local barley is dried in a kiln over a fire.The fire often includes an amount of peat which adds a “smoky” aroma and flavour to the whisky.

The earliest written record recording whisky production in Scotland dates from 1494. In the centuries that followed, whisky was taxed to the point that most distillers operated illegal stills. After the Union of the Parliaments in 1707, the despised English revenue agents crossed the border in futile attempts to shut down illegal stills and bring whisky production under control. Illicit distilling flourished, as Scots saw little reason to pay for the privilege of making their native drink.

In 1823, Parliament passed an act making commercial distilling more profitable, while imposing stricter penalties for unlicensed distilleries. Many of the modern distilleries (including Dalwhinnie, Glenmorangie, Oban, Cragganmore, Glenfiddich, Glenlivet, Macallan, Talisker and Lagavulin) began as illegal stills and date from this time period.

As traditional Scottish distilleries have been bought up by Japanese and multi-national conglomerates, the sampling of rare whiskies has become a great treat for connoisseurs.The Blue Goose Scotch Nosing allows guests to experience some of the oldest, rarest and most expensive whiskies available through the Vintages branch of the LCBO.

AN EXPERT, HISTORICAL SCOTCH TOUR

Ed Patrick, President, Companions of the Quaich

While the evening provides a serious overview of whisky tasting and history, it is intended to be a fun experience for novice and expert alike.The event has features the expertise and humorous delivery of Ed Patrick, international scotch whisky expert and president of the “Companions of the Quaich” Scotch Whisky Appreciation Society.

Like wines, the single malts of Scotland are grouped by region. The Blue Goose nosing features rare offerings from the historic whisky producing regions of Scotland, including Speyside, the Lowlands, Campbeltown, Islay and the Highlands.

READY, SET, NOSE

This year, the Scotch Nosing will be held on the evening of Thursday,April 24, 2008 at Jamie Kennedy’s Restaurant in the Gardiner Museum at 111 Queen's Park,Toronto.The Gardiner is located on the east side of Queen's Park, just south of Bloor Street. (Across from the Royal Ontario Museum – TTC riders can get off at the Museum subway stop).

Located on the third floor of the newly renovated Gardiner Museum, floor-to-ceiling windows provide a panoramic view of the downtown skyline, extending over Queen's Park and the University of Toronto campus.The event will feature a four course dinner and four superb single malt scotches, including the legendary Macallan 18 year old, Talisker 25 year old and Glenfiddich 30 year old. Each whisky featured at the nosing has a retail value of between $250 - $400.

As always, the Blue Goose is able to donate the proceeds because of its sponsors.The dinner is sponsored through the generosity of Blouin Dunn, Barristers & Solicitors; Giffin Koerth Forensic Engineering and Science; Matrix Loss Adjusters; and Masterclean Contracting & Cleaning.

Each year,the rare whiskies are chosen and donated by William Blakeney and Ruth Henneberry of Blakeney Henneberry Murphy.

Each ticket for this exquisite event is $150. For more information, or to secure a ticket, please contact Most Loyal Gander Chris Giffin at rsvp@giffinkoerth.com

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In the Driver’s Seat A comprehensive risk analysis at the start of an insurance purchase will make the risk manager a driver in the process, not a passenger

By Cees van der Slikke, Executive Vice President, Managing Partner, Willis Energy Calgary

B

The goal is to understand how the future strategic plans of the company will change their risk profile. Often companies begin the process by asking the questions: “How much is the insurance going to cost?” and “What deductibles can I afford?” Typically, insurance brokers will ask: “What insurance do you purchase?” and “When are your anniversary dates?”

Instead, the question should be asked: “What are the risks to the business enterprise that can adversely impact the balance sheet or the overall financial position and the company’s ability to operate?”

Insurance may be the most expedient way to manage risk. However, it is often the least effective way to manage the impact of risk. That said, insurance should be treated as contingent capital, working for the company to maximize the use of capital, if needed. And, if not needed for this purpose, insurance programs should be structured to minimize the

impact of the cost to maintain or access this capital. Additionally, the broker should work with the risk manager to maximize the use of risk minimization tools and techniques, to measure the impact of these non-insurance tools and reassess the risk profile before discussing and measuring the impact of insurance.

HOW IT CAN BE DONE Analysis Measure the impact of risk management decisions and plans, and compare this to the effect and impact on the company’s balance sheet (including the P&L statements of its divisions and locations). In order to do this, analyze: • how the risk exposures fit into the understanding and perceptions of management; • if there is a risk management policy in force, and if it is still embracing the company’s goals and objectives;

67 www.canadianunderwriter.ca • March 2008

y starting the insurance purchasing exercise with a comprehensive analysis of a company’s risk profile, the risk manager — not the insurance market — controls the agenda and the outcome of the risk management process.

This approach is significantly different from past processes: in this new approach, risk management is viewed from an entirely different perspective. In the more traditional processes, companies hire brokers to provide advice on insurance coverage and placement. The brokers then provide the insurers with a submission containing exposure data, loss data and a description of the company’s operations.

