Canadian Underwriter November 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

N O V E M B E R 2 0 09 A Business Information Group Publication #40069240

Suspended Animation Reinsurance 2010 Outlook

Excess Baggage

By Craig Harris

Fire Following Bill 6

By AndrÉ Fredette

Runner Ad revised!

7/24/09

8:45 AM

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© 2009

For information on ACE Canada, visit us at www.ace-ina-canada.com

INSURING PROGRESS®

PROPERTY & CASUALTY

ACCIDENT & HEALTH

LIFE

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VOL. 76, NO.11, NOVEMBER 2009 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

2010 Reinsurance Forecast

28

Canada’s property and casualty reinsurance market appears to be in a state of suspended animation, seized by the tension between primary carriers sustaining low premiums and reinsurers managing prudent capital allocation and expanding claims costs.

FEATURES

20

14 Excess Baggage

Hidden Costs

A recent spate of record-setting personal injury awards have caused reinsurers to re-examine the excess of loss market and potential availability issues.

The harmonized sales tax (HST) proposed for Ontario and B.C. will mean additional costs for insurers, some of which may not be obvious.

BY CRAIG HARRIS

BY CLIFF LEE

44

52

Emergency Endorsement Cash Cow Insurers and brokers have created a Declaration of Emergency endorsement to prevent policies from expiring in the midst of a societal crisis.

Ontario’s accident benefits system is primed for abuse, and auto injury claimants need more incentives to get healthy and exit the system.

BY BRENDA ROSE AND RANDY BUNDUS

BY DONNA FORD

18 Fire Following

48 RIMS Canada Coverage

B.C.’s approach in Bill 6 has created confusion: Are fires following an earthquake covered even when earthquake policies covering shake damage are not purchased?

Risk managers met at the 2009 RIMS Canada Conference to chart a course through the stormy financial waters of 2009-10.

BY ANDRÉ FREDETTE

BY VANESSA MARIGA

24 Sea Change

56 Special Risks

Starting Jan. 1, 2010, foreign insurers writing in Canada marine risks will come under the federal oversight of OSFI.

Independent adjusters who update their knowledge in the niche area of special risks claims make themselves valuable to both insurers and insureds alike.

BY LAURIE LAPALME

BY MICHAEL J. BUZZEO

38 NICC Coverage

60 Rule Change

Industry representatives met in Ottawa to take a collective look under the hood of Canada’s property and casualty insurance industry.

Ontario is changing its Rules of Civil Procedure to help speed up the claims process and potentially lower insurers’ claims costs.

BY VANESSA MARIGA AND DAVID GAMBRILL

BY VAN KRKACHOVSKI, ALANA ABELLS AND TIM MCKEON

November 2009 Canadian Underwriter

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VOL. 76, NO.11, NOVEMBER 2009

PROFILE

12 Casting a Wide Net The incoming president of the Toronto Insurance Conference (TIC), Michael Boire, intends to cast his net widely in search of increased membership for the commercial brokers’ association.

BY VANESSA MARIGA

SPECIAL FOCUS

8

Editorial

10 Marketplace 64 Moves & Views 66 Gallery

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

Art Director Gerald Heydens Art Consultation Pylon.ca

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

Production Manager Gary White (416) 510-6760

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

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

President Bruce Creighton Vice President Alex Papanou

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Canadian Underwriter November 2009

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EDITORIAL

Waiting for Godot

Nearly two years after the deadline passed on the government’s mandated five-year review of the auto insurance product, we now have a reform package nearly identical to the one FSCO presented to the government half a year ago.

David Gambrill, Editor david@canadianunderwriter.ca

8

Canadian Underwriter November 2009

The most frustrating thing about Ontario’s recently announced auto insurance reform package is why it took the Ontario government so long to produce it.

After all, with one particularly notable exception (to be discussed below), the province’s package of 41 reforms to Ontario’s auto insurance system essentially mirrors the 39 recommendations made by the province’s insurance regulator, the Financial Services Commission of Ontario (FSCO).

After spending at least a year in consultation with industry stakeholders, FSCO made its recommendations to politicians way back on Mar. 31, 2009.

At that point, the provincial government said it would do its due diligence and get back to everyone with a reform package by the end of June. This became July, which became the rest of the summer, which became the fall.

By early October, with no reforms in sight, Canada’s federal solvency regulator publicly advised Ontario auto insurers not to pin all of their hopes on reforms and to seek rate relief while they waited.

Lo and behold, Ontario auto insurers asked the province’s regulator for — and received — an average rate increase of 6.2% in 2009 Q3 (when weighted by market share).

Suddenly the public started making noise in the daily papers about rate increases. The public blamed the insurers, of course.

But in the meantime, the Ontario government was dithering on its reforms, which FSCO had pre-

sented six months ago as a way to mitigate insurers’ mounting losses associated with accident benefits claims.

Now here we are in November 2009, nearly two years after the deadline passed on the government’s mandated five-year review of the auto insurance product, and we have a reform package nearly identical to the recommendations FSCO made to the government half a year ago.

What’s up with that?

One reason for the delay seems rooted in a key change the government made to FSCO’s original blueprint.

Initially FSCO recommended, and insurers supported the idea, that the province’s cap on medical and rehabilitation benefits for non-catastrophic injuries be reduced from Cdn$100,000 to Cdn$25,000. (The consumer would then have the option to purchase a higher level of benefits.)

The medical-rehab community responded — rather publicly, in fact — that if people opted to pay for the minimum Cdn$25,000 of coverage, then consumers might potentially run out of insurance money to pay for treatment of non-catastrophic injuries.

These concerns, which FSCO had no doubt already taken into account after its public consultation, seems to have caused the government to backtrack in July.

Three months later, the government came back with a Cdn $50,000 cap on medical/rehab benefits for non-catastrophic injuries.

Akin to FSCO’s recommendation for the Cdn$25,000 cap,

consumers with Cdn$50,000 worth of med/rehab benefits will have an option to buy more coverage, including Cdn$100,000 or Cdn$1 million.

Three months is an awfully long time to resolve a basic issue of quantum. Essentially it took that long for the government to wimp out on going ahead with FSCO’s original proposal, which, frankly, was better for insurers.

At a recent CEO panel during the annual conference of Ontario’s insurance brokers, one insurer commented that the mandated five-year auto insurance review process should be scrapped in favour of something more timely and responsive. We couldn’t agree more.

To this end, perhaps the most encouraging aspect of Ontario’s reform package is the government’s stated intention to establish an advisory committee made up of consumers, insurance industry experts, health care providers and legal representatives to “help advise the government on longer-term reforms.”

According to the government, these longer-term reforms are to include “improved outcome-based treatment protocols for minor injuries” and the “best approach to control medical and rehabilitation costs.”

Hopefully, this advisory committee will be a permanent standing committee. And hopefully it won’t be mandated to meet every five years. Otherwise, if the province’s tardy handling of this past review is any indication, nothing will get done.

When stormy winds blow, let’s put them to good use.

In this tough economic climate, the instinct is to run for shelter. But what if that meant missing out on fresh opportunities?

At Swiss Re, our position is clear. Yes, these are uncertain times, but confronting uncertainty has been our business for over 145 years. We’re here to shoulder the risk and enable our clients and brokers to look beyond the immediate challenges.

Because at Swiss Re, risk is our raw material; what we create is opportunity.

Breeze into www.swissre.com

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Canadian Market NOVA SCOTIA BROKERS “OPTIMISTIC” ABOUT NEGOTIATING PROVINCE’S AUTO INJURY CAP Nova Scotia brokers say they are “optimistic” about negotiating the future of the province’s auto insurance cap with the newly elected Nova Scotia government.

Nova Scotia Premier Darrell Dexter, a personal injury lawyer, promised during his election campaign to scrap the cap and replace it with a deductible.

Insurance Brokers Association of Nova Scotia (IBANS) president Ken Myers contacted Canadian Underwriter after giving a presentation to the 89th annual convention of the Insurance Brokers Association of Ontario (IBAO).

In his presentation to the IBAO, he addressed the state of the cap situation in his home province. Myers told Canadian Underwriter he could envision a scenario in which the cap might be maintained.

“For the cap to stay, we believe the Nova Scotia government is interested in determining which injury definitions are ‘unfair’ and making changes accordingly that would allow those injuries to fall outside the cap,” said Myers. “Doing so could main-

10 Canadian Underwriter November 2009

tain the cap and the product stability that is so important, while introducing some of the necessary changes the Premier feels are required.”

MPI REPORTS DECREASING PROFIT IN FIRST HALF OF 2009 Manitoba Public Insurance (MPI) has reported a profit of Cdn$25.5 million for the first half of fiscal 2009, marking a decrease from the Cdn$40.3 million earned during the same period in 2008.

Claims costs for the sixmonth period ended Aug. 31, 2009 were fairly stable, increasing by Cdn$22.6 million or 5.9% compared with the first half of fiscal 2008.

Regulation ONTARIO REGULATOR APPROVES 6.2% AVERAGE AUTO INSURANCE RATE INCREASE FOR 2009 Q3 FSCO has approved auto insurance rate increases in 2009 Q3 averaging 6.2% when weighted by market share.

State Farm Mutual Automobile Insurance Company, the company with the largest market share to obtain a rate change during the third quarter, was approved for a rate increase of 5.59% Kingsway General Insurance Company obtained the

quarter’s largest rate increase, at 10%.

Apart from State Farm, the Top 5 Ontario auto insurers, ranked by market share, that asked for 2009 Q3 rate changes included: Co-operators General Insurance Company (+4.98%), Wawanesa Mutual Insurance Company (+9.72%), AXA Insurance (Canada): (+7.30%), Farm Mutual Reinsurance Plan Inc. (+8.17%), and Royal & SunAlliance Insurance Company (+4.93%). .

Risk Management CANADIAN INSURERS SHOULD BE DISCLOSING CLIMATE CHANGE INITIATIVES Canadian insurers should make the effort to answer the same eight questions about climate change initiatives that the U.S. regulator requires insurance companies in its jurisdiction to answer annually, said Paul Kovacs, founder and executive director of the Institute for Catastrophic Loss Reduction.

Kovacs spoke at the Autorité des marchés financiers’ Rendez-Vous in Montreal on Oct. 26.

The U.S. regulator asks the following eight questions: • What actions have you taken to assess and reduce emissions?

• How does your risk management strategy address

climate change?

• What actions have you taken to identify and assess climate risks?

• Summarize the climate change risks for your company.

• How will climate change affect your investments?

• What actions have you taken to encourage policyholders?

• What actions have you taken to engage other stakeholders? and • How do tools like models help you manage climate risks?

ARCTIC OCEAN MAY BE FREE OF ICE DURING THE SUMMERS IN THE NEXT 20 YEARS Within the decade, the Arctic Ocean could be nearly free of ice during the summer months.

New data gathered by the Catlin Arctic Survey earlier this year provides further evidence that the sea ice is thinning faster than previously thought, according to Lloyd’s of London.

Data collected by manual drilling on a 450-km route across the northern part of the Beaufort Sea suggests it is nearly exclusively first-year ice. In the past, this area contained older, thicker, multi-year ice.

The ice floes were 1.8 metres on average, as measured by the CAS ice team. This depth is too thin to survive the summer ice melt, according to a Lloyd’s release.

More than 6,000 measure-

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ments were taken on a 73day, three-person trek that began on Mar. 1, 2009.

Loss of arctic sea ice cover could set in motion powerful climate feedbacks that will amplify and accelerate the consequences of global warming, said Dr. Martin Sommerkorn of the WWF International Arctic Programme.

with, a specific climate/change global warming exclusion…

“I think you’re going to see that happening at a reinsurance level first, from [reinsurers]

like Munich Re, Swiss Re — people who have been studying this for a long time. They are going to start limiting what they provide for cover-

age and that will trickle down into the direct sales for primary insurance. That I think is going to happen sooner rather than later.”

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Reinsurance LOOK FOR CLIMATE CHANGE EXCLUSIONS TO APPEAR IN LIABILITY POLICIES IN THE NEAR FUTURE: ENVIRONMENTAL RISK ADVISOR Risks related to climate change are so expansive as to be uninsurable. It is therefore likely that climate change exclusions will be written into general commercial and excess liability insurance policies in the near future, predicts Rodney Taylor, managing director of Aon Environmental Services Group.

Taylor spoke at Environmental Risks, a seminar organized by The ARC Group Canada and held in Toronto.

“All of the kinds of major insurance policies, and that includes liability polices, have no specific exclusions for climate change or global warming,” Taylor noted, adding that the only type of exclusion that comes close is a pollution exclusion.

“I anticipate, and I have actually had policies now issued

www.cunninghamlindsey.com

November 2009 Canadian Underwriter

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PROFILE

Casting a Wider Net Vanessa Mariga Associate Editor

As Michael Boire prepares for his future role as president of the Toronto Insurance Conference, he reflects on the issues at hand — increasing the accessibility of the association, the impending HST and the ongoing battle with banks.

At the age of 24, Michael Boire, now a partner at HKMB Hub and incoming president of the Toronto Insurance Conference (TIC), boarded a train in Montreal destined for Toronto armed with his recently acquired degree from McGill University and not much else. “I thought I would move to Toronto and give it a whirl,” he says. “I graduated from school and took the train

unemployed to Toronto to hit the pavement.”

Boire had just graduated with a Bachelor of Arts, double-majoring in Political Science and Economics. He headed for Canada’s financial services hub and “was basically looking to get a job at that time and start building a career and getting my feet wet.”

A career in insurance was not top-of-mind as he boarded that train, but he landed a job as an adjuster with State Farm insurance. Three years into the job, Boire realized the life of an adjuster wasn’t for him. “It was a good way to learn about policies, and it was a good gang of people to work with, but then I realized after three years that I just wasn’t very good at it,” he chuckles. “So, I began to look for a job on the broker side of the business.”

Boire’s career change resulted in him taking a major salary cut, reflecting an initial learning curve. But the sacrifice was worth it in the long run, he says.

“I was making a decent salary as an adjuster," he says.

"Then I started with a small brokerage firm and it was the

12 Canadian Underwriter November 2009

old philosophy: You eat what you catch.

“Looking back, it was a great learning experience and I’m glad that I did it — but it was a tough six or 12 months.”

As he learned the ins-andouts of being a broker, his career began to pick up steam.

Boire eventually discovered a love for the commercial side of the business. “I worked for a very small firm and the principal would send me to insurance companies for a day or two here and there in my first three months to learn what the heck they were doing,” he says. “It was a great apprenticeship.”

Selling either personal or commercial lines always requires a broker to understand his or her clients’ personal needs, but selling commercial lines includes the added challenge of understanding the industry and the environment in which the client is operating, Boire says. A broker needs to develop an awareness of exactly what that operation does and the inherent risks involved.

“It’s so much fun when you’re learning about a new prospect and what they do,

and coming up with solutions,” he says. “Typically with the best brokers out there, all you have to do is show [the broker] the company Web site [of the prospective client], and [the broker] should be able to come up with eight or nine ideas about what kind of insurance products the company needs and what kind of resources you can bring to the table.”

REACHING OUT Within seven years of joining the brokerage side of the industry, Boire found himself at HKMB Hub, where he is now a partner. As he readies himself to take on the role of TIC president in March 2010, he talks about increasing the accessibility of the organization.

“When I got onto the commercial side of things and started at HKMB about 10 years ago, I had no idea what the TIC was,” he says. “It’s not that the TIC has been doing things incorrectly, but I found it had the reputation — either fairly or unfairly — as being for those people in upper management on both the broker and the company side.”

Boire says he would like to

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PROFILE

explore the idea of holding a networking event in addition to the annual golf tournament and black tie dinner. He would also like to expose more people to TIC’s educational resources.

“I’d like to make the TIC a little more accessible to senior brokers or underwriters at firms, so that they can learn a little bit more of what we do and be able to take advantage of the educational seminars and producer schools that we have on the go,” he says. “I think greater accessibility would be a big benefit to those people who have been in the business for five, six or seven years, and who would like to learn more, build their career and develop more relationships. I think TIC could be a great avenue for that.”

