Canadian Underwriter April 2010

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

APR IL 2 0 1 0 A Business Information Group Publication #40069240

Territorial Defence

BY VANESSA MARIGA

Gearing Up for Auto Reform

BY PAUL TAYLOR

Anatomy of a Liar

BY DONNA FORD

“The amount paid to me for my now wrecked car

was absolutely fair.”

“I couldn’t keep up with the speed at which the claim

was handled.”

)0.& t "650 t #64*/&44 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. © 2010, Intact Insurance Company. All rights reserved.

“Every aspect of the claim process

was proactive.”

Colin, Customer

When Colin wrote us a letter to say thanks, he actually wrote us an ad.

Thanks Colin. We’re really happy that you’re happy.

After all, delivering a claims experience that is fair, easy and respectful is what we’re here to do, every day.

Because we believe insurance isn’t about things, it’s about people. And because as a customer you always come first, it’s only fitting that you have the last word.

“Customer delight is the goal of every service organization.

Intact Insurance achieved that goal because of the people that delivered on every aspect of what was promised.

Well done.”

VOL. 77, NO.4, APRIL 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY FEATURES

Territorial Defence

18 Gearing Up Ontario’s broker association is gearing up for a travelling road show to educate brokers about the province’s proposed new auto insurance product.

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Canada’s independent brokers continue to be engaged in a perpetual territorial struggle with banks and credit unions.

Over the past year, brokers have gained ground on some issues, lost ground in others.

As the tug of war sways to and fro, the issues have morphed into somewhat different forms.

BY VANESSA MARIGA

BY PAUL TAYLOR

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57

14 IBC on Auto Reforms 54 Brokers v. Underwriters Ontario’s latest round of auto Who in fact has “the best job in insurance reforms might in fact the world?” be the most fundamental yet. BY VANESSA MARIGA

BY RALPH PALUMBO

60 Swiss Re Breakfast 24 Question of Principles Self-inflicted Wounds

Bridge Financing

As harsh as it sounds, the industry needs to scrap the auto policy in Ontario today and begin again from scratch.

Premium financing is an important tool for brokers to grow their business, but it’s important to avoid potential pitfalls in its use.

BY FRED DE FRANCESCO

BY RENEE DUREPOS

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The Insurance Bureau of Canada (IBC) has issued principles to guide insurers using credit scoring.

BY DAVID GAMBRILL

Anatomy of a Liar

Brokers need to capitalize on word-of-mouth referrals prevalent in today’s electronic world of social networking.

Speech patterns and body language will often indicate whether a person is presenting a false reality to insurance claims investigators.

BY SAMANTHA SAMPSON

BY DONNA FORD

4

Canadian Underwriter April 2010

BY DAVID GAMBRILL AND VANESSA MARIGA

32 Lessons for Brokers

69 Settling Scores

A consultant’s view of what brokers do and how they can improve their business.

Are Pierringer and Mary Carter agreements still effective tools for minimizing litigation risk?

BY ROBERT HARDER

BY ALEXIS MOULTON

46 Clarity of Impairment e-Word

Canada’s P&C industry is portrayed as teetering under the weight of poor auto results, taxes and regulatory costs.

Historically, the determination of catastrophic impairment in Ontario has been clear, consistent and scientifically rigorous.

BY RONALD D. KAPLAN AND BRIAN E. LEVITT

UNDERSTANDING HOW FM GLOBAL IS DIFFERENT IS AKIN TO SEEING THE

An unexpected disaster can jeopardize your business. So if you remember just one thing about FM Global, here it is: FM Global acts on the belief that the majority of loss is preventable. That’s why we link our underwriting to loss prevention engineering.

In fact, for 175 years we’ve been building a reservoir of rich data framed by engineering and research to anticipate future risk and protect our clients. It’s an approach that helps us identify, minimize and assume risk—and only FM Global does it.

It’s also why we created a $100 million state-of-the-art research campus and employ more than 1,700 engineers around the world to minimize your risk. It means that risk is reduced before a disaster can strike. So even if clients do suffer losses, they tend to be smaller and less frequent, helping to ensure business continuity.

Plus, our claims service is unsurpassed in the industry.

Perhaps that’s why our client base is composed of one-third of the Fortune 1000 across industries—companies that can’t afford to shut down. Underwriting through loss prevention engineering. That’s insurance evolved.

© 2010 FM Global. All Rights Reserved.

Insurance Evolved

To learn more, visit fmglobal.com/insuranceevolved

VOL. 77, NO.4, APRIL 2010

PROFILE

12 Bipartisan Bar The Ontario Bar Association has recognized Thomas McGrenere and Kristopher Knutsen for their contributions to insurance law on both sides of the bar.

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

Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549

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BY DAVID GAMBRILL

SPECIAL FOCUS

8

Editorial

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

President Bruce Creighton Vice President Alex Papanou

10 Marketplace 72 Moves & Views 74 Gallery

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Canadian Underwriter April 2010

EDITORIAL

Brains and Brawn

Essentially New Brunswick’s proposed ban on credit scoring threatens to undo whatever more subtle approach the CCIR might have deemed appropriate.

David Gambrill, Editor david@canadianunderwriter.ca

8

Canadian Underwriter April 2010

There is an archetypal scene in the movies when a brainy guy and a brawny guy head into a sensitive negotiation with a thoughtful nemesis. Prior to the meeting, the brainy guy, worried that his hot-tempered brawny buddy will muck everything up, says: “Let me handle this.”

Inevitably, however, the nemesis says something that offends the hair-trigger sensibilities of the brawny guy. The brawny guy then goes on a rampage, flipping tables and chairs, and the sensitive negotiations are left in a smoking ruin.

Now imagine the Canadian Council of Insurance Regulators (CCIR), an association of provincial insurance regulators, and the New Brunswick government cast in a movie about the use of credit scoring.

The CCIR is cast here as the brainy guy, who wants to take some time to look at all of the potential intricacies of credit scoring for the purpose of underwriting insurance. In fact, the CCIR is currently discussing the possibility of putting out a consultation paper, which will presumably acknowledge both the pros and the cons of insurers using credit scoring to price risk accurately.

This is a delicate negotiation, because there are cogent reasons both for and against insurers’ use of credit scoring.

New Brunswick, on the other hand, sees no nuance in this debate. It sees a cut-and-dried ban as the only solution. Such a ban would apply across all classes of insurance.

The government’s brawn is demonstrated in the way it has applied a legislative sledgeham-

mer — Bill 43, which bans credit scoring in any underwriting activity — to the credit scoring debate.

Alas, the hair-trigger, brawny approach of the New Brunswick government has made a mockery of any of the CCIR’s more reasoned deliberations in the creditscoring debate. No matter what might come out of the CCIR’s future proposals about credit scoring, the damage done by the New Brunswick government’s response is tangible.

For one thing, as it stands now, the credit scoring debate reveals the CCIR to be a paper tiger. The CCIR’s recommendations on credit scoring will only be voluntary. The CCIR does not have any statutory authority to impose any of its recommendations on its provincial members.

Secondly, we have yet another example of how difficult it is to harmonize insurance legislation across the country. To wit: now we have New Brunswick, given its hasty proposal of an outright ban, going on what novelist William Gaddis might term ‘A frolic of its own.’ Essentially New Brunswick’s proposed ban, which happened before the CCIR even met at its Spring 2010 meeting to discuss the issue, threatens to undo whatever more subtle approach the CCIR might have deemed appropriate.

New Brunswick’s ham-fisted approach is not doing anyone in the industry any favours.

It’s bad for insurers, because now they face the prospect of having to comply with various different credit-scoring regimes across the country. If the New Brunswick ban takes effect, then

unless the CCIR’s recommended approach is to ban credit scoring altogether, there will always be a patchwork quilt of credit scoring regulation across the country. This is maybe the nightmare scenario to befall insurers on this issue.

A disharmonized approach to credit scoring is also bad for brokers, no matter which side of the issue they prefer.

Broker associations that want bans in Ontario and B.C., but don’t get them, will wonder why the same logic in New Brunswick doesn’t apply equally in their respective jurisdictions. This would be a very legitimate question.

As for brokers in New Brunswick who favour credit scoring, they will be left wondering why neighbouring brokers in P.E.I. or Nova Scotia can use credit scoring, but they can't.

As for the regulators, the movie-style script playing out right now is no way to demonstrate its authority on the issue.

Insurers have always been concerned about harmonizing laws across the country, and this is just one more example of the challenge involved in making this happen. Every time the regulators do not act in concert, it strains the relationship between the industry and those regulating it.

The wise approach in this matter would be for New Brunswick to hold back on its brawny approach and wait at least until the CCIR has had a chance to “handle it” — i.e. by trying to negotiate a national consensus on the issue.

And if the CCIR fails at the national level, there is nothing stopping the brawny fighter from proceeding with its guns a-blazing.

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Regulation DIRECT RESPONSE INSURERS OPPOSE NEW BRUNSWICK BAN ON CREDIT SCORING The Canadian Association of Direct Response Insurers (CADRI) has appealed to New Brunswick’s premier and minister of justice and consumer affairs to oppose the province’s proposed ban on the use of credit by home and auto insurers.

The provincial government tabled Bill 43 in February. It proposes to ban the use of credit scoring in the underwriting of home and auto insurance, thus promoting fairness and access to insurance for all consumers, the government says.

CADRI argues that such a ban would have the opposite effect.

“Bill 43 will have the unintended consequence of costing the average New Brunswick house and car owner more money for their insurance in the long run,” said CADRI chairman Francois Boulanger.

“We do not think that the government’s goal is to create higher rates for average risk owners so we encourage them to slow down and discuss this change more thoroughly with us.”

IBANS SAYS MINOR INJURY CAP IS “WARRANTED,” BUT SHOULD BE INDEXED The Insurance Brokers Association of Nova Scotia

10 Canadian Underwriter April 2010

(IBANS) says limitations placed on pain and suffering awards in the province are “warranted,” although they should be indexed to inflation.

The association’s comments were in response to a discussion paper prepared by the government of Nova Scotia as part of its promised review of the minor injury cap. The consultation period ended in mid-February 2010.

“IBANS has polled our members to determine what type of feedback has been received from our clients with respect to the cap,” the IBANS paper says. “With over half of our members responding, 96% of responses indicated there has been no negative feedback from their customers in relation to minor injury cap.”

If the cap is to be changed in any way, the association goes on to say, “it would be reasonable to suggest that some form of indexing clause be introduced.”

IBANS notes the current cap is not indexed to inflation.

Canadian Market CANADIAN INSURANCE SECTOR UNLIKELY CANDIDATE FOR RAPID GROWTH The Canadian insurance sector is unlikely to achieve rapid growth, reports companiesandmarkets.com, a United Kingdom-based online repository of market research reports.

In its first analysis of Canadian insurance, it noted the Canadian insurance market is “mature and competitive” and “unlikely to achieve rapid growth through our forecast period — this is in spite of its advantages and a generally favourable outlook for the Canadian economy.”

The report noted the nonlife sector is highly fragmented, with no single player appearing to have doubledigit market share.

“One consequence of the fragmentation and lingering mutualization of the Canadian non-life segment is that the Canadian property and casualty insurers have had less desire and need than the life companies to seek challenges and opportunities in other countries.”

PERSONAL ACCIDENT AUTO RESULTS HIT CLAIMS RATIO OF 125% IN 2009 Auto lines for federally regulated Canadian and foreign property and casualty insurers continued to deteriorate, according to 2009 figures posted by the Office of the Superintendent of Financial Institutions (OSFI).

OSFI figures show Canadian insurers collectively reported a claims ratio of 125.72% in the auto personal accident category (which includes accident benefits) at year-end 2009. The figure climbs to 211.8% for foreign insurers (166% in 2008).

The net income for Canadian and foreign P&C compa-

nies reporting to OSFI totalled just over $2.5 billion in 2009, marking an increase from the $2.2 billion reported in 2008. While the net income continues to improve, it is still down considerably from the $4.9 billion profits the same companies reported in 2007.

ABOUT HALF OF 216 CANADIAN P&C INSURERS REPORT AN UNDERWRITING LOSS TO MSA RESEARCH More than half (51%) of the 216 insurance companies reporting 2009 year-end data to MSA Research posted an underwriting loss for the year.

Eighty-eight of the 216 companies reported a combined ratio of 100% or more.

MSA Research has posted a summary of the 2009 yearend results on its Web site (www.msaresearch.com). The summary represents about 95% of the Canadian market.

Out of eight individual companies that reported more than $1 billion in net written premiums in 2009, only one, Intact Insurance Company, reported an underwriting profit ($4.9 million).

Seven reported an underwriting loss. They include Aviva Insurance Company ($92.6-million loss), Co-operators General Insurance Company ($31.7-million loss), Dominion of Canada ($144-million loss), The Economical Mutual Insurance Group ($111.8-million loss), State Farm Mutual

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Auto ($478-million loss), Security National Insurance Company (TD Assurance) ($59-million loss) and Wawanesa Mutual Insurance Company ($68-million loss).

McGillivray spoke at the Ontario Mutual Insurance Association’s conference in Toronto on Mar. 25.

“I think a lot of companies are basically giving away wildfire risk and not properly

loading for it,” he said.

According to the Insurance Bureau of Canada (IBC), only four homes were destroyed in the 2009 fires in the Kelowna, B.C region. Wildfires in the region in 2003 caused $200

million of insured damages.

“We dodged a bullet last season in Kelowna, but I think if it weren’t for the ‘Big Burn’ in 2003 it would have been much worse,” McGillivray told delegates.

NEW BRUNSWICK HOME INSURANCE PREMIUMS ARE ON THE RISE New Brunswick’s Consumer Advocate is concerned the province’s home insurance market is showing signs of “instability.”

“One of the biggest issues is the fact that home insurance premiums are on the rise,” the Consumer Advocate says in its 2009 annual report.

“This is due to increased flood claims and increased rebuilding costs.

“Under-insurance is another issue that has caused some required adjustments in coverage and thus resulting in adjustments in premium levels.

“There appears to be some signs of instability in the market and hopefully this will not result in issues of availability and affordability as we experienced in auto insurance, not too long ago.”

Cunningham Lindsey offers expert claims handling for the most complex and specialized losses. To access our team of experts, write to us at corpservices@cl-na.com for a copy of our new Specialty Services Directory.

CANADIAN P&C INDUSTRY “BASICALLY GIVING AWAY WILDFIRE RISK”: ICLR The insurance industry “dodged a bullet” in 2009 with wildfire losses, but it has its “head in the sand” when it comes to pricing this risk, said Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR).

www.cunninghamlindsey.com

April 2010 Canadian Underwriter

11

PROFILE

Insurance Bi-partisanship David Gambrill Editor

The Ontario Bar Association (OBA) has recognized Tom McGrenere and Kristopher Knutsen for their outstanding work in advancing insurance law, whether it be in favour of the insureds or insurers.

12 Canadian Underwriter April 2010

The Ontario Bar Association (OBA)’s 2010 OBA Insurance Law Award of Excellence is recognizing insurance counsel that have practised on both the plaintiff and defence sides of the bar throughout their distinguished careers — Thomas McGrenere of Toronto and Kristopher Knutsen of Thunder Bay.

THOMAS McGRENERE, Q.C. McGrenere, currently a mediator and arbitrator with ADR Chambers, retired from his former law firm of Lawson McGrenere LLP Toronto in May 2005. His 45year career in law covered many insurance-related matters, including motor vehicle litigation, personal injury claims for insurers and for plaintiffs, fire loss claims, products liability, medical malpractice, wrongful dismissal actions, disability claims, life insurance claims, occupiers’ liability, policy coverage issues, professional liability and reinsurance.

McGrenere said he focused on personal injury law during the first 25 years of his career, whereas his focus shifted towards product liability and commercial losses during the past 15 years.

McGrenere was called to the Ontario bar in 1965. He entered law school after a somewhat lastminute decision made between his second and third year of university. “As a matter of fact, they were calling my name in thirdyear class for the first couple of weeks because I had decided that late,” he said.

In a conversation with a longtime friend, the late Bill McMurtry, McGrenere was asked to consider articling at McMurtry's firm at that time, Basil Sullivan Holland and Lawson. The clincher was an invitation to join the firm by the late Dick Holland, Ontario’s chief justice between 1977 and 1990.

Both Holland and the firm did a substantial amount of insurance work, and McGrenere found himself developing an interest in cases involving policy interpretation. Over the course of his career, McGrenere says he has witnessed a noticeable shift in how the courts are interpreting insurance policies, with an evolv-

ing emphasis on a “contextual reading” of insurance policy documents.

“When I started, there seemed to be a pattern where the courts really followed the letter of the contract,” he said. “With the passage of time, there became a somewhat broader interpretation.”

McGrenere said it is important for insurance defence lawyers to keep this trend in mind when advising their insurance company clients. The upshot is that you can never be too clear in writing policy exclusions.

“The courts [have said] over the last few years, if you are going to exclude something, be very specific about it,” he says. “If

PROFILE

you’re not going to cover something, be very specific about it.”