In the new approach, the company’s insurance purchasing decision is made, if at all, only after a complete and comprehensive analysis of the company’s exposures. The exposures to risk are identified, analyzed, quantified and matched to the company’s risk appetite.

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• how the exposures have been identified and quantified in the past; • how the risks are managed at present; and • how future plans will affect the company’s risk profile.

Risk Management Process A risk management process is like any other business process: it’s a process of establishing goals and objectives, and identifying, analyzing, evaluating and treating risks in a structured way. The more a company does to identify and measure risk, the more successful it will be when it comes to managing risk.

Following a structured process will improve the company’s confidence that it has enhanced its identification and quantification of risks. In addition to this con-

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identifies, assesses and objectively prioritizes risks on an accelerated basis. It is designed to provide an efficient, effective understanding of the issues that may affect the successful outcome of a situation.

RAPID includes a self-assessment workshop designed to mine the knowledge of experts within energy companies about the risks they face. The purpose of the workshop is to identify organizational risks that could prevent the achievement of strategic objectives. The workshop also explores the nature and extent of these threats over a specified time period.

ARTICULATING RISKS Although a great number of risks may be identified through the assessment, only those perceived to be of the greatest signif-

the broker and the client project sponsor.

The workshop team is comprised of individuals with different functional roles. By bringing together different business perspectives (perhaps for the first time) to focus on risks of the organization, we are able to generate a much deeper understanding of risks, including underlying causes often not readily apparent.

Consensus-Driven All data captured in the process is consensus-driven. The elimination of voting ensures the process output is based on the most reliable information possible — specifically, collective expert knowledge from within the organization. (Depending on the nature of risk being assessed, sometimes the involvement of external experts is suggested as well.)

By starting the insurance purchasing exercise with a comprehensive analysis of a company’s risk profile, the risk manager — not the insurance market — controls the agenda and the outcome of the risk management process.

icance are compiled in the company’s risk register. The register includes descriptive aspects of the most significant risks, such as triggers, consequences and the likelihood and impact of risk events. Of particular importance in describing each risk is the articulation of the company’s underlying vulnerabilities that either support or exacerbate each risk. Once all risks have been assessed in this manner, companies are able to connect and address the most significant risk drivers within the organization.

The process incorporates the following concepts: Workshop-Based The principal element of data processing occurs in a facilitated workshop that appears to participants to be fluid and dynamic, but actually operates within a very structured framework.

Cross-Functional Teams Workshop participants are identified through collaborative discussion between

Controls and Risk Mitigation For each risk scenario the workshop addresses, due consideration is given to controls and their effectiveness, as well as whether there are opportunities for cost-effective improvement. Risk aspects are discussed and defined according to the common risk language unique to the client — language that continues to evolve throughout the assessment process.

THE BENEFITS Put simply, this methodology will help to maximize opportunities to lower program premiums, obtain optimum program terms and conditions, and develop tools and information necessary to support decisions. It is intended to help develop a rationalized approach that will satisfy a company’s board of directors and the requirements of corporate governance rulings.

Recently, this approach has generated total cost of risk savings in the range of 30-50% for some energy companies.

69 www.canadianunderwriter.ca • March 2008

fidence, the company will have the knowledge to construct or refine its risk management program. As an added benefit, the process is supportive and complementary to an enterprise risk management [ERM] program.

In establishing this process, conduct a series of risk analytics and risk measurements that, when complete, position the company and its risk management program into the “best-in-class” status.

The process may thus include: • risk assessment, impact analysis and risk mapping; • retained risk analysis and loss forecasting; • workers’ compensation process analysis; • high severity-low frequency modelling; • comprehensive cost of risk analysis; • D&O risk modelling; and a • claim portfolio diagnostic analysis.

Tools are available commercially to aid with the process. One example of such a tool is called RAPID (the Willis Risk Assessment Probability and Impact Diagnostic), which uses a process that

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continued from page 8 ...

Kingsway’s Canadian operations silver lining in otherwise ‘disappointing’ year ingsway Financial Services Inc. (TSX:KFS) reported a net loss of US$103.5 million for 2007 Q4 and a net loss of US$18.5 million for the year, marking a decrease of 716% and 115% over the same periods of 2006, respectively.

The combined ratio was 130.2% in the quarter (109.3% for the year), with Canadian operations reporting a combined ratio in 2007 Q4 of 99.8% (95% for the year), a Kingsway release says.

Its U.S. operations reported a combined ratio of 143.3% (115.3% for the year), the release adds.

“Overall, 2007 was an extremely disappointing year for the company due to the significant reserve increases which were necessary at our largest subsidiary, Lincoln,” said Shaun Jackson, the president and CEO of Kingsway.