DOWN TO BUSINESS There are certainly plenty of political issues for Boire to sink his teeth into during his term as well.

On July 1, 2010, Ontario’s sales tax will be harmonized with the federal GST, creating a 13% HST. The broker community is rallying to have insurance brokerages exempt

from the HST, and time is of the essence in this effort, says Boire.

“The barn door may have been left open for too long, and the horse may be gone at this stage,” he says. “But we’re still hoping to get insurance brokers exempt, much

the same way that the Canadian Medical Association has approached the ministry to have doctors’ offices exempt.”

TIC has set a deadline of Dec. 1, 2009 to finalize its position and “hopefully have some answers from all of the provincial and federal ministries.”

Boire admits he is buoyed by the recent announcement by federal finance minister Jim Flaherty that banks will no longer be able to retail insurance products through their banking Web sites.

“Insurance brokers are not afraid of the competition of the banks,” Boire says. “We just want a level playing field that basically says banks can’t sell in their branches and they can’t sell online. From the brokers’ perspective and the insurance companies’ perspective, we think competition is great — it’s just a level playing field we want.”

Certainly, the battle isn’t over yet. Boire says the association will continue to monitor banks promoting insurance products in their branches and on their sites, just to ensure that the banks are honouring the intent of the regulation.

“Consumers already can receive numerous quotes online from a variety of sources, but our experience indicates consumers want their insurance provider (broker) to work exclusively for them so that there is no conflict of interest between the client and the carrier.”

November 2009 Canadian Underwriter

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Craig Harris Freelance Writer

As personal injury awards in Canada get higher and higher, reinsurers are examining the excess of loss market and wondering whether the industry as a whole might be hurdling towards availability issues.

As the bar moves higher for personal injury damage awards in Ontario and across the country, primary insurers are not the only ones paying close attention. Excess of loss reinsurers are seeing greater frequency and severity as auto claims regularly enter layers that were once thought strictly “catastrophic.”

The most recent large personal injury award, involving a Beeton, Ontario woman who was severely injured in an Aug. 2, 2002 car accident, is only the latest in a cluster of settlements involving insurance companies. On Sept. 2, Ontario Superior Court Justice Peter Howden awarded Katherine-Paige MacNeil a record-setting Cdn$18.4 million after the car in which she was a back-seat passenger ran a stop sign, crossed a highway and landed in a ditch.

14 Canadian Underwriter November 2009

In April, the Ontario Court of Appeal upheld a Cdn$17-million personal injury award — at the time, the largest in Canadian history — to Rob Marcoccia. In June 2000, Marcoccia suffered massive brain damage when he collided with a furniture truck at an intersection.

“The cluster of awards is getting larger and the amounts are getting higher,” says Vincent Chaignet, assistant vice president of claims for Munich Reinsurance Company of Canada. “These clearly show that future care cost awards are increasing, with no real ceiling in sight. This should have already raised the flag for insurance companies.”

Chaignet notes that excess of loss reinsurers such as Munich Re are involved in virtually all of these types of large awards — particularly in Ontario, where it is not uncommon to see both tort and accident benefits (AB) on the same file.

But he also sees this trend moving to other parts of the country.

“We provide reinsurance for Insurance Corporation of British Columbia (ICBC), which has traditionally not seen the same types of awards as Ontario,” Chaignet says. “Recently, however, there was a case in which an auto accident victim suffered serious injuries, including loss of arm and partially amputated leg. The plaintiff brought in a future care specialist from outside of the

Illustrations by Phillippe Béha/www.i2iart.com

Excess Baggage

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province and came up with a proposed settlement of Cdn$9.1 million. I think that caught ICBC’s claims department and legal counsel, who are very experienced, off guard. The claim was settled for less than this amount, but you are seeing this shift across the country.”

served for Cdn$1-2 million, and then you get an award at $18-million plus — and that is from seven years ago. The length of some of these long-tail auto claims has changed. It used to be four to six years, but it can drag on, and then you face the amount many years later.”

INCREASED FREQUENCY AND SEVERITY

PRICING

For Francis Blumberg, chief agent in Canada for PartnerRe, the auto excess of loss situation has been simmering on the back burner for several years. “PartnerRe’s position on auto excess of loss is markedly different from the majority of reinsurers and the rest of the marketplace,” he says. “We have felt for several years that auto excess is underpriced, particularly in the lower layers where there is higher claims frequency.”

The reinsurer conducted a study of Ontario auto insurance claims trends last summer. It showed that severity and frequency for claims greater than Cdn$2.5 million had increased. For single injury accidents, an insurer’s liability used to be contained mostly within the Cdn$2.5-million range. PartnerRe’s study shows that in recent years, this has moved into the range of between Cdn$3 million and Cdn$4 million. In fact, the report noted, it is not necessary to have multiple claimants for a substantial loss. The report cites a case in which a 36-year-old man was directing his wife into the garage when she accidentally pinned him against the wall, resulting in a Cdn$3.1-million settlement.

The study pinpointed another issue, which is the increasing length of time it is taking to settle serious and permanent injury cases in Ontario. “In past years, six years would have been a maximum duration,” notes Blumberg.

“Nowadays, a claim can still be open and active after 10 or even 12 years.

André Fredette, senior vice president and general manager of CCR Canada, agrees the duration of long-tail claims has become a challenge for reinsurers.

“The problem is these claims can sneak up on you from behind,” he says. “You think you have something properly re-

In terms of excess of loss pricing, reinsurers seem to fall into two classes, ac-

cording to Caroline Kane, senior vice president and chief agent in Canada for Toa Reinsurance Company of America.

“You are really seeing two camps — those who are taking an aggressive approach to low-level auto and those who are charging higher prices,” she says.

“In some cases, a primary company may get generous pricing for low layers and not be able to get pricing on higher layers from the rest of the reinsurance

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market. We have had situations like this happen.”

Chronic underpricing in auto excess can have a negative impact on the marketplace, according to sources. “In terms of primary companies, I would say there is a healthy mix of companies who have higher retentions, such as $5 million,” says Blumberg. “But there are also many companies who are at much lower retentions and who are buying reinsurance at what we consider to be inadequate prices. This isn’t a healthy situation. It reduces the incentive for insurers to address the issues of claims, benefit levels, proper reserving and adequate rates.”

It is now common to see $5 million in excess of $5 million, “and we used to say that would pick up the big hits,” says Chaignet. “But now that is more a medium-sized claim, particularly in Ontario when there is a tort and AB claim on the same file. That means for primary companies any adverse development is hitting them on their bottom line, and that is where a lot of difficulties in underwriting, claims and pricing happen.”

HIGHER RETENTIONS Reinsurers say that higher retention levels show a commitment from primary carriers that they are taking rising claims costs seriously.

“What we want to see is skin in the game from primary insurers,” observes Kane. “That means their retentions should be sufficient based on their capital and surplus. We are seeing that happen with larger insurers, who are moving into limits of $5 million in excess of $5 million. For the smaller insurers, with lower layers, it is important for us to pay attention to 10-year loss development.”

Reinsurers have focused more tightly on adverse loss development and reserving practices at the primary insurer level in recent years. Some are better at reserving than others, according to Fredette.

“Some [primary companies] we deal with are very professional and clear about reserves,” he notes. “Others are

16 Canadian Underwriter November 2009

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in terms of numbers come from auto excess,” he says. “Some of the files we get from insurance companies are, quite literally, two feet thick.”

POTENTIAL AVAILABILITY ISSUES

What we want to see is some skin in the game from primary insurers. That means their retentions should be sufficient based on their capital and surplus. less clear, and sometimes either do step reserving or draw on their bulk reserves to fund specific cases. The problem with that from a reinsurer standpoint is that we cannot price the exposure accurately, and we end up with unprofitable business.”

Reinsurers can do audits of reserving practices, but “it is difficult for us to do that with every company,” Kane says.

“As excess of loss reinsurers, it is important for us to underwrite the claims departments of primary insurers. With two companies writing a similar book of Ontario auto business, one may be very proactive, hiring AB specialists and people with medical backgrounds, ensuring reasonable case workloads and using solid reserving practices. The other may be inundated with claims and backlogged.”

Fredette notes that another challenge of auto excess is the sheer number of claims. “Over 90% of the files we see

Some reinsurers have turned away from writing a high proportion of auto excess business. For example, auto excess accounts for less than 10% of PartnerRe’s overall premiums in Canada — far less than the industry average of 30-40% of reinsurance premiums, according to some estimates. Other reinsurers are willing to take auto excess of loss business, but only when it is blended in with other programs to offset potentially unprofitable business.

Given the importance of Ontario auto in terms of overall industry premiums and the “take all comers” rule, it is not as easy for primary insurance companies to walk away from unprofitable business. However, Fredette says he has seen more insurers trying to “rebalance their portfolios” to include less auto as a proportion of other business. “Of course, if too many insurers do that, we could get an availability problem,” he says.

In a highly regulated system such as Ontario auto, the two main options for insurers are to lobby for product reform or raise rates. If the former does not happen quickly, the latter will have to follow soon enough. Ontario’s insurance regulator recently approved an average 6.2% rate increase in 2009 Q3 for insurers that represent 34% of the market. But for many, the issue is whether the increases are enough to offset the generous benefits and costs built into the product. Another question is whether or not they might halt the trend of increasing personal injury awards.

“For primary companies, the only way to get money back is rate increases, and that becomes a huge issue for regulators and the public,” Chaignet says. “The biggest problem will come if insurers cannot price the product properly, and are willing to walk away from it.

That becomes the political crisis. The question is: how far are we away from that right now?”

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Fire Following B.C.’s Bill 6 Fire coverage following earthquake and terrorist events needs clarification now that B.C. has passed new amendments to update its Insurance Act. André Fredette

Senior Vice President, General Manager, CCR Canada

Bill 6 received its third reading in the B.C. legislature on Oct. 6, 2009, and will shortly come into force. In a news release by the Ministry of Finance of B.C., the Ministry states: “The language of the Insurance Act has also been strengthened to ensure that fire coverage includes fires resulting from any cause, except those that are specifically excluded by regulation.”

As of press deadline, I have not yet seen these “regulations,” so I can only hope they will allow some adjustments to the changes the finance ministry announced above. Specifically, there are two problem areas in extending “fire coverage from any cause.”

18 Canadian Underwriter November 2009

EARTHQUAKE It seems a foregone conclusion that fire coverage will include coverage for fire resulting from any earthquake, whether the insured bought earthquake coverage or not. In the event of an earthquake causing a fire, then the Cdn$500 deductible — the typical fire deductible for homeowner’s coverage — will apply. Also, if someone bought earthquake coverage and their house burned down as a result of a quake, do not think of applying the 5% or 10% earthquake deductible (which might have been the case in the past).You must now only use the fire deductible or be accused of being unfair in comparison to the policyholders who only bought fire cover.

(This will be the case unless the whole insurance industry decides to apply two fire deductibles — one for fire resulting from earthquake and one for all other causes.)

Given the increases that RMS #9 software is causing to an insurer’s aggregate exposures, I am wondering if this legislative change has been factored into the models.

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Another problem is that covering fire only, but not the shake damage, is akin to what happened in New Orleans and Mississippi, where wind damage was covered but not flood. This causes confusion with the insured. Coverage should be all in (Fire + shake) or all out (no coverage).

If a house has both fire and shake damage, would this require a deductible for fire and another one for the shake damage? I think you can see the issues that this could cause.

TERRORISM Most reinsurance contracts carry an absolute terrorism exclusion for terrorism. Many residential and commercial insurance contracts also carry terrorism exclusions. Part of the reason is that terrorist acts are hard to predict and model for, unlike natural catastrophes. But Bill

Covering fire only, but not the shake damage [of an earthquake], is akin to what happened in New Orleans and Mississippi, where wind was covered but not flood.

6 in B.C. could conceivably put the insurance companies on the hook for fire following a terrorist event. This would leave the insurance companies without reinsurance protection for that event, since most reinsurance treaties have a terrorism exclusion.

In most countries where terrorism is covered, there is usually a government backstop or coverage to protect the insurance industry. This is not so in Canada.

Fortunately in Bill 6 under section 28.5 subsection (3) the following is stated: “Unless a contract that includes coverage for loss or damage by fire specifically provides otherwise, the contract does not cover insured property against loss or damage caused by contamination by radioactive material, resulting directly or indirectly from fire, lightning or an explosion described in subsection (1) (b).”

At least insurers will not pick up the damage from a “dirty bomb.” However, other terrorist events that result in fire could conceivably be covered.

The industry does need clarity on the regulations that will or will not apply to such events for both earthquake and terrorism. Uncertainty benefits no one.

We can only hope the government of B.C. is listening.

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Cliff Lee

Senior Manager, KPMG LLP

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Claims systems are generally neither designed nor intended to provide consistent and reliable tax data, so P&C insurers may have a tougher time measuring the effect of the HST on claims settlement costs.

Ever since Ontario announced its intent to harmonize its provincial sales tax with the federal GST to form HST beginning July 1, 2010 (and the announcement shortly thereafter that B.C. would do the same), much has been said and written about the potential effects of the move on the financial services sector — and rightfully so.

Without getting into the intricacies of the GST/HST legislation, the impact of harmonization to the financial services sector will be substantial, due largely to the fact that those who operate in this sector are limited in their ability to

20 Canadian Underwriter November 2009

recover GST/HST paid on their expenses.Therefore, as HST will apply on a broader range of expenses, more unrecoverable tax will be paid by the financial services sector, including the property and casualty industry. For example, office rent paid by an insurer post-harmonization will be subject to 13% HST in Ontario, whereas it was only previously subject to 5% GST pre-harmonization. In many cases, this will become an additional 8% cost on occupancy expenses incurred by insurers. The same can be said of legal, consulting and professional services; marketing services; tech support and call-centre services; and most other services acquired by insurers.

Although the additional tax cost to insurers on the types of expenses mentioned above can be significant, for the most part, these expenses are typically easily identifiable. Therefore, measures can be taken to manage the added costs, or at the very least budget and plan for the added costs.

What will come as a surprise to many insurers are the hidden costs that many have overlooked or have attempted but failed to accurately ascertain.

The remainder of this article will aim to highlight some of these hidden costs.

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RETROACTIVE CLAIMS COSTS An insurer’s outstanding claims reserve is typically established based on information available when a claim is made, rather than when a claim is actually paid out. Consequently, if a claims reserve is established pre-harmonization and the claim is ultimately paid out post-harmonization, an insurer’s claims reserve will likely be understated, since the reserve will have failed to take into consideration the added cost of HST to the settlement of the claim.

For example, a claim for a broken house window is made pre-harmonization. It is expected that the cost of hiring a contractor to supply and install a replacement window will be $100 plus $5 GST, and therefore a claims reserve of $105 is established. Due to the time required to process and settle the claim, the actual replacement of the window occurs post-harmonization and the cost of hiring the contractor now becomes $100 plus $13 HST.The insurer’s claims reserve in such a case would be understated by $8 and have a resultant impact on its financial statements.

Insurers would be wise to review their claims reserves to ensure that the added HST costs are taken into account to avoid this hidden cost. To further exacerbate insurers, what if premiums charged in the past have not been established with the flexibility of the added HST costs taken into account?

SETTLEMENT OF CLAIMS COSTS Most insurers track the specific expenses related to the settlement of claims through a claims system that exists and operates outside of an insurer’s standard accounting system, which tracks an insurer’s day-to-day operating expenses.

This is relevant because an insurer’s accounting system and accounts payable department will typically have systematic processes and controls in place to track applicable taxes, whereas an insurer’s claims system will typically be managed by claims adjusters and not have the same processes and controls in place to track applicable taxes.

Due to the inherent difference in the

22 Canadian Underwriter November 2009

function of accounting systems and claims systems, it will be much easier for an insurer to estimate and assess the financial impact of HST on their operating expenses by reviewing the taxes to which they are currently subject. However, since claims systems are generally not designed or intended to be used to produce consistent and reliable tax data, an insurer will have a much more difficult time estimating and assessing the financial impact of HST on their claims settlement costs.

