Canadian Underwriter January 2009

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

J a n u a ry 2 0 0 9 A Business Information Group Publication, PM #40069240

Drenched in Claims

By David Gambrill

Finding Fault with ‘Faulty Design’

by Christopher R. Dunn

When in Doubt, Send it Out

by Gregory P. Bailey

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VOL. 76, NO.1, JANUARY 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY:

Drenched in Claims

32

2008 started as a heavy winter, with lots of precipitation.

Then the rain and hail started — and didn't stop. By the end of the third quarter, claims in personal lines, like the floodwaters, started to rise. Factor in a flood of claims on the auto side, based largely on the need to reform Ontario’s auto product, and you get what claims executives refer to as the year of the “mini-cats.”

FEATURES

12

42

C.N. Rail

Claims ITV

The Supreme Court of Canada appears to have re-defined policy exclusions for “faulty design” in favour of insureds, but there may be less here than meets the eye.

Claims adjusters are not involved in insurance-to-value (ITV) calculations, but they are in the front lines when estimates don’t match repair costs. What are they seeing?

BY CHRISTOPHER R. DUNN

BY CRAIG HARRIS

22

54

18 Soft Skills

52 Regulatory Update

In medicine, it’s called “bedside manner,” and a lot of claims adjusters would benefit from training in the art of communicating with distraught, confused and suspicious clients.

KPMG’s annual regulatory update covered off how to make the most of OSFI’s amendments to Part XIII of the Insurance Companies Act, and re-examined the role of fair value accounting in the current market mess.

BY FRED PLANT

BY DAVID GAMBRILL

28 Claims Merger The recent creation of SCM Insurance Services Inc., Canada’s largest claims adjuster, represents a merger between data management, risk management and claims adjustment.

BY VANESSA MARIGA

60 Nailing Down Repairs Hurricane researchers in London, Ontario have uncovered a sobering truth: The roofs of many residential homes often don’t survive hurricane-force winds because they are not properly nailed to the walls.

BY GREGORY A. KOPP AND

48 Fighting Fraud Auto Reform Ontario’s auto insurance product is in the shop, in need of major repairs. Will its hybrid motor survive the ongoing stress between its dual tort and no-fault functions?

Getting Our Priorities Straight

BY DAVID GAMBRILL

BY GREGORY P. BAILEY

Ontario case law suggests that if there’s any doubt about issuing a Notice of Dispute Between Insurers, send it out.

In terms of rooting out fraud associated with Ontario’s Byzantine, no-fault accident benefits system, the province might be better served by a pure tort system.

BY DONNA FORD

MURRAY J. MORRISON

64 Credit Scoring Alberta’s auto insurance regulator corrects the record as to its position on insurers’ use of credit scoring.

BY DENNIS GARTNER

January 2009 Canadian Underwriter

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VOL. 76, NO.1, JANUARY 2009

PROFILE

10 Outside the Box Canada’s insurance industry should explore recruiting people with transferable skills from other service industries, says Laurie Walker, the 200809 president of the Ontario Insurance Adjusters Association (OIAA).

BY VANESSA MARIGA

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

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

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

Art Director Gerald Heydens

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

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

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66 Moves & Views

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EDITORIAL

Saying ‘Hello’ to the Hard Market

By all rights, we should be transitioning into a harder market during these tough economic times.

David Gambrill, Editor david@canadianunderwriter.ca

6

Canadian Underwriter January 2009

As we transition into the New Year, we observe that these are indeed transitional times for Canada’s property and casualty insurance industry.

Right now, the industry’s story appears very much to be a grey zone between two market cycles.

Insurance company CEOs have noted at various conferences throughout the latter part of 2008 that by all rights we should be transitioning into a harder market during these tough economic times.

In doing so, they point to several interrelated industry statistics concerning profit margins, investment returns and claims/loss ratios.

On the profit margin side, as predicted by many over the past few years, the effects of the soft market have taken their toll on the company balance sheets. As a whole, the industry saw its 2008 Q3 profits sink from Cdn$3.6 billion to Cdn$2.3 billion when compared to the same period last year, according to data from MSA Research.

MSA Research data also shows there was an 82.9% drop in underwriting income during the first nine months of 2008, when compared to the same period last year.

As to be expected given the contracting economy, the industry’s investment income also took a hit. During the first nine months of this year, Canadian insurers saw their investment income decline by 14.6%, MSA Research data shows.

This trend is confirmed in data

posted by Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI). Federally regulated insurers reported a Cdn$400-million loss in net investment income over the first nine months of 2008 Q3.

The precipitous drop in profits, underwriting income and investment returns are all happening at the same time claims costs are increasing. As indicated in this month’s cover story, loss ratios are up across all lines — property, auto and commercial.

The situation is dire in auto lines. Particularly in Ontario, many auto insurers are reaching the point — if they haven’t reached the point already — where they are taking a bath in red ink (which you don’t want to do during an economic recession).

So, to recap: insurers’ profits and premium income are dwindling because of decreased rates common to soft market cycles, investment income is drying up and claims are more frequent and expensive.

So when your income doesn’t match your expenses, what do you do? You raise rates.

Indeed, all signs are pointing toward a hardening market in 2009-11. And yet, anecdotal evidence remains that the soft market is lingering. This could just be an interregnum period between the two market cycles; if so, this is the moment they refer to in baseball as the “payoff pitch.” This is the moment when insurers prove to con-

sumers that they have learned from previous market cycles.

For a consumer, rate increases are never desirable.

They are, nevertheless, justifiable as long as they are clearly explained and imposed judiciously and incrementally. It stands to reason that a 5% increase this year and in 2010 will be a lot easier to explain to consumers than keeping the status quo for two years and then hammering the public with a 30% increase in 2011.

The industry says it has learned its lesson from the painful transition period between the hard and soft markets in the early part of this millennium. The time to apply that lesson is now, during the transition from the soft to hard markets in 2009-2011. *** In my December 2008 editorial, I made a suggestion that OSFI’s Part XIII amendments were “essentially” about reserving. This was a misleading simplification on my part and I apologize to OSFI if this observation may have led anyone astray.

To my critics, I recognize the Part XIII issue is far more complex than portrayed in my December editorial. By necessity, strict word count limits breed generalization, although that’s not to excuse my imprecise use of language. It didn’t help that I botched the title of the “Office of the Superintendent of Financial Institutions” and a typo appeared in the pull quote. These errors are mine and I apologize for them.

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Canadian Market MSA UPDATE: INDUSTRY’S UNDERWRITING INCOME FALLS 32.7% Canada’s property and casualty industry (excluding most AMF-regulated companies) has seen its 2008 ninemonth underwriting net income fall 32.7% over the same period last year, according to MSA Research Inc. MSA’s numbers show the industry reporting an overall net income of Cdn$2.3 billion in the first nine months of 2008, compared to Cdn$3.6 billion over the same period last year.

Part of the decline is due to the fact that 2008 ninemonth underwriting income results plunged 82.9% over the same period last year.

According to MSA, the industry reported an underwriting income of only Cdn$271.1 million during the first nine months of 2008, as opposed to Cdn$1.59 billion during the first nine months of 2007.

Reinsurance OSFI ISSUES CONSULTATION PAPER ON REINSURANCE Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued its much-anticipated consultation paper on reinsurance.

The 21-page document offers a broad synopsis of issues the reg-

8

Canadian Underwriter January 2009

ulator is currently considering.

OSFI does not take a position on any of the issues discussed in its paper.

A section on unregistered reinsurance looks at issues such as collateral requirements, the 25% limit on risks ceded to unregistered insurers and streamlining approval requirements for unregistered reinsurance with related parties.

In the registered reinsurance section of the paper, OSFI is seeking industry opinion on capital requirements and a limit that prevents property and casualty insurers from ceding more than 75% of their gross premiums to reinsurers.

The full paper is available at http://www.osfi-bsif.gc.ca/osfi/ index _e.aspx?ArticleID=3

OSFI UPDATE: P&C INSURERS’ NET INCOME DROPS CDN$700-MILLION Canadian federally regulated insurers saw their collective net income drop about Cdn$700 million during the first nine months of 2008 compared to the same period last year.

Insurers reporting to the Office of the Superintendent of Financial Institutions (OSFI) posted a Cdn$1.5-billion net income during the first three months of 2008, down from the Cdn$2.3 billion it reported during the same period last year.

OSFI figures show that insurers reporting to it saw a $400million drop in net investment income during the first nine months of 2008.

Their investment income fell from Cdn$2.1 billion during the first nine months of 2007 to

Cdn$1.7 billion over the same period this year.

IBC TO MOVE AHEAD WITH HCAI AFTER SUMMER 2009 The Insurance Bureau of Canada (IBC) has approved plans to move forward with the re-introduction of the Health Claims for Auto Insurance (HCAI) electronic dataexchange system, although re-introduction will not happen before testing begins in the summer of 2009.

HCAI is a Cdn$20-million electronic claims system intended to link participants involved in Ontario’s auto insurance system, including insurers, health care providers and the provincial government.

At the request of the IBC, Ontario’s provincial insurance regulator, the Financial Services Commission of Ontario (FSCO), suspended operation of the system in April 2008.

IBC said in a letter to FSCO at the time that HCAI users were having difficulty accessing and using the electronic database.

FSCO identified the resumption of HCAI as one of its priorities for 2008. IBC says regular updates on HCAI’s progress will be provided at www.hcaiinfo.ca.

Regulation OSFI OUTLINES PART XIII NOTIFICATION REQUIREMENTS The Office of the Superinten-

dent of Financial Institutions has outlined the type of notice a ceding company can expect to receive from a reinsurer that experiences a change in status as a result of OSFI’s changes to Part XIII of the Insurance Companies Act (effective Jan. 1, 2010).

OSFI’s Implementation Instructions, now posted on its Web site, will require that a foreign company wishing to remove some or all of the liabilities reported on the books of its Canadian branch must notify, in writing, the federally regulated cedant that: • it considers the liabilities in respect of those risks to have been reinsured outside Canada; • it intends to request OSFI’s approval to remove the liabilities from its Canadian books so that no assets will be vested in Canada for the benefit of the ceding federally regulated insurer; • if the request is approved, OSFI will then consider the company to be an unregistered reinsurer; • it requests the ceding company to raise any objections with the foreign company within 30 days of receiving the notification.

INDUSTRY BROADLY SUPPORTS PRINCIPLES FOR MANAGING CONFLICTS Canada’s insurance industry is broadly supporting three principles for managing conflicts of interest proposed by the country’s insurance market conduct regulator in 2006, a survey has found.

These principles include ensuring: • the priority of a client’s interest; • disclosure of conflicts or po-

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MARKETPLACE

tential conflicts of interest; and • product suitability.

In its final report on the adoption of the principles, released in December 2008, the CCIR survey of property and casualty and life insurers and intermediaries across Canada found that 85% of intermediaries answered “Always or most of the times” when asked if they had implemented activities and practices that supported the principles at the point of sale.

general damages for pain and suffering, lost income of Cdn$43,000 and special damages for future loss of earning capacity of Cdn$800,000.

Bridson asked the judge to overturn the jury verdict on the basis that the psychoses suf-

fered by Chinsang were symptomatic of depression or schizophrenia and therefore were not related to the effects of the collision.

But Ontario Superior Court Justice Peter H.Howden distinguished the facts in Chinsang

from Mustapha. "The case before me has no resemblance to a unique reaction based on a highly individual constellation of psychological attributes such as that of Mustapha, where no physical injury occurred at all," the judge wrote.

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In Chinsang v. Bridson, the Ontario court denied a motion by the defendant, Christopher Bridson, to find injuries sustained by Michael Chinsang in a car collision "too remote to allow recovery."

Chinsang suffered neck, chest, arm, leg, back and head injuries when involved in a motor vehicle accident on Apr. 2, 2001. A jury found Chinsang had also suffered from memory loss, elevated anxiety and increased depression.

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PROFILE

Searching Outside the Box Vanessa Mariga Associate Editor

Laurie Walker, president of the Ontario Insurance Adjusters Association (OIAA) in 2008-09, says recruiters should be able to find prospective new adjusters by searching within other service industries.

When it comes to attracting people into the adjusting profession, Laurie Walker, president of the Ontario Insurance Adjusters Association (OIAA) in 2008-09, says the association is starting to think — and look — outside of the box.

Walker is the accident benefits practice leader for Ontario at ClaimsPro. She says the recruitment and retention issue facing the Canadian insurance industry at large, and the adjusting community in particular, is not a new threat. But the association is beginning to explore other avenues of drawing people into the field beyond just relying on the

10 Canadian Underwriter January 2009

school system to funnel people into the profession. By targeting individuals in other occupations — such as the service industry, for example — the property and casualty insurance industry may be able to entice young adults with a set of transferable skills who are looking for a change of scenery.

Walker, like many of her peers, stumbled into a career in the insurance industry. Born and raised on a tobacco farm in Norwich, Ontario, she left home for the bright lights of London, Ontario to study business marketing at Fanshawe College. After school, she returned to Norwich “dead broke,” she chuckles. She bumped into an old friend from high school who mentioned that the insurance company in town was hiring people for data entry positions. Walker applied and got the job; she began taking insurance courses through the Insurance Institute of Ontario. Within a couple of years, she had built up enough of a financial cushion and experience to return to London where she landed a job with Anglo Canada (now Axa Insurance).

“I worked there for about 13 years,” she says. “I started in the underwriting department

for the first three months and then quickly transferred to the claims department.”

Walker admits underwriting felt tedious compared to working as an adjuster. “There’s an investigation component to your job [in the claims department], there’s a customer service component,” she says.

“There’s a little bit more job satisfaction in being involved

“The industry can look to recruit from other professions as an option instead of focusing their search for new candidates from entirely within the school system.” in the claims department versus the underwriting department, because you never really deal with the consumer in the underwriting department… whereas in the claims department you get to see the product being serviced and delivered right on the front line.”

Walker acknowledges the industry can no longer rely on chance encounters or happenstance to recruit new entrants into the industry. And yet, the

same things she loves about the profession — the investigation and service components — create a challenge when it comes to recruiting and training. Given the broad knowledge base and nuanced people skills required to resolve the complexities of the job, the learning curve for an adjuster tends to be a bit longer than it is for other professions with more straightforward duties.

Since adjusting is a career with a heavy customer service component, it means newcomers will have to work for a few years under the mentorship and tutelage of their older counterparts to build a solid foundation in the profession.

“It’s an applied science that you learn through application,” she says. “You can’t graduate from any program and say: ‘Okay, I’m a great negotiator,' because being a great negotiator takes a lot of skill and a large knowledge base. You need a lot of repetition to develop that skill.” As the average age of the adjuster increases year-over-year, it’s becoming increasingly urgent to fill the empty positions sooner than later so that there are people with the appropriate experience to help the newcomers through those critical early years.

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PROFILE

SEEKING STREET SMARTS Walker believes there is a disconnect between a person graduating from college or university with little to no experience and the graduate's expectation of high wages — an expectation that needs to be overcome in order to improve retention.

“I had a situation once where someone said to me: ‘I graduated from school and I’ve been doing this for six months now,’" she recalls. “I kind of giggled, because I’ve been doing this for 20 years and I learn how to do something new every day.”

The OIAA is exploring new ways of understanding what

makes a good adjuster and what transferable skills adjusters have. Based on this analysis, the industry can look to recruit from other professions as an option instead of focusing their search for new candidates from entirely within the school system.

“There are certain jobs that people have or have done that give them a certain skill set,” she says, adding these may include jobs in the hospitality or food services sector. “They have learned a set of core skills that are transferable,” she says. “If they have [those positions] on their resume you can say: ‘You know what?

That person may be able to be trained [as] an adjuster because they have been trained to deal with difficult people in the past.’”

The upcoming OIAA Conference in February will include seminars that focus on targeting other sectors for recruitment, she notes. When looking to poach talent from another pool, a firm first needs to have a strategic plan. “You have to first identify what transferable skills your company wants to attract, because they can be different depending on what job you are hiring for.”