McGrenere remembered a firsthand experience of the court’s evolving direction. He was arguing a policy interpretation issue before the late Charles Dubin, who was Ontario’s chief justice between 1990 and 1996. “On one case I was on, I remember the late Mr. Justice Dubin saying: ‘Well, Mr. McGrenere, what does this policy cover?’ It’s not a very good question to be put to you in the Court of Appeal.

“Interestingly enough, it struck me as an indication of what troubles a lot of judges. The exclusions, particularly in some of the CGLs and some of the professional policies, are voluminous.”

KRISTOPHER KNUTSEN, Q.C. Kristopher Knutsen expressed surprise at receiving his share of the OBA’s insurance law award because, for the greater part of his career, he has been representing plaintiffs making claims against insurance companies.

But it was not always thus.

Having graduated from law school in Saskatchewan, Knutsen started practicing law in 1970 in Thunder Bay, where he initially “didn’t know a soul.” He started out doing litigation work for Kringle Law and Family Law Practice. That led to the development of an offshoot civil practice, through which he ironically started receiving insurance defence work.

“I happened at one point to have Prudential on the other side

of the file,” he recalled. “Long trial. Won it. Thereafter, bit-bybit, piece-by-piece, Prudential work started coming to me. And eventually I got it all…Eventually it became my total practice for a good period of time.”

Knutsen is now at Carrel + Partners LLP, where he became a partner in 1975.

His work for the plaintiff’s side really took off after he spent twoand-a-half-years of his life immersed in work on the 1989 Commission of Inquiry into the Air Ontario Crash at Dryden, Ontario. Knutsen represented victims in the 1989 crash that killed 24 people when a Dutch-built Fokker F-28 lifted off from a snowy airport in Dryden. It had crashed after making a scheduled stop en route from Thunder Bay, Ontario to Winnipeg.

The inquiry found the crash was caused by ice on the wings.

The commission’s 2,000-page report enumerated numerous recommended changes in air-traffic policies.

Knutsen returned back to work in Thunder Bay after the inquiry.

He said that while he was away, the “insurance [defence] files couldn’t wait, but plaintiff files did wait.”

Approximately three years later, Knutsen took the Lento v.

Castaldo case to trial. Lento is one of the Meyer v. Bright trilogy cases that tested the verbal threshold contained in Ontario’s first extensive no-fault insurance plan in 1990-93, under the Ontario Motorist Protection Plan (OMPP).

Knutsen then successfully took Derksen v. 539938 to the Supreme Court of Canada. Derksen essentially relates to the interpretation of exclusion clauses in insurance policies when the loss arises from more than one cause (i.e. when one cause falls under coverage and another falls under an exclusion clause). The Supreme Court’s decision in Derksen essentially debunked the prevailing view at the time that if a loss arose from two causes, and one of those causes was excluded, coverage for the entire loss would be excluded. Those were heady days for Knutsen, who proudly had his son watching him make his arguments at

the Supreme Court of Canada.

Since then, Knutsen says, increasing costs associated with taking cases to trial have prevented both insurers and insureds from changing insurance law.

Knutsen says he “decries” a tendency today to avoid risks and settle cases through arbitration — although he stresses that he has no trouble with arbitration or settlement — essentially leaving insurance law static.

“What I am finding is, more and more, there’s less opportunity to change the law,” he says.

“The law stands still if there aren’t risk takers….

“Somebody has to try cases and the law has to change.”

April 2010 Canadian Underwriter

13

Ontario Auto Reform:

Responding to Consumer Needs The most recent reforms to Ontario’s auto insurance product may be the most fundamental yet; they respond first and foremost to the needs of consumers.

Ralph Palumbo

Ontario released new and revised auto insurance Vice-President, Ontario, regulations in March 2010 that resulted from Insurance Bureau of reforms it had announced last November. AlCanada though changes to Ontario’s auto insurance system are not new — this represents the fifth product reform in 20 years — some have suggested that the latest round of reforms is the most fundamental yet. Furthermore, it is apparent the reforms respond first and foremost to the needs of consumers.

For its part in the Bill 198 review process, Insurance Bureau of Canada (IBC) continually presented consumer-centred arguments that clearly and credibly illustrated the effects of any given

14 Canadian Underwriter April 2010

reform on Ontarians. People in this province are already paying 25% more for their auto insurance than other Canadians. No one doubted that Ontario’s auto insurance system was in a critical, unsustainable state. But opinions varied on how to fix it.

From the beginning, IBC argued it wasn’t about what insurers, health care providers or personal injury lawyers wanted. Rather, it was about what consumers needed: affordable, available and stable auto insurance. Fortunately, the government agreed. The province initiated substantive reforms that, as of Sept. 1, 2010, will provide Ontarians with greater choice when it comes to their auto insurance. They will also continue to provide fair and robust benefits for collision injury victims.

ONTARIO’S NEW STANDARD AUTO PACKAGE Starting in September, consumers will be able to customize their auto insurance policy to meet their individual needs. A new standard insurance

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Starting in September, consumers will be able to customize their auto insurance policy to meet their individual needs. A new standard insurance package will become available, providing $50,000 for medical and rehabilitation coverage for non-catastrophic claims and $1 million for catastrophic claims. As of Sept. 1, consumers wanting a higher level of coverage will be allowed to purchase it when their policy renews. package will become available, providing $50,000 for medical and rehabilitation coverage for non-catastrophic claims and $1 million for catastrophic claims. As of Sept. 1, consumers wanting a higher level of coverage will be allowed to purchase it when their policy renews.

The existing standard package of $100,000 in benefits for non-catastrophic claims proved to be overly generous and vulnerable to overuse and abuse. Also, the existing package is overly expensive and doesn’t succeed in getting injury victims any better, or healing injuries any faster, than in other jurisdictions.

The reforms mean Ontarians will soon benefit from a wider range of choices on other benefits such as attendant care, housekeeping expenses, home maintenance expenses, caregiver expenses, death and funeral expenses, court com-

16 Canadian Underwriter April 2010

pensation and compensation for property damage.

Although the new limits on the standard package will be lower than they are now, they are on par with those of most other accident benefits packages across the country. They should provide enough coverage to help accident victims recover.

The reforms address the problem of over-assessment, an area of great concern that is responsible for significantly driving up claims costs. As of September, assessment costs will be capped at $2,000, with a maximum of $200 payable for the completion of forms — including any assessment required to complete them. Additional measures, such as the elimination of rebuttal assessments, will work to reduce the frequency and cost of assessments to the system.

Another important reform is a $3,500 cap on minor injury medical-rehabilitation expenses and an improved definition of “minor injury.” In addition, the government has specifically designated physicians as assessors for catastrophic injuries or neuropsychologists for catastrophic brain impairments. The goal is to ensure claimants are getting the right level of medical attention, according to the severity of the injury.

THE AFTERMATH Insurers understand the importance of every regulatory detail. Although the provincial government did not accept all of IBC’s recommendations, the final regulations do reflect many of the industry’s concerns.This is not so much a victory for industry as it is a victory for consumers. After all, well-intended but

poorly-worded regulations would quickly become vulnerable to abuse; this would result in higher (not lower) claims costs and more (not less) system instability.

IBC is pleased the government took the steps necessary to create a more balanced auto insurance system for Ontarians. However, we understand more work remains to be done to address important, outstanding details and to educate consumers and industry profession-

The reforms mean Ontarians will soon benefit from a wider range of choices on other benefits such as attendant care, housekeeping expenses, home maintenance expenses, caregiver expenses, death and funeral expenses, court compensation and compensation for property damage. als about these changes. IBC continues to work closely with government on the reform implementation process and has created five industry working groups to work on the various aspects of implementation, including: accident benefit (AB) claims, forms and endorsements, rate filing, consumer education and the development of the Minor Injury Guideline.

In addition, throughout the coming months, IBC will be leading efforts to raise consumer awareness so that, come September, consumers will be well-prepared to make the best choices about their auto insurance.

Paul Taylor Director of Operations, Insurance Brokers Association of Ontario (IBAO)

There are quite a few new changes coming down the pipe related to Ontario’s new auto reforms, and the broker channel is preparing to lead the way in explaining these reforms to consumers.

Most of you will by now know the majority of the changes to become effective on Sept. 1, 2010 for all Ontario automobile insurance policy holders. Since the announcements of what were at the time “proposed” amendments in November, there has been a great deal of activity within the industry to ensure all stakeholders are aware of the coming changes, and have adequate time to respond in all arenas. Any change of this nature to the regulated automobile product requires filing changes, system changes, communication strategy changes, a large education effort at all levels and for all stakeholders, as well as an extraordinary effort to educate the consuming public.

In preparation for these challenges, the Financial Services Commission of Ontario (FSCO) struck the Reform Implementation Steering

18 Canadian Underwriter April 2010

Committee. The committee encompasses representatives from the insurance industry, the legal profession and medical and rehabilitation professionals. The steering committee is charged with overseeing the work of four subcommittees, including the: • Accident Benefits Claims Forms Advisory Committee; • Automobile Insurance Forms and Endorsements Advisory Committee; • Automobile Insurance Rating/Underwriting Technical Advisory Committee; and • Consumer Information Working Group.

IBAO CEO Randy Carroll sits on the steering committee. IBAO president Bryan Yetman sits on the automobile insurance rating/underwriting technical advisory committee. IBAO vice president Debbie Thompson sits on the automobile insurance forms and endorsements advisory committee. IBAO marketing manager Samantha Sampson and I, Paul Taylor, sit on the consumer information working group.

THE NEW REGULATIONS Ontario introduced the new regulations on Mar. 2, 2010. All will become effective on Sept.1, 2010. FSCO Bulletin A-01/10 will explain in

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Launching Ontario’s New Auto Product

greater detail the impact of each new regulation. A summary of the changes is as follows:

Ontario Regulation 34/10 34/10 is a new Statutory Accident Benefits Schedule. Each of the other regulations released alongside this one will amend existing regulations, but 34/10 will replace the old SABS in its entirety.

In an effort to stabilize the cost of the product, the government has decided to restructure the accident benefits schedule to provide lower levels of standard coverage.The amended schedule will include new options allowing consumers who wish to do so to maintain their existing level of coverage after Sept. 1. This approach is very consumer-friendly for the vast majority of Ontario policyholders.The legally required coverage will be more affordable; those who wish to continue with the same level of coverage they have now will be able to. Our challenge as an industry is to make sure the consumer understands what the new standard coverage is, and that they have options should they choose to exercise them.

For example, policies that renew on or after Sept. 1, 2010 will have a new standard limit of $50,000 for medical and rehabilitation benefits for non-catastrophic claims. In addition, there will be a new standard limit of $36,000 for attendant care benefits for non-catastrophic claims.

New options have been created allowing consumers to buy back their previous non-catastrophic limits of $100,000 for medical and rehabilitation and $72,000 for attendant care.The existing option for an additional $1 million dollars will remain. In addition, the caregiver benefit and payment of housekeeping expenses now only apply in cases of catastrophic impairment, unless a buy-up option is exercised.

Other cost-saving measures are also being implemented within the new SABS. For minor injuries, the medical and rehabilitation benefit, including any assessment or examination costs for minor injuries, is limited to $3,500. Each assessment will be individually capped at $2,000. Many approved forms are being

retired or eliminated, and there will be some consolidation and simplifications of rules governing claims processes.

These changes should lessen the administrative expenses that currently absorb so much of the coverage limits.

Ontario Regulation 35/10 With 34/10 replacing the existing SABS effective Sept. 1, 2010, the new Ontario Regulation 35/10 retires the old SABS and outlines transitional procedures for

accidents that take place before September 2010.

Ontario Regulation 36/10 36/10 amends the existing R.R.O. 664 1990 (Automobile Insurance).This regulation has created a new endorsement for the automobile products, the O.P.C.F. 48 and the O.E.F. 87, both entitled: “Added Coverage to Offset Tort Deductibles.”These endorsements are firstparty coverages; they will help respond

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to offset the current deductible on bodily injury settlement amounts. If a $30,000 deductible is imposed, the endorsement will provide $10,000 to the insured. If a $15,000 deductible is imposed, the endorsement will provide $5,000. In effect, the endorsement is a deductible buy-down for the bodily injury tort deductible.

36/10 also changes the standard D.C.P.D. deductible from $300 to $500.

This will largely be a non-issue for most consumers; if a policy is currently in force with a $0 deductible, then it will renew as such following Sept. 1.The impact will likely be felt more during the filing process than at the consumer level.

Ontario Regulation 37/10 Ontario Regulation 37/10 amends the existing regulation 534/06 Unfair and Deceptive Acts and Practices (UDAP). IBAO has taken a strong stance against the use of credit information during the underwriting process for personal lines insurance policies for the last number of years. The association is very pleased to see the new changes, the strengthening of language and, it believes, clarification of the intent of the UDAP regulation. Most notably, the regulation now contains a definition of “credit information” that has been added to the list of lifestyle and financial factors prohibited from use in rate and classification.

Additional language clarifies that credit information cannot be used to interfere or make difficult the quoting process for consumers, nor should it be used to increase difficulty in obtaining a rate or hinder the binding of a risk in any way.

Also, a provision is added that requires an insurer to provide the best rate available to a consumer from any of its affiliated insurers, provided of course that the consumer would qualify for the premium offer. The affiliated insurer must be available through the same distribution channel. IBAO interprets that to mean: an insurer that uses the broker distribution channel must provide rates for all its related companies that also distribute products through the broker channel. IBAO’s member brokers’ licenses demand they place the interest of

20 Canadian Underwriter April 2010

the consumer first, while insurers sometimes prefer the placement of business with an arm that does not provide the most favourable rate.This new provision removes any possible conflicts of interest to the benefit of the industry, and most importantly, the consumer.

Ontario Regulation 38/10 This regulation is short and modifies the current Disputes Between Insurers regulation 283/95. The new regulations require insurers to provide timely access to applications for benefits to claimants, prohibits an attempt by an insurer to dissuade a potential claim or redirect

the claim to another insurer and requires the insurer that receives the completed application to provide the benefit without delay. The intent is clearly to ensure there is no complication or barriers for eligible claimants to receive benefits.

Ontario Regulation 40/10 The statutory condition for appraisal is amended to remove the requirement of the insurer’s consent. An insured can request an appraisal process be used and the insurer must comply.

WORDINGS The changes bring with them the need to modify the OAP1, the OAP4, the application and certificates for both, as well as a number of endorsements. Any endorsement that references the accident benefits cover or related options needs to be modified. New endorse-

ments have been created to provide the legislated option for consumers to reduce their tort deductible.

IMPLEMENTATION The implementation of the new Sept. 1 automobile policies, Statutory Accident Benefits Schedule, new endorsements and consumer education will be the primary focus for the IBAO in the upcoming months.The IBAO has scheduled a road show visiting 26 locations; at each of these locations, the association will make a three-hour presentation outlining the changes. The presentation will also address the broker’s role in the new procedure and rollover. The presentation will be made twice at each location, once in the morning and again in the afternoon.The intent is to allow brokers to split their staff up to attend the sessions, allowing the business to continue to run through the day of the training.

In addition to our travel plans, we will offer Webinars to cover the same material, making it available to those who were unable to attend our sessions while in their area. We will cover the details of the regulatory changes, as well as the potential process and workflow changes for these renewals, and discuss how we can support their businesses through this period.

Already we have had more than 4,000 members pre-registered for these sessions. We anticipate between 8,000 and 9,000 total attendees before the sessions are finished. The sessions are open to non-member brokers as well as other industry partners.

The association expects a considerable amount of time will be spent discussing policies that overlap the Sept. 1 renewal date. Policies issued before Sept. 1, 2010 will continue in force until their renewal date, with their existing limits of coverage in force, unless the consumer requests a change.

If a consumer’s renewal is in June, then the policy will be issued with the existing statutory accident benefit limits in place and will continue in force until the following June with the same limits.

Upon renewal, the coverage will change to the new standard policy. However,

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the administrative changes introduced by the new SABS will take effect under this policy should an accident occur following Sept. 1. While the $100,000 limit may exist on the consumer’s policy for medical and rehabilitation expenses, the new $2,000 limit for each assessment will apply.

Consumers whose policies renew in June will also be able to request that their coverage be changed to the new standard accident benefits level of coverage after Sept. 1. Insurers may endorse the policy to make the change, or may cancel and rewrite the policy. For many consumers, the likelihood may be that this change will not provide much benefit.With the recent rate activity, policies issued close to the September implementation date may see some easing of rate to move to the new standard policy, but those whose policies renewed prior to April will likely have received their renewal based upon a previous rate filing for their respective insurer. As such, the new standard coverage may be at a comparable cost to their existing level of coverage, or may offer such a small amount of credit that there will be no benefit.The consumer will in most cases be better served to maintain their higher standard limits until their renewal.

CONSUMER EDUCATION Consumer education throughout the next year to two years will become a very high priority for the association and its members. In June, consumers will begin receiving communications from insurers regarding the changes to their policies, and they will be looking or more information. The consumer working group is currently finalizing consumer communication material; this is intended to ensure a consistent and accurate message is delivered to consumers about these changes. Three documents are currently being finalized: 1) an early awareness mailer, 2) an expanded explanatory document outlining the new changes and consumer options, and 3) a final document for renewal enclosures reminding consumers their policies have changed.

