Canadian Underwriter March 2017

C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A

M AR CH 2 0 1 7 PM#40063170

Split Personality

BY ANGELA STELMAKOWICH

Letter Perfect

BY STEVE POTTLE

Captive Audience

BY GREG MECKBACH

CANADIAN UNDERWRITER

VOL. 84, NO. 3, MARCH 2017 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY NEWCOM BUSINESS MEDIA INC.

www.canadianunderwriter.ca

COVER STORY

Split Personality

26

Can earthquakes be damaging? Yes. Would a severe quake have an adverse impact on citizens, government and Canada’s property and casualty insurance industry as a whole? Perhaps. So, has everyone taken steps to ensure they are covered? No.

BY ANGELA STELMAKOWICH

FEATURES

13

35

P&C Market Risks

Medical Marijuana

Ongoing challenges have not yet forced Canada’s property and casualty industry from its position of strength, but beefing up enterprise risk management is advisable.

With the anticipated growth in the medical marijuana market comes a number of insurance issues related to its cultivation and sale.

BY GREG WILLIAMS

21

BY ALEXIS MOULTON & NATHANIEL BRENNEIS

42

45 Reinsurance Regulation The regulatory regime for reinsurance has become more complicated. The federal regulator must chart a course that strikes a balance between the protection of Canadian policyholders and ensuring a competitive insurance market exists.

BY BRIAN REEVE

17 Reservation of Rights Letters Autonomous Vehicles

Cyber Captives

Insurers must be ready for the near future, which will likely have a mix of assisted driving technologies and the ability of a driver to take control.

There is greater interest in using captives to cover cyber risk. With the risk changing so rapidly, some experts expect that interest to grow.

Risk professionals, likely the point persons on all things insurance, should have a solid grasp of reservation of rights letters to ensure their organizations realize the full value of their insurance policies.

BY JONATHAN GRNAK

BY GREG MECKBACH

BY STEVE POTTLE

24 Cyber Security To win the cyber security war, organizations may choose to arm themselves with a strategic approach that includes identity management and authentication, web application firewalls and encryption for data at rest.

BY RYAN WILSON

39 P&C Outlook Facing technological change, talent pressure and shifting customer expectations, Canada’s property and casualty insurers will need to flex new organizational muscles to unlock the growth potential of innovation and customer-centricity.

BY JANICE DEGANIS & STEVE YENDALL

March 2017 Canadian Underwriter

3

(416) 510-6793 Twitter: @CU_Harmeet @InsuranceMedia Gary White the industry, providing marketers aTwitter: range ofinformation specialized to providing the most and with relevant news, (416)timely 510-6800 astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca hsingh@canadianunderwriter.ca -6793 Twitter: @InsuranceMedia Editor (416) 510-6800 Editor 442-5600 Senior Publisher (416) ext.

3652 ve marketing communications opportunities. the industry, marketers with a rangeService of specialized (416) 510-6760 (416) 510-6793 Twitter:providing @InsuranceMedia Associate Editor Subscriptions/Customer National (416) 510-6800 ckbach Art Director and effective marketing communications Twitter: @CU_Harmeet Angela Stelmakowich Steve Wilson andhighly resources to insurance professionals from allopportunities. segments of Editor (416) 510-6800 Editor Greg Meckbach Senior Publisher Art Director h@canadianunderwriter.ca Gail Page Gerald Heydens and highlysteve@canadianunderwriter.ca Associate Editor effective marketing communications opportunities. astelmakowich@canadianunderwriter.ca ckbach (416) ext. 3652 Claims Art Director Associate Publisher Angela442-5600 Stelmakowich gmeckbach@canadianunderwriter.ca Steve Wilson Gerald HeydensSubscriptions/Customer Service CU_Greg Greg Meckbach Art Director (416) 510-6793 Twitter: @InsuranceMedia the industry, providing marketers with a range of specialized gpage@bizinfogroup.ca h@canadianunderwriter.ca Gerald Heydens Art Consultation astelmakowich@canadianunderwriter.ca Twitter: @CU_Greg steve@canadianunderwriter.ca Paul Aquino -6796 gmeckbach@canadianunderwriter.ca Gerald HeydensGail Page (416) 510-6800 Art Consultation Manual CU_Greg Sascha Hass 510-6793 (416) 510-6796 Associate Publisher Twitter: @InsuranceMedia Associate Editor (416) 510-5187 Art Consultation Twitter: @CU_Greg and highly effective marketing communications opportunities.

Sascha Hass paul@canadianunderwriter.ca gpage@bizinfogroup.ca -6796 tor InsuranceMarketer.com VOL. 84, NO. 3, MARCH 2017 (416) 510-6800 Art Consultation Greg Meckbach Director Paul Aquino Sascha Hass Canadian Underwriter’s Insurance Media Group is committed (416) 510-6796 Production Manager Associate Editor Online Editor Singh Sascha Hass gmeckbach@canadianunderwriter.ca Canadian Underwriter’s Insurance Media Group 510-5187 is committed Gerald Heydens Twitter: @InsuranceCanuk Production Manager (416) Circulation Manager tor Gary White Gregthe Meckbach Harmeet Singh Art Director to providing most timely and relevant news, information paul@canadianunderwriter.ca anadianunderwriter.ca Production Manager Online Twitter:Editor @CU_Greg Gary White to providing the most timely and relevant news, information Singh (416) 510-6788 (416) 510-6760 gmeckbach@canadianunderwriter.ca hsingh@canadianunderwriter.ca Gerald Heydens Production Manager Art Consultation Mary Garufi PROFILE to insurance from all segments of CU_Harmeet and resources Gary professionals White Harmeet Singh (416) 510-6796 Managing Director, (416) 510-6760 Editor Twitter: @InsuranceCanuk Senior Publisher Circulation Manager anadianunderwriter.caTwitter: and resources to insurance professionals from all segments of @CU_Greg @CU_Harmeet Gary White Sascha Hass -5600 ext. 3652the industry, providing marketers with a range of specialized Mediamgarufi@bizinfogroup.ca Group (416) 510-6760 Angela Stelmakowich hsingh@canadianunderwriter.ca Subscriptions/Customer Service Steve ArtInsurance Consultation Angela Stelmakowich Wilson National CU_Harmeet National (416) 510-6788 510-6796 (416) ext. 3652the industry, providing marketers with Mary a range ofGarufi specialized (416) 510-6760 Online442-5600 Editor Account Manager Subscriptions/Customer National astelmakowich@canadianunderwriter.ca the Service insurance industry’s social network Ian Portsmouth Twitter: @CU_Harmeet Gail Page Sascha Hass Canadian Underwriter’s Insurance Media Group is committed and highly effective marketing communications opportunities. astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Production Manager Claims -5600 ext.

3652 Claims (416) 442-5600 ext. 3545 Publisher Subscriptions/Customer Servicemarketing Harmeet Singh ian@canadianunderwriter.ca (416) 510-6793 Gail Page and highly effective communications opportunities.

Michael Wells (416) 442-5600 ext. 3652toClaims gpage@bizinfogroup.ca Online Editor mgarufi@bizinfogroup.ca Associate Publisher (416) 510-6793 Subscriptions/Customer Service Twitter: @InsuranceMedia Gary White providing the most timely and relevant news, information (416) 510-6800 uino Manual Gail Page hsingh@canadianunderwriter.ca Production Manager Account Manager Manual gpage@bizinfogroup.ca Associate Editor Publisher (416) 510-5187 Harmeet Singh Paul Aquino Gail Page (416) 510-6800 (416) 510-6760 Print Manual InsuranceMarketer.com (416) 442-5600 3545 and resources to insurance from all segments of ext.

Art professionals Director nadianunderwriter.ca michael@canadianunderwriter.ca gpage@bizinfogroup.ca Production Manager Associate Publisher Twitter: @CU_Harmeet InsuranceMarketer.com Gary White Associate Editor (416) 510-5187 Greg Meckbach uino Michael Wells hsingh@canadianunderwriter.ca paul@canadianunderwriter.ca gpage@bizinfogroup.ca InsuranceMarketer.com Gerald Heydens InsuranceCanuk gmeckbach@canadianunderwriter.ca (416) 510-5187 Paul Aquino Circulation Manager (416) 442-5600 ext.

3652 the industry, providing marketers with a range of specialized (416) 510-6760 Greg Meckbach Art Director Subscriptions/Customer Service 510-5122 National Phyllis Wright nadianunderwriter.ca (416) @CU_Harmeet Twitter: @InsuranceCanuk (416) 510-5187 Circulation Manager (416) 510-6796 michael@canadianunderwriter.ca -6788 Production Manager paul@canadianunderwriter.ca Print Production Mary Garufi gmeckbach@canadianunderwriter.ca Gerald Heydens Gail Page and highly effective marketing communications opportunities.Manager InsuranceCanukINSURANCE Claims Circulation Manager 442-5600 ext.

3652 (416) 510-6788 Associate Publisher Subscriptions/Customer Service Mary the insurance industry’s social network Online KarenGarufi Samuels Twitter: @InsuranceCanuk mgarufi@bizinfogroup.ca Twitter:Editor @CU_Greg Circulation Manager gpage@bizinfogroup.ca (416) 510-5122 National Account Manager -6788 Phyllis Wright Manager President Mary GarufiManual Paul Contant Aquino the insurance industry’s social network (416) 510-5190 Gail Page Art Consultation Jason mgarufi@bizinfogroup.ca National (416) 510-6788 Claims (416) 442-5600 ext.

3545 Associate Publisher (416) 510-6796 Account Manager Mary Garufi industry’s social network (416) 510-5187 DIRECTORY the insurance jcontant@canadianunderwriter.ca Wells mgarufi@bizinfogroup.ca paul@canadianunderwriter.ca Sascha HassManager gpage@bizinfogroup.ca Claims (416) 442-5600 ext.

3545 Creighton Circulation Elliot Ford InsuranceMarketer.com Manual Bruce Manager insBlogs Paul Aquino Michael Wells mgarufi@bizinfogroup.ca (416) 442-5600, Ext. 3652 Account Manager InsuranceMarketer.com Manual canadianunderwriter.ca (416)Production 442-5600 ext.

3545 President Account Manager Mary Garufi Print Manager Twitter: @InsuranceCanuk Online Editor (416) 510-5187 Circulation Manager Wells InsuranceMarketer.com paul@canadianunderwriter.ca michael@canadianunderwriter.ca INSURANCE eford@canadianunderwriter.ca (416) 442-5600 ext.

3545 Production Manager Print Production Manager Account Manager gs mary@newcom.ca -5122 Michael Wells Phyllis Wright Harmeet Singh (416) 510-6788 Mary Garufi Elliot Ford Bruce Creighton insBlogs canadianunderwriter.ca Vice President DIRECTORY Print Production Manager Twitter: @InsuranceCanuk (416) 510-5122 (416) 614-5831 Michael Wells Gary White Circulation Manager instouch.com Phyllis Wright (416) 510-5117 NCE michael@canadianunderwriter.ca hsingh@canadianunderwriter.ca Print Production Manager mgarufi@bizinfogroup.ca instouch.com mike@canadianunderwriter.ca National -5122 Manager Phyllis Wright (416) 510-6788 President eford@canadianunderwriter.ca Account Manager (416) 510-6760 INSURANCE Mary Garufi Print Production Manager the insurance industry’s social network Alex Papanou (416) 510-5122 Twitter: @CU_Harmeet Account Manager TORY (416) 510-5122 Phyllis Wright Claims (416) 442-5600 3545 President Insurance Blogs hosted

by Canadian Underwriter rd Vice President Phyllis Wright ext.

Bruce Creighton Michael Wells mgarufi@bizinfogroup.ca insBlogs insBlogs DIRECTORY Ontario Manager Manual (416) 510-5117 (416) 442-5600 ext. 3652 President Account Manager Elliot Ford Service Bruce Creighton InsuranceMarketer.com Account Manager insBlogs Subscriptions/Customer Ontario INSURANCE nadianunderwriter.ca Property & Casualty Insurance Newswire Account Manager michael@canadianunderwriter.ca (416)Production 442-5600 ext.

3545Papanou President Print Manager rd Property & Gail Casualty InsuranceAlex Newswire Bruce Creighton Michael Wells INSURANCE eford@canadianunderwriter.ca Christine Hirst Page Vice President DIRECTORY insBlogs -5117

instouch.com

insBlogs Ontario

instouch.com instouch.com instouch.com Ontario

Ontario insBlogs

instouch.com

the insurance industry’s social network

the insurance industry’s social network

Associate Publisher Elliot Ford (416) 510-5122 Ontario gs Bruce Creighton Phyllis Wright Vice President DIRECTORY nadianunderwriter.ca michael@canadianunderwriter.ca (416) 510-5117 gpage@bizinfogroup.ca Print Production Manager insBlogs instouch.com Paul AquinoAlex Papanou eford@canadianunderwriter.ca Insurance Blogs hosted by Canadian Underwriter

christine@canadianunderwriter.ca

erwriter Vice President (416) 510-5114 INSURANCE insBlogs Alex 510-5187 Papanou the insurance industry’s social network -5117 Connect with Canadian insBlogs Underwriter (416) 510-5122 (416) Insurance Blogs hosted

by Canadian Underwriter Account Manager Phyllis Wright Vice President President urance Newswire paul@canadianunderwriter.ca (416) 510-5117 Papanou & Casualty InsuranceAlex Newswire DIRECTORY Property Property & Casualty Insurance Newswire Elliot Ford Alex Papanou Bruce Creighton Property &insBlogs Casualty Insurance Newswire Twitter: @InsuranceCanuk Account Manager Manager President InsuranceCirculation Blogs hosted by Canadian Underwriter Connect with Canadian Underwriter INSURANCE eford@canadianunderwriter.ca with Canadian Underwriter twitter.com/CdnUnderwriter (416) 510-6788 facebook.com/CanadianUnderwriter Elliot Ford Mary Garufi Bruce Creighton Connect with Canadian Underwriter Vice President DIRECTORY insBlogs.com (416) 510-5117 Insurance Blogs hosted by Canadian Underwriter insBlogs.com Insurance Blogs hosted by Canadian Underwriter mgarufi@bizinfogroup.ca eford@canadianunderwriter.ca with Canadian Underwriter Alex Papanou tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter Account Manager Insurance Blogs hosted by Canadian Underwriter Insurance Blogs hosted

by Canadian Underwriter Connect with Canadian Underwriter Vice President insBlogs twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter twitter.com/CdnUnderwriter facebook.com/CanadianUnderwriter (416) 442-5600 ext. 3545 (416) 510-5117 CanadianProperty Underwriter & Casualty Insurance Newswire Michael WellsUnderwriter .ca Papanou Insurance Blogs hosted by Canadian linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter Property & Casualty InsuranceAlex Newswire tter.com/CdnUnderwriter facebook.com/CanadianUnderwriter InsuranceMediaGroup.com .ca michael@canadianunderwriter.ca twitter.com/CdnUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter facebook.com/CanadianUnderwriter Print Production Manager .ca MediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter Connect with Canadian Underwriter InsuranceMediaGroup.com (416) 510-5122 Phyllis Wright InsuranceMediaGroup.com linkd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter kd.in/CanadianUnderwriter instouch.com/group/CanadianUnderwriter insBlogs.com

insBlogs.com

Ontario insBlogs.com insBlogs Insurance Blogs hosted by Canadian Underwriter

Insurance Blogs hosted by Canadian Underwriter

gs.com insBlogs.com

Insurance Blogs hosted by Canadian Underwriter

insBlogs.com .ca

InsuranceMediaGroup.com

.ca

InsuranceMediaGroup.com www.CanadianUnderwriter.ca/MediaGroup Insurance Blogs hosted by Canadian Underwriter instouch.com/group/CanadianUnderwriter Published linkd.in/CanadianUnderwriter bywith Canadianwww.CanadianUnderwriter.ca/MediaGroup Connect Underwriter Accounttwitter.com/CdnUnderwriter Managerwww.CanadianUnderwriter.ca/MediaGroup facebook.com/CanadianUnderwriter President Insurance BlogsElliot hosted Ford

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Jim Glionna

Joe Glionna

.ca

10 Deconstructing Risk Risk management is really about applying common sense, suggests RIMS Canada Council chair Ren Lips, who has spent a good chunk of her career in risk and insurance within the construction industry.

BY GREG MECKBACH

InsuranceMediaGroup.com Melissa Summerfield Anthony Evangelista Pat Glionna

the Canada Periodical Fund of the Return undeliverableDepartment Canadian addresses Subscription Inquiries/Customer Single Copies $10 plus applicable taxes Service of to: Canadian Heritage Circulation Dept.

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4

Canadian Underwriter March 2017

ISSN Print: 0008-5251 ISSN Digital: 1923-3426

ISSN Print: 0008-5251 ISSN Digital: 1923-3426

SPECIAL FOCUS

7 Editorial 8 Marketplace 48 Moves & Views 50 Gallery

Photo: Peter Tym

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EDITORIAL

Weather-Proofed Community resilience looks to be taking a big step forward with the recent announcement that National Research Council Canada (NRCC) will take into account climate change as part of regular updates to the country’s building codes.