Insurers will be required to take a much more detailed look at their claims systems in order to determine the financial impact of HST on the insurer’s claims expenses.

For example, if an insurer knows that it pays professional fees pre-harmonization of $100 plus $5 GST based on its accounting systems, it can easily estimate that it will be paying professional fees of $100 plus $13 HST post-harmonization. However, if an insurer’s claims system indicates that claim file ABC was settled for $100, it would be very difficult to know that the claim involved the payment of a taxable expense, such as a broken window, or an exempt expense, such as a medical bill, or a combination

of both. Without this information, it would be difficult to estimate and assess the financial impact of HST to the insurer’s claims expenses.

Insurers will be required to take a much more detailed look at their claims systems in order to determine the financial impact of HST to avoid this hidden cost.

ESTABLISHING PROPER SETTLEMENT PROCEDURES Insurers settle claims with claimants in two common ways. One way is for the insurer to contract with service providers to provide claims-related services. An example would be hiring an auto body shop, where claimants can bring vehicles for claims-related repairs paid for by the insurer. Another way is for the claimant to incur claims-related expenses on its own, such as bringing a vehicle to the claimant’s usual auto service centre for repairs, and then subsequently submit claims-related expenses to the insurer for reimbursement.

There are special GST rules that address these particular settlement procedures typically used by insurers. Depending on the particular settlement procedures used by an insurer, as well as certain other conditions being met, GST costs can be reduced. In light of harmonization occurring on July 1, 2010, failure to consider the use of proper settlement procedures in the relevant circumstances can result in an additional 13% cost on claims settlement expenses.

To avoid this potentially hidden HST cost to insurers, it will be important for insurers to review all of the claims settlement procedures and ensure that HST efficiencies are being attained where possible.

In addition to the above-mentioned concerns, other issues could have an impact on insurers that go beyond the scope of this article. These should be discussed with your tax advisors.

Although HST will most certainly result in additional tax costs to insurers, proper planning and budgeting now can be key in managing and mitigating the impact of HST to insurers and help reduce the surprise of hidden costs.

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e of Change a S Effective Jan. 1, 2010, foreign insurers writing in Canada marine risks will be subject to the federal oversight of the Office of the Superintendent of Financial Institutions (OSFI).

Laurie LaPalme Partner, Cassels Brock & Blackwell LLP

Changes to Part XIII of the Insurance Companies Act (Canada) (ICA) with respect to the “insuring in Canada of risks” have received extensive publicity during the past year. However, another important change being implemented on Jan. 1, 2010 will fundamentally affect how marine insurance is regulated in Canada.

Effective Jan. 1, Section 572 of the ICA will no longer provide foreign insurers with an exemption from licensing for “insurance of risks falling within the class of marine insurance.” Foreign marine insurers will be treated like all other foreign insurers underwriting risks in Canada. Foreign insurers writing in Canada marine risks will be subject to federal oversight by the Office of the Superintendent of Financial Institutions (OSFI).

Domestic insurers have the option to apply for a federal marine license.

Marine insurance has always been a slightly confusing area to regulate due to the lack of a clear definition of what it actually covers. For example, “ocean marine” has traditionally referred to coverage of international shipping activities, and has not required any form of licensing in Canada. However, “Great Lakes marine” has re-

24 Canadian Underwriter November 2009

ferred to shipping that occurs in the Great Lakes and in the St. Lawrence.This type of shipping, as well as any marine activities occurring exclusively on lakes or rivers in Canada, has required a provincial marine license (but not an OSFI license).

Further confusion is created by the use of the term “inland marine.” OSFI does not recognize this class of business, which traditionally refers to transit business occurring on land (such as cargo carried by trucks and railroads).This line of business is regulated as either commercial automobile or property business in Canada.

Finally, the unique nature of marine insurance is recognized by the fact that the purchase of unlicensed marine insurance policies by Canadian residents is exempt from federal excise tax. This exemption has been another recognition of the international nature of marine insurance.

The legal framework for marine insurance contracts and marine liability in Canada is currently governed federally by the Marine Insurance Act and the Marine Liabilities Act. However, neither the Marine Insurance Act nor the Marine Liabilities Act deals with the regulation of marine insurance from either a prudential or market conduct standpoint.

Some provinces — for example, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and Quebec — have enacted specific marine legislation that applies to marine insurance. However, several Supreme Court of Canada decisions, including Triglav Ltd. v.Terrasses Jewellers Ltd. [1983], have recognized the federal government’s legislative authority over marine insurance contracts and liability through its navigation and shipping

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power under the Canadian constitution. As a result, provincial insurance regulators began to question their ability to regulate marine insurers. The provinces were concerned that any decisions they made regarding a marine insurer could be challenged and overturned by the courts. The provinces therefore asked the federal government to assume the responsibility for overseeing the prudential regulation of marine insurers.

Canada’s federal government responded to the provinces’ concerns by proposing new legislation to regulate marine insurers. In the 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework (June 2006), the federal government provided that “it would be in the best interests of consumers of marine insurance and the industry if the federal government were to provide marine insurers with the option to register with the Superintendent of Financial Institutions and be subject to federal prudential oversight, as is currently done for other types of insurance.” It was proposed that relevant sections of the ICA be amended to give insurers that “exclusively” provide marine insurance the option to be subject to federal prudential oversight. The federal government also agreed that the provinces would continue to provide market conduct oversight for the marine insurance industry.

Marine insurers would continue to be required to be provincially licensed for marine insurance activities occurring in a particular province.

Amendments to the ICA regarding marine insurance extended beyond what the federal government’s department of finance originally contemplated when it consulted with the marine industry prior to drafting and enacting the legislation. In summary, the amendments to the ICA are as follows: • Domestic “marine companies” — companies incorporated for the sole purpose of insuring risks within the class of marine insurance — will be required to obtain a commencement order before insuring marine risks in Canada.

26 Canadian Underwriter November 2009

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• Multi-line domestic insurers that insure marine risks have the option to include the class of marine insurance in their order; • Multi-peril foreign insurers that insure or plan to continue to insure in Canada marine risks must apply to OSFI to have their order amended to add the marine class of insurance.

• Mono-line foreign marine insurers must seek a commencement order to establish a branch in Canada.

OSFI indicated in a letter to the industry dated Aug. 15, 2007 that it would presume all marine risks reported on the books of a branch on Dec. 31, 2009 to have been insured in Canada. It is expected that marine risks will remain on the books of the branch of the foreign

Amendments to the ICA regarding marine insurance extended beyond what the department of finance originally contemplated when it consulted with the marine industry. insurer, unless the foreign insurer has satisfied OSFI that, in accordance with the indicia set out in the Part XIII regulations for “insuring in Canada a risk,” some or all of the marine risks were insured outside of Canada. Therefore, foreign marine insurers will be required to vest assets for all marine risks insured in Canada prior to Jan. 1, 2010 and going forward.

A foreign marine insurer will be able, as of Jan. 1, 2010, to write all of its Canadian marine business from outside of Canada on an unlicensed basis. Marine insurers will face a difficult choice.

If they are currently licensed in Canada, they will be required to add marine insurance as a class of business and to vest additional assets in trust to cover the policy liabilities. Foreign marine insurers that are not currently licensed in Canada will need to decide whether to apply for a federal marine insurance licence. There appears to be an inconsistency in the treatment of foreign marine

insurers since Canadian domestic marine insurers are not required to apply for a federal marine licence (it is optional for them).

If a foreign marine insurer decides not to become licensed in Canada, there will be significant limitations on its activities.

Provincial insurance legislation contains a broad definition of “carrying on the business of insurance” that will prohibit unlicensed marine insurers from doing marketing activities, negotiating coverage, delivering policies or collecting premiums in Canada.

It is likely that most foreign marine insurers and reinsurers that currently have a Canadian branch will add marine as a class of business and continue to write it. Canadian marine insurance is an important line of business. Direct written marine premiums for 2008 were Cdn$297.9 million.1 It is also likely some foreign mono-line marine insurers as well as protection and indemnity (P&I) clubs will decide to become licensed in Canada, so that they might be able to conduct a broader range of insurance activities and increase their premiums written in the Canadian market. It is interesting to note that The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) (a P&I club) recently applied to OSFI to establish a Canadian branch.

It is unlikely the additional regulation of marine insurance in Canada will discourage most insurers from continuing to write Canadian marine business.

However, it will be necessary for unlicensed foreign marine insurers to decide whether to become licensed in Canada or continue to write business on an unlicensed basis.

Vincent van Gogh once stated that sailors “know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reason for remaining ashore.”The same statement applies to many marine insurers as they choose to venture into the uncharted waters of Canadian marine insurance regulation and become licensed in Canada.

1 2009 Statistical Issue, Canadian Underwriter, June 2009.

Suspended Animation

28 Canadian Underwriter November 2009

Canadian

Underwriter asked several reinsurance chief agents and CEOs to discuss what they believe to be the single most important issue facing the Canadian reinsurance industry going forward into 2010. The answers presented below (in alphabetical order) vary considerably, but at least one common denominator underlies several of the financial concerns. One theme is characterized here by a state of suspended animation commonly portrayed in the world of cartoons.

One popular cartoon has a coyote chasing a roadrunner off the edge of a cliff.

Several seconds after he runs over the cliff edge, the coyote continues to travel in a straight path, the roadrunner having disappeared from view. Then the coyote stops in mid-air and floats motionless for a few seconds, pondering his predicament. At last, the coyote plummets to the earth like a stone, often making some kind of futile gesture to protect itself from the fall.

The coyote’s state of suspended animation — i.e. hovering between the safety of business-as-usual (chasing the roadrunner) and a state of extreme danger — may well characterize some of the reinsurers’ concerns about the overall state of the insurance industry headed into 2010.

On the one hand, reinsurers see primary insurers continuing to chase market share through reduced premium pricing. On the other hand, reinsurers see the proverbial cliff ahead, representing the danger of escalating claims costs.

Reinsurers are now wondering whether the insurance industry as a whole can stop itself from chasing business over a cliff. And if, as some might argue, the industry has already launched itself over the precipice of safety, how long will the industry be able to hover safely, in a state of suspended animation, before dropping like a stone into the danger zone of high claims costs and runaway inflation?

November 2009 Canadian Underwriter

29

COVER STORY

Suspended Animation

1

Francis Blumberg Chief Agent, PartnerRe

In the casualty business, both the incidence and severity of claims vary significantly. It often takes a long time for the true extent of claims to emerge.

For this reason, Canadian insurers have been seeking and finding protection in the reinsurance market for many years.

Today’s financial market turmoil creates additional implications for longtail lines of business such as casualty. Indeed, even a small increase in inflation can generate a significant increase in the cost of an excess of loss reinsurance program. Inflation creates a compounding effect, disproportionately increasing the cost of the reinsured part of a claim. Taken together with increasing legal costs and the rise in motor casualty awards, the price of casualty covers quickly spiral.

Although predictions are tricky these days, financially strong reinsurers seem to be weathering the current storm; they should continue to have capital to respond to an increasing demand for casualty reinsurance. That said, I would expect them to have less tolerance for under-priced business than in previous years.

2

Christophe Colle Branch Director, Chief Agent, XL Reinsurance America Inc. (Canadian Branch)

Large losses this year have affected property reinsurance treaties, both per risk and per event (catastrophe) treaties.

We have noted an increased frequency of large risk losses in the Canadian market over the past two years. This is not unusual in a long economic downturn. As a result, some insureds have cut back on their maintenance budget.

Larger risks are often subscribed, meaning several risk programs can be hit by one loss resulting in an accumulation loss for reinsurers.

Several small, weather-related events have occurred across the country this summer, leading to sizeable insured losses. Damages related to non-modelled perils like sewage backup in particular, 30 Canadian Underwriter November 2009

1

2

3

On the one side, we have the reinsurance industry…looking to strengthen its technical margins, including prudent usage and allocation of its capital.

On the insurance side of the ledger, competition for market share continues to dominate, resulting in downward pricing trends, with an expectation that reinsurers will follow the primary insurance market’s (mis)fortunes.

But will they? and water-related losses in general, are increasing every year. This reflects the high concentration of sums insured, combined with sewage network issues in several cities. Also, an updated RMS earthquake model will increase PMLs significantly across the return periods,

affecting its output for pure premium and standard deviation.

In casualty, inflation is usually more noticeable in the reinsurance market, since the reinsurance market operates on an excess of loss basis in Canada. With this in mind, we are closely monitoring two types of inflation.

In the foreseeable future, economic inflation is expected as a result of government deficit spending and could increase the magnitude of casualty losses.

Social inflation continues to rise in settlements — mainly for long-term, future care costs — and is escalating to record levels.

3

Carol Desbiens Chief Agent for Canada, Paris Re

The Canadian (re)insurance industry is currently facing significant issues regarding its profitability. Last year, the return on equity (ROE) for the industry dropped to a disappointing 7.5%, the lowest level since 2002. Although the industry is well capitalized, we have seen a decline of 3.8% of its capital base resulting from underwriting losses and investment write-downs. The current trend is not encouraging and the ROE will continue to decline in the near future.

Several factors contribute to this situation: • Rate inadequacy prevailing for the majority of the market (specifically for personal lines), due to the unsustainable auto insurance regime in Ontario that is desperately waiting for an in-depth reform, as well as to intense competition and over-capacity; • Extreme weather causing more frequent and widespread damage across the country; • The recent financial and economic conditions, which have limited the capacity of the insurance industry to increase its income as a result of historical low returns on invested assets and the slowdown in policyholder spending on insurance products.

Reinsurers have not been immunized against these difficult conditions. In addition, premiums assumed by licensed re-

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COVER STORY

Suspended Animation insurers in Canada represented in 2008 only 4.6% of direct written premiums by primary companies. This is less than half of the same ratio observed in 2002.

This steady decline has been caused by the strong performance of primary insurers over the recent recovery period.

It is also a product of the consolidation of the market, which caused insurers to convert proportional treaties into excess of loss treaties and retain more risks by increasing their retentions. Consequently, reinsurers are now assuming more risks because their portfolio is subject to more extreme and volatile exposures.

The reinsurance industry should now, more than ever, focus on disciplined underwriting and deploy its capital only where reasonable expected returns are commensurate with risks. In the long term, this is the only way to protect policyholders, shareholders and employees.

4

André Fredette Vice President, General Manager, Caisse Centrale de Reassurance (CCR)

When asked to name the most important issue facing the Canadian reinsurance market in 2010, the thought of Sisyphus came to mind. Sisyphus was a Greek king cursed to roll a huge boulder up a hill, only to watch it roll down again, condemned by the Gods to repeat this action eternally. The issues facing the reinsurance market are a variation of those we have faced in the past: • Volume: You may have noted that Canadian reinsurers’ volume over the last five years has declined due to abundant capitalization of primary companies. In 2009, with the financial crisis in full bloom, most insurance companies decided to continue to use reinsurance capital and most proportional treaties were renewed.

Now that things have improved somewhat, it is expected that some companies may reduce or withdraw their proportional treaties and book the premium net for themselves.

• Rates: Primary rates have been stalled in spite of more frequent windstorms, 32 Canadian Underwriter November 2009

profitable results during what we hope is the near end of the soft cycle.

4

5

Over the course of the past two years, we have seen five or six judgments handed down in excess of Cdn$10 million — the latest being the 2009 MacNeil v. Bryan decision, which topped Cdn$18 million. water damage claims and large fires. If primary rates do not go up, this puts more pressure on reinsurers to raise their own rates.

• Investments: We are seeing historically low interest rates on insurers’ and reinsurers’ portfolios. If investment income is down, then the difference has to be made up from underwriting income.

• Insurance claims: We have seen a frequency of small to medium cat losses this summer. Most notably, the Alberta storms in the beginning of August will cost the insurance industry an estimated Cdn$400 million. Large fire losses seem to have increased in the last year; whether this is due to cutbacks in maintenance or arson is hard to say. Lastly auto accident benefit claims continued to be a problem for the industry.