The early awareness mailer will act as the first notification to Ontarians that

22 Canadian Underwriter April 2010

their policy is changing. It will outline the current coverage limits, and explain that new options are available. It will not provide a great deal of details.

Rather, it is intended to provide a summary or introduction of the idea the coming change.

The expanded explanatory document will provide more details about the changes to the coverage; the intent of the changes as a cost stability measure; and a more detailed explanation of the options available under the new policy.

erage affected. The association will be making these vignettes available through its Web site for members to embed into their own. The association has already had a number of inquiries from its insurer partners, asking how they can support our members in their effort to educate their consumers. IBAO envisions many announcements in the coming months, outlining different support mechanisms the association can help orchestrate to better help brokers better serve their customers.

THE BROKER ADVANTAGE

The renewal enclosure document will act as the final reminder that the coverage under the policy has changed. This document will be produced in plain black and white, and will be presented in a manner that it could not be mistaken for marketing material. The language on these documents will be prescribed; it will become the required standardized messaging for the industry to use. All consumers will therefore receive the same messaging and receive a consistent description of the changes.

For our members, it simplifies the initial conversations with their consumers, since they should all be starting with the same common level of knowledge.

IBAO will make available to our members each of these documents in a customizable manner, allowing each of our members to brand the documents and fliers with their own company logos and colours where appropriate. We will explain this in more detail at our educational sessions. We will also be creating a number of consumer-focused vignettes about the changes to each level of cov-

The automobile product has fundamentally changed with these regulations. Additional options contained within the product make it all the more important that the consumer fully understands the extent and scope of the coverage offered by the OAP1 and OAP4. Consumers will need to be better educated about the potential impact of their coverage decisions, and better counselled as to their options. As independent insurance brokers, our value proposition has always been our ability to provide expert advice to our clients. In the last number of years, the automobile product has been somewhat commoditized, with advertising campaigns aimed to inform consumers of the “sameness” of the insurance they’re buying. The discussions around the purchase of this product now will be very different than they have in the past. More consumers will look to an advice-based, consultative expert with whom to discuss their insurance needs.

The expected consumer notifications around the product changes will likely begin in June, and the association’s role is to prepare its members well for the consumer questions they’re likely to begin hearing.

With September renewals being issued in July, and consumer awareness campaigns beginning in June, we don’t have a great deal of time to prepare our industry for these changes. IBAO is confident it will meet the challenge and its consumers will be better served by the new structure of the product, their chosen insurance company and their insurance broker.

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Question of

Principles David Gambrill Editor

The Insurance Bureau of Canada has developed a Code of Conduct to guide insurers that use credit scoring for the purpose of underwriting insurance.

The Insurance Bureau of Canada (IBC), Canada’s trade organization for home, business and auto insurers, has waded into the credit scoring debate, posting its Code of Conduct for Insurers’ Use of Credit Information in late January 2010.

The code represents more than six or seven months of work at the IBC committee level, and reflects a diverse cross-section of IBC membership, some members of which support the use of credit for underwriting insurance, and some that do not.

“The purpose of this Code of Conduct is to provide insurers who use credit information in their underwriting and rating activities for personal insurance with guidelines on the use of credit information in accordance with principles of consumer protection and applicable federal and provincial laws,” the Code of Conduct reads.

“These guidelines are voluntary.”

A 2009 survey by the Canadian Council of Insurance Regulators (CCIR) shows that, out of 34

24 Canadian Underwriter April 2010

insurers surveyed, 19 (representing almost 55% of the market share in the country) currently use credit-based insurance scores as a factor in underwriting personal property insurance. Of those 15 companies that said they didn’t use credit scoring, six (representing about 6% of market share) said they planned to at some point during the next three years.

Based on the results of its survey, the CCIR plans to discuss credit scoring at its Spring 2010 meeting in late March. Noting that its published principles reflect existing laws across the country, IBC does not believe there is any further need for regulatory responses around credit scoring.

“We would hope there is no need to prescribe [the IBC’s document of principles] as regulation,” said Mario Fiorino, senior counsel at IBC. “The document is basically an enshrinement of principles of consumer protection that reflects the obligations that insurers have under provincial and federal legislation. It is hoped that to the extent that the document is not only reflective of consumer interests, but also responsive to [insurers’] obligations, that it would be welcomed [by regulators].”

In total, the document outlines 10 principles: • Comply with provincial and federal laws; • Ensure credit information is current and accurate; • Gathering prior consent to collect and use

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credit information (written or verbal); • Keeping customers’ credit information confidential and private; • The insurer cannot use credit as a sole variable, and thus, as the Code states: “must not refuse to quote or base an insured’s renewal rates, or deny, cancel or not renew a policy of personal insurance solely on the basis of credit information without consideration of other noncredit underwriting or rating variables;” • The insurer must ensure that its use of credit is legitimate and that credit-scoring models do not penalize consumers for inquiring about their own credit, or discriminate against consumers based on characteristics such as income, gender, address, ethnic group, religion, marital status or nationality; • Consumer complaints about an insurer’s use of credit are to be addressed by the insurer according to applicable Canadian laws; • The insurers must treat consumers fairly when taking adverse action as a result of credit information, including, “upon the request of the consumer,” disclosing any adverse action taken as a result of credit; • The insurer must not refuse to provide a quote or insurance to a consumer who refuses to consent to the use of his or her credit score; and • The insurer should grant exemptions to the use of credit-scoring when consumers are undergoing “extraordinary life circumstances,” such as a state of emergency declared after a catastrophic event, serious illness or injury to the consumer (or an immediate family member), death of a spouse, child or parent, divorce (or interruption of alimony or support payments), identity theft, military deployment overseas, “loss of permanent (non-seasonal) employment for over three months,” or other events.

Thus far, the CCIR has described the IBC’s voluntary Code of Conduct for Insurers’ Use of Credit Information as “a good place to start a conversation.”

Jim Hall is chairing a CCIR sub-committee on insurers’ use of credit-scoring.

He indicated the CCIR has studied the

26 Canadian Underwriter April 2010

IBC’s principles in its recently released Code of Conduct.

“We’re very interested in whatever the industry’s thoughts are on how to bring forward some standards, so we’re looking at them with interest,” Hall replied, when asked if some of the IBC’s principles might find their way into the CCIR’s deliberations. “And we’re also doing some research of our own with respect to other jurisdictions, primarily American, to see what the various states have done.We’re just trying to get some background information now and we’ll be

The document is basically an enshrinement of principles of consumer protection that reflects the obligations that insurers have under provincial and federal legislation. discussing credit scoring further at our spring meeting, principally in respect to what the IBC is suggesting. I think it’s a good place to start a conversation.”

The CCIR’s spring meeting was held in Quebec City on March 25 and 26.

The discussion included deliberations with the Insurance Brokers Association of Ontario (IBAO), which supports a ban of credit-scoring use across all lines of personal insurance. The IBAO says it finds three main faults with the IBC’s Code of Conduct.

“IBAO is encouraged that the CCIR continues to look at the issue of credit and its impact on consumers,” says IBAO president Bryan Yetman. “We would suggest however that the CCIR proceed extremely cautiously when considering the IBC’s Code of Conduct for three reasons.

“First, a voluntary code offers little consumer protection as it is not binding.

“Second, it is our understanding that IBC does not yet have a formal position on credit, and relying on this document could bring further confusion to the issue.

“Third, and perhaps most important, the code as presented completely contradicts what is happening in the market-

place today. Consider, for example, Item 10 of the code, which allows for an insurer to grant exemption for extraordinary life circumstances.We are not aware of any insurer who is granting exemption for any reason. They either use credit as a rating factor or they don’t.”

In general,Yetman added: “In the past, IBC has developed voluntary codes of conduct and, because they are voluntary, there is no guarantee that members will adhere to them nor any consequence if they do not. For these reasons, we believe this will do little but create a false sense of security to the regulator and the consumers.”

Fiorino says several circumstances dictate that the IBC Code of Conduct could not be anything more than voluntary.

“First of all, when it comes to guidelines, typically best practices guidelines [issued by] a trade association have to be voluntary by nature,” he says. “We do not impose compulsory business standards on our members. Not all insurers use credit history. That very fact also mitigates against developing a mandatory code.”

Having said that, Fiorino adds: “You’ve got to recognize that, although we say the principles in the document are voluntary, to the extent that the document reflects, for example, privacy law, there’s no voluntary component to that. All insurers have to subscribe to it. So a good part of the backbone of this particular document rests upon privacy principles [and existing laws governing the use of credit scoring].”

Fiorino says further: “We would hope that [the Code of Conduct] is a reflection of what is happening in the market. It is something that, if you look at the document, I think it’s a balanced document from the standpoint of reflecting good business practices for insurers, but also respecting the fact that we have many members who believe that credit history has some probative value and some commonality with respect to risk, and that ultimately it’s in the consumers’ best interests that they understand in a very transparent manner how that information is used.”

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Still grappling with the consequences of four previous attempts to reform Ontario’s auto insurance product, the insurance industry should perhaps think about starting all over again with radical new reforms.

Well, here we go again…

You would think that after four serious attempts since June 1990 we would have a grip on the problems arising from our ever-so-generous owner’s automobile policy in this province.

When are we going to learn that we’re not in the business of providing social benefits to those privileged to own an automobile?

It began with a simple two-page tort policy, two pages of immediate medical assistance to all drivers and occupants and a few more pages of other miscellaneous coverage. The industry controlled

28 Canadian Underwriter April 2010

the product it sold. It also met the statutory requirements outlined in a pamphlet that could fit in a shirt pocket.

Not happy with the simplistic policy, we decided to go for all the marbles in 1990. And yes, for a short period of time, we had the bull by the horns.We tamed the bull on tort, but at the same time created a social accident benefits nightmare that would make Fidel Castro’s four-hour court defence in 1953, History Will Absolve Me, look like a child’s novel.

And yes, we also decided to take a chapter from “René Lévesque’s” book on “Insurance Reform for Capitalists” and brought in the Direct Compensation Agreement. Not a bad idea. We now charged the first party premiums on the car they were driving, in anticipation of damages caused by a guilty third party. Now that made sense.

We collected both ways.

As prepared as usual, the industry never considered the possibility of a Bob Rae government in 1993.The new regime took the social benefits of 1990 and gave even more — and, oh yes, brought back some tort reforms that were given up in return for the social entitlements.

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Opinion/Analysis

Shooting Ourselves in the Foot

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A new industry was created around the product we sold. Eventually the tail started wagging the dog.

But did we stop there? Of course not!

As masters of our own demise, more and more reforms, concessions, regulations and statute changes were presented to government. Now, you must understand that government has limited knowledge about all of the aspects of automobile insurance, relying on us to get it right. But can we? Not a chance.When a more friendly government was elected in the mid 1990s, we decided more bandaids should be applied to our Titanic.

How about vehicle inspections? Yes, that was a great idea to catch all those “phantom vehicles.” Despite numerous calls to some insurers warning them about the costs associated with these inspections, not to mention the backlog of work on underwriters’ desks — and let’s not lose sight of the additional regulations in place surrounding these inspections — the insurers’ request to the government to allow these inspections was adopted. We all know how long that lasted. Common sense finally prevailed.

I’ve actually had some insurers say to me today that they really didn’t want it. Give me a break. I wish I had purchased some Polaroid stock at that time.

With the number of claims increasing, we decided to get a little picky on what we wanted, perhaps too picky for a province that makes automobile insurance mandatory for the working stiff.

Welcome filing rules. This is how we describe to the government the people we don’t want as clients.

It began with a few simple filings that included a few exceptions of acceptability. Now, after 15 years of getting away with some of the most ridiculous exceptions I’ve ever seen, we file exceptions that go on for pages. I swear these exceptions are put together by people who write riddles.

How about a cost-cutting tool? Why don’t we list what we’ll accept? Shouldn’t take any more than a note pad. Also, doing it this way might eliminate the insurers’ bureaucracy that writes these exceptions and the public branch of the beaurocracy that approves them.

30 Canadian Underwriter April 2010

THE RATING GAME It’s funny how we have forgotten that we are in the insurance business.You know, the industry that measures risk — all risks — and prices accordingly? The industry that makes the insurance product available to everyone? Well, even that has gone out the window. We are now fragmenting the automobile insurance market to such low numbers that actuaries are starting to believe what they are starting now to conclude.

We have seen discounting that would make the late Honest Ed Mirvish envious. We have seen promises of gifts if you just get a quote from us. And, the best one yet: ‘You will become a better

Today, however, profits are anticipated by creating models that say if the square peg fits the square hole, the profit will come regardless of underwriting. What a sad commentary.

We’ve chased away all our young talent that used to be trained by seasoned risk assessors. Today, we have no hope of attracting good talent unless they truly believe that a call center mentality — i.e. placing square pegs into square holes — is something they want to do repeatedly for a future career. Automobile underwriting was a talent and an actuarial art.We’ve diminished it to finger-painting. Thank God we’re not allowed to carry guns in our industry. We’d all be limping.

If we don’t come up with a radical new automobile insurance product in this province soon, someone — or some political party with aspirations to seize or remain in power — will do it for us.

And the public will welcome it with open arms. Not possible? Just watch. I don’t hear too many complaints from Quebec, Manitoba, Saskatchewan or B.C.

GETTING BACK TO BUSINESS

driver if you also insure your house with the same insurer.’ Explain that one to a driver.

The process of rating the automobile insurance product has lost its transparency and logic.The cost of providing a simple quote has gone from a oneminute phone conversation to an allday, secretive process unknown to mankind. The difference in premium between one insurer and another is so great that you need binoculars to see the other side. Now that’s confidence in actuarial science.

What does all this mean? Less premium spread, less spread of risk, diminished productivity and less time for any agent or broker to do what they do best — sell, service and, yes, support the insurers they represent.

Profits used to come from good source underwriting of good and bad risk.

As harsh as this might sound, we’ve got to get back into the insurance business, scrap the automobile policy as we know it today in Ontario and begin from scratch.

It’s not hard to do.The difficult part is to find the right people to do it. Most importantly, we need to fight to take full control of the product we sell. In doing so, we should consider the true needs of the working public and claimants, not the needs of the indirect benefactors.

Lawyers run and control the tort portion of the equation, heath care providers run our SABs, and preferred shops and call centers run the physical damage portion. All have a combined equal stake in a product we own and sell.

In 2005, the car rental companies decided they should take a shot at us as well. What they got was instant success with the new vicarious laws passed in the province. Where were we?

It used to be that we feared banks coming into our business. The truth is we should fear ourselves.

10

Lessons for Brokers A consultant breaks down what he has seen in his efforts to improve brokers’ businesses.

Robert Harder Senior Consultant, Robert Harder Consulting Group Inc.

I was an insurance broker in my former life.

Now, in my current role as a consultant, I review how brokers do their work. Based on this experience, I have decided to share some of my impressions about what I have seen. Hopefully you can take advantage of my experiences and avoid learning some of the common mistakes outlined below the hard way.

LESSON 1: Apples-for-Apples Marketing I put this first on my list of lessons for a reason: this is how I see insurance being marketed today.

In recent weeks, a broker advised a prospective client, a public entity, that: “You will be able to compare quotations as apples-to-apples if….”

No, no, no.What you are saying here is that you are no different, no better than anyone else. The best you have to offer is a new price on an old policy.The buyer will hear this and immediately think: “Here we go again.”

LESSON 2: Risk Management. Really?

I see the phrase “risk management” in broker’s proposals and readily see that they don’t grasp the meaning. My explanation is as follows: risk management means “the process of protecting an or-

32 Canadian Underwriter April 2010

ganization’s income and assets through exposure identification, risk analysis, risk control, financing losses with external and internal funds and the monitoring of the process — all at the lowest possible cost.”

There are alternative definitions, but the one above works.

I also believe the following: “Identification is the most important step in the process of risk management, since you can’t manage what hasn’t been identified. Once you have identified exposures to loss, and before you make any insurance decisions, you must analyze the exposures, determine how to control them and then make loss financing decisions (which can include insurance).”

How does the broker propose to define his or her role within the risk management process, as defined above? Risk assessments don’t always include an insurance review (that is risk management). If you are going to say your approach to insurance includes risk management, know what it means and demonstrate it.

LESSON 3: Live by Price, Die by Price If you gained your clients on price, be prepared to lose them on price. The market has been soft for the past few years and buyers have been conditioned to expect regular reductions. How will you cope when the pendulum swings the other way? Re-train your client? That will be a challenge.

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LESSON 4: Know Your Client It fascinates me that brokers don’t always understand their clients. I know of one occasion in which the broker was invited to one of the client’s kick-off meetings. Prior to the meeting, I reviewed the company’s Web site, where I learned that they had facilities in two American states. It was obvious that the broker was not aware of them.Alas, the client had insured the two U.S. facilities locally, not knowing that it could have done so on a “global” basis.

That was a disaster waiting to happen.