The NRCC will conduct research, evaluations and risk analyses over the next five years with a view to developing “new solutions to factor climate resilience into the design of future buildings and infrastructure in Canada.

This includes houses, roads, bridges, water systems and rapid transit networks.”

The federal government is investing $40 million into these sorts of efforts from its Investing in Canada plan.

Pointing out that buildings and infrastructure are increasingly being challenged by the “impacts of climate change and an increase in extreme weather events, such as damaging floods and devastating high winds,” the NRCC and Infrastructure Canada is upgrading codes, specifications, guidelines and assessment tools.

New specifications and guidelines will be ready and released as soon as 2020.

“With climate change, the total annual precipitation is increasing, as well as the frequency and severity of extreme events, such as heat waves, high winds, floods and droughts, all of which is resulting in increased stress on built structures,” Richard Tremblay, the NRCC’s general

manager of construction, says in the NRCC statement.

It is expected the measures, once in effect, will “reduce the costs of rehabilitation and replacement of buildings and infrastructures affected by extreme weather events.”

Ottawa’s move, no doubt, is music to the ears of Canada’s property and casualty insurance industry, which has long supported making buildings more resilient.

“Severe weather is already costing Canadian taxpayers hundreds of millions of dollars annually,” says Craig Stewart, vice president of federal affairs for Insurance Bureau of Canada (IBC).

“This decision puts Canada on track to limit future damage by implementing smarter and more effective building standards. Provincial governments across Canada must now step up and work with all stakeholders to adopt these model changes,” Stewart says.

IBC contends a culture of disaster risk reduction is needed that resonates with consumers and engages all levels of government, businesses and institutions.

The need to incorporate climate change resilience into codes was also recommended last spring in an Office of the Auditor General report. The NRCC “should incorporate climate change trends into the National Building Code’s structural design provisions, to take into account the expected increase in frequency and severity of weather events that can directly

affect buildings,” it notes.

Ottawa’s plan bodes well — or, at least, better — for buildings that will soon become part of the national landscape. That said, there are still so many others to which the revised codes will not apply. They will be subject to the same severe weather ravages as their updated counterparts, so will demand additional care.

Retrofitting will add costs, but, where possible, building owners must be more dedicated to doing this, allocating funds to get the job done.

In past, the Institute for Catastrophic Loss Reduction has put forward a number of recommendations meant to enhance code requirements and beef up resiliency. These included making backwater valves and hurricane straps mandatory in all new builds, as well as looking at impactresistant roofing material.

Severe weather is not going away, so failing to enhance the protections of existing buildings will do little to help improve resilience and avoid insurable damage.

“I see this initiative on climate change adaptation as having the potential to have a profound impact on the Canadian construction industry and on the future of buildings in Canada,” says Doug Crawford, chair of the Canadian Commission on Building and Fire Codes.

Stronger codes cannot help but be a win, regardless of peril. In this case, stronger is simply better.

“This decision puts Canada on track to limit future damage by implementing smarter and more effective building standards. Provincial governments across Canada must now step up.”

Angela Stelmakowich Editor Canadian Underwriter angela@ canadianunderwriter.ca

March 2017 Canadian Underwriter

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Risk NEED TO STUDY FACTORS TO REDUCE SEVERITY OF TDG DERAILMENTS Transport Canada should study the factors involved in the severity of train derailments involving dangerous goods, advises the Transportation Safety Board of Canada (TSB).

In its investigation of a 2015 derailment involving a freight train hauling crude oil tankers, TSB recommends Transport Canada “conduct a study on the factors that increase the severity of the outcomes for derailments involving dangerous goods, identify appropriate mitigating strategies, including train speeds for various train risk profiles, and amend the Rules Respecting Key Trains and Key Routes accordingly.”

Though travelling slightly slower than the speed limit, 29 cars of petroleum crude oil derailed,19 of which breached, releasing 1.7 million litres of product.

TSB has voiced its concern current speed limits may not be low enough, particularly for unit trains carrying flammable liquids. It also cites a lack of thermal protection contributing to thermal tears in cars and resulting in more product release. “Consequently, the cars displayed similar performance issues as in the Lac-Mégantic derailment.”

HIGHER OVERLAND FLOODING EXPECTED IN MANITOBA Normal to well-above normal soil moisture and winter pre8

Canadian Underwriter March 2017

cipitation to date, combined with future unfavourable weather conditions, is forecast to result in the risk of moderate to major overland flooding in most areas of Manitoba.

“We have experienced some unusual winter weather to this point that has contributed to an expanded risk of overland flooding in Manitoba,” provincial infrastructure minister Blaine Pedersen said in February.

The outlook could change depending on weather conditions from mid-February to the spring melt.

MOST IT PROFESSIONALS SAY SOME SECURITY SOLUTIONS INADEQUATE Just shy of three-quarters of polled IT professionals in Canada feel strongly that some of their companies’ security solutions are outdated and inadequate, reports a Ponemon Institute study sponsored by Citrix.

It examines global trends in IT security risks and features insights from 4,268 IT and IT security practitioners in numerous countries.

Canada was among the top four countries to agree their organizations’ existing security solutions are outdated and inadequate.

In all, 71% of the 265 Canadian respondents say their organization needs a new IT security framework to improve security posture and reduce risk; 52% say their organization will increase budget for IT security in 2017; and 85%, the most of any country, note machine learn-

ing is the most important technology to reduce security risk over the next two years.

HACKING OF DRIVERLESS CARS A CONCERN IN MINING The intellectual property of Canadian mining firms are among the prime targets for hackers, with the increasing reliance on autonomous vehicles representing a risk, cautions a new report from Deloitte Touche Tohmatsu Ltd. “Malicious viruses, like Stuxnet, explicitly target critical systems that control pumps, motors, valves and programmable logic controllers,” it notes. “Concerns that hackers could gain control over driverless cars extend to the mining sector, where autonomous vehicles continue to proliferate.”

Mining firms must embrace traditional IT security measures like “increasing firewall security, restricting administrative access to systems, deploying advanced end-point protection and segmenting networks so hackers can access only limited segments.”

Canadian Market WAWANESA SUBSIDIARY TO ACQUIRE WESTERN FINANCIAL GROUP Trimont Financial Ltd., a subsidiary of Wawanesa Mutual Insurance Company, reports it will acquire Western Financial Group and Western Life Assurance from Desjardins Financial

Corporation for a transaction value of about $775 million.

The transaction includes the company’s primary business units: its brokerage network, Western Financial Group Insurance Solutions, Coast Capital Insurance Services and Western Life Assurance.

Subject to standard closing conditions, including regulatory approvals, the deal is expected to be completed in 2017 Q3, Wawanesa reports.

Western Financial Group will continue to offer customers a broad range of products from a wide range of insurers and will continue to operate under its existing name.

There are no plans to close or relocate any of the existing brokerage locations and all of the existing companies will continue their respective regular operations.

Wawanesa Insurance has $3 billion in annual revenues and assets of $9 billion.

Western Financial Group has 157 office locations and affiliates in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec.

FAIRFAX PROPOSES ACQUIRING INSURER TOWER FOR ALMOST $200 MILLION Toronto-based Fairfax Financial Holdings Limited recently announced it has agreed to buy Aucklandbased Tower Limited, which writes property and casualty insurance in New Zealand and nearby nations.

If Tower is acquired, it would give Fairfax Financial Holdings “an immediate significant presence” in New

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Zealand and the Pacific islands, says Prem Watsa, the company’s founder, chairman and chief executive officer. Tower also has subsidiaries in the Cook Islands, Fiji, Papua New Guinea, Samoa and Vanuatu.

Tower is expected to call a special shareholders meeting to obtain approval.

CREECHURCH ACQUISITION EXPANDS BEAZLEY PRESENCE IN CANADA London-based Beazley is expanding its presence in Canada with the acquisition of specialist managing general agent Creechurch Underwriters.

Working through licensed Canadian insurance brokers, Creechurch Underwriters offers insurance programs to small and medium enterprises in industries and professions, as well as standalone products for, among other things, management liability, cyber, commercial crime, general liability and property.

Creechurch Underwriters will remain based in its existing offices in Toronto, Montreal and Vancouver.

Regulation IBC RECOMMENDS ONTARIO ADOPT FILE-AND-USE The Ontario government should apply a file-and-use process for private passenger auto coverage, Insurance Bureau of Canada (IBC) recommends in a new paper.

“Insurers often have to file hundreds of pages of docu-

mentation and wait several months even for a small price adjustment,” notes the IBC submission to the government’s Red Tape Challenge.

“The process is even longer and consists of more rules when insurers want to use new models that incorporate technology in assessing risk and determining the price.”

IBC is calling on the Ontario government to “commit to reviewing the provisions in the Insurance Act and the corresponding regulations that pertain to the regulation of auto insurance prices and, in the meantime, apply a file-and-use process, with or without a pricing threshold, for personal vehicles.”

incident; 60% say control or process failures led to their most significant cyber breach; 57% are unlikely to detect a sophisticated cyber attack; 52% of organizations rate business continuity management, alongside data leakage and data loss prevention, as the joint top priority; and 43% identify lack of skilled resources as one of the top obstacles to Internet of Things adoption.

Top failures leading to the most significant cyber breaches include end-user awareness, exploited via phishing; poorly secured Internet-facing systems and/or applications; and outdated/unpatched systems.

Technology

NORTHBRIDGE INSURANCE, ALERT LABS PARTNER ON WATER DAMAGE SENSORS

Claims

JUST 43% OF FIRMS COULD DETECT SOPHISTICATED CYBER ATTACK: EY

Northbridge Insurance has teamed up with Alert Labs for a pilot project that provides customers as much as $150 in annual savings on their home insurance if they purchase sensors to protect homes against water damage.

The pilot project, currently under way and launched with the insurer’s broker partners, offers customers savings when they purchase an Alert Labs Home Solution package (with a 15% discount), consisting of a water sensor and a companion sensor.

Meant to detect potentially damaging incidents like leaks, power outages, temperature fluctuations and floods, the sensors alert homeowners to any problems via their computers or mobile devices.

FREE WINDSHIELD CHIP REPAIR TO BE INCLUDED

Only 43% of surveyed Canadian companies could spot a “significant cyber security incident,” compared to 50% globally, EY reports.

The survey reflects responses from 1,735 participants worldwide from more than 20 industry sectors, including banking and capital markets (20%) and insurance (7%).

Key Canadian findings show 98% of respondents report their cyber security function did not fully meet their organization’s needs; 94% of organizations do not evaluate the financial impact of every significant breach; 61% have had a recent significant cyber security

COMMONWELL GROUP OFFERS NEW FLOOD POLICY ENDORSEMENT IN ONTARIO Commonwell Mutual Insurance Group has a new policy endorsement that uses geo-coding to provide Ontario homeowners in lowand medium-risk zones with protection against property damage from flooding, surface water and sewer back-up caused by flood events.

The product, which scales across Ontario by zones of low-, medium- and high-risk flood activity, will be available to eligible homeowners, tenants and condo owners through the insurer’s partnered brokers and agents.

Insurance Corporation of British Columbia (ICBC) will offer optional coverage for windshield repair for private passenger vehicles and some commercial light vehicles.

Starting this spring, customers who buy “ICBC’s optional comprehensive coverage will be able to have a chip in their windshield repaired for free, as long as it is safe and appropriate to do so.”

Last year, ICBC handled about 109,800 windshield replacement claims.” The average cost was $820.

ICBC will work with partners like the Automotive Retailers Association and the New Car Dealers Association to develop the program.

March 2017 Canadian Underwriter

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PROFILE

Deconstructing Risk Greg Meckbach Associate Editor

Risk management is really about applying common sense, suggests RIMS Canada Council chair Ren Lips, who has spent most of her career in risk and insurance within construction.

Technological advances, such as autonomous vehicles, provide both challenges and opportunities for risk managers, but the “basic tenets” of risk management have not changed over the years, suggests Rieneke (Ren) Lips, chair of the Risk and Insurance Management Society (RIMS) Canada Council.

“If you talk to most risk managers, they would probably say that drones, autonomous vehicles and cyber liability are some of the challenges that they face,” says Lips, a Mississauga, Ontario-based insurance risk manager for PCL Constructors Canada Inc. “There are lots of articles being written about those, 10 Canadian Underwriter March 2017

which is great, but until something gets tried and tested in court, it is difficult to assess how things are going to get adjusted when there is a loss,” she explains.

“For cyber, there have been some high-profile cyber hacking attempts and that’s the sort of thing that certainly keeps you on your toes,” she says.

Born and raised in the Netherlands, Lips moved to Calgary when she was 15.

After graduating from high school, she attended the University of Calgary and began working towards a bachelor of science in math, with the intent of studying actuarial science.

“About a year in, I went, ‘No this isn’t really for me,’ so I went back into general studies and ended up (studying) management,” Lips recounts.

“I didn’t want to become an accountant like everyone else, so I picked a concentration that seemed interesting, that had a tie to actuarial science and that’s where the risk and insurance management program came into play,” she adds.

Graduating in 1998 with a bachelor of commerce in risk and insurance management, Lips began working for construction engineering firm

Agra Inc. in Calgary.

“They ended up moving their head office in Toronto, so my boss took me to his next job,” she says.

That next job, in Calgary, was at SC Infrastructure, later known as Aecon. After Aecon moved its risk management function to Toronto, Lips joined Aon Reed Stenhouse, in 2001, as a broker and account manager in Calgary. That was her only stint on the broker side.

“I don’t want to work crazy hours like the brokers,” she quips. “I want to go home and let them work the crazy hours for me.”

That said, working for Aon Reed Stenhouse offered some real insight.

“It was good to understand how a program gets marketed to the insurers,” she suggests.

“At that point, I had a better appreciation for how much work goes into it — not just from me, as the client, but also from the broker — to how many markets they go out to and how they compare all the responses back to the client. Now I have a better appreciation for what the broker has to go through to market my program.”

In addition to her degree, Lips has also obtained the Certified Insurance Professional designation from the Insurance Institute of

Canada and the Chartered Professional Accountant designation.

VALUE OF VOLUNTEERING It was while working for the City of Calgary from 2003 through 2007 that Lips became active in the Southern Alberta Risk and Insurance Management Society (SARIMS).

“I didn’t want to become an accountant like everyone else, so I picked a concentration that seemed interesting, that had a tie to actuarial science.”

“My boss at the time was involved” with SARIMS, she says. “Some of the meetings were at our office. It just made sense.”

Lips initially served as webmaster for SARIMS. She also held the position of vice president, working her way through the executive to become president from 2010 through 2012.

“The lady who was the webmaster before me also worked for the City (of Calgary) at the time, so I

PROFILE

ences, we can often hash out a few issues that have been kind of lingering that are just easier dealt with face-to-face.

I wouldn’t have had those connections if it weren’t for RIMS.”

OPPORTUNITIES GALORE

Photo: Peter Tym

just took over from her,” Lips recounts. “It was a great way to run my network as someone fairly recent in the industry,” she says.

In 2007, Lips joined the University of Calgary as a risk and insurance analyst, where she worked until 2009, at which point she joined PCL Constructors, her current employer.

“As soon as I started (at PCL), I said, ‘Yeah, I like being in construction, and I think I will end up staying in construction now.’ I don’t foresee myself getting out of the construction side of risk management.”

At PCL Constructors, Lips currently has responsibility for the Toronto district.

“I do the due diligence on our subcontractors that we include under our subcontractor default insurance programs,” she reports. “Any issues where there is any type of insurance involved, I get involved,” she says.

At the national level of RIMS, Lips previously served as treasurer and vice chair of the RIMS Canada Council, before taking on the role of chair this past January.

“For me, the volunteering has been a real big part of my success in the community, so I do urge others to volunteer at a local, national or international

level,” she points out.

Some RIMS Canada volunteers are currently busy preparing for the RIMS Canada Conference, to be held September 24 through 27 at the Metro Toronto Convention Centre.

“The theme is community,” Lips says. “We all interact with people at different levels,” she points out,

adding that disaster risk and emerging risks will be among the areas of focus on the conference agenda.

“Besides the educational piece is the networking,” Lips says of the benefits of attending the conference.

“A lot of our clients and our subcontractors are members of RIMS and sometimes when we meet at confer-

There is a wide variety of opportunities out there for risk professionals, Lips suggests. For example, autonomous vehicles bring in “different ways of managing transportation risks,” she points out.

“If there are fewer accidents, you don’t need to worry about it as much. I would imagine that’s going to change the look and feel of some of the insurance programs in place, including captives and self-insured retentions, potentially,” Lips expects.

With 17 years of experience in risk management, Lips suggests that changes in technology and the emergence of business models — such as the sharing economy — have not fundamentally changed the job of a risk professional.

“To me, risk management is really applying common sense,” she offers. “The basic tenets of risk management don’t change. It’s just that the risks change,” she goes on to say.