To sum up, all of the above issues will challenge reinsurers in maintaining

5

Jean-Jacques Henchoz President & CEO, Swiss Reinsurance Company Canada

Most leading reinsurers have seen capital losses start to bounce back, and the global imbalance of supply and demand has eased to some extent. For 2009, the property and casualty reinsurance industry is heading for a 10% ROE, provided there are no further major loss events. The combined ratio is expected to be in the mid nineties, broadly in line with 2008 results.

In Canada, reinsurers remain concerned about continued downward primary rate pressures, causing further erosion of margins and declining ROEs. They will also further direct their attention to any broadening of underlying terms and conditions. Recent weather events in British Columbia, Alberta and Ontario have contributed to deteriorating profitability, reminding us about the increasing frequency and severity of weather patterns. A large part of these losses were contained within primary insurers’ catastrophe retentions, and therefore some cedents might consider purchasing aggregate, drop-down catastrophe covers this renewal season.

Competitive pressure continues to be the main driver for a decline in primary rates. Many players continue to attempt to maintain — and even increase — their market share, even though investment yields remain modest and individual catastrophic injury claims continue to increase in size.

Personal lines automobile coverage will continue to present a challenge both in Ontario and other jurisdictions.

Current government reviews may results in further legal actions.

In this market environment, most local reinsurers will continue to focus on underwriting discipline and allocate their capital diligently. Overall, capacity for natural catastrophe programs is expected to remain stable, but rates in January 2010 may well be affected by the recent RMS model change.

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Generate knowledge.

Share knowledge.

Common interests are the best basis for sound partnerships. We support our business partners with our extensive and latest know-how – through publications, training courses and complex business tools.

Together, we develop the necessary solutions tailored to the needs of our clients. Exchange of knowledge is what makes partners strong.

Munich Reinsurance Company of Canada www.mroc.com

PREFERRED PARTNER IN RISK

COVER STORY

Suspended Animation In casualty, the potential risk from future inflation will continue to be an important discussion topic for Canadian reinsurers. If inflation accelerates over the next decade, claims inflation may exceed the assumed losses at inception.

From this perspective, inflationary rate adjustments may be warranted.

6

6

7

Kenneth B. Irvin President and CEO, Munich Reinsurance Canada Group

The worldwide banking crisis has largely passed, but what legacy of consequences will it bequeath upon generations to come?

Neither economist nor soothsayer has predicted a steady and healthy economic growth scenario for the globe in the foreseeable future. Instead, we have more doomsday-like prognostications of deflation, stagflation and hyper-inflation. Take your pick. They are all supported by wonderfullycrafted, credibly-supported jargon somberly presented in the Economist, Globe and Mail and their ilk. Somebody will get it right.

In the meantime, we have businesses to run and we must be ready to weather, ideally to prosper from, any economic environment that unfolds.

Prudential management, however boring that may sound, is the order of the day. This involves: • getting the right price today for the risk assumed; • providing solution-oriented customer service that exceeds expectations; • accepting that investment yields will be negligible in the medium-term, while keeping the portfolio nimble enough and the duration short enough to avoid being trampled by runaway inflation; • planning for claims inflation substantially greater than the cost of living; and • managing expenses without cutting the heart out of the organization.

We all have these challenges — reinsurers are no different. Those among us who rise to them best will prevail no matter the future.

34 Canadian Underwriter November 2009

8

Many players continue to attempt to maintain — and even increase — their market share, even though investment yields remain modest and individual catastrophic injury claims continue to increase in size.

7

Henry Klecan Jr. President and CEO, SCOR Canada Reinsurance Company

I don’t believe there is one, single most important issue facing the Canadian reinsurance community. There are several,varying in degrees of importance. They include: • Potential legislative changes in Alberta that would prohibit the exclusion of fire following terrorist acts. These changes may undermine the solvency of insurers due to the uncertainty they create about whether or not the international reinsurance community would respond to fulfill its traditional role of risk mitigator.

• The growing divergence between the insurance and reinsurance markets.

On the one side, we have the reinsurance industry, which operates on a business-to-business (B to B) model, looking to strengthen its technical margins, including prudent usage and allocation of its capital. On the insurance side of the ledger, competition for market share continues to dominate, resulting in downward pricing trends, with an expectation that reinsurers will follow the primary insurance market’s (mis)fortunes. But will they? And if so, until when?

• There is a wave of change under way for reinsurance providers and reinsurance buyers, considering the effect that the financial crisis has had on several reinsurers’ balance sheets. Reinsurance buyers are becoming more cautious when choosing the partners with whom they trade. Will buying decisions continue to be treated as a budget consideration, or more as a strategic consideration?

8

Cam MacDonald Chief Agent for Canada, Transatlantic Reinsurance Company

Emerging trends suggest one of the most important issues facing the Canadian reinsurance industry is the increase in large weather-related losses.

The frequency and intensity of events such as tornados, hail storms and rain storms appear to be on the rise. Climate change data indicates the average temperature over Canada has increased more than one degree Celsius and national precipitation levels have steadily increased.

Warmer springs and summers, along with more moisture in the lower atmosphere, give rise to damaging, weatherrelated events. Heavy rains causing city street flooding, sewer overflows and flash floods are expected to be more prevalent during the next decade. Severe winter storms in the northern hemisphere have nearly doubled since the mid 1970s.

Certain socio-economic factors, including the appreciation of property values and ever-expanding populations, only increase our exposure to these frequent and severe weather-related phenomena. Recent changes to catastrophe

It’s a risky world.

Can you rely on your reinsurer?

Loss Event

Year

Estimated Return Period

9/11 terrorist attacks

2001

1 in 20 years

Stock market decline

2002

1 in 20 years

Casualty reserve increases

2003/4

1 in 25 years

Hurricane Katrina

2005

1 in 40 years

Credit crisis

2007/8

1 in 75 years

It seems like there’s a different major event nearly every year. You need reinsurers who are adept at managing risk across the board, who will provide consistent capacity, and whose capital strength promises an unequivocal ability to pay claims. With that in mind, we’ve provided seven questions to ask your reinsurers. The answers will help you make a clear assessment of whether they deserve your confidence and trust. In a risky world, you need to know who you can rely on.

To see these seven questions, and for more information, go to www.partnerre.com

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6/1/09 2:41:43 PM

COVER STORY

Suspended Animation models suggest future losses may be even larger than originally anticipated.

However, as we become more reliant on computer models for assessing catastrophic risk, it is imperative that we do not become overly reliant on these model-based risk management tools.

Scientific research suggests multiple severe weather-induced events are a genuine concern; they should be contemplated by risk managers when assessing potential aggregate loss scenarios.

Using all available data and every model at our disposal is helpful in understanding expected loss costs. However, let’s not forget to use one of our most important tools, a modicum of common sense.

9

G.S. (Steve) Smith President, Farm Mutual Reinsurance Plan

When I was asked to provide my views on the single biggest issue of concern to reinsurers, loss severity trends immediately jumped to the forefront.

Over the course of the past two years, we have seen five or six judgments handed down in excess of Cdn$10 million — the latest being the 2009 MacNeil v. Bryan decision, which topped Cdn$18 million.

As a result of this concerning trend, reinsurers are facing several significant consequences, many of which have not yet been fully realized.

The first and the most obvious consequence is the cost impact on the insurance system. This includes the financial impact of these decisions cascading down upon primary insurers, the burden of which will inevitably be shared with policyholders, the buying public.

The second issue, which I believe will lead to the most volatility, is the exposure that exists in open claims that have yet to be recognized and properly reserved. I believe a significant premium deficiency exists in the system that will need to be addressed.

Lastly, there is an emerging need to provide higher liability limits as a matter of course. This means convincing policyholders that they will need to further increase their own insurance costs 36 Canadian Underwriter November 2009

9

10

When asked to name the most important issue facing the Canadian reinsurance market in 2010, the thought of Sisyphus [a Greek king cursed by the Gods to perpetually roll a rock up a hill] came to mind.’ for added protection. The standard approach, which is to provide Cdn$1-million limits, is reaching a point at which it is no longer prudent. Reinsurers will need to respond by providing the required casualty capacity, with the new norm being Cdn$5-million or Cdn$10million limits for standard personal lines policies. In concert with the demand for higher limits will be the need to ensure adequate pricing, recognizing this additional exposure.

Unless there is significant reform to the Ontario auto product, including both accident benefits and tort, there isn’t any relief to this escalation in sight.

10

Matt Spensieri Vice President, Chief Agent for Canada, General Reinsurance Corporation

The single most important issue for the reinsurance industry in Canada is adaptability — that is, “managing

change.” Regulators around the globe have been working for some time to harmonize both regulations and their oversight of the financial services industry. This work will continue, and some of the regulatory changes will begin to take effect/have an impact during the next 12-18 months.

It goes without saying that reinsurers will need to understand and adopt Canadian regulatory changes. However, more than ever, they also need to understand changes taking place in other jurisdictions. These changes may influence how some clients assess, manage, report or protect their risks or assets.

We are all witnessing a trend of companies creating the position of “Chief Risk Officer,” either on a local or global basis. In most cases, the main responsibility of the chief risk officer will be to understand the risks that a company has assumed and then determine the most efficient method of ceding the “risk/exposure” that they choose not to retain. This sounds vaguely similar to what companies or the person in charge of ceded reinsurance currently does, but the bar has been elevated.

As changing regulations permit, we will likely see a move to free up capital and use it more effectively on a global basis. This will no doubt impact current local reinsurance buying habits, structures and products. For other than truly Canadian insurers, we may see: • more “parent” assumption of risk; • more pooling of exposures/risk with other jurisdictions; or • more sophisticated products such as CAT bonds or other forms of securitization prior to cessions to reinsurers (and to those not necessarily located here in Canada).

Looking back over the past 30 years, most Canadian-domiciled insurers ceded business to “local” reinsurers, and mostly on a proportional basis.

In pure dollars ceded, over time, the premiums have reduced as the market moved mostly to excess of loss.

Precisely what the future will bring is unknown, but reinsurers will have to adapt to survive.

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ToaRe

STABILITY The Toa Reinsurance Company of America 200 King Street West Suite: 1001, P.O. Box 41 Toronto, Ontario, Canada M5H 3T4 Phone: 416-366-5888 Fax: 416-366-7444 Web Site: www.toare.com Tokyo • Morristown • Toronto • London • Switzerland • Hong Kong • Kuala Lumpur • Singapore • Taiwan

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In Need of

R epair David Gambrill Editor

Vanessa Mariga Associate Editor

Canada’s property and casualty insurance industry is starting to show signs of disrepair.

Discussions at the NICC offered a mechanic’s diagnosis of the problems under the hood.

MSA president Joel Baker kicked of the National Insurance Conference of Canada (NICC) in 2008 by likening the country’s property and casualty industry to a car that wasn’t quite firing on all cylinders. This year, in 2009, his metaphor recalled the image of an old clunker in need of going to the shop for repairs. Baker noted results deteriorating in all lines of business, home, auto and commercial. Certainly, members of the industry had much to discuss when it met at the third annual NICC event held this year at the Ottawa Westin Hotel. Below is a sampling of some of the topics and discussions that occurred at the 2009 NICC.

MARKET (MIS)CONDUCT Administrative Penalties Remedies available to Canadian financial services regulators span the continuum from the extreme (a quasi-criminal charge) to much more 38 Canadian Underwriter November 2009

passive (cease-and-desist orders) — but very few jurisdictions enable regulators to fine companies using administered monetary penalties (AMPs).

Vivian Bercovici, a partner at Heenan Blaikie, said regulators need to make sure AMPs are part of their regulatory tool kits. She spoke as a panel member at the NICC session Market (Mis)Conduct – Shades of Grey.

AMPs would sit in the middle of the regulatory response continuum, she told delegates. They “are a tool or a mechanism that gives regulators the power to assess and penalize a breach with a monetary fine,” she said. “The idea is that the fine is going to be commensurate with the seriousness of the breach.”

Aside from being a revenue generator for the regulator, a fine plays against the reputation of an insurer as well, since “no company wants to be fined in that way,” Bercovici said. “It sends a deterrent message and it has a punitive effect.”

The problem, in Bercovici’s view, is that AMPs are not available in many Canadian jurisdictions, including Ontario.

“An AMP is a very positive tool,” she said. “It functions like a pressure valve. It gives the regulator a flexibility that in this day and age can be a very valuable and helpful tool for the regulator to have in the kit.”

Fines would allow regulators to respond to

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most regulatory breaches in a strong and appropriate manner, she argued.

“I would hope that what we would see is the development across the country of a very strong AMP system, one that is reasonably consistent in terms of approach. The quasi-criminal response would really be reserved for the most egregious of circumstances.”

PART XIII Amendments to Part XIII of the federal Insurance Companies Act might make it easier for a bogus insurer to operate outside the Canadian regulatory regime and yet do business in Canada, said Alan Clark, superintendent of the Financial Institutions Commission of British Columbia (FICOM).

Clark was a panel member at the NICC’s Market (Mis)Conduct session.

“Although I can understand the rationale for the changes [to Part XIII], the changes are a significant issue for my office and most other provincial regulators,” Clark told NICC delegates. “In my opinion, a rule change that moves a federal regime from a location of risk to a location of business makes it easier for bogus insurers to operate outside the Canadian regulatory regime and yet do business in Canada,” he said.

Over the years, FICOM has issued two cease-and-desist orders to bogus insurers. Both of these insurers would have been in compliance with the new regime under the Part XIII changes, Clark said.

B.C. has drafted legislative changes as a reaction to the federal Part XIII amendments, Clark said. “Authorized insurers insuring risks located in B.C. will be required to conduct this business in Canada and, unless an exemption is granted by regulation, require a business authorization,” he said. “At the end of the day, I hope that we will have a modern framework for the placement of insurance with unauthorized insurers through qualified licensed insurance agents and a procurement process that meets certain requirements and conditions.”

The qualifications for licensed agents will likely be similar to the special-

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broker licensing scheme in Alberta, he added.

The requirements and conditions for procuring unauthorized insurance for British Columbians by agents will be established by regulation and will probably be dependent on whether: • the policy was solicited or not; • the availability of insurance in Canada by authorized companies; • any disclosure of the financial strength and credit worthiness of the unauthorized insurer; • disclosure of the capability of the unauthorized insurer’s primary regulator; • specific reporting to FICOM and the policyholder; and

The historical pattern of auto claims ratios follows a ‘U’ shape, with the worst results in the winter. In Ontario, this relationship has disappeared.

• the payment of premium taxes.

“Under B.C. law there will be a significant difference between the federal and provincial legislation and how we determine whether insurers are doing business in our province,” Clark said.

AUTO RATES: TAKING A PROACTIVE APPROACH Ontario auto insurers need to be proactive in setting appropriate rates instead of relying on a vague hope that imminent government reforms will bail out the industry, Canada’s solvency regulator told people attending the NICC. Julie Dickson, superintendent at the Office of the Superintendent of Financial Institutions (OSFI), cited automobile insurance in Ontario as a major area of concern at OSFI. Specifically, she noticed that direct loss ratios have worsened by five points over the past year, “to an unsustainable 85%.”

Also, she observed the historical pattern of automobile claims ratios for any province follows a traditional ‘U’ shape.

In other words, the worst results typically happen during the winter season,

and results improve during the good weather seasons.

“In Ontario, this relationship has disappeared,” Dickson said. “The second quarter this year did not bring any discernable relief, and now certainly suggests that, overall, 2009 will be materially worse than 2008, which itself had an unpalatable loss ratio in the mid-80% range.”

At the time of the conference, OSFI was awaiting Ontario’s widely anticipated changes to the auto insurance product. [The reform package was announced just at press deadline — see editorial in this issue for an immediate reaction to the reforms.] Due to be implemented in early 2010, the reforms are part of the provincial government’s mandated five-year review of the auto insurance product.