In recent projects, I have encountered private schools with no abuse coverage, wineries with no contamination insurance, sports clubs with participant exclusions, hotels with a property definition that didn’t include site improvements and a ship-repairer with a watercraft exclusion. No kidding. Know your client’s business thoroughly.

LESSON 5: Be Honest To a prospective client, a broker stated: “We provide the best coverage, lowest pricing and greatest stability.”

Really? You can’t prove that.

So how about saying instead: “We offer comprehensive protection, competitively priced and placed with A+ rated insurers”?

Your prospect knows the first statement isn’t believable.You can start a relationship on a positive note with a more believable claim like the second one.

Another memo to a client read: “Margin Clause? Oh, that’s a mistake, we’ll have it corrected.”

When the client investigated the meaning of a margin clause, he became alarmed. He sought my assistance, suspecting where there is smoke, there may be fire.

Basically, a margin clause is a non-standard commercial property insurance provision that limits to a specified percentage what the insured can collect for a loss at a given location.

LESSON 6: Insurance to Value Brokers have a duty to their client regarding coverage adequacy.

34 Canadian Underwriter April 2010

For example, I worked with a broker that had a hospital as a client. I calculated that the policy limit represented $135 per square foot. Replacement cost was actually more than $300 per sq. ft.

I explained to the client that replacement includes demolition, debris removal, bylaws, soft costs, permits, weather, shortage of labour and materials, site preparation and the cost of a new structure of like kind and quality.

The explanation offered for the discrepancy between the policy limit and the actual reconstruction cost was justified as follows: “Clearly, the risk of a full loss of the hospital is negligible, maybe nil.”

Can you believe it?

LESSON 7: Know Your Product. If you Don’t, Your Competition will Gladly Explain It One interesting aspect of my business is reviewing broker reports. Here are some recently noted observations, based on some of the reports I have read: • Stated Amount Co-Insurance is the same as No-Coinsurance.

• A contractor’s liability policy with a roofing exclusion is useless paper.

• ‘Additional insureds’ are not the same as ‘additional named insureds.’

• You should know if your client’s policy has a margin clause.

• The words ‘value’ and ‘limit’ are not synonymous, and • ‘Umbrella’ insurance is not the same as ‘Excess’ insurance.

This list could be longer, but no doubt you get the point.

LESSON 8: CYA with a Purpose This statement to a client was part of a renewal report: “Other insurance products to consider are Directors & Officers Liability (including Employment Practices Liability), Environmental Liability, Pandemic Extra Expense, Terrorism Property Damage, E-commerce, Fungus/Mould, Kidnap and Ransom and Errors & Omissions Liability.”

I asked the broker to explain the recommendation. The broker told me “it’s

part of our standard CYA [Cover Your Ass] recommendation.”

If you haven’t identified and analyzed an exposure, why just recommend something to cover your own butt?

Shouldn’t you recommend something to cover your client’s butt? You would enhance your relationship and distinguish yourself in the process.

LESSON 9: Are You Solution or Product Oriented?

If you want to be seen as a value-added solution provider, you can’t make statements such as “our [insert any business line here] clients appreciate the specifically designed program offered by XYZ Insurance Company.”

Business owners don’t “appreciate” insurer’s products as much as they appreciate solutions to their problems — especially if the broker recognizes a need and identifies a solution. Know your clients, understand their business, identify challenges and problems, offer solutions and you will have satisfied clients who want to stay with you.

LESSON 10: What is your Unique Difference?

And Don’t Say: “We Give Good Service.”

The public expects all brokers to provide “good service.” After all, don’t they?

What is good service? I ask new clients to explain what they appreciate about their current broker.The typical response is, “good service.”When I ask them to explain, a blank expression typically follows.

When I probe, they say: 1) the broker returns calls promptly, 2) if I need a certificate, I get it quickly and 3) if I call with a question, they provide the information.

That is not good enough. Your clients deserve better than that. If you want loyal clients, you need to know how to differentiate yourself from your competitors and demonstrate that difference. If your client does not know the difference, they will believe you are the same as your competition. And hence, they will welcome alternative proposals every year.

Sound familiar?

Territorial Defence Independent brokers in Canada have seen some of their ongoing struggles with banks and credit unions evolve into different forms. It’s a non-stop tug-of-war, with all of the sides vigorously defending their territory against one another. Who has the upper hand?

BY VANESSA MARIGA

36 Canadian Underwriter April 2010

Independent

brokers in the

Canadian marketplace are engaged in an ongoing tug-of-war with banks and direct writers. Issues emerge, brokers dig in their heels and pull with all of their collective might in an attempt to pull the knot in the centre of the rope, the government and regulators, onto their side of the field. In some cases, brokers gain ground. But then the rope tightens, a force yanks them back in the opposite direction and they’re forced to redefine their centre of balance. During this ongoing battle, brokers across Canada admit that they have celebrated the ground they gained, have continued to dig their heels in even further on other issues, and in some cases, they’ve loosened the grip on the rope and allowed a little more slack.

Imagine two dogs snarling and barking at one another, non-stop, each defending the territory on its own side of the fence.

As you move across Canada, issues facing brokers vary from region to region.

Each individual provincial association is engaged in its own tug of war. In Quebec, it’s over the incidental sale of insurance by unlicensed agents. In Manitoba, brokers are working through the implementation of a five-year renewal process for personal auto policies. B.C. and Alberta have re-negotiated their respective Insurance Acts. Ontario is facing a major set of auto reforms.

Underlying these regional issues, there are a few common fences that brokers are fiercely trying to defend. These issues pertain to the push for amendments to the Bank Act to clarify “separate and distinct” once and for all, concern about credit unions moving from the provincial jurisdiction to the federal sphere, and the use of credit scoring to underwrite personal lines persist, regardless of where a brokerage is situated in Canada.

April 2010 Canadian Underwriter 37

COVER STORY

Territorial Defence Separate and distinct: a branding exercise The issue of banks setting up insurance operations is not new. For years, brokers have argued that some of the banks are not operating within the intent of the federal Bank Act when they establish insurance operations adjacent to — and in some cases, separated by a glass wall from — their banking operations.

In the Insurance Business (Banks and Bank Holding Companies) Regulations, it states: “No bank shall carry on business in Canada in premises that are adjacent to an office of an insurance company, agent or broker unless the bank clearly indicates to its customers that the bank and its premises are separate and distinct from the office of the insurance company, agent or broker.”

Brokers’ arguments that the banks were not upholding the spirit and letter of the law have transcended the issue of where the banks’ insurance branches have been physically set up; now the brokers have extended their arguments to the spheres of the Internet and the actual branding and marketing of insurance operations. The Insurance Brokers Association of Canada (IBAC) last year asked the Office of the Superintendent of Financial Institutions (OSFI) to interpret the act so that a bank’s Web site would be treated as a branch, making it illegal for the banks either to sell or market its insurance products online.

OSFI declined to come to this conclusion when it responded to brokers in June 2009. Federal Finance Minister Jim Flaherty then examined the issue under the recommendation of OSFI and sided with the brokers.

Last October, Flaherty announced the government’s intention to amend the Bank Act to bring it in line with technological advances. The current version of the act, he said, was drafted in 1991, long before the Internet was being used for everyday commercial transactions.

Chisholm Pothier, a spokesperson for the Office of the Minister of Finance, says that since the October announcement, the department has “been consulting extensively with the industry over the past few months on the best measures to 38 Canadian Underwriter April 2010

achieve this policy objective and expect to announce these measures soon.”

In the meantime, banks have been asked to comply voluntarily. Andrew Addison, manager of media relations for the Canadian Bankers Association, says the banks have adopted a wait-andsee approach. “Clearly banks in Canada

I guess the test is asking the consumer what they think when they walk by these bank branches and the banks’ insurance operations side-by-side.

As long as it’s clear to the consumer that these two operations are separate and distinct, then it’s okay. But we don’t believe that’s what’s taking place.

comply with all aspects of the government’s insurance regulations, including autonomous insurance branches and Web site operations [and in fact, the latter was specifically confirmed by OSFI last June]. The federal government has indicated it will be bringing in some specific measures related to Web sites, and we are waiting to see the detail.”

While that policy objective has received a groundswell of support from the independent brokerage community, there

is still much work to be done, says Steve Masnyk, IBAC’s manager of public affairs.

As Minister Flaherty was making his announcement in Oct. 2009, Liberal MP Alexandra Mendes tabled Bill C-457, An Act respecting the insurance business (banks and bank holding companies).

The bill essentially picks up where Minister Flaherty left off. It calls for the Bank Act to be amended so that it states: s “No bank shall, in Canada, promote an insurance company, agent or broker.” s “No bank shall, in Canada, promote an insurance policy of an insurance company, agent or broker, or promote any service related to such a policy.” s “No bank shall provide a telecommunications device that is primarily for the use of customers in Canada and that links a customer with an insurance company, agent or broker by any means, including the Internet.” s “No bank shall carry on business in Canada in premises that are adjacent to an office of an insurance company, agent or broker.”

As of press time, the bill has only had its first reading in the House of Commons.

Masnyk believes it contains some muchneeded clarification and specification.

“It should be clear to consumers that one has nothing to do with the other,” he says. “I guess the test is asking the consumer what they think when they walk by these branches side-by-side. As long as it’s clear to the consumer that these two operations are separate and distinct, then it’s okay. But we don’t believe that’s what’s taking place.”

The issue extends to the actual branding by the banks of their insurance operations, he continues. “The banks are trying very cleverly to brand both operations as the same. They even have glass walls and glass doors leading from one branch to the next. The same colours, the same logos, the same insignias; that’s very confusing to the consumers.”

Darryl McKay, president of the Insurance Brokers Association of Saskatchewan (IBAS), agrees. “If [the banks] are going to make their Web sites separate and distinct, and their physical branches separate and distinct, then maybe a logo

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COVER STORY

Territorial Defence change would be good, too,” McKay says. “From a consumer’s standpoint, at least the consumer would be able to make their decision process a little less pressured. If they’re taking a loan from the bank, then a pressure exists to get their insurance from the same bank.

By creating two completely different brands, that might help alleviate that pressure.”

Enter the Credit Unions Credit unions selling insurance has become a sort of analogous issue to the banks retailing insurance, albeit more acutely in certain parts of the country. Until now, though, credit union operations have not been allowed to incorporate federally. Historically, for the most part, they remained regional, local players.

David Schioler, CEO of the Insurance Brokers Association of Manitoba (IBAM), says so far in his province, credit union ownership of brokerages has not become a major issue. But IBAM is keeping a close eye on the situation.

With credit unions, he says, “you have the same issues in terms of tied selling and the sharing of banking information to sell insurance and so on, as you do with the banks,” he says. Schioler noted that one credit union in Manitoba has included with clients’ banking statements flyers that advertise its insurance services.

Georges Leger, president of the Insurance Brokers Association of New Brunswick, says that until now, credit unions in that province have been a bit of a “thorn in the side” of brokers. A couple of years ago, the provincial government gave French credit unions a broker’s license. While IBANS has been lobbying the government to re-consider this decision, they have not met with much success, Leger says.

“I know credit unions own brokerages in other provinces, but this is the first of it in this province,” he says. “And when [the credit union] released its business plan, there were all kinds of references within it that they were going to use credit information and so on to target clients, which is against the networking regulations that are part of the Credit 40 Canadian Underwriter April 2010

Unions and Caisse Populaires Act in this province. We are certainly opposed to that, because that’s unfair competition.”

In March 2010, Flaherty’s federal budget included an announcement that may lend credit unions a little more weight in insurance operations. In its budget documents, the Department of Finance Canada says it intends to introduce a “legislative framework to enable credit

If the banks are going to make their insurance Web sites separate and distinct from their banking operations, and their physical branches separate and distinct from their insurance operations, then maybe a logo change would be good, too. unions to incorporate and continue federally, which will promote the continued growth and competitiveness of the sector and enhance financial stability.”

The announcement was made with the intention of allowing the credit unions to compete more fairly with their bank counterparts. But, by extension, the announcement may also mean increased competition for the broker channel by allowing credit unions to compete more aggressively in the insurance sphere.

While alarm bells aren’t exactly sounding over the announcement, brokers are maintaining a watchful eye on

the situation. Randy Carroll, CEO of the Insurance Brokers Association of Ontario, says it was an “interesting” announcement. Still, he notes, if credit unions apply to go federal, they may be foregoing benefits they currently enjoy in the provincial realm. In Manitoba, for example, Schioler observes that credit unions are governed provincially by a Memorandum of Understanding, which was signed with the Insurance Council back in 2004-05. Basically, the memorandum represents an agreement that credit unions will compete fairly with stakeholders in the insurance sector. But if a credit union in Manitoba were to incorporate federally, it would be subject to the Bank Act instead, which contains restrictions on insurance sales.

Manitoba’s provincial memorandum does not include any enforcement mechanisms, penalties or sanctions.

As of now, although credit unions fall within the provincial jurisdiction, no formal legislation or regulations exists governing their sale of insurance. IBAM is currently working with provincial stakeholders to create such a piece of legislation.

Leger says IBANB is also lobbying its provincial government to enhance regulations of credit unions in that province to bring them in step with federal regulations of the banks.

“We told the Minister of Justice (who oversees both credit unions and insurance files) that a credit union to us is a bank. They do everything that a bank does, so they should abide by the same rules as the banks. And if the banks are being told federally that they can not sell or market insurance at the same place as credit is granted, then that should be enforced here too.”

Should a credit union decide to incorporate federally, Pothier says, “subject to an appropriate transition period, credit unions that elect to be federallyregulated will be subject to the same rules and regulations governing the sale and promotion of insurance products” as the banks.

The issue has the potential to grow even more complicated, says Schioler.

Should credit unions start incorporat-

COVER STORY

Territorial Defence ing nationally (because they want to operate across boundaries), that might completely take them out of provincial jurisdictions. “For the longest time, it’s been believed to be the case that insurance is an area that falls under a provincial jurisdiction, whereas banking falls under federal jurisdiction,” he says, adding that this originates with the division of powers outlined in the Constitution Act. While insurance was never mentioned in the constitution, over time and through case law development, the argument was made that it belongs in the provincial sphere — because insurance falls under property and civil rights.

“Let’s just take it all the way,” says Schioler. “Let’s say that all of the credit unions decide that they want to incorporate federally and operate across provincial boundaries. Wouldn’t that start taking insurance, at least to that extent, out of provincial jurisdiction?” The end result might be two separate heads of government overseeing organizations involved in insurance activities. Imagine, for example, the federal government governing credit unions, while the provincial governments oversee everything else with respect to insurance — including brokers. “That could cause some complications,” Schioler says.

A lot that would have to happen to get to that point, Schioler says. But it isn’t entirely beyond the realm of possibility or reason. “The main thing right now is that we have to make sure that the credit union-owned brokerages would be playing on a level playing field as brokerages, and also operating under the same set of rules that protect consumers,” he says. “Brokers offer choice and aren’t using financial information on someone in the capacity to grant someone or not grant someone a loan if they don’t buy their insurance product.”

Credit Scoring The use of financial information — more specifically, credit scores — in the underwriting of personal lines has become a thorny issue across the country. The issue not only separates brokers 42 Canadian Underwriter April 2010

from banks and credit unions, it separates brokers from each other.

Some provincial broker associations have taken a hard stance against it, making the argument that the use of credit scores puts consumers at a disadvantage. Too often a person’s credit score is negatively affected by something — the loss of a job or a divorce, for example — that has no bearing on whether or

Let’s say that all of the credit unions decide that they want to incorporate federally and operate across provincial boundaries.

Wouldn’t that start taking insurance, at least to that extent, out of provincial jurisdiction?

That could cause some complications. not they constitute a good insurance risk. Others brokers argue that not allowing insurers access to credit scores puts the insurance industry at a disadvantage when competing with banks or direct writers.

The Canadian Council of Insurance Regulators (CCIR) has formed a subcommittee on insurers’ use of credit scoring, with the intention of eventually drafting standards for its use. The council’s initiative is in its infancy; as of press deadline, the committee is

primarily gathering information and consulting industry stakeholders, both in Canadian jurisdictions and American jurisdictions, to try to determine a solution that satisfies all stakeholders.

Jim Hall, the sub-committee’s chair, told Canadian Underwriter that among the objectives of the committee is the eventual drafting of a public consultation paper.

A springboard for the discussion will no doubt be the Insurance Bureau of Canada (IBC)’s Code of Conduct for Insurers’ Use of Credit Information. Released earlier this year, the voluntary code contains 10 general guidelines governing insurers’ use of credit-based insurance scores for the purpose of quoting, underwriting and rating. [For an outline of the principles contained in the code, please see the article on Page 24 in this issue.]

The IBC’s code and the CCIR’s investigation into the use of credit scoring appear to be too little too late for some provincial governments. For example, New Brunswick’s provincial government announced amendments to the province’s Insurance Act in February that would prohibit the use of credit scoring “in all classes of insurance.” The announcement was followed a month later with the release of the province’s Consumer Advocate for Insurance’s 2009 annual report. In the report, the Consumer Advocate cited the use of credit scoring in personal property lines as an emerging issue.

