Canadian Underwriter June 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

J UNE 2 0 1 0 A Business Information Group Publication #40069240

Diving into Social Media

BY CRAIG HARRIS

New Pricing Paradigm

BY DAVID DAVIDSON

Other Side of the Desk

BY KEITH EDWARDS

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VOL. 77, NO.6, JUNE 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Taking the Plunge

32

The insurance industry has been a relative latecomer to the use of social media, playing a wait-and-see game until the business case becomes clearer. But just like kids learn new videogames by playing them without reading the rules, brokers trying the new media say people need to learn through experimentation.

BY CRAIG HARRIS

FEATURES

14

44

20 Insurance Apps

46 CIFF Coverage

Insurance companies are starting to develop and publish consumer-facing applications (apps) for mobile devices.

It might not have been the Boston Tea Party, but taxes were very much on the minds of financial experts attending the inaugural Canadian Insurance Financial Forum (CIFF) in Toronto.

BY PETER SYMONS

New Pricing Paradigm

Data Storage

Insurers resistant to the use of predictive modelling techniques might find themselves on the losing end of competitive price wars.

In the Information Age, data storage capacity becomes a new risk exposure.

BY DAVID I. DAVIDSON AND RICHARD BOIRE

BY ROBIN HYLANDS

24

50

Catastrophe Costs

The Other Side

A new service will enable Canadian insurers, reinsurers, brokers and the public to receive, for the first time, industry-wide data about catastrophe losses.

An adjuster shares his view from ‘the other side of the desk’ when he has to make a claim for flood damage in his home.

28 Re-thinking Commercial Data

BY DAVID GAMBRILL

For commercial lines brokers, technology has been a mixed blessing, and so maybe it’s time to focus and build on what is working now.

54 Premium Financing

BY PETER SILK

BY JOE MICALLEF

40 RIMS Coverage

57 Risk Managing Fraud

An appropriate level of detail is an important feature of lowering your insurance costs and coming up with high-level risk management standards.

As insurers outsource their SIU functions to third parties, it becomes increasingly important to take a risk management approach to reducing fraud exposures.

Brokers are increasingly looking for technology solutions that can help them deliver premium financing products to clients.

BY STEVEN TURNER

BY VANESSA MARIGA

BY KEITH EDWARDS

BY GARY KERNEY

June 2010 Canadian Underwriter

3

We acknowledge that this is a cyclical industry requiring a long term view. At Berkley Canada we are able to utilize the strengths that make us a specialty market leader: in-depth underwriting expertise, specialized knowledge, and experience in hard to place risks.

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VOL. 77, NO.6, JUNE 2010

PROFILE

12 A Meaningful Connection Karl Greenlaw, president and CEO of Brovada Technologies, sees a future in which brokers are connecting to their insurers’ back-end systems without a portal.

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

Art Director Gerald Heydens Art Consultation Pylon.ca

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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 60 Moves & Views 62 Gallery

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Canadian Underwriter June 2010

EDITORIAL

On Taxes and Timing

Canada’s P&C industry has a legitimate tax beef, but it is a difficult time to raise it with cash-strapped governments looking for ways to bring in more revenue.

David Gambrill, Editor david@canadianunderwriter.ca

8

Canadian Underwriter June 2010

If a plea is made for a lighter tax burden and governments don’t want to hear it, will it make a sound?

Canada’s property and casualty insurance industry has a legitimate tax beef, but this is a difficult time to raise it with cash-strapped governments looking for ways to bring in more revenue.

In fact, given recent government pronouncements and activity related to the GST and HST, the industry may be fortunate simply to come away with its current (albeit very high) level of taxation.

Without question, the industry does pay out its fair share.

A recent PricewaterhouseCoopers LLP report commissioned by the Insurance Bureau of Canada (IBC) indicates the industry collected $38.4 billion in revenues in 2008. Taxes and regulatory costs, $4.3 billion, ate up 11.3% of that total.

For consumers, that means 13.8% of the average insurance policy premiums they paid simply made up for the tax and regulatory burdens insurers face.

PwC uses what it calls a ‘total tax contribution’ method to determine the industry’s tax burden. This includes the aggregate of all taxes borne by the industry. As noted above, the total taxes borne by the industry in 2008 amounted to $4.3 billion.

This number is then compared to the insurance industry’s profit before taxes. In

2008, the industry’s net income before taxes was $6.3 billion.

When you divide the taxes borne by the industry ($4.3 billion) by the industry’s net income before taxes ($6.3 billion), you get 67.1%. In other words, according to PwC, the Canadian property and casualty insurance industry’s total tax rate (TTR) in 2008 was 67.1%.

This is a significant jump over the industry’s TTR in 2006 (47.8%) and in 2007 (47.8%). In fact, PwC says in its report to the IBC, it is “among the highest calculated around the world.”

Be that as it may, it seems unlikely governments plan to do anything about it. Just like the industry’s call for boosting premium rates is coming at a time when consumers don’t want to pay more, the timing isn’t good right now for the government to be heeding the industry’s call to reduce taxes.

Governments throughout Canada are starting to think of ways to claw back the spending they did to prop up the economy during the economic recession. They are all preparing to slash services, engaging in the same kind of belt-tightening that consumers have had to undergo during this time of economic recession.

In short, they are looking for more ways to make money.

Ontario and B.C. have harmonized their tax regimes with the GST (for which the provincial governments will each receive tidy sums from the

feds). This harmonization is anticipated to cost the Canadian P&C industry a one-time hit in the neighbourhood of $350 million, the IBC says.

To confuse matters more, the federal government has issued new GST legislation that is somewhat vague. Finance Minister Jim Flaherty has clarified in the press that the new legislation does not represent a new, broader tax regime. Assuming his reassurances can be taken at face value, all is well and good. Still, it would be helpful if something in the legislation made it clear that broker commissions and other insurance services not currently taxable under the GST remain GST-exempt. Otherwise, the industry is nervous this might significantly increase the tax base.

The point is, the government is talking about increasing taxes and levies at the same time the industry is shouldering a very heavy tax burden.

Given the power of governments to set tax policy, and that their tax policies are affected by the current recession, it’s difficult to see how the industry’s plea to reduce its burden is going to end well.

This isn’t to say the message shouldn’t be delivered. But the project to lower taxes is probably best considered a long-term project that isn’t going to garner instant results.

The message may be playing over a loudspeaker right now, but the ears on which it falls are plugged.

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© 2010

MARKETPLACE

Regulation B.C. INSURANCE REGULATOR WARNS COMPANIES ABOUT INTEREST RATE RISK British Columbia’s insurance regulator is warning property and casualty insurers about interest rate risk in the existing volatile financial markets, and the potential affects on insurers’ assets and liabilities.

Financial Institutions Commission (FICOM) has issued a bulletin advising insurers to review the potential impact to investment assets from interest rate risk.

“For example, P&C insurers may be exposed to interest rate risk from interest rate fluctuations and the potential decline in asset values (e.g. fixed income securities), forcing regulatory capital to be destabilized,” the bulletin says.

FICOM recommends, among other things, that insurers consider including interest rate risk as a plausible adverse scenario to their next dynamic capital adequacy test, with an interest rate shock of no less than 300 basis points.

NEW BRUNSWICK ISSUES DISCUSSION PAPER ON CREDIT SCORE BAN New Brunswick’s superintendent of insurance has issued a discussion paper on credit scoring, in which the regulator says the use of credit scoring for underwriting auto insurance should be

10 Canadian Underwriter June 2010

banned, but it is willing to discuss the appropriateness of applying the same measures to residential property insurance.

New Brunswick has introduced Bill 43, which creates new statutory prohibitions against using underwriting or rating factors related to credit that are identified in the legislation. The factors are related to a person’s income and indebtedness.

“At this time, New Brunswick…believes that the use of credit history, credit rating, credit score or creditbased insurance score for rating purposes for residential property should be prohibited, but is prepared to review proposals from industry on rating mechanisms that provide consumers with true discounts.”

CANADA TO BAN BANKS FROM SELLING “UNAUTHORIZED” INSURANCE ON THEIR WEB SITES Canada is formally proposing new legislation that would prohibit banks from promoting "non-authorized insurance from all banking Web pages."

This includes banning the display of online links to Web pages that promote non-authorized insurance.

The proposed regime would allow the “corporate Web page of a bank, where no financial products are promoted, to display links to insurance subsidiaries dealing in non-authorized insurance,” Finance Minister Jim Flaherty wrote in letters to the Canadian Bankers Association and the Insurance Brokers

Association of Canada (IBAC).

Flaherty’s letter further describes “authorized” insurance as insurance “generally related to credit and travel.”

Steve Masnyk, IBAC’s manager of public affairs, says the proposed regulations address the issue of banks selling insurance on their Web sites completely.

“This is a win for consumers because it extends the protection that they have in branches to their Web transactions,” he told Canadian Underwriter.

SASKATCHEWAN REGULATES THE SALE OF INCIDENTAL INSURANCE Saskatchewan has passed a new set of regulations targeting the sale of incidental insurance by unlicensed insurance agents.

The Saskatchewan Insurance Act Amendment Regulations 2010 specify types of business entities allowed to sell insurance through unlicensed employees, and the types of insurance they are allowed to sell.

The regulations come into effect on Sept. 1, 2010. A complete list of the types of businesses allowed to sell insurance through unlicensed employees can be viewed at http://www.sfsc.gov.sk.ca/financial/whatsnew.shtml.