March 2017 Canadian Underwriter

11

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Staying Power Ongoing challenges have not forced Canada’s property and casualty industry from its position of strength, but that continued performance should not be viewed as a given. Ongoing and emerging threats demand that the market remains vigilant and beefs up enterprise risk management capabilities.

Greg Williams

Senior Director, Property/Casualty Ratings Division, A.M. Best Group, Inc.

Over the past decade, Canada’s property and casualty insurance industry has been faced with numerous tests, including major catastrophe losses, the global financial crisis, regulatory changes and, more recently, uncertainty created by political events in the United States.

Despite the challenging operating environment, and as companies also navigate through a sustained period of low interest rates, Canada’s p&c industry has emerged relatively unscathed and remains in a position of financial strength.

As a result, A.M. Best continues to maintain a stable outlook for Canada’s p&c industry based on its solid risk-adjusted capitalization, long-term profitable operating performance, growing sophistication in underwriting technology and continuing attention to developing and enhancing risk management methods.

Despite the stable outlook, however, the extended pressures of diminishing investment returns and intense competition have the potential to erode industry fundamentals.

It is, therefore, imperative that Canada’s p&c market bolster its enterprise risk management capabilities and remain vigilant to existing and emerging threats that surely will test management teams over the near term.

EXISTING AND EMERGING THREATS Economic environment The balance sheet of Canada’s p&c insurance companies has been pressured for several years by low interest rates and volatile energy markets.

The low interest rate environment has persisted for a much longer period than many observers had predicted, with a growing concern that this might be the “new normal.”

For Canada’s p&c insurers, low interest rates are primarily an investment concern. A high proportion of investments are in interest rate-sensitive assets, such as bonds, and that has resulted in a prolonged period of low investment returns.

In response, some Canadian p&c insurers are now more closely matching their assets and liabilities,

March 2017 Canadian Underwriter

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taking on more credit risk or increasing duration.

At this point, the vast majority of investments continue to be of high quality and the slight reallocation is not a rating issue. However, the low interest rate environment remains a concern as there is the potential for the mispricing of risk and the creation of asset bubbles as investors reach for yield.

Inflation remains well-contained, which should allow the Bank of Canada to maintain its current accommodative monetary policy. It elected to maintain the current base lending rate of 0.5% at its recent meeting on January 18, 2017.

It is expected that interest rates will remain low in the medium term, likely through 2018, as slack remains in the economy and the Bank of Canada remains dovish on future rate hikes. The yield curve remains flat as inflation expectations moderate further and investors continue to hold safe-haven assets.

The belief is that even though low interest rates are expected to continue, insurance companies should consider how their investment portfolios would respond to a sudden interest rate spike.

The Bank of Canada noted in its January Monetary Report that its outlook is “subject to considerable uncertainty, given the unknowns around policy actions by the incoming U.S. administration, particularly concerning trade. These potential policy changes pose important risks to the current projections.”

Energy is a key component of inflation indexes. As a result, the recent low oil price has suppressed inflation in Canada, which has helped to perpetuate the low interest rate environment.

Roughly 10% of Canada’s gross domestic product (GDP) is tied to the energy industry and exports remain a key component of the Canadian economy. While oil prices did rebound somewhat to US$53 at year-end 2016 from the low of US$26 recorded in February of the same year, prices are still well below the US$108 recorded in mid-2014.

With the increased level of competition in the energy sector, underwriting margins also have been consistently squeezed, and 14 Canadian Underwriter March 2017

the fall in the price of oil has further intensified the situation. Many projects have been deemed uneconomical and cancelled, while investments in new projects have been limited, especially in the energy-producing provinces of Alberta, Saskatchewan and Newfoundland and Labrador.

The use of technology, as well, has spread into other areas of organizations, including claims and distribution.

Companies that have not adopted these technologies effectively find themselves at a greater risk of being adversely selected against.

This is likely to further reduce premium volumes and place greater pressure on managing costs as companies rationalize the benefits of continuing to underwrite energy risks.

Technology Given the prolonged interest rate environment, underwriting fundamentals have taken on an even greater importance in Canada’s p&c market. Insurers continue

to retire legacy systems and invest in more sophisticated policy administration and claims systems.

Management teams across the spectrum also are attempting to leverage data analytics to stratify customers into ever-more targeted price groups.

The use of technology, as well, has spread into other areas of organizations, including claims and distribution.

Companies that have not adopted these technologies effectively find themselves at a greater risk of being adversely selected against.

Usage-based insurance (UBI), or telematics, also has dominated technology discussions in recent years. The use of such real data analytics has resulted in, and should continue to lead to, more refinement in rate and underwriting decision-making.

Additionally, autonomous driving (selfdriving cars) has begun to emerge as a more recent topic of great interest. Some industry experts believe that autonomous driving will lead to safer roads, less damage to cars and fewer injuries and deaths for drivers and passengers.

While this remains to be seen, the issue of insurance on such vehicles will need to be addressed on a worldwide basis. The anticipated savings in claims costs could result in lower premiums, to the extent that it may become even more difficult for auto writers to remain profitable.

While significant progress has been made to improve pricing adequacy in the property lines, there still appears to be additional opportunity to improve price sophistication and risk management. Further segmentation in pricing, in the form of expanded use of by-peril pricing algorithms and greater detail in deterministic modelling, will need to continue to evolve and gain greater traction.

Catastrophes Fuelled by losses from the Fort McMurray wildfire, insured damages from Canadian natural catastrophes in 2016 topped $4.9 billion, which easily surpassed the previous record of $3.2 billion set in 2013, the Insurance Bureau of Canada has reported.

While primary p&c companies within Canada’s market were able to absorb these losses because of their robust capital positions and comprehensive reinsurance programs, the record damage reported in 2016 is part of an upward trend that shows no signs of abating.

Given the increased frequency and severity of catastrophic events that many attribute to climate change, Canadian insurers will remain challenged to improve their Cat risk management systems and controls.

Proper coding of loss exposure is essential to ensure meaningful model outputs are developed.

While most Canadian p&c insurers utilize sophisticated catastrophe modelling tools to provide loss estimates, careful monitoring of zonal and other specific aggregates, including “whatif” scenario testing using severe events in areas with concentrated exposures, are expected to be critical to understanding maximum potential loss.

Furthermore, strong catastrophe risk managers should integrate exposure data directly into the underwriting process and underwriting decisions should include the latest aggregate exposure position.

Consolidation Most insurance companies, at some point, will need to grow to remain relevant in the marketplace, meet shareholder expectations (in the case of publicly traded firms) and ensure they can absorb costs in the future. However, prospects for growth in the Canadian market are limited as it is highly competitive and awash with capacity after several years of strong operating performance.

In order to achieve organic growth, some large insurers in the p&c market have broadened their distribution channels by introducing separate brands that write direct to the market, rather than through brokers. The intent is to reach a broader audience that is more tech-savvy and may not feel they need the involvement of a broker in their insurance decision-making.

Thus far, brokers seem to welcome the competition, provided that the direct

writers market under different brands than those sold through the broker channels. Brokers also seem to realize that they need to provide some value-added services and make themselves more available to policyholders than in the past.

Nevertheless, mergers and acquisitions (M&A) remain the obvious route to growth. The desire to achieve scale or additional distribution channels contin-

ue to be driving forces of M&A activity within the Canadian marketplace.

Activity has been rampant in the broker segment as well, as brokers look to diversify their books, gain more geographical spread and increase their writings in a more efficient and rapid manner, while also finding synergies and improved scale in operations and common ground with former competitors.

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2017-01-16 9:38 AM

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To the Letter Steve Pottle

Treasurer, RIMS 2017 Board of Directors, and Director, Risk Management Services, York University

Risk professionals, likely the point persons on all things insurance, should have a solid grasp of reservation of rights letters to ensure that their organizations realize the full value of their insurance policies.

Careful review of such letters is essential to avoid potentially costly and serious legal consequences.

Among the many duties of a risk manager is likely the procurement and maintenance of a company’s insurance program, and along with that, the management of any claims made under that insurance program. Should a loss event occur, the risk manager is probably responsible for most or all insurance matters.

Working through a claim can be a complex and demanding process, making communication a critical element in the disposition of any claim.

Accurate and efficient communication among

all relevant stakeholders, and especially between the insurer and insured, will help expedite processes and avoid misunderstandings.

RESERVATION OF RIGHTS If and when an insured files a claim with an insurer, that insurer may then respond to the insured with a reservation of rights letter. To help risk professionals successfully navigate such a situation, RIMS has published the professional report, A Risk Manager’s Guide to Reservation of Rights.

Such a letter is a notification from the insurer that it may limit or deny coverage of the insured’s claim based on specific policy provisions and details and circumstances of the claim. The insurer is, thus, reserving its rights to limit or deny said coverage, based on the terms and conditions of the policy or information uncovered in an investigation of the claim.

SPECIFIC INFORMATION A reservation of rights letter will include all relevant and important specifics of the case, from the name and policy number of the claimant to details about the claim itself, as well as specifics about policy language, coverage terms and exclusions.

The letter will lay out in detail the logic and/ or reasoning forming the basis of the insurer’s

March 2017 Canadian Underwriter

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decision to reserve the right to limit or deny coverage. This explanation must be clear and unambiguous to ensure the policyholder is adequately informed of the potential policy defences.

A reservation of rights letter may also request additional information about the claim from the insured or note that insureds are obligated to co-operate with any investigation into the claim. The letter may further address issues, including defence of the claim and any self-insured retention (SIR) the insured may have.

In addition to specificity and clarity, timing is also an important element when dealing with reservation of rights letters. In most cases, a carrier must provide an insured with a reservation of rights “promptly.”

There are cases, however, when a delay in notification is allowable. In such cases, a court can decide that an extended delay in issuing an insurer’s reservation of rights communication does not necessarily result in a waiver of the insurance company’s denial of coverage.

POLICYHOLDER RESPONSE, CONSIDERATIONS Should an insured receive a reservation of rights letter, it should be carefully, even meticulously, reviewed, preferably against the policy under which the claim was filed. In some situations, it may be preferable or even recommended for an insured to have counsel review the reservation of rights letter in order to be able to properly evaluate it and identify any potential consequences.

There is no legal obligation for an insured to respond to a reservation of rights letter. Still, it is highly recommended that the insured/policyholder do so, even if only in some simple form or language to acknowledge receipt of the letter and to stipulate that it does not agree with the insurance company’s position. The insured/policyholder is, therefore, reserving its rights under the same set of circumstances, carefully referencing the original reservation of rights communication.

In some cases, depending on jurisdiction, a response to a reservation of 18 Canadian Underwriter March 2017

rights letter is necessary to preserve certain rights on behalf of the insured.

For example, should an insurer reserve the right to recoup defence costs paid in defence of a policyholder when it is subsequently found that the insurer had no duty to defend, a policyholder must specifically disagree with that assertion in the reservation of rights letter to avoid such a result.

Also incumbent upon a policyholder/ insured is the obligation to co-operate with the insurer’s investigation and defence of the insured’s claim; indeed, most policies require, in their terms and conditions, that insureds co-operate fully with their carriers in such matters, even in the face of disputes about coverage.

Communication among insureds, their carriers and all relevant parties, such as defence, coverage and other counsels, is central to this co-operation.

In some cases, depending on jurisdiction, a response to a reservation of rights letter is necessary to preserve certain rights on behalf of the insured.

This co-operation may extend to the use of tolling agreements in reservation of rights disputes.

A tolling agreement between parties is an agreement to waive the right to claim that litigation should be dismissed based on the expiration of a statute of limitations, generally with the purpose of allowing parties more time to assess the status and viability of claims of damages without having to file legal action. Parties to a tolling agreement must ensure they retain all relevant and appropriate rights under the agreement and may wish to consult counsel to make certain rights are protected.

CONFLICTS OF INTEREST Under many, or even most, insurance arrangements, liability insurers often have the discretion to select counsel to defend policyholders. When an insurer

issues a reservation of rights letter to an insured, however, it may introduce a conflict of interest that has the effect of allowing the insured to select its own counsel. This could occur if the insured’s interests in a lawsuit are not completely aligned with those of its carrier.

Only certain circumstances lead to a genuine conflict of interest, including punitive damages, intentional and negligent conduct, covered versus noncovered defendants, whether or not the policyholder’s employee was acting as an agent of the policyholder, when a default judgment has been entered against the policyholder, and whether or not the alleged conduct by the policyholder was part of its normal business operations.

EFFECTIVELY MANAGING RISK A risk manager must give appropriate consideration and attention to a reservation of rights letter as it may have serious and irrevocable legal consequences.

In addition to a thorough review, preferably with counsel, a risk manager must decide whether or not to reply, which is recommended, and if so, how.

Further, the risk manager must decide whether to accept the insurer’s view of coverage and related claims or respond with a reservation of rights letter asserting the position of the insured.

Whatever the course of action, the risk manager will head the response not only as the point of contact for counterparties, but also as the communications and decision co-ordinator among any and all relevant stakeholders to the claim or related dispute with the insurer.

The right response can ease a claims process while the wrong answer can make a claim harder to resolve.

Careful and deliberate preparation for events and contingencies will enable risk managers to safely steer businesses and organizations through potentially troubling incidents, including the receipt of a reservation of rights letter.

By understanding, anticipating and properly responding to reservation of rights letters, risk managers can better protect their organizations and realize the full value of its insurance policies.

To celebrate Canada’s 150th anniversary, we’re partnering with our brokers to give $1 million to better our communities in 150 ways.

As a modern mutual company, we’re built on the idea of people helping people. We have a long history of working together with our broker partners to strengthen our communities across the country. This year, we’ll do even more.

Get involved by nominating your favourite charity today at goremutual.ca/150ways.

THEGOREMUTUALFOUNDATION

150

ways

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Opinion/Analysis

Fresh Start Regulatory changes are necessary to better position Ontario for adopting autonomous vehicles and addressing any related issues.

Both regulators and insurers Jonathan Grnak must be ready for the near Barrister & Solicitor, future, which will likely Danson Recht LLP feature a mix of assisted driving technologies and the ability of a driver to take control should the need arise.

There is no disputing that autonomous vehicles (AVs) are just around the corner. With companies such as Tesla, Google/Waymo, Uber and Volvo testing their AVs in various cities around the globe, governments must begin looking at ways to regulate the technology in order to not only promote innovation, but to also encourage consumer adoption. One of the main issues that must be overcome is liability.

In Ontario, as it currently stands, Section 192 of the Highway Traffic Act states that the driver, owner, lessee and operator of a motor vehicle are jointly and severally liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle on a highway.

Furthermore, the onus of disproving negligence rests with the driver/owner.

In essence, the section states that if a driver/ owner causes damage to someone or something while operating a vehicle, he or she is liable unless he or she can prove otherwise.

The existing law in Ontario makes it clear that new obligations or legislative amendments will have to be implemented to reflect developing autonomous vehicle technology. Specifically, at what point does liability for an accident shift from the driver to the vehicle itself?

The Society of Automotive Engineers (SAE International) provides that there are five different levels of driving automation. • Level 0 means a human driver is in full control of the vehicle; • Level 1 means a driver controls most functions, but that the car can do some functions automatically;

March 2017 Canadian Underwriter

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• Level 2 means the driver is disengaged from physically operating the vehicle (for example, lane centring), but must still always be ready to take control; • Level 3 means that while drivers are still required, safety-critical functions can be transferred to the vehicle under certain traffic or environmental conditions; • Level 4 has been described as fully autonomous vehicles “designed to perform all safety-critical driving functions and monitor roadway conditions for an entire trip;” and • Level 5 has been defined by Stanford University, based on information from SAE International, as vehicles without an option for human drivers, since there are no steering wheels or controls.

Ontario’s Ministry of Transportation (MTO), recognizing that AV technology is developing at a staggering pace, implemented on January 1, 2016 a 10-year pilot

22 Canadian Underwriter March 2017

The likelihood is that AV technology will dilute the sense that drivers are directly and solely responsible for their vehicles. What this means is that fault will have to be ascertained as between the vehicle and the driver. program to allow for testing of autonomous vehicles on roads in the province.

In an effort to clarify liability should an autonomous vehicle crash, the 2016 report, Automated Vehicles — Driving Innovation in Ontario, states the Highway Traffic Act, as currently drafted, will apply to the driver/vehicle owner, with no exceptions.

Is this sufficient to encourage manu-

facturers to test their products in the province, while simultaneously promoting consumer adoption of autonomous vehicles?

The general consensus among industry experts seems to be that fully autonomous vehicles (Levels 4 and 5) will greatly reduce the number and costs of collisions, which could, ultimately, reduce insurance premiums.

Level 3 autonomy, however, could actually increase collisions as a result of the interplay between the driver and vehicle, and the requirement for a driver in any given scenario to assume control should the vehicle be unable to act.

While Level 5 autonomy is likely several decades away, predictions about Level 4 autonomy is that these vehicles could be on the roads by 2021, Volvo Cars reported in the spring of 2016.

Until that time, though, vehicles on the road will be a combination of Levels 0 to 3, which means there will be a

“mish-mash” of assisted driving technologies, with a driver in the driver’s seat at all times, ready to take over.