By working through organizations like Workopolis, an ad-

justing firm can learn which occupation pools tend to foster those skill sets and learn how to target individuals from those occupations specifically.

“There are so many other occupations that have transferable skills that we can reach out to and say: ‘We can offer you a better career,’” Walker says.

Once an employer hires new staff, the human resources effort doesn’t stop there. Employers need to be competitive on the salary front, but they also need to make the workplace “a good place,” Walker says.

For example, if employees don’t feel that they are being heard, or if they feel that their contributions in the workplace are minimized or neglected, they will leave. “As the office manager, you need to focus on that,” Walker says. “Sometimes it’s not always about the numbers. Sometimes it’s not always about the expense line.

Sometimes it has to be about the people.”

People make the claims department, Walker says. The claims component is a critical piece of the insurance policy that’s being sold to the consumer. “The happier the person is, the better the product being delivered to the insured consumer.”

January 2009 Canadian Underwriter 11

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‘Faulty Design’ Exclusion:

All is

Lost Christopher R. Dunn Partner, Dutton Brock LLP

In a narrow decision, the Supreme Court of Canada ended a 15-year legal saga based on a ‘faulty design’ exclusion. The scope of the decision may be more limited than people think.

With the release of its much-anticipated decision in C.N. Rail v. Royal and SunAlliance, the Supreme Court of Canada has attempted to clarify the scope of the “faulty design” exclusion to all-risks property cover. In a close 4-3 decision, the Supreme Court reversed the Ontario Court of Appeal; in doing so, it found in favour of coverage for C.N. Rail under an all-risks policy issued by a consortium of leading Canadian property insurers.

The loss that initiated the litigation occurred in the fall of 1993. At that time, a Lovat tunnel boring machine (TBM), designed to tunnel underneath the St. Clair River, suffered a serious failure

12 Canadian Underwriter January 2009

when dirt entered its cutting head, threatening the TBM’s main bearing.The repair was costly and the damage delayed the project by 226 days. When C.N. Rail claimed the loss under its all-risks policy, the property insurers relied on the policy’s “faulty design” exclusion.The resultant legal saga lasted more than 15 years.

However, our story necessarily begins further back in time, because the basis for excluding “faulty design” from all-risks property cover has its roots in the very concept of insurance itself.

As a basic rule, insurance policies cover only fortuitous events, since the premium an insurer would need to charge to cover intentional acts would exceed the value of the loss after necessary charges to cover the insurer’s overhead, marketing and administration costs are considered. In theory, loss or damage to property that is poorly designed is not fortuitous: the eventual loss or destruction of such property by internal derangement is inevitable. The question is not “if” the property will fail, but rather “when.” A crane featuring a boom that is insufficiently designed to accommodate expected loads will certainly and inevitably fail due to its internal flaw. On the other hand, the collapse of the same boom occasioned by external forces such as earthquake,

Illustration © Tracy Walker/www.i2iart.com

Not

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typhoon or windstorm is not a “certainty,” and can therefore validly be the subject of insurance coverage.

In order to entrench this concept within the four corners of the policy, drafters have historically used exclusionary terms that include “faulty design,” “faulty workmanship,” “inherent vice” and “latent defect.”

Page 14

case of Collavino Inc. v. Employers Mutual Liability Insurance Co. of Wisconsin (1984), in which a construction trestle collapsed because it was not designed to withstand the forces of the spring breakup of ice. In 1991, in B.C.Rail Ltd.v.American Home Assurance Co., a denial of coverage on the basis of “error in design” was upheld when a section of railroad track collapsed due to

ORIGINS OF “FAULTY DESIGN” Ironically, the modern interpretation of the “faulty design” exclusion in Canada actually begins half way around the world; its origin can be traced to the High Court of Australia’s 1969 decision in Queensland Government Railways and Electric Power Transmission Pty.Ltd.v.Manufacturers Mutual Insurance Ltd. The case involved the collapse of piers that proved inadequate to withstand unanticipated levels of floodwater.The insurer denied the subsequent claim on the basis of “faulty design.” Consistent with existing authority, the lower court held that “faulty design” required some element of blameworthiness on the part of the designer. But the High Court of Australia disagreed, finding instead that “faulty design” was broader than “negligent design.” Since the design of the piers failed to account for all known risks, the design was “faulty,” the High Court ruled, even though the designers met the appropriate professional standard of care.

The Queensland principle was first considered in a meaningful way in Canada by the Alberta Court of Appeal in Willowbrook Homes (1964) Ltd. v. Simcoe & Erie General Insurance Co. [1980]. Willowbrook involved the collapse of a concrete block wall during a severe, but not unexpected, windstorm. The Alberta Court of Appeal accepted as a fact that the bracing was under-designed by half. Since the bracing did not take into account the known forces that would be applied by wind, the loss was the result of “faulty design.”

Other similar decisions followed. The Ontario Court of Appeal upheld the “faulty design” exclusion in the 1984

14 Canadian Underwriter January 2009

In a way, the Supreme Court’s decision in C.N. Rail reinforced what most in the industry already knew — a thorough investigation of the loss is mandatory. All available resources should be directed to early adjustment of the loss. an inappropriate design assumption involving the consistency of the track’s underlying soils. In Triple Five Corp. v. Simcoe & Erie Group, the Alberta Court of Appeal held in 1997 that: (1) “mechanical breakdown” and “latent defect” subsume loss by faulty design, and (2) the collapse

of a roller coaster in the West Edmonton Mall was excluded from coverage because the roller coaster’s track was incorrectly designed to be too “wide” in certain corners.

REASONABLY FORESEEABLE RISKS The next question for the courts was whether a design must account for all foreseeable risks of failure or only reasonably foreseeable risks.The acceptance of the lower standard would require proof of negligence on the part of the designer. This issue was addressed in 1995 in Foundation Company of Canada Limited v.American Home Assurance Company.

Foundation Company involved the collapse of a bridge due to a “blow-in” caused by a rare and unforeseeable pocket of gas. A claim for the loss was denied on the basis of “faulty design.” The court confirmed the law did not require proof of design negligence to establish “faulty design.” Nonetheless, the court found, the design must be compared to some standard; the court chose the standard of “foreseeable” risks, a standard that requires a designer to consider all potential known risks. Since the gas pocket that felled the bridge could not have been foreseen, the design of the bridge was sound, and the exclusion did not apply.

This brings us full circle to Canadian National Railway Co.v.Royal and Sun Alliance Insurance Co.of Canada.The machine that was the subject of the C.N.Rail loss was, to that point, the largest TBM ever built. It was designed with a complex sealing system intended to prevent soil from contaminating the main bearing. On Dec. 28, 1993, after two months of digging, extensive damage to the sealing system was discovered. Experts concluded that the loss was caused by the deflection of the cutterhead, a condition known as “differential deflection.” C.N.’s property insurers took the position that the design of the TBM was “faulty” and therefore the loss was excluded.

At trial, the court followed the law established in Foundation Company of Canada;

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that is, the TBM’s designer had to accommodate all known “foreseeable” risks. The court accepted the evidence of the many engineers involved in the design and the project that the risk of excess differential deflection was impossible to anticipate. As such, and even though the design failed, it was not “faulty.”

The property insurers successfully appealed.The Ontario Court of Appeal’s reversal of the trial decision hinged on the evidence of Rick Lovat, one of the TBM’s designers. Lovat conceded he had actually anticipated differential deflection, and that he attempted to accommodate for it in the design. This being the case, the very fact of the TBM’s failure due to differential deflection confirmed a design failure in the court’s eyes.The policy was not intended to be a warranty of the TBM’s entrepreneurial design risk, the court ruled. It thus rejected C.N.’s argument that the insurers’ interpretation of the “faulty design” exclusion rendered the coverage illusory. The Appeal Court held that all-risks policies represent a fair bargain between those risks that will be covered (external assault) and those risks that won’t (internal derangement).

SUPREME COURT WEIGHS IN The Supreme Court of Canada, in a narrow majority, restored the trial decision in reasons released on Nov. 21, 2008.The Supreme Court’s reasons focussed on the innovative nature of the design in question. Although the court agreed the design must accommodate all “foreseeable” risks, the standard for comparison should be “state-of-the-art” and not “perfect knowledge.” Property designed to meet all foreseeable risks may nonetheless fail due to some unanticipated external force.

Such a design is not “faulty.” The court referenced the DeHavilland Comet and the Tacoma Narrows Bridge as examples of “state of the art” designs that nonetheless failed when confronted with unknown or unexpected conditions during use.

The high court found no evidence of

16 Canadian Underwriter January 2009

Page 16

The result of the Supreme Court’s decision in C.N. Rail is no doubt disconcerting for insurers, but its practical application may be limited. Without question, it does not represent a death knell for the “faulty design” exclusion. any specific design flaws in the TBM; as such, the insurers failed to meet their burden of proof. The court rejected the premise that a failed design must necessarily be “faulty.”

The result of the Supreme Court’s decision in C.N.Rail is no doubt disconcerting for insurers, but its practical application may be limited.Without question, it does not represent a death knell for the “faulty design” exclusion. One could make the argument that none of the prior decisions cited above, most of which upheld the “faulty design” exclusion, would be decided differently were they re-addressed post-C.N. Rail. In fact, it is arguable that the decision only nar-

rows the application of the exclusion in the case of cutting-edge or first-impression designs. Accordingly, although the failure of the Lovat TBM to account for excess differential deflection or the Tacoma Narrows Bridge to account for unforeseen wind shear did not constitute “faulty design” prior to their failures, the failure of similar designs to account for the same risks in the future would be considered “faulty.”Also, granting coverage for losses related to cutting-edge and first-impressions designs is consistent with fundamental insurance tenets, since such losses are not expected or intended from the standpoint of any of the insured, the property designers or knowledgeable industry experts.

In a way, the Supreme Court’s decision in C.N. Rail reinforced what most in the industry already knew — a thorough investigation of the loss is mandatory. Since the evidence necessary to establish faulty design is fleeting, all available resources should be directed to the early adjustment of the loss and steps should be taken to preserve evidence. All the money in the world thrown at a case of this type during the litigation stage can never make up for a poor initial investigation.

The court’s decision also accentuates the importance of hiring the appropriate expert(s) and hiring them quickly. The retainer of an appropriate expert is not an area in which to scrimp or save. Depending on the complexity or rarity of the property involved, there may be only one or two experts worldwide capable of speaking in a meaningful way about the subject design(s). Tie them up, and tie them up early.

Finally, it is clear that from a litigation perspective, “faulty design” is a complex concept that will without question elude many trial judges. As such, the search for the “right answer” may necessarily require appellate intervention. It thus goes without saying that for both insurers and insureds, litigating these cases is not for the faint of heart — or weak of pocketbook.

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Prescribing

Em.pa.thy President, Plant Hope Adjusters Ltd.

em·pa·thy 1 Pronunciation: \em-p -the-\ Function: noun Definition: the action of understanding, being aware of, being sensitive to, and vicariously experiencing the feelings, thoughts, and experience of another of either the past or present without having the feelings, thoughts, and experience fully communicated in an objectively explicit manner; also : the capacity for this. e

Fred Plant

The loss adjusting field has a great deal of resources available to it when it comes to teaching technical knowledge, but the resources dry up when it comes to teaching the critical skill of “bedside manner.”

Harold and Martha went to the doctor. Harold had been feeling off for several days and it was time to find out what was wrong. Into the examining room he went with trepidation. He hadn’t previously experienced what was bothering him. He was nervous. Eight minutes later, he was back at Martha’s side, prescription in hand.

“What did the Doctor say?” asked Martha.

Harold held up his prescription note. “I have to take these pills for 10 days,” he answered.

That was the full extent of what Harold understood of everything the doctor told him. Sadly, his doctor thought Harold had received a thorough explanation within the five minutes allotted for

18 Canadian Underwriter January 2009

the set fee chargeable for the visit, but Harold had not caught any of it. The doctor was hurriedly speaking medical talk while Harold was listening with layman’s ears.The medical world calls it “bedside manner.” Some doctors have a good one; others, not so good.

Substitute a property loss adjuster for the doctor in the example above and this same scenario is played out everyday in Canada.The adjuster arrives at a time when the insured is vulnerable, upset, confused and often completely unfamiliar with what has just happened and what happens next.Through the efforts of the adjuster, this is an opportunity for the insurer and broker to shine: unfortunately, this shine is too often not nearly as brilliant as it might otherwise be.

Our industry spends a great deal of time and money teaching adjusters technical skills so we know what the coverage is, we know what the law is and we know the proper restoration process when we arrive on the scene. But when we start talking about schedules, depreciation, subrogation and Proof of Loss we lose our audience. Without question, sound technical knowledge is critical to the success of the adjustment. However, that is only part of what is required to achieve total success.

Too often, success is determined based on criteria established by insurers and their internal goals rather than by anything developed based on the insured’s point of view. We come back to our office and, in exchange for a supervisor’s pat on the back, proudly hand in our checklist confirming we did everything the manual said we were to do. Unfortunately the manual was not written by the insured and it is the insured’s pat on the back we should most covet.

To connect with the insured, we need to step out of our world in which we typically gauge

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whether what we have seen at that home on that day is the same or different as what we have seen at a hundred homes before.We need to step into the insured’s world of chaos, concern and often suspicion. We need to check the insurance jargon at the door and talk in a way that insureds will hear what we’re saying, so the insured becomes an active participant in the claim rather than just a spectator.

In a word, the effective loss adjuster needs empathy.

Some believe the ability to connect with people and quickly develop a relationship founded on trust is intuitive, a natural ability that cannot be learned.

Although I do believe that some people are naturally better at this than others, I also believe that every professional adjuster should continuously work on honing these so-called soft skills — the ability to communicate effectively and build positive relationships.

For the most part, the property and casualty insurance industry doesn’t spend near enough time educating adjusters on

Page 20

Some people are better than others at connecting with people and quickly developing trusting relationships.

But every professional adjuster should continuously work on honing these socalled ‘soft skills.’ how to communicate with the people we are there to help. Every insurer’s target is to give their customers the best possible experience when unfortunate circumstances result in a claim.Timelines are established, best practices are written, preapproved pricing is set and preferred vendors are hired; all of these elements are important and tailored to ensure a technically sound loss adjustment. Too often what’s missing is the glue that holds all of this together — a positive relationship with the insured built on trust

and achieved through open and honest communication.

The keystone of the relationship’s foundation is laid during the first few seconds of the first contact between adjuster and insured. This is usually done over the telephone or, unfortunately, as is becoming more popular by the day, via email.

Email is a great way to move information but it is a lousy way to communicate. But I digress…

No matter what your day has been like, or how difficult that last phone call may have been, remember that the insured doesn’t know anything about all that. All insureds know is that something is wrong in their own lives and they need help to make it right. Use the first contact with the insured as an opportunity to project a positive image and an empathetic attitude toward his or her problem.

The problem may be a routine thing for an adjuster to resolve, but for the insured, the same “routine” problem has turned his or her life upside down.

Everyone’s time is taxed beyond rea-

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sonable limits today, leading some to believe that they can’t spare the few extra minutes necessary to get the relationship started in the right direction. I assure you, the few minutes you take at the beginning of the claim to explain how the adjustment works and the role of everyone involved (including the insured) will pay off many times over during the course of the adjustment.

As important as it is to take the required amount of time and demonstrate the proper attitude at initial contact, it is at least as important to invest time in developing your interpersonal skills to ensure you are not only attending to the insured, but doing so effectively. The greatest variable in any of our claims is the people to whom we must relate. We humans are complex to say the least; it is therefore not enough to take the Institute’s claim-related courses and think you have a lock on the psychology of the claimant.And yet for many loss adjusters, taking claims-related courses and attending a How To Deal With Difficult People semi-

Page 21

nar is the extent of their soft-skill training.

Many reference books about communications and basic human relations are available in local libraries and bookstores.

Take a step back and ask yourself — or ask a colleague, if you have a really good relationship with him or her — how you can improve your communications skills. Seek out resources to take your relationships with your claimants to the next level.