“The use of credit scoring by insurance companies as an underwriting tool for personal property is not a new practice but it’s becoming more and more prevalent, especially in the house insurance market,” the report said. “We have serious concerns with this practice and we feel very strongly that it is not in the best interest of consumers seeking to purchase or renew their insurance.”

Roughly one year earlier, Newfoundland and Labrador’s Consumer Advocate Tom Johnson voiced similar concern.

He told CBC he’s not sure why an insurer would need access to a person’s credit score to underwrite their personal lines.

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COVER STORY

Territorial Defence John Penney, president of the Newfoundland and Labrador Insurance Brokers Association, says he believes his provincial government will be following in New Brunswick’s footsteps with an all-out ban. “We’ve taken the position as the broker association that we understand the actuarial validity of credit scoring, but we don’t necessarily believe that it is in the best interest of the consumers.”

Blake Craig, president of the Insurance Brokers Association of Prince Edward Island, agrees with Penney. He acknowledges that credit scoring might be an effective underwriting tool. But “I think the problem is that people’s credit can be affected by a number of negative life situations,” he said. “You can check around for a new mortgage, you can have family illness requiring a lot of funds, you can get separated or divorced, and that can affect your credit, but it doesn’t necessarily make you a worse insurance risk.” [The IBC’s code does address these kinds of emergency situations.]

Craig recalls stories on P.E.I. in which a credit check was done, and homeowners’ renewal rates were offered at double the past year’s rate. The “only apparent reason was that it had to do with their credit,” he said. Lorne Perry, president of the Insurance Brokers Association of British Columbia, shares similar concerns, noting that more and more it seems to be used in personal property lines.

In Ontario, the Financial Services Commission of Ontario (FSCO) added some legislative muscle to its current prohibition on the use of credit scoring in automobile insurance as part of its auto insurance reforms. IBAO’s Carroll believes the province should adopt the same approach as New Brunswick, with an all-out ban.

Carroll notes it is illegal to drive without insurance in the province, and so it would be an unfair practice to require a credit score to write this kind of insurance. But although a similar legislative restriction is not in place in homeowners’ lines, it’s still more or less a requirement that a person has insurance on his or her home.

44 Canadian Underwriter April 2010

“It’s pretty mandatory for me to carry insurance on my house in order to carry a mortgage,” he said. “I don’t really have

It’s pretty mandatory for me to carry insurance on my house in order to carry a mortgage. I don’t really have a choice.

If it makes sense to protect consumers from insurance companies having access to their credit information on the auto side [i.e. because auto insurance is mandatory], then it still makes sense to protect them from having the same insurer have access to their credit information as it relates to their homeowner’s policy. a choice. If it makes sense to protect consumers from insurance companies having access to their credit information on the auto side, then it still makes sense to protect them from having the same insurer have access to their credit information as it relates to their homeowner’s policy.”

Elsewhere, the issue is not cut-and-dry.

Schioler says IBAM has not taken an official stance on the issue because there’s a lack of consensus within the broker community. Some argue that banning the use of credit scoring will put the insurers being distributed through the broker channel — and thus the broker channel itself — at a competitive disadvantage with other financial service providers that use it.

In Quebec, credit scoring in all personal lines has been common practice for roughly seven or eight years, Louise Mathieu, president of the Regroupement des cabinets de courtage d’assurance du Québec. And so far, she believes the benefits have outweighed the risks associated with it.

“In Quebec, we have been living with this for seven or eight years now. At the time that it was introduced, we had to face the fact that the direct insurers or the banks were using it. As the broker and the regular insurance company, if they did not start to use credit scoring we were losing all of the good clients to the directs. If you can’t beat them, join them. That’s what they say. So, that’s what the brokers in Quebec did at the time. We live with this. It’s okay for us in Quebec.”

If the use of credit scoring is approved, Schioler says, effective regulation will be key. “While we don’t necessarily agree that credit scoring is an essential tool, it is an available tool,” he says. “And if it’s going to be instituted and utilized across the board, then we just have to make sure that everyone knows what the rules are and are held accountable to those rules.”

One good rule would be: credit scoring should only be used to provide discounts on premiums to consumers who have a good credit rating, Schioler says. It should not be used to deny someone coverage if they have a bad credit rating.

“It can be used to attract and retain clients,” he says. “It could be used to provide good and proper pricing for clients. If insurers don’t intend to use it to deny coverage, then that would make sense.”

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Complex, But Not Ambiguous Letter to the Editor

Brian E. Levitt Psy.D., Clinical Psychology, Clinical and Rehabilitation Psychologist, Kaplan and Kaplan Assessment Center

Ronald Kaplan Ph.D., Clinical Psychology, Partner, Co-founder, Kaplan and Kaplan Assessment Center

Determining catastrophic impairment is a clear, consistent process supported by rigorous scientific methods that don’t speak to any sort of ‘ambiguity.’

We appreciate the opportunity to address the article on catastrophic impairment that appeared recently in Canadian Underwriter (‘Catastrophic Ambiguity,’ January 2010).

The article raised a number of issues ranging from potential ambiguity in the Statutory Accident Benefits Schedule (SABS), concerns over the merit and feasibility of quantifying mental and behavioural impairments, the use of the 4th edition of the AMA Guides to the Evaluation of Permanent Impairment (1993) (Guides 4) and criteria for catastrophic impairment due to brain injury.

We address each of these areas of concern briefly.

COURTS CLEAR AND CONSISTENT ON CATASTROPHIC INJURIES First, sources in the article say judges and arbitrators have interpreted SABS in a variety of ways.

This is incorrect. Numerous recent judicial and

46 Canadian Underwriter April 2010

arbitral decisions have been clear and consistent with respect to interpreting catastrophic criteria.

Decisions have been clear that all impairments are rated with respect to a whole person impairment rating (bodily, mental and behavioural) for consideration under SABS Subsection 1.1 (f).

They have also found one marked class of impairment satisfies the test in SABS Subsection 1.1 (g) for catastrophic. No decisions deviate from this, and case law appears to be rather focused and increasingly clear on these issues.The recent Pastore and Augello arbitration appeals provide an excellent historical analysis of the case law, as well as further clarity on these issues, and we encourage readers to seek these out for further review.

IMPAIRMENT RATING HAS MERIT AND METHODOLOGY Some sources in the article assert that psychological impairment calculations lack any merit or methodology.This is also incorrect. It is not that impairment rating lacks merit. Guides 4 states it is difficult to separate psychological impairment from disability and to make impairment ratings with precision. Guides 4 does not say it lacks merit to provide such ratings estimates. Interestingly, the Guides 4 makes it clear that, with respect to other areas of impairment ratings used throughout the Guides, that these are estimates

and thus lack precision. Despite this, the other chapters offer quantitative impairment ratings. Incidentally, the rating table for emotional and behavioral changes after brain injury and disease (Chapter 4) references the scheme used in the mental and behavioral chapter (Chapter 14), and the method is straightforward.

Several methodologies are available to the user of the Guides 4 to quantify mental and behavioural impairments.

Possible approaches include rating by analogy (as supported in the Guides 4 and the SABS), using an earlier rating table referenced in Guides 4 (as endorsed in the recent Augello appeal by FSCO arbitrator Lawrence Blackman), and using the Global Assessment of Functioning (GAF) and applying it to a conversion table used by the State of California (as a first step in determining a quantitative mental and behavioural impairment rating) are

Guide 4 states it is difficult to separate psychological impairment from disability and to make impairment ratings with precision. Guide 4 does not say it lacks merit to provide such ratings estimates. all possible approaches. No single methodology has been mandated. We note that similarly, there are alternative methodologies used for rating various physical impairments.

Subsection 1.1 (f) of the SABS refers to combining impairments to determine a “whole person impairment (WPI),” not just physical impairments.The mind and body do not exist in separate places; impairments of either or both are necessarily impairments of the same whole per-

son. We note this approach is consistent with the World Health Organization approach to the international classification of functioning (ICF), wherein mental functions are one of eight body functions.Therefore, it is not a “loophole” to include mental and behavioural impairments with all other impairments of a whole person. Rather it is operating in a manner that is consistent with clinical science and fairness. Some people have physical impairments and no mental and behavioral impairments. Some have the same physical impairments, but may also suffer from a disabling depressive or anxiety disorder due to their motor vehicle accident (MVA) and physical injuries that further impair them beyond the impairments due solely to their physical injuries.This is captured by including psychological impairments with other bodily impairments in determining the WPI rating.

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This understanding is consistent with Ontario Superior Court Justice Harvey Spiegel’s interpretation of Subsection 1.1 (f) of the SABS as a “catch all.” It points to a rating of the whole person, which includes bodily and mental and behavioral impairments. There is no reason why this would create any ambiguity, confusion or lack of clarity. Also, Spiegel's interpretation is not that Subsections 1.1 (f) and (g) of the SABS are combined, a common misunderstanding. Subsection 1.1 (f) is a quantitative definition of impairment that covers the whole person, whereas (g) is a qualitative definition that focuses specifically on mental and behavioral impairments.

CAUSES OF MENTAL OR BEHAVIOURAL IMPAIRMENT ARE ANALOGOUS The article raises the point that mental and behavioural impairment due to brain injury is not analogous to mental and behavioural impairment due to another psychological disorder. However, DSM-IV-TR does not make this distinc-

The idea that rating mental and behavioural impairments lacks merit and sound methodology to determine valid ratings is not consistent with current science. Indeed, one of the strongest fields in the health sciences is that of psychometrics and measurement of behaviour. tion in applying a GAF (a symptom severity or functional impairment rating) as a part of any diagnosis (due to brain injury or other psychological disorder). In addition, Guides 6 uses a GAF table in both the neurological chapter’s rating of mental and behavioural impairment due to brain injury and rating in the chapter devoted to mental and

48 Canadian Underwriter April 2010

behavioral impairment due to psychological disorder. It does not have an issue with quantifying mental and behavioural impairments due to psychological disorders that are not caused by brain injury to be combined in a whole person impairment rating with ratings from the other chapters covering bodily impairments. Again, the idea that rating mental and behavioural impairments lacks merit and sound methodology to determine valid ratings is not consistent with current science. Indeed, one of the strongest fields in the health sciences is that of psychometrics and measurement of behaviour.

Further, the issue of outdated versions of the AMA Guidelines being required in the SABS is a problem faced in all jurisdictions when legislation/regulation is developed at a certain time and mandates a certain version of the Guides.

Since there are substantial differences in the philosophy and methodology of later versions of the Guides, they cannot simply be substituted for the 4th edition. Rather, careful consideration is needed regarding how use of newer versions would affect ratings — particularly in the areas of neurology and psychiatry, where substantial changes occurred. In addition, one must consider the interaction of the Guides and the SABS, the development of case law and unpredictability associated with introduction of another version of the Guides.

There has also been considerable misunderstanding regarding the rationale for placing the Glasgow Coma Scale (GCS) in the SABS. The Glasgow Coma Scale is probably the only measure of brain impairment/brain injury found in the medical file of almost every patient who suffers a brain injury in situations in which their level of consciousness is reduced. Use of the GCS allows an early, administratively simple determination of “catastrophic impairment” status on the day of the motor vehicle accident.

This in turn provides a high level of certainty regarding potentially available

benefits for insureds with brain injuries.

The problem is not the inclusion of a measure that allows early identification of those at risk of needing a higher level of benefits due to brain injury. Actual access to those funds is dependent upon the “reasonable and necessary” test.

Rather, the problem is that no method has been determined for early identification of those at risk of a need for a higher

Any changes to the SABS with respect to catastrophic impairment must be entered into with great care. Including mental and behavioural impairments with other bodily impairments to determine WPI is in keeping with contemporary understanding that mind and body are aspects of the same whole person. level of benefits due to multiple complex physical injuries, causing those with severe orthopedic injuries to have to wait two years or more for determination.

Any changes to the SABS with respect to catastrophic impairment must be entered into with great care. There is a clear rationale for including the GCS as a useful indicator of catastrophic impairment. Also, including mental and behavioural impairments with other bodily impairments to determine WPI is in keeping with contemporary understanding that the mind and body are aspects of the same whole person; they do not exist in separate places.There are clear, valid methodologies applicable to rating mental and behavioural impairments. These ratings have merit in consideration of an overall whole person impairment rating. We conclude that, although catastrophic impairment analysis is a complex undertaking, it is not an ambiguous one.

Electronic Word of Mouth

Samantha Sampson Marketing Manager, Insurance Brokers Association of Ontario (IBAO)

The Insurance Brokers Association of Ontario (IBAO) has entered the electronic social circuit, and sees a real opportunity for brokers to find business through electronic referrals and discussion.

The Insurance Brokers Association of Ontario (IBAO) has taken a bold new approach to connecting with its members and consumers alike using some of the fastest growing interactive technology tools available today in social media.

Plenty of IBAO members are already using social media as means to connect with industry peers, existing customers and prospects.The association understands this is a brand new world for many of its brokers and would like to share a few tips on how to get involved in using online communities to market a business.

the clerk was as the local hardware store, and suddenly that store has a new customer. Someone else shares a story about where they found a discounted rate for an oil change, and the car dealer has new work. For brokers, a relevant example might be when an insurance-related topic comes up.Your advice as a broker becomes invaluable for someone at the event, and you end up with a new client.

These are exactly the types of stories and conversations that are taking place online, simply by someone posting a tweet (a message on Twitter), updating a Facebook status or writing a short post on a blog. Because of the context in which most of these online social tools are used, it is increasingly important for brokers to be involved in some capacity. Most of these conversations involve word of mouth or referral scenarios by users simply sharing their experiences, much like the traditional get-togethers mentioned above. Perhaps your brokerage might very well already be involved in social conversations taking place online.

THE NEW SOCIAL SETTING

HOW CAN A BROKERAGE GET INVOLVED?

Picture yourself at a friend’s house or family gettogether, where everyone is catching up and sharing stories about the past few weeks of events in their lives. Someone talks about how helpful

A brokerage can start off conservatively by being a proactive observer, reading and listening to online conversations, reading relevant blogs and getting used to the nature and context in which

50 Canadian Underwriter April 2010

information is shared. This way, you won’t feel pressured to share or post something right away. You might also consider setting up Twitter and Facebook accounts, so that when you do feel compelled to participate or share a comment, you are ready to go.

Eventually, you will start making online contacts and friends. A good place to start is to follow IBAO on Twitter.com/IBAOntario, and to become a fan of our Facebook page under the same handle. Many of IBAO’s Facebook fans and Twitter followers are members, industry media and others with a vested interest in the insurance industry. It’s a great place to start making connections and begin contributing to the conversation.

As you begin to interact, your status updates and posts may include general

Most online conversations involve word-of-mouth or referral scenarios, in which users simply share their experiences much like in traditional get-togethers. Your advice as a broker may lead to new business. comments about your daily experiences, or links to helpful and resourceful insurance information. If the links can be directed back to your Web site, so much the better. But you’ll want to avoid posting too much promotional material. One rule of thumb is no more than 20% of your posts should be “advertising.” People aren’t looking for a bunch of commercials: they’re looking to connect, interact and learn new things through the use of social media tools.

The world of social media can be overwhelming in the beginning. Once you start to see the value in using this new means to connect with a community, your natural appetite and desire as a broker to engage and interact with people will be paramount.You’ll start to see social media as an excellent means to grow your business. Hopefully, IBAO can help by leading by example.

CONNECTING WITH THE CONSUMER COMMUNITY USING MYINSURANCESHOPPER.CA IBAO has recently made a number of changes to its myinsuranceshopper.ca (MIS) Web site to better suit members, and to leverage the Web site to connect with existing customers and potential customers by using social media tools.

First, the association updated its

approach when it comes to how the broker directory is listed on the MIS Web site. Traditionally member brokerage offices appeared in the directory only if they specified that they would be quoting personal lines products, and if they provided us with their contracted insurers. Since February, the site has been revamped; now if a member broker hasn’t completed an MIS profile for

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51

their brokerage, they will still appear within the site, although they will not have consumer-quoting buttons on their profile page. However, the consumer will see the office’s contact details and the lines of business the brokerage has indicated it can service. This change allows the association to focus more of its MIS campaigning and advertising on commercial brokers, allowing the association to leverage the MIS site for the office’s contact details without needing a personal lines service arm in the brokerage.

Second, the association has also changed the manner in which the broker directory results are displayed. The changes include two components. First (and most importantly for the association), the brokerage now has the ability to build its own Web page as part of the association’s site. The IBAO calls this an Enhanced Broker Listing. If the brokerage wants to include its logo, some details about the brokerage (how long it’s been in business, community involvement, competitive advantages, etc.) and more specifics about the specialties of products and services it offers, it now has the space to do so. The reason behind this expansion was to provide members with a means to differentiate themselves from other member brokers also taking part in the MIS initiative. If a brokerage and another brokerage in town are both displayed in a competing search result, it allows each to explain in a few words their own unique value proposition.The consumer can then make a decision based upon more than just proximity to their home or familiarity with a particular brand. We encourage all of our members to set up an Enhanced Broker Listing page as soon as possible. It’s a way for brokerages to differentiate themselves, and increase their own branding on the association’s consumer site.