That said, how will the automotive insurance industry be affected?

The likelihood is that AV technology will dilute the sense that drivers are directly and solely responsible for their vehicles. What this means is that fault will have to be ascertained as between the vehicle and the driver.

Currently in Ontario, although MTO’s stated position is that drivers will remain liable regardless of the level of autonomy, at what point in the future does the provincial government have to consider regulatory changes to take into account the possibility that vehicles could be deemed responsible for crashes?

At its most basic level, the purpose of mandatory auto insurance in Ontario is to ensure individuals are compensated for their injuries. Based on the current law, injured parties are entitled to sue the driver of the vehicle that caused their injuries, and the insurer for that party must then compensate the victim.

However, if the vehicle is operating autonomously, should the operator still be liable?

The United Kingdom’s Department for Transport recently detailed its view in Pathway to driverless cars consultation on proposals to support advanced driver assistance systems and automated vehicles technologies: government response.

One of the main ideas that the department put forward is that an insurer will be required to provide coverage for both the driver’s use of the vehicle, as well as the AV technology, within a single policy of insurance. This model would ensure that the driver is covered both when driving, and after having activated AV mode.

In the event of a collision while the autonomous mode is active, the victim would be able to claim from the insurer and where the manufacturer is found to be liable, the insurer would be able to recover against it under product liability laws, the response notes.

While this makes sense in theory, the determination of who had control at

There is also the idea that manufacturers will want to protect their reputations, and, thus, there is the possibility that they will take a hard-line stance when it comes to defending themselves and their technologies, creating a situation of increased litigation costs. the time of a collision is contentious and will require the examination of data logged by the vehicle. Manufacturers will arguably own the data, but insurers will require access to it in order to investigate claims.

It goes without saying that problems could arise when a manufacturer is asked by an insurer to provide crash-related data so the insurer can determine whether or not the manufacturer is at fault.

Experts consulted by the U.K. Department for Transport reported the expectation is

that, over time, insurers and manufacturers will develop processes to quickly handle most claims.

If manufacturers prove unhelpful in determining liability, insurers could simply stop offering insurance products for their vehicles.

In lieu of the aforementioned method, manufacturers could, instead, decide to insure their own vehicles. Volvo, for example, pledged that it would assume full liability for any crashes involving its autonomous vehicles.

A noble idea; however, the question becomes whether or not vehicle manufacturers have the resources required to act as an insurer (for example, when investigating claims).

Furthermore, manufacturers could include insurance premiums in the costs of their vehicles, but it remains to be seen whether or not consumers will be receptive to this practice.

There is also the idea that manufacturers will want to protect their reputations, and, thus, there is the possibility that they will take a hard-line stance when it comes to defending themselves and their technologies, creating a situation of increased litigation costs.

Based on the foregoing difficulties that could arise as a result of insuring autonomous vehicles, the Ontario government, in consultation with the federal government, ought to establish the extent to which it wishes to embrace autonomous technology.

It is advisable that the Ontario government move beyond merely acknowledging the fact that it is open to allowing AVs to be tested on provincial roads via permits. Further, it must look to regulate mandatory insurance requirements to incorporate product liability, as well as to amend the Highway Traffic Act to account for the fact that drivers, ultimately, should not be held responsible in circumstances when a vehicle in autonomous mode causes an accident.

For their part, insurers must accept that AVs will, undoubtedly, disrupt the automotive insurance industry as a whole, but, ultimately, the magnitude of same still remains a big open question.

March 2017 Canadian Underwriter

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Battle Ready

Ryan Wilson,

Chief Technology Officer, Security, Scalar Decisions Inc.

What will it take to win the cyber security war in 2017?

Organizations may choose to arm themselves with the strategic approach that has worked for high-performing organizations, including identity management and authentication, web application firewalls and encryption for data at rest.

Are organizations winning the war on cyber security in 2017? Chances are the majority of Canadian companies are not.

This was the central finding of the latest Cyber Security Readiness survey from Scalar Decisions Inc. and Ponemon Institute. In all, 658 IT and IT security practitioners in Canada, responses from whom were captured via a web-based survey conducted by Ponemon Institute in October 2016, were asked about their organizations’ readiness and ability to prevent and respond to cyber threats.

This year’s results found that only one in three

24 Canadian Underwriter March 2017

Canadian companies are confident enough in their readiness to feel as though they were winning the war on cyber security — a number that has declined substantially over recent years.

Since the study was first released in 2015, respondents’ optimism about the cyber security capabilities of their organizations has dropped to 34% from 41% in the initial report. Part of the reason for this is that attacks are becoming more frequent, sophisticated and complex.

On average, surveyed organizations report having experienced 44 cyber attacks in the past 12 months, an increase from an average of 34 attacks in 2014.

Not only has the frequency of attacks been increasing, but so, too, has the severity. The number of organizations that have, in the past 12 months, experienced an incident resulting in the loss or exposure of sensitive information has risen to 53% from 46% in 2015. Respondents also believe that cyber threats are becoming more sophisticated, with 79% reporting that their anti-virus or intrusion detection system failed to prevent an attack.

The threat landscape is rapidly evolving and Canadian companies must continually renew their knowledge of cyber security to stay ahead.

While criminal syndicates and lone-wolf hackers remain the top security concern for companies, insider threats have surpassed corporate espionage and hacktivists for the first time since 2015.

The study found that 44% of respondents report their organizations monitor individuals with access to sensitive information, but almost half (47%) say their organization does not detect and

monitor internal threats through controls like security information and event management, network traffic surveillance, identity and access management, and user behaviour analytics. This creates a unique threat for a Canadian company, where identifying and mitigating an attack — both from outside and within — becomes increasingly difficult.

IOT = INTERNET OF THREATS A key reason for the increase of cyber threats to organizations and individuals is the proliferation of connected devices, such as smartphones and tablets, the study shows. In late 2015, Gartner Inc. forecast that 6.4 billion connected things would be in use worldwide in 2016, up 30% from 2015, and would reach 20.8 billion by 2020.

Current survey respondents rank mobile devices as the greatest potential security risk to their organizations, followed by third-party applications. As more and more companies adopt a BYOD (bring your own device) strategy, allowing their employees to connect their personal smartphones and tablets to corporate networks, this threat is only going to continue.

Going forward, the Internet of Things will present an even greater threat because these “headless” connected devices often do not prioritize security and present new vectors for attacks.

INCREASING COSTS OF BREACHES The survey also points to the far-reaching consequences of cyber threats for Canadian companies. In 2016, cyber security compromises cost organizations an average of $7.2 million in losses, up from $6.9 million in 2014. The biggest losses were reported in damage to organizations’ reputation and marketplace image ($2.5 million) and damage or theft of IT assets and infrastructure ($1.7 million).

Additionally, companies are experiencing more intellectual property theft than ever before, which resulted in an average estimated loss over time of $6 million as a result of lost competitive advantage based on prior internal assessments.

NEW DISCLOSURE REQUIREMENTS Until now, companies have been reluctant to disclose information breaches. In fact, only 21% of polled companies that were affected by ransomware chose to report it, the latest survey shows.

However, this year and beyond, Canadian companies will have to be especially mindful of how they handle data breaches and security compromises as the Digital Privacy Act, not yet in force, makes it mandatory to disclose “breaches of security safeguards that create a real risk of significant harm” to users and report them to the Privacy Commissioner.

Additionally, companies are experiencing more intellectual property theft than ever before, which resulted in an average estimated loss over time of $6 million.

With new regulations will come new demands for Canadian organizations after a breach has occurred, but they should also spur new considerations ahead of these situations.

NEED FOR INCREASED IN-HOUSE CAPABILITIES Though survey participants indicate their organizations are spending more on IT budgets and security measures than in previous years, they are still facing systemic and organizational obstacles to improving their cyber security capabilities. The main challenge to an effective cyber security posture is a lack of in-house expertise — IT leaders report a deficit of properly trained personnel in the workforce, and only 31% of respondents currently engage an external breach response provider to resolve major security incidents (another 44% plan to do so in the next 12 months).

The lack of in-house expertise is followed by insufficient personnel and lack of collaboration with other functions.

Troublingly, these have been the top challenges to an effective cyber security posture identified in all three years that the survey has been conducted. This indicates that Canadian companies have not been able to address these issues at the workforce or organizational levels since 2014.

APPROACH OF HIGH-PERFORMING ORGANIZATIONS In general, high-performing organizations have a greater awareness of the cyber security threat landscape, spend more on security and more effectively measure the return on investment of their technology investments. In fact, these companies spend an average of $5 million more per year on security than their low-performing peers, and tend to have an IT security strategy that is better aligned to the overall business goals and mission. This may be a reason why they receive higher budgets.

Companies looking to boost the effectiveness of their cyber security posture should ensure their cyber security strategy aligns with their overall mission, invest in technologies to reduce insider threat, build an experienced IT workforce, engage in threat-sharing intelligence, conduct risk assessments and audits to identify vulnerabilities, and develop effective strategies to protect the identified vulnerabilities.

When asked about the security technologies they consider the most effective, respondents from high-performing organizations were significantly more likely to name identity management and authentication, web application firewalls and encryption for data at rest as worthwhile investments. They were also more invested in measuring the effectiveness and outcomes of cyber security technology.

If one thing is for certain, it is that the stakes in the cyber security war are only increasing. Recognizing the importance of a strong security posture, adopting new strategies and adapting to emerging threats will be the key factors that determine both the winners and losers in this high-stakes game.

March 2017 Canadian Underwriter

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Split Personality Can earthquakes be damaging? Yes. Would a severe quake have an adverse impact on citizens, government and Canada’s property and casualty insurance industry as a whole? Perhaps. So, has everyone taken steps to ensure they are covered? No.

BY ANGELA STELMAKOWICH

26 Canadian Underwriter March 2017

COVER STORY

Split Personality

W

hat if?

Making a convincing argument to prepare for and secure coverage in the event of “what if?” can be challenging. Consider, for example, Canada’s experience with regard to earthquake risk, awareness and insurance uptake.

True, Canada is likely not viewed as an earthquake hot-spot, although seismologists locate an average of 1,500 quakes each year in the country. Perhaps because only a portion of these, about a 100 or so, are felt by humans, Canadians might be forgiven for considering the potential remote and the peril unreal.

But that is the thing about earthquakes. One can never predict when they will happen; one can only consider past events and current modelling.

If that is the test, it has been estimated that there is a 30% chance of an earthquake strong enough to cause significant damage in southwestern British Columbia in about the next 50 years, and a 5% to 15% chance of such a quake somewhere from the St. Lawrence River Valley to the Ottawa Valley.

Those in Canada’s p&c insurance industry understand that a severe quake could produce adverse ripple effects that touch everyone from policyholders to the insurance industry, government and the Canadian economy.

In 2016, both the Conference Board of Canada and C.D. Howe Institute put forward recommendations that Ottawa adopt a last-resort, emergency back-stop mechanism for a catastrophic earthquake. The conference board, for example, argues the impact of a 1-in-500-year loss event is sure to produce long-lasting economic losses and could put the national economy in jeopardy.

Getting buy-in from individual policyholders, however, continues to be a challenge. Enhancing public awareness of earthquake risk and the importance of quake endorsements could help advance uptake.

A severe quake will, no doubt, make demands of all parties involved in the p&c insurance chain. The hope is that enhanced uptake among policyholders can avoid them becoming a weak link that has implications all the way down the chain.

March 2017 Canadian Underwriter 27

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COVER STORY

Split Personality STATE OF UPTAKE “Earthquake insurance is available across Canada as additional coverage and covers the loss or damage to your property and its contents caused by the shaking of the earth,” says Don Forgeron, president and chief executive officer of Insurance Bureau of Canada (IBC). Though not included in a standard home insurance policy, it can be purchased as an add-on to an existing policy, Forgeron notes.

“Take-up in Quebec is negligible, with only about 2% of households buying the coverage despite the high seismic risk in the region,” he reports. Compare that to British Columbia where about “40% to 45% of households have coverage.”

Joel Baker, president and chief executive officer of MSA Research Inc. and Catastrophe Indices and Quantification Inc. (CatIQ), and Carolyn Rennie, managing director of CatIQ, see a persistent “lack of communication about the risk in eastern Ontario and Quebec.”

Property owners must be aware of earthquake risk to buy the endorsement, suggests Balz Grollimund, Swiss Re’s head of underwriting for Canada and the English Caribbean.

Beyond a lack of awareness, Philipp Wassenberg, president and chief executive officer of Munich Reinsurance Company of Canada, suggests low uptake may be as a result of a number of false attitudes and perceptions: government will cover costs; an earthquake will not happen where the person in question lives or during his or her lifetime; and cover is already included in the policyholder’s homeowners/property insurance.

Maz Moini, Aviva Canada’s vice president of commercial lines and reinsurance, agrees perception of risk is a likely factor keeping take-up rates where they are.

Even if aware of the quake risk in their areas “they see it as a remote enough probablility that they choose to basically retain that risk versus transfer,” Moini says.

Compare that to the perceived risk of a home burning or being damaged by a storm. “They see that as being of a higher probability and, so, they see the need to buy insurance to protect themselves against that,” he adds.

As well, “usually, government disaster financial assistance doesn’t respond to a catastrophic loss if insurance is readily available to protect property owners against that particular peril,” Moini says.

“While there has been quite a lot of talk about earthquake risk and potential costs, it rarely moves people enough to purchase earthquake insurance — at least to a degree that would show a notable increase in uptake,” notes Maiclaire Bolton, a seismologist and senior product manager, global earthquake products for CoreLogic.

Cover is “costly even in low-risk areas and there’s no incentive/mandate, such as earthquake insurance requirements for

“There is no capital shortage in providing earthquake coverage.

Risk can be passed directly through insurers to reinsurers, where the risk is further diversified to global reinsurers,” explains Philipp Wassenberg of Munich Reinsurance Company of Canada. mortgages,” Baker and Rennie add. Citing traditionally high deductibles, “with the rising cost of housing, especially in the urban areas of B.C., it can be a bit daunting to the average homeowner,” Bolton says.

“While many Canadians are moderately or highly exposed to earthquake risks, many still underestimate them and choose not to increase their home insurance protections accordingly,” says Desjardins Insurance spokesperson Valerie Lamarre.

Calling earthquake underinsurance a critical problem, “post-quake recovery will be more gruelling, prolonged and costly to taxpayers than in other

countries where quake cover is more prevalent,” Baker and Rennie argue.

On the personal side, sources say, an average home in a high-risk area could mean a premium of about $1,500.

“Uptake of earthquake policies would reduce the negative effect on the economy by providing liquidity to the endconsumer and solvability to the insurer,” suggests Wassenberg.

“There is no capital shortage in providing earthquake coverage. Risk can be passed directly through insurers to reinsurers, where the risk is further diversified to global reinsurers,” he explains.

Primary insurers with significant exposures, however, may not be able to as easily absorb losses, Baker and Rennie say.

Should a catastrophic earthquake off the coast of British Columbia occur, they cite estimates from the Property and Casualty Insurance Compensation Corporation that “cascading failures of insurers will likely take place once earthquake losses breach $30 billion.”

Noting there is now no formal government back-stop for the industry, “a major quake would imperil swathes of the p&c industry, leave many consumers in the cold (because most aren’t insured), dent the banks and the larger economy, and leave governments and taxpayers holding the bag,” say Baker and Rennie.

Bolton suggests one benefit of insurance is it helps move forward the discussion on mitigation, which, ultimately, could reduce the cost of the event when it occurs. “Once you are able to address the cost of an event and the ability to mitigate the impact of the severity, you can move forward with preparedness to manage the risk from both a public safety and an insurance perspective.”

DAMAGE TOLL David Harvey, president of the Structural Engineers Association of British Columbia, says quake-related damage will depend on many factors. What is the type of soil at the site? How do the soil and structure interact? Where is the quake’s epicentre?

How deep is the earthquake? For how long do the strong motions continue? “‘Magnitude’ is used to describe the March 2017 Canadian Underwriter 29

ANNOUNCEMENT

WICC Ontario: New Faces on the Board of Directors Over the past 20 years, the WICC Ontario Board has benefited from the unwavering dedication and passion of its volunteer Board of Directors. These amazing individuals come into the fold driven by a unique personal commitment to make a difference and do good things for WICC on the Board.

Please welcome the Directors who have recently joined the WICC Ontario Board: Laurel DiMaso – Co-Chair, Gala First General Services G.T.A Director of Property Management “Not only do I find volunteering on the WICC Board challenging and rewarding but it also provides me with an opportunity to become involved with an organization that I truly care about.”

Shari Dodsworth – Chair, Relay for LIfe Senior Vice President, Sales & Distribution Northbridge Insurance “Like so many in our industry I have had loved ones touched by cancer and I’m honored to join the WICC Board to support our fight against Cancer; to build awareness in our industry about this disease and to support others who face cancer in the future.”