One of the best publications I have come across in recent years is The 8 Characteristics of the Awesome Adjuster by Carl Van, president and CEO of the International Insurance Institute2. Although this is an American publication dealing with adjusting in the United States and relates mainly to automobile adjusting, the underlying characteristics that make great — or, as Carl Van describes them, awesome — adjusters is equally applicable to Canada and to all lines of business. It is an easy read and, like so many other publications that deal with this subject matter, the material is simple common sense.

Still, common sense is worth repeating and sharing with your colleagues.

The Canadian property and casualty insurance industry is diligently searching for new people to come into our business. We all want consumers to think better of us and to recognize and respect insurance as an integral part of our economy. Reaching these goals will not be achieved by giant leaps but rather by many small steps. Improving our image starts on the street, where adjusters deliver the goods every day.The better our delivery, the more positive the message, and on it goes. Our image is suffering and a trip to the doctor won’t produce a magic prescription for this ailment. We have to overcome this one on our own.

A great place to start is to have professional loss adjusters developing good claimside manners. An ounce of prevention is worth a pound of cure.

1

Merriam-Webster Online Dictionary. Copyright

© 2008 by Merriam-Webster, Incorporated.

2

www.insuranceinstitute.com.

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the Circle

Squaring

Editor

Ontario’s hybrid, no-fault/tort auto insurance system is broken.

Insurers say no-fault accident benefits are in major need of repair. Trial lawyers say the tort side needs fixing first.

Both lay claim to acting on behalf of the consumer’s best interests. Who has the upper hand?

No one who knows anything about the current state of Ontario’s auto insurance product is envying the position right now of the province’s finance minister or the government’s insurance regulator, the Financial Services Commission of Ontario (FSCO).

FSCO is entering the twilight stages of its mandatory five-year auto insurance review, a review that insurers hope will result in significant reforms to the auto product.

The financial situation of Ontario’s auto insurance product is, in the words of many in the industry, “a mess.” It also just happens to be the chief driver of the nation’s auto insurance industry as a whole. Ontario auto insurers wrote Cdn$9.5 billion in premiums in 2007, account-

22 Canadian Underwriter January 2009

ing for just less than half of the country’s auto premiums last year. Industry representatives have long observed that as Ontario auto goes, so goes auto insurance in the rest of the country. So where exactly is Ontario’s auto product going?

The national picture provides a glimpse. Data available from the country’s solvency regulator show claims ratios for the nation’s auto insurance product hovered in the mid-60% range two years ago.Those same ratios for the first nine months of 2008 now stand between 73% and 85%, depending upon whether you are a Canadian or foreign insurer. Under the ‘personal accident’ category, reflecting the accident benefits side of the equation, claims ratios are more in the ballpark of between 98% and 125%. So one might conclude from the

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national figures that Ontario auto is going nowhere at all — if not travelling in reverse.

The road to reform unfurls when FSCO delivers its final report to Dwight Duncan, the province’s minister of finance and minister of revenue. Duncan’s office, not FSCO, will have the ultimate say on the fate of auto reform in the province.There is no formal deadline or timetable for FSCO’s final report to the minister, although sources suggest it will likely be delivered sometime during the first six weeks to two months after the holiday break ends in early January 2009.

AB COSTS ON THE RISE For Duncan and FSCO, squaring the circle might be an easier task. The province’s system is a curious hybrid.

On the one hand, it is a no-fault system designed to get accident benefits (AB) payments to consumers quickly in order to facilitate treatment and a quick recovery. On the other hand, it’s a tort system, giving claimants the ability to recover damages for bodily injury through the court system.

“We have the worst of both worlds,” observes Don Forgeron, IBC’s vice president of Ontario. “We don’t have a nofault system and we don’t have a full tort system: We have both systems, whereas other jurisdictions tend to have one or the other.”

There is a push-pull dynamic inherent in a hybrid system. Insurers see their costs mounting on the no-fault/accident benefits side of the equation. They are therefore concerned about Ontario trial lawyers’ current efforts to increase tort access to consumers. Such tort reform, insurers say, would increase claims costs and frequency for insurers, resulting in increased premiums for consumers.

Industry representatives say auto insurance is broken not because of limited tort access, but because of the personal accident/AB side. On the tort side, industry data show that as of the end of the 2008 third quarter, claims ratios for liability in the auto insurance product for federally regulated insurers (both Canadian and foreign) outpaced the rate of

24 Canadian Underwriter January 2009

Page 24

inflation. Tort liability claims ratios increased from 67.5% during the first nine months of 2006 to 71.2% by the end of the 2008 third quarter.

In contrast, in the ‘personal accident’ category (encompassing AB claims), the overall increase is much more dramatic: After nine months’ end in 2006, the claims ratio in personal accident stood at about 75%. This year, during the same period in 2008, the figure stands at 103.8%.

Forgeron says a different set of statistics suggests the urgency of dealing with AB claims immediately. “When we compare Ontario to Alberta and Atlantic Canada, we compare them in terms of cost-pervehicle so this is an apples-to-apples comparison,” says Forgeron. “When we

“We have the worst of both worlds. We don’t have a nofault system and we don’t have a full tort system: We have both systems.” compare them on the bodily injury (BI) side, on the tort side, they compare relatively favourably.They are within 10% of each other in terms of the cost-per-vehicle. But when we compare them on the AB side, in Alberta the cost per vehicle in 2007 was Cdn$37. In Atlantic Canada, it was Cdn$57. And in Ontario, it was Cdn$385.

“If there’s a visual that describes how the product in Ontario is completely out of sync with other jurisdictions and why the costs are high, that’s it. That’s the graphic right there.”

Based on this and other observations, the IBC has made no fewer than 25 recommendations for reform in one of 90 submissions made to FSCO during last year’s version of the auto insurance product review. At least 10 of those recommendations are proposals for reform in the accident benefits part of the product.

In total, 17 individual insurance industry representatives made submissions to FSCO; many of them echoed the IBC’s recommendations calling for a scaling down of what are perceived to be ex-

cesses in the accident benefits area. [A sampling of recommendations are contained in the article on Page 32.]

TORT REFORM Although insurers are looking to trim the fat existing on the AB side of the system, on the tort side, trial lawyers are focused on expanding access to justice for claimants seeking bodily injury damages in court. Specifically, the trial lawyers’ recommendations to FSCO seek to eliminate the courts’ verbal threshold designed to distinguish serious, permanent bodily injuries from other, less serious injuries. In addition, they are recommending the current Cdn$30,000 deductible applied to Ontario court awards under Cdn$100,000 should either be eliminated outright or scaled down to Cdn$15,000 (where it was prior to reforms to the auto product in 2003).

The trial lawyers’ submissions follow the path laid by former Ontario chief justice Coulter Osborne, whose November 2007 report on civil justice reform in Ontario led him to conclude that the province should consider whether or not the threshold and the deductible were redundant for the purpose of keeping smaller claims out of the court system.

“I would urge the [FSCO] Superintendent [Bob Christie] to include in his deliberations what net benefit accrues from the existence of the verbal threshold in circumstances given the existence of the $30,000 deductible,” Osborne wrote. “If there are claims excluded by the verbal threshold that would not have been excluded by the deductible, is it in the public interest that such claims be excluded?

If, for example, claims of children or the unemployed elderly are excluded, considerable thought might be given to the integrity of that exclusion.”

Picking up on Osborne’s remarks in the report, trial lawyers’ organizations have called for FSCO to eliminate at least one of the threshold or the deductible, if not both. The Advocates Society argues that getting rid of the verbal threshold will decrease insurers’ transactions costs substantially, since medical assessments — among the problematic AB claims costs targeted by insurers — will no

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longer be necessary to prove the severity of an impairment. The deductible, on the other hand, is “a simple arithmetic calculation” and thus minimizes transactional costs, Osborne notes.

The submissions of the Ontario Bar Association (OBA) and The Advocates’ Society to FSCO for the five-year review read like a carbon copy of Osborne’s reasoning on the matter. “It is unnecessary to have a verbal threshold and a deductible given that they both serve the same purpose — eliminate smaller ‘nuisance’ claims,” The Advocates’ Society submission reads. “The interests of the public are not served by a verbal threshold that excludes claims [that] otherwise exceed the monetary deductible.

“We also support the observations of the Honourable Coulter Osborne regarding the discriminatory effect of the regulation defining the verbal threshold, the exclusion of the claims of children, the elderly and the unemployed. These exclusions are inappropriate, in our view, and fall within our Society’s mandate as it relates to the promotion of access to justice.”

PUBLIC INTEREST Part of FSCO’s dilemma in preparing its report is that both insurers and lawyers have a legitimate claim to acting on behalf of the consumer’s best interests, albeit in different ways.

Eliminating unnecessary AB costs in the system, particularly when economic times are tough, would result is a stable product that doesn’t need to undergo perpetual or radical price restructuring, the insurers argue. Ontarians already spend about 5% of their disposable income on auto insurance, the IBC notes, and insurers are loathe to raise Ontarians’ auto insurance rates any higher, even if they need to for the purpose of ensuring profitability.

“Issue Number 1 for the industry in returning to profitability,” Forgeron says.

“Within the product itself, there’s claims inflation that is running as well in the double digits. If we catch up with double digit rate increases, we’ll be repeating this over the next several years…We are entirely focused on trying to create sav-

26 Canadian Underwriter January 2009

Page 26

ings within the product so that we can bridge these gaps and give consumers in Ontario a product that they’ve told us they want, which is a stable and affordable product. And currently the product is neither.”

Trial lawyers, on the other hand, are focused on giving the public access to justice, which, in effect, will make it easier for consumers to make tort claims against insurers. Richard Halperin is the head of the Ontario Bar Association (OBA)’s insurance section and represents the OBA at FSCO’s five-year review. He

says he agrees with insurers that there is a lot of waste in the AB side of the system, which encompasses medical assessments, housekeeping and caregiving expenses, as well as future care costs. But Halperin characterizes the insurers’ proposals to reduce AB costs as “no proposal at all, because their proposal to FSCO is what I call a random attack on sore points for the industry geared entirely towards profit.”

Halperin juxtaposes this against “a broader approach to auto insurance reform that deals with all of the shortcomings of the auto product,” making it more consumer-friendly.

To this end, “if you reduce accident benefits, you need a corresponding increase in tort rights,” Halperin says. “You can’t simply take away and take away from accident victims until everything disappears. If we don’t have access to appropriate levels of compensation [in court] for innocent accident victims who did not cause their own loss, then what kind of protection are we buying for our [insurance] policies? None.”

LET THE GAMES BEGIN Here’s where FSCO’s role can be likened to that of a referee.

Insurers say opening up tort rights to consumers at this point, without substantially cutting AB costs, will simply add to insurers’ costs. Ultimately these costs will be borne by consumers in the form of substantial rate increases.

“Why should the government entertain measures that are simply going to add to [the insurers’ costs] burden, whether it’s on the AB side or the tort side?”

Forgeron says. “Our sense is that it would be as irresponsible for us to call for an enhancement of AB benefits at this particular time as it is to call for an enhancement of tort benefits. That’s really what the lawyers are doing:They’re calling for an enhancement of tort rights, to increase benefits there, whereas we would be ridiculed if we came out and said, ‘Let’s enhance AB benefits’ at a time when they’re going up by 10% a year.”

Forgeron says rising costs in the auto product are not of the industry’s own making. Trying to keep insurers’ costs down — and thus consumers’ auto insurance rates at reasonable levels — is an ordinary part of offering the auto insurance product in a private, competitive market, he notes.

Halperin disagrees, arguing that insurers’ rising costs are self-inflicted. “If we continue to adopt underwriting practices that are appropriate to a soft market at a time when we allegedly see profitability disappearing for the industry, why is it that the industry hasn’t responded by entering the hard market sooner and by being more responsible in their pricing?” Halperin asks. “The problem is that when [insurers] allow the soft market to continue beyond the point where profitability disappears, then the industry starts to look to the government, saying: ‘Change the rules to enhance our profitability, so that we in the industry don’t have to adapt to market changes on our own.’Well, there’s something wrong with that. That shouldn’t be happening. Eventually the innocent accident victim and the public pay the price for that.”

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Anatomy

of a Deal

Vanessa Mariga Associate Editor

The creation of SCM Insurance Services Inc., Canada’s largest independent adjustment firm, merges claims adjustment, data management and risk management.

Conducting business is always something like a strategic game of chess, but in turbulent times like these, the consequences — good or bad — can be quite a bit heftier. Larry Shumka, president and CEO of SCM Insurance Services Inc. (formerly The Shumka Group), believes his firm’s recent purchase of the loss adjusting and risk management business units from CGI Group Inc. represents more than just a strategic union between claims adjusting, risk management, data collection and access to claims personnel. For him, the timing of the deal was critical, coming as it did just prior to the economic meltdown.

Shumka says it was important to him that he was able to close the deal “for an undisclosed amount” without relying on infusions from the firm’s private equity partner before the credit market in North America dried up.The acquisition of CGI’s risk management services unit prior to the credit squeeze creates an opportunity for SCM to benefit from the current business environment, he says.

28 Canadian Underwriter January 2009

“A deal of this magnitude today would be very difficult given the conditions around access to credit,” Shumka says. “Our timing around that was perfect. Sometimes the economy and the state of the financial services world are negative, but we actually found that the transaction and the pieces that came with it put us in a positive position to deal with the current economy.”

In the summer of 2008, CGI Group Inc. announced its plan to divest its Canadian claims adjusting business unit and risk management services for the Canadian property and casualty insurance market. Shumka tendered an offer and successfully acquired the business units from CGI, giving his firm the title of the largest independent insurance services firm in Canada.

The deal closed on Aug. 6, 2008. Since that time, the organization has undertaken a massive re-branding effort to reposition itself in the Canadian marketplace. What was formerly known as The Shumka Group is now SCM Insurance Services. The operating companies under the newly minted parent company are ClaimsPro Inc. (formerly SCM Adjusters Canada Ltd.), FIC (Forensic Investigations Canada Inc.) and RMS (SCM Risk Management Services Inc.) In effect, the acquisition expanded the service capabilities of SCM Insurance Services. It created a larger geographical footprint for the firm, giving them a much stronger presence in Ontario and Quebec, and it addressed a risk management

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issue by ensuring the firm has a sufficient number of qualified personnel to fulfill clients’ needs moving forward.

PIECES OF THE PUZZLE Shumka’s new firm is somewhat of a Leviathan. In a way, the new additions to Shumka’s firm can be traced back to a previous merger between the Underwriters’ Adjustment Bureau (UAB), which did loss adjusting, and the Insurers’ Advisory Organization (IAO), an underwriting services provider. Both the UAB and IAO were industry-owned organizations from the time of their inception — 1951 and 1884, respectively — to the time when CGI purchased them in 2002.

Prior to their purchase by CGI in 2002, UAB was owed by 35 different insurance companies and IAO was owned by 55.

Both UAB and IAO had boards of directors comprised of CEOs and senior officers from the insurance companies that owned them. In 1992, the UAB purchased the IAO in a share swap; the two organizations operated under the umbrella of UAB Group Inc. At that time, the group had a combined revenue of more than Cdn$53 million and about 800 employees.

Dermot Murphy, vice president of specialty lines at SCM ClaimsPro, has worked in the insurance industry for more than 40 years. He was a vice president of field operations for the UAB Group at the time of the UAB-IAO merger.Although the two organizations worked under one moniker, they still operated independently, he recalls.

Essentially, the IAO was an underwriting services provider. In other words, it did everything but loss adjustment, covering the gamut from risk assessment, engineering, actuarial services and loss prevention. Merging with the UAB provided the IAO with its missing piece of the puzzle — loss adjustment.

A decade after it formed, the UAB Group was snapped up by CGI for Cdn$53 million. On its face, it was a counter-intuitive acquisition for CGI.Why would a technology powerhouse be interested in purchasing what was essentially a risk management and loss adjusting firm?

“The IAO was the sales arm for CGI automated products that targeted the

30 Canadian Underwriter January 2009

insurance industry,” Murphy says. “The products that CGI had were essentially automated underwriting tools, if you will… The IAO [offered CGI] better opportunities to open doors because of [the IAO’s] ownership structure: we could get in and see the head underwriter and say, ‘Have we got a new product for you.’”