From the IBAO perspective, each Enhanced Broker Profile adds another page of insurance content to its Web site, making the MIS Web site much more

52 Canadian Underwriter April 2010

likely to score higher ratings with search engines such as Google or MSN. When consumers search for “auto insurance” or “car insurance,” search engines present a listing of Web sites considered to be the most likely and relevant matches to the consumers’ requests. Thus, if the

Media has changed and we need to embrace the word-ofmouth advertising we all crave in the digital arena. If brokers don’t take advantage of it, we are losing opportunities to build relationships into the future.

MIS Web site were to expand from its current 30 pages to 730 pages of insurance specific content, it would rank consistently higher for the majority of searches consumers use when looking for insurance information.The Enhanced Broker Listing then serves two purposes: 1) it allows members to individualize the consumer’s experience within the MIS directory with their own look and feel, and 2) it increases the traffic generated to the site by providing us with more

insurance content in the site as a whole.

A third enhancement added to the MIS site is the ability for consumers to leave feedback about a broker on their profile.

A consumer can submit a comment about a broker within the MIS site, and other consumers or visitors can then also see this feedback. In the spirit of developing and interacting within social media communities, the association is asking consumers to engage within the site.The association wants consumers to do more than simply use the site: it wants consumers to help build and create it. The association does have control mechanisms in place for this functionality, but the intent is to allow consumers the opportunity to describe to non-broker insurance clients what they’re missing. This means having someone other than the brokers themselves or the IBAO explain why they choose to do business with an insurance broker.

IBAO intends to launch a blog page on the MIS Web site soon. This would involve posting consumer-focused insurance tips and information, especially around the new auto regulations coming into effect on Sept. 1, 2010.The blog will offer an opportunity for consumers to post comments and questions that brokers or other consumers can answer directly on the page. The comments will remain on the blog, which might help other visitors looking for the same information.

The association is encouraging its members to get involved in social media and allow already-developed online communities to become connected with the MIS site. The long-term intention is to create electronic conversations among brokers, existing broker customers and potential customers. Media has changed, and we need to embrace the word-ofmouth advertising we all crave in the digital arena. If brokers don’t take advantage of it, we are losing opportunities to build relationships into the future. Every business will depend upon it and, most importantly, so will member brokerages.

WICC Announces a New National Sponsor at the Platinum Level

www.wicc.ca

WICC is delighted to announce a recent addition at the Platinum Level to its National Sponsorship Program.

“As an organization we wanted to financially support an established and proven charitable movement,” said Ken Zardo, vice president of national sales and marketing att FirstOnSite.

“I began supporting WICC in 2003 with fundraising and have received a WICC Gold Flame Award in recognition for these efforts.

Little did I suspect that in 2004, my own wife Rhonda would contract breast cancer,” Zardo said. “Over the next four and one-half years our family did what most families do, sought to bear the burden of our personal experience and keep

it hidden from those we encountered during that painful time. Rhonda fought this personal struggle with profound grace and valour but succumbed in the summer of 2008.”

FirstOnSite is honoured to join those WICC volunteers and partners and is extremely committed to maximizing its activities through its more than 1,200 employees at the local, regional and corporate levels to further enhance its contribution, he added. www.firstonsite.ca

FirstOnSite is now a part of a very special group of WICC National Sponsors at the Platinum Level.

WICC is extremely thankful to this group of organizations which share the vision and desire to put an end to cancer!

WICC National Sponsors at the Platinum Level also include:

Design compliments of

Brokers *

v. *

Underwriters Vanessa Mariga Associate Editor

Two occupations go head-to-head over who has “the best job in the world.”

Just how much sibling rivalry exists between underwriters and brokers? Sure, they work together to find the right solution for clients (one would hope they do, anyway), but if you ask underwriters or brokers on each side of the proverbial fence, each side would tell you they have the best job in the world.

But when you compare the two vocations to each other, as everyone is wont to do at industry events and water coolers across the country, which is the best relative to the other? Who really has “the best job?”

ROUND 1: THE STATS Research tells us that when it comes to recruiting, underwriters have a leg up over brokers.

The Insurance Institute of Canada published A Demographic Analysis of the Property and Casualty Insurance Industry in Canada 2000-2017 in 2008.The report, produced by R.A.L. Consulting, was the

54 Canadian Underwriter April 2010

first of a two-part series that examined the demographic data of 43 insurance and reinsurance companies, adjusting firms and brokerages in the Canadian property and casualty sector.

According to the study, brokers reported a much harder time recruiting. About 63% of brokers reported finding it “very difficult” to recruit, whereas only 26.7% of underwriters surveyed reported the same degree of difficulty in recruiting.

Nearly 40% of brokers and 66.7% of underwriters said recruitment was “somewhat difficult.”

No brokers reported that recruitment was a snap. In contrast, 6.7% of underwriters said they didn’t have any problems recruiting.

“Two factors stood out among the respondents’ perceptions of what made recruitment difficult — too few qualified candidates and uncompetitive compensation levels,” wrote the study’s author, Richard Loreto, president of R.A.L. But just because brokers appear have a trickier time drawing new blood into the their line of work than underwriters, that’s not to say that they have a tough time keeping the people they do recruit. When it comes to retention, the gap between the two sectors was not nearly as wide.

Nearly 60% of brokers and just over 50% of underwriters said that retention was “not at all difficult.”

The only factors that made retention difficult, according to a majority of respondents, included uncompetitive compensation levels and limited career prospects.

“There are lots of opportunities on the corporate side, but you’re going to be capped. As you go up the rungs, there are fewer spots, but the same number of applications. So, I think the odds of being able to control your destiny on the broker side are a little bit more.”

Judy Bell, office manager at Beyond Insurance, in Whitby, Ont., also started

ROUND 2: MONEY TALKS So it would seem money is a driving factor in drawing people into the business and keeping them there. But oddly enough, according to PayScale Canada, a salary benchmarking service, the median salaries for insurance underwriters and insurance brokers with less than a year of experience are neck-in-neck.

A newbie broker, according to the site, can expect to earn between $25,500 and $33,900 in his or her first year. Underwriters reported earning between $28,300 and $33,032 during the same period.

Look a little further down the career line, though, and it appears that once an underwriter hits the four-year mark in his or her career, the pay scale tops out around $49,000. There isn’t much movement from there until around the 20-year mark, at which point the range increases to a summit of $60,000.

In the brokers’ corner, while they can expect to earn roughly the same as their underwriter counterparts at the end of their careers, they seem to enjoy a steady increase in salary over the course of their respective careers.

ROUND 3: EMOTIONAL FACTORS Jason Famme, vice president of W.B. White Insurance in Oshawa, Ontario, started out in insurance as an underwriting trainee at a major insurer. It wasn’t long before he left the big corporation for a smaller, family-owned brokerage.

“I believe if I had stayed as an underwriter I probably would have climbed up a bit in the company,” Famme says.

Brokers are responsible for ensuring that the client has the right coverage and then working with a number of underwriters to find the right solution. From an underwriter’s perspective, there is only the one customer that you are looking at. You’re understanding that customer and helping the broker to select the right coverage. out on the underwriting side of the fence before shifting to the brokerage business.

For Bell, working as a broker allows her a freedom that she doesn’t feel underwriters enjoy.

“We represent many different companies. An underwriter can only work within the scope of their company’s rules and regulations, whereas a broker has more options,” she says, “So, I find that I can offer solutions rather than having to say, ‘No.’ There’s more of an opportunity as a broker to fulfill need than for an underwriter.”

Linda Regner Dykeman, senior vice president of commercial lines solutions and strategies at Aviva Canada, agrees that underwriting in personal lines can be quite structured, but underwriting commercial policies is a whole other ball game.

“Commercial lines is a lot broader and not as regulated [as personal lines],” she says. “It allows for a lot more creativity and analysis versus following rules and following a book.” Regner Dykeman takes a lot of pleasure in researching each of the industries for which she underwrites. She says she loves learning every little detail about them so that she can get a firm understanding of the risk and develop a coverage that’s tailored to the business.

RSA’s Ann Lomax, leader of property underwriting, agrees with Regner Dykeman.

When describing why she feels her job is the best, she says: “Nothing is ever static. Who would have thought 25 years ago we would need to put an exclusion into policies regarding marijuana grow operations, for example?”

She compares her job to being a detective. “It’s all about assessing the facts. Are they correct? Do they make sense? Have I answered all of the right questions?

And then coming up with an appropriate conclusion, which in our case is the premium.”

Underwriting tends to be much more analytical, sources say. Brokering, on the other hand, is more about negotiating and working with the consumer to shop around for the right coverages. But at the end of the day, it’s clear both sides of the fence feel that their ultimate responsibility is to help the insured — even if it means working together.

“Without insurance, very few people would take a risk,” Regner Dykeman says. “We look at it as a partnership with the broker.

“Brokers are responsible for ensuring that the client has the right coverage and then working with a number of underwriters to find the right solution.

Whereas from an underwriters’ perspective you have the one customer you’re looking at. You’re understanding that customer and helping the broker to select the right coverage.”

April 2010 Canadian Underwriter

55

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Premium Financing Risks

Renee Durepos Vice President, Operations, Keal Technology.

Premium financing is certainly not a new concept. Banks, insurers and third-party finance companies continue to experience healthy profits by capitalizing on this lucrative revenue stream. As the insurance distribution landscape continues to evolve, the future of the independent broker hangs in the balance. Increased competition, easy access to information, legislative changes and rate increases are likely to send techsavvy consumers comparison shopping come renewal time. Demonstrating the value of the independent broker is more complicated.

Selling insurance and serving clients is a labour of love for successful brokers. Creating an inhouse premium finance company can make those laborious efforts at least 85% more profitable. It can also provide brokers with an additional tool to service accounts — specifically, hard-to-place personal lines and large commercial lines accounts.

Sound simple? Not so fast. When big players like AIG pull out of the premium financing arena, there is legitimate cause for additional caution.

But it’s hard to ignore the opportunity. If done

correctly, the numerous benefits a broker can offer their clients and themselves outweighs the potential risks. The emphasis here is on the words “if done correctly.”

In this spirit, we’ve summarized the Top 6 risks of in-house premium financing and ways to avert them:

Bad debts Avoiding bad debt is critical.The process to avoid bad debt should not be so labour-intensive as to erode profits or introduce an element of human error. An automated system that flags and cancels clients in time to recoup unearned premiums is essential. Relying on an Excel spreadsheet doesn’t cut it. Smart financing revolves around secure systems and procedures that virtually eliminate guesswork. The general rule is to accept a 25% down payment at the start of the contract. This padding greatly minimizes the risk of accruing bad debt, by providing enough capital to pay out the contract if early cancellation is required.

Interest rate management An automated, secure system must be in place to calculate all interest charged, applicable late charges, and/or cancellation/other fees.This system must use the correct mathematical formulas that respect Canadian Laws. Example: the rule of 78’s applies to the calculation of rebate of interest on a pre-paid account. Also providing clients with preferred or increased interest rate based on risk assumed needs to be easily managed for

April 2010 Canadian Underwriter

57

Illustration by Paul Howalt/www.threeinabox.com

Premium financing is a way for a brokerage to grow its business. But it’s important to make sure the brokerage is protected against six potential risks.

accurate calculations. Using a system designed to manage the complexities of premium financing will do this simply and with integrity.

Client communication Efficient client communication not only streamlines workflows but also assists in adhering to applicable laws. End-toend audit trails encompassing the initial contract, the premium notice and the

cancellation notice — and everything in between — must be stored should proof ever be required. All client communication must be worded to adhere to Canadian rules and regulations. If not, the financing company could be held responsible.

An example of the importance of communication is as follows: A client has defaulted on its payments.

The finance company notified the in-

2010 CAIW ANNUAL CONVENTION Hosted by the Nova Scotia Insurance Women’s Association Date June 9th – June 13th, 2010 Theme – Follow The Light Location – Halifax Marriott Harbourfront, Halifax, Nova Scotia (1919 Upper Water Street Halifax, NS B3J 3J5 1-902-421-1700)

surance company, but the finance company didn’t communicate the cancellation to the insured, and an accident ensues. The finance company may be held responsible for not clearly communicating the policy termination.

With a secure system in place, events are triggered automatically, flags are raised through reporting and activities are stored and locked for protection.

Securing credit with financial institutions Without the appropriate resources, premiums simply cannot be financed. A system that automatically produces accounts receivables and dates them according to their age will simplify the procurement of the required credit. Not only does an automated system simplify the required reporting on a monthly or weekly basis, but it also meets initial

We are pleased to announce the Presentations for the CAIW Convention Education Day Friday June 11, 2010 are as follows: IBC – Investigative Services Auto Theft National Why Vehicles are stolen Auto Theft – International Market

Tyler Hayden – “Livin’ Life Large” East coast showcase, humour, easy choice “Livin’ Life Large”. This presentation is based on Tyler’s best selling book by the same name, and has direct application to “management, leadership and teambuilding” all by using simple actions that are learned by growing up in small towns.

Commander Josée Kurtz Commander Kurtz assumed the command of HMCS HALIFAX on 6 April 2009. Being the first female commander in a leading Naval port of Halifax. She will speak at the convention on her story of achievement in attaining this level in the Canadian Armed Forces.

Brenda Dudok Van Heel –Manager - Office of the Superintendent of Financial Institutions Canada Being the primary regulator and supervisor of federally registered deposit-taking institutions, insurance companies and federally registered private pension plans, "The Office of the Superintendent of Financial Institutions (OSFI) mandate is to advance and administer a regulatory framework that contributes to public confidence in a strong, stable and competitive financial system". Brenda will talk about

requirements compulsory by a financial institution to secure the financing in the first place. Sophisticated management reports will also identify exactly where the revenue is coming from: regular payments, late fees, NSF charges, interest, etc.

what OSFI is and what her role is as the manager and she will update everyone on how OSFI supervises the P&C institutions, including outlining the "supervisory framework".

NS Government – Transportation/Emergency Measures Organization This presentation showcases what catastrophes Nova Scotia has endured over the past 10 years. This will include issues associated with NS floods, mass evacuation fires, Airplane Crash (Swiss Air), Hurricane Juan, White Juan and the threats of terrorism. The presentation will involve a combination of videos, slides and actual items from various historic events.

www.caiw-acfa.com

58 Canadian Underwriter April 2010

CONTACTS FOR THIS CONVENTION ARE: Colleen Sampson cmsampson@hfx.eastlink.ca Debbie MacDougall dmacdougall@thedominion.ca

Fraud prevention Not protecting yourself from the possibility of internal theft is foolish.

Processes and procedures must allow for ultimate transparency. An effective system will produce management reports, including month-end reports, to maintain necessary checks and balances to prevent employees from embezzling or kiting. A premium financing system pro-

vides secure, trustworthy reports used by management to verify all policies are legitimate. This prevents the manufacture of fictitious policies that creates the opportunity for an individual to embezzle the money that would be sent to an insurer to pay the balance.

Not doing it when your competitors are Creating an in-house premium financing company to finance your brokerages clients can create a revenue stream to be reinvested in the brokerage. Many brokers are already dabbling in financing for specific, unique-needs clients or sending business to a third-party financer. Leveraging a premium finance system, integrated with the Broker Management System (BMS), can actually make the brokers sending policies for financing and the finance administrator

processing contracts more efficient.This gain in productivity often eliminates the need to hire additional staff to manage the newly formed in-house premium finance company.The revenue generated goes directly to the brokerages growth initiatives instead of lining someone else’s pockets.

Direct writers, banks and other brokerages offer financing and therefore can offer clients an additional, enhanced level of service. If clients are financed by the carrier with which they have been placed, the broker is limited by the insurer’s rules; this may not be in the best interest of the client. Harnessing the power of one-stop shopping truly

allows brokers to marry the needs of the insureds with the coverages available to serve them.

PREMIUM FINANCING AND GROWTH We continue to see a flurry of mergers and acquisitions as successful brokers achieve their business objectives. Growth is one important factor to be competitive. Demonstrating a brokers’ unique value proposition is critical and offering

a plethora of services, including inhouse premium financing, is one way to do just that.

Premium financing isn’t for everyone.

Clearly venturing into this arena requires planning and a pragmatic approach to be protected and profitable. For brokers who understand and evaluate the above risks, and who implement secure systems to guard against them, the benefits are many and very lucrative.

MOVING AT THE SPEED OF YOUR BUSINESS Like you, we accelerate in placing the customer’s needs in the fast lane by providing solutions to niche and non-standard accounts.

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www.amfredericks.com April 2010 Canadian Underwriter

59

g n i n a e L wer of Pisa To

Canada’s 2010 Swiss Re Breakfast

David Gambrill Editor

Vanessa Mariga Associate Editor

Those attending the 2010 Swiss Re Breakfast in Toronto could be forgiven for imagining the Canadian property and casualty industry as the Leaning Tower of Pisa, groaning under the weight of Ontario auto, taxes and regulatory burdens.