“The increase in reserves at Lincoln [US$124.8 million] has overshadowed the strong operating performance from most of our U.S. subsidiaries and all of our Canadian subsidiaries, as well as healthy investment returns from our securities portfolio.” ■

M A R K E T WAT C H

K

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The annual cost of insurance ‘cyber-slackers’ ow much money are the cyber-slackers “working” at your insurance company or brokerage costing you each year?

Would you believe an average annual total of US$93,000, as shown during a presentation at the general meeting of the Toronto Applied Systems Client Network?

One U.S. study found that each insurance company or brokerage employee wasted, on average, 1.1 hours of his or her daily work time surfing Web sites unrelated to work activities.

For example, they might be online at work booking vacations, surfing for new job postings, downloading music, catching up with friends on Facebook, instant messaging, listening to the radio or looking up Web mail, sports, gambling or porn sites.

In fact, insurance company cyber-slackers in the United States wasted an average of three minutes longer per day than the average amount of time frittered away online by U.S. public servants (1.05 hours/day), observed Chris Borchert of iPREVISION. Assuming 20 employees in an insurance brokerage each wasted an hour of time each week on non-workrelated Web sites — figuring an average salary of $20/hour — that brokerage would lose about US$93,000 annually. ■

H

Profitability of small brokerages shows slight decline, Vancouver study finds he average annual net income of Canada’s most profitable property and casualty insurance brokerages is between Cdn$800,00 and Cdn$1 million, according to a benchmark survey by Vancouver’s Berris Mangan Chartered Accountants.

The same study found the average industry profitability equalled 25.3% of total brokerage income, It also found the profitability of small brokerages (less than Cdn$500,000) has declined by 0.9% since 2005. Only 11% of Canadian brokerage offices have sales greater than Cdn$1 million.

The study compares and analyzes financial and operating data,sales mix,cost structures, branch sizes and employee survey results from more than 200 brokerage offices from across Canada, a company release says.

Researchers also compared the sales mix to expenses and profitability and found that investment in information technology tends to have a negative impact on profitability, as opposed to marketing and advertising expenditures, which have a positive effect on profitability.

“The profitable brokerages increase overall expenses by 7.6% since 2005 compared with the less profitable brokerages that increased expenses by only 1.6%,” information from the company says.

“More profitable brokerages rely less on commissioned producers but replace this expenditure with alternative compensation arrangements and training.” ■

T

Marsh 2007 Q4 profits drop substantially arsh & McLennan Companies, Inc. (MMC) has reported a 2007 Q4 profit of US$85 million, compared to US$226 million over the same period last year.

Consolidated revenue in 2007 Q4 was US$2.9 billion, up 8% from 2006 Q4. Income from continuing operations was US$90 million, compared with US$168 million in 2006 Q4.

The company noted its 2007 Q4 net income included results from its discontinued operations, amounting to US$1.9 billion. These operations reflected “gains on the Putnam transaction in the third quarter of 2007 and the sale of Sedgwick Claims Management Services in the first quarter of 2006."

For the entire year of 2007, Marsh’s consolidated revenue was US$11.4 billion, an increase of 8% from US$10.5 billion in 2006.

Guy Carpenter’s 2007 Q4 revenue was US$167 million, a decline of 2% from the prior year’s quarter. “Reinsurance premium rates continued to decline across most coverages globally, and clients continued to increase risk retentions,” MMC noted in a press release. ■

M

FM Global reports 26% increase in profits M Global reported a 26% growth in net income (to US$928 million) in 2007, the largest such growth in the company’s history. The company also posted a combined ratio of 73.4%, which was better than forecast, the company reported, “due to the absence of large insured natural disaster losses and much better than composite projections for the U.S. property and casualty insurance industry.”

Throughout last year, gross premium grew by 4.2%, to US$4.7 billion, and the company had a client retention rate of 92%.

Among its 2007 financial highlights, FM Global says, more than 90% of its policies were delivered to clients within 30 days of inception, thereby ensuring contract certainty, compared with a 67% success rate in 2006. ■

F

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Claims Alberta court strikes down Cdn$4,000 cap on minor auto injuries

A

Reinsurance Munich Re exceeds 2007 profit target of Cdn$5.61 billion

T

Qualifications: Candidates would be experienced in all classes of general insurance and ideally would have experience in managing the operations of a general insurance brokerage.

Candidates will have demonstrated leadership in the general insurance industry and will have an established reputation and a wide range of contacts in the insurance field.

CIP or FCIP is an asset.

Any previous investigations (such as claims investigation) experience is an asset.

A valid driver’s license and travel by personally owned automobile will be required.

Responsibilities: • The position requires the ability to diagnose problem situations within a brokerage operation and to look for any consumer exposure and report to the manager on a timely basis.

• Compose investigation reports along with all supporting documentation.

• Assisting counsel in preparing for Discipline hearings.

• We offer a competitive compensation and benefits plan in a challenging environment.