The fit worked well for a time. But in mid-2008, CGI decided to divest the business units. A lot of speculation remains about CGI’s motives for making the move. Some believe the company was trying to unload business units that, when compared to the high-tech industry, had disappointing rates of return and were operating in a relatively static growth industry.

When CGI put the units on the block, Shumka saw a strategic business opportunity based on the claims data the CGI units had amassed. During the decades they existed, both the IAO and UAB accumulated a vast amount of survey and claims data. Greg McCutcheon, president of RMS, says that during his tenure with GGI, the information was basically converted into the country’s largest database. The claims data related to residential and commercial properties, environmental data, land-use data dating back to the 1800s, flood plains and maps, as well as grades assigned to municipalities based on their ability to fight and control fires.

“We’re doing a lot of GIS and geo-coding of our information,” McCutcheon says. “It’s a complex business unit because it provides so many different services to the industry. While our primary business is gathering field data on [contemporary] commercial and residential inspections, based on the fact that our history dates back to the 1800s, we have more Canadian information than any other company in Canada on properties, geographical systems and the inspection and rate databases.”

LOOKING AHEAD Shumka refers to his newly acquired risk management business unit as an “uncut diamond” that he hopes to make an even

bigger part of the insurance industry in Canada. “Having data available and the technology to disseminate it — given the difficulties around the profitability of insurance, hard markets, capital, insuring-to-value, etc. — [is] really going to become a cornerstone in providing information to the insurers, so that they can make the right decisions around their rating philosophies,” he says.

SCM plans to leverage the data component of the business unit and launch a series of information service lines for domestic insurers in Canada in 2009. The projects on the docket for development, he adds, include the creation of flood maps that would allow insurers to underwrite overland flood, as well as an insurance-to-value tool and a suite of tools focused to the commercial broker market.

As for the adjusting piece of the puzzle, with ClaimsPro “we have the greatest depth as far as numbers of technical adjusters and resources,” Shumka says.

“And we have increased the access for our clients to various disciplines in the adjusting field.”

Shumka says his organization has “more capacity, and now that’s critical.”

He notes that 2008 has been very difficult for the industry, because there has been an increase in the number and value of claims — particularly in the personal and commercial property lines — and yet there is a “massive shortage” of qualified adjusters in Canada. The latest acquisition addresses this conundrum, Shumka says. “One of our risk concerns is in being able to make trained adjusters available to our clients,” he says. “This acquisition will allow us to do that: through the retention of those adjusters, we will be able to serve those clients’ needs without a concern about capacity.”

Now that the “heavy lifting” of the merger is virtually complete, Shumka has his eye on the future. He sees immense growth opportunities in all three of SCM’s business units moving forward, both organically and through acquisitions.

“Acquisitions in the risk management and investigation field is an area that we’re going to be focused on in 2009 and onward,” he says.

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Drenched in Claims Record levels of water in Canada (including hail and snow) drove up the cost, if not the frequency, of property damage claims throughout Canada. And if it wasn’t rain, it was accident benefits claims raining down in Ontario auto insurance.

By David Gambrill Editor

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Back

in his stand-up days, comedian Bill Cosby performed a sketch in which he enacts an imaginary conversation between Noah and the Lord, in which the Lord first reveals plans to destroy the world.

“How are you going to do it?” Noah asks, still somewhat unable to believe that he’s really talking to the Lord.

“I’m going to make it rain 4,000 days and drown them right out,” the Lord’s voice booms.

“Right,” replies Noah skeptically. “Listen to this, you’ll save water: make it rain for 40 days and 40 nights and wait for the sewers to back up.”

“Right!” the Lord says in agreement.

At least in both the Bible and Cosby’s sketch, the Lord’s plans for the Earth are revealed in advance, so that people have time to prepare. But for Canadian insurers, in 2008, the flood of property claims related to water came without warning.

And in fact, the deluge came without a major catastrophe. It cascaded around us in the form of hail, sleet, rain and snow — and it kept coming and coming and coming, in one steady, sustained, relentless stream of precipitation. Some claims people referred to the 2008 homeowner/property results as a “death by 1,000 rainfalls,” while others referred to the various weather-related storms as “mini-cats.” However they were described, water damage — particularly in Ontario — is a big reason why property claims ratios jumped significantly in 2008.

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COVER STORY

Drenched in Claims Of course, property insurance wasn’t the only line of business drowning in a flood of claims. Auto insurance lines have been besieged by “no fault” accident benefits (AB) claims; so much so that the product once again, as in 2003, is in desperate need of reform. The accident benefits (AB) or “no fault” side of Ontario’s auto product is of particular concern to claims executives, who have no trouble suggesting avenues for potential reform.

by catastrophes, we’ve jokingly called it ‘Death by a Thousand Rainfalls.’ It’s just been so consistent. That, I think, has definitely affected the property results.”

John Greb, vice president of claims for the Allstate Canada Group of Companies, says his company in the early winter months

Raining Claims The industry’s overall statistics of claims incurred, as well as Environment Canada’s precipitation numbers for the year, provide the bare bones of the main story on the property side in Canada in 2008.

For the past three years, insurers’ nineyear Q3 financial and claims results in property lines have steadily moved in one direction — up. Federally regulated institutions reporting to Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), have, for example, paid out more than Cdn$2.75 billion in personal property claims over the first nine months of 2008. For Canadian insurers writing property claims in Canada, that amounted to 76.1% of the premiums they took in for personal property lines of business. Just two short years ago, claims payments represented only 63.5% of personal property premiums taken in by Canadian insurers.

A similar trend is playing out on the commercial property side. Canadian and foreign (re)insurers paid out Cdn$2.25 billion in commercial property claims during the first nine months of 2008, whereas during the same period in 2006, they paid out slightly more than Cdn$1.5 billion.

So what accounts for the rise in claims incurred on property lines?

“Weather has been a really important factor this past year,” says Nora Hohman, vice president of claims for The Dominion. “It’s been interesting because, unlike some years in which we’ve had major catastrophes, we have not faced those as a company [in 2008] and I don’t think the industry has. Rather than being nailed

“We saw the worst three quarters of weather that we’ve had in a significant amount of time.” of 2008 saw “an above-average frequency of auto and homeowner claims that never seemed to end. When it did, we barely caught our breath before facing numerous spring and summer storms.”

Environment Canada data for Ontario bears out these observations. Monitoring stations located at Pearson International Airport, located in the northwest part of Toronto, have already recorded unsurpassed levels of precipitation in 2008. Thus far, precipitation levels this year at Pearson have reached 980 millimeters, beating the old record of 971 millimeters established in 1977 — and that’s not including the recent dump of

almost 50 centimeters of snow in the Greater Toronto Area in mid-December.

Downtown Toronto, which has seen 1,235 millimeters of precipitation this past year, is nowhere near breaking its record, which is 1,840 millimeters (established in 1840). Nevertheless, most other areas in Ontario have already broken or are close to breaking records.

North Bay and Peterborough have set precipitation records, for example, and Sarnia and Wiarton are inching closer to their all-time high levels.

Perhaps the exception that proves the rule, The Co-operators, which writes about Cdn$709 million in property premiums, actually saw its property claims frequency go down in 2008. Still, the company reports, severity was an issue where water damage was concerned.

“Although our frequency has dropped for property claims in 2008, our losses incurred have increased year-over-year at a rate higher than inflation, and claims severity has increased,” company spokesman Leonard Sharman said in an e-mail.

“Double-digit increases have been experienced for all peril types, with the largest relative changes driven by water damage and fuel escape.”

In keeping with the experience of the insurance industry generally, Irene Bianchi, vice president of claims and corporate services at RSA, says her company saw “the worst three quarters of weather that we’ve had in a significant amount of time.” Although most of the claims activity was centered for the most part in Ontario, other areas of Canada have been equally hard hit, she noted.

Jim Haskins, executive vice president of claims and procurement at Aviva, notes that claims frequency increased during the earlier part of the year throughout Canada.

“Specifically, weather related claims, both catastrophe and non-catastrophe, drove increased frequency in auto and property,” he observes. “Regions with extreme weather patterns experienced greater movement in frequency; heavy snow accumulation followed by sudden thawing (Quebec and Atlantic), severe rainstorms (Quebec and Ontario), hurricanes (Atlantic) and hailstorms (Ontario and West), for example.

As the more volatile weather has subsided,

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COVER STORY

Drenched in Claims frequency has begun to return to more expected levels.”

Some would argue the effects of the volatile weather haven’t yet really subsided. In the first nine months of 2008, for example, Vancouver saw 548 millimeters of precipitation. Extrapolating from this figure, if the city received an average monthly amount of precipitation

started calling them internally ‘mini-cats’ because they are of short duration in terms of time frame, but fairly devastating,” she said. “They require a lot of response. A lot of our adjusters need to get out there and to service these people.”

Some claims departments are in fact calling for a whole new shift in the way water damage is underwritten. “This is

Some refer to the 2008 homeowner/property results as a “death by 1,000 rainfalls,” while others refer to the various weather-related storms as “mini-cats.” However they were described, water damage is a big reason why property claims ratios jumped significantly in 2008. that the Vancouver International Airport typically records during the months of October to December, the city’s 2008 precipitation levels would easily surpass the 900-millimeter mark. The East Coast has also seen its share of precipitation.

The Halifax International Airport weather station has reported 1,1149 millimeters of precipitation over the first nine months of this year (excluding May, for which data was unavailable). Assuming average amounts of precipitation for the months of October through December, Nova Scotia is due to see well over its annual average of 1,452 millimeters’ worth of annual rain and snowfall.

The unrelenting precipitation came in various forms — hail, sleet, rain and snow. Many of the water damage claims related to flooding due to sewer backup (overland flooding is not typically covered under a homeowners’ policy), hail damage to roofs and windows, the expensive nature of property located in finished basements and collapsed pools as a result of heavy snowfall.

Commercial property claim results were similarly affected by water damage. Two years ago, during the first nine months of

2006, commercial property claims payments for Canadian and foreign insurers stood at just over Cdn$1 billion and claims ratios in these lines were between 43% and 54%. In 2008, they have thus far paid out Cdn$2 billion in commercial property claims, with claims ratios coming in at around 67% to 74%.

The weird thing about what happened in 2008 is that, despite the seemingly catastrophic dimensions of property claims losses, there wasn’t a single, concentrated weather-related catastrophe. In comparison, Toronto and other parts of southwestern Ontario in 2005 were hit by a “microburst” storm that caused a record level of Cdn$500 million in insured damages. “Certainly the focus of our claims world has been on the potential for these large, large storms — you know the 1-in50-year event, the 1-in-100-year event — and the kinds of events we saw in 2005, with the Toronto GTA storm,” Hohman said. “This year was not that. It was just so much precipitation over a sustained period of time.”

As a result, claims departments were busy all year, raising a different breed of operational issues, as Bianchi notes. “We

an issue for a number of reasons, from my perspective,” says ING Canada senior vice president of claims Peter Weightman. “One is that we’ve got a product that was built for fire and not water.

That’s a challenge… We’ve got to look at it from a product revision point of view. Looking at it as a transition from fire to water, we have to do a much better job of what I’ll call geographic mapping.” Weightman notes that in the United States, for example, “an army corps of engineers has every inch of that place mapped.” In Canada, however, a similarly detailed mapping of the country’s geography is missing. And there isn’t a coordinated, national-level infrastructure mapping of aging sewer systems, for example, because the data required for such a map is housed within the municipalities. “So there isn’t really any kind of national base for this,” Weightman says. “That is why the industry, to avoid [premium price increases and restriction of coverage], needs to make sure we do product revisions, better geographic mapping and more refined pricing, so that people who don’t have the exposure aren’t subsidizing those that do.”

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Ki n g s wa y ’ sNe wSp e c i a l t yCa s u a l t yUn i t o f f e r sc o v e r a g ef o rh a r dt op l a c eCo mme r c i a l Ge n e r a l , Umb r e l l aa n dEx c e s sL i a b i l i t ya c c o u n t s d i r e c t l ywi t hb r o k e r s .

L e t Ki n g s wa y ’ ss k i l l a n d e x p e r t i s ec a r v et h ep a t h-e x p e c t n o t h i n gl e s s .

COVER STORY

Drenched in Claims Claims departments are also focusing on loss control and mitigation initiatives. Bianchi notes that, compounding the poor results in the property lines, “we had the majority of those claims occur in the GTA, where lot of people have very nice, expensive finished basements in their homes. So instead of dealing with regular, unfinished basements that maybe only had laundry machines experiencing the water damage problem, we’re dealing with a beautiful basement that the family spends a lot of time in — basements that are very well-equipped with big-screen TVs, nice laminate flooring and beautiful furniture.”

That’s part of what makes loss control and mitigation measures crucial, says Weightman, whose company is working to encourage homeowners to install water backflow valves. These valves are installed into basement drains so that water goes down the drain but is prevented by the valve from coming back up.

Also, the Insurance Bureau of Canada and the Institute for Catastrophic Loss Reduction (ICLR) are calling for municipalities to upgrade their storm water and sewer systems, including new and larger pipes designed to accommodate the heavier rainfalls.

Flood of AB Claims Water is not the only thing garnering the attention of claims departments these days. “At the industry level, it’s a bit like the old movie Casablanca with Claude Reins in it,” Weightman observes. “Claude was the cop and when they said, ‘We’ve got a problem,’ he says, ‘Go round up the usual suspects.’

In the insurance business, the usual suspects include Ontario auto. In Ontario specifically, the area of big concern is the accident benefits part.”

A number of claims managers and industry representatives observe that the corollary of a “rich” AB system is an auto insurance product that uses up almost 5% of an Ontarian’s disposable income. That reflects insurers’ rising costs on the AB side.

Two years ago, Canadian and foreign insurers paid out more than Cdn$1.6 billion

“We’ve got a product that was built for fire and not water. That’s a challenge.” in personal accident benefits in the first nine months of 2006. That figure is more than Cdn$2.1 billion after the first nine months of 2008. In that same two-year period, claims ratios for many Canadian auto insurers increased from around 67% to between 98.8% and 125% (with figures over 100% representing losses for insurers).

In Ontario particularly, AB claims are increasingly putting a strain on insurers’ claims budgets for a variety of different reasons. “In Ontario, specifically, we continued to see upward pressure on accident benefit costs driven by escalating medical, rehabilitation, attendant care and assessment costs,” Haskins says.

Many listed rising AB assessment costs as a chief concern. “We quickly saw an increase in assessments that have had a significant impact on costs,” says Greb.

“Multiple and prolonged treatment plans and an increase in the number of claims falling outside the pre-approved frameworks continue to circumvent the intent of the [Ontario auto] reforms [in 2003]. Ancillary benefits, including homemaking and home maintenance

for soft-tissue injuries, are being submitted at an alarming and unsustainable rate.”

The increase in the number of medical assessments is particularly noteworthy, says Linda Paccanaro, vice president of claims at Kingsway General Insurance Company. The sheer number of them raises problems for insurers that might want to challenge their cost and/or validity. “I just finished an analysis here where we looked at a sample of files and said: ‘These are files that we’re disputing from the perspective of this treatment,’” Paccanaro said. “How much does it cost us to have the assessments done, versus paying the treatments? The assessment costs were 50% of the original treatment submission. The process of not being able to do a dispute without doing an assessment is very expensive.”

On top of that, the assessment costs went up, Paccanaro says. “If you’ve gone for a chiropractic assessment anytime recently, the cost in the past 10 years has more than doubled.”

Exacerbating the situation is the fact that auto insurance benefits in Ontario are no longer conceived to be a last line of defence for the victim, merely offsetting monies that could be obtained elsewhere for certain medical treatments. For example, “awhile back, OHIP decided it would no longer fund physiotherapy and chiropractics,” says Paccanaro. “But the accident benefits plan pays for that.

So now [AB insurers] pay for Dollar 1 rather than being an offset.”

So escalating costs on the AB side is a combination of the cost of the services going up, fewer offsets and, Paccanaro adds, “there seems to be more usage, although I don’t have any empirical evidence to quantify that.”