Sonia Manson – Chair, Communications Marketing & Communications Manager On Side Restoration Services Ltd. “I lost my father and other loved ones to cancer so I choose to fight back by being involved with WICC. I love working together with our passionate team of professionals. Despite the crazy, busy lives we all lead it’s refreshing that the board chooses to give a little to make such a big difference for many.”

Since 1996, WICC has contributed over $13.7 million nation-wide to the Canadian Cancer Society.

If you’re interested in volunteering for WICC in any way, please send a note to info@wicc.ca Further information can be found at www.wicc.ca

ANNOUNCEMENT

WICC Ontario: New Faces on the Board of Directors Over the past 20 years, the WICC Ontario Board has benefited from the unwavering dedication and passion of its volunteer Board of Directors. These amazing individuals come into the fold driven by a unique personal commitment to make a difference and do good things for WICC on the Board.

Please welcome the Directors who have recently joined the WICC Ontario Board: Laurel DiMaso – Co-Chair, Gala First General Services G.T.A Director of Property Management “Not only do I find volunteering on the WICC Board challenging and rewarding but it also provides me with an opportunity to become involved with an organization that I truly care about.”

Shari Dodsworth – Chair, Relay for LIfe Senior Vice President, Sales & Distribution Northbridge Insurance “Like so many in our industry I have had loved ones touched by cancer and I’m honored to join the WICC Board to support our fight against Cancer; to build awareness in our industry about this disease and to support others who face cancer in the future.”

Sonia Manson – Chair, Communications Marketing & Communications Manager On Side Restoration Services Ltd. “I lost my father and other loved ones to cancer so I choose to fight back by being involved with WICC. I love working together with our passionate team of professionals. Despite the crazy, busy lives we all lead it’s refreshing that the board chooses to give a little to make such a big difference for many.”

Since 1996, WICC has contributed over $13.7 million nation-wide to the Canadian Cancer Society.

If you’re interested in volunteering for WICC in any way, please send a note to info@wicc.ca Further information can be found at www.wicc.ca

COVER STORY

Split Personality energy released at the hypocentre; ‘intensity’ refers to the observed effect of the quake at the surface,” says Wassenberg.

“An earthquake will only have one magnitude, but will have different levels of intensity at each site,” explains Bolton. “If you look at intensity at each site, in general, you can say that intensity, specifically Modified Mercalli Intensity (MMI), of level 7 (on a scale of 1 to 12) is where structural damage generally begins,” she points out.

Damage is determined by the “severity of shaking at the location of exposed properties and by the level or preparedness of exposed structures,” Grollimund says.

“The most damaging of the Christchurch, New Zealand earthquakes ‘only’ had a magnitude of 6.3, but the epicentre was located very close to Christchurch’s central business district,” he says.

“A small, shallow earthquake in an area with soft soil will have more significant intensity (or shaking) than a larger, higher-magnitude quake that occurs deep in solid rock,” Wassenberg says.

“Deeper earthquakes generally cause less damage than shallower earthquakes, because the ground motions decay a bit as they travel up to the surface,” Bolton says.

“If the earthquake is fairly shallow,” say less than five kilometres from the surface, the vibrations will be greater than if the depth is 20 or 25 kilometres, says Maurice Lamontagne, a seismologist with the Geological Survey of Canada.

“Consider, for example, if a structure is directly on bedrock versus on clay deposits or landfill, Lamontagne says.

“The clay and landfill can amplify the ground vibrations. But, in general, for modern buildings, that will be taken into account,” he notes.

While shaking can cause both structural and non-structural damage, Bolton notes, “secondary impacts include damage due to fire following earthquake, sprinkler leakage, landslides, liquefaction, tsunami and additional impacts, including infrastructure damage — which can contribute to the longer recovery.”

Following a severe quake, “government services will be impaired, water, hydro, sanitation, etc. — recovery can be very

long and extremely costly,” Baker and Rennie point out.

“When it comes to earthquakes, both the quake itself and the post-quake events can be severe and concerning,” suggests Amy Graham, property leader at RSA Canada. “For example, if you

“A major quake would imperil swathes of the p&c industry, leave many consumers in the cold, dent the banks and the larger economy, and leave governments and taxpayers holding the bag,” say Joel Baker and Carolyn Rennie of Catastrophe Indices and Quantification Inc. look at the earthquake which happened in Japan in 2011, the damage from aftershocks, fire, and/or tsunami was catastrophic,” Graham adds.

“In-land quakes will increase the risk of soil liquefaction and landslide; off-shore tremblers increase the risk of tsunami,” Wassenberg says. “Aftershocks are common, further weakening those buildings already affected,” he notes.

“In British Columbia, the construction type (and age of construction) of the building stock is very different than the building stock in Montreal or Quebec City, especially the old, beautiful historic buildings, which are very vulnerable types of buildings,” says Bolton.

In general, in eastern Canada, “the ground vibrations don’t attenuate as quickly, so in a sense, the zone where you could find damage would be larger with the same magnitude than an earthquake on the west coast,” Lamontagne says. This would especially be the case

“if the old buildings are on soil that can amplify the ground vibration,” he notes.

“Canadian building code, as it pertains to high-rises and large commercial, is among the best in the world in dealing with seismic risk,” notes Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction. “The problem is this leaves out two main categories of structures: existing buildings erected prior to the early 1970s, and singlefamily dwellings,” McGillivray says.

Jurisdictions in high-risk seismic zones, such as the greater Vancouver and Victoria areas, Ottawa, Montreal and Quebec City, need to identify at-risk buildings, particularly reinforced masonry and certain concrete buildings, and launch retrofit programs, he argues. “Offering financial assistance (low interest loans and tax breaks) can be effective here,” he adds.

“Standard property insurance only covers fire damage, which may result from an earthquake,” says Grollimund.

“However, past earthquakes have shown that fire-related losses are only a small portion of the total damage. The vast majority of earthquake damages are, therefore, not covered unless an earthquake endorsement is purchased,” he adds.

“Numerous earthquake models of recent vintage are available to assess Canadian earthquake risk for all relevant types of property,” Grollimund says. “Therefore, given the right underwriting expertise, it is possible to price Canadian earthquake coverage appropriately for all locations and types of properties.”

Aviva Canada’s Maz Moini says Canada is seen “as one of the jurisdictions where there is sufficient information, technology and science available to have world-class earthquake modelling capabilities.”

LINE BY LINE “Taking a look at catastrophic losses from the 2013 floods in Calgary,” Baker and Rennie say, CatIQ’s most recent industry loss estimate indicates about 66% of claims are commercial, 30% are personal and 4% are auto. “As a significant earthquake would cause similar damage, and considering underinsured personal lines, we would expect costs to break down March 2017 Canadian Underwriter 31

COVER STORY

Split Personality somewhat similarly (with significant additional living expenses and business interruption losses).”

Making clear that it will always depend on the particular event, where the quake occurs and the coverage that is in place, Bolton says “for most typical events, the breakdown is 1-to-1 for personal property and commercial property. This has been observed in catastrophic events like the 1994 Northridge earthquake, the 2011 Tohoku, Japan earthquake, as well as 1992’s Hurricane Andrew and 2012’s Superstorm Sandy,” she reports.

MODEL PERFECT? Harvey points out that seismicity is still developing, although site risks across Canada are broadly understood.

“Less clear is how existing structures will actually respond because so many factors influence performance,” he notes.

“Even less clear is if the structure is

repairable after the event (life safety is required, but post-earthquake use is not addressed by the building codes). Occupant (tenant) losses are virtually unknown.”

Acknowledging that models are improving, “models are just that. Pricing is based on the latest science and actuarial data. We don’t believe that companies are actively undercutting this cover,” say Baker and Rennie.

“Canada is one of the top countries in the world dedicated to a higher regulatory compliancy for earthquake risk,” Bolton says. “The goal of the Canadian regulatory environment is to help reduce the probability of ‘risk of ruin.’”

Noting the Office of the Superintendent

of Financial Institutions regulates the minimum amount of reinsurance limit required for the peril of earthquake, Bolton says “as of 2016, Canada is up to a return period of 450-year loss, with the goal of getting to 500 years, which from a solvency perspective, is nearly double most countries around the world.”

Says Forgeron, “While modelling has improved, it can still be uncertain — a small error could lead to serious implications for Canadians and governments when it comes to risk and preparedness.”

GETTING EDUCATED In terms of quake insurance uptake, “Canada is a country of extremes,” says Grollimund.

“While British Columbia is among the regions with the highest take-up rate for earthquake insurance of private dwellings, eastern Canada is among the lowest.”

Citing a 5% take-up rate in Quebec, Moini says that “can be viewed as low

COVER STORY

Split Personality through any lens.” But the 45% to 55% uptake in British Columbia, although insurers would like to see it as high as possible, “by international standards, it’s actually a pretty healthy take-up rate,” he points out.

“Tackling the considerable earthquake protection gap is key to ensure eastern Canada, and Canada as a whole, is better prepared,” says Grollimund.

That makes policyholder risk awareness all the more key. “Preparedness is vital in the event of an earthquake. Individuals, businesses and government all have a responsibility to prepare for the worst,” Wassenberg says. “Public education and awareness needs to continue,” he adds.

“Insurance incentives would encourage designers and building owners to build better-performing buildings,” Harvey says, pointing to base-isolated buildings in Japan — base-isolated buildings and non-structural components were

undamaged in the Kobe earthquake and occupants were able to recover very quickly — “have attracted premium prices and rental rates.”

Risk-appropriate pricing “should incentivize property owners of buildings with earthquake-resistant design,” says Grollimund. Bolton notes “the California Earthquake Authority has recently begun offering reductions in premium for retrofitting. This is a great way forward.”

Appropriate building standards are the best way to mitigate damage, argues Grollimund. “Building an earthquakeresistant building does not add much extra cost when considered during the construction phase,” he notes, while retro-

fitting existing properties can be costly.

“This is especially true for unreinforced masonry buildings, which are prevalent in eastern Canada and which tend to fare poorly during earthquakes,” he says.

“Insurance incentives for traditional homeowners’ insurance often don’t work because of the price of homeowners’ insurance and the way premiums are loaded,” McGillivray argues.

“But with the higher cost of earthquake insurance and the higher deductibles, insurance incentives for mitigation can work. They should be implemented by insurers by offering lower premiums and/or deductibles for completed mitigation projects,” he adds.

“We believe there is a strong need for establishing a federal government emergency back-stop mechanism that could come into play and complement the insurance industry coverage when such a catastrophic risk occurs,” Lamarre says.

COVER STORY

Split Personality

“Better building codes at the provincial and municipal levels, and a viable framework for sharing financial risk at the federal level, are needed,” says Don Forgeron of Insurance Bureau of Canada.

“In order to facilitate putting such an arrangement into place, a minimum of uniformity in the insurance industry earthquake product offer is desirable.”

Harvey’s take is “insurance rates should reflect potential damage loss, which could be more than 100% replacement value for a (barely) code-compliant building, and little or no loss for an immediate post-seismic occupancy building.”

Adds Lamontagne, “When everyone starts believing it is a real risk, then they will start preparing.”

34 Canadian Underwriter March 2017

LOOKING FORWARD “Whether it’s in the east or west, a significant over-modelled quake will have a significant negative effect on Canadian insurers, and the Canadian economy as a whole,” Wassenberg says. For a supercatastrophic quake, one beyond a 1-500 year event, “there is a growing awareness that Canada may be unprepared,” he says. “While the insurance industry can, and will, do its part, there is a need to formalize the role government can play in helping to manage the financial and

economic impact of a super-catastrophe.”

Addressing gaps in public policy and consumer protection “can only be possible if industry and government work together on earthquake preparedness. A strong capitalization regime on its own is not sufficient,” argues Forgeron.

“Better building codes at the provincial and municipal levels, and a viable framework for sharing financial risk at the federal level, are needed,” he says, which “mirrors what most other earthquake-prone jurisdictions have already done.”

Growth Industry

Alexis Moulton

Partner, McLennan Ross LLP

Nathaniel Brenneis

Student-at-Law, McLennan Ross LLP

With Ottawa’s move to legalize marijuana for recreational use this year, weed looks to be a growth industry, indeed. With that growth, however, are a number of potential insurance issues related to the cultivation and sale of medical marijuana.

It is difficult to go a day without hearing news about the potential benefits and ramifications of Canada’s increasingly permissive marijuana laws. While medical marijuana has been legal for more than 15 years, the regulations that govern its use and distribution are still in flux.

The Canadian government has announced that it would begin the process of legalizing marijuana for recreational use later this year, but no one knows what this new legal regime will look like.

This state of affairs has fostered a degree of un-

certainty and the insurance industry has largely adopted a “wait and see” approach as a result.

What is not uncertain, however, is that use and access to marijuana is growing. In 2013, 40,000 Canadians had received approval to use medical marijuana under Health Canada’s regulations, notes the Final Report of the Task Force on Cannabis Legalization and Regulations, commissioned by Health Canada and released last November. However, that only captures a small fraction of the patient population. A Health Canada survey released in 2012 found that about 400,000 Canadians reported using cannabis for medical purposes in 2011.

Further, the impending legalization has many across the country excited over marijuana’s economic potential. The potential economic impact for legal marijuana in Canada (medicinal and recreational) could approach $23 billion a year.

A 2016 report prepared by Deloitte Touche Tohmatsu Limited notes this figure takes into account the people who are “likely to consume” marijuana as well as ancillary markets related to security, transportation, etc. Sales alone could reach as high as $8.7 billion annually, which is similar to sales numbers generated by wine, it adds.

March 2017 Canadian Underwriter

35

Recent Insurance Press Releases featured on insPRESS.ca Changing the insurance industry – the DMZ and Aviva Canada launch an Insurtech accelerator program February 28 — by Aviva Canada

Tia Levan of Assessmed promoted to executive vice president February 27 — by AssessMed

Policy Works and AEGIS renew strategic partnership February 23 — by Policy Works Inc.

-30- Forensic Engineering’s Jiwan Thapar presents full-day course at Toronto Construction Association on Feb. 28, 2017 February 23 — by -30- Forensic Engineering

How Airbnb is changing the home insurance industry February 21 — by APRIL Canada

Hands-on program teaches young minds about brain health February 16 — by Economical Insurance

APRIL Canada reveals exciting trends in the MGA insurance industry

AssessMed promotes Christopher Coe to director of business development, Western Region February 8 — by AssessMed

FIRST Canada recognized as an employee-recommended workplace February 7 — by FIRST Insurance Funding of Canada

Kernaghan Adjusters strengthens southern Ontario operations with a new branch and two new adjusters!

February 6 — by Kernaghan Adjusters

-30- Forensic Engineering’s Pierre Maheux to present at the 2017 Ontario Bar Association Institute February 6 — by -30- Forensic Engineering

BrokerTeam Group partners with Sean Graham to launch Hamilton-based digital insurance brokerage February 6 — by BrokerTeam

-30- Forensic Engineering strengthens road safety group with the appointment of Shahram Almasi

February 16 — by APRIL Canada

February 2 — by -30- Forensic Engineering

STRONE proud title sponsor of alumni game at Scotiabank Hockey Day in Canada festivities in Kenora

Sharp Insurance acquires Rogers Insurance Group home and auto program

February 14 — by STRONE-Itech

Simple and easy-to-add home-share insurance provides rental hosts with peace of mind

Gore Mutual to share stage with Suzuki and Hadfield at landmark broker event February 9 — by Gore Mutual

February 2 — by Sharp Insurance

February 1 — by Aviva Canada

Vericlaim expands into new Edmonton office

Emily Horsman joins Markel as assistant vice president, programs

February 9 — by Sedgwick

February 1 — by Markel Canada

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

CURRENT REGULATORY REGIME One of the main issues at the moment, however, is determining how to best supply the drug to patients who need it. Health Canada currently authorizes specific producers to distribute dried marijuana, fresh marijuana and cannabis oil to eligible persons.

As of February 25, 2017, Health Canada reports there were 38 licensed producers in Canada, the majority of which are located in Ontario. But what about patients who wish to grow their own marijuana plants?

On August 24, 2016, the federal government introduced the new Access to Cannabis for Medical Purposes Regulations (ACMPR), which changed how patients with prescriptions for medical marijuana access their medicine. Under these new regulations, in addition to being able to purchase through licensed producers, Canadians may also apply to, and register with, Health Canada to cultivate a limited amount of their own plants.

The patients may also designate another party to grow marijuana for them, as long as this third party does not have a drug offence on his or her record. How much marijuana patients can grow and store is based on their prescription, with every gram of dried marijuana prescribed translating into five indoor plants or two outdoor plants. Health Canada reports that the average prescription under the ACMPR is one to three grams per day.

A large part of the impetus behind the ACMPR is the Federal Court’s decision in 2016, Allard v. Crown, where it struck down Canada’s previous regulation, the Marijuana for Medical Purposes Regulations (MMPR). The court held that the MMPR violated Canadian Charter of Rights and Freedoms rights by prohibiting the personal production of medical cannabis. It deemed the cost of accessing the drug from licensed distributors was not an affordable option for everyone and, thereby, restricted patients’ rights.