The Canadian property and casualty industry could have been mistaken for the Leaning Tower of Pisa in the way it was described at the 2010 Swiss Re Breakfast held in Toronto.

The breakfast featured the Insurance Bureau of Canada (IBC)’s annual state of the union address.

IBC’s portrait suggested an industry groaning under the weight of still-increasing auto insurance claims costs, an excessive tax burden and expanding regulatory costs.

Swiss Re opened the breakfast noting how international regulatory responses to make the world safe after the global recession may in fact run the risk of punishing the global insurance industry — i.e. by requiring more capital to address solvency concerns — for sins committed mainly by the banking industry.

60 Canadian Underwriter April 2010

Ontario auto bleeds more red ink Canadian property and casualty insurers writing Ontario auto lost an astounding $907 million in 2009, said Barbara Sulzenko-Laurie, IBC vice president of policy, in her ‘State of the Industry’ address.

The continued escalation of the “excesses and abuses” of Ontario’s no-fault SABS system resulted in a 23.5% increase in the direct loss ratio in Ontario AB lines, she continued. Between 2008 and 2009 the loss ratio increased from 124% to 148%.

Sulzenko-Laurie observed companies that had more exposure to Ontario auto — based on 50% or more of direct earned premium — were much more likely to have returns on equity (ROE) of less than 9%.

“For those companies that had more exposure to Ontario auto, 75% of those companies had an ROE of less than 9%, whereas those companies that were less exposed, almost 50% of those companies achieved an ROE greater than 9%,” she said.

The Financial Services Commission of Ontario remains “very optimistic” that the reforms coming into place Sept. 1, 2010 will meet its projected savings target of 31%, but Sulzenko-Laurie said she’s holding judgement.

She noted the plaintiff bar is already “trying to undermine the reforms” by holding information sessions on “how to get around” them. She read from a sheet of proposed legal seminars

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entitled, ‘How to Squeeze the Most out of $50,000,’ and ‘Catastrophic Impairment: New Directions.’

In her view, the reforms may have simply come too late.

Sulzenko-Laurie noted IBC approached the government as early as 2006 to take remedial action to curb rising AB costs.

Between that time and 2010, when the reforms will actually be implemented, the loss ratio in Ontario auto increased by 19%.

“The results of the slowness of responding to obvious problems in the system is that in the past two years, Ontario insurers have lost $1.3 billion,” Sulzenko-Laurie said. “Ontario consumers have seen their average premiums rise by 10.5%.”

Consumers paying the price for insurers’ tax burden More than 13% of the average cost to consumers of an insurance policy in

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

Back again to our series of “Did You Know” facts and figures about the Ontario Chapter of RIMS. Here are a few more AWARDS the Chapter has earned. After being around for 50 years, there’s a lot of great work to recognize!

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

Since 1993, RIMS has awarded us the following Chapter Awards:

1993 Outstanding Member Development 2002 Outstanding Chapter Programming 2003 Outstanding Chapter Programming 2004 Outstanding Member Services 2008 Membership Star Award for membership growth of 6.9%

www.ontario.rims.org

62 Canadian Underwriter April 2010

Canada goes to fixed taxes and regulatory costs, Sulzenko-Laurie said.

She noted the IBC commissioned PricewaterhouseCoopers (PwC) in 2009 to survey the regulatory and tax costs borne by insurers.

In its report (due to be released in April), PwC found Canada’s P&C insurance sector has a total tax rate of 67%.

This is much higher than the 30% rate for the nation’s six largest banks and the 27% rate for major Canadian corporations.

“In fact, the property and casualty total tax rate is among the highest around the world,” Sulzenko-Laurie said.

The total tax rate is so heavy because the property and casualty industry is “forced to bear an extremely heavy load of fixed provincial taxes that are unresponsive to whether the industry was profitable or not,” she continued.

In 2008, a weak financial year, 85% of the taxes borne by the industry was unresponsive to industry conditions, she said.

Last year, IBC measured the regulatory costs borne by P&C insurers for the first time. In 2008, the industry incurred $84.7 million of these types of costs, nearly half ($44.7 million) of which were spent on assessments.

“After looking at the latest results from OSFI, it appears that base assessments for the industry from OSFI went up 40% over the past five years… It would seem that at our expense they are sparing no expense.”

Unnatural disaster: HST The impact of the Harmonized Sales Tax (HST) on Ontario and B.C. property and casualty insurers’ reserves in 2009 — estimated to be $268 million — is equivalent to that of a large catastrophic loss, according to the IBC. Sulzenko-Laurie noted the effects of the HST in slides presented at the breakfast.

One slide showed a number of projected effects of the HST on Ontario and B.C. insurers between 2010 and 2015.

For example, retail sales tax (RST) on claims and operating costs for Ontario and B.C. insurers in 2010 is projected to total $436 million.

But add to that $34 million in operating expenses due to the HST, as well as an extra $83 million in claims costs due

to the HST, IBC figures show.

Suddenly, total RST paid, as well as increases to operating expenses and claims costs due to the HST, balloon up to $553 million in 2010.

IBC figures show the effects of the HST are even more pronounced in 2015.

In 2015, the IBC projects RST alone paid on claims and operating costs for Ontario and B.C. insurers would amount to $484 million.

Add the HST, however, and operating expenses would increase by $73 million in 2015. In addition, claims costs would increase by an extra $186 million.

And so in 2015, Ontario and B.C. insurers would pay an extra $259 million on top of the $484 million in RST alone, bringing the figure up to $743 million.

ities, but rather from their [use of] CDS [credit derivatives]…”

But even though the insurance model held up well during the crisis, regulators nevertheless face pressure from the politicians to make the world safer, Lippe said later in an interview after his speech.

International regulators are raising capital requirements for both banks and insurers throughout the world. But the impact of doing this has a distinct impact on the banking and insurance models.

For insurers, the costs associated with carrying additional capital will lower a company’s return on equity (ROE), and this will not sit well with shareholders.

If companies have more capital, the financial sector overall may be safer, Lippe cautioned, but for insurers, holding excess capital is bad for business.This is because of the drag effect of excess capital on a company’s ROE, which effectively reduces the value of the insurer in the eyes of its shareholders.

PCA Adjusters We Investigate

Banks sin, insurers punished?

It’s very important for financial services industry regulators to think about the differences between the banking and insurance industry models when proposing “broad brush” solutions to the world’s economic financial crisis, Swiss Re CEO Stefan Lippe cautioned at the 2010 Swiss Re Breakfast in Toronto.

“It’s very important to talk about the differences between the banks and the insurance because it’s vital to our survival…that regulators don’t get it wrong what our business models are about,” Lippe said.

Lippe noted that the banking model, based on liquidity, is different than that of the long-term financing model of the insurance industry.

“Our model is based on assets, based on long-term financing by our policyholders, and not by short-term debts and commercial papers like [one would see on] the balance sheets of banks,” Lippe said.

The global financial crisis was more of a liquidity issue than a capital issue, Lippe said. Even the one insurer experiencing the greatest difficulty arising from the global financial recession, AIG, did so because of its “banking-like activities.”

“The only problems we saw worldwide in the insurance industry came from banking-like activities, the most famous example is AIG,” Lippe said. “They didn’t stumble over their insurance activ-

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April 2010 Canadian Underwriter

63

Anatomy of a Liar A person’s speech pattern and/or behavioural mannerisms often indicate when he or she is attempting to present an alternate — read: false — reality to their insurers.

Donna Ford Freelance Writer

Everyone is stressed at the beginning of an interview. But with the honest person, stress usually subsides as the interview progresses, according to former Atlanta police officer and polygraph examiner, Glenn Foster.

But for the person who might try to lie about something — say, an insurance claim, for example — the stress never really dissipates. It manifests itself in the liar’s speech patterns.

Foster brought his one-man road show, entitled Anatomy of a Liar, to the Insurance Institute of Ontario’s offices in Toronto on Mar. 4, 2010.

In his one-day presentation, the self-described extrovert touched on some of the highlights from his detailed handout. He tested his theories of personality analysis on various members of the insurance audience, working the crowd with his

64 Canadian Underwriter April 2010

folksy wit and wisdom. A typical Fosterism: “Do not place too much confidence in the man who boasts of being ‘Honest as the day is long.’ Wait until you meet him at night.”

Foster teamed up with Frederick J. Link to develop the “Kinesic Interview Technique.” They published a book by the same name in 1980.

The Kinesic Interview Technique is a study of the deceptive behaviours of humans in stress, Foster said. It teaches guidelines, not ironclad rules.The technique is not reliable with children in puberty, mentally disturbed people, people with an IQ under 70 and people who have difficulty speaking English, he warned.

Foster suggested an interviewer or interrogator use all five of the following diagnostic areas before forming a conclusion about whether or not a person is attempting to deceive: • self–initiated verbal behaviour; • statement analysis; • body language (non-verbal behaviour); • “mood” profiling, moods of the guilty (Three directions of fight or flight); and • case fact analysis.

Foster encouraged insurers to have insureds write out their own statements, because state-

Illustration by Paul Howalt/www.threeinabox.com

Insurance Institute of Ontario Seminar

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a

According to Foster’s materials, the seven main things that a liar does with his voice are: • repeat a question; • speed up or mumble; • nervous or false laughter; • hesitation or mental blocks; • fragmented or incomplete sentences; • voice changes or throat clearing (the throat tightens up when someone is lying); and • inconsistencies of statement.

“Listen for the first complete sentence to come out of a person’s mouth and diagnose it,” Foster advised. Deceptive people will use six key words when rationalizing, projecting or minimizing an answer to a relevant area. Foster calls this ‘N.O.J.A.B.S.’ — never, only, just, always, because and since. “Watch for a NOJABS in the first sentence when you ask a relevant question,” he advised. If the subject is telling the truth, there is no

114 times in his deposition.

Foster said he watches for changes in voice and speech patterns, words and phrases.The key is to establish the norm — the subject’s unstressed behaviour pattern — and look for any deviations from that baseline behaviour. Inner tension in a person normally causes speech

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Deceptive people will use six key words when rationalizing, projecting or minimizing an answer to a relevant question.

This is called ‘NOJABS.’ (Never. Only. Just. Always. Because. Since.) Watch for NOJABS in the first sentence.

need for him to justify what he has just said.

Foster analyzed Bill Clinton’s famous statement, “I never had sex with that woman.”

“Never” is a NOJABS, and “that” is an attempt to shrink away from the event, Foster observed. Also, Clinton coughed

The PDS Network

ment analysis is the most accurate diagnostic area. When audience members informed him that insurers in Ontario seldom get to work with such statements, he encouraged insurers to videotape or audiotape their statements.When audiotapes are being transcribed, he suggested that everything be included, such as: (coughed), (mumbled and inaudible), (laughed) and (paused).

Foster said body language and verbal deception almost always occur at the same time, but it is easier and more reliable for the interviewer to concentrate on reading the voice signals.

April 2010 Canadian Underwriter

65

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flow and volume to increase; however, speed, volume and pitch may go either up or down at the point of a lie, he said.

The liar must remember everything that he has said continuously, and must remember what really happened and separate that from his alibi at all times, Foster said. Therefore, the liar’s mind is racing. Often liars will only hear a portion of what the interviewer is saying, since they have so much information in their minds. Beware of people who repeatedly ask for clarification, repetition and are greatly confused, he said.

If the liar loses control, one or more of the following will occur: • pausing; • stalling; • speech disturbances; • conjunctions — and, but, for, nor — may disappear; • a subject may become emotional or disengaged; or • sentences may become broken, with verbs disappearing.

When the interviewer sees evidence of the above, Foster said, he should go

Questions in response to your question represent a stall tactic. An early example of a ‘red flag’ occurs in the biblical story of Cain and Abel. After Cain kills his brother Abel, God asks Cain where Abel is.

“Am I my brother’s keeper?”

Cain responds. back and get the subject to complete the thought that he or she started.

Foster suggested an interviewer should use the same technique if the subject experiences either of the following in relevant areas of questioning: • memory failure (e.g. “I cannot recall.”)

• creating a ‘time bridge,’ by which Foster means removing a block of time (eg. when a subject uses expressions such as

Sometimes a guilty person will use “yes” and “no” in the same sentence, Foster said. For example, “Look, I know I was involved in a lot of claims, but I wasn’t involved in this one.”The subject is saying something truthful in the sentence and then adding something false at the end, hoping that the interviewer will cluster them together, Foster said.

Sometimes a guilty person will use ‘yes’ and ‘no’ in the same sentence. ‘Yes, I did before, but no, not this time.’ The subject is saying something truthful in the sentence and then adding something false at the end, hoping the interviewer will cluster them together.

“later on,” “after a period of time,” “the next thing I knew” or “eventually”).

In either of the above two scenarios, the interviewer should return almost immediately to the area of the memory failure or time bridge and rephrase the question. Always pin the subject down to a “yes” or “no” if you can, he said.

Also, watch for a subject’s rate of speech to speed up in an area. “This is the rehearsed part of the story,” Foster wrote in his materials. “Many times, when doing this, they will start using the expression, ‘And then,” he added.

Questions in response to your questions represent a stall tactic, Foster said.

He referenced the biblical story of Cain and Abel, in which Cain kills Abel after God rejects Cain’s offerings of produce, but accepts the animal sacrifices brought

by Abel. Cain was asked for the whereabouts of his brother, to which he responded: “Am I my brother’s keeper?”

This was an early example of a red flag, Foster said.

Foster suggested the interviewer always first ask the subject how much time elapsed in total, and then how much time elapsed for each event in the sequence of events. Later the interviewer can add up the times for each event to see if they match the total time period given to the interviewer at the outset.

“Pausing is the most accurate indication of deception,” Foster said. Pausing is done when the question catches the subject off guard. Foster said to watch for stalling sounds like “ah, er, uh, um,” or a quick intake of air when faced with relevant questions.

Speech disturbances, when used in relevant areas of questioning, are all forms of stalling, Foster said. Speech disturbances are sounds, not words. They are usually uttered before a sentence, and include groaning, moaning, laughter and grunts. Foster gave the following example. A wife asks her husband, “Do you still love me?” The husband responds, “Uh, huh. Yeah.”

Foster doesn’t recommend that interviewers practice their kinesic interview techniques on their own spouses.

April 2010 Canadian Underwriter

67

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WICC invites everyone in the insurance industry to participate in a Relay For Life event this June.

Join the WICC HQ event at Esther Shiner Stadium, or find one closer to home at wicc.ca.

Our WICC teams and industry sponsors raised a fantastic $222,000 in our inaugural year.

This year we plan to double that amount! We are well on our way to making Relay For Life the number one charity event for our industry, demonstrating that we are caring individuals and good corporate citizens.

Help WICC realize its goal of raising $444,000 with participating in Relay For Life this summer.

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Settling the

Score

Are Pierringer agreements and Mary Carter agreements still effective tools for minimizing litigation risk?

Alexis Moulton McLennan Ross LLP McLennan Ross LLP is a member law firm of ARC Group Canada

Parties, particularly in large, multi-party lawsuits, have always looked for tools to minimize their risk and exposure. The courts have largely accepted two such tools, Pierringer and Mary Carter Agreements, subject to certain criteria.

This acceptance is based on a public policy rationale that settlements are to be encouraged.

Three recent cases from the appeal courts in British Columbia, Ontario and Alberta have brought into question the utility of these agreements.

Pierringer Agreement Here are some basic elements of the Pierringer agreement: • the plaintiff receives some consideration from the settling defendants, in full satisfaction of the plaintiff’s claim against the settling defendants; • the plaintiff agrees to discontinue the action against the settling defendants; • amendments to the pleadings remove the settling defendants from the action; and • the plaintiff continues against the non-settling defendants, who are then responsible only for their several liability.

Mary Carter Agreement Mary Carter agreements, also known as Guaranteed Verdict agreements, were first reviewed in the 1967 American decision of Booth v. Mary Carter Paint Company. Mary Carter agreements did not

emerge in Canadian litigation until J & M Chartrand Realty Ltd. v. Martin was decided in 1981. In a Mary Carter agreement, the plaintiff and settling defendant agree to cap the settling defendant’s exposure. That is the guaranteed verdict element.

Unlike in Pierringer agreements, in a Mary Carter agreement, the settling defendant remains in the action and participates at trial.The settling defendant’s liability is reduced in direct proportion to the liability of the non-settling defendant as determined at trial. In Mary Carter situations, there is an incentive for the settling defendant to maximize the liability of the non-settling defendant.

Until recently, parties were not required to disclose the settlement amount. However, recent appellate decisions have found the settlement amount must be disclosed, and that amount must be deducted from any further amount the trial court awards.

CASE LAW Ashcroft v. Dhaliwal The 2008 British Columbia Court of Appeal decision in Ashcroft v. Dhaliwal was the first such decision. In Ashcroft, the plaintiff had been in two accidents approximately two years apart. In each case, the defendants admitted liability.

The plaintiff settled her claim from the second accident for $315,000.At trial, she sought only an assessment of damages arising from the first accident.