In the meantime, Dickson encouraged auto insurers to do more than simply wait passively in the hopes that Ontario makes appropriate changes to the product. “Companies need to be ahead of the curve,” she said. “If you sense early that rates are a problem, you need to be proactive with provincial regulators.

“You cannot keep rates lower than would be required to cover your risks, while continuing to write business, all the while hoping that you will get a rate increase that will even things out down the road. Hope is not cold, hard cash that can be called upon to meet your policy claims.”

PUBLIC SHOULD DEBATE FACILITY RISK-SHARING POOLS There should be a public policy discussion in the near future about doing away with risk-sharing pools, panelists told a seminar about Facility Association (FA) issues at the NICC in Ottawa.

Bob Tisdale, president and CEO of Pembridge Insurance Company, whose subsidiary, Pafco, writes non-standard auto policies (i.e. those that go into risksharing pools), says the risk-sharing pools merely lose money for the insurance industry and ultimately subsidize the premium rates of high-risk drivers.

“I am fairly cynical about the risk-

11/13/09

sharing pools for a number of reasons,” Tisdale said.

For one thing, he said, legislators are not allowing insurance companies to use certain underwriting tools to price highrisk drivers appropriately in the competitive marketplace. As a result, high risks often get shunted off to the risk-sharing pools in the non-standard auto segment, where insurance companies pool their resources to make sure all drivers are able to obtain insurance as mandated by the provincial governments.

But these risk-sharing pools have lost more than Cdn$1 billion for the industry, Tisdale said.

“The first pool was brought into Ontario in 1993,” said Tisdale. “It’s lost Cdn$750 million for the industry since it was [established] in 1993. Alberta comes along with a rate pool that they introduced in October of 2004. The non-grid pool has lost over Cdn$100 milllion. The grid pool, I believe, has lost Cdn$65 million. In New Brunswick, we’ve created a pool for first-chance discount. It’s lost tens of millions of dollars, $14 or $15 million. Now we’ve done the same thing in Nova Scotia, we’ve brought in a pool, and it’s lost millions of dollars. So add it all up, we have subsidized the worst automobile risks in the industry by close to Cdn $1 billion since the first pool was [established].”

For this reason, “some members in our industry say we ought not to call them risk-sharing pools at all, but we ought to call them premium subsidy pools, because that’s what a number of them are,” said panel moderator David Simpson, CEO of Facility Association.

Tisdale gave a couple of real-life examples of how the risk-sharing pools have subsidized high-risk drivers. “When the [Alberta] grid pool was brought in, we had a 19-year-old with an impaired driving conviction,” he said. “He had an accident, he was an impaired driver, and his premium went down by Cdn$4,500 when the grid pool was brought in.

That’s just not sustainable.”

Tisdale said regulators needed to con-

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sider allowing insurers to use more underwriting tools that currently are not allowed to be used in auto lines — credit-based insurance scores, and in some cases, age, for example — so that the competitive marketplace could price these high risks appropriately. If the competitive marketplace handled such risks, then risk-sharing pools would not be around to subsidize high-risk drivers.

Rob Wesseling, immediate past chair of FA, said a public policy discussion around risk-sharing pools is required.

Echoing this sentiment, Doug McIntyre, CEO of Echelon General Insurance Company, rose from the floor and issued a call to action. “We have to enlist the help of the 95% of people who end up paying too much for car insurance to subsidize the 5% of drivers who get a

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subsidy,” said McIntyre. “Politicians not only react to that 5%, but they are also concerned about the clean driver paying Cdn$100 or Cdn$200 paying too much.

We need to inform that 95% that they are paying too much and enlist their help in making sure those 95% of drivers call their MPP. They’ll get listened to, more so than the 5%.”

IFRS CONVERSION 'A STEP BACKWARDS' The implementation of fair value accounting so far has been a “real net negative” for Canadian property and casualty companies, said Doug Hogan, chief financial officer at the Dominion of Canada General Insurance.

Hogan offered a “victim impact statement” during the session Muddy Waters, Shifting Sands — Implications of IFRS and Solvency II. In 2007, Canadian property and casualty companies began to use fair value accounting for financial instruments.

Fair value accounting, also called “mark-to-market,” is a way to measure assets and liabilities that appear on a company’s balance sheet and income statement. In essence, fair value accounting calls on a company to report what an asset or liability is worth in the market today, as opposed to measuring and reporting the value of assets and/ or liabilities only at the point at which they are bought, sold or otherwise realized.

The conversion resulted in two positive developments, Hogan said. These include the fact that “there is now some degree of meaningfulness and consistency on the balance sheet,” and “accounting equity is much more converged with the regulatory concept of capital that Canada has.”

But “in terms of reporting income, so far, fair value accounting has been implemented so that it’s a real net negative,” Hogan said. “It has been a step backwards.”

Under the new regime, the claims discount rate (or the changes in discounting) is buried in claims expense.

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Discount rate changes are based on market yields, which fluctuate, creating volatility in claims expense and operating ratios, he continued.

“You didn’t change what you think you’re going to pay out,” Hogan pointed out. “You didn’t change how you think you’re going to handle the claim. You didn’t change anything that has to do with your expectation of how you will settle this claim.

“But, based on market factors, you now have an unrealized gain or loss from period to period as the discount rate changes.The fact that it is buried in claims expense is absolutely not helpful.”

The implementation of fair value accounting so far has been “a real net negative” for Canada’s property and casualty insurance industry.

Consequently, Hogan added, “if you looked at an income statement of a P&C company in Canada, you really don’t know how the company performed in terms of underwriting or decision-making. Unless there’s good disclosure, you don’t even know how much of that is caused by market distortions.”

GLOBAL REINSURANE OUTLOOK If a major catastrophe loss occurred during today’s market conditions, it’s unlikely the reinsurance industry would be able to raise new capital following the event to the same extent that it did after Hurricanes Katrina, Rita and Wilma in 2005.

During the panel discussion Global Reinsurance – Back to Basics,Tad Montross, president and CEO of Gen Re, said that over the past two or three decades, the barriers to entry into the reinsurance industry have dropped significantly; since then, the industry has seen “tens of billions of dollars, mostly from private equity firms and hedge fund activity that have come in to fund different measures,” he said.

Following Katrina, Rita and Wilma,

many Bermuda-based reinsurers lost an average of between 25% and 30% of their capital, he continued.

“Most of that was re-generated within weeks of the events,” he said. “That postevent capital raising is very unlikely in today’s marketplace.”

The reinsurance industry would likely see capital enter the industry in different formations, he added. “Sidecars have become a very efficient way for capital to come in on a very short duration basis, without having to build up an infrastructure,” Montross said. “Certainly securitization is a form of capital entering the industry, and to the extent that demand is there, I believe we will see an increase in securitization as well.”

Fellow panel member John Berger, president and CEO of Harbor Point Re, added that although it appears the liquidity crisis of 2008 has eased in 2009, the market is still very precarious.

“I’m very uncertain that if big cats had happened last year, when there was a liquidity crisis around the world, there would have been anyone that would have come in. This year, it seems that things have freed up a bit. But I don’t think we are out of the woods on the financial front.”

WHAT DO CONSUMERS WANT? Ontario consumers are looking to the insurance industry for more information and guidance when it comes to understanding how premium prices are derived, and desiring more leadership in areas such as promoting public safety.

Answering the question, 'What Do Consumers Want?' a panel of communications and media representatives at the NICC indicated that consumers generally want the insurance industry to communicate with them clearly, honestly and in a timely manner.

James Daw, a business reporter for the Toronto Star, suggested consumers want to be more involved in the construction of the product.

“Consumers want more information about why things are the way they are,” said Daw. “And they want more infor-

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mation about what could happen to them, depending on how they drive and how they care for their vehicle…It seems to me that if people knew in advance that if they change cars, or move [into new] neighbourhoods, or if they have an accident, they would know just how much their insurance was going to go up.”This, in turn, would give them a better idea of whether or not their premiums were fair, Daw said.

Along similar lines of advanced communication, Lubo Li, senior director at J.D. Power & Associates, said the public would appreciate advance notice of forthcoming rate increases.

Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), reported that Ontarians experienced an average overall rate increase of 5.86% in 2009 Q2. Rates increased in the province by an average of 5.59% in 2008.

Against this backdrop, J.D. Power & Associates published the 2009 Canadian Home and Auto Insurance Customer Satisfaction Study in September. Conducted in August 2008, the survey canvassed the opinions of 7,713 auto insurance policyholders and 5,170 home insurance policyholders.

“Among those [Ontario] customers [who reported a rate increase], 59% did receive advance notice,” Li said. “Among those, their satisfaction absolutely is higher than average, at 717.

“Among those [Ontarians] who did not receive advance notice [of a decrease], their satisfaction nose-dived to a normal 658.

“So clearly the message here is, ‘Yes, a premium increase will bring down satisfaction, customers are going to be frustrated.’ However, they will appreciate an agent or a broker picking up the phone and giving them a call to warn them of the upcoming premium increase, review their policy, review any changes in their family circumstances and discuss premium options to help mitigate the impact.”

Mary Lou O’Reilly, communications director at the Insurance Bureau of Canada (IBC), observed how a little consumer dissatisfaction can go a long way,

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thanks to the broad and immediate reach of the Internet. She pointed to the instance of a Nova Scotia musician, David Carroll, whose guitar was damaged by United Airlines. Carroll videotaped himself singing a ditty by the name of ‘United Breaks Guitars’ and posted the clip on YouTube.

“How much damage did United do to his guitar? I can’t answer that,” said O’Reilly. [Carroll’s Web site says Cdn

$1,200 in repairs had not quite restored his guitar.] “But I can answer the question, ‘How much damage did Dave Carroll do to United?’ Six million people know now that United breaks guitars….That was a PR nightmare for United Airlines. Just imagine what it could be like for our industry.We are just as vulnerable if we don’t treasure and commit to excellence our relationship with consumers.”

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November 2009 Canadian Underwriter

43

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Brenda Rose Vice President, Firstbrook Cassie and Anderson

Randy Bundus Vice President, General Counsel, Corporate Secretary Insurance Bureau of Canada (IBC)

Insurers and brokers have worked together to create a public emergency endorsement intended to protect consumers when their policies are about to lapse during a public crisis.

Each day, bad news and catastrophes fill the headlines. All too often, these disasters are so extensive that large-scale public emergencies are declared. Such events can seldom be entirely prevented, but nonetheless it makes sense to be as prepared as possible to minimize resultant damage. Indeed, in the insurance business, loss avoidance and mitigation are fundamental principles. Recently, Insurance Bureau of Canada (IBC) has been working with industry partners to better protect consumers by building new emergency contingencies right into policy wordings.

Especially since SARS in 2002, and given this year’s appearance of H1N1, there has been increased focus on the need for all individuals and organizations to consider their disaster preparation plans carefully. Beyond pandemics, there are countless possible events, natural or otherwise,

44 Canadian Underwriter November 2009

which could prevent people from conducting their normal business, banking or employment activities for protracted periods.

Two years ago, brokers at the Toronto Insurance Conference started thinking about the potential problems that could arise, specifically within the insurance sector, if the complex connections, relayed communications and interactions upon which our industry depends were widely disrupted because of a civil emergency. Broker colleagues at the Insurance Brokers Association of Canada shared their concerns.

What if, for example, insurance company and brokerage staff were forced to stay away from work during a pandemic outbreak, so that documents were not processed and sent out to consumers in time for renewal dates? What if, following a major earthquake, brokers were unable to communicate with underwriters to confirm new terms for a commercial developer’s program prior to its expiry, potentially leaving millions in property and liability exposures uninsured? And what if a hurricane caused widespread damage to the power grid — and consequently to automation-dependent banking systems — so that consumers were unable to remit premiums prior to payment deadlines, thus triggering automatic cancellations?

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Certainly it seems unfair to penalize clients and jeopardize their financial security because of such events outside of their control. Brokers looking at the possible consequences agreed that policyholders should not suffer because of overall disruptions to business. Indeed, surely in such a situation consumers would also be overwhelmed with other pressing concerns. Perhaps here was an opportunity for the industry to alleviate some of those worries and provide a measure of reassurance and certainty in one area, even in the midst of otherwise uncertain and confusing circumstances.

IBC was the logical forum through which to build industry consensus. Ultimately the IBC board directed an ad hoc committee, including broker representation, to draft an advisory wording for a Declaration of Emergency endorsement.

The intent of the project was to provide relief to consumers by extending expiry dates or temporarily suspending pending cancellations in an emergency situation. The resultant document contains advisory wording, published by IBC as an aid to members, but carrying no obligations. Insurers are free to accept, adapt or reject any part of the text should they choose to incorporate the advisory language into their own policies.

After a discussion of many months, insurers, brokers and reinsurers from across the country eventually reached agreement on the advisory endorsement.

On Sept. 30, the IBC board officially approved the resulting document.

The wording, if used in its advisory form, accomplishes certain objectives: • It extends the term of an expiring policy, or suspends the notice period for a pending cancellation, after the declaration of an emergency.

• The extension is triggered by the declaration by a civil authority, rather than by an otherwise insured occurrence.

• The extension period is tied to the

46 Canadian Underwriter November 2009

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The intent was to provide relief to consumers by extending expiry dates or temporarily suspending pending cancellations in an emergency situation. length of the emergency itself, with a corresponding recovery stage allowed for the resumption of normal business.

There is a maximum total time of 120 days (90 days, plus up to 30 days’ recovery period).

• Cancellations cannot be initiated by insurers during the extension period, since termination notice periods are suspended.

In order for the extension to be triggered, the declared emergency must directly affect the client, the insured premises, the broker or the insurer’s operations. Premium continues to earn at the same rates on a pro-rated basis.

It is just as important to be aware of what the wording does not do:

• It does not create any additional coverage, and cannot reinstate coverage for which the cancellation notice period has already expired.

• It does not extend the indemnity period for any business interruption claims already in progress or that occur during the emergency period.

• No additional time is allowed for claims reporting provisions, unless those limitations are specifically tied to the policy expiration.

• Clients are not prevented from initiating coverage changes themselves, if and when they can communicate with brokers or insurers.

• The endorsement cannot be used with automobile policies, since endorsement forms for auto coverage must be separately approved by provincial governments.

The full endorsement text will be posted on IBC’s members-only Web site, Infosource. It will then be up to insurers to make decisions about officially adding the wording to their own property and casualty policies. In addition, more urgent work needs to be done to approach provincial authorities to create similar safeguards for automobile coverage in all provinces.There will be a continuing role for brokers in those efforts. Brokers also have a role in supporting insurers that choose to implement the wording, and in carrying the message to consumers about their new additional security.

Much as we might like to, we cannot prevent all possible calamities. But as a result of this genuinely cooperative effort, when disaster does strike, the insurance industry has at the very least offered some additional peace of mind.

In the end, the extensions in the advisory Declaration of Emergency endorsement give consumers a little breathing room so that they can attend to the other things that matter to them in times of a public emergency.

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Ri ders on the

Vanessa Mariga Associate Editor

Storm

Risk managers congregated in St. John’s, Newfoundland to share ideas on how to navigate through the current financial market’s choppy waters.

Risk managers from across the country and around the world gathered ‘on the Rock’ in September for the Risk and Insurance Management Society (RIMS) Canada Conference in St. John’s, Newfoundland, to share knowledge on how to navigate the course through these choppy financial waters.

A popular topic for discussion was when and if a hard market will take hold in Canadian commercial lines. Part of those discussions centred around talk about what type of coverages are available and best suited to employers’ needs, and which lines seem to show the first real signs of hardening.

Two areas of coverage received particular attention. The first, employer practice liability (EPL), was described as a viable alternative or add-on to a standard Commercial General Liability (CGL) or Directors & Officers (D&O) policy, but it suffered the weakness of lacking a standard Canadian

48 Canadian Underwriter November 2009

wording.The second, credit risk insurance, once had rock-bottom loss ratios. But now, in the new financial context, loss ratios are skyrocketing and, as a result, so are rates.