These and other concerns are the basis of industry submissions to the Ontario government as part of its mandatory fiveyear review of the auto insurance product. The Financial Services Commission of Ontario (FSCO) has received at least 17 submissions from insurance companies and industry representatives, all hoping for the government to make lasting, sweeping refoms.

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COVER STORY

Drenched in Claims The Insurance Bureau of Canada’s submission is perhaps the most comprehensive among them. In the area of accident benefits, the IBC has suggested a broad reform package, listing no fewer than 25 recommendations for reform. Specific recommendations for alleviating AB pressures facing insurers include: • the establishment of a maximum limit of Cdn$25,000 for medical-rehab assessments for non-catastrophic claimants (the limit would remain at Cdn$100,000 for people staying in hospital for two consecutive days after the injury); • redefining the medical/rehab package for minor injuries, so that people with sprain and strain injuries, skin wounds and non-extensive burns or subsequent pain or psychological syndromes would receive no access to in-home and worksite assessments. Ancillary benefits for housekeeping/home maintenance and caregiving support for this injury class would be limited to two weeks following the collision; • no housekeeping/home maintenance or caregiving benefits for people who have not incurred an economic loss, and an aggregate, Cdn$20,000 limit for the attendant care benefit; • removing geographical boundaries for the location of examinations; • ceasing the accumulation of interest costs when old claims are re-opened; • changing the definition of health care providers to clarify the class of people allowed to authorize treatment plans; and • developing guidelines around Future Care plans.

“There’s a balance that needs to be achieved between premiums and benefits,” says Don Forgeron, IBC’s vice president of Ontario, commenting on FSCO’s five-year review. “Nobody wants to see motor vehicle accident victims not receive the proper level of treatment. The industry doesn’t want to see that, health care providers don’t want to see that, government doesn’t want to see that. But there has to be a balance between the treatment we provide and the premium that we pay, and I think most Ontarians would agree that that balance is completely out

of sync at the moment and is weighted heavily toward the treatment. I think elected officials know this and the challenge for them is, once you’ve given a benefit, how do you take it back? That’s a very real and a very difficult challenge, but these are challenging times.

Tough decisions are going to be made by government over the next three years as they work through this recession. We think this is a prime opportunity to make some tough decisions as it relates to auto insurance to get this system back on a footing that is in sync with where consumers want it to be.”

Of course, Ontario is not the only “usual suspect” when it comes to problems

“ Ancillary benefits, including homemaking and home maintenance for soft-tissue injuries, are being submitted at an alarming and unsustainable rate.” with the Canadian auto insurance product.1 Ontario auto reform aside, perhaps the story of the year in auto insurance in 2008 has been, like Parliament, prorogued into 2009.

“The minor injury cap challenges in the West and East were on the horizon in 2006 and continue to run their course,” Greb says. “While we await the decisions, we must continue to deliver the message that if the caps are not upheld, claim costs will escalate rapidly and lead to availability and affordability issues for consumers.”

The Alberta Court of the Queen’s Bench early in 2008 found that the province’s

Cdn$4,000 cap on minor injuries was unconstitutional on Charter grounds because it discriminated against whiplash injury victims. Trial lawyers mounted similar constitutional challenges against auto insurance caps in Nova Scotia, New Brunswick and most recently in P.E.I. The Alberta Court of Appeal has already heard the government’s appeal and some thought the court would issue a decision in late 2008. But as of press time in late December, a decision has yet to be rendered. And don’t expect a decision on the Atlantic provinces anytime soon.

Some claims executives expected a decision on the Nova Scotia cap by Christmas of 2008, but that no longer appears likely. In New Brunswick, some say a cap decision may not be rendered until as late as Summer or Fall 2009.

Interestingly, Haskins says, for Aviva “auto BI [bodily injury] frequency in Alberta and Nova Scotia has decreased pending the outcome of the Constitutional challenges.”

Which is not to say the challenges are of no concern to the industry. IBC has calculated that Alberta insurers are accumulating Cdn$400 million annually in unfunded liability in the absence of a cap.

What are insurers’ strategies for dealing with this uncertainty related to the outcome of the cap?

“You would have two choices,” Paccanaro says. “You could reserve it as a case file, as if the cap didn’t exist. And then if [the Alberta cap litigation] is settled or the cap applies, you could then reduce your reserve. Or you’re going to reserve it as if the cap is standing, and put a provision over in the financial area to account for it. Somehow or other, you need to think about the risk related to that cap not holding from a financial perspective. Otherwise, you’re going to be operating at one loss ratio and then, when the decision’s made, your loss ratio is going to change immediately.”

1. Ontario gains its “usual suspect” status because it accounts for about Cdn$9.6 billion of auto insurance premiums written in 2007.

In comparison, the entire Canadian auto insurance market wrote Cdn$20 billion in auto insurance premiums in 2000.

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Catching

By Craig Harris Freelance Writer

The claims community is perhaps the best witness to the discrepancies that occur between the modelled reconstruction values of properties and the true costs to rebuild them.

Claims adjusters are not typically involved in insurance-to-value (ITV) calculations, but they enter the picture when an estimate is out of whack with the actual replacement costs in a partial or total loss claim.This tends to happen more often with certain kinds of properties such as higherend homes, recreational properties and some commercial buildings. As many insurers and brokers struggle to bring property valuations in line through various ITV software tools, the question is: Do valuations pass the claims test for accuracy?

Valuation estimates upon which insurance companies rate their property policies are just that —

42 Canadian Underwriter January 2009

Smoke estimates. The cold, hard reality of a valuation’s accuracy is determined in the event of a partial or total loss claim. Acknowledged gaps between the reconstruction costs for personal or commercial properties and their initial valuations have preoccupied the minds of insurers, valuation vendors and brokers in recent months. But the exact size of these gaps becomes clear when a claim is filed and reconstruction costs make the transition from projected to actual costs. Enter the connection between ITV and the claims community.

Several insurance adjusters say they see discrepancies between initial valuations, which are often done by brokers on behalf of insurers, and reconstruction costs. “In my experience, the issue of underinsured or undervalued properties is a widespread one, given the actual costs for repair and replacement,” says Stephen Agnew, an adjuster with Crawford & Company (Canada) Inc. Several different factors affect how well valuations stand up to real-life claims, according to adjusters. Some of these involve the type of property (including commercial), the size of the loss event,

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availability of qualified contractors, the geographic region, building codes and the terms and conditions of the actual insurance policy.

“Value is such a subjective term, it is like trying to catch smoke,” notes Fred Plant, president of Plant Hope Adjusters Ltd. “You can put everything into a computer program and try to determine the replacement cost, but you have no clue what the real replacement cost of that home is going to be until you rebuild it.And you can’t underwrite after the loss.”

The ITV issue is somewhat akin to a ticking time bomb. For example, it’s just a matter of time before a major or even minor catastrophe happens, be it a wildfire, windstorm, flood or earthquake event, observes Greg McCutcheon, president of SCM Risk Management Services, which recently acquired CGI’s risk management services. “It is not until these events occur that the industry realizes how far out they are [with their valuations],” McCutcheon said. “Even with guaranteed replacement costs (GRC), the problem is this: If the client is underinsured through no fault of his or her own, any claim is going to be delayed and problematic for the customer.That is not good for anybody.”

So then, how do valuation software estimates compare to the actual claims experience of insurance companies? “That is a question we get a lot from insurance companies,” says Todd Rissel, CEO and chairman of e2Value Inc., which has been promoting its valuation software on a free trial basis to brokers through Compu-Quote (up to January 2009). “If a company gives us their claims data and then asks us to compare, our answer is that it compares very favourably,” he says. “I don’t doubt that our estimator will match — if not right on, then closely — the claim value at the time of the incident on a total loss process.”

Still, he adds, the main sticking point for insurance companies on property valuations is whether or not previous estimates on their book of business are outdated (and if so, by how much). “Many of the properties might have been valued four years ago, and the company has been applying an inflationary number to it over that time,” Rissel says. “That company is betting that the initial valuation was done correctly and there will be some semblance of connection at the time of loss several years later. I think that is where the biggest disconnect is.”

Other valuation software vendors, such as Marshall Swift/Boeckh (MSB) and Powersoft, also maintain that their estimating tools, if used properly, closely match the claims experience of insurance companies.Yet claims representatives say the front-line level of adjusting can yield some surprises and delays not anticipated at the time of the initial ITV estimate.

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Although several adjusters say standard residential properties are fairly straightforward to value, variables still apply in an actual claim situation. One is a demand spike for building

January 2009 Canadian Underwriter 43

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contractors typically accompanying a large loss event or even a significant individual total loss.

“It is fine to have books, valuation and square footage, but there is a market component that kicks in,” notes Nick McDonald, senior vice president of quality and education for Cunningham Lindsey Canada. “In Western Canada, we have found situations in which it is difficult to get a qualified contractor, period — even before we get to the pricing. If there is a large-scale event, such as the Kelowna wildfires, you really are at the mercy of the market.”

“The demand bump happens all the time,” says Plant. “It could be a windstorm or a relatively small event that causes a bump. The insurance company might say: ‘Well our policy is that we only pay $193 per square foot.’To which the contractor responds:‘Okay, forget it.’

So the company ends up paying $240 per square foot or more.The laws of supply and demand don’t simply go away.”

The laws of supply and demand are particularly relevant when it comes to certain geographic regions in Canada — especially in remote, “recreational” locations like Muskoka in Ontario or Whistler in British Columbia. “There are instances in which the replacement value of a structure is higher than the insured-tovalue calculation in remote recreational areas, where the rebuilding price becomes somewhat inflated due to lack of true competitiveness within the marketplace,” says Agnew.

Property type Another variable is the type of property involved in a claim. “You can see rows and rows of homes in subdivisions across the country that are almost exactly identical, but there is a large proportion of homes that are not built that way,” notes Plant. “It is very difficult to come up with something that will take into consideration all the facets of a unique home. The valuation program vendors will say: ‘Well, we have built that in, we do this and that,’ but it is all based on averages. It is not an exact science.”

There have been some instances over

44 Canadian Underwriter January 2009

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the past few years in which the reconstruction cost of a total loss exceeded the insurance-to-value calculation, Agnew says. “These are more prevalent in older, higher-end homes in which there have been significant upgrades of the interior finishes.”

Building codes also affect ITV estimates because there can be confusion about which code — i.e. municipal, provincial or federal — applies. If a policyholder files a partial or total loss claim and has code or bylaw coverage, the reconstruction will reflect the higher costs associated with the upgrade.

“One of the items that can really drive a policy sideways, especially on an older building, is code upgrades that are in fact covered by the contract,” says McDonald. “That would be true in both personal and commercial lines. If the policy covers code changes, you can be looking at differences under the various municipal or provincial or even national codes.”

ITV AND COMMERCIAL LINES ITV miscalculations are more likely to appear in some kinds of commercial properties, claims representatives observe. This is becoming a higher-profile issue, since several insurance companies are experimenting with offering GRC on commercial buildings. McDonald notes

that he has seen more commercial policies featuring GRC, which, put basically, offers to rebuild the building at full replacement cost, even if that cost rises above the limits set forth in the policy.

ING Canada has recently started a pilot of GRC commercial coverage (buildings only) in a number of provinces. ING spokesperson Gilles Gratton says the company is trying to learn if GRC is more effective in reducing the underinsurance gap and establishing correct insurance limits.The program is available to clients that participate in the company’s on-site valuation program and agree to insure to 100% of estimated replacement value.

However, there may be a higher margin of error in estimates for business buildings, some contend. “With respect to industrial/commercial properties, accurate estimation of the replacement values becomes a complex engineering exercise,” says Ray Ballantine, senior general adjuster for Crawford & Company (Canada) Inc. “One has to ensure that all components and aspects of the building are in compliance with the present building code, as well as all health and safety and environmental regulations.”

Ballantine notes insurers may sometimes overlook key factors in establishing ITV amounts for commercial properties; such oversights could “dramatically increase underwriters’ ultimate exposures.”

He groups these factors into three areas: foreseeable, non-foreseeable and assumed.

An example of a foreseeable issue could relate to problems with the application of computer valuation technology and real estate appraisals when applied to loss adjustments. Ballantine cites a recent case involving a hotel restaurant and a computer-generated estimate that determined a lump sum value for commercial kitchen equipment.The lump-sum value was calculated on a basic, per-squarefoot allowance. A review of the computer program showed the estimate accounted for the cost of items based on what the programmers “felt” would normally be found in a hotel restaurant.

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cessories, delivery to a remote site and set-up or connections.

The actual costs were therefore four times higher than the computer-generated values.

A non-foreseeable issue could extend to differences between provincial and national building codes. In one example, permits were issued for a warehouse to be constructed outside Montreal in 1996.The warehouse was legally designed to the building code at the time the permits were issued. (Quebec had not accepted the 1995 National Building Code, so the code in existence was 1990.) Construction on the warehouse was completed in 2000 and a loss occurred in 2001. At the time of the loss, authorities demanded that repairs be compliant to the 2000 National Building Code, which the province had accepted subsequent to the issue of the permits. This drastically increased the underwriter’s exposure: it required the insurer to satisfy the costs for all bylaw upgrades instituted during the previous 10 years — for a building that was only eight months old at the time of loss.

An assumed risk in a commercial ITV estimate typically involves packaging a number of coverages into one policy, according to Ballantine. “Regardless of any ITV based on a reported statement of values for the building(s), underwriters agree to include within a single maximum limit such items as business interruption, extra expense and bylaw coverage at no additional cost, thus increasing their ultimate exposure,” he states.

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ITV CLAIMS SOLUTIONS Solutions to finding the closest match between ITV estimates and actual reconstruction costs in a claim vary depending upon the source. Some say there is a need for more professional appraisals, particularly for certain kind of properties.

“A professional appraisal firm should be used when valuing higher-end custom homes, older homes with plaster finishes, upgraded mill work, as well as areas involving higher-end recreational properties, where there may not be enough contractors in the area to create a true competitive bid situation,” notes Agnew.

McCutcheon, whose firm offers these kinds of loss inspection services, argues that nothing can replace an accurate, personally inspected property appraisal. “But realistically the industry cannot afford to inspect every single property,” he says.

He contends the primary issue is one of data quality at the start of the ITV process. He notes that he and a broker once undertook a study of 6,800 policies; they found more than 50% of the valuation information was inaccurate. “This is a data accuracy issue,” McCutcheon says.

On the topic of data accuracy, Rissel says: “We dedicate a lot of time to making sure that we reduce as many errors as we can up-front. The notion of ‘garbage in, garbage out’ will always apply, but we want to limit errors in any input and take advantage of technologies available today to help people answer questions. We want to make sure that piece has a better correlation with total loss values.”

The key is that this is not a software calculator matter, McCutcheon says. “All of the models are used and accepted by our industry. Instead, there are two issues: the accuracy of the information and the technical expertise to assess the data.

There is a huge training and education process that has to occur in this industry.”

Claims adjusters say they would welcome such an education and training process. “If insurers go with ITV, they have to make sure that people all the way through the equation — from client, to broker, to underwriter, to claims adjuster — understand the ramifications of ITV, what it means and how it works,” notes Plant. “It is important to ensure that information is disseminated along the line in advance, before the claim hits.”

Agnew says it might also be advantageous for adjusters to “meet with groups of brokers to review and compare how insurance to value is established on a pre-loss to a post-loss estimate. In doing so, on a component by component basis, one could establish if there any specific items or areas that are either missed or being undervalued.”

If, as Plant says, establishing accurate property values is like “catching smoke,” the industry needs to do more to clarify the valuation process for brokers, insurers and claims adjusters. After all, if the industry finds it hard to agree on the “right” number, how could it expect consumers to understand what their property is worth before and after a loss?

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e r Qu mi

ag

Ontario’s

Opinion/Analysis

Ontario’s auto insurers have struggled over the past decade with insurance fraud schemes that are a byproduct of an overly complex accident benefits or “no-fault” system.