She argued that the second accident aggravated and exacerbated her injuries.The court found the plaintiff’s injuries from the second accident were “indivisible” from the injuries arising from the first accident. The judge awarded total damages of

April 2010 Canadian Underwriter

69

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 CIP Society National Leadership Award nominations . . . . . . . . . . . . . .Open until June 1

Winnipeg – CIP Society – Dreambuild Gala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 15

Vancouver – Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .April 21

Surrey – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .June 9

Halifax – Spring Fling at the Waterfront Warehouse . . . . . . . . . . . . . . . . . . . . . . .April 22

Victoria – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .June 23

Calgary – ABBAmania! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 8

Edmonton – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . .August 23

Toronto – Symposium 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 13

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$400,000 and found that the first accident caused 70%, while the settling defendant (the second accident) caused 30%.

The court held the plaintiff was only entitled to collect $85,000 from the non-settling defendants. This was obviously a much lower amount than they would have paid otherwise.The Court of Appeal upheld the trial decision and reviewed the issue of concurrent and consecutive torts. The court held there was no policy reason for treating concurrent and consecutive torts differently, when both were necessary causes of an indivisible injury.The court found that separate torts, when linked by an indivisible injury, do not equate to two separate causes of action. The indivisible injury is the link that brings in not only joint and several liability, but the rule against double recovery. Ultimately the court determined that avoiding double recovery on the part of the plaintiff trumped the public interest in settlement privilege and deducted the full settlement amount from the damage award. Leave to appeal to the Supreme Court of Canada was denied.

Laudon v. Roberts The Ontario Court of Appeal followed this trend in 2009 in Laudon v. Roberts. Rick Laudon was injured in a boating accident and sued the driver of the boat he was in, Keith Sullivan, and the driver of the other boat, Will Roberts. Prior to trial, Roberts settled with Laudon pursuant to a Mary Carter Agreement and paid the plaintiff $365,000. Laudon went to trial against Sullivan.

At trial, the jury assessed Laudon’s total damages at $312,021 and apportioned liability of 50% to Roberts, 39% to Sullivan and 11% contributory negligence against the plaintiff.The trial judge granted the plaintiff judgment against Sullivan for $121,688 based on Sullivan’s liability of 39%. Earlier, the judge had ruled that the plaintiff did not have to deduct the undisclosed settlement amount from any damages that were ultimately awarded.

However, the Court of Appeal found that, since the plaintiff could not be allowed double recovery, the plaintiff did

have to deduct the [$365,000] settlement amount from the [$121,688] damage award. As a result, Sullivan did not owe the plaintiff anything; in fact, the plaintiff was directed to pay Sullivan’s costs. Costs were estimated in the hundreds of thousands of dollars, which may ultimately leave the plaintiff with nothing, notwithstanding that a jury decided his claim was worth over $312,000.

In the end, Sullivan as the non-settling defendant got the benefit of a very good

Although both Pierringer and Mary Carter agreements can be effective tools for minimizing litigation risk, in light of recent court decisions, they may be losing their past attractiveness. settlement achieved by the plaintiff with the settling defendant. As in Ashton v.

Dhaliwal, leave to appeal to the Supreme Court of Canada in Laudon v. Roberts was also denied.

It should be noted that although the agreement in Laudon v. Roberts was called a Mary Carter agreement, the court noted that the agreement in issue was technically not a true Mary Carter agreement.

For example, the agreement had no provision whereby the settling defendant was able to recover some of the monies paid in the event that the plaintiff recovered more than he was paid under the agreement. The Court of Appeal noted such a term was common to Mary Carter agreements. However, because the parties had described the agreement as a Mary Carter agreement, the court used the same terminology in its reasons.

Bedard v. Amin In 2010, the Alberta Court of Appeal, in Bedard v. Amin, followed the British Columbia and Ontario Courts of Appeal.

The Alberta appellate court stated the principal of avoiding double recovery outweighed the public policy argument of encouraging settlement.

In Bedard, plaintiff Logan Bedard suffered injury within days of his birth,

which led to cerebral palsy, severe developmental delay and physical disabilities.

Bedard settled with the Hospital and Health Region and the matter continued to trial against two doctors. At trial, the doctors were found 25% liable for a total of $700,000. Due to the Pierringer agreement terms, the trial judge assessed the liability of the settling defendants and concluded they were not liable.

The judge then deducted the settlement amount from the damages that were to be paid by the two doctors.

This was upheld on appeal. The Alberta Court of Appeal confirmed the British Columbia and Ontario decisions and determined that even if the settlement was deducted from the overall award, the plaintiff would still receive full compensation for his injuries as assessed at trial.

However, the court did include one qualification. Only the net settlement proceeds, after an appropriate deduction for costs incurred in the claim against the settling defendants, should be set off against the damages awarded at trial. Although the court did recognize some unfairness in allowing the non-settling defendants to receive the benefit of the settlement, that unfairness was outweighed by the principal against double recovery.

RISKS OF MARY CARTER AND PIERRINGER AGREEMENTS All counsel must now consider the risks of entering into Pierringer and Mary Carter Agreements. New risks exist for counsel representing plaintiffs and settling defendants to consider. If a particularly good settlement is made with the plaintiff, a chance exists that the non-settling defendants will receive the benefits of that agreement at trial. In some extreme cases, non-settling defendants may not have to pay anything towards the plaintiff’s damages.

Although both Pierringer agreements and Mary Carter agreements can be effective tools for minimizing litigation risk, in light of these three Court of Appeal decisions (decided in three different jurisdictions), these types of agreements may be losing some of their past attractiveness as a risk management tool.

April 2010 Canadian Underwriter

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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

ISO has teamed up with MSA Research Inc. to launch Property Claims Services (PCS), an industry-wide loss calculator, in Canada. PCS-Canada service will enable insurers, reinsurers, brokers and other industry stakeholders to receive industry-wide data about Canadian catastrophes, including man-made and extreme weather events. The service is being launched with the support of the Insurance Bureau of Canada (IBC) and the Institute for Catastrophic Loss Reduction (ICLR), and with the endorsement of the Reinsurance Research Council (RRC).

PCS-Canada will enable insurance companies to benchmark their respective claims against industry averages and assist with the purchase of reinsurance. The service is based on a similar system that ISO manages in the United States. Companies volunteering their data will have access to the resultant reports, said Joel Baker [1], president of MSA Research Inc.

2

Policy Works has entered into an agreement with SGI Canada to deliver a commercial lines data exchange solution. The agreement integrates Policy Works’ commercial manage-

72 Canadian Underwriter April 2010

ment system (CMS) and SGI’s underwriting system. The integration between SGI’s underwriting system and the Policy Works desktop solution is the first straight-through processing of commercial data using the CSIO XML standards, Policy Works said in a release. This solution offers pure no-touch processing, enabling brokers to send submissions and receive quotations electronically without a Web portal, meaning brokers will not have to learn a new portal or system. Integration is expected to be complete by this summer.

3

Custom Software Solutions Inc. (CSSI)’s Windows-based broker management system, The Broker’s Workstation (TBW), and its standalone rating and underwriting tool, Intelliquote (IQ), will integrate in real time through The Economical Insurance Group’s TEIG Rogo. TEIG Rogo provides real-time billing, policy and claims inquiry for both commercial and personal lines of business in an easy-to-read PDF, according to a joint release. The integration between CSSI and TEIG allows brokers to initiate auto and property inquiries and receive the response within their Broker Management System.

Brokers gain the added bene-

1

4a

4b

5a

fit of spending more time within the systems they have invested in and use daily, the release said. CSSI also announced a similar integration with Portage Mutual’s new business upload Web service using CSIO XML 4.3. The Portage integration will include both personal lines, auto and residential.

4

Chesterfield Canada Inc. announced two new appointments to their Toronto Branch: Paul Clarke [4a] and Tyson Peel [4b]. Clarke has been appointed senior property casualty underwriter and Peel has been appointed property casualty underwriter. Both will provide underwriting ex-

pertise to retailers in Ontario requiring specialist coverage.

Chesterfield’s Toronto team focuses on hard-to-place property and casualty classes, builders’ risks and renewable energy power production classes of insurance.

5

Catlin Canada has added four new senior staff to its Toronto office. Varma Singh [5a] has accepted the role of vice president of claims. Singh was most recently with Travelers Canada as assistant vice president of claims for the company’s central region. Terence Hennessy [5b] is the new product manager of professional liability. He was most recently at Zurich.

MOVES & VIEWS

5b

5d Graeme Finnell [5c] is the new senior underwriter of property. He was most recently at GCAN. Michael Varley [5d] is the new territory manager for southwestern Ontario. Most recently he was at Insurance Central Ltd.

6

SCM Insurance Services has announced the acquisition of Axis Adjusters Europe Ltd. (Axis). Axis, a specialty adjusting firm in the United Kingdom, will be the London-based European division of ClaimsPro, SCM’s claims management and adjusting business division.

The move also partnered SCM with Axis International’s operating branches

5c

8 across the globe. “The acquisition of this Londonbased firm will serve as a springboard for SCM’s strategic plan for long-term growth and expansion into the United Kingdom and international markets,” the company said in a release.

The acquisition is a strategic move that allows SCM to further enhance services to clients doing business with Lloyd’s of London, according to Larry Shumka, president and CEO of SCM Insurance Services.

7

Roland Paxton, Crawford & Company’s assistant vice-president of global marine services for Canada, will assume direct

responsibility for marine operations throughout the Americas. Paxton, who has been with Crawford for 10 years, has nearly 35 years of experience as a naval architect and expert. His consulting work included pilotage, litigation, project management and ship design. He has handled a wide variety of marine claims, including those involving damage and loss to goods, valuation of goods and environmental and pollution-related losses.

8

FirstOnSite Restoration has selected the Women in Insurance Cancer Crusade (WICC) as its chosen charity for national sponsorship. FirstOnSite is WICC’s newest national sponsor at the platinum level, representing a commitment of Cdn$45,000 over three years. “As an organization we wanted to financially support an established and proven charitable movement,” said Ken Zardo, vice president of national sales and marketing at FirstOnSite. “I began supporting WICC in 2003 with fundraising and have received a WICC Gold Flame Award in recognition for these efforts. Little did I suspect that in 2004, my own wife Rhonda would

contract breast cancer,” Zardo said. “Over the next four-and-one-half years, our family did what most families do — sought to bear the burden of our personal experience and keep it hidden from those we encountered during that painful time. Rhonda fought this personal struggle with profound grace and valour but succumbed in the summer of 2008.”

9

Carstar Automotive Canada Inc. has added three new locations to its network: Coquitlam, B.C., Scarborough North East, Ontario, and Welland, Ontario. Darko Zukina is the owner and operator of Carstar Coquitlam. Zukina has been in the collision repair industry for nearly 40 years, since he was an apprentice at age 17 in Croatia. He has operated his own business since 1993. Frank Blandizzi is the owner and operator of Carstar Scarborough North East. Blandizzi has a family history in the collision repair industry: his father and brother opened a collision centre in Toronto in the late 1960s. James Richardson sits at the helm of Carstar Welland. Richardson has nearly four decades of experience in the collision repair industry.

April 2010 Canadian Underwriter

73

GALLERY

The 111th Annual Convocation & Awards Night of the Insurance Institute of Ontario was held Jan. 28 at the Metro Toronto Convention Centre.

AndrÊ Fredette, president of the Insurance Institute of Ontario, served as the master of ceremonies. Chris Fawcus, chairman of The Insurance Institute of Canada, addressed more than 400 Chartered Insurance Professional (CIP) and Fellow Chartered Insurance Professional (FCIP) graduates. Cassie Campbell, former captain of the Canadian Women’s Hockey Team, was the keynote speaker.

74

Canadian Underwriter April 2010

APPOINTMENT

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

Michael Toledano

Gary Owcar, President and COO of CNA Canada, is pleased to announce the recent appointment of Michael Toledano as Vice President and Chief Actuary. In Mr. Toledano’s new role, he will act as the Appointed Actuary for the Canadian business and will be responsible for leading and overseeing the actuarial support, including pricing and reserving.

Mr. Toledano brings over 20 years of experience to this role, including experience gained in providing actuarial advice to a broad range of insurance clients, both locally and internationally. He also held actuarial positions with Everest Reinsurance Company and AAA Michigan.

Mr. Toledano is a Fellow of the Canadian Institute of Actuaries and a Fellow of the Casualty Actuarial Society.

CNA is one of the world’s leading insurers with over 100 years of experience and $7.8 billion in revenues. It provides insurance protection to more than one million businesses and professionals in North America and internationally.

Headquartered in Chicago, CNA has offices throughout Canada, the U.S., and Europe.

April 2010 Canadian Underwriter

75

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

More than 100 collision repair and insurance professionals gathered on Feb. 24 for an Assured Automotive Group Grand Opening celebration. The event was the official launch of the new Assured Leaside facility.

Located at 90 Wicksteed Ave in Toronto, the 5,000-squarefoot repair facility showed off some leading-edge technology and genuine hospitality.

76

Canadian Underwriter April 2010

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

A great time was had by all at the third annual McCague Borlack LLP Ski Day at Alpine Ski Resort in Collingwood, Ontario. Attendees supported the Canadian Cancer Society’s inaugural ‘Titz ‘n Glitz’ campaign, a breast cancer fundraiser. The event was held simultaneously at the ski club. Participants showed their support through the purchase of merchandise and raffle tickets.

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Solutions Beyond Insurance

April 2010 Canadian Underwriter

77

INSURANCE INTERNET DIRECTORY ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca

SCM Adjusters Canada Ltd. Committed to providing leading-edge claims management services. www.scm.ca

GRAPHIC COMMUNICATIONS

CONSULTING FIRMS

INSURANCE COMPANIES

Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com

Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com

Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

CONSTRUCTION CONSULTANTS Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org

MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca

CLAIMS ADJUSTING FIRMS

DAMAGE COST CONSULTANTS

Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com

SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca

Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters The Preferred Adjusting Solution. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors. www.mclarens.ca

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

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

Catlin Canada Underwriting Ambition. www.catlincanada.com Chartis Insurance Company of Canada Your world, insured. www.chartisinsurance.com FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com

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

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

RESTORATION SERVICES ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com

The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com

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

RISK MANAGEMENT

PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com

Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com

Quelmec Loss Adjusters Identifying, Investigating, Resolving...for over a quarter century! www.quelmec.ca

Walters Forensic Engineering Inc. Providing scientific answers to complex engineering incidents. www.waltersforensic.com

Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

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

INSURANCE LAW

78 Canadian Underwriter April 2010

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

SPECIALTY INSURANCE William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

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

Blouin Dunn LLP held its monthly pub night at the Elephant & Castle in Toronto on Mar 4. Clients, colleagues and friends took the opportunity to enjoy some camaraderie and billiards.

ADVERTISERS’ INDEX ACE INA Insurance A.M. Fredericks Underwriting Management Ltd. Aviva Canada Inc. C.A.I.W. Canada WorldWide (CWW) Underwriting Agencies Inc. Canadian Underwriter Insurance Media Group Catlin Canada CG&B Chesterfield Canada Inc. CNA Canada Compu-Quote, Inc. Cunningham Lindsey Canada e2Value Inc. Ecoinsurances Economical Insurance Fortify Network Solutions FM Global The Guarantee Company of North America Great American Insurance Group IMCA Insurance Institute of Canada Insurance Internet Directory Intact Insurance instouch.com Keal Systems Moore-McLean Insurance Group Ontario Mutual Insurance Association (OMIA) ORIMS Paul Davis Systems PCA Adjusters Limited Policy Works RMS (Risk Management Services) an SCM Company RSA – Royal & Sun Alliance Insurance Company of Canada The Ontario Broker magazine (IBAO) Totten Insurance Group Wawanesa Insurance WICC

9 59 23 58 21 56 33 51 43 47, 75 83 (IBC) 11 25 45 29 82 5 19 27 66 7, 49, 70 78 2, 3 (IFC) 81 35 77 76 62 65 63 41 31 15, 39 79 17 84 (OBC) 53, 61, 68

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

More than 400 attended an all-industry St. Patrick's Day Charity Social, held Mar. 11 at Grace O’Malley’s Irish Pub in Toronto.

Mustang Investigations, Belfor Restoration, Assessment Rehabilitation Services, ProFormance Adjusting and Dutton Brock LLP sponsored the event. Money raised from a prize draw was donated to WICC.

80 Canadian Underwriter April 2010

instouch

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Now with over 1,300 members and 60 groups, instouch.com is fast becoming the place for insurance professionals to connect and network with industry contacts, groups and associations.

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

St. Patrick’s Day came early for Canada’s 10,000 cancer-fighting kids when St Baldrick’s partnered with the Childhood Cancer Foundation on Mar. 10 to hold their third annual head-shaving event at PJ O’Brien’s in Toronto. Including participants from both Toronto and New York, 26 people “shaved their way to a cure,” helping raise critical funds for childhood cancer research in Canada. The day was a huge success, proving to be loads of fun for all who attended. The initial goal was to raise $25,000; the finally tally of $60,000 more than doubled that.

Organizers extended a special thank you to companies represented at this year’s event: Beach and Associates, NetApp, Travelers’ Insurance and Dundee Wealth.

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