Please forward your resume to: Timothy Goff Manager, Complaints and Investigation Registered Insurance Brokers of Ontario 401 Bay Street, Ste 1200 Toronto, Ontario M5H 2Y4 FAX NO. 416-365-7664 EMAIL: tim@ribo.com Only those applicants being considered for the position will receive a reply upon application.

RIBO is an equal opportunity employer

71 www.canadianunderwriter.ca • March 2008

he Munich Re Group in 2007 achieved a profit of 3.9-billion euros [Cdn$5.76 billion], surpassing its projected target of between 3.5 billion and 3.8 billion [Cdn$5.17 billion and Cdn$5.61 billion].

The reinsurer announced a 20.2% return on risk-adjusted capital [RORAC], markedly exceeding its long-term target of 15%.

“We are well above our target with a RORAC of over 20%, and are reporting a record result for the fourth time in a row,” said Munich Re chairman of the board of management Nikolaus von Bomhard. “We have reaped the rewards of our rigorous approach in integrated risk management and our healthy skepticism towards what are often poorly rewarded credit risks.”

Munich Re announced its operating result in 2007 decreased to 5.1 billion (Cdn$7.54 billion), compared to 5.5 billion (Cdn$8.13 billion) over the previous year, “owing to the significant rise in natural catastrophe losses compared with the previous year.”

The company said its combined ratios (COR) “remained at a very good level,” namely 96.4% (92.6%) in reinsurance and 93.4% (90.8%) in primary insurance.

The Registered Insurance Brokers of Ontario invites applications for this position in Toronto.

M A R K E T WAT C H

lberta’s Court of Queen’s Bench has struck down as unconstitutional the province’s Cdn$4,000 cap on minor auto injuries. In Morrow v. Zhang, two plaintiffs, Peari Morrow and Brea Pederson, suffered soft tissue injuries arising out of two separate automobile accidents. The plaintiffs challenged the constitutionality of the Minor Injury Regulation (MIR). The MIR imposes a $4,000 cap on non-pecuniary damages with respect to minor injuries that are caused by an accident arising from the use or operation of a motor vehicle and that do not result in serious impairment.

“Specifically, they submit that their rights under s. 7 and s. 15(1) of the Canadian Charter of Rights and Freedoms have been violated as a result of the MIR,” Associate Chief Justice Neil Wittmann wrote in his decision.

Section 7 protects a person’s right to sue a tort-feasor for the recovery of damages for pain and suffering. Section 15 deals broadly with the right not to be discriminated against.

The plaintiffs in the case argued, among other things, that the cap discriminated against people who suffered minor injuries in auto collisions.

Wittmann ruled the cap did in fact constitute “an unjustifiable breach of the s.

15(1) equality rights of minor injury victims based on the enumerated ground of disability,” and that “the appropriate remedy for this case is the nullification of the MIR.” After the cap was deemed to be invalid, Morrow was awarded non-pecuniary damages of Cdn$20,000, together with the agreed Cdn$1,000 for special damages for a total of $21,000. Pederson was awarded non-pecuniary damages of Cd$15,000. ■

Conduct Investigator Position

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INSURANCE INTERNET DIRECTORY online at www.canadianunderwriter.ca ACCIDENT REPORTING CENTRES ACCIDENT SUPPORT SERVICES INTERNATIONAL LTD. Collision reporting to Insurers & Police, promote claims programs, fight fraud, photo imaging damage, electronic delivery & total customer service to insureds. www.accsupport.com ACCOUNTANTS WILLIAMS & PARTNERS INC. Forensic and Investigative Accountants. www.williamsandpartners.com ASSOCIATIONS CANADIAN INDEPENDENT ADJUSTERS' ASSOCIATION (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca

MCLARENS CANADA International Loss Adjusters and Surveyors www.mclarens.ca P.C.A. ADJUSTERS LIMITED Property Casualty All-Lines Adjusters. www.pca-adj.com SCM ADJUSTERS CANADA LTD. Committed to providing leading edge claims management services. www.scm.ca COLLISION SERVICES CERTIFIEDFIRST NETWORK Consider it done.™ www.certifiedfirst.com CONSULTING FIRMS

I N S U R A N C E C O M PA N I E S AMERICAN INTERNATIONAL COMPANIES "The Strength to Be There". www.aigcanada.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

CANADIAN STANDARDS ASSOCIATION Developing standards to enhance public safety and health for business, government and consumers. www.csa.ca

BROKER BUILDER CORP. Convert receivables into revenues with an in house premium finance program www.brokerbuilder.ca

HONOURABLE ORDER OF THE BLUE GOOSE - ONTARIO POND Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org

CAMERON & ASSOCIATES INSURANCE CONSULTANTS LTD. Claims consultants to the insurance & reinsurance community. www.cameronassociates.com

PILOT INSURANCE COMPANY Over 80 years of Protection Through Local Brokers. www.pilot.ca

KEAL TECHNOLOGIES Complete technology solutions for insurance brokers. www.keal.com

ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA Forward thinking since 1710. www.royalsunalliance.ca

THE INSURANCE INSTITUTE OF CANADA The professional educational arm of the industry. www.insuranceinstitute.ca REGISTERED INSURANCE BROKERS OF ONTARIO (RIBO) Self-regulatory body for general insurance brokers in Ontario. www.ribo.com RISK & INSURANCE MANAGEMENT SOCIETY INC. Dedicated to advancing the practice of effective risk management. www.rims.org RISK MANAGEMENT CONSULTANTS OF ONTARIO (RMCO) Self-regulatory body for independent, fee-for-service risk management and property/casualty consultants operating in Ontario. www.rmco.ca BUILDERS RISK INSURANCE WINTONIAK & MOTARD INSURANCE Build your own Builder's Risk Insurance Quotation/Cover online - as easy as 1..2..3. www.canadabuildersrisk.com CLAIMS ADJUSTING FIRMS CGI ADJUSTERS INC. The one-stop risk shop for all your insurance needs. www.ibs.cgi.com 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

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

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

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

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

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

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

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

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

RESTORATION SERVICES

RISK MANAGEMENT

PROPERTY CLAIMS ADJUSTER

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

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

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

ADVERTISERS’ INDEX ACE INA Insurance ....................................................7

Honourable Order of the Blue Goose ......................63

AIG ..............................................................................4

i-hire.ca ......................................................................48

Aon Reed Stenhouse.................................................17 The ARC Group Canada...........................................25

Insurance Brokers Association of Ontario (IBAO).......................................................27

Arch Insurance ..........................................................31

Insurance Institute of Canada ...................................37

Aviva Canada Inc..........................................88 (OBC)

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

BC Insitute of Technology........................................44

Liberty International Underwriters...........................51

Best Doctors ..............................................................29 canadianunderwriter.ca .............................................61

National Insurance Conference of Canada (NICC)...........................................................53

CG&B Group ............................................................42

Ontario Insurance Directory .....................................54

Chubb Insurance.......................................15, 87 (IBC) CIP Society................................................................66

Quarter Century Club................................................65 SouthWestern Group.................................................49

CNA Canada .............................................................39 Crawford & Company (Canada) ..............................33 Cunningham Lindsey................................................13

Starlight Starbright Insurance Gala ..........................59 Travelers ....................................................................47

FM Global.....................................................2, 3 (IFC)

WINMAR..................................................................57

The Guarantee Company of North America ...........35

XL Insurance...............................................................9

Guy Carpenter ...........................................................41

Zurich Canada ...........................................................23

Get the job.

Done.

TM

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

MOVES & VIEWS

Keal Technology and PowerSoft jointly confirmed the com-

www.canadianunderwriter.ca • March 2008

74

pletion of an integration project announced at the end of 2007. The integration partnership allows Keal’s clients using sigXP, a broker management system (BMS) for personal lines, to integrate with PowerSoft’s rating tool, PowerQuote, for personal lines insurance rating, quoting and prospecting.

“Integrating sigXP and PowerQuote provides our brokers with the choice to choose the best rating tool for their unique needs and streamlines their operations to ensure they remain competitive,” said Keal president Pat Durepos. Lake of the Woods Insurance in Kenora, Ontario, is the first brokerage to take advantage of the sigXP/PowerQuote integration. A longtime client of both vendors, Lake of the Woods Insurance can now upload client information from sigXP directly into PowerQuote without duplicate data entry. PowerQuote then returns rating information directly back into sigXP. ■ The Canadian Disaster Restoration Group (CDRG) has launched a new logo for the CDRG Fund, including a hand print to reflect the notion of people helping people. The hand behind the swirl represents how CDRG members touch people by restoring their lives to normal, a company statement says. Eastern-CDRG in Ottawa has already contributed to the foundation; it is working with local fire departments establish a plan to help a family or individual in need. The idea is to provide emergency essentials in the event of a disaster. CDRG will match all donations dollarfor-dollar. Also, CDRG says it will pay all administrative costs, ensuring that 100% of each donation is doubled and goes to support a family or individual in need after a disaster such as fire or flood has struck their homes. ■ EW Disaster Kleenup LP has changed its name to FirstOnSite Restoration LP and has appointed Ian Milne as its new CEO. Ken Zardo has been appointed vice-president of national sales

Ken Zardo

Ian Milne

and marketing. Zardo has nearly 30 years of experience in sales and marketing, e-commerce and corporate and strategic planning. He has spent his past 14 years in disaster restoration and the marketing of software for insurers. Milne has more than 35 years’ experience in related businesses in Canada, Europe, Australia and New Zealand, mostly with the Tyco Fire & Security division of Tyco International Ltd. Former president and CEO Lyle Kerr is now chairman of the board. “The new name FirstOnSite more clearly reflects the nature of the company's emergency response and restoration business and will help us to create a national brand,” Kerr said. ■