EMPLOYER PRACTICE LIABILITY COVERAGE The Risk Management Counsel of Canada delivered a seminar called Employer’s Dream: Insurer’s Nightmare! Employer’s Liability:The Need for a Canadian Model on Sept. 15. Panel speakers identified the need to create a distinct Canadian wording for EPL policies.

EPL policies differ from CGL policies and D&O liability policies, in the sense that EPL policies are not triggered — as are CGL and D&O policies — by occurrences or accidents.

“This is important since, depending on the definition in the policy, ‘event’ may actually include intentional acts such as harassment, discrimination and wrongful dismissal,” said panelist Genevieve Cotnam, partner at Stein Monast in Montreal. “Normally under CGL policies these specific acts would not be covered, as they can be construed as intentional acts with expected results.”

For example, discrimination is covered under EPL policies –— whether it’s failure to promote an employee or the dismissal of an employee.

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As long as there is a violation of a human rights code or the Charter of Human Rights, such a claim will be covered by the EPL policy, even if it is construed to be intentional under the circumstances, Cotnam said.

The EPL policy will cover a former employee; it can also cover a supervisor or an officer, depending on the wording, Cotnam continued. In Quebec, the EPL insurer can be named as a defendant in the statement of claim if it is covering the risk.

“Now, we often think of EPL policy claims as claims being brought by employees who are being harassed,” Cotnam said. “But they can also apply to former employees, retirees of the company, and also by applicants (someone who applied for a job in the company) or, in certain circumstances, to third parties,” she said. “The scope of EPL can be quite large.”

Employment liability programs of this sort are becoming more frequent because people are increasingly becoming aware of their rights and the potential for compensation on these types of claims, said Monika M. L. Zauhar, partner at Cox and Palmer.

So for smaller businesses that are on the lower end of the wage scale and see a higher turnover, they can become quite vulnerable to these types of claims, she added.

On the flip side, larger companies have many more employees and therefore greater potential exposure to liability because of the sheer volume of personnel interactions, Zauhar said. In addition, the type of work environment and work activities also can lead to some significant claims. All in all, EPL insurance policies can make a lot of sense financially for all sizes of companies, she said.

“The main selling point of an EPL policy is that it allows employers to plan ahead and assess their risks and to be able to know that the cost of defending these types of claims, which can be very significant, will be covered at the end of the day,” Zauhar said.

“It’s actually reported that in the United States, the 300 or so reported

50 Canadian Underwriter November 2009

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EPL and wrongful dismissal claims averaged in settlements in excess of US$50,000.”

There is a breadth of issues dealing with EPL policies, said Elizabeth J. Forster, panel member and a partner at Toronto’s Blaney McMurtry. “There are a huge number of different areas of liability that an employer can face,” she said.

“And secondly, we [Canadians] don’t have consistent policy language.”

Panelist Jorge Segovia, partner at Cox and Palmer in St. John’s, noted two main differences between Canada and the United States; each highlights the need for Canadian insurers to approach EPL coverage in a distinct manner, he said.

First, the definition of wrongful dismissal is different in both Canada and the United States. In the United States, a wrongful dismissal claim can arise if the termination involves some form of statutory breach such as discrimination, he said.

Differences between Canada and the United States highlights the need for Canadian insurers to approach EPL coverage in a distinct manner.

In Canada, on the other hand, “wrongful dismissal is simply the fact that an employee that has been terminated has not been given reasonable notice or pay in lieu of notice,” he said. “Because our [Canadian employment] contracts, if it’s not built in, have an implied term requiring the reasonable notice or termination or payment in lieu of notice. So, most Canadian EPL insurers will likely try to remove that coverage.”

The second distinction has to do with punitive damages, he said.

“A lot of EPL claims will involve claims for punitive damages,” he said. “In the U.S., punitive damages are not covered

by EPL policies because the size of the damages being awarded in the U.S. is quite high.”

In contrast, in Canada, where the awards are quite modest, most insurers

agree to cover the damage awards. “It certainly would be useful over time to develop standard wording and clauses such as what we have for our CGL policies,” Segovia said.

CREDIT RISK INSURANCE Loss ratios for credit risk insurance climbed from between 20% and 30% prior to the financial crisis that began in 2008 Q3 to 100% currently, driving a hard market in the line, said Daniel Galvao, senior vice president of financial products at Marsh Canada Ltd. (Toronto).

Galvao spoke at the RIMS Canada Conference as a panel member in the session, Credit Risk: Risk Management Implications on Managing Financial Volatility, Corporate Governance and Counter Party Exposure.

Prior to September 2008, the credit risk market was incredibly soft and ultracompetitive, with plenty of capacity and lots of new product launches, said panelist Todd Pickett, a general agent with Coface Canada (Toronto).

“Fast forward to 2008 Q3, and it’s now a very hard market with record losses,” he said.

“Underwriting is definitely conservative. We have done three major cuts in our capacity in the past 12 to 18 months; each time, we have cut capacity by about 5% across the board, so capacity is definitely shrinking.”

Account receivables premium is derived from sales. Larger sales volume translates into larger premium volume.

In the current economy, sales are slowing, so premium is shrinking — even though rates are increasing, Pickett continued.

Higher reinsurance rates are also a factor in the rate increases, Galvao added.

“The large monoline global players have implemented programs to ‘re-calibrate’ their exposure (through cancellation or reduction of coverage) and adjust premium rates upward,” Galvao wrote in material he distributed to delegates.

“Multi-line insurers typically offer non-cancellable coverage and therefore couldn’t trim down their exposure, however terms are hardening for upcoming renewals.”

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11/13/09

2009 Annual Toronto Fraud Forum

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Milking the ‘Cash Cow’ Ontario’s no-fault accident benefits system offers multiple opportunities for fraud. Claimants need more incentives to get healthy and out of the system.

Donna Ford Freelance Writer

It’s so easy to commit fraud under Ontario’s nofault insurance scheme that we’ve had a stampede of criminals moving to the province, says Dr. Bob Reinhart, currently an SIU investigator with RBC Insurance.

Reinhart, a licensed chiropractor and former DAC assessor, spoke at the Annual Toronto Fraud Forum held on Sept. 30, 2009. The event was organized by the Association of Certified Fraud Examiners and the Canadian Association of Special Investigation Units.

Many people have a vested interest in keeping claimants in the system rather than getting them better — they are choosing “Big Payday” over “Little Payday,” Reinhart said.Those with a vested interest, such as lawyers, paralegals, clinic owners, assessment company owners, treatment providers and assessors, view the Statutory Accident Benefit Schedule (SABS) as a “cash cow,” he added.

Ontario’s Pre-approved Framework (PAF) for the treatment of auto-related injuries was introduced in 2003 to stabilize treatment costs, since

52 Canadian Underwriter November 2009

soft-tissue injuries make up about 90% of MVA injuries, Reinhart said. About 85% of those soft tissue injuries are related to acceleration or deceleration, he added. But, Reinhart said, claimants are not being treated under the PAF because doctors and other health care practitioners are misdiagnosing them and characterizing trivial injuries as major ones.

Some lawyers are advising their clients to refuse treatment under the PAF, and some lawyers are even directing medical professionals to diagnose a WAD III (Whiplash Associated Disorder that involves neurological symptoms), said Reinhart, who has been a chiropractor since 1983. Reinhart said in his personal experience, he has seen only a handful of true WAD IIIs. And yet the current number of WAD III assessments, which kicks treatment out of the PAF, is “outrageous,” he said.

Most people with real neurological issues will be concerned enough to seek care for themselves from a neurologist or other specialist, outside the rehab clinic setting, he said.

Reinhart said the “recipe” for getting people better consists of reassurance, return to normal activity, mobilization/manipulation, education on self-management and exercise (including range-of-motion stretches). Treatment allowed under the PAF is plenty to get most people better, he said. Back symptoms, shoulder pain, arm pain, dizziness, ringing in the ears, painful swallowing, disturbed sleep, double vision,

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depression, extremity numbness and many more symptoms can often be treated under the PAF. Reinhart encouraged claims professionals to understand the natural history of healing to protect themselves against getting bamboozled. About 50% of people are recovered after the acute phase, which is generally the first week.

About 60% are recovered after the subacute phase, which is the four-to-sixweek period. After 12 weeks, about 80% are recovered. After 52 weeks, about 90% are recovered. This leaves only about 10% of people who are chronic.

Why aren’t people getting better within these expected timelines? Aggressive treatment is prolonging recovery and prolonging disability, Reinhart said.

There has to be a special reason to take treatment out of the PAF, but medical practitioners are not following the guidelines, he said.

According to Cecil R. Jaipaul, an insurance consultant and speaker at the fraud forum, the treating chiropractors are recommending that assessments be conducted, and yet many of them do not even read the assessment reports after they are produced. Some assessment reports aren’t sent to the insurer until six months after the request for examination or assessment (OCF 22) is approved, he said. None of this is reasonable, he concluded. Jaipaul questioned whether it is even within a chiropractor’s scope of practice to do in-home assessments (yet many chiropractors are doing them and billing insurers).

Reinhart also believes assessments are a major area of abuse that needs reform.

He said “assessment mills” are providing inappropriate or unnecessary assessments; insurers are being “inundated” with multiple applications for approval in minor cases; “assessments are being submitted without the knowledge or consent of the claimant;” claimants are being pressured to sign multiple copies of Part 9 of the OCF 22; some assessor signatures are being forged; “unqualified providers” are performing assessments; and some assessment companies are owned by the treatment facility, which is an undisclosed conflict of interest.

54 Canadian Underwriter November 2009

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In recommending “a complete overhaul of the SABS,” Reinhart noted that the present SABS are based on the Pollyanna notion that everyone will receive evidence-based care and will be discharged in a timely fashion by honest practitioners.

Insurance fraud is not taken seriously in Canada, Reinhart said. Criminals feel “it’s worth a shot” to take advantage of the accident benefits system, because the chances of getting caught are slim and the consequences, if they get caught, are minimal, he said.

Lawyer Nawaz A. Tahir, a partner at Lerners LLP, gave the audience tips on investigating claims using the Internet.

He recommended sites like www.kijiji.ca to locate stolen goods that are being advertised for sale, such as custom car rims.

Assessments are a major area of abuse that needs reform. Insurers are being “inundated” with multiple applications for approval in minor cases.

Tahir also recommended doing quick searches (even on a break during an examination for discovery) that can be done on Google Maps. These searches can help calculate distances and time to travel between cities when these sorts of space and time issues pop up during examinations for discovery. For example, in one instance, by using the satellite view feature on Google Maps,Tahir was able to show that an elderly victim who was struck by a car while jaywalking could have walked 50 metres to cross safely at a controlled intersection. Tahir also recommended checking out the “more” option on Google, and dropping down on the menu to “even more” to do blog searches, Google alerts and much more.

In addition, Tahir suggested using http://www.media4u.com/, a site that has more than 10,000 decoded medical abbreviations for lay people.

If you are putting together raw information about residual income loss issues,Tahir suggested using www.labourmarketinformation.ca, offered by Service

Canada. The site takes you to wage and salary information and gives detailed information based on the geographic area you specify.

Meredith Jones, a lawyer at Lerners LLP, explored some of Facebook’s investigative potential.

Jones pointed out that Facebook no longer allows users to grant access to everybody, but it is still possible to see a person’s profile picture and a list of his friends by doing a Facebook or Google search, even without permission. You can view someone’s Facebook site if he has added you as a friend. Some users add privacy restrictions and some allow friends of friends to view their site. A search function on Facebook will show if a person has joined any networks — some networks require invitation and some are open. Networks are organized by, for example, city, workplace, school or region. One of the most popular applications on Facebook allows users to upload albums and photos. People also post videos.

Despite privacy settings associated with Facebook, there are still ways to compel access to a Facebook site, Jones said. She referred to several legal decisions.

In Leduc v. Roman [2009], for example, Ontario Superior Court Justice David M. Brown held that a party who maintains a private or limited-access Facebook profile stands in no different position than one who sets up a publicly available profile. He held that parties are obliged to identify and produce any Facebook postings that relate to any matter at issue in an action, irrespective of whether they are posted on a user’s public or private profile.

In Murphy and Perger [2007], Ontario Superior Court Justice Helen A. Rady reasoned that the plaintiff could not have had a serious expectation of privacy given that 366 people had been granted access to her Facebook profile.

The courts have now accepted that information contained on Facebook can be relevant to issues in civil proceedings.

But once a defendant has knowledge of the plaintiff’s Facebook site, an order for the preservation of it is crucial, Jones said.

The timing of the motion will have to be carefully considered, knowing that the plaintiff will stop postings.

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Adjusting

Special Risks Adjusters must educate themselves on an ongoing basis to deal with the burgeoning number of claims related to special risks.

An industry expectation is for insurance adjusters to educate themselves on an ongoing basis to reAssistant Vice President, spond to an expanding and changing market.

Special Risk Division, Special risk claims hold a unique niche within ClaimsPro that market; the skill set and education needed to (an SCM Company) adjust these kinds of claims is even more varied, the experience more precious. A special risks adjuster may draw from his or her past experiences in a variety of industries, including commercial property, manufacturing, petro-chemical, oil and gas, offshore energy and corporate law.

Increasingly, however, experience in these specialized skill sets is diminishing even as the number of special risk claims increases. When things go wrong today, the results can be far more disastrous than ever before.The cost of doing business has escalated year after year.The cost of blunders has grown exponentially. As we move into 2010, just when these specialized skill sets are needed most, we are in the midst of a talent gap.

Michael J.Buzzeo

NICHE RISKS Over the past four years, computer crime, once a barely significant blip on the insurance radar, has increased by 75%, costing more than US$268

56 Canadian Underwriter November 2009

million as of 2008. With every major company on the planet using computers, the potential for future exposures is barely calculable.

The oil and gas industry is an industrial colossus with unprecedented potential for exposure.

The cost of oil spill clean-ups can begin at US$2.07 per litre. A barrel of oil contains 158.99 litres. A larger tanker is able to hold 200 million barrels.You do the math — but when you do that math, don’t make a mistake!

Professionals work in an environment demanding consistently higher standards and accountability. The need for directors and omissions (D&O) and errors and omissions (E&O) insurance was never highlighted as brightly as it was in 2007 and 2008, when the sub-prime lending crisis in the United States sparked an increase in D&O and E&O claims. At last count, these claims have edged into the US$8 billion range.

THE EXPERIENCE GAP The independent adjuster’s ability to meet these needs will enable him or her to remain a valuable ally to both the insurer and the insured. Adjusters must continue to offer their knowledge, experience, education and an ever-evolving understanding of the market. More than at any other time, however, the industry is faced with an extant, if not burgeoning, shortage of adjusters with the necessary skill set to address such needs.

In a crisis mirrored in many industries, insurance companies and their strategic partners are struggling with an increasing talent gap. Experienced

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employees are retiring, leaving new hires armed only with formal education to learn the “street ropes” that turn education into experience. Concurrently, the social trend of career changes happening every five years has people in almost constant motion, applying valuable, yet interchangeable skills from one industry to another.

Some boutique adjusting firms still have the employees required to handle special risk claims, but these firms are limited in their geographic coverage.

The larger independents may cover more ground, but size presents other challenges. For example, when employee bases grow, the trends noted above are magnified. A larger company can equate to a larger group of inexperienced — albeit educated — adjusters working under a group of experienced retirees. In some cases, this tendency has resulted in a homogenization in the industry: the trend is to discourage niche skill sets in favour of flat-rate, easy-to-learn, closethe-file desktop adjusting (i.e. accounts that bring in the volume and that new hires can handle). Unfortunately, this also limits the employee’s ability to grow. The circle is clear.

The industry cannot halt what is happening in the market; the potential for exposures will continue to evolve as it has been over the past 140 years. A change must occur, but it must occur from within. As industry leaders, as strategic partners and as service providers, the onus falls on the independent adjuster to drive that change.

Although independents cannot affect the social trends driving market change, they can leverage strategic partnerships.