Claims SUPREME COURT EFFECTIVELY UPHOLDS NOVA SCOTIA’S MINOR INJURY CAP The Supreme Court of Canada has effectively

upheld Nova Scotia’s $2,500 cap on minor auto injury claims.

The Supreme Court on May 27 dismissed leave to appeal a December 2009 decision by the Nova Scotia Court of Appeal that confirmed the constitutionality of the province’s minor injury cap.

The Supreme Court does not give reasons for dismissing leave applications.

That effectively means the end of the line for the Charter challenge against the province’s cap, which has been in play for almost five years.

The Nova Scotia Court of Appeal found that although the cap “disadvantaged” minor injury claimants, in the sense that they could only collect Cdn$2,500 for their types of injuries, the presence of the disadvantage did not necessarily mean discrimination under the Charter.

Canadian Market CANADA’S P&C INDUSTRY DESCRIBED AS OVER-CAPITALIZED AND UNDERPERFORMING The Canadian property and casualty industry is over-capitalized and reporting low returns on investment, thus mitigating against the investment of new capital into the industry, said Philip Cook, CEO of Omega Insurance Holdings.

Cook spoke as a panel member at the Property and Casualty Underwriters’ Club

MARKETPLACE

(PCUC) luncheon in Toronto on May 18. The panel discussed the current global economy from an investor’s standpoint.

Despite the fact that Canada’s P&C insurance industry is well-regulated and fared better than its U.S. and European counterparts in the global economic recession, Canada just does not have a rate of return that would be appealing from an investment standpoint, Cook suggested.

“For example, in 2009, domestic property and casualty insurers had $60 billion of capital and its net income on that $60 billion was $2 billion,” Cook said, noting the rate of return on that would be 3.33%.

Similarly, property and casualty insurer branches in Canada had $24 billion of capital in 2009, with a final net income of $1 billion, forming a return rate of 4%.

“If you combine all of that, the industry-wide ROI is 3.5%,” he said. “A lot of excess capital and relatively small returns will mitigate against new capital coming into the P&C industry in Canada.”

panies don’t raise their rates now, they are only “digging themselves deeper into a hole,” says Robert Fellows, senior vice president of Zurich Canada.

Fellows was a breakfast keynote speaker at the CIP Society Symposium 2010, held in Toronto on May 13.

“The only problem is, the timing of the market cycle is turning simultaneously with the economic cycle, which means that it will be more difficult to sell rate increases to our customers [because of] the impact of the recession,” Fellows said.

Fellows observed that, given increasing loss ratios in auto liability lines, companies that didn’t respond with at least a 6.3% annual rate increase would be losing ground.

“So ‘as-is’ renewals just don’t cut it in this case,” he said.

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.

‘NEW NORMAL’ IS FOR HARDENING MARKET TO OVERLAP WITH ECONOMIC RECESSION: ZURICH CANADA VP The ‘new normal’ for the Canadian property and casualty insurance industry is the need for a hardened market cycle to happen, characterized by higher insurance premiums, during an economic downturn, when policyholders need their money the most.

And yet if insurance com-

www.cunninghamlindsey.com

June 2010 Canadian Underwriter

11

PROFILE

Making a Meaningful Connection David Gambrill Editor

CSIO award-winner Karl Greenlaw sees a bright future for broker-carrier connectivity — and it doesn’t include company portals.

If you ask Karl Greenlaw, president and CEO of Brovada Technologies, he will tell you brokers accessing carriers through company Web portals will soon be a thing of the past.

A recipient of CSIO’s third annual achievement award in 2010, Greenlaw believes quoting solution providers and broker management systems (BMS) will become one and the same thing within the next five years.

In other words, connectivity between brokers and carriers will become so seamless that policy inquiries, endorsements and new business will be done in real-time, with no portals.

It may not be the single-entry, multiple-carrier interface (SEMCI) solution that brokers have advocated for several years, but it is closer to a “once-and-done” solution promoted by the Insurance Brokers Association of Canada (IBAC).

The CSIO’s award recognized

12 Canadian Underwriter June 2010

work Brovada has been doing with Pembridge Insurance Company in coming up with a tech solution that allows brokers to do realtime policy and billing inquiry.

Greenlaw explains what he is doing using a baseball equipment metaphor. “We essentially built a catcher’s mitt for [insurance companies] to receive the data that we were sending from the brokers’ side,” he says.

“That product would then tie in to their back-end system, their policy admin systems, and then process the transactions we send.”

Basically, the technology “sits on top” of the company’s policy administration system. When a broker sends information to the insurance company, the technology prompts the broker to include any missing information the company’s system requires to process the data coming from the broker.

“We essentially supplement the information in the policy admin system with just enough data, just enough rules, to deal with that potential missing data,” Greenlaw says. “Brokers are then presented with messages saying: ‘Here’s what you need to go back to your BMS and fill in.’ Or, if your BMS doesn’t support it: ‘Here are the fields that are required.’

So it’s more exceptions-based data-gathering.”

After filling in the missing information or fields, brokers click a button. Their data is then processed by the carrier’s backend system with help from the ‘catcher’s mitt.’ The broker then receives confirmation the system updated the premium. At that point, there is a complete CSIO XML file of the transaction.

That’s an example of an ‘upload,’ a one-way communication from the broker’s BMS to the carrier’s policy administration system. The next step towards the brokers’ coveted “once-anddone” solution is to accomplish the reverse: a real-time download from the carrier’s system back into BMS. That won’t be far in the future, Greenlaw says.

“The industry has been pushing us to focus on the upload, but we are in the process of doing some download trialing,” he says. “That will be the complete IBAC solution up and down.

No portal. Less than a year.

We’re working on it now.”

This real-time, “once-anddone” solution is a bit of a departure from a true SEMCI model. When the CSIO attempted [and ultimately abandoned] its SEMCI portal years ago, the idea was for all companies to participate in an industry-wide portal. In this model, brokers would submit information through a portal not only

to a single company, but several at one time.

Politics, not technology, caused this model to fail, Greenlaw said. Individual carriers were concerned that companies would lose a competitive advantage. They would no longer able to differentiate themselves through technological innovation, with the SEMCI portal

We figured the best way to make things evolve towards the real objective of the CSIO Portal was to use competition to push the once-anddone solution. making every company look like generic “sliced bread,” Greenlaw observed. “It’s hard to differentiate yourself when you’re talking sliced bread.”

And so, when the CSIO Portal was abandoned in December 2005, competition ultimately accomplished what co-operation could not, Greenlaw said. “In behind the scenes, some of the companies participating in that [CSIO Portal solution] were figuring it wouldn’t last, and they were starting to shore up their bets on an alternative approach,” he said. “That’s where we did quite well. We came at it

PROFILE

from the completely opposite direction. We said, ‘Okay, look, we get it: the broker management system providers and the carriers’ solutions are so disparate that to ask them to [match] would be very difficult.’

“The second thing is, we had to honour the fact that the companies wanted to continue their marketing [to differentiate themselves].”

In answer to this last question, Greenlaw said he realized connectivity solutions would have to provide data interfaces between brokers and companies

that allowed carriers to differentiate themselves through marketing, but at the same time they would have to be standardsbased in order to process their brokers’ information.

At first, carriers accomplished this through the establishment of company Web portals. But connectivity is now advancing beyond the need for portals altogether, Greenlaw notes.

And this all came about through competition.

“We figured the best way to make things evolve toward the real [objective of] the CSIO

portal was to do it in a way that you use competition to push the once-and-done solution,” he says. “So if Axa thinks [its broker connectivity] is sufficient, and Royal comes along and says, ‘Well, we’ll do it that way, but we will improve our processes so we’re more standards-based,’ it kept driving technology forward.

“We watched it happen very quickly, where competition drove us to this idea that portals are disappearing.”

And so that makes things interesting for latecomers to the portal technology. In fact,

smaller companies that have not yet investigated portal technology — Greenlaw cites mutual insurers as an example — might be well-advised to skip the portal phase altogether. Instead, smaller companies might start developing the next generation of connectivity technology that does not require a portal, Greenlaw says. He adds larger companies that have already invested heavily in portal technology are in an excellent position to gobble up companies that are only entering the portal game at this phase.

All of this theorizing about broker connectivity demonstrates just how far Greenlaw has come since graduating from college in 1994. At that time, he fancied himself an IT entrepreneur who wanted to start his own firm. Fulfilling the dream, he launched Brovada in 2003. Leading up to that point, he had designed a premium financing program intended for use by the used car industry.

When Greenlaw tried to shop his premium financing program to brokers through Keal Technology, Pat Durepos, president of of Keal, commented on how easily Greenlaw’s program connected with Keal’s SigXP product.

That was a turning point when Greenlaw turned his attention to broker-carrier connectivity, he says.

June 2010 Canadian Underwriter

13

David I. Davidson Senior Consultant, Boire Filler Group

Richard Boire Partner, Boire Filler Group

How insurers are using predictive modelling to better refine their premium pricing.

ing these techniques become more sophisticated in their use and application, the performance divide between these innovators and their competitors will grow.

The ability to price personal lines insurance policies successfully, accurately matching rate with risk, is arguably the most important competency required of Canadian property and casualty insurers. Pricing each risk with surgical precision can provide substantial competitive advantage and long-term profitability. Over the past decade, a number of insurers have emerged as leaders in pricing sophistication — Progressive and GEICO in the United States, Intact Insurance in Canada and many insurers in the European Union. Due in part to advances in computing power, but more so due to highly competitive market forces that drive innovation, these companies have complemented conventional actuarial methods with data mining and analytical techniques to produce more stable and accurate rating structures.