INSURANCE ISSUES WITH GROWING MARIJUANA Unfortunately, not everyone is satisfied with the Federal Court’s decision in Al-

lard. Residential housing providers and landlords are concerned that personal cultivation could affect their property values and insurance premiums. After all, there are instances where personal cultivation has caused significant property damage.

In one widely publicized instance from Coquitlam, British Columbia, a landlord claims she incurred $135,000 in repair costs as a result of a grow-op that was operating in the basement of her property without her knowledge.

Media reports indicate the tenants had a personal production licence from Health Canada, but were abusing this authorization and were growing more than 400 plants for illicit sale.

The federal government has described the ACMPR as an interim fix en route to legalization and it is possible that these landlord-tenant issues will disappear under a new legal regime. Whatever the law eventually looks like, insurers will, in all likelihood, be called on to fill in the gaps.

This case falls directly in line with the widely held fear that growing marijuana can cause significant harm to one’s property. The specific concerns are numerous and include risks associated with mould, improper electrical installation and associated fire hazards, unchecked use of pesticides and fertilizers, and break-ins and thefts, all of which result in dangers to neighbouring residences and first-responders.

However, these worries are largely shaped by Canadians’ current experiences with large-scale, illegal grow-ops and not with the comparably modest cultivation efforts of patients with a legitimate need.

In either case, landlords with personal growers as tenants could begin to see their insurance premiums increase or be excluded from coverage when they disclose that marijuana is being cultivated on the premises. As reported by Go Public in February, an insurer is said to have cancelled coverage for a British Columbia land owner after he notified the insurer that his tenant had begun growing marijuana on his property. The tenant in question was properly registered with Health Canada and his cultivation did not supersede the limits of his prescription.

The concern is that housing providers may begin off-loading both the related expense and risk onto their patienttenants. For example, tenants with grow operations could be required to carry extra insurance, including growth restrictions in their contracts or requiring regular inspections.

However, these types of landlord-imposed restrictions would contradict the purpose behind the ACMPR: ensuring the drug is accessible to those who need it.

The scope of this issue is larger than many might realize. Health Canada statistics from the Allard decision indicate that before the MMPR forbid patients from growing their own marijuana, the number of personal production licences across the country was soaring. The total number of licences more than tripled from 9,000 to more than 28,000 between 2011 and 2013.

Some believe these numbers could explode now that the ACMPR has come into force, and insurers must be prepared to navigate the consequences.

The federal government has described the ACMPR as an interim fix en route to legalization and it is possible that these landlord-tenant issues will disappear under a new legal regime.

Whatever the law eventually looks like, insurers will, in all likelihood, be called on to fill in the gaps.

INSURING DISPENSARIES Only the aforementioned 38 licensed producers can legally sell, distribute and insure medical marijuana, although they are prohibited from opening storefronts.

March 2017 Canadian Underwriter

37

Nonetheless, there are hundreds of marijuana dispensaries operating across the country. Despite their prolificacy, these stores are technically still illegal and remain subject to periodic raids by police.

However, enthusiasm for these raids has begun to wane now that legalization is closer on the horizon, allowing many dispensaries to operate uninterrupted.

How will legalization affect these types of distributors? Although many provincial governments across Canada may be looking to corner the legalized market with a centralized, government monopoly akin to how most provinces and territories manage alcohol sales, there is a strong argument for the current privateenterprise model to continue under stricter regulations.

Regardless of the distribution model, it remains possible that commercial landlords will start seeing marijuana retailers as tenants as early as this winter. Indeed, it was recently announced that Shoppers Drug Mart, the largest pharmacy chain in the country, has applied for a

licence to distribute medical marijuana.

What will these marijuana distributors’ insurance policies have to look like? To get a better idea, it may be helpful to examine the coverage that the still-illicit dispensaries are already paying for.

While dispensaries cannot insure any of their marijuana-containing products, there are some that have managed to secure coverage for their premises, se-

curity systems, equipment and liability.

The biggest obstacle to insuring dispensaries, however, remains the pervasive stigma against the drug and those who wish to sell it.

Dispensary tenants in commercial buildings are often forced by their landlords to pay increased premiums. Moreover, there are reported instances where some insurers have refused to cover buildings that have leased premises to a dispensary, even when the business has arranged for its own insurance.

While this attitude will change after marijuana is made legal, insurance providers cannot afford to delay for much longer.

The country’s nascent marijuana industry remains in a state of flux, but Canadian insurers should begin to prepare for a world where marijuana is legal and readily available. It is difficult to predict how it is all going to work, but consideration must be given to the unique needs and challenges that legalization will bring.

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FCIP graduates confirm that they have directly benefited from the broad perspective they gained from the FCIP program’s comprehensive business education with a p&c focus.

Are you ready to become an industry leader? Take our short FCIP self-assessment quiz and hear FCIP grads talk about the program at:

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38 Canadian Underwriter March 2017

Leading the Pack Facing a potent combination of technological change, talent pressure and shifting customer expectations, Canada’s property and casualty insurers will need to flex new organizational muscles to unlock the growth potential of innovation and customer-centricity.

Janice Deganis

National Insurance Leader, EY Canada

Steve Yendall

Insurance Advisory Leader, EY Canada

As 2017 takes hold, Canada’s property and casualty insurance sector finds itself grappling with converging forces that will continue to test organizational mettle and reshape the industry as a whole. Technology is changing at a rapid pace, customer demands are evolving constantly and pressure is mounting to find talent with the right digital skills to keep up with future business needs.

Beyond that, an uncertain economic/political climate and higher catastrophe risks are creating the perfect storm for considerable disruption in the p&c industry. The impact on Canadian insurers will be mounting pressure from growth, profitability and risk management perspectives.

But the future is not all bleak. Those companies willing to dig deep into a thoughtful reassessment of their core business and business models are going to be able to weather the storm. By recognizing some of the key external forces affecting the industry this year and developing a strategic roadmap to navigate these shifts, p&c insurers can be better-prepared to thrive in the face of fast-evolving disruption.

DRIVERS OF CHANGE As detailed in EY’s 2017 P&C Insurance Outlook, technology, customer expectations, talent and economic/political uncertainty will have a big impact on the industry this year. But cyber risks and catastrophes (both natural and human-made) are also worth putting on the radar as growing

threats that will test insurers. Take a closer look at just four of the external factors shaking up the insurance sector.

Technology Advances in technology continue to add both pressure and opportunity to the p&c industry, and the impact is both broad and complex.

Firstly, these advances are driving customer expectations for innovative insurance offerings.

Insurers will need to be more adept at deploying digital technology to reach new clients, upsell services and products, and manage competitive threats. Meanwhile, it is anticipated InsurTech will lead to further disruption in 2017, as innovative start-ups will move quickly to fill gaps in current insurance offerings.

Secondly, amidst depressed investment yields and income, technology has become a critical tool in unlocking operational efficiencies, yet many insurers remain saddled with outdated technology that hampers their ability to reduce costs and meet their customers’ evolving needs. New developments in data analytics, robotics and process automation can drive better performance, but they require a whole new set of capabilities and investments in infrastructure.

With technology comes cyber risk. With digital attacks on the rise, cyber risk insurance will see significant growth as a commercial line of business in 2017. At the same time, insurers themselves will be under pressure to create robust cyber security March 2017 Canadian Underwriter

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7

Cyber risks

With digital attacks on the rise, cyber risk insurance will see significant growth as a commercial line of business i To maintain their leadership role, insurers themselves will be under pressure to create robust cyber security system their own organizations.

6

Talent

With many insurance professionals retiring in the coming years, insurers will need to attract Millennials to fill the Insurers will need to attract data scientists, cyber risk specialists, digital marketers and others to secure their fut

systems in their own organizations.

And thirdly, technology advances such as smart homes, a growing sharing economy, self-driving cars, drones and more represent new risks that demand new solutions and even challenge conventional business models.

Customer expectations Within an increasingly self-service, ondemand economy, insurers are compelled to take a critical look at the changing demands of their customers. As demographics, technology and even regulatory parameters shift, customers’ expectations for a more digital, personalized and seamless experience will only continue to grow. Those insurers that adopt a more holistic approach to delivering simpler, faster processes — and that deploy data analytics to anticipate customer demands — may be better-positioned to fully meet the expectations of their clientele.

Talent Amidst an accelerated wave of retirements by insurance professionals, companies stand to lose not only a considerable number of specialists, but also a significant store of key underwriting and adjusting skills. Insurers will need to attract Millennials to fill the gap.

Forecasts suggest that by 2020, Millennials will make up 46% of the workforce, yet most of them perceive the industry as not being innovative enough. As well, the changing nature of the sector is driving demands for new types of skills, such as cyber risk management, digital marketing and customer-centricity expertise, which have not traditionally been skill sets sought by p&c employers.

Economic and political uncertainty Low insurance rates, continued volatility in the energy industry and Canada’s stagnating growth will continue to put pressure on insurers. In the broader economy, there is still much uncertainty around the economic policies of the new administration in the United States and how they will impact future investments.

To add to this backdrop, p&c insurers are dealing with low investment yields, 40 Canadian Underwriter March 2017

A strategic roadmap to drive profitable growth:

1 Focus on customer-centricity; 2 Focus on customer-driven innovation; Use technology to improve

3 top- and bottom-line performance; 4

Put the perils of Cat and cyber high on the corporate agenda; Rethink strategies to attract, develop

5 and retain talent.

soft pricing and rising claims costs, including catastrophic loss claims stemming from increased natural disasters. This is straining returns and necessitating fundamental structural change to the enterprise cost base, while driving the need for insurers to focus on profitable growth by doing more with less.

STRATEGIC ROADMAP In the face of all this stormy current and looming disruption, p&c insurers can stay afloat — and even prosper — by putting key strategies on their radar for the rest of 2017. Developing a strategic roadmap will help insurers seize the opportunities of this changing market and

be better-positioned to succeed in the years ahead. Five themes emerge as priority areas for action.

1. Put customer centricity at the top — Keep a laser focus on customers and be ready to adapt go-to-market strategies to meet their ever-changing needs. This year, in particular, insurers will want to develop a strategy that highlights 24/7 digital access, personalization, self-directed functionality and a seamless customer experience. And develop customercentric strategies that recognize and accommodate the many points of connection, from digital interactions to broker channels and direct writers.

2. Embrace customer-driven innovation — Put the emphasis on customerdriven innovation and accelerate the development of new products and business models that will unlock market potential. Those insurers that are most nimble in defining new customer demands and getting these products to market will thrive. Connecting and partnering with InsurTech start-ups and external innovation incubators and thinktanks can be powerful ways to transfer new ideas.

3. Invest in enabling technology — Insurers are going to need to assess and adopt technology to improve

Impact of external factors on the Canadian P&C market in 2017

Impact of external factors on the Canadian P&C market in 2017

=impact, low impact, = high (1 (1 = low 10 = high 10 impact)

impact)

Constant innovations such as blockchains, digital technologies, InsurTech, the sharing economy, drones, robotic process automation, sensors innovations and analytics aresuch having as a profound effect on thedigital insurancetechnologies, sector. The impactsInsurTech, can be Constant blockchains, the sharing economy, d felt throughout the insurance value chain and insurers need to be aware of opportunities and threats related to these process automation, sensors and analytics are having a profound effect on the insurance sector. Th 9 Technology innovations. Advances in technology are enabling proactive insurers to improve efficiencies across their operations, from feltpolicy throughout the insurance chain need aware of opportunities and threa underwriting and administration to claims and risk value management.

Newand smartinsurers technologies, suchto as be artificial 9 Technology intelligence, telematics, driverlessAdvances cars and blockchain will be game-changers; innovations. in technology are enabling proactive insurers to improve efficiencies across

9

8

Economical and political uncertainty

underwriting and policy administration to claims and risk management. New smart technologies, s Low interest rates and stagnant Canadian growth will put continued pressure on insurers, and the economic policies intelligence, telematics, driverless cars and blockchain will be game-changers; of the new US administration may affect broader economy.

The convergence of demographic, regulatory and technological change will raise expectations for a more digital, Economical Customer Low interest rates and stagnant Canadian growth willorientation put continued personalized and seamless customer experience.

Simpler products and a holistic financial will become pressure expectations 9 and political prerequisites asofinsurers striveUS for true customer centricity. the new administration may affect broader economy.

on insurers, and the

uncertainty

7

7

6

Catastrophes

Natural human-made disasters are a constant threat for p&c insurers, already dealing with low investment yields, economic uncertainty and soft pricing.

The convergence of demographic, regulatory and technological change will raise expectations for a financial orientat

Customer With digital attacks on the rise, cyber risk insurance will see significant growth as a commercial line of business in 2017. personalized and seamless customer experience. Simpler products and a holistic Cyberexpectations risks To maintain their leadership role, insurers themselves will be under pressure to create robust cyber security systems in their own organizations. prerequisites as insurers strive for true customer centricity.

8

Talent

7

With many insurance professionals retiring in the coming years, insurers will need to attract Millennials to fill the gaps.

Insurers will need to attracthuman-made data scientists, cyber risk specialists, marketersthreat and others secureinsurers, their futures.already Natural disasters are adigital constant fortop&c

Catastrophes

A strategic roadmap to

dealing with low inv

economic uncertainty and soft pricing.

With digital attacks on the rise, cyber risk insurance will see significant growth as a commercial lin

risks 7 driveCyber profitable growth: To maintain their leadership role, insurers themselves will be under pressure to create robust cyber their own organizations.

1 Focus on customer-centricity;

6

Talent

With many insurance professionals retiring in the coming years, insurers will need to attract Millen

knowledge between incoming tal- tremendous opportunity to build busiperformance at every mark. This ent and seasoned professionals will ness, drive growth and change the future can entail everything from embracbe critical to success. of the entire sector for the better. ing the robotics that can automate This kind of strategic roadmap, caliThose insurers that develop the necesinsurance processes to deploying advanced analytics to unlock new brated to the unique challenges that sary organizational muscle will be strong efficiencies and solutions. As up- 2017 brings, can help insurers navigate enough to unlock the competitive advangrading foundational policy, claims the shifting forces that are reshaping tages of digital and product innovation, and billing systems is increasingly Canada’s p&c sector. Though these chal- harness the talent that will drive perthe single greatest element in en- lenges are among the most complex the formance and deliver on ever-changing abling the integrated digital agen- industry has faced, they also represent customer expectations. da, carriers will need to zero in on smart investments to replace outdated in-frastructure and explore cost-effective alternative solutions Surprised? ARC isn’t.

Surpr to keep pace.

4. Elevate Cat and cyber risks — Put the Your customer has a list of the vehicles that perils of catastrophes and cyber risks are covered by your fleet policy. You have high on the corporate agenda. a list of the vehicles that are covered by ARC Group Canada ARC Group Canada is a national Natural Cat exposure continues to that policy. network of independe network of independent law firms, drive regulatory solvency and risk each intimately c And your lists aren’t theintimately same. each connected to their concentration concerns. Everyone their local market.

Insurance and risk witnessed the impact of 2016’s When the one vehicle that is involved in experts. Regio Insurance risk appear management an accident is the one thatand doesn’t on Fort McMurray wildfires as CanNa experts.

Regional strength. both lists, do you know what happens next? ada’s costliest event to date, and That is the National scope. events of this nature could have ARC does.

Go to As perilous consequences for regional That is the ARC Group. insurers. Similarly, insurers need Go to AskARC.com to focus on strategies to address cyber risks. Hiring cyber security experts, providing cyber risk training to staff and having the chief risk officer work closely with IT teams are critical for an active defence system against attacks.

5. Talent is the key — Rethink strategies to attract, develop and retain talent who have the skills to fuel growth in a fast-evolving environARC Group Canada is a national network of independent law firms, ment. It is not just about replacing each intimately connected to their local market. retiring expertise; it is also about Insurance and risk management experts. Regional strength. equipping one’s organization with National scope. Go to AskARC.com the next-generation skills and knowledge that the industry needs. Identify the digital expertise that will be essential, from artificial intelliThe ARC Legal Reporter gence, social media and blockchain Winter Issue – Article #1 A National Network of Independent Law Firms specialists to digital marketing and customer care executives. And in When is a medical examination considered a second examination building talent strategies, it is imunder Rule 36 of the New Brunswick Rules of Court? perative to understand the MillenniThe ARC Legal Reporter al mindset to be able to attract the v. Crowther and Kelly Case: Winter IssueReported – Article #1 Blyth 2009 NBCA 80 Citation: best and brightest of that generaWhen both the plaintiff’s physical and mental condition are in issue in an action, and At Issue: A National Network of Independent Law Firms the plaintiff undergoes a physical examination, will a subsequent application for a tion.

Building a collaborative culture psychiatric examination be considered an application for a second medica examination? that encourages a free transfer of When is a medical examination considered a second examination Should medical examinations that are ordered as part of the discovery process be characterized as ‘independent’ medical examinations? under Rule 36 of the New Brunswick Rules of The Court?

Court of Appeal of New Brunswick Court: 41 March 2017 Canadian Underwriter

If you’re in Manitoba, this is considered an automobile.