ASSESSING AND TRAINING NEW TALENT Communicating changing needs with the schools and institutes offering CIP, FCIP and continuing education courses would be an excellent first step. Annual needs analyses, conferences and seminars with these institutions must become the norm rather than the exception. Schools build their curriculum against needs. They will not learn about those needs through osmosis; they must

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be made aware of the transferable skills so highly valued in the industry, and accredit accordingly. Independents nationwide know what is required.Work with these institutions as partners. Communicate the need and hold them to a standard. In return, offer formalized job placement strategies, involvement in career fairs, internships and other scholastic work programs.

The industry should also concentrate on the talent within its own offices. Grow talent internally! Do not wait for the talent gap to close — close it yourself. Special risk adjusters have an exquisite skill set.

The independent adjuster’s ability to meet the needs of the niche risks market will enable him or her to remain a valuable ally to both the insurer and the insured.

They are technically outstanding, can draw and apply understanding from a variety of industries and are able to continually expand their knowledge base as the need requires. The industry needs to ensure that as soon as a new hire walks in the door: • that new hire is assessed; • internal training picks up at the point at which the colleges and institutes have left off; and • the company learns the new hire’s strengths and expectations.

Immediately outline a clearly communicated, formal training program.These programs should be designed specifically to reflect the new hire’s current ability as well as the industry’s immediate and future needs. Looping clients into the program will help to ensure that the clients, too, have a clear understanding of the investment in dollars and man-hours being made on their behalf.

MENTORINGS Whether new employees are coming in from college or from another industry, whether they are trained by the institute or in-house, their technical skill-set

training is only a base. It must be overlaid with practical experience.The most effective way this can be done is through mentoring. Formalized mentoring programs in all independent adjusting companies will ensure that those people who need the training get the training.The industry can no longer afford to ad hoc its way through fuzzy-lined “buddy-systems.” Mentors must be compensated.

Protégées must have a clear understanding of expectations, timelines and ultimately rewards. Connect new hires with old pros. Leverage in-house employee experience as long as possible; modify retirement packages to allow the passing on of tacit skills that separate the good adjuster from the star. Special risk claims adjustment will be learned on the road, not in a class.

This training, mentoring and communication of expectations will help form some of the defining elements of a larger and equally necessary framework, one that includes a formal career path. All of the training and mentoring an employee absorbs is worthless if the competition looks better across the street.This special risk claims skill set is in demand.The industry needs to grow its own talent — and keep it. Employees should know what to expect and when. Communicate, evaluate, train, mentor and reward.

The very week that new hires walk through the door, they should know exactly where they will be at the end of the month, or the next year or the next 10 years. Put tools into place to support them. Give them compensation that reflects the time they have invested not only in themselves, but also in the company.

Special risks by definition will remain a niche adjusting market. This does not mean, however, that the market is small by any means.The number of exposures will continue to grow and the industry must be prepared to handle the volume.

The current labour crisis has been identified; this is the first step to solving the problem. Independent adjusting companies must now take this opportunity to address the need and direct, rather than react to, the requirements of the ever-changing market.

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Fast Forward Van Krkachovski The Ontario courts have Partner, McCague Peacock Borlack McInnis & Lloyd LLP

re-vamped their Rules of Civil Procedure to help speed up claims resolution.

Alana Abells

Ontario’s Civil Justice Reform Project made extensive amendments to the Rules of Civil Procedure, effective Jan. 1, 2010. Central to the amendments are three guiding principles, namely: access to justice; proportionality; and the culture of litigation.1 In particular, emphasis will be placed on the fact that the time and expense of any proceeding should be proportionate to the amount in dispute and the importance of the issues at stake.2 There are many amendments to the Rules.This paper will focus exclusively on the proposed changes to the rules of summary judgment (Rule 20), discovery (Rules 29.1-31.05), mandatory mediation (Rule 24.1), pre-trial conferences (Rule 50) and the increase in monetary jurisdiction of the Small Claims Court and Simplified Rules. This article will explore some of the cost implications related to these changes.

Associate Lawyer, McCague Peacock Borlack McInnis & Lloyd LLP

Tim McKeon

Associate Lawyer, McCague Peacock Borlack McInnis & Lloyd LLP

SUMMARY JUDGMENT Currently, motions for summary judgment are required to pass a significant threshold test in order to be successful. Succinctly, the moving party

60 Canadian Underwriter November 2009

must show that no genuine issue exists as to the material facts such that a court may grant summary judgment absent concerns of credibility.

On a summary judgment motion, the court will refuse to assess credibility, weigh the evidence or make specific findings of fact. Coupled with the risk of incurring substantial indemnity costs on an unsuccessful motion, summary judgment has become a largely undesirable risk in all but the clearest of cases.

Under the amended Rule 20, judges (not masters) will be able to weigh evidence, evaluate the credibility of a person testifying at a deposition and will be permitted to draw reasonable inferences from the evidence presented. Judges will also be empowered to order that oral evidence be presented without strict time limits. In essence, a mini-trial can be held.The amended rules will eliminate the presumption of substantial indemnity from costs awards following such motions.

Additionally, where a trial is deemed necessary, a judge may specify the material facts that are not in dispute, define the issues to be tried and craft an order directing the expeditious proceeding of the action thereby narrowing the issues and making the process more efficient.

This relaxing of the threshold for summary judgment will likely lead to a significant increase in the number of motions brought for summary judgment. This will, in turn, force the parties in

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the litigation to compile and present their evidence more quickly and will have the overall effect of moving the action forward. More claims will be resolved at an earlier stage (ostensibly reducing costs) and those claims not proper for summary judgment may benefit from the court narrowing and defining the material issues for trial.

These claims will then be better suited to settlement discussions by counsel who presumably better understand the strengths and weaknesses of their cases.

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court will consider whether the time or expense of providing an answer and/or producing a document is unreasonable, whether answering would unduly prejudice a party, whether an order would unduly interfere with the orderly progress of the action and whether the information is readily available in an alternative source.

The rationale of the discovery plan requirement is to reduce or eliminate time wasted on discovery-related disagreements. This will give counsel an opportunity to seek certain productions at an

DISCOVERY The amendments will introduce Rule 29.1, which governs the creation and execution of discovery plans. Parties will now be required to produce an agreed upon discovery plan in order to have recourse to documentary discovery, oral examinations for discovery, inspection of property, medical examination and discovery by written interrogatory under the current Rules 30-35 inclusive. The discovery plan will be required within 60 days of the close of pleadings although this requirement may be extended by consent of all parties.

The discovery plan will include a summary of the intended scope of discovery having regard to relevance, cost and the importance and complexity of the issues in the action.The plan will include dates for service of affidavits of documents and information regarding the timing, costs and manner of production. It will also include the names of people intended to be produced for discovery and an estimate of the likely length and timing of their examinations.

The new rule also encourages the inclusion of any other information that is intended to assist in the expeditious and cost-effective completion of the discovery process. Where parties cannot or will not agree to a discovery plan, the courts will be empowered to refuse any relief requested and to deny costs on any motion arising from discovery.

Designed to create proportionality in discovery, the amendments will also introduce Rule 29.2. Under this rule, a

More claims will be resolved at an earlier stage, ostensibly reducing costs, and claims not proper for summary judgment may benefit from the court narrowing the issues for trial. early stage rather than seeking undertakings at oral examinations. It is hoped that this attempt to focus the scope of discovery will prevent the number of motions that arise from undertakings and refusals.

The discovery plan may also create increased up-front legal costs following the commencement of an action. These costs will hopefully be balanced by swifter resolutions, earlier file closings and a reduction in motions.

The One-Day Rule The amended rules will also introduce Rule 31.05.1, which will limit the time available for the oral examination of a party to a total of seven hours.

Potential benefits of this amendment include a requirement that counsel be better prepared for discovery, the reduction of ‘fishing expeditions’ and repetitive and irrelevant questions. Conversely, it may lead to an increased number of motions requesting additional time for discovery. In addition, a potential for abuse exists, in that the rule does not specify how the timing of the seven hours will be tracked.

An additional amendment intended to narrow the scope of the discovery process is the rewording of Rules 30.02 (1) and (2), 30.03(1)-(4), 31.06(1), 31.06(3)(a), and 34.10(3)(a). In all of these rules, the phrase “relating to any matter at issue” will be changed to “relevant to any matter at issue.” This amendment is intended to narrow the scope of discovery to only those matters that are directly relevant to the issues in the action and to prevent the time and cost wasting effects of ‘fishing expeditions,’ characterized by counsel exploring largely irrelevant matters in the hopes of unearthing relevant facts where none are expected to exist.This will, it is hoped, create an overall more efficient discovery process that encourages an earlier understanding of the facts of the case and encourages earlier settlement of matters proportionate to their complexity.

MEDIATION Currently, mediation is mandatory only in Toronto, Ottawa, or Essex County for actions commenced under the Simplified Rules. Under the amended rules, mediation will become mandatory for all actions commenced after Jan. 1, 2010 in these three geographic areas. Certain exceptions will apply: actions on the Commercial List in Toronto, actions involving estates, trusts, and substitute decision makers and actions commenced under the Construction Lien Act, the Bankruptcy and Insolvency Act and the Class Proceedings Act. Additionally, the parties will have the option of seeking an order exempting them from mandatory mediation.

Mediation will be required within 180 days of the filing of the first defence. For existing actions, the 180-day time limit will begin to run from Jan. 1, 2010.

One of the parties to the action will be required to file a notice with the court providing the mediator’s name and scheduled date of mediation, or the mediator’s report where mediation has already been concluded. Until the filing of this notice, the court will not set the matter down for trial. Parties will be

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CU Seminar ad November 09

10/14/09

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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.

CIP Society Events and Seminars

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Toronto – Trends in Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .December 1 Surrey, BC - New Developments in the Law of Construction . . . . . . . . . . . . .December 2 London - Annual CIP Society Speaker's Luncheon . . . . . . . . . . . . . . . . . . . . .December 3 London - Knights vs Guelph Storm at JLC . . . . . . . . . . . . . . . . . . . . . . . . . . . .December 4 Toronto – Environmental Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .December 10 London - Knights vs Sarnia Sting at JLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .December 31 Toronto – Fellows Night . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 14 St. John’s – Bowling Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 22 Toronto – Annual Trends Breakfast with Phil Cook . . . . . . . . . . . . . . . . . . . . . .January 26

CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country: Québec City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 10 IIO – Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 28 IIO – Kawartha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 5 IIO – Hamilton/Niagara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 18 IIO – Conestoga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 25 Montreal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .March 11

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

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

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allowed to seek an order postponing mediation. In this situation, the court’s priority will be to determine the most expeditious manner to move the matter towards a swift resolution. The amendment will do away with the requirement that the insured attend the mediation; under the amendment, only the attendance of the insurer will be required.

This amendment is intended to streamline the process and promote early settlement of a claim, thereby reducing further litigation costs.

PRE-TRIAL CONFERENCES Pre-trial conferences will become mandatory for all actions in all jurisdictions. A pre-trial will be scheduled by the registrar to be held within 90 days after the action is set down for trial.

Pre-trial briefs will become mandatory and will need to be filed a minimum of five days prior to the pre-trial.

The pre-trial judge will be able to order a timetable for trial preparation as well as a trial date. As well, the judge will be able to make any order deemed necessary to facilitate the proceeding.

Additionally, the parties may consent to having the pre-trial judge preside over the trial of the action as well. This may lead to trials in which the judge is familiar with the case, thereby reducing motions and shortening the duration of the trial. These situations will actuate the overall intentions of the amendments, which are to effect faster resolutions, earlier settlements and a greater overall proportionality between the complexity of a matter and its litigation costs.

JURISDICTION OF THE SMALL CLAIMS COURT As of Jan. 1, 2010, the monetary jurisdiction of the Small Claims Court will be increased from Cdn$10,000 to Cdn$25,000. This increase in jurisdiction is intended to make the justice system more accessible and cost-effective for litigants who may not otherwise be able to afford representation. This is largely due to the fact that Small Claims Court permits representation by agents

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and paralegals whereas the Superior Court of Justice does not.

Interestingly, there has not been any announcement indicating expanded resources for the Small Claims Court.

Therefore, the same number of deputy judges, courtroom facilities and court staff will be asked to process what is likely to be an aggressively expanding case load. In addition, there is likely to be a number of potential claims that will not be issued until Jan. 1, 2010.

This may create a bottleneck situation wherein the early part of 2010 will see a significant increase in the sheer volume and technical complexity of claims brought in Small Claims Court. In sum,

Both the expanded jurisdiction of the Small Claims Court and the application of Simplified Procedure will introduce a greater element of predicatbility in the setting of reserves. the early part of 2010 will likely create a transition period during which the length of time to move a file through settlement conference and on to trial will be significantly longer than exists at present.

Transferring Superior Court Actions Generally, a transfer into Small Claims Court will mean that a successful party’s entitlement to costs will be significantly reduced. Costs in Small Claims Court are capped at 15% of the value of the claim absent unusual, aggravating circumstances. Coupled with the cap on recoverable damages, this may have the desired effect of giving greater predictability to overall litigation costs.

As well, Small Claims Court does not require the production of affidavits of documents or the conduct of examinations for discovery.This will also have the effect of reducing overall litigation costs, particularly in cases in which a party is represented by legal counsel. Of course, there will also be situations where, for

strategic reasons, a party opts to risk higher litigation costs in order to access the higher level of evidentiary certainty that is guaranteed by the Superior Court.

SIMPLIFIED PROCEDURE UNDER RULE 76 As a corollary to the increased jurisdiction of the Small Claims Court, the availability of Simplified Procedure will be increased from Cdn$50,000 to Cdn$100,000. Simplified Procedure offers significant cost and time-saving features, including reduced requirements relating to the content of motion records and early disclosure of documents and potential witnesses. In addition to the jurisdictional changes, each party under simplified procedure will be able to engage in two hours of oral examination for discovery, as opposed to the pre-amendment rules that did not permit any examination for discovery.

As well, affidavits of documents will now be required to disclose every document relevant to any matter in issue.

This has been changed from any document relating to any matter in issue and will have the effect of narrowing the scope of documentary disclosure.

This will, in turn, reduce time and cost expended in the preparation of documentary productions.

NET COST EFFECT Both the expanded jurisdiction of the Small Claims Court and the application of Simplified Procedure will introduce a greater element of predictability in the setting of reserves and the overall cost of litigation. While the process will be more involved in the initial stages of a claim, it is to be hoped that these costs will be offset by a higher rate of earlier settlement and a greater proportionality between the complexity of a given matter and the effort required to effect a resolution.

1 Honorable Coulter A. Osborne, “Civil Justice Reform Project” (2007), at 4 <www.attorneygeneral.jus.gov.on.ca/english/about/pubs/cjrp >.

2 Ibid. at ii.

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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

Rong Chen has joined Allianz Global Corporate & Specialty as executive underwriter of property in Toronto. Chen has worked in the United Kingdom, Asia and Canada and holds extensive experience in property underwriting and risk management.

Chen is a graduate of Norwegian School of Economics and Business Administration in Bergen, Norway. He also has his Fellowship with both the Insurance Institute of Canada and Risk & Insurance Management Society Canada. He is a member of the Executive Committee of Property Casualty Underwriters Club.

2

Tess Romain has been appointed to Insurance Bureau of Canada (IBC)’s Ontario Division as manager of government relations. Romain has a great deal of experience working with the Ontario government, specifically in the offices of the Ministers of Public Infrastructure Renewal and Health. “Tess developed a strong network of government, civil service and stakeholder relationships and successfully assisted in the implementation of policy and legislation,” IBC president Don Forgeron said in the statement. “She executed outreach and media strategies to increase the govern-

64 Canadian Underwriter November 2009

ment’s profile throughout Ontario… Tess is joining IBC at a very exciting time… I know she will be a great asset to the Ontario Division.”