These techniques, commonly referred to as “multivariate analysis” (MVA), are now being adopted by more and more Canadian insurers and are on the verge becoming part of everyday business practices. As Canadian insurers employ-

CURRENT P&C INDUSTRY PRICING

14 Canadian Underwriter June 2010

Company actuaries create rating structures that generate a premium for each risk in a given portfolio. For personal auto insurance this process usually includes: • analyses of various policyholder type characteristics and their impact on claim risk (i.e. claim frequency and severity); • industry reports and tables that reflect the most recent industry trends regarding claim risk; and • corporate financial objectives and competitive market factors.

Strong analytical and statistical skills are required, in addition to a thorough knowledge of regulatory environments. At times, these two factors may in fact be at odds with each other in a very competitive environment.

Most insurers today employ the conventional approach to rate setting. This dates back to the 1960s, when data processing capabilities were limited. In the conventional approach, rating analyses are conducted on a univariate basis. In

Illustration by Gary Alphonso/www.i2iart.com

The New Pricing Paradigm

FROM THE EPIC TO THE EVERYDAY, WE’VE BEEN UNDERWRITING PROGRESS SINCE 1710.

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Figure 1 A New Paradigm in P&C Industry Pricing Key Assumptions

01

02

03

04

05

06

% of Drivers

3%

4%

8%

10%

15%

60%

Loss rate Differential

5.5% 429.7%

4.0% 375.0%

3.1% 242.2%

1.5% 117.2%

1.1% 85.9%

0.6% 46.9%

Driving Record

Total Collision Premium

$10,313

Premium/Driver Driving Class % of Drivers Loss rate

$12,000

$344 01 80% 1.10%

02 20% 2.00%

$15,500

$300 01 80% 1.10%

02 20% 2.00%

1.10%

Differential

0.86

1.56

0.86

1.56

0.86

Total Collision Premium Premium/Driver

$7,090 $295

$3,223 $537

$8,250 $250

$3,750 $469

$10,656 $167

other words, they look at how changes in one characteristic result in differences in loss frequency or severity. Loss frequency and severity measures are determined for commonly-used characteristics like claim history (it has been well established, for example, that the longer it has been since a vehicle incurred a loss, the less likely the driver is to incur one in the future) and vehicle use (a vehicle driven for personal use is less likely to incur a loss than a vehicle used for business, presumably because the vehicle is simply on the road less).

Most industry practitioners use the driving record variable to establish “base” rates for each vehicle. Generally, driving record categories range from 01 to 06.

Usually, they go up to “06,” or six years claims free, but with better and more reliable data capture, some companies have introduced 10-, 15- and 20-year driving record groups. Every risk starts off with the same “base rate” set for the driving record group within which they fall.

Then another rating variable, let’s say driving class, is applied. A “differential” is applied to determine how the base rate for each driving record group will change with the application of the next rating factor. A differential value is the measure of the difference in observed (actual) claim losses for each different driving class compared to the overall average. How this process works is simplified in the following example of collision coverage. (Please See Figure 1 at the top of this page.) In Figure 1, you can see how the premium charged for the vehicle changes as the different rating characteristics are combined.

In this simplified example, there are only two driving class groups — 01 (personal use only) and 02 (business use only). As each rating variable is

16 Canadian Underwriter June 2010

$9,375

$194 01 80%

$10,313

$94

Avg Collision Loss Rate

01 80%

02 20%

01 80%

02 20%

$22,500

2.00%

1.10%

2.00%

1.10%

2.00%

1.56

0.86

1.56

0.86

1.56

$4,844 $6,455 $2,930 $7,090 $3,223 $303 $81 $146 $59 $107

1,000 13

Total Collision Losses

$50,000

$38

Loss per Claim

$3,846

01 80%

02 20%

Target Loss Ratio Required Premium

62.5% $80,000

1.10%

2.00%

0.86

1.56

$69

02 20%

1.28%

# of Drivers # of Claims

$15,469 $7,031 $32 $59

added (e.g. years licensed, FSA location, vehicle rate group, etc.), differentials for the variable are repeatedly used to adjust the vehicle premium, reflecting the risk represented by the values of each rating characteristic or factor used by the insurer to determine the premium for the risk. Each risk in a portfolio falls into a small group/profile that best reflects the losses anticipated by that profile.

These cross tab-type reports determine the variation of premium between policyholders. As more factors or variables are introduced into the cross tab reports, we observe more groups and a lesser number of policyholders within each group. In effect, the information becomes more granular, resulting in many different possible premium values across the policyholder base. This increase in the number of risk groups or categories results in increased granularity, greater discrimination between risks and more accurate pricing.

Ultimately, however, the number of different possible premium levels will be restricted by the number of groups included in the analysis.

MULTIVARIATE ANALYSIS AND PREDICTIVE MODELLING

ployed by most insurers today.

Multivariate techniques have been mastered by data miners across academic (e.g. scientific research) and business (e.g. marketing and risk management) environments as a way to predict behaviour. While these techniques were developed more than 60 years ago (they evolved from statistical tools designed to improve bombing accuracy in World War II), advances in computing technology have made them more accessible.

Marketers, for example, use predictive modelling — a form of multivariate analysis — to create measures of the likelihood that a customer will respond to a promotional offer such as magazine subscriptions, for example. Banks use these tools to create measures, such as credit scores, of whether a client will be able to meet lending obligations for a loan or mortgage.

Similarly, property and casualty insurers can use predictive models to predict claim behavior. Essentially, predictive models identify the characteristics that best predict risk; produce a scoring equation that can be maintained and updated; and calculate a score that represents the expected losses for each risk in the portfolio. (Please see Figure 2 below.)

Figure 2 shows how the scoring model or mathematical equation is composed

Multivariate analytical techniques take a different approach to predicting risk, focusing on individual-level data so the estimate of risk is more Figure 2 granular. They take into account the effects (inA Sample Scoring Model teractions) that many High Risk different characteristics Prospects (variables) of a risk have % of Losses on one another. Hence Low Risk Prospects the use of the term multivariate approach, as opModel Score Deciles posed to the univariate Each Risk is Scored and Ranked by an “Expected Loss Score” approach typically em70% 60% 50% 40% 30% 20% 10% 0%

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2

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4

5

6

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9

10

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Figure 3

Variable % Contribution # of Convictions 10%

# of Drivers 5%

Yrs Licensed 20%

# of Claims 25% Vehicle Rate Group 30% FSA 10%

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18 Canadian Underwriter June 2010

of the fewest number of characteristics or variables possible (usually 10 to 15), each of which are responsible for a discrete “amount” of the expected loss behavior that, when added together, account for 100% of the expected losses for the risk.

A simple way of looking at this approach is to consider each characteristic in a model equation as though it were a different piece of a pie. The entire pie represents the sum total of the “expected loss” amount. (Please see Figure 3.)

In Figure 3, the pieces of the pie — each piece represents a different characteristic of an auto insurance risk identified by the model — fit together to form a whole, perfectly shaped pie. In other words, the set of variables in the equation are the optimal combination that provides the most accurate measure of the expected losses. At first glance, it might appear that by adding more information (e.g. adding another piece to the pie), one could generate an even more accurate assessment of the risk.

But the statistical processes account for the relationships between different characteristics, so that the addition of another characteristic to the pie would only distort its shape and not add any additional value in accurately measuring risk.

In our experience, multivariate or predictive modelling techniques provide even more granularity and better understanding of the differences between individual risks than conventional approaches used by most insurers today.

This is achieved because risk measures produced by predictive modelling outcomes are produced for each individual risk rather than by group differentials. In essence, the techniques enable more accurate matching of rate with risk.Those relatively few insurers in Canada employing these methods are able to acquire business by offering lower rates for risks that the general market is overpricing; in addition, they charge higher prices to avoid taking on risks that the general market is underpricing. The overall benefits of this result include: • better risk selection and pricing; • reduced underwriting expenses; and • improved underwriting results.

RESULTS FROM CASE STUDIES The ability of multivariate analytical techniques to improve rating accuracy is ultimately determined by how much better these measures predict losses compared to the premium assigned to a risk — vehicle or property — using the conventional rate-setting paradigm.

Illustrated at right is an example of actual observed results for a portfolio of homeowner’s policies. Figure 4 shows a Homeowners Claims Risk Scoring Model produced for a Canadian insurer. Each policy in the portfolio was scored at its effective date. The score represents the expected losses on the policy in the policy year. Each policy was ranked from highest risk (score) to lowest risk (score).

Figure 4 depicts the percentage of actual losses on policies in the portfolio that occurred after the policy effective date. Based on the model’s prediction of losses, policies with the highest 20% of scores generated 46% of total losses; policies in the lowest 20% of scores accounted for only 6.8% of losses Based on the premium charged for each policy, however, the policies with the highest 20% of premium produced 32% of all losses and those policies with the lowest 20% of premium produced 15.2% of losses.

The shaded area between the green line (reflecting model’s predicted losses) and the red line (showing the insurer’s current premium charged for each policy) represents the “lift” or increased accuracy in loss prediction produced by the model over the insurer’s current rating structure.The shaded area essentially represents losses for which existing rates are not accounting.

CONCLUSION The application of data mining tools and multivariate modelling techniques can substantially improve current rating structures for property and casualty insurers. As a result of their capability, multivariate modelling techniques have gained traction and are becoming an industry standard. The primary challenge is the effective use of these tools. Insurers must become more familiar with these techniques and adopt them as a daily part of doing business

Premium vs Homeowners Loss Model Comparison of Cumulative % of Losses

Figure 4 100

87.1

80.8

80 66.1

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62.6

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19

Insurance

Peter Symons Managing Partner, OARBIC Inc.