ARC_Fleet ad_1/2 page.indd 1

Reported Case: Citation: At Issue:

Judgment Rendered: Factual Summary:

If y Manitoba conside auto

October 13, 2009 (Reasons delivered November 2015-02-14 26, 2009) 1:05 PM The plaintiff suffered injuries in a motor vehicle accident and commenced an action seeking damages. Both the plaintiff’s physical state and mental state were in issue in the action. The plaintiff submitted to a physical examination by the defendant’s expert but subsequently refused to submit to a psychiatric examination.

Blyth v. Crowther and Kelly 2009 NBCA 80 When both the plaintiff’s physical and mental condition are in issue in an action, and

Captive Audience Greg Meckbach

Associate Editor

There is an increased interest in using captives to cover cyber risk. With cyber risk changing so rapidly, contributing to making the risk difficult to underwrite, some industry experts expect that interest to grow.

Access to reinsurance, the difficulty of underwriting cyber coverage and the ability to have cash available in the event of a claim are among the reasons that more organizations are covering some of their cyber risk through a captive.

“The largest organizations are at least contemplating having that first layer in a captive,” Jim Swanke, head of captives consulting for Willis Towers Watson plc, reports of cyber risk.

That willingness to explore seems to be reflected in Aon plc’s report, Cyber — the Fast Moving Target, in

42 Canadian Underwriter March 2017

which 8% of respondents “have indicated interest in underwriting cyber risk in a captive, and that trend is projected to increase threefold in the next five years.”

The report provides results of a survey of captive clients that the brokerage undertook in 2015.

Aon reported at the time that more than half of surveyed companies do not buy cyber insurance.

Factors contributing to the low take-up “include the absence of meaningful capacity for larger companies, the inability to buy coverages most sought after (for example, business interruption and contingent business interruption), pricing, and uncertainties surrounding the insurance industry’s willingness to pay claims in untested waters,” the report states.

Michael Serricchio, senior vice president with Marsh Captive Solutions, says that from 2014 to 2015, “there was a 30% increase” in the number of company clients using a captive for cyber.

“Although we don’t have the numbers yet this year, we think there is going to be a significant increase this year as well,” Serricchio says. “You

“By including cyber risk in a captive, rather than simply self-insuring the risk, the company gets the opportunity to see how the risk will behave in a formal insurance structure subject to underwriting and claims adjustment disciplines,” notes the Aon report.

are going to see more captives writing cyber for various reasons for small, medium and large-sized clients,” he predicts.

Marsh Canada defines a captive as a legal entity formed primarily to insure the risks of one corporate parent or a number of similar corporations (for example, trade associations), thereby contributing to a reduction in the parent entity’s total cost of risk.

STRUCTURING A CAPTIVE There are “two basic options” in structuring a captive, says Peter Mullen, chief executive officer of Aon Captive and Insurance Management.

By way of example, “the captive could issue a policy for, say, $100 million of limit and then behind the captive, buy reinsurance protection, for $75 million in excess of $25 million, the $25 million being retained in the captive,” Mullen explains.

“Option 2,” he continues, “would be the captive issues a policy for $25 million and then buys excess insurance, above the captive for $75 million in excess of $25 million.”

One benefit of covering cyber through a captive, Mullen suggests, “is gaining access to reinsurance capacity which you wouldn’t be able to buy if you just had a deductible.”

Courtney Claflin, executive director of captive programs at the University of California, would likely agree.

“One of the big advantages of owning a captive is direct access to reinsurance,”

suggests Claflin, pointing out that the university covers its cyber risk through a captive insurance company.

“By including cyber risk in a captive, rather than simply self-insuring the risk, the company gets the opportunity to see how the risk will behave in a formal insurance structure subject to underwriting and claims adjustment disciplines,” notes the Aon report.

“Over time, that experience and data can be used to negotiate program structure with insurance carriers and inform cost allocation of cyber loss,” it adds.

“One of the things that people will realize when they have a cyber breach is their coverage isn’t nearly as good as they think it is and, so, there are a lot of gaps,” Claflin suggests.

When shopping for cyber insurance, the university was not “getting very good terms and conditions,” he says. “We weren’t getting a good response from the marketplace, and I said, ‘Well, I might be able to help.’ I said, ‘Go write the policy you want. Put everything you want in the policy then let’s go to London and let’s shop it,’” he recalls.

Organizations that put the first layer of cyber risk into a captive “want to have the cash readily available within their own insurance company so that if a cyber event does occur, the cash is resident within the insureds themselves,” Swanke explains. “They are concerned that if they have a cyber event, they have to be almost immediate in their response to reduce the loss, and in that first layer, if they have the cash within their own

captive, that cash can be deployed just as soon as they understand that they have had a loss,” he says. “I think for a number of our clients, that is one of the primary advantages that they see.”

TRANSFORMING RISK Cyber risk is changing rapidly, especially with phenomena like “the Internet of Things and bring-your-own-device-towork policies,” suggests Mullen, contributing to making cyber more difficult to underwrite than traditional property insurance.

“If you go to market with your property program, you might have several billion dollars worth of property exposed around the world, but it’s not going to change that quickly,” he says.

“As the world becomes more digitized, the exposure is increasing. Hackers are becoming more sophisticated in their approach. It is a much more complex risk than some of the standard risks that we would normally see.”

There are also challenges with regard to the underwriting process for major cyber risks, which Mullen says “can be very cumbersome and can take up to six months.”

Another challenge is getting a grasp of computer network security, he points out, emphasizing that an organization needs to understand its own risk profile and what assets need to be protected.

“The underwriter has exactly the same issues,” Mullen comments.

“The underwriting process for cyber insurance requires a deep-dive into net-

March 2017 Canadian Underwriter

43

work security controls for an organization,” suggests the Aon report.

“In addition to completing an application, companies may need to engage with underwriters in a conference call or meeting in order to discuss key areas of risk, such as network security controls, vendor management, business continuity and incident response planning,” it notes.

Cyber risk “is one of those areas that has a lot of moving parts and pieces,” Serricchio says. “Ten to 15 years ago, it wasn’t around, so it is evolving from a coverage, terms and conditions perspective, a loss history perspective, premium pricing and capacity. It makes it challenging to price it,” he adds.

Mullen echoes Serricchio’s comments. “There is well-established science around how to arrive at your deductible and limit for a property program,” he says. “Not so with cyber.”

The data on cyber risk that underwriters are looking for “is constantly changing,” reports Joe DePaul, who is with the United States-based national cyber/errors and omissions risk advisor, FINEX, a division of Willis Towers Watson.

“There is not a great deal of data yet,” DePaul says of cyber risk. “We are looking at creating more information that can be used more broadly for underwriters for various industry groups,” he reports.

Insureds should try to avoid having differences in conditions between layers, DePaul recommends. “We don’t want there to be any confusion of what the underlying is covering and what the excess layers are covering,” he notes.

EVEN MORE CERTAINTY IN AN UNCERTAIN WORLD.

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44 Canadian Underwriter March 2017

“The marketplace has broadened to the point where we are now able to manuscript policies with ease with some of the markets that we do deal with, and captives come into discussion when a client will want to look at that as an option to really broaden [coverage] or really absorb some risk.”

In a tower of risk, what is covered in the primary layer can be different from what is covered in the excess layer, Mullen explains.

“In the marketplace, there are about 60 carriers writing cyber,” he notes. “They are using different forms, so part of the challenge is having a form for the captive to issue that the market is willing to follow to build a consistent block of coverage,” Mullen says.

DePaul reports that Willis Towers Watson observes a “broadened and soft market,” in cyber.

“We see terms and conditions broadening as well. The marketplace has broadened to the point where we are now able to manuscript policies with ease with some of the markets that we do deal with, and captives come into discussion when a client will want to look at that as an option to really broaden [coverage] or really absorb some risk,” he adds.

Charting a New Course

Brian Reeve Partner, Cassels Brock & Blackwell LLP

The regulatory regime for reinsurance has become more ambiguous and complicated in Canada. The federal regulator needs to chart a course that strikes a balance between the protection of Canadian policyholders and ensuring a competitive insurance market exists in Canada capable of operating in an efficient manner.

Reinsurance is a critical tool used by Canadian insurers to mitigate and reduce risk. Approximately 75% of the $3.6 billion of losses from the Fort McMurray fire will be paid by reinsurers located outside of Canada.

The global network of reinsurance that exists is critical for insurers to be able to write large risks with Cat exposure, such as British Columbia earthquake. Reinsurance has a variety of uses, in-

cluding capital management and providing more stable results for insurers. However, the regulatory regime for reinsurance has recently become more ambiguous and complicated in Canada.

Reinsurance has become one of the main areas of regulatory focus by the Office of the Superintendent of Financial Institutions (OSFI) due to its importance in the management of capital by Canadian insurers. In particular, OSFI has a concern with respect to counterparty risk that unlicensed or related party reinsurance may create for Canadian insurers.

REPEAL OF THE REINSURANCE REGULATIONS Pursuant to the Reinsurance Regulations that were in effect until 2010, Canadian insurers were limited with respect to their ability to use reinsurance. It was possible for insurers to cede up to 25% of their total gross premiums to unlicensed reinsurers and 75% to licensed reinsurers.

During the period that the regulations were in effect, they were often criticized by insurers as being too restrictive, particularly with respect to the ability to cede reinsurance to unlicensed reinsurers that were related parties.

In December 2008, OSFI issued the Discussion Paper on OSFI’s Regulatory and Supervisory Approach to Re-

March 2017 Canadian Underwriter

45

insurance. The paper reviewed a number of important issues regarding the regulation of reinsurance.

OSFI issued a response paper in 2010 that provided OSFI’s views on the comments that it had received. One interesting comment was that OSFI believed that there should be “neutrality” between licensed and unlicensed reinsurance.

This comment was a recognition of the international nature of reinsurance.

In 2010, OSFI repealed the Reinsurance Regulations (as recommended in the response paper) on the basis that it acts as a principles-based, rather than a rulesbased, regulator. Noting that it was not appropriate to provide specific limitations on the use of reinsurance, OSFI decided it would review each reinsurance arrangement on an individual basis.

There are two main types of risk that are applicable to reinsurance. With respect to third-party reinsurance, it is necessary to evaluate the counterparty risk of the reinsurers involved.

The second type of risk relates to related party unlicensed reinsurance. OSFI’s stated concern with respect to this type of arrangement is that it exposes a Canadian insurer to the solvency risk of its parent and other affiliated companies.

One of OSFI’s fundamental principles is the requirement that capital be “ring fenced” in Canada. The Canadian branch of a foreign insurer is required to have a vested trust account that is under the control of OSFI to ensure that adequate capital is available for Canadian policyholders in the event of an insolvency.

Canadian incorporated insurers are also required to maintain their assets in Canada in a custodian account.

OSFI has expressed concern that the use of large amounts of unlicensed reinsurance could create a solvency risk for this regulatory regime since adequate assets might not be maintained in Canada.

OSFI GUIDELINE B-3 OSFI has made several regulatory initiatives to help to manage some of the issues in connection with the use of reinsurance. OSFI Guideline B-3 was in46 Canadian Underwriter March 2017

troduced in 2010 and is particularly important since it sets out OSFI’s expectations with respect to the use of reinsurance.

In particular, an insurer is required to have a reinsurance risk management policy (RRMP) that sets out how rein-

for an unlicensed reinsurer to provide security in an RSA in an amount equal to 115% of the policy liabilities with respect to the business that is ceded.

OSFI has also attempted to manage counterparty risk by requiring the failure of a third-party reinsurer to be used as a stress testing scenario with respect to the dynamic capital adequacy testing (DCAT). Required to be done on an annual basis by all insurers, the scenario is used to determine whether or not the failure of the reinsurer could have a significant effect on the capital of a Canadian insurer.

Finally, OSFI has required that an approval of the Superintendent of Financial Institutions is necessary when an insurer enters into a reinsurance arrangement with a related party unlicensed reinsurer. OSFI now provides a one-time approval of each related party unlicensed reinsurer and requires annual updates of financial condition of the unlicensed reinsurer.

LEVERAGED BUSINESS MODEL

OSFI has expressed concern that the use of large amounts of unlicensed reinsurance could create a solvency risk for this regulatory regime since adequate assets might not be maintained in Canada. surance is used. An annual review of the RRMP is required and an insurer must review the financial condition of all of the reinsurers that it is ceding business to on an annual basis.

Another response of OSFI has been to require that a reinsurance security agreement (RSA) arrangement must be maintained in Canada for credit for reinsurance to be taken with respect to unlicensed reinsurance. It is necessary

It appeared that as a result of these initiatives, OSFI had put in place an adequate number of safeguards that controlled and monitored the use of reinsurance on both a licensed and unlicensed basis.

However, OSFI has recently expressed concern that a trend was developing regarding the use of large amounts of related party unlicensed reinsurance.

It has become a common practice for large quota share reinsurance arrangements to be entered into with unlicensed reinsurers in offshore jurisdictions, such as Bermuda.

OSFI Superintendent Jeremy Rudin has referred to the use of large amounts of related party unlicensed reinsurance as a “leveraged business model.”

“Taken to extremes, this model introduces a highly concentrated counterparty credit risk to the direct writer. This risk could, ultimately, impair its ability to compensate policyholders in a severe, but plausible,” event, Rudin said during his presentation at the National Insurance Conference of Canada in Vancouver last September.

Rudin indicated OSFI had identified a group of insurers that write a relatively large amount of commercial business in Canada that have concentrated counterparty credit risk issues. He confirmed that OSFI was reviewing concentrated counterparty credit risk and deciding whether or not additional regulation of it was necessary.

Rudin also indicated that OSFI would be reviewing other approaches to the use of reinsurance that are outside of the “leveraged business model” to determine if the counterparty credit risk issues can be better managed for them as well.

NEED FOR GREATER CERTAINTY The Reinsurance Regulations were introduced by OSFI in the early 1990s as a response to the failure of several Canadian insurers that had relied heavily on unlicensed reinsurance. In recent years, there have not been any significant failures of unlicensed reinsurers that have had a material effect on the solvency of Canadian insurers.

It is likely that neither OSFI nor Canadian insurers would prefer to return to the restrictive regime provided by the Reinsurance Regulations.

However, one advantage of the regulations was that they provided certainty and a specific set of rules that enabled insurers to know exactly how much reinsurance could be used.

In the current environment, it is difficult for many insurers to determine exactly how OSFI would react to a particular reinsurance model.

OSFI has provided some guidance regarding when it will find larger amounts of reinsurance to be acceptable.

For example, OSFI has indicated that reinsurance use for real loss transfer purposes or to handle large Cat losses will normally be acceptable. However, the use of reinsurance primarily for capital arbitrage or to transfer profitable business to a low tax jurisdiction may not be acceptable.

Many insurers believe that additional rules are not necessary and that the “leveraged business model” plays a valu-

able role in the Canadian market. OSFI has already attempted to control the counterparty credit risk with respect to unlicensed reinsurance by requiring an RSA, as well as imposing a capital charge with respect to the use of unlicensed reinsurance.

LOOKING FORWARD One of the issues with OSFI’s approach is that it does not fully recognize the international nature of reinsurance. OSFI has already announced it will not be adopting Solvency II or seeking “equivalency” with other foreign insurance regulators.

It can be argued that the issues OSFI has with respect to the “leveraged business model” would be eliminated if it accepted the concept of mutual recognition.

OSFI’s reliance on a “ring fenced” approach to capital may, in the long term, be in conflict with international insurance regulatory trends.

The best approach in the short term would likely be for OSFI to provide additional guidance in Guideline B-3 with respect to its expectations regarding the use of insurance on both a licensed and unlicensed basis.

In the long term, OSFI should consider whether or not an approach that relies more upon mutual recognition

would provide greater benefits to Canadian policyholders.

One of the benefits of the “leveraged business model” is that it allows Canadian insurers that write commercial business to be able to offer larger policy limits and more capacity.

An overly restrictive approach to the use of reinsurance by OSFI could lead many insurers to either reduce their capacity or to withdraw from writing business in Canada on a licensed basis.

As a regulator, OSFI needs to chart a course that results in an appropriate balance between the protection of Canadian policyholders and ensuring that a competitive insurance market exists in Canada that is able to operate in an efficient manner. It is likely that imposing additional rules on Canadian insurers regarding the use of reinsurance is not the best approach.

It can be argued that OSFI already has a number of tools in place that can be used to manage reinsurance risk.

The types of Cat and other large exposures that exist in Canada will always result in reinsurance playing a very important role for Canadian insurers in capital management. The regulation of reinsurance will likely remain one of the key issues in the future facing both OSFI and Canadian insurers.

March 2017 Canadian Underwriter

47

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR’ ON THE HOME PAGE

1

Peter Braid [1] has taken on duties as chief executive officer of Insurance Brokers Association of Canada (IBAC), effective February 27. A former Conservative MP, serving from 2008 to 2015, Braid most recently held “a global leadership capacity with a Waterloo high-tech firm,” IBAC reports. “Braid was the founding chair of the Insurance Caucus on Parliament Hill, which provided important stakeholders in the insurance sector with the opportunity to speak directly with legislators to help shape public policy,” the association adds. “Braid has a deep understanding of the association and non-profit sector, having forged strong partnerships with the corporate, academic and not-for-profit sectors to advocate for their interests.”