The Insurance Brokers Association of Ontario (IBAO) has announced it is renewing its sponsorship agreement with professional golfer Richard Scott from Kingsville, Ont. “Richard has represented us well and we’re proud to be associated with his success,” IBAO Richard Scott CEO Randy Carroll said in a release. “In 2007, our first year in sponsoring him, Richard had the chance to come out and meet some of our brokers on the golf course. We look forward to holding an event with him again because he’s a really sharp young man.” Scott turned pro more than a year ago, capping off his amateur career with a third Canadian Men's Amateur Championship title and a second place finish at the World Amateur Golf Championships in 2006. ■ Aon Corporation is integrating its worldwide risk and insurance brokerage operations into a single global business, Aon Risk Services. Aon Risk Services has more than 26,000 colleagues in 120 countries and generates more than US$5 billion in revenues. Steve McGill, currently CEO of Aon Risk Services Americas and Aon Global, and Ted T. Devine, currently CEO of Aon Re Global, will lead Aon Risk Services. McGill will serve as chairman and CEO; Devine will serve as president of Aon Risk Services. “In bringing all our Aon risk services operations together, we are enhancing the ability of our colleagues around the world to bring their deep knowledge of local needs, innovation and expertise to one global, client-focused business,” McGill said. Andrew Appel, previously CEO of Aon Consulting, has assumed the role of CEO of Aon Re Global, replacing Devine. Appel additionally will serve as chairman of Aon Consulting. ■ Dave Lush is the new chief operating officer of CARSTAR Automotive Canada. The new position was created to ensure

the company is poised for its next phase in growth and longterm sustainability, CARSTAR noted. Lush will be responsible for ensuring operational excellence, as well as the execution of business strategies and the strategic plan for CARSTAR. In addition, he will be responsible for developing and leading the 40 corporate management team members. He will continue to work closely with CARSTAR's key stakeholders, including franchisees, insurers and suppliers. “I am pleased to welcome Dave to this new position,” Sam Mercanti, president and CEO of CARSTAR, said in a release. “His many years of experience in the Canadian automotive industry will not only benefit CARSTAR, but also its many partners and stakeDave Lush holders.” ■

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The Co-operators Group Ltd. has announced a new member, the Amalgamated Dairies Limited (ADL).

ADL joins the ranks of a number of agricultural organizations from Atlantic Canada, forming the group of co-operatives, credit unions and like-minded organizations that make up the ownership group of The Co-operators Group Ltd, a release notes. “We are delighted to welcome Amalgamated Dairies Limited as a new member-owner of The Co-operators,” Kathy Bardswick, president and CEO of The Co-operators, said in the release. “The Co-operators has strong agricultural and rural roots in Canada.

Through the years, the organization has forged strong relationships with our agricultural members in different regions across the country, and we look forward to continuing to do the same in the Atlantic with ADL.” ■

York Fire & Casualty has become Canada's first insurance carrier to implement true XML real-time inquiry,

Northbridge Financial Corporation has appointed Craig Pinnock as its new chief financial officer, as of March 31.

Pinnock will succeed current CFO John Varnell, who is retir-

ing. Pinnock, a chartered accountant, has served in progressively senior finance roles within the Liberty Mutual Group for more than eight years, a Northbridge statement says. Most recently he was senior vice president and CFO of Liberty Mutual Group's Canadian branches and global head of reinsurance accounting and administration for Liberty International Underwriters, Liberty's specialty lines business unit. Varnell has been Northbridge's CFO since 2005. He served on the company's board of directors from 2003-07. ■ The Insurance Corporation of British Columbia (ICBC) is now offering a New Vehicle Replacement Plus program,

allowing a vehicle to be written off if the damage exceeds 50% of its market value. Program members suffering a write-off would receive a new version of their vehicle or the cash equivalent. Many new car owners don't want a vehicle back that has had major repairs, so we are providing these customers with another option, said Kellee Irwin, vice-president of underwriting at ICBC. “We've lowered the threshold for New Vehicle Replacement Plus customers to give them the peace of mind in knowing that if they get in a major crash they are still going to have a brand new vehicle.” ■ Peter Levene has been reappointed as chairman of Lloyd’s of London. Ewen Gilmour and Graham White were reappointed as deputy chairmen; Bill Knight was reappointed as deputy chairman of council, a Lloyd’s release says. Catlin Syndicate Limited, represented by Paul Jardine, was also elected as a

corporate ‘C’ external member for a three-year term.

Jardine is deputy chairman of Catlin Underwriting Agencies Limited and is also the chairman of the Lloyd's Market Association. Of the

recent council appointments, Lord Levine said: “With their combined experience they will add tremendous value in helping to underpin robust management of the underwriting cycle.” ■

Lord Peter Levene

75 www.canadianunderwriter.ca • March 2008

which it demonstrated at a general meeting of the Toronto Applied Systems Client Network (TASCnet).