Apps

Insurance companies are starting to develop and publish consumer-facing mobile applications (apps) for Smartphones; iPhone, BlackBerry and Android devices.

Insurance companies have used software for the better part of 50 years, if not longer. And for the first many years, its access and use was strictly internal. Legions of clerks would take data from various sources, including brokers, and enter it into the company systems allowing for the rapid processing (when compared to manual processing) of policies, claims, accounting entries, reinsurance and a host of other transactions.

In the mid- to late-1980s, as brokers started to get systems of their own, which to some extent duplicated the processing on the company systems, people started to think about the overall efficiency of the industry and the reduction of entering the same data into different but similar systems. And so the concept of single-entry, mul-

20 Canadian Underwriter June 2010

tiple-company interface (SEMCI) emerged, which, after many years of effort, is now starting to show value.

However, much of the system-related work is still confined to within the industry. Generally speaking, the end consumer still does not interact with their broker’s systems or the company’s systems.

All this is changing. A new type of system is starting to make inroads into the insurance industry, and it is unlike anything the industry has done before.

Insurance companies are starting to develop and publish consumer-facing mobile applications (apps) for Smartphones; iPhone, BlackBerry and Android devices. To date, most of the activity in this area has taken place in the United States (with StateFarm Canada being one exception), but the trend is unmistakable.

Thus far, most of the apps have focused on auto claims first notice of loss (FNOL), with one or two companies also providing habitational FNOL capability. The apps typically make good use of the technology on which they are deployed, using features like the built-in Global Positioning Systems (GPS), cameras, video capa-

bility, the ability to turn the Smartphone into a flashlight and so on.

A typical insurance company app will consist of three or four layers of functionality, ranging from ‘core insurance’ — focused entirely on a standard insurance process such as FNOL — to ‘tools,’ which can be a mix of functionality that may be of value to the insured but are not related specifically to insurance.

number and so on). Most of the apps developed so far also allow you to take photographs of the accident scene, the damaged vehicles, the intersection or road and other items that might be of importance. Some will even allow you to draw a sketch of the scene.

The tools choice (termed ‘HelpPoint’ in our example) will allow you to call the broker, company, police, ambulance,

Figure 1

Insurance Applications and Related Features Core Insurance FNOL, Payments, Policies, Coverages, Inquiry

Insurance Related Company and Broker Contact info. Quotes

Complimentary Photos, checklists, inventories

Tools Tow truck, flashlights, Taxi, speedometers, mileage

(Please See Figure 1, above.)

A FNOL app will typically offer two or three basic menu choices. At a minimum, they will include claim notification and tools.

Take, for example, the screenshot from Farmers Insurance Group. (Please See Figure 2 on Page 22.) The claim notification choice (termed ‘Proceed to Application’ in the screenshot) will allow you to gather data pertaining to an accident.

This data, when collected, will be either downloaded into the company claims system or automatically bundled into an email that will be sent to the insurance company.

This data typically includes details about the accident location and personal information about the other party or parties (name, address, drivers license

a tow truck, list preferred body shops, find hotels and a myriad of other helpful information, all at the insured’s fingertips.

Several of the apps provide a ‘checklist’ that helps the insured deal with the accident situation. The time immediately after an accident is typically very stressful for an insured, particularly if there are injuries. A checklist is a great way to guide someone through challenging moments. State Farm’s Pocket Agent has one such checklist. (Please see Figure 3 on Page 22.) StateFarm has done a great job in designing this checklist. It features three clean, simple steps: • Stay safe.

• Call it in.

• Write it down.

If you have ever been unfortunate

enough to have been in an accident, you will recognize that simple, clear instructions to follow is exactly the thing you need at that moment: the stress of the incident will vastly reduce your ‘clearthinking’ capabilities.

The sky is really the limit as to what can be included in an app. You can, for example, add links to sites like ZoomSafer http://www.zoomsafer.com/ or DriveSafe.ly http://www.drivesafe.ly, both of which provide tools to reduce risk from texting or emailing while driving. Or you could add a speedometer app, which includes a warning sound if you go over the speed limit. And so on. A few minutes spent browsing all the available apps is an education.

There are several types of Smartphones, but the iPhone, BlackBerry and Android devices seem to be leading the pack at the moment. Windows Phone 7 is due out later this year and may add to the market mix. Among the eight or so insurance companies that have delivered a Smartphone app thus far, all of the companies have focused on the iPhone and for good reason. Arguably the iPhone can deliver the best user interface/user experience (UI/UX) of any of the phones, although the market penetration of the BlackBerry also makes it an attractive choice. Of the eight insurance companies mentioned above, two have developed apps for BlackBerry.

None (of which we are aware) have developed an app for an Android device.

As stated before, mobile technology is like nothing the industry has seen before.There are two basic reasons for this.

First, the app is focused at the end consumer. With the exception of a very small number of companies that have self-service portals, this is a large and innovative step for insurance companies.

The design, functionality and look and feel have to be completely different than the software that is used internally or even with brokers.

This raises the question of what entity

June 2010 Canadian Underwriter

21

‘owns’ the customer. Many brokers feel very strongly that the customer is theirs, and only they should be communicating with the consumer. This article makes no attempt to debate that issue. In fact, several techniques can be used to help defuse this issue. For example, a FNOL app could easily display both the broker’s and the insurance company’s identity.

Second, designing apps for Smartphones requires an entirely different skill set than most insurance companies or even consulting companies have available to them. The design has to consider:

Mobility A mobile app is not simply a small version of an in-house system. To be successful, it has to take advantage of the inherent mobility features of the device — location-based services, built in accelerometer, Bluetooth and so on.

Usability Mobile users are just that: mobile. They don’t have or won’t take much more than a couple of minutes to use an app.

Figure 2

22 Canadian Underwriter June 2010

If the app is complicated or difficult to navigate, a user will quickly abandon it, causing the app to fall rapidly fall from grace.

Dynamic Content You have to develop reasons for people to use your app on an ongoing basis. If you just include FNOL capability, when it comes time to use it, people will have forgotten it’s there or will have erased it from their Smartphone. You have to give people a reason to use the app on a regular basis.

Personalization Mobile phones, in many respects, become part of a user’s personality. They add different skins, accessories, ring tones and so on. A good app will continue this concept and allow people to personalize it in some way.

So why would an insurance company go to the trouble of developing a FNOL app?

The first reason is client service.

Any company providing an app would be providing a valuable tool to their insureds. Policyholders might use an app

Figure 3

not only for reporting a claim, but also to contact the company or their broker.

An app might also provide other tools to make a consumer’s life a little easier.

Progressive Insurance, for example, provides a car-shopping tool. (Please see Figure 4.). This might not be life-altering in and of itself, but in today’s busy world, every little bit helps.

The second reason is that numerous studies have shown the earlier a claim is reported, the less the claim costs to settle. This is particularly true when personal injuries are involved.

Hartford Insurance commissioned a study showing that a personal injury claim reported in the second week after the incident cost, on average, 18% more to settle than one reported in the first week.This percentage went up to 45% if the claim went unreported for a month.

These statistics relate specifically to personal injury claims in the United States, but the trend is unmistakable.

Two primary skill sets provide the key to developing an excellent mobile application for an insurance company. First, you have to understand insurance. Second, you have to understand mobile apps.

Figure 4

7 4

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00

9 6 3

Cat Data Assistant Vice President, Property Claim Services (PCS) Division, Insurance Services Office Inc. (ISO)

PCS-Canada is introducing a new service that will enable primary insurance companies, reinsurers, brokers and other interested entities to receive, for the first time, industry-wide data about catastrophes in Canada, including both manmade and extreme weather and natural events.

Over time, this service will develop a database of historical events assisting insurers in setting more accurate reserves, improve benchmarking, enhance data quality for modelling purposes, promote reinsurance transactional efficiencies and fine-tune catastrophe response plans. The PCS-Canada service will provide a standardized approach for collecting and disseminating catastrophe loss information.

PCS-Canada is a natural evolution of Property Claim Services (PCS). PCS and its predecessor organizations have identified and estimated the

24 Canadian Underwriter June 2010

extent of insured property damage of catastrophes in the United States, Puerto Rico, and the American Virgin Islands since 1949. PCS is a unit of ISO (Insurance Services Office Inc.).

Now PCS, working with Toronto-based MSA Research Inc., has introduced a new independent service named PCS-Canada. Based on PCS’s 60 years of experience, the PCS-Canada service will manage this new system to identify Canadian catastrophes and estimate related insured property losses.

THE QUEST FOR A RELIABLE RECORD There is an ongoing debate regarding climate change. One argument suggests global warming will increase the likelihood of future catastrophes.

Not only might there be more events, but the intensity and devastating nature of these events may increase as well. Should this occur, a system or process designed to help manage such activity is necessary. As one insurance executive said in 2006: “The insurance industry was able to handle this enormous burden [the catastrophes from 1995 to Katrina] because substantial historical data on natural disasters has enabled companies to understand and manage their exposure to such large losses.� The PCS-Canada service will provide that data.

Illustration by Gary Alphonso/www.i2iart.com

Gary Kerney

A new service will enable primary insurance companies, reinsurers, brokers and other interested entities to receive, for the first time, industrywide data about catastrophes in Canada.