3

Aviva plc has announced a series of executive-level shuffles that will see Igal Mayer (3a) appointed CEO of North America and the current CEO of Canada, Robin Spencer (3b), promoted to chief risk officer (CRO) for the organization. Both appointments are effective Jan. 1, 2010. In his new role, Spencer will return to the United Kingdom, where he will become a member of the executive committee and report to Andrew Moss, Aviva group chief executive. “The changes are about creating a risk function that is fit for the future, embraces best practice and provides a solid foundation for the transition to Solvency II,” Aviva said in a release. As of press time, a new CEO for the Aviva’s Canadian operations has not been appointed.Mayer currently serves as CEO of UK General Insurance. Prior to that, he was the CEO of Aviva’s Canadian business from 2001 to 2007. Mayer will succeed Tom Godlasky, who is expected to retire in March 2010. “Igal has a deep knowledge of the global general insurance market and good experience of man-

1 aging country-wide distribution relationships,” said Moss. “The North American region represents a significant growth opportunity for Aviva over the long-term and Igal’s vision and strong leadership will be a great asset as we take the business to the next stage of its development.”

4

CatastroPhone has launched an emergency response telecommunication service platform that enables “nearly instant” restoration of incoming telephone callhandling and distribution when a company’s systems are damaged, destroyed or rendered inaccessible. The venture is a collaboration between Fibernetics Corp and MMI, both located in Waterloo, Ontario. In a disaster situation, subscribers to CatastroPhone visit or call the Emergency Response Centre hotline to activate the service. The service directs business calls in accordance with the subscribers’ specifications — i.e. to employees’

2 mobile phones, homes, temporary office locations or voicemail boxes. “The CatastroPhone service fills a significant void in telecommunications restoration that until now has escaped the telecommunications industry and left the insurance industry’s intermediaries, claims personnel and clients helpless in their greatest time of need,” the company says.

5

Aviva Canada launched a nation-wide competition that will see Cdn$500,000 contributed to programs offering positive community changes in neighbourhoods across Canada.

The program kick-off was held on Oct. 21 at George Harvey Collegiate Institute in Toronto, where the company donated Cdn$10,000 to build and stock a greenhouse for the school’s breakfast program. Those with an idea for making a positive change in their community can enter the idea online at www.avivacommunityfund.org between Oct. 13 and Nov. 29. Until

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MOVES & VIEWS

3a

3b

Nov. 29, those registered with the Aviva Community Fund can vote on the submitted ideas. After three opening rounds of voting, the 60 mostpopular ideas, as well as two “buzz-worthy” ideas, will move on to the semi-finals. From there, the Top 25 ideas will move on to the judging phase, in which a team of impartial judges will score the ideas and the highest-ranked ideas will be funded. Judging will take place from Dec.17 to Jan. 25.

flects Canada’s position as an extremely important player in the global capital markets and our commitment to increase Fitch’s presence in this region,” the release said.

6

Fitch Ratings has hired Charles Gamm to head its Canadian office. Gamm, who previously led Moody’s structured finance efforts in Canada, will be based in Toronto.

His focus will be working with investors, issuers and arrangers to broaden Fitch’s involvement in rating major corporations and financial institutions, as well as structured finance sectors like asset-backed securities and asset-backed commercial paper, a Fitch release says. “Charles’ addition re-

7

Genmark Insurance Services and Central Underwriters will merge as of Jan. 1, 2010.

The new entity will be called GroupOne Underwriters. It will be a national underwriting agency specializing in hard-to-place, standard and non-standard property and specialty insurance on behalf of a wide range of domestic carriers and Lloyd’s syndicates. Genmark Insurance Services Inc. is a Torontobased wholesale insurance intermediary, specializing in regular and hard-to-place risks, as well as a special lines business that includes a program for restaurants and hospitality businesses involved in liquor sales. Central Underwriters Inc. is a Markham-based company that offers standard commer-

cial business coverages for property and liability.

“GroupOne Underwriters will draw on the strength of their combined 50-plus years of underwriting knowledge and experience, quality service and niche products to continue to offer a wide range of coverage in a timely and competitive manner,” says a joint statement from Genmark and Central.

8

Cunningham Lindsey is the newest national sponsor at the platinum level of the Women in Insurance Cancer Crusade (WICC), representing a commitment of Cdn$45,000 over three years. The company says it has committed to continuing its support of the outstanding efforts this organization has made in the fight against cancer. “The work that WICC and its many volunteers and supporters have accomplished in the crusade to cure cancer is exceptional,” Rob Seal, president and CEO of Cunningham Lindsey, said in a release.

“Through their fundraising and promotional efforts, WICC has made tremendous strides in increasing the awareness for cancer research funding within the P&C industry in Canada and it is our hope that our sponsorship will help them move one step closer to their ultimate goal of making cancer history.”

9

Willis Group Holdings has appointed Joe Seeger as energy practice leader for Willis Canada. In this new role, he will report to Alistair Rivers, CEO of Willis Energy and Marine. Dave Twaddle has been appointed as senior vice president of Willis Energy and will report to Seeger. Willis Energy in Calgary has grown significantly in recent months with the addition of a number of energy industry executives: Donna Holt, Laura Lansdown and Sandra (Sam) Pearson(all vice presidents and account executives); account manager Nicole Murphy; executive assistant Amy Cline and technical assistant Robert Carter.

10

Keal Technology launched a premium finance software, premiumXP, that is integrated with Keal’s flagship application, sigXP. Using the Web interface, with or without sigXP integration, brokers can generate, save, and review quotes; issue contracts; review contracts; change account information including address, policy number, and EFT details; and modify insureds payment information as needed. Once submitted by the broker(s), the finance agent(s) review, decline, or commit the business in seconds.

November 2009 Canadian Underwriter

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Aon Risk Services welcomed delegates to the RIMS Canada Conference with its Welcome Brunch. Later that evening, at the official Opening Reception, sponsored by Allianz Global Risks and Integro Insurance Brokers, guests mingled and listened to words of welcome from RIMS president Joe Restoule, conference co-chairs Betty Clarke and Marilyn Leonard and St. Johnâ&#x20AC;&#x2122;s mayor Dennis Oâ&#x20AC;&#x2122;Keefe.

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GALLERY

APPOINTMENT

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

David Koa

Michael Holden, President & CEO of McLarens Canada, is pleased to announce the appointment of David Koa as Executive Vice President, Sales & Marketing for McLarens Canada.

Mr. Koa brings over 25 years experience in senior management roles and has developed and managed very successful sales and marketing divisions for a number of national businesses.

Mr Koa will also be responsible for the sales and marketing of Granite Global Solutions Inc. of which McLarens Canada is one of six successful member companies.

McLarens Canada is a national adjusting company delivering innovative claims solutions to our valued clientele. We have tripled our size in the last three years and plan to accelerate our strategic growth pattern in the near future.

Global Claims Management

Professionals on your Team

TM

www.mclarens.ca

November 2009 Canadian Underwriter

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

Roughly 75 delegates of the Risk and Insurance Management Society (RIMS) Canada Conference laced up their running shoes for the William H. McGannon Foundation’s annual Fun Run-Walk early on Sunday, Sept. 13. Sponsored

by FM Global and the RIMS Canada Council, the event raised more than Cdn$2,200 for the foundation, which provides learning and networking opportunities for students considering a career in risk management. Athena Lewarne clocked in the quickest time for women (26:13), and Helen Sami earned top honours for women masters (38:13).

Ante Petricevic was the quickest of the men (19:12) and David Buzzeo for men masters (21:28). Over the past year, despite the financial crisis, the McGannon Foundation raised Cdn$65,000, mostly through perpetual donors, said Joe Restoule, McGannon’s president and RIMS president.

“It’s remarkable that while these donors’ balance sheets were under attack during the past year, they found some funds to give us a bit of encouragement,” Restoule said.

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

General Rick Hillier was the keynote speaker at the opening ceremonies of the RIMS Canada Conference. In a speech that drew a lengthy standing ovation, Hillier shared stories that addressed Canadaâ&#x20AC;&#x2122;s military role in the world, all the while demonstrating his trademark Newfoundland charm and humour.

He recounted motivating soldiers under his command by appealing to their sense of pride in being Canadian. He emphasized the importance of strong and courageous leadership in war and life.

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Seventy companies and organizations filled the Exhibit Hall at the RIMS Canada Conference in St. Johnâ&#x20AC;&#x2122;s. Delegates perused the marketplace, networked with colleagues and checked out the latest company offerings.

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

Catlin Canada had everyoneâ&#x20AC;&#x2122;s tails flipping during its Under the Sea party at the Martini Bar during the RIMS Canada Conference. Mermaids and mermen mixed, mingled and danced the night away.

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

ARC Group Canada hosted a reception at the RIMS Canada Conference in St. John’s at Blue on Water.

Guests were treated to a live band featuring one of Newfoundland’s very own unique instruments, 'the ugly stick.' This traditional Newfoundland musical instrument is fashioned out of household and tool shed items — typically a mop handle with bottle caps, tin cans, small bells and other noise makers. The instrument is played with a drum stick and has a distinctive sound.

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The RIMS Canada Council (RCC) met to discuss the progress of its Strategic Plan.

The plan includes developing a risk management standard and a strong, broad membership base; gaining recognition that RIMS is the pre-eminent risk management organization in Canada; advancing technology in the field and increasing offerings of programs and services to members. This year marks the final year of Kim Hunton’s term as RCC chair. Tino Brambilla, a member of the Manitoba chapter, will assume the role in 2010.

The Ontario chapter of the Risk and Insurance Management Society (RIMS) named Janice McGraw, manager of risk management and insurance at McGill University in Montreal, as the 2009 recipient of the Donald M. Stuart Award. McGraw has 25 years of experience in the field of risk management. She has continued to contribute to

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the advancement of the profession in both the community and her workplace, Steve Pottle, president of ORIMS said. Since 1987, she has “willingly shared her passion and enthusiasm” by serving on several committees of RIMS, the RIMS Canada Council and the Quebec Risk and Insurance Association, Pottle said. She has been vocal in the creation of what is now known as the RIMS Fellow designation. “Janice is one of the most enthusiastic, kind, generous individuals in our industry,” Pottle said. “In an industry that relies on the relationships we build to support and achieve our goals and objectives, it is a testament to the character of someone like Janice when we see the strength of these business relationships and how they breed friendship as well.”

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FCIPs and guests golfed at the annual CIP Society GTA Annual Fellows’ Golf Tournament at DiamondBack Golf Club in Richmond Hill on Sept. 21. Mother Nature cooperated by delaying the rain until attendees were enjoying cocktails and hors d’oeuvres in the dining room. Proceeds from the event were donated to Kids Can Free the Children and Me to We.

ADVERTISERS’ INDEX ACE INA Insurance Applied Systems Canada Inc. Canadian Underwriter Insurance Media Group Chubb Insurance Claimspro – an SCM Company CNA Cunningham Lindsey Canada The Economical Insurance Group FM Global Forensic Investigations Canada – an SCM Company The Guarantee Company of North America Great American Insurance Group 25 Guy Carpenter Hannover Re i-hire.ca instouch.com Insurance Institute of Canada Intact Insurance Johnson Inc. McLarens Canada Munich Reinsurance Company of Canada ORIMS PartnerRe PolicyWorks SCOR Canada Reinsurance Company Swiss Reinsurance Company Canada TIWA TOA Re WICC XL Insurance

2 23 55 45, 83 (IBC) 43 19 11 21 4, 5 77 15 7 41 57 53 27, 39, 62, 68 84 (OBC) 69 49, 67 33 81 35 47 31 9 79 37 51 17

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Delegates of the 2009 National Insurance Conference of Canada (NICC), held in Ottawa, Ontario, enjoyed the opportunity to share drinks and discussion during the opening night of the conference and before enjoying the gala dinner. Over $18,500 was raised for WICC, the NICC chartiy of choice.

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FORENSIC INVESTIGATIONS CANADA

Lori Corrigan CIP, joins FIC as Ontario’s Director of Operations There’s excellence, and then there’s exceptional. Forensic Investigations Canada (FIC) is pleased to secure exceptional industry leader Lori Corrigan as its new Director of Operations.

Ms. Corrigan will oversee operations for all Ontario branches and play a critical role in FIC’s vision to become Canada’s leading fraud management and corporate investigations services provider. Her creative perspective on client engagement reinforces FIC’s reputation for being adaptive and responsive, while her insight and expertise builds on FIC’s integrated team approach, ultimately enhancing the customer experience.

Ms. Corrigan has built an accomplished 25-year career as a claims professional in the insurance industry. She led the York Fire & Casualty Insurance Company as its COO, and has held senior executive roles at Pearson-Dunn Insurance and the Wellington Insurance Company. A thought-leader in her field, Ms. Corrigan has served as a keynote speaker for the Toronto Insurance Women’s Association and for the Insurance Brokers Association of Hamilton.

FIC welcomes Ms. Corrigan and looks forward to working with this exceptional leader.

Forensic Investigations Canada is a leading national provider of investigation services specializing in various types of insurance fraud and corporate loss prevention.

scm-fic.com

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2010Winter Wine & Cheese Reception Join us to celebrate TIWA’s 50th Anniversary at Atlantis Pavilions – Ontario Place Thursday February 4, 2010 5:00 pm – 8:00 pm Plan today to attend the premier social networking event of the New Year – the Toronto Insurance Women’s Association (TIWA) 2010 Wine & Cheese (…a proud member of the Canadian Association of Insurance Women) Tickets are only available through advance purchase and will not be sold at the door.

TICKETS: $55 each Order Form found at: www.tiwa.org Or for ticket Inquiries contact Mary: mary@asgerpedersen.com or by phone at 416-264-3295 x 223 Deadline for ticket orders is noon on Thursday, February 2, 2010

Door Prizes and Sponsorship Welcome!

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The third annual National Insurance Conference of Canada (NICC) featured speakers such as former prime minister of Canada Jean Chretien, conference master of ceremonies Gregg Hanson and OSFI superintendent Julie Dickson, to name a few. Speakers offered poignant insights on the current trends and state of Canadaâ&#x20AC;&#x2122;s property and casualty industry.

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Welcome to our series of “Did You Know” facts and figures about ORIMS and its past. What better way to pay tribute to our history than to begin this series with facts about our most famous founding member and the Chapter’s 2nd President – the late Don Stuart?

••••••••••••••••••••••••••••••••••••••••••

Did you know that: • Don’s background at Canada Packers included work in the chemical lab, safety, and sorting insurance forms and that he was appointed as the insurance manager in 1955!

You probably know that the highest RIMS award in Canada is named after Don. But did you know that: • It was created by ORIMS in 1979 to honour Don for his contributions to risk management in Canada • Don won the Richard Bland Award in 1975 – given by the Kansas City Chapter to a deputy RIMS member who has made a significant contribution in the regulatory or legislative area • Don won the Harry & Dorothy Goodell Award, RIMS highest award for lifetime achievement in the field in 2001 Did you know about the contributions he made to RIMS Canada after his retirement, including: • Working as the coordinator of RIMS’ Canadian activities from 1979 to 1983 • Being instrumental in doubling the number of Canadian chapters from five to ten • Being the driving force behind establishing RIMSCAN, a report on Canadian-specific news and activities Stay ‘tuned’ for more interesting facts about our founders and ORIMS members and leaders throughout our 50 years.

www.ontario.rims.org

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Guy Carpenter and the Mead family hosted an event for Ken Mead to celebrate his 75th birthday and his 34-year contribution to the firm. The birthday party was held at The Sutton Place Hotel on Sept. 29. Almost 200 of Kenâ&#x20AC;&#x2122;s friends and former colleagues from the reinsurance industry attended. Ken remains active in a consulting role with Guy Carpenter.

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HOME • AUTO • BUSINESS intactinsurance.com Certain conditions, restrictions and exclusions may apply. Services are not available in Saskatchewan or Newfoundland. The BIP logo is a registered trademark of the Insurance Brokers Association of Canada (IBAC) used with permission. All other trademarks are properties of Intact Financial Corporation used under license. © 2009, Intact Insurance Company. All rights reserved.

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