2

Mike Robinson [2], president and chief executive officer of PBL Insurance Limited, is now chairman of Canadian Broker Network (CBN). As CBN chairman, Robinson replaces Tim Miller, president of Capri Insurance Services, who served as network chairman for three years. As well as PBL Insurance and Capri Insurance Services, CBN includes CMW Insurance Services, Lawrie Insurance Group, McLean Hallmark

48 Canadian Underwriter March 2017

Insurance Group, Rogers Insurance, Smith, Petrie, Carr & Scott Insurance, South Western Group and Bullfrog Insurance.

3

CHES Special Risk Inc., a Canadian coverholder in the Lloyd’s market, has named Gary Hirst [3a] as its president and chief executive officer. Hirst replaces Douglas Everett [3b], “who now takes on responsibilities as a director of the board,” reports the company, which operates underwriting centres in Toronto and Ottawa. Having Canadian and international insurance experience, Hirst’s previous roles include national director of Burns & Wilcox Canada.

4

Trisura Guarantee Insurance Company reports it is forming Trisura Group Ltd., a new Canadian insurance holding company. The company — which has offices in Toronto, Montreal, Quebec City, Halifax, Calgary and Vancouver — provides surety bonds and writes several commercial lines. Brookfield Asset Management holds 60% of Trisura Guarantee; 40% is owned by Trisura employees through a holding company.

The firm is combining its investments in property and casualty insurance by bringing together its 60% ownership stake in Trisura Guarantee

1

2

6

11

and its 100% ownership of Imagine Reinsurance to form Trisura Group Ltd.

5

Mike Pritula [5] is Risk Management Solutions Inc.’s (RMS) new president. Pritula, who assumed his new duties on March 1, had been with McKinsey & Company for 25 years. While there, he “worked closely with leading international insurers, reinsurers, brokers and industry associations on all facets of improving business performance,” RMS notes.

6

HW Kaufman Financial Group and Burns & Wilcox Canada have acquired the high-value homeowner’s insurance practice from

Quebec-based XN Financial Services Inc. The acquisition marks the expansion of Burns & Wilcox Canada into Quebec. Carol Bolduc [6], director of relationships with brokers at XN PCS — a subsidiary of France-based The Henner Group and managing general agent in Canada — will stay on with Burns & Wilcox Canada as its Quebec personal lines manager.

XN Canada Private Client Services will become part of Burns & Wilcox Canada, which is owned by HW Kaufman Financial Group.

7

Cunningham Lindsey Canada Claims Services Ltd. reports that Everett Porter has joined the claims adjusting firm as

MOVES&&VIEWS VIEWS MOVES

of Calgary; Gordon Adams; Robert Cartwright, Jr.; Al Gorski; Leslie Lamb; John Phelps; Michael Phillipus; Frederick Savage; and Lori Seidenberg.

3

5

3a

3b

9 positions have included general 12adjuster, branch manager, vice president of operations and Lloyd’s Division district manager for leader.

Atlantic Canada. Porter will oversee the Atlantic operations to Macdonald Chisholm develop and execute new Trask Insurance (MCT) business initiatives.

Having announced in early held a number of senior-level January it prominent will join proppositionsthat with erty and casualty brokerage Canadian insurance carriers BrokerLink. terms of the and being aThe Certified transaction were not disInsurance Professional, closed, notes statement he “brings to aCunningham from BrokerLink.

BrokerLink Lindsey over 35 years of companies, of independentsubsidiaries adjusting and Intact Financial Corp., management experience include 84core offices serving across all insurance clients in Atlantic Canada, functions as claims manager, Alberta and manager of Ontario. businessDating back more than 60director.” years, development and MCT has more than 110 insuranceCalgary-based professionals brokerin 18 offices.age Michael Brien, who Sharpe Insurance, has led which MCT over the last offers quotes12 years, joins BrokerLink online and is part of theas head of its Atlantic operations.

Rogers Group of Companies,

6

8

10

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Carolyn Snow [7] will lead RIMS as president for theRogers 2014 term, has acquired which tookGroup’s effect January Insurance home 1.

Snow, who has been on the and auto program.

“Rogers RIMS Board Directors for Insurance willofbe providing seven years, is currently disupport to Sharp Insurance rector of risk management for and their group clients during Humana Inc. She previously the transition,” notes a stateservedfrom as RIMS’s treasurer, ment Sharp Insurance. secretary and director of Rogers Insurance president external affairs.

Lee Rogers adds The thatRIMS group board forclients 2014 will alsonow includes services have vice president Richard access to a greater level of Roberts, treasurer Julie speed andJr.; convenience.

Pemberton; corporate secretary Nowell Seaman, director Markel Corporation of global risk management for recently hired two new Potashassistant Corporation of vice presidents Saskatchewan Gloria for its CanadianInc.; operations.

Brosius; Steve director Adam Dobko is Pottle, now assistant of risk management services vice president and product at York University; Jennifer line leader, casualty, while Santiago; Janet Stein, direcEmily Horsman is now assistor of risk management and tant vice president, programs. insurance at the University Horsman “will manage and

13

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As of January 8, Toronto insurance broker Jones DesLauriers Insurance Management Inc. 5 (JDIMI) had acquired Whitley Insurance and Financial Services. Whitley Insurance service our current cover-has offices in Belleville, Ontario holder agreements and will andtasked the nearby communities be with generating of Trenton, Deseronto and further business development Stirling.

“The acquisition is in the program space,” Markel expectedDobko, to build solid reports. fora his part, presence JDIMI in Eastern “will havefor responsibility for Ontario and position the firm the integrity of the casualty to better service their clients, product line through crosswith strengthened commerregional partnership, and cial develop and personal insurance will the annual offeringsline in the region and a product strategy.” new financial services division,” notesThe a statement from Co-operators JDIMI. President Group and Ltd.CEO has Shawn DeSantis will alead the launched mobile teams from both companies. app for users of Apple and Loris Clarke [8] has been Android devices.

Customers named to billing Paul can viewsuccessor policy and Whitley, president of Whitley documents, make claims, get Insurance, remain quotes and who find will advisors.

It during transition period. can be aused by home, auto,

10

commercial, farm, life and wealth clients of Co-operators Rayner Company [9] has GeneralKen Insurance joined Anderson and Co-operators Life McTague & Associates Insurance Company.

Ltd. as its director of business development, Central -30- Forensic Region. “Ken brings a wealth Engineering of experience our comhastoappointed pany, having held various Shahram Almasi [11] as an senior management positions associate within its road with insurers otherwill MGAs,” safety group. and Almasi

9

11

says Chuck McTague, president of Anderson McTague & Associates, a familyowned based in New work onMGA roadway design, Brunswick. safety In January, Anoperational reviews, derson McTague & Associates road-side safety, quantitative announced it was expanding, safety assessments and adding an office in Toronto transportation planning.

He to servicea the brokers of Ontario holds Master of Science and Manitoba.

Rayner’s in Civil Engineering. appointment confirms the company’s Independent “commitment to the Ontario/Manitoba marketmedical evaluplace, and ation to theprovider building of a local support to assist AssessMed has team promoted brokers with their surplus Christopher Coe [12] to the lines andofdifficult to business place position director of business,” McTague development, westernadds. region.

12

Based in Mississauga, Ontario, AssessMed has TheOntario Guarantee locations in the cities Company of of Toronto, Hamilton and North Quebec America London, Montreal, has announced that Tara City, Halifax, St. John’s, Wishart [10] became vice Edmonton and Vancouver. president of claims for the insurer’s Toronto branch on Ontario-based December 2, 2013. Having BrokerTeam has 21 years oflaunched experience in The Idea Guarantee’s claims Insurance Inc., which will department, Wishart will be place auto, home, motorcycle, responsible for the operations business, life and travel of the Toronto Branch Claims. insurance.

It will be owned and She first joined The Guaranoperated

by Sean Graham tee ina1995 asprincipal an adjuster [13], former and has rolesBrokerTeam of increasbroker forheld Kanetix ing seniority with the is comGroup of Companies the pany, including, most parent company of BrokerTeam recently, claims manager for Insurance Solutions, BTI Direct specialty lines.

Wishart is a Insurance, CHAT Insurance, member of both the Surety PrimeService Insurance, Association of Canada and CoreService Insurance, Idea the Canadian Insurance andAssociation BrokerTeamof Women in B.C. Construction.

Insurance

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Follow @CdnUnderwriter on http://twitter.com/CdnUnderwriter

March 2017 Canadian Underwriter February 2014 Canadian Underwriter

49 57

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

Insurance industry professionals (beyond just IT specialists) convened at the 2017 Insurance Canada Technology Conference to learn from a range of industry experts on such hot topics as telematics and geospatial applications, and to celebrate this year winners of the Insurance Canada Technology Awards.

Canadian Underwriter was a sponsor of the annual event, held in Toronto on February 27.

50 Canadian Underwriter March 2017

Page 51: Young Insurance Professionals yes

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

Whether they were young or slightly more experienced, attendees of the Young Insurance Professionals of Toronto’s annual Winter Social had a great chance to mingle and celebrate their industry’s youthful vibrancy at the Duke of Westminster tavern on January 18.

March 2017 Canadian Underwriter

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Page 52: Winmar yes

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

Winmar’s annual Better Late Than Never Christmas Party (held February 9) did triple duty by thanking the firm’s Greater Toronto Area customers, raising funds for the Salvation Army and giving everyone the chance to catch the game at the host venue, Toronto’s Real Sports Bar.

52 Canadian Underwriter March 2017

Putting the pieces together.

Events and Seminars Calendar CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to advance your professional and career development.

CIP Society Seminars

CIP Society Events

Toronto—The Art of Persuasive Negotiation.............................................March 22 Webinar—Fleet Commercial Insurance .....................................................March 24 Vancouver—Trending Topics in Tort Law: Occupiers’ Liability .................March 28 Sudbury—Marketing to Millennials ..........................................................March 28 Ottawa—Cyber Liability ...............................................................................April 11 Victoria—Electrical Fire Risks in Old Homes ............................................... April 12 Vancouver—Win-Win Negotiation Workshop ........................................... April 27 Toronto—Maximizing Your Underwriting Potential......................................May 9

Edmonton—Symposium ...........................................................................March 22 Halifax—Curling Bonspiel ..........................................................................March 28 Kitchener—Curling Bonspiel......................................................................March 31 Lethbridge—Dueling Pianos ....................................................................... April 21 Edmonton—Analyzing Client’s Contracts ......................................................May 8 Toronto—Celebrate, Refresh & Relax .............................................................May 9 Edmonton—Client and Insurer Disaster Protection .......................................May 9 Ottawa—Wine & Cheese & Learn................................................................ May 11

Looking for insight and research on the latest trends in the p&c industry?

Visit our free online library of Trends Papers at www.insuranceinstitute.ca/cipsociety/information-services.

Looking for information to advance your career? Visit: www.insuranceinstitute.ca/mycareer.

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

It’s called The Big Mingle for good reason. On January 30, one of the insurance industry’s most anticipated annual events again packed several hundred partygoers into the stylish Fifth Social Club in downtown Toronto. Co-hosts Blouin Dunn LLP and -30- Forensic Engineering treated a pan-Canadian assortment of industry professionals — many attending the week’s CICMA/ CIAA and OIAA conferences — to the perfect venue for networking, boisterous conversation and defying the winter cold.

54 Canadian Underwriter March 2017

Page 54-55 Big Mingle - Yes APPOINTMENT

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

Kyle Nichols appointed President of international insurance brokerage Hugh Wood Canada Ltd. Kyle Nichols, MBA joins Hugh Wood Canada Ltd (HWC) to build upon the firm’s success in providing risk management and insurance brokerage services to a wide range of commercial and private clients since 1986.

Commenting at the organization’s head office in Toronto, Mr Nichols said, “I am excited to start a new challenge at HWC and look forward to working with the team to further develop their already extensive capabilities both here and internationally.”

Kyle brings 14 years of experience in the risk and insurance industry. Prior to joining HWC, he held senior management and production roles with other national and international brokerages. Kyle succeeds Doug Poole, who has taken a senior leadership position in the firm.

Mr. Hugh Wood, founder and Group Chairman of Hugh Wood International, said, “I am very pleased to welcome Kyle as President of Hugh Wood Canada and to the family of Hugh Wood International Group (HWI). We have a successful longterm presence in Canada, which is a very important territory for us, and Kyle’s succession to lead HWC reiterates our determination to continue attracting the strongest talent to our companies globally.

Kyle joining our management team makes me all the more positive about HWC’s future growth.”

Based in Toronto, HWC is a member of Hugh Wood International, a privatelyheld independent global insurance and risk management services firm. A fully accredited Lloyd’s broker and operating in over 70 countries, HWI has placement capabilities across the global marketplace through 17 offices located in 10 countries.

www.hwcanada.com March 2017 Canadian Underwriter

55

Page 56: ICBF - No

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The latest technologies and techniques for engaging consumers were a recurring theme among presentations delivered at the 2017 Insurance Canada Broker Forum in Toronto. More than 150 brokers and other industry members attended the February 28 event, which was co-sponsored by Canadian Underwriter.

56 Canadian Underwriter March 2017

Page 58: CICMA/OIAA - Yes

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

Leadership development was the focus of the 50th Annual Joint Conference of the Ontario chapters of the Canadian Insurance Claims Managers Association (CICMA) and Canadian Independent Adjusters’ Association (CIAA), held January 30 in Toronto.

HR expert Giselle Kovary delivered a revealing keynote on managing the multigenerational workforce, and executive coach Tammie Norn led a panel discussion on effective leadership strategies for today’s insurance professionals. But the serious business of the morning gave way to afterlunch laughs courtesy of comedian and CBC’s “The Debaters” regular Erica Sigurdson, whose gut-busting routine covered such disparate topics as the benefits of faking motherhood and the perils of Spanx.

58 Canadian Underwriter March 2017

Page 59: Sovereign - Yes

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

The Sovereign General Insurance Company hosted clients, brokers and business partners at a February 23 Open House in its new Toronto headquarters. The bright, modern space is housed in a recently constructed, LEED Platinum-certified office tower conveniently nestled between the waterfront and financial district.

Claims Canada Magazine is the only national claims publication COVERING the Canadian market

Reaching Over 9,000 Insurance Claims Professionals from Coast-to-Coast!

For advertising space information, please contact Christine Hirst: christine@newcom.ca Mike Wells: michael@newcom.ca

www.claimscanada.ca March 2017 Canadian Underwriter Official Journal of the Canadian IndeÊpendent Adjusters’ Association

59

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

When Ontario Independent Adjusters Association (OIAA) leaders conceived their annual Professional Development and Claims Conference 25 years ago, they never could have dreamed that “Game of Drones” and “Uber and Marijuana” would be seminars offered in the event’s silver anniversary year. But so it was on January 31 in Toronto, where hundreds of conference delegates took in a robust tradeshow and other sessions from industry experts on such topics as condominium insurance, disaster recovery and personal-injury case law.

60 Canadian Underwriter March 2017

“GET ALL THE RIGHT CONNECTIONS!”

2017

Ontario Insurance Directory This outstanding directory is your personal address and telephone book dedicated solely to the Ontario Insurance Industry… find the company contacts you need immediately!

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

The coil bound O.I.D. contains: • 300+ pages of information • 2,200+ company listings

• 130+ advertisers • 10+ key industry sections:

• Insurance Companies / Wholesalers • Restoration Services • Brokers • Engineers / Accountants • Independent Adjusters • Bodyshops / Collision Repair • Appraisers • Insurance Industry Associations • Rehabilitation Services 2017 Ontario Insurance Directory: $59.00 each

(plus $5.00 Shipping & Handling plus applicable taxes)

Order online:

www.bit.ly/oidorder Or call (416) 614-5831 Or email: mary@newcom.ca

Completely Updated for 2017- over 10,000 changes!

Page 62: TIWA - Yes

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

Several hundred guests packed Toronto’s grand Arcadian Court event space for the always popular TIWA Wine & Cheese on February 23. Attendees enjoyed refreshments and copious networking opportunities courtesy of host Toronto Insurance Women’s Association.

62 Canadian Underwriter March 2017

Some things just make each other even better.

You’re already doing great things on your own. But together, we can be even better. Partner with us and see how it’s not going to be business as usual. With CAA’s 91% retention rate and the opportunity to offer coverage at the same price as direct, you’ll find selling insurance just got a whole lot sweeter.

We’re looking to partner with best-in-breed Brokers.

Talk to us to find out more.

Call Kathy Corbacio at 1-905-771-3297 | broker.caainsurance.com Join the conversation @CAAforbrokers

Auto and Property Insurance are underwritten by CAA Insurance Company. ® CAA trademarks owned by, and use is authorized by, the Canadian Automobile Association. (1566-02/17)

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