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The PCS-Canada service will provide a record for Canadian interests. And it addresses a current limitation recognized almost worldwide; that is, there is often only one inflexible reference point regarding the impact of a disaster. The PCS-Canada service will identify and quantify loss development over time.

The service will also assist in highlighting the underlying factors affecting postcatastrophe recovery.

The value of the service includes quantifying risk to give it perspective. For example, in the United States, PCS estimated that Hurricane Katrina resulted in 1.8-million insurance claims being filed. That figure gave the storm perspective.The service will confirm the contribution of the insurance industry to post-disaster recovery nationally. Better information will lead to better management of risk, exposure, and claims-handling processes.

least the year 2012 — re-survey every catastrophe to ensure that loss estimates become fully developed and provide reliable benchmarks for future analysis.

The new service will focus on each catastrophe and monitor all aspects of the adjustment process, as insurers proceed to resolve all claims related to each catastrophe. Through the years, PCS has learned that any number of issues — “demand surge,” for example — can

8

WHAT SUBSCRIBERS WILL RECEIVE The service provides its subscribers with the following:

2

HOW THE SERVICE WORKS The PCS-Canada service defines a catastrophe as an event that causes $25 million or more of insured property damage, and that affects a significant number of policyholders and insurers. Catastrophes in Canada are likely to involve hurricanes, earthquakes, wild fires, damaging winds and hail, tornadoes and other perils.When such events occur, the service will investigate the impact of the event to determine the extent and type of damage. If the event meets the definition of a catastrophe, the service will assign a separate serial number and define the event in terms of the dates of occurrence, the provinces or territories affected and the perils that caused the qualifying insured property damage.

In the United States, PCS continues to monitor loss development over time if its first estimate of insured property damage exceeds $250 million. The process usually takes between six and 24 months to complete, depending on the nature and reach of the catastrophe.

The PCS-Canada service will — until at

26 Canadian Underwriter June 2010

anticipated industry-wide insurance payments for property lines of insurance, including real property, personal property (contents), time-element losses (additional living expenses and business interruption) vehicles, and inland marine coverages. The PCS-Canada service estimates do not include liability losses, uninsured damage or damage to agriculture or aircraft. The estimates are based on reports submitted by insurers providing coverage in the affected areas. Staff analyzes the information to develop and project the overall industry loss.

The new service will offer a wealth of information about catastrophes, potential catastrophe events and related issues.

The value of the service includes quantifying risk to give it perspective. The service will confirm the contribution of the insurance industry to post-disaster recovery nationally. evolve in the aftermath of catastrophes and affect the ultimate payments made by insurers. The service will identify these issues and account for them.

The service will develop and provide estimates of insured property damage for personal, commercial and vehicle lines of insurance for each province or territory affected by a catastrophe.

The estimates will assist the insurance industry to set and review loss reserves; deploy field adjusters and related resources; and inform customers, regulators and other interested parties about the total costs of disasters.

The service will provide an estimate for each catastrophe that represents the

Severe Weather Summaries These reports describe potential catastrophe events.

Catastrophe Bulletins There are several bulletins, including the first bulletin defining the catastrophe to the bulletin providing last estimates.

Storm and Event-Tracking Reports The service will use these reports to outline the latest information on events that may become catastrophes, such as hurricanes before landfall Catastrophe News These include periodic summaries of catastrophe activity, along with news on issues affecting the insurance industry’s response to catastrophes.

The PCS-Canada service team has consulted most industry leaders, and the response has been extremely positive.

The service has the support of the Insurance Bureau of Canada, the Institute for Catastrophe Loss Reduction and the Reinsurance Research Council. We welcome their support and enthusiasm for the service. We will work closely with all interested parties to ensure the PCS-Canada service brings value to the Canadian insurance industry.

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Commercial Data

Re-think Technology has been a mixed blessing for commercial lines brokers. Perhaps it’s time to look at what works right now.

Peter Silk Senior Vice President, Lombard Canada

In the rush to embrace technology, unintended consequences can sometimes prove the old rule: “Two steps forward, three steps back.”

Take, for example, commercial lines technology for insurers and brokers: no doubt we have seen big gains in this area over the past five years. It is far easier now to obtain online quotes for some commercial risks, and there have been several breakthrough developments in the design of commercial management systems (CMS). In these ways alone, brokers and insurers have benefited greatly from improved electronic efficiency.

Two steps forward.

But what about the drawbacks? Many insurers have invested heavily in proprietary company portals to facilitate online quoting. This meant brokers could get access to virtually real-time

28 Canadian Underwriter June 2010

quotes, but it also meant brokers had to input policy information into different systems. Similarly, a preoccupation with new business left the bulk of broker transactional processing — endorsements, renewals — without much-needed productivity gains. And then there is upload and download. Given the issues around varying insurance company back-office systems and the complexity of capturing current data, the notion of full electronic data interchange (EDI) is for the most part just that — a notion.

So how do commercial insurers capitalize on the advantages of technology for brokers without re-living the mistakes of the past?

MOVING FORWARD First, start with the broker. Overwhelmingly, brokers want transactions to be done within their broker management system (BMS) or CMS without having to re-enter data or re-work their processes around another entity. Any companycreated technology solution must address this reality first and foremost. The complexity of

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commercial lines accounts only increases the number of challenges in this area.

Second, we need to focus on hightransaction areas such as endorsements and renewals.These represent the majority of day-to-day office processing that brokers and their CSRs must complete.

It is the most time-consuming and potentially productivity-draining area of broker operations.

Third, the emphasis on commercial lines business has to be on complete issuance — including quoting, new business, binding and renewal — for all policies. This should include complete package policies — auto, property and general liability — and extend to the ability to issue specialized policies for farm, marine, E&O/D&O and subscription.

THE LINCQ SOLUTION Lombard Canada has placed its resources and technology investments behind these three priorities. Through LINCQ, its Web-based software, brokers are in control of commercial lines transaction processing — with no portals or workarounds. New business and renewal quotes can be fully absorbed into LINCQ, making it easy for brokerage customer service representatives (CSRs) to complete the quoting process.

The proof is in the pudding: 20% of Lombard’s new business is actually issued prior to inception and 73% within 15 days.

With LINCQ, endorsements and renewals are given the same priority as new business. Renewals can be processed ahead of expiry. Fifty-nine per cent of Lombard’s renewals are done prior to renewal date and 83% within 15 days. Endorsements can be done the same day.This not only improves service turnaround, it reduces the backlog and errors associated with traditional endorsement processing.

With LINCQ, for the first time, commercial renewals can be downloaded

30 Canadian Underwriter June 2010

We need a paradigm shift. Instead of focusing on a limited commercial lines data entry system, there needs to be a separation between underwriting and transaction processing. These two functions have been blurred in the past, leading to stop-gap measures. directly into Keal’s comXP. Renewal policies can be downloaded into Keal’s CMS without manual intervention — a process that includes not just data, but also a PDF of the entire policy output as an attachment tied to the policy.

To improve efficiency, LINCQ also allows brokerage staff to print declaration pages of policies locally in their office and mail them to clients.This eliminates delay at the insurance company end in issuing binders and temporary print cards. In most cases, the broker can take the actual policy to the client, not a binder. In addition, this “dec” can be saved as a PDF document; it can be easily absorbed into any BMS or CMS that supports document storage — Keal, Policy Works,TAM, etc.This is a tangible step towards the “paperless” office for brokers.

Finally, this transactional processing efficiency applies to all sizes and types of commercial lines policies. A technology tool addressing only quoting or new business for smaller commercial accounts is by definition a limited solution. Lombard uses its LINCQ solution for all policies — from packages to specialized coverage to marine.

PARADIGM SHIFT In many ways, we need a paradigm shift in thinking about technology for the insurer and brokers. Instead of focusing on a limited commercial lines data entry system, there needs to be a separation

between underwriting and transaction processing. These two functions have been blurred in the past, leading to confusion, workarounds and stop-gap measures. In essence, insurers have been trying to do the two functions at once.

Once a piece of new or existing business is properly underwritten, data transactions should be able to flow through the system with ease.

Some in the insurance industry are still pursuing the dream of a single-entry, multiple-company interface (SEMCI) in real time. For commercial (and personal) lines, this is a lofty goal: it is dependent on a range of different factors, from standardized data to insurance company back-office system synchronization with BMS and CMS. Groups like CSIO and ORBiT are making solid progress in these areas, particularly in data standards. But the complexity of commercial lines policies means true SEMCI done in a BMS or CMS remains a future objective.

Perhaps it’s time for brokers and the industry to step back and ask: ‘Realistically, what can be done now?’ This means focusing on solutions that would allow brokers to work fundamentally within their systems on all transaction processing, improve customer turnaround from weeks to days (or minutes) and achieve a smooth workflow that addresses the entire sales and service cycle.

This should include easy issuance of certificates of insurance, viewing claims history, reporting claims and entering and viewing billing information, to name a few issues to be addressed.

As the LINCQ solution demonstrates, these functions exist today for commercial lines. This technological efficiency might involve a closer working relationship between insurers and brokers, and it might even involve companies relying on a smaller but more cohesive number of distribution partners.

But the payoff is well worth it, for brokers and their clients.

Diving into Social Media Social media’s popularity in other industries has not extended far into the realm of insurance, although more brokers than insurers have taken the plunge. The industry’s attitude of “show me the business model before we invest” may be prudent, but it also means any opportunities will be either missed or realized only by early adopters.