Using Applied Systems’ WARP technology for real-time transactions, York Fire now communicates directly and immediately with insurance brokers through their broker management systems. The new inquiry improves on processes that relied on time-consuming standard scripting services and carrier portal log-ins. The XML inquiry transaction is round trip — starting and ending in the broker management system with no carrier portal connectivity, navigation or other portal involvement. An XML response is sent instantly in the form of an html page with the requested information, Applied Systems notes in a press release. York Fire president Colin Simpson said Warp technology allows single-click, realtime inquiries with response time in as little as eight seconds, an improvement over the much slower scripting response that could take up to two minutes. ■

five new and four updated courses. Each one is recognized and can count towards I-CAR Gold Class Professionals, I-CAR Platinum Individual and AMI Accredited Automotive Manager designations. The four updated courses include: MVP advanced collision estimating skills; MVP collision repair sales and customer service; MVP production and cycle time; and administrative management. The five new educational offerings engage the following topics: collision centre marketing; managing customer loyalty; organizational development; leadership and leading change; and business in the 21st century. ■

MOVES & VIEWS

Marsh has established a global supply chain risk management practice under the leadership of Gary Lynch. The practice was designed to provide clients with the risk intelligence and risk solutions required to better manage their value/supply chain risk, Marsh notes in a release. Two other subpractices, the supply chain consulting subpractice, as well as the supply chain risk intelligence subpractice, will be led by Ann Grackin and William McBeath, respectively. “Within the past decade, we have seen an acceleration of changes in business models due to a relentless drive for efficiency and productivity, which has led to an increase in outsourcing, just-in-time manufacturing, and globalization,” John Merkovsky, a managing director of Marsh and global leader for risk consulting, said in the release. “Businesses are still coming to grips with their evolving risk profiles and the impacts on revenue and brand equity of disruptions—natural or manmade—on their extended supply chains. Our supply chain risk management practice will provide clients with the tools and insights needed to help address their exposures.” ■

PPG Canada Inc. has expanded its educational offerings with

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The CIP Society, a division of The Insurance Institute of Canada, has named Jack Lee, vice president and national marketing manager of BFL Canada, the 2007 recipient of the Greater Toronto Area Fellow of Distinction Award.

his employers, participated on industry panels, written insurance articles, worked on the development of a new course for the Insurance Institute and

led industry committees. During this time, he has continually strived to update his knowledge and really is an inspiration for others.” ■

MOVES & VIEWS

“Jack has been a mentor and role model for countless people in his more than 40 years as an insurance broker,” said Carla Blackmore, chair of CIP Society–Ontario. “He has served in leadership roles for

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Rt. Honorable Adrienne Clarkson, former governor general of Canada, was the keynote speaker at The Insurance

careers. About 800 guests and graduates attended the graduation of new Chartered Insurance Professionals, Fellow

Institute of Ontario’s Toronto Convocation & Awards Night on Jan. 24, 2008. She spoke to the group of nearly 200

Chartered Insurance Professionals, General Insurance Essentials students and Continuing Professional Develop-ment students. It was held in the John Bassett Theatre at the Metro Toronto Convention Centre. ■

graduates and their guests about her journey of triumph and turmoil from a war refugee to governor general of Canada, inspiring graduates as they prepare to embark upon their own

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Following the Insurance Institute of convocation ceremony, the Institute hosted a reception in the Constitution Hall of the Metro Toronto Convention Centre to toast the new graduates and allow for industry guests to network and mingle. ■

Ontario’s

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The partners and staff of McCague Peacock Borlack McInnis & Lloyd, the Ontario member of the Canadian Litigation Counsel, recently hosted their 12th annual ‘Christmas in January’ party at the Design Exchange in Toronto. An industry favourite,

MOVES & VIEWS

this event attracts people from all sectors of the insurance industry throughout North America. ■

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CICMA/CIAA Ontario's 40th Annual Joint Conference was held at the Metro Toronto Convention Centre on Jan. 29. Emcee Brian Maltman

opened the meeting and introduced the various speakers of the day. The session began with a few words from CIAA Ontario president John Seyler and CICMA Ontario president John Saragosa. Speakers of the conference included: Peter Thorn (The Co-operators); John Sharoun (Crawford & Company [Canada] Inc.); John Chippendale (Integro Insurance Brokers); Brian Elkin (Lavery deBilly LLP); Peter Hohman (Insurance Institute of Canada); and Mike Jones (Mike Jones & Associates). ■

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More than 400 participants attended the Canadian Collision Industry Forum (CCIF) held in Toronto on Jan. 26. CCIF chairman Tony Canade (Assured Automotive) and CCIF administrator Mike Bryan opened the one-day session. The topics and speakers included: National Accreditation – Jay Perry (ABC Consulting); Key Industry Trends – Greg Horn (Mitchell International); Leadership and Driving Change – Rocco Neglia (The Economical Insurance Group); Low VOC / Waterborne Conversion – Jim Quick (Canadian Paint & Coatings Association); and ‘The Future of DRPs’ panel discussion, moderated by Larry Jefferies (CARSTAR Automotive Canada). ■