Donna Ford Freelance Writer

Ontario’s mandatory, five-year auto insurance review is due to wind up shortly. One issue will be the credibility of the accident benefits (AB) or “no-fault” side of the system — a system that has been hijacked and looted by some assessment companies, legal representatives, health practitioners and rehab clinics.

The Ontario Motorist Protection Plan (OMPP) provided limited, no-fault benefits when it was implemented in 1990. Prior to that, the province’s auto accident compensation was provided mainly on the basis of tort.Various governments have tinkered with first-party benefits since the system was greatly expanded in 1994. Each amendment has added successive layers of complexity; now, the 27-page Statutory Accident Benefits Schedule (SABS) of 1996 has expanded to 81 pages in length.Almost no one outside the industry understands it.

48 Canadian Underwriter January 2009

I practiced personal injury law during the pure tort system of the 1970s. I returned to the insurance industry to investigate suspicious accident benefits (AB)/bodily injury (BI) claims from 1996 to 2006. My professional background has trained my eye to the abuses I’ve witnessed and investigated in the no-fault system.

In many situations in which abuse is occurring, the primary care provider is a regulated health professional employed by an unregulated businessman. The primary care provider in this example is typically getting paid an hourly rate far below that for which the insurer is being billed.

Sometimes clinic owners are forging the names and registration numbers of regulated health professionals without the knowledge of the targeted health care providers. Such fraud is perpetrated through the use of banked practitioner electronic signatures, rubber stamp signatures and electronic cut-and-paste.

Another major problem is the number and cost of assessments. Personal injury lawyers use the assessments, paid for by the first-party insurer, in both their no-fault and tort files.This encourages spurious tort litigation in minor cases, despite the threshold in tort for non-pecuniary claims.

It’s not surprising that in some minor accident claims, once certain legal representatives and rehabilitation clinics/assessment companies get involved, the insurer is bombarded with 10-15

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applications for approval of an assessment or examination (OCF 22), often in groups.The deluge includes forms for inhome needs assessments, psychological assessments, Functional Abilities Evaluations (or FAEs), in addition to assessments for driving, orthopaedics, neurology, work site needs and Temporo Mandibular Joint (TMJ) pain.All get submitted regardless of age, injury or the severity of the motor vehicle accident.

Here’s one dirty trick: sending OCF 22s by fax to departments in the insurance company that don’t perform the claims resolution function (such as the underwriting department or the CEO’s office).The goal here seems to be to get adjusters to miss timelines so the insurer has to pay for them by default. Another desired result is to put the claim outside the (WAD 1 or II) Pre-approved Framework (PAF) Guidelines, so they can access more treatment or extend income replacement benefits (IRB) to beyond 16 weeks.

Insurers are rarely allowed to speak to regulated health professionals that sign the OCF 22s without paying a fee or arranging appointments that must be made within the three-day timeline required for a response.

Here’s another dirty trick: an unscrupulous legal representative or clinic will ask the client/insured to sign —but not date — Part 9 of the OCF 22. That page then gets photocopied for each assessment requested, and the dates get inserted. The client never sees the forms again after he signs the first one. In Part 9, the insured is: • certifying the information contained in the form is true; • authorizing treating health professionals to release only such health information that is reasonably required to do the assessment; and • acknowledging it is a criminal offence to attempt to defraud an insurance company.

The use of this form without the client’s informed consent is a fraud on the insurer and a breach of the client’s privacy rights under the Personal Information Protection and Electronic Documents Act (PIPEDA), but it is routine practice.

How are abusers avoiding discipline or

50 Canadian Underwriter January 2009

charges? SABS is too complicated for the governing colleges to deal with.Also, privacy restrictions prevent insurers from sending the claim files to the colleges.

Law enforcement and judges also do not understand the SABS.The few charges laid

by FSCO investigators under the Insurance Act are only scratching the surface.

In the meantime, there are examples of unrestrained over-billing. If an OCF 22 suggests a neurological assessment at a cost of Cdn$2,200 and the insurer denies it, the insurer could send it for a paper

If all the people who draft the legislation were required to work for at least one year handling no-fault claims, I can assure you that the SABS would be scrapped. review (at a cost of $450). If the review comes back saying the assessment should not cost more than Cdn$1,000, the insurer ends up paying Cdn$1,450. All of this money goes to independent evaluation (I.E.) companies; none of it goes towards treating the claimant. Also, the adjuster’s valuable time is taken away from working on legitimate claims.

Part 9 of the OCF 22 allows for the signature of a health professional or social worker in place of that of the insured (i.e. in the event of an emergency, etc).

But in these instances, the health professional must assume responsibility for obtaining the claimant’s consent. So when insurers question health professionals about the discussions they have had with the claimants about treatment and consent, and the I.E. company simply withdraws the OCF 22, one inference that might be drawn is that no discussions took place.

Even in minor accident situations, insurers often get requests for assistive devices at grossly inflated prices.Tub scrubs with a market value of Cdn$9 are billed at between Cdn$20-30. Back supports worth Cdn$70-80 on the open market are billed at Cdn$130. Some minor acci-

dent scenarios feature claims for standalone hairdryers and vacuum cleaners.

Since chiropractors are not allowed by their college to charge their patients more than what they pay for an item (plus a reasonable dispensing fee), some insurers are requiring that assistive devices be provided by the treating chiropractor.

Insurers must pay for Attendant Care (AC) assessments, a Form 1 under s. 24 of the SABS, without any prior approval.This has led to a variety of different abuses. For example, insurers are getting charged thousands of dollars for assessments that conclude there is no need for AC.They will pay for an initial assessment that says no AC is required; six months later, they will get another assessment that confirms once again that AC is not needed.

Some health practitioners are giving insurers a full report, along with a big bill, when all they should be sending is a Form 1. It should cost an insurer Cdn$63.72 for a Form 1, plus it should take approximately 1.5 hours of a practitioner’s time to complete it.The rate for chiropractors established by Ontario’s auto insurance regulator, FSCO, is Cdn$101.78 per hour.Therefore, bills for a chiropractic assessment should be around Cdn$250 — not the Cdn$1,000 invoices that Ontario auto insurers are receiving.

Under tort, if a plaintiff is exaggerating his or her injuries, insurers can investigate by obtaining a good statement, an independent medical opinion and, if necessary, surveillance.The tort system is much more understandable and transparent than today’s current accident benefits system. Under the SABS, there are so many different frauds coming at the insurer from so many different sources that insurers are suffering death by a thousand cuts.

If all the people who draft the legislation were required to work for at least one year handling no-fault claims, I can assure you that the SABS would be scrapped. We would return to modest OMPP-style payments coupled with tort, or to pure tort alone.After all, we do have a publicly funded health care system.

The present system has fallen into disrepute and no amount of tinkering will fix it. Meaningful reform is required.

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KPMG Regulatory Update Seminar

David Gambrill Editor

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Innocent Bystanders Regulation related to reinsurance licensing and fair value accounting is getting a tough rap these days, but both may be the unfair targets of their critics, KPMG panelists suggest.

PART XIII’S SILVER LINING Canada’s (re)insurance community should not be relying on the Office of the Superintendent of Financial Institutions (OSFI) to interpret on its own behalf the meaning of Part XIII changes to be implemented in 2010, a lawyer told a KPMG ‘Regulatory Update’ seminar.

Instead, foreign (re)insurers with branch offices in Canada should be seeking their own legal opinions about whether the risks they are writing are in Canada, said seminar panelist Robert McDowell of Fasken Martineau LLP. “You shouldn’t be in a position, I think, that you should be asking OSFI [how to interpret the test],” McDowell said. “I think you should be in a position where you come to your own views, with the assistance of legal advice as you see fit.”

OSFI’s regulations for implementation of amendments to Part XIII of the Insurance Corporations Act include a four-part test for determining whether risks are written in Canada.

McDowell acknowledged the current confusion surrounding the four-part test and how OSFI might ultimately interpret it. But even though he

52 Canadian Underwriter January 2009

felt like he was “the least popular person” in the room for saying so, McDowell said he believed OSFI undertook a great deal of prior consultation on the matter and “did the best they could” with the new regulations.

He noted OSFI created its new test based on an extensive examination of legal principles and rulings that deal with the question of which courts or laws should apply to cases that span multiple geographical territories.

The test in these sorts of cases is whether the facts in the case have “the closest and most real connection” to the legal jurisdiction in which the case is tried.

McDowell cited numerous court cases and authorities in which various factors are outlined to help courts figure out which laws should apply to multiple-jurisdiction fact situations. He said these authorities laid the groundwork for OSFI’s four-part test as to where the business of insurance is located.

McDowell thought OSFI’s four-part test could be interpreted optimistically as providing (re)insurers leeway to determine for themselves whether particular business lines could or should be written inside or outside Canada.

“A foreign reinsurer or insurer may have the best of both worlds in this new policy, and I think this has to be regarded as a win,” McDowell said.

“Wherein there was a lot of uncertainty before — of course there still can be in the examination of said facts — but now there’s a real opportunity to decide which lines of business or particular clients or particular products or deals are we going to do as a foreign insurer outside of Canada and which ones we’re going to do inside of Canada.”

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FAIR VALUE AN INNOCENT BYSTANDER Fair value accounting (FVA) is an innocent bystander in the current financial crisis and should not be blamed for perpetrating market volatility, panelists at a KPMG seminar said.

“Fair value is not responsible for where we are today,” panelist John Reucassel of BMO Capital Markets said.

“To suggest otherwise is ridiculous.

“We are where we are today because people borrowed too much money and we’re going to have to pay that back.”

Reucassel was a member of the breakout panel that kicked off KPMG’s 17th Annual Issues Conference Regulatory Update held at the Metro Toronto Convention Centre.The panel discussed a number of topics around new international financial reporting standards, including what role, if any, fair value accounting plays in the current financial volatility of the markets.

Fair value accounting obliges companies to measure and report the “exit value” of their assets or liabilities.That is, companies must report the current market price the company would receive if it sold an asset, or the cost to the company if it is transferring a liability, at the time the value is measured.

Critics of fair value argue that the market values of assets or liabilities are unreliable in unpredictable markets such as this one. Some note the current value of a company’s assets or liabilities may be “unrealized,” in the sense that the company has not actually sold the assets or transferred the liabilities (and may have no intention of doing so). And yet, when current values are disclosed, shareholders might act hastily and unload or buy shares in the company, thus causing a company to sell their assets or transfer their liabilities earlier, thus potentially driving down the value of the company’s assets further.Thus, critics say, fair value accounting in a bad market cycle can result in snowballing, self-reinforcing write-downs, leading to further unpredictability in the market.

But blaming fair value for causing the current market difficulties is really just shooting the messenger, David A. Thompson of KPMG said in a separate panel on the new financial reporting standards.

Tricia O’Malley, the director of implementation activities at the International Accounting Standards Board, agreed fair value accounting is merely a reporting

instrument, it doesn’t dictate business decisions. “I don't think the accounting standards have ever caused anybody to sell something they didn’t want to,” she said.

“I will note in passing that nobody was objecting to implementing [FVA] when the markets were going up. In fact a whole bunch of those banks [now at the centre of the market volatility] adopted it early.”

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When in

Doubt, Send it

Out

There's no fault in sending out a Notice of Dispute Between Insurers as soon as possible in priority insurer cases, thus making sure the 90-day notice provision doesn’t become an issue.

Hughes Amys LLP Hughes Amys is a member firm of the ARC Group Canada

Accident benefits (AB) adjusters are faced with more regulated timelines than ever before. A failure to meet these timelines can result in paying for an assessment or treatment plan that may not have otherwise been payable. However, there is no oversight greater than failing to put a priority insurer on notice within 90 days as stipulated in Ontario Regulation 283/95, the “Dispute Between Insurers Regulation” (hereafter abbreviated as “the Regulation”).

The 90-day notice provision is set out in subsection 3(1) of the regulation. It says:“No insurer may dispute its obligation to pay benefits under section 268 of the act, unless it gives written notice within 90 days of receipt of a completed application for accident benefits to every insurer who it claims is required to pay under that section.”

If a priority insurer is not put on notice within 90 days of the completed application for accident benefits, then the only way for an insurer to extend the time for putting another insurer on notice is by satisfying the requirements of subsection 3(2) of the regulation. An insurer seeking to extend the 90-day notice period must demonstrate that: (a) 90 days was an insufficient period of time to make a determination that another insurer or insurers is liable under section 268 of the Act, and (b) the insurer made reasonable

54 Canadian Underwriter January 2009

investigations necessary to determine if another insurer was liable within the 90-day period.

LESSONS IN ECHELON The Ontario Superior Court of Justice dealt with this issue recently in Echelon v. CGU1, in which Ontario Superior Court Justice Thea Herman upheld a decision by Financial Services Commission of Ontario (FSCO) Arbitrator Guy Jones. Echelon serves as another example of a case in which an insurer, who may not have been the priority insurer, remains responsible for the payment of accident benefits on the basis of a failure to comply with the 90-day notice period.

In Echelon, the claimant was a pedestrian struck by a vehicle insured by Echelon.The claimant suffered catastrophic injuries in the accident. Echelon received a completed application for accident benefits and retained an independent adjusting firm at a very early stage to carry out a priority investigation. A potential existed that the 21-year-old claimant was dependent upon his father. If the claimant was dependent upon the father, and the father had an insurance policy, that policy would be the priority policy under section 268 of the Insurance Act. Efforts to obtain information from the father and family failed because the family did not co-operate in providing information.

Illustration © Tracy Walker/www.i2iart.com

Gregory P. Bailey

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The claimant and his family eventually retained counsel.After several attempts to obtain information, the independent adjuster received correspondence from counsel’s office approximately two weeks prior to the expiry of the notice period.

This correspondence indicated the claimant’s father had an insurance policy with CGU prior to the loss, but the policy had lapsed prior to the accident for non-payment of premiums.

The independent adjuster testified at the arbitration that he had contacted the broker about the CGU policy to confirm that the CGU policy was not in force at the time of the accident. There were no (or limited) records confirming this conversation. During the arbitration, Jones found as a fact that the discussion between the independent adjuster and the broker did not occur. On appeal, Herman saw no basis for interfering with this factual finding.

A further Autoplus report was eventually run with respect to the father. The report found that the father had a vehicle insured with CGU at the time of the accident. Approximately two months after the expiry of the notice period, a Notice of Dispute was mailed to CGU. The issue addressed at the arbitration was whether Echelon could rely upon subsection 3(2), the saving provision, to extend the time for service of the Notice of Dispute. In arbitration, Jones acknowledged that Echelon made considerable efforts to attempt to locate a priority insurer.2 However, he refused to extend the notice period.

The testimony of the independent adjuster highlights a common misconception with respect to the notice period.

The independent adjuster testified that his understanding was that the 90 days did not begin to run until “we have information that there is another policy which was in effect at the time. So I don’t really begin measuring the time or worrying about it, until I have information that another policy exists [that] is valid.”

This is incorrect. The 90-day notice period commences from the time of receipt of the completed application for accident benefits.

Although it is not specifically stated in Jones’ decision, it is implied that had the

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There is little, if any, downside to putting another insurer on notice. independent adjuster understood when the 90-day notice period starts to run, he would have immediately conducted further inquiries after receiving information about a potential policy.

Herman upheld the arbitrator’s decision.

The end result is that Echelon remained responsible for a catastrophic claim that they might not have otherwise paid.3 Echelon highlights some of the difficulties that can arise in the investigation of priority disputes.4 By many accounts, Echelon, through its independent adjuster, carried out a very diligent and thorough investigation. However, the case highlights some pitfalls that an insurer can fall into in the course of investigating priority.

HOW TO HANDLE PRIORITY INVESTIGATIONS The following list of suggestions, although not exhaustive, can help an insurer deal effectively with potential priority issues:

1. Priority investigations should commence immediately upon receiving knowledge of a potential claim.

Should an insurer be in the position of having to demonstrate that 90 days was an insufficient period of time in which to make a determination, it may be easier to convince an arbitrator to invoke the saving provision if immediate investigative steps were taken.