BY CRAIG HARRIS

32 Canadian Underwriter June 2010

Appearing

on the popular com-

edy show The Colbert Report in early April, Twitter co-founder Biz Stone got a gentle ribbing from the eponymous host when he chided the technology guru: “I assume that ‘Biz’ in ‘Biz Stone’ does not stand for ‘business model.’” In a later posting, Stone acknowledged Stephen Colbert’s remarks were a “home run.”

Up until April 13, Twitter had resisted introducing a traditional Web advertising model in its quest to emphasize “value before profit,” in Stone’s words. However, with the launch of Promoted Tweets through a handful of advertising partners such as Starbucks, Red Bull and Best Buy in mid-April, Twitter is now well on its way to establishing a revenue-driven business model.

Switch gears to the property and casualty insurance industry, and the issue of “business model” becomes equally apt for brokers and insurers alike. Does a business reason exist to invest time and money in social media? If so, how do you actually do it?

“With the insurance industry, there is a sense that they know they have to do it, but they don’t know how to do it,” says Catherine Stagg-Macey, senior insurance analyst at the Boston-based financial research and consulting firm Celent. “I would say in many ways, we are currently with social media where e-commerce was about 10 years ago. There is a lot of study, but not a great deal of investment — yet.”

June 2010 Canadian Underwriter 33

COVER STORY

Diving into Social Media This reluctance, or even skepticism, is something consultant Rick Morgan sees regularly. As president of Rick Morgan Consulting, he works closely with the Independent Insurance Agents and Brokers of America and has done several seminars on social media for brokers and agents in the United States and Canada.

“I still get a lot of the same questions from agents and brokers, such as: ‘Is this all just a lot of hype? How can I make sales out of it? Where is my return on investment? Will this become a time vampire for my staff?’” he notes. “However, I do think it has changed a lot, even within the last nine months or so. People are intrigued by the opportunities.”

Leveraging Social Media ‘Social media’ is the label applied to a technological medium that links individuals or organizations in a meaningful way.

The most popular Web sites and forms of communication are Twitter, LinkedIn, MySpace and Facebook. A study by Celent released in April, Leveraging Social Networks: An In-Depth View for Insurers, showed that in March Facebook was the most visited Web site, registering more visits than Google for the first time.

“This popularity raises interesting questions for insurers about how this channel can be leveraged,” the Celent report states. “What is an important and as yet unanswered question is why insurers should take social networks seriously; i.e. what is the business case, and if there is one, what might the execution of such a strategy might be?”

These questions are slowly playing out in the insurance industry. Celent notes nine out of the Top 10 property and casualty insurers in the United States have at least one Twitter account. Eight have at least one Facebook page and social media Web sites that are “both active and have an engaged customer community involved.” Most of these social media experiments have focused on brand awareness and customer loyalty. By contrast, activity in the United Kingdom “is rare and adoption is just starting.”

The same can be said for Canadian insurance companies. Some have made some tentative initial forays into social 34 Canadian Underwriter June 2010

media, such as Aviva Canada’s “Let’s Change Insurance” Web site and campaign. Other companies are either nonexistent on social media or playing their cards close to their vests.

With the insurance industry, there is a sense that they know they have to do it, but they don’t know how to do it.

“There have been some examples of huge social media followings, such as the ‘Compare the Meerkat’ advertising campaign in the U.K. and the ‘World’s Greatest Spokesperson in the World’

by Nationwide in the U.S.,” says StaggMacey. “But there have been few home runs. I think there is likely space for only so many of these early adopters, perhaps five or so.”

Celent cites the fictional ‘meerkat’ character Aleksandr Orlov, used by BISL Limited in the comparethemarket.com advertising campaign in the U.K., as an example of social media success — particularly in the Twitter and Facebook space. “The implication is that a strong multi-format advertising campaign, based around a central fun character or mascot making significant, frequent and relevant use of

social network services, can dramatically increase brand awareness, provide a method to engage with a large group of customers and increase business volumes.”

Canadian Brokers and Social Media In Canada, brokers have picked up on the potential value of social media. Organizations like the Insurance Brokers Association of Ontario have been active in informing brokers of opportunities in social networking. Morgan says distributors of insurance products are open to demystifying the buzz around social networking and applying it to their customer base.

“Social networking is something brokers have been doing for years in the community, whether it is working with the local chamber of commerce, volunteering or sponsoring local sports teams,” Morgan says. “The social part is the same, but the medium is different.”

It’s not just technology that has changed, but also a “cultural transformation among consumers,” he adds.

“Instead of focusing on the technology, brokers should look at the shift in how customers want to be contacted.”

The old “mass media” model involved pushing information out to consumers in the form of outbound messages such as telemarketing, direct mail, trade shows, print, radio or TV advertisements and even email blasts — a form of marketing Morgan calls “interruption.” New media emphasize gaining consumer “permission” through social media in such areas as search engine optimization, blogs, free trials/tools, Really Simple Syndication (RSS) and viral marketing.

“I see social media as another way of communicating and networking with our clients and prospects,” says Cory Young, chief operating officer of Rhodes & Williams Insurance Brokers. “Where it becomes a game-changer is that you can no longer tell everyone how good you are (traditional marketing). You need to participate in the forums, be a source of knowledge. Most business relationships in this environment will start out as a referral from a trusted source.”

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COVER STORY

Diving into Social Media Rhodes & Williams has been experimenting with social media for about one year, making use of Twitter, Facebook, LinkedIn (social network for business professionals) a blog and even YouTube.

Young observes a big plus of social networking is greater access to a wider customer base, but there are other advantages as well.

“The obvious benefit is attracting clients and prospects,” he says. “The less obvious ones are crowd sourcing, test marketing, brand monitoring, search engine optimization and recruiting. This is definitely not an overnight process. It takes time to build trust and relationships. It probably took six months before I received my first recommendation through Twitter.”

Lead generation is also a prime focus for the brokerage Beyond Insurance Brokers, which has used online quoting engines as well as ad words programs through Google. In ad words programs, advertisements are displayed alongside search results that use keywords selected by program participants.

“As a new brokerage, we are in ‘growth mode,’ so we needed to take every opportunity to get our brokerage name out there and social media was one of the most cost-effective,” says Beyond Insurance Brokers’ office manager Judy Bell.

“Allowing the brokers in my office to use Facebook and Twitter to notify friends about their position as a broker here has allowed them the opportunity to attract lots of new business. Adding clients as ‘friends’ has lead to many referrals from friends of their friends, and so on.”

She notes the number of “free” social media leads for the brokerage is now equal to that of online quoting engines.

A steady flow of referrals or soft leads may be one of the most promising outcomes of social media experimentation for brokers. Dan Lawrie Insurance Brokers recently redesigned its Web site to include a blog and Twitter account. While Bob Lawrie, vice president of Dan Lawrie Insurance Brokers, says the brokerage is still in the early stages of its use of social media, there are clear signs of potential.

“A number of our staff use LinkedIn and I see a lot of opportunities here for 36 Canadian Underwriter June 2010

business social networking,” Lawrie says.

“Depending on the client, you can share expertise on insurance for certain industries. . . and be recognized as an expert in insurance. This may be the most powerful tool for brokers. It could be a great stream for referrals.”

I would say in many ways, we are currently with social media where e-commerce was about 10 years ago. There is a lot of study, but not a great deal of investment — yet.

In addition to client prospecting and referrals, social media tools can be used for client service, Young says. “To date, I have mostly used these channels for attracting new clients,” he notes. “I would really like to use it more as a forum for servicing existing clients, and interacting with them to find out how we can serve them better.”

Young adds social media might also be effective for recruiting new talent into the brokerage profession, a point echoed

by Judy Bell. “An opportunity would be attracting new entrants into the industry,” she says. “Young people have a means of communication that works for them. Whether we like it or not, in most cases, it does involve social media.

By embracing this new concept, we will be able to encourage fresh new young ideas to come to our brokerages through these new employees, which will help us continue to be a viable distribution method.”

Tracking Success One dilemma posed by social media, often referenced by skeptics, is the difficulty in tracking and measuring investments in non-traditional marketing. It is difficult, brokers concede, but not impossible.

“It is not easy to measure your investment in social media,” Lawrie says. “But then you look at an ad in a magazine: can you track the effectiveness and total ROI from it? Do you know how many people contacted you or purchased insurance because of it? In many ways, it is the same thing with social media. But that doesn’t mean you ignore advertising or other types of marketing.”

The issue of measurement is “a tough one,” Young observes. “Most social media doesn’t cost much, if anything, except time — which is a very valuable resource. I am not aware of how to measure return on investment. But you can certainly measure the number of clients obtained through this source, your retention for those clients, as well as the number of referrals and closing ratios on those referrals. What is more difficult to measure is better brand awareness — client retention through communicating with clients in ways that they want to be communicated with.”

Related to concerns about tracking investment, some see a danger of brokers trying to implement social media strategies that are better suited to traditional marketing. “There is the risk of using social media like the mass media,” Morgan says. “So a brokerage sends out 1,000 flyers and gets 10 responses, and knows it has a .01% hit rate, Social media is not like that. It is not about immediate tracking of sales per day, but instead it’s about building relationships, gaining trust, getting referrals and then generating sales in the long-term.”

Stagg-Macey notes measurement may have to involve some “lateral thinking,” borrowing from other industry

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COVER STORY

Diving into Social Media sectors that are farther down the social media path. This could range from more detailed analysis of click-through rates from ads on social networks to “micro-transaction models” used for online gaming.