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Guests from the insurance industry, claims managers from the CICMA/CIAA Joint Conference and participants of the OIAA Claims 2008 event on Jan. 29 all gathered to attend “A cocktail party for claims professionals–Accidents Deconstructed.” The event was held at The Loose Moose and hosted by Giffin

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Koerth Forensic Engineering; Blouin, Dunn LLP and Cameron & Associates. ■

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More than 150 exhibitors from across Canada were ‘working the show’ and ‘showing their work,’ showcasing the latest services and products for the claims industry at the Ontario Insurance Adjusters Association (OIAA) Claims 2008 Conference and Exhibition. The extremely popu-

lar event, held Jan. 30, 2008 at the Metro Toronto Convention Centre,

provided insurance claims professionals a full day of education, enrichment and networking. ■

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The

Ontario Insurance Adjusters Association (OIAA) held their Claims 2008 Conference & Professional Development Seminars on Jan. 30 at the

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Metro Toronto Convention Centre. Held in conjunction with the conference, OIAA once again hosted a Claims 2008 Career Fair, bringing together insurance company and independent adjusting firm employees. More than 100 insurance-program students from both Mohawk College in Hamilton, Ontario and Fanshawe College in London, Ontario attended the annual event. ■

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OIAA president Alan Gallagher presented a cheque from the OIAA for Cdn$12,400 to Big Brothers/Sisters of Canada at the Claims 2008 conference luncheon. Attendees were treated to a talk from Marc Garneau, the first Canadian in space, about his experiences traveling in outer space. Garneau shared a series of photographs of the earth taken from the shuttle, clearly highlighting the impact climate change has made on our planet. ■

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WINMAR recently held a site tour / open house at the LM Group of Companies location in Mississauga to celebrate

MOVE & VIEWS

WINMAR Corporate announcing the sale of WINMAR Toronto to Luis Salazar, president of LM Group of Companies (LMGP), David Machado, president of WINMAR Brampton, and Jad Stammers and Mario Muscat.

This strategic alliance brings WINMAR together with LMGP, a supplier of drying and climate control equipment and diesel power generators. The venture puts full-service mitigation and contingency under one roof, and creates the flagship for the WINMAR network with the largest fleet of commercial restoration equipment on Canadian soil, according to a WINMAR release. “LMGP has been providing equipment rental service for large corporations, property managers, institutions, retail and other markets for more than 25 years,” the company notes.“Its expertise in providing diesel power in a capacity of 50kW to 2000kW and climate control

equipment in emergency situations unifies the franchise.”

Plans to raise the WINMAR and LMGP commercial equipment flag in the Atlantic coast are already underway, the company reports, and plans for Western Canada are in the works. “The Toronto firm will offer a boutique service for residential and commercial insurance carriers across the country,” the company reports.“Its ability to mobilize quickly with highway tractors and straight trucks will give the team the capacity to empower any WINMAR franchise across Canada with a full range of commercial equipment, enabling WINMAR customers to plan for disasters.” ■

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Crawford & Company (Canada) Inc. held its annual Crawford Cares WICC cocktail reception on Feb. 6 at P.J. O’Brien Irish Pub & Restaurant. At

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the reception, Crawford announced that the end of 2007 marked a milestone in its Crawford Cares charitable initiative program. Since its inception in January 2004, Crawford has raised a total of $200,000 for WICC. “Crawford’s employees have contributed countless hours to make their communities a better place to live and work,” said John Sharoun, Crawford & Company (Canada)’s chief executive officer. “I’m extremely proud of all of the work they have done and everything they have accomplished in such a short period of time.” At the reception, Sharoun presented WICC with a cheque for $40,000 on behalf of Crawford employees and the Crawford Cares program. These donations were made possible through the fundraisers organized by Crawford’s employees such as bingo games, silent

auctions, casual Fridays and client events. Many employees also participate in Crawford’s optional payroll deductions. These donations are matched by the corporation. Crawford’s clients have also raised over $40,000 over the years though Crawford’s annual charity golf tournament. In December 2003, Crawford introduced its community relations program, Crawford Cares, which combines charitable donations and employee volunteerism from Crawford offices across Canada. Its goal is to focus support on one charity per year and give employees an opportunity to make a difference for that charity.

“WICC has been selected every year by our employees as Crawford

Cares’ charity of choice, in honour of our many coworkers and loved ones who have been impacted by this terrible disease,” said Sharoun. In 2007, employees once again reached their annual goal of $50,000, bringing the total donation since Crawford Cares’ inception to $200,000. “Our success with Crawford Cares is amazing and it is all due to our employees’ hard work, dedication and persistence,” said Sharoun. “I would like to thank all of our employees and clients who have supported us for their time, generosity and commitment to this incredibly important cause that touches us all.”

CHB 14204 Broker Risk

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