2. Every step in the priority investigation should be carefully documented.

In Echelon v. CGU, the independent adjuster advised that he had contacted the broker to make inquiries about the potential CGU policy. If the independent adjuster had documented the conversation, and if his notes clearly indicated that the broker told him the policy had lapsed, the arbitrator may have come to a different determination with respect to extending the time for notice.

3. Do not simply rely upon information provided by the claimant.

All reasonable steps to obtain information should be taken. Although incorrect information provided by a claimant might be a consideration in determining whether to extend the 90-day time line, insurers are not expected to rely solely upon the information provided by the claimant.

4. Send the Notice by fax and mail.

Proving service of a Notice of Dispute frequently arises as an issue in priority matters. Insurers often simply mail the Notice of Dispute Between Insurers form; the insurer to whom it was mailed often alleges that it never received the notice. The Regulation requires that the notice be in writing, but the method of service is not stipulated. Sending the notice by fax and mail is prudent practice and helps to avoid this issue all together.

5. Investigate prior policies.

If there is evidence of a prior policy that might be a primary policy near the time of the accident, request that the prior insurer provide evidence that it properly cancelled or failed to renew the policy.

If it fails to provide this information, and the 90-day notice period is coming to an end, put that insurer on notice. If the insurer can establish that the policy was cancelled appropriately, there is no need to commence an arbitration.5 6. Never rely upon the ability to extend the 90-day notice period.

The saving provision of the Regulation has been interpreted very strictly. The onus is on the insurer seeking to extend the time to demonstrate that it satisfies the requirements of subsection 3(2).

This not an easy task, and arbitral decisions regarding this issue are unpredictable. Further, the need to rely upon subsection 3(2) virtually guarantees that legal costs will be incurred; in addition, an arbitration will often be necessary.

7. Understand the 90-day notice period and implement a “tickler system.”

In Echelon, the independent adjuster misunderstood when the 90-day notice

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Wednesday April 8th, 2009 – Toronto Westin Harbour Castle Conference Centre Metropolitan Grand Ballroom 5:00 p.m. – Cocktails and Silent Auction 6:30 p.m. – Dinner and Entertainment Tickets $190 each $1,900 for a table seating 10 guests.

Tax receipts in the amount of $80 will be issued per ticket.

Event sells out early. Ticket registration ONLY available on-line at www.wicc.ca.

Payment terms: Cheque, VISA, MasterCard, American Express.

E-Tickets will be sent to the Registrant approximately 2-3 weeks prior to the event.

Attend this memorable and uniquely refreshing event!

Design donated by Informco

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period begins to run. The 90-day notice provision starts to run from the date of receipt of a completed application for accident benefits. It is imperative that there be a “tickler” or “bring forward” system in place to ensure the 90-day notice period does not get missed.The safest practice is to start the 90 days running from the date that the insurer is first contacted and advised that the claimant may be applying for benefits.

8. If in doubt, send it out!

In Echelon, the arbitrator made a finding that a reasonable adjuster should have carried out further investigations after learning of the potential CGU policy.The safe thing to do would have been to serve a Notice of Dispute upon CGU immediately. Further investigation and clarification can be carried out after the 90-day notice period. Subsection 7(2) of the Regulation provides that an insurer must initiate arbitration within one year from the date that the insurer first gives notice of a dispute between insurers. Accordingly, there is ample time to determine if an insurer’s position on priority is reasonable and whether or not proceeding to arbitration is warranted.There is little, if any, down side to putting another insurer on notice.

The facts of each case dictate what steps should be taken in carrying out a priority investigation. What is reasonable and required in one case may not be reasonable and required in another.The potential consequences of failing to comply with the 90-day notice period should not be overlooked. It is hoped that the above-noted suggestions may help an insurer from becoming a victim of the 90-day notice period.

Echelon General Insurance Company v. CGU Insurance Company (2008) CanLii 27175 (ON SC); upholding the decision of Arbitrator Guy Jones.

2 Echelon made repeated requests of the claimant’s family and lawyer; received assurances from the family’s lawyer that they would attempt to get insurance information; conducted two Autoplus reports on the father (one of which used an incorrect name, and the other of which did not re1

Page 59

veal an active policy); they followed up with a

name for the father, and were provided incorrect

number of previous insurers that did show up on

information on the Application for Accident Ben-

the Autoplus to confirm that no policy existed;

efits with respect to the existence of the father’s

and had been told by the claimants lawyer’s office

policy of insurance.

that the father did not have insurance.

See Ontario (Finance) v. Progressive Casualty Insurance Company of Canada (2007) (CanLii 15475) (ON SC) for an example of a case where an insurer who purportedly cancelled a policy prior to the accident was found to have done so improperly and required to pay benefits.

3

The actual issue of priority, and whether the

claimant was dependent upon the father was not addressed in the arbitration.

4

Echelon had an unco-operative father; they had

a difficult time even ascertaining the correct

5

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January 2009 Canadian Underwriter 59

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All About the

Nails

Gregory A. Kopp Research on hurricane damage and Murray J. reiterates the importance of the Morrison basics in home building: when it Boundary Layer Wind Tunnel Laboratory, University of Western Ontario (London, Ont.)

comes to preventing roof damage, the nails need to attach the roof to the walls.

It’s hard to think about hurricanes in the middle of winter in Canada. It is far more likely that we are thinking about snow or freezing rain. When we get a very heavy snowfall, we often worry about the weight on our roofs. Failures do occur, as the 1998 Ice Storm in Eastern Ontario and Quebec painfully illustrated.

Roof collapses under extreme snow loads involve failures of major structural components.

Wind is different. Wind causes uplift when it blows over and around a house. One can best understand how wind acts on a roof by imagining a house turned upside down, with additional weights hanging off of it, especially near the corners and edges, and then shaking it. The nails become critical, holding the trusses to the walls,

60 Canadian Underwriter January 2009

and holding the sheathing onto the roof.

One of the surprising aspects of damage surveys following major hurricanes is how little broken lumber you will see.You just don’t see broken sheets of plywood or 2x4s. This is because they come off the roof intact. In fact, a lot of the damage in Hurricane Andrew, the worst wind disaster in U.S. history, was caused because so many nails on so many houses missed their mark. If one sees broken lumber at a hurricane damage site, it is usually because something has hit the structure such as a sheet of plywood or a roof tile from a neighbour’s house. To mitigate wind damage, paying attention to these small details is critical.

At the University of Western Ontario (UWO), we have developed technology to test these details at the Insurance Research Lab for Better Homes (IRLBH). The project receives funding from Canada Foundation for Innovation and the Ontario Innovation Trust in partnership with the Insurance Bureau of Canada and the Institute for Catastrophic Loss Reduction.The lab has recently conducted tests using innovative technology on a full-scale, two-storey, gable roof house.

The idea behind the IRLBH is to replicate hurricane-force winds, as well as other types of damaging winds, on low-rise buildings and houses.

The experiment uses specially designed actuators and vinyl pressure bags to apply both positive (i.e. push) and negative (i.e. pull) pressures on full-

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scale specimen. One can develop hurricane-force winds in a laboratory in a few ways; the most obvious is to build a very large and very powerful wind tunnel. The team at UWO considered this prohibitively expensive, so we developed an alternative method using the pressure actuator concept. This costs about one-tenth of what such a large wind tunnel would cost, in terms of both capital and operational costs.

The actuators are first attached to a steel exo-skeleton that surrounds the house. (See Figure 1 on Page 62.)

These are used to apply pressures on the house via inflation of the vinyl bags.When the steel frame around the house holds all 100 actuators and accompanying airbags, the surface of the home would scarcely be visible. Indeed, when this takes place, members of the research team would have to enter the house by crawling under it and using a trap door located in the floor.

For the first tests, however, only the roof was rigged up with actuators and vinyl bags.

The results of the tests had some surprising aspects.

The roof was first subjected to the fluctuating, dynamic pressures consistent with a Category 1 hurricane.

After subjecting the roof to this for 15 minutes, all we observed were minor cracks in the drywall. The nails had moved less than a millimetre.

After stopping and restarting the actuators, each time ramping up the pressure, it was discovered that the nails in the roof began to pull out a bit at a time. (See Figure 2 on Page 62.)

There are several high-speed wind gusts over the duration of 15 minutes; these cause significantly elevated pressures. The largest uplift forces are of short duration, typically less than a few seconds and often less than a second. In fact, in these particular tests, there is a moment in which the load tripled in value in about half a second.

For Category 1 wind speeds, this meant nails pulling out about 1 mm.

For Category 3 wind speeds, this

Page 61

A lot of the damage in Hurricane Andrew, the worst wind disaster in U.S. history, was caused because so many nails on so many houses missed their mark.

meant nail displacements of about 20 mm. However, as the gust passed, the weight of the roof would push the trusses back down, taking the nails with them. By the time the Category 3 test was completed, there was total failure of the toenails; they had no capacity left to resist the wind uplift.At this point, the

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January 2009 Canadian Underwriter 61

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only thing holding the roof in place was its own weight.

As a result of these tests, it became evident that it is possible for a roof to become completely disconnected from the walls, yet settle back down with little visible evidence of such a catastrophic failure having taken place. A roof can be sitting on the walls, appearing to be fine, when in reality it has become disconnected from the structure. Remarkably, the drywall showed only minor cracking. Such a failure may only be detected if someone were to enter the attic and conduct a very careful inspection of the connections. If such a home were to be hit with another wind event days, weeks or even years later, it could conceivably lose the roof in a much weaker wind storm.

Given the importance of the nailed connections, the IRLBH team ensured that every nail used to secure roof sheathing and every toenail connection in the house was recorded in detail.

This will aid in the ongoing interpretation of the experimental data and to aid computational modelling. Such

Page 62

computational modelling is of critical importance since there are many variations on the shapes of houses and only a few, at most, will ever be tested in the lab.

After combining calibrated computational models and wind tunnel test data for a wide range of house and building shapes, the data will ultimately be used for the development of probabilistic failure (risk) models.

So, resistance to wind loads is really all about the nails. Nails that are sunk but miss joists or trusses, or nails that result in connections that badly crack the wood, are as useful as having no nails at

all. An improperly sunk nail can mean the difference between one nail holding just a few pounds of force and another one being able to handle 80 pounds of force or more.

These details are critical.

As reflected in the Vision Statement of the IRLBH, the idea behind the facility is to find optimal solutions that “mitigate damage to homes and other light-frame structures under extreme environmental conditions; conditions such as wind, wind-driven rain, snow, and the various factors that support mould growth.�These initial tests conducted at the IRLBH are important first steps to realizing that mandate.

Figure 1 (right): Photograph of the twostorey test house at the Insurance Research Lab for Better Homes.

Figure 2: Photograph of roof damage to a house in Houma, Louisiana caused by Hurricane Gustav. The roof joists at the corner were not connected to the walls. The photograph on the right shows a close-up of the corner of the roof section that flew off of the house. There were toenails in the joist, they just had not been connected to the walls.

62 Canadian Underwriter January 2009

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30

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Letter to the Editor

Dennis Gartner Superintendent of Insurance, Alberta Finance

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Page 64

Credit Scoring Requires Consent Without specific authorization outside of the insurance application process, automobile insurers in Alberta are not authorized to collect or use an applicant’s credit report regardless of whether the application is for compulsory or optional automobile insurance coverages.

In the October 2008 edition of Canadian Underwriter, Craig Harris wrote an article entitled “Risk it all on Credit” that included references to what is permissible in Alberta with respect to the use of an insurance applicant’s credit score.

The purpose of this letter is to correct information within the article with respect to an insurance company’s collection and use of a person’s credit score when purchasing insurance in Alberta.

The collection and use of personal information is governed by provincial and federal privacy legislation. My understanding is that this privacy legislation requires consent for any person to collect and use another person’s credit report or score.

Currently,Alberta does not have a specific insurance regulation regarding the use of a person’s credit score in the purchase of insurance.

64 Canadian Underwriter January 2009

However, with respect to automobile insurance, the “consent” on the approved automobile insurance application form was amended in 2006.

The following sentence is now included in the “consent” provision. “If I apply for a premium payment plan, I authorize you to obtain and use my credit report.”

As a result, without specific authorization outside of the insurance application process, automobile insurers are not authorized to collect or use an applicant’s credit report regardless of whether the application is for compulsory or optional automobile insurance coverages.

Recently, instances have come to my attention where insurance companies have refused to provide a premium quote for property insurance unless the person requesting the quote agrees to allow the insurance company access to the person’s credit report or score. In my opinion, a person’s credit report or score has nothing to do with a quotation of a premium or insurance coverage. I consider this type of pre-condition to fall within s.509(1)(c) of Alberta’s Insurance Act. This subsection says no insurance company or insurance agent may engage in an unfair, coercive or deceptive act or practice.

In the near future, I will be issuing a bulletin to all insurance companies licensed in Alberta advising them of our position regarding insurance companies insisting on a person’s authorization to obtain that person’s credit report or score prior to quoting on insurance coverage.

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MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

Peter Blodgett is now president of the Insurance Brokers Association of Ontario (IBAO).

Blodgett is the owner of Darling Insurance, which has three Ontario locations in Peterborough, Omemee and Bobcaygeon. He recently opened a new brokerage, Beyond Insurance, in Whitby, Ontario. “We are extremely proud to have him on board,” said IBAO CEO Randy Carroll. “With his continued dedication to serving the interests of independent insurance brokers across Ontario, we know IBAO will continue to succeed and be recognized as a symbol of excellence within the insurance in dustry.”

2

The William H. McGannon Foundation has awarded the John Faulds Memorial Award to Jean-Francois Haeck. The award, which includes a Cdn$5,000 scholarship, is not given on an annual basis.

It is reserved for worthy students studying risk management at the post-graduate level. Haeck, a Montreal native, is currently pursuing a Masters of Science in Management and Regulation of Risk degree at the London School of Economics and

66 Canadian Underwriter January 2009

Political Science in the United Kingdom. “I chose to study risk management in London to learn the worldleading best risk management practices, which I plan on applying when I return to Canada,” Haeck says. He adds he is humbled to receive the award. “The Risk and Insurance Management Society makes clear that more risk management professionals are required and I feel responsible for contributing to the profession’s success in Canada.”

3

Auto insurance rate regulators across the country have established the Canadian Auto Insurance Rate Regulators (CARR) Association. “Our vision is to be a recognized inter-jurisdictional Canadian association for automobile insurance rate regulators working together to improve rate regulation processes,” said association chairman Harry Gough [3], currently the vice chair of the Alberta Auto Insurance Rate Board.

The CARR Association was formally established at the 2008 Canadian Automobile Insurance Rate Regulators (CARR) Conference, held in Banff, Alberta in late 2008.

“The conference had been

1 the product of a common desire among automobile insurance rate regulators to have a forum where they could discuss topics of concern and share expertise exclusive to automobile insurance rate regulators,” according to a release issued by the CARR Conference.

Apart from naming Gough as chairman, the CARR Association named Paul D’Astous as its vice chair. D’Astous is currently chairman and CEO of the New Brunswick Insurance Board. Six other representatives from across Canada were given positions on the CARR Association’s board.

4

Norm Angrove is the new senior manager of value added programs for PPG Automotive Refinish’s business in the United States and Canada. He will be responsible for marketing the CertifiedFirst and MVP

3

4 programs in North America, leading the strategic direction of CertifiedFirst in North America and heading the Platinum jobber program and marketing communications in Canada. He has more than 30 years of experience in the industry, including expertise in OEM parts marketing, automotive PBE distribution, collision centre marketing programs, collision repair banner networks and collision centre consolidation.

5

The Institute for Catastrophic Loss Reduction (ICLR) and The Co-operators have unveiled a

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MOVES & VIEWS

to a vehicle,” said Wardell.

“These include things like paintless dent repair (PDR) that can result from door dings, paint/bumper scuff repair, windshield chip/crack repair and exterior and interior detailing.”