For insurance companies and brokers, however, tracking and measuring what people are saying about them and their brand can be done easily and cheaply, according to Stagg-Macey. Various services, such as hootsuite, tweetdeck and Google buzz, allow companies to monitor consumer reaction to their brand.

And yet many are not taking advantage of these tools.

“There is a great deal of data aggregation and convergence on various social media sites,” Stagg-Macey says. “It seems to be this is a social media opportunity missed by the industry. It is an option available right now for little cost, but I don’t think many companies are doing that.”

Morgan agrees brokers can capitalize by monitoring trends and observations in social networks. “If someone in insurance has had a bad experience, that is out there for everyone to see on a social network,” he says. “A smart broker can turn that into an opportunity. Similarly, if online communities are sharing information about their good experiences, who they trust and who they recommend, is that not a huge opportunity for agents and brokers?

Given the increasing use of social networking channels, many believe the future will open up in terms of potential applications for the insurance industry.

One major trend is the willingness of the public to share significantly more data than they do today, according to Celent.

This data could be used to improve product design, augment underwriting information or aid in fraud detection.

The prevalence of mobile technology will likely mean insurance applications for mobile devices such as iPhones, or potential geo-tracking or location-based services for repair shops, for example.

“A key challenge for insurers will be persuading their customers to share this data and then using it effectively in producing new products and improved pricing,” Celent’s report states.

38 Canadian Underwriter June 2010

Catching Up For some, realizing the potential of social media is still very much in the far future for the Canadian insurance industry. The main challenge for a sector traditionally slow to adopt new technologies is an unwillingness to experiment with new media, according to sources.

There have been some examples of huge social media followings, such as the ‘Compare the Meerkat’ advertising campaign in the U.K. and the ‘World’s Greatest Spokesperson in the World’ by Nationwide in the U.S. But there have been few home runs.

“With regard to social networking, compared to other industries, the insurance industry has some catching up to do,” says Lawrie. “If you look at the example of the travel industry, where people send comments in about experiences with hotels, there is a great deal of social media sharing and networking.

This is a trend that has already had a big impact on other industries. Ours just may be a little bit behind, but I think it’s coming.”

Bell says she has talked to industry people about social networking and has come to the following conclusion: “My

opinion would be that social media awareness and action would be ranked very low at this time. I feel there is a fear that allowing these interactions in the day-to-day workflow of their staff would lessen productivity.”

Rick Morgan says abuse of social media by employees is one of the main fears he hears expressed by brokers, agents and insurers. The solution, he contends, is to create a company-wide social media policy that sets out clearly what is and what is not allowed.

“This policy should reflect company culture and management philosophy; there is no one-size-fits-all,” Morgan says. “But it should be transparent and clearly list the expectations for and responsibilities of employees. The real choice for managers and owners is to act intelligently or ignore the social Web altogether.”

As for a revenue-driven business model for social media, many are still trying to discover the right amount of time and resources to justify the return on investment. Out of necessity, the business case may need to be flexible to evolve with changing customer preferences for how they search for and buy insurance.

“Social media doesn’t replace other forms of marketing, “ notes Bob Lawrie.

“You have to put the resources in and then combine it with all your marketing strategies. You have to look at things like search engines, how people look for insurance, what kinds of information they are looking for, what kinds of services they want in a brokerage and how they actually buy insurance. Then you have to create the right kinds of social media tools.”

“The question [about a business model] sounds very official, but my answer definitely will not,” says Young.

“Just try it.”

Start out by observing, Young adds.

“Learn the ropes, the etiquette and nuances of these new mediums. Then slowly start to interact with the audiences. If you immediately start self-promoting without building some credibility, you will not be successful. Once you are comfortable, develop a plan and act on it.”

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RIMS 2010 Annual Conference and Exhibition (Boston)

Vanessa Mariga Associate Editor

Considering an appropriate level of detail is crucial not only in lowering insurance costs and purchasing accurate coverage amounts, but also in developing highlevel risk management standards.

Whether inputting data into a catastrophe model or designing a risk management program, the more detail you include, the better. Delegates at the Risk and Insurance Management Society (RIMS) annual conference in Boston in April 2010 heard how including the appropriate amount of detail in cat models can lower premium dollars and ensure against being caught under-insured when disaster strikes.

These are practical, tactical considerations. But on the theoretical side, it’s also important to consider an appropriate level of detail. For example, with the recent release of ISO 31000, an interna-

40 Canadian Underwriter June 2010

tional risk management standard, experts are suggesting its broad — and sometimes vague — language leaves risk managers with little to sink their teeth into when it comes to using the standard as a guide to develop their own programs.

DETAILS AND THE BOTTOM LINE Risk managers should make a point of including secondary loss characteristics on an insurance portfolio, RIMS delegates heard. This is not only potentially to reduce aggregate exposure, but also to reduce premium significantly.

Bruce Norris of Edgewood Partners Insurance Center, Marian Ivan of RREEF and Michael Horvath of Simon Property Group each delivered presentations at the seminar ‘CAT Modelling: Science or Art, Risk Management Opportunities or a Trap Door?’

Norris suggested that including secondary loss characteristics in an insurance portfolio might result in major premium reductions. Examples of these characteristics include whether a building has tuck-under parking; whether a building has a bolted foundation; and, if a building is in a

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wind zone, the age of its roof and how that roof is fastened to the structure.

His advice came with a caveat: “There are some givens you should know, but if you don’t have your primary characteristics — address, construction, year built or occupancy — then all of the secondaries in the world are useless,” Norris said.

He stressed the importance of ensuring that even the primary characteristics are as accurate as possible, since cat model estimates are only as good as the information entered into the modelling programs.

“If you don’t have your basic information, you are shooting yourself in the foot one of two ways,” said Norris.

“If you don’t have [accurate] data, and that [accurate] data when entered would make probable maximum losses go down, then [when you enter the inaccurate data and you get a higher probable maximum loss] you’re buying too much insurance.”

On the other hand, if improving the quality of data forces the probable maximum losses up, that’s even more important, he continued. “I would rather tell my management that they have to pay $500,000 more for insurance in the year than explain to them they are underinsured by $50 million. Having the right data is critical.”

Ivan said when she included secondary characteristics in a recent renewal, it reduced the aggregate loss exposure for the Lloyd’s syndicate by $150 million.

Horvath had a similar experience.

When he included 68 additional secondary characteristics at renewal, “not only did it bring down our aggregate loss exposure, but the premium reduction was almost $6 million.”

Risk managers can obtain this data by hiring a third-party firm to confirm current primary data and collect secondary

42 Canadian Underwriter June 2010

data at a cost of approximately $200 per location, the panel said. “It is mind-boggling that not everyone is doing it,” Norris said. “On a $250-million building, just spend the $200.”

SETTING THE STANDARD ISO 31000, the international standard for risk management, still has room for development and improvement, said Paul Hopkin, technical director of the Association of Insurance and Risk Managers in the United Kingdom.

Hopkin spoke about ISO 31000 at a RIMS Conference panel discussion.

I would rather tell my management that they have to pay $500,000 more for insurance in the year than to have to explain to them that they are underinsured by $50 million.

Having the right data is critical.

ISO 31000 was published in 2009. It is essentially the amalgamation of several risk management standards from around the world, primarily those of Australia, the United Kingdom and South Africa.

The fledgling standard still has room for development, in that it tends to have broad language and lacks detail. Specifically, it lacks a clear definition of the principles of risk management and fails to address areas of risk reporting and risk disclosure, Hopkin said.

He pointed to the introduction of ISO 31000 that essentially poses the question: ‘What are the principles of risk management?’ The introduction then goes on to outline the potential gains from a risk management program.

“When I read it, it confuses me somewhat because I think that statement is a

combination of what risk management is and what it delivers,” Hopkin said.

“I’m not intending to split hairs, but I think if you say something like ‘risk management adds value,’ well, that’s what it’s supposed to do.That’s fine, you need to understand what risk management is going to do for you. But you also have to understand what your approach should be.”

By adding more detail, the standard would also be able to address “specialist areas of risk management,” he continued. These specialist areas include project risk management, treasury risk management, tax risk management and operational risk management in banks and financial institutions.

“It would be nice if the over-arching standard formed stronger links to those specialist areas that are developing,” he said. “Very often, risk management standards don’t pay enough regard to the role of internal auditors, the role of auditing the objectives [of the organization’s risk management program] or auditing the assumptions that underpin those objectives.”

Hopkin noted there is only one reference to risk reporting in ISO 31000.

“But if you look at something like the Sarbanes Oxley Act, and new regulations for financial institutions, then reporting how you undertake the governance of risk in your organization is becoming increasingly important for companies.

“I would argue the [ISO 31000] standards as they are currently formulated don’t have enough to say about auditing, reporting and disclosure.”

Some of these shortfalls will likely be addressed in an implementation guide to be developed and released in the near future, Hopkin said. “It’s in the implementation that perhaps you would expect to find the more detailed information.”

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The Information Era has led to the development of new technologies for storing digital information, creating novel data risks to manage.

Robin Hylands Senior Underwriter, Technology, Berkley Canada Inc.

It is common these days to hear people talking about “information overload.” The staggering speed at which digital information is being generated has sparked creativity and innovation among IT professionals, as they struggle to craft solutions that effectively manage their digital data. Consequently, new technologies have emerged in the marketplace at an astonishing rate, offering business tools to store, sort and access information. The Knowledge Era has led to the need for effective tools to manage incoming information. It has also changed the ways in which we share and communicate with one another. Cloud computing, mobile applications and social networking have all surfaced in response to this information age. Along with these new technologies come new risk and liability concerns for IT professionals.