9a

9b

third “safer living” home built in Canada. It replaces a home that was previously destroyed by fire in Fort Erie (Ridgeway), Ontario. The new home is built to “better-thanbuilding-code” standards under the ICLR’s ‘Designed...for safer living’ program. The program is a first-of-its-kind partnership that seeks to raise awareness of the need for safer living standards in an era of climate change. Like the first, prototype home built in West Point, Prince Edward Island, the house in Fort Erie is specially engineered to withstand high winds, rain and severe winter weather.

small- to medium-sized adjusting firms, according to a company release. The firms will work under agreement with CCS “to provide consistent quality and above-average products to clients,” the release notes. David Riddell, president of CCS, was most recently with CGI Group. He brings 20 years of claims and claims management experience to the organization.

6

Canadian Claims Services Inc. (CCS), a new full-service, independent adjusting company, is planning to launch in Alberta in early 2009. CCS will be providing adjusting services through a network of

7

Carstar Automotive Canada has launched Carstar Express, aimed at consumer’s “minor” repair needs (i.e. repairs completed in less than an hour). Carstar operations manager P.J. Wardell says that although Carstar Express will repair small damage that can sometimes happen to a vehicle, the focus will be on the ‘Core Four’ of repair services.“The Core Four are those repairs for the most common damages that frequently happen

8

Cunningham Lindsey Canada has opened a new Toronto North location in Richmond Hill, Ontario. Dave Lyon will manage the office staffed by Rick Bahen, Ross Arthur, Nick Tucci, Fop Riethoff, Dale Reid and senior adjusters Pamela Allen and Fred Scott.

9

Catlin Canada has announced two appointments to its Calgary office. Greg Joyce [9a] will be product manager of energy and John Alford [9b] will be energy and property underwriter.

Both join Catlin Canada from GCAN Canada, where they established a domestic oil and gas portfolio. Joyce was previously the manager of GCAN’s Calgary office.

10

Gino Fiorucci is now the new CEO of ISB Canada. “2009 will be an exciting year for ISB Canada,” says founder and chairman Darrell Parsons. “With Mr.

Fiorucci, we get a seasoned executive with proven business leadership talent, a street-smart understanding of today’s most pressing human resources and security challenges and an impressive track record in building profitability for a range of Canadian companies. We’re thrilled to welcome him to the team.”

11

KMC on Demand eLearning services is now available through Crawford & Company (Canada) Inc.’s educational services catalogues.

In addition to the classroom courses provided by Crawford Educational Services, KMC (Knowledge Management Center – www.kmcondemand.com) offers claims professionals a full stream of quality online training at basic, intermediate and advanced levels, according to a Crawford release Additionally, KMC on Demand offers a full suite of tools, resources, links and research designed to improve efficiency through onthe-job training. The current KMC on Demand curriculum includes technical property courses, adjuster skill and knowledge courses as well as basic legal concept courses on contract and tort law.

January 2009 Canadian Underwriter

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CU Seminar ad Feb Mar 2009

12/9/08

3:57 PM

Page 1

Putting the pieces together.

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

British Columbia Victoria – Directors’and Officers’Liability Insurance . . . . . . . February 10 Vancouver – Directors’and Officers’Liability Insurance . . . . February 11 Vancouver – Finance for the Non-Financial Professional . . . . March TBA Toronto Fellows’Reception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 5 CIP Society Curling Bonspiel . . . . . . . . . . . . . . . . . . . . . . . . . . . February 25 CIP Society Symposium 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 25

Southwestern Ontario London – 3rd Annual Indoor Volleyball Tournament . . . . . . . . . . February 13 Windsor – London Knights vs Windsor Spitfires . . . . . . . . . . . . . . . . March 8 Winnipeg Lunch and Learn – Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . February 4 Edmonton CIP Society Open House/Instructor and Liaison Appreciation . . February 27 Directors’and Officers’Liability Insurance . . . . . . . . . . . . . . . . . . . . . March 6

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

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

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SCOR celebrated the 2008 Beaujolais Nouveau wine release on Nov. 20 with insurance industry guests at an annual reception held at Toronto’s Rosewater Room.

MINT Canadian Specialty held its second annual holiday open house at its office on King Street in Toronto on Nov. 19. The well-attended event included camaraderie, exceptional catering and entertainment by the fabulous and memorable mentalist ‘Mysterion.’

The Canadian Independent Adjusters’ Association (CIAA) has announced its 2008-09 National Executive: Back row (l-r): Pat Battle, executive director; Fred Plant, AIIC, immediate past president; Randy LaBrash, CIP, CFE, CFEI, treasurer; Wendy Fralick, CIP, director; Marie Gallagher, FCIP, CRM, secretary; John Jones, BA, director.

Front row (l-r): Mary Charman, CIP, second vice president; Reno Daigle, CIP, CLA, FCIAA, president; Patti Kernaghan, FCIP, CRM, first vice president.

Absent: John Smith, director; Carol A. Messervey, CIP, FCIAA, FIFAA, director.

January 2009 Canadian Underwriter 69

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The ARC Group Canada held its third annual seminar and cocktail reception at the St. Andrew’s Club & Conference Centre in Toronto on Nov. 13. Prominent sports industry lawyer Gordon Kirke was a guest speaker at the seminar. Seminar discussions included insights and debates about mediation and negotiation styles, strategies and tactics — including problems and solutions in insurance negotiations. After a successful seminar, delegates continued to discuss mediation tactics among their peers during a cocktail reception.

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Peter Blodgett, CIP Peter Blodgett, CIP was inducted as the 66th President of the Insurance Brokers Association of Ontario (IBAO) at the recent IBAO Convention held at The Fairmont Royal York Hotel in Toronto. Peter assumed his role as President on January 1, 2009.

A graduate of George Brown College with a diploma in Business Administration in Insurance, Peter began his career in 1981 at a direct writer company and soon after joined his father at Darling Insurance in Peterborough, Ontario. The following year, Peter and his wife, Cindy purchased McAllister Insurance in Bobcaygeon.

Eventually, Peter returned to Peterborough to partner with his father at Darling Insurance. In 1997, Peter purchased Darling Insurance and is now the sole owner of the brokerage that has served the people of Peterborough for 80 years. Darling Insurance employs over 50 staff and has locations in Peterborough, Omemee and Bobcaygeon.

Recently, Peter opened a new brokerage, Beyond Insurance, in Whitby.

Community involvement is at the heart of all brokers, and Peter is very involved with many charitable organizations in the Peterborough area. In the past 11 years, Peter has helped local organizations raise over $1 million. Peter is particularly proud of the “Three Loonies on the Street” radio show that he and two friends have been putting on for the past 7 years during Christmas. This event alone has raised over $250,000 for the local food bank.

Peter has served as the President of the Lindsay Brokers Association and the Peterborough Brokers Association.

Peter achieved his Chartered Insurance Professional (CIP) designation in 1987 and has served as a Territory Director for IBAO. During his tenure, he served as Chair of the Education Committee, Convention Committee and the Property Casualty Committee. He continued to serve on the Education Committee and in 2005 served as the Second Vice President on IBAO’s Executive Committee.

In his spare time, Peter enjoys playing golf, baseball and hockey. He is also known to friends and family as a very capable chef and wine connoisseur. Peter and Cindy are also active members of St. Luke’s Anglican Church in Peterborough.

Your Best Insurance Is An Insurance Broker

January 2009 Canadian Underwriter 71

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See all of our Insurance Industry Event Photos Online within the

ONLINE PHOTO GALLERY at canadianunderwriter.ca/gallery

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Canadian Underwriter January 2009

Matson Driscoll & Damico held their MD&D American Thanksgiving Open House on Nov. 27 in Toronto at Montana’s The “M” Lounge. Hundreds of claims professionals and industry friends gathered for the annual event that, as advertised, and unlike the U.S holiday, was not really about ‘football.’

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CARSTAR Automotive Canada’s recent Annual Charity Casino Gala in support of the Canadian Cystic Fibrosis Foundation (CCFF) saw more than 1,000 insurance and vendor partners, employees and friends attend the event. CARSTAR CEO and president Sam Mercanti presented a cheque for Cdn$117,500 to the CCFF, the result of fundraising efforts throughout the year. The event was held on Nov. 21 at Carmen’s Banquet Centre in Hamilton, Ontario and featured a ‘Copacabana’ theme.

Guests were treated to an evening of live entertainment, salsa and samba dancing, exotic foods, tropical delights and great prizes. To date, CARSTAR has raised more than Cdn$1.6 million to fund research and treatment in the fight against cystic fibrosis.

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SCM Insurance Services welcomed clients, branch office staff and industry associates into its corporate office in Toronto on Nov. 27 to celebrate the holiday season with a cocktail and hors d’oeuvres reception.

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Supreme Collision Centre has opened a fourth location, this one in Bolton, Ontario, and the PPG CertifiedFirst Network member is taking extra steps to create a ‘green,’ environmentally-friendly shop and reduce cycle times. Ron Doering, general manager and co-owner of the newest location, said his intention was to do all the right things from the beginning — including employing PPG Canada’s ‘Throughput Performance Solutions’ system.

Marty Reddick, president of Supreme Collision Centre, Chris Reddick, manager of the Aurora location, and their father, Bernie Reddick, founder of Supreme Collision, were on hand to meet and greet insurance and automotive industry guests attending the grand opening of the shop on Nov. 26. Part of the Supreme Collision Centre’s tradition is to give back to the communities in which it does business; to commemorate the opening of the new Bolton location, Marty Reddick and Ron Doering together presented a Cdn$2,500 cheque to the Caledon Community Services organization.

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

FOUND MY JOB AT

Get the job.

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TM

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

January 2009 Canadian Underwriter

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Collision Solutions Network (CSN)’s 2008 conference was held at Blue Mountain, Collingwood, Ontario on Sept. 18-20. The ‘Elevation’ theme focused on the network’s desire to achieve new heights. More than 200 delegates enjoyed a day of golf, a welcome reception, dinner and a number of guest speakers. The speakers included George McCarter, Pearson Dunn Insurance; Angela Carter, Dale Carnegie Business Group; Sam Malatesta, Malatesta Capital Corporation; Glenn Gibson, Crawford & Company International; Irene Bianchi, RSA; Delando Hawthorne, Akzo Nobel Coatings; Larry Lythgoe, ING Insurance; and Frank Terlep, Summit Software Solutions.

See all of our Insurance Industry Event Photos Online within the

ONLINE PHOTO GALLERY at canadianunderwriter.ca/gallery

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Insurance Institute Ontario - CIP Society is pleased to present

Symposium 2009 Survival Strategies – A Bridge Over Troubled Waters: Local, National and Global Perspectives The CIP Society is proud to host its fifth annual industry symposium. This year’s one-day forum, Survival Strategies – A Bridge Over Troubled Waters: Local, National and Global Perspectives, will feature exceptional keynote and seminar speakers.

These industry leaders will provide invaluable insights needed to navigate the ever-changing dynamics of today’s economy.

Ivan Wahl, MBA, Chairman and Chief Executive Officer, Xceed Mortgage Corporation Luncheon Keynote Speaker: Glenn Gibson, CIP, CLA, FCIAA, CFE, CFEI, CFIIc, Global Chief Strategy Officer, Crawford & Co. Reception Keynote Speaker: Dr. Lloyd Atkinson, Ph.D, Global Economic Specialist & Best Selling Author Breakfast Keynote Speaker:

Choose from a variety of interactive, cutting edge workshops to design your own personalized program.

SEMINARS • Economy - The Writing on the Wall: Reading and Heeding the Signs • Business Strategy - Ramp Up or Hunker Down: The Lessons of Change • Technology - Consumer Idealism vs. Company Realism • Customer Service - Differentiating your Business: Creating Compelling Value Propositions

New ‘Interactive Discussions’ A chance to share your views and discuss solutions with other industry professionals.

Discussion 1. Where do we go from here: Challenges and solutions within the Insurance Industry in the economic downturn.

Discussion 2. Recruiting and Retaining your most valuable assets: Your Employees

Wednesday, April 29, 2009 (Registration begins at 7:30 a.m.)

Toronto Board of Trade, First Canadian Place, 4th Floor, Toronto ACCREDITATION: RIBO: Management & Technical Categories for a total of up to 6.0 hours. CPD Credits: 10 points Actual accreditation will depend upon seminars chosen.

REGISTRATION: Due to a limited seating capacity, we ask that you please register by our early bird deadline, Feb. 27, 2009.

To register, contact Tracey Huggins at: (e) gtaevents@insuranceinstitute.ca • (f ) 416-362-8081 • (w) www.insuranceinstitute.ca

Host:

Proud Sponsors:

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INSURANCE INTERNET DIRECTORY

ACCOUNTANTS

COLLISION SERVICES

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

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

ASSOCIATIONS

CONSULTING FIRMS

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

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

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

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EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination www.i-hire.ca

ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com

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

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

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

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

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

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

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

RISK MANAGEMENT INSURANCE SOFTWARE APPLICATIONS Keal Technologies Complete technology solutions for insurance brokers. www.keal.com Tritech Financial Systems Inc. Provider of an enterprise solution to P&C insurance companies and their agents and brokers in Canada and USA www.trifin.com

The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management www.thearcgroup.ca

SPECIALTY INSURANCE Firstbrook Cassie & Anderson Ltd. Your Source For Camp Insurance www.nbrown.com William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

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Law firm Hughes Amys held a pre-holiday season party at Six Steps Restaurant and Lounge in Toronto on Nov. 19. Staff and insurance industry clients and friends braved an evening snowfall to spend quality time together as a warm-up to the coming festive season.

ACE INA Insurance Applied Systems Canada, Inc. The ARC Group Canada Aviva Canada Inc. Best Doctors Blouin, Dunn LLP Canadian Blood Services CARSTAR Automotive Canada Chubb Insurance ClaimsPro Conversense Insurance Services Crawford & Company (Canada) Inc. Collision Solutions Network Cunningham Lindsey Canada Economical Insurance e2Value Inc. FirstOnSite Restoration Giffin Koerth Forensic Engineering & Science Great American Insurance Group The Guarantee Company of North America IBAO i-hire.ca ING Insurance Insurance Institute of Canada Kingsway General Insurance Company McLarens Canada On Side Restoration Services Ltd. PolicyWorks PPG Canada, Inc. Quelmec Insurance Adjusters RIMS 2009 Conference Riverfront Medical Services ServiceMaster WICC WINMAR

7 13 61 43 19 5 77 23 27, 57 39 65 35 31 9 15 41 20, 21 29 49 53 17 79 88 (OBC) 2, 25, 55, 68, 81 37 51 46 47 87 (IBC) 59 73 75 63 58 45 January 2009 Canadian Underwriter 83

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At the Ontario Insurance Adjusters Association (OIAA) Holiday Celebration on Dec. 10, more than 1,000 claims professionals and industry supporters ascended to the top of the CN Tower for a 360degree view of Toronto. OIAA president Laurie Walker welcomed all those who rose to new heights to attend the event. They sampled food from around the world, and a portion of the proceeds from ticket sales were donated to Big Brothers and Big Sisters agencies.

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Blue Goose Ontario Pond hosted the annual Christmas Galabration on Nov. 26 at Brassii Bistro Lounge in Toronto. Approximately 100 Ganders and guests attended an elegant evening of fellowship, dining and dancing in the true spirit of the Christmas season. PLMG/WGQ Max Brugger was presented with a 1971 Blue Goose commemorative edition bottle of Jim Beam Kentucky Bourbon upon his receiving the ‘Gander of the Decade’ award.

After dinner, the Flock enjoyed the amazing sounds of Terri Oliver and her Band Sugga.

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Reduce

cycle time.

WHAT PROGRESSIVE COLLISION REPAIR CENTRES ARE DOING Throughput Performance Solutions by PPG provides collision repair centres with the tools and courses to improve their Quality, Speed and Lower Cost of Operation. How you and your policy holders benefit: • shorter cycle times, which get vehicles through the repair process quicker • streamlined processes that reduce waste and save on costs • expert and guaranteed workmanship you can depend on For more information please contact PPG Customer Service at 1-888-310-4762.

World Leaders In Automotive Finishes ©2007 PPG Industries www.ppgrefinish.com

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MARKETING We’d appreciate the opportunity to talk with you about the future of your business. Call Aileen Thomson (902-494-0402) or Mike Hebb (902-494-0430) to discuss how together we can make it happen.

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