44 Canadian Underwriter June 2010

Data storage capacity is just one of these concerns. According to IDC, in 2007, the amount of digital information created surpassed the storage available. SaaS (Software as a Service) and “cloud computing” platforms have evolved from this need for additional capacity. Cloud computing is Internet-based computing, in which software, resources and information are available on the Web and on demand.These services solve storage issues for many enterprises and increase access to information. Other benefits include reductions in hardware, software and infrastructure expenditures. However, these services are vendor-managed; companies must be aware of the risk and evaluate their comfort with allowing third parties to control their sensitive and confidential information. The lack of implementation of internal software, an important feature of cloud computing, does reduce the risk associated with defect breaches in the installation of infrastructure and software. Nevertheless, cloud computing increases data breach concerns, in addition to the possibility that private information will be compromised.

Reflecting the increasing pace of incoming information, an expectation now exists that data

Illustration by Gary Alphonso/www.i2iart.com

Unpacking the Data Suitcase

should be available anytime and anywhere. Smart phones have contributed to this effect. And application development for mobile devices is a growing industry, one that is expected to more than double in the next couple of years. One of the fastest growing areas is m-commerce: the ability to make transactions over a mobile device. Current uses of this technology include buying goods, purchasing tickets, mobile banking and investing, loyalty program participation and coupons — all from the convenience of a mobile device. In the future, e-wallets are likely to replace traditional wallets, enabling access to all needed information via a mobile phone.

As with traditional forms of information and transactional services, the issue of security, privacy and integrity of information and transactions being exchanged between two points remains a key concern. Although undoubtedly a convenient way to access and share information, the open platform functionality creates higher exposure to unknown or untrustworthy applications that may cause damage to the end user, the device or the network. Wireless signals are more easily intercepted. This, combined with the limited memory and computer power of most mobile devices, creates more vulnerability to data theft.The mobility of confidential information creates a significant responsibility for a company to properly secure data.

With the emergence of Web 2.0, communication has become more immediate, interactive and uncontrollable. Texting, emailing, social networks and mobile markets have exploded in popularity. Facebook, which boasted more than 20-million users in April 2007, now claims to have 400-million subscribers. Twitter reports that more than 55-million “tweets” are sent every day.

Companies are starting to leverage these new marketing opportunities by replacing traditional advertising with links to social network groups and industry blogs, or maintaining interactive Web sites. As they do so, they must remain aware the content they disseminate, even if posted to their Web sites by others, ex-

poses them to the risk of personal injury (libel, slander) and intellectual property infringement claims.

Governments recognize the need to protect consumers in the event of security and privacy breaches. In the United States, 46 states have enacted laws making notification mandatory for a breach of security. Canada is following suit.

Recovery of compromised records typically ranges between $100 and $300 per record. But the greater risk to the company is often the loss of productivity or loss of clients.

the marketplace.These new policies, often termed “cyber-liability policies,” address first- and third-party risk associated with e-business, Internet, network and information assets. Some examples of new coverage include:

Network Security For liability arising out of security breaches.

Privacy Breach For liability arising out of the inherent risks of collecting and storing protected personal information of individuals due to breach of a business’s computer system.

Privacy Breach Expense Coverage for the insured company (firstparty coverage) when personal protected information has been released due to a security breach. It can also include coverage for notification, crisis management, regulatory and credit monitoring expense.

Information Assets Coverage for expenses incurred in recollecting or restoring information in the event of a security breach.

Cloud computing, mobile applications and social networking have emerged, creating new concerns for IT professionals.

One is data storage capacity.

These are a few of the challenges companies manage on a daily basis. Despite policies and practices designed to reduce, control and monitor risk, an essential part of their strategy must address minimizing the financial impact of increased exposure. Every technological solution presents different potential exposures to loss; often the standard professional liability coverage is not enough.This has led to the development of new insurance products that address some critical coverage missing from the average policy traditionally available in

Business Interruption Coverage for loss of income and/or extra expense arising from a Web site outage.

Electronic Media/Internet Media Coverage for liability for personal injury and intellectual errors stemming from content disseminated by a company and information disseminated by others on the insured company’s Web site.

Intellectual Property Coverage for certain intellectual property infringement including misappropriation of copyright, domain name, trademark, trade name, trade dress, trade secret, service mark, service name, title or slogan. It may also include piracy, certain plagiarism or misappropriation of ideas by a third party.

June 2010 Canadian Underwriter

45

Canadian Insurance Financial Forum (CIFF)

David Gambrill Editor

Number-Crunching The inaugural Canadian Insurance Financial Forum (CIFF) looked at several stories behind the numbers, including taxes, consolidation and credit scoring.

Taxes, consolidation and predictive modelling all came to the fore at the inaugural Canadian Insurance Financial Forum (CIFF), held in Toronto on May 19.

The day-long event featured a number of seminars on various issues affecting the financial side of the insurance business. Here is a sampling of some of the event’s seminars.

Will HST decrease company outsourcing?

Insurers looking to save money on outsourced contract costs might consider bringing more of their work in-house, thus cutting down additional expenses related to the new Harmonized Sales Tax (HST), a panel of industry financial experts said at the CIFF.

46 Canadian Underwriter June 2010

Former PwC partner Dean Summerville, the moderator of the panel discussion ‘Key Tax Issues,’ said insurers might start to hear this same kind of advice coming from their accountants in the future. “There’s incentive now to avoid outsourcing stuff,” he said. “We’re dealing with clients that have a lot of outsourcing arrangements and saying: ‘You should consider, maybe, whether the cost-benefit is to in-source.’”

The newly introduced HST in Ontario and B.C. applies to a broader range of services, and more tax will be unrecoverable under the HST, compared to the situation in which the GST (5%) is separate from PST (8% in Ontario, and 7% in B.C.).

Prior to the implementation of HST, only the 5% GST is unrecoverable. But the new HST tax is applicable to several insurance costs, including occupancy costs, claims contractors, legal services, consulting services, tech support and call centre services.

The Insurance Bureau of Canada projects the introduction of the HST in Ontario and B.C. will cost the industry $268 million in 2009, $436 million in 2010 and $484 million in 2015.

“Knowing now that contract costs are 13%

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more [under the HST] than internal, using our own employees, as opposed to 5% more [under GST], that does change your dynamic,” Mark Novak, Aviva Canada’s head of tax, told people attending the CIFF seminar.

“There is no HST on salaries, so you could save merely by keeping more inhouse or bringing more in-house.”

CFOs see Top 10 insurers owning up to 65% of Canadian P&C market over the next five years Three chief financial officers, representing some of Canada’s largest property and casualty markets, predict the country’s 10-biggest insurers will control about 8% more of the market sometime over the next five years.

The CFOs from Intact Financial Corporation, Northbridge Financial Corporation and RSA Canada Group spoke as panelists at the CIFF. The CFOs were asked to guess a specific number representing how much market consolidation would occur over the next five years.The panel moderator, Graham Segger, a retired partner of Deloitte and Touche, asked the question. In asking it, he noted Canada’s Top 10 P&C insurance companies controlled 57.6% of direct premium volume as of the end of 2009.

Nick Creatura, CFO of RSA Canada Group, said he “wouldn’t be surprised” to see that number climb up to 65% by 2014. He further noted it would only take about one or two major deals to reach that mark.

Craig Pinnock, CFO of Northbridge, and Mark Tullis, CFO of Intact Financial Corporation, each provided numbers in the range of 62-66%.

“I don’t really see a pattern or a trend, but I do believe [M&A] deals are likely to happen over the next few years,” Creatura said. “The market remains fragmented, investment yields are likely to remain low for some time, returns are inadequate for many companies and there’s excess capacity.

“There’s an increasing divergence in financial results among top tier and bottom tier performers.There are a number of players who are well-positioned as potential acquirers.”

48 Canadian Underwriter June 2010

Growth through M &A would certainly be attractive in the above environment, since companies are having a tough time achieving growth internally.

In the broker space, there is much more M&A activity, Creatura said.

“Demographics is driving much of that [M&A] activity, as senior principals of brokerages look to retire,” he said. “I think they will naturally look to a sale transaction.”

Pinnock said the strategic timing might not be right for many brokers to sell. He said a five-to-10-year window would be more likely, since the multiples the brokers are now seeking might be too high to interest prospective insurance company buyers.

Prior to credit scoring, the U.S. auto rate plan had been a fairly static entity for decades. The introduction of credit revolutionized the way companies looked at their risks.

Pinnock added financial corporations looking to acquire are less likely than insurers to “kick the tires” on a deal for a brokerage, since they might not consider the underlying insurance drivers for a deal.

How credit scoring heated up competition in U.S. auto lines Credit scoring played a key role in heating up the competition in the United States auto insurance market, according to a U.S. researcher of insurance analytics.

David Cummings, vice president of research at ISO Innovative Analytics, a unit of Insurance Services Office Ltd. (ISO), made the observation during his presentation on ‘Actuarial Predictive Modelling’ at the CIFF. “The [U.S.] auto rate plan, prior to the introduction [of credit scoring], had been a fairly static entity... for decades,” Cummings said. “But then the introduction of credit really revolutionized the way that companies looked at their risks.

It changed the way they segmented them and created a substantial increase

in competition. That continues today when you see all of those auto insurance ads on TV in the United States. There’s plenty of competition going on today.”

Cummings linked Progressive’s rapid accumulation of market share in the United States with the company’s aggressive use of credit scoring.

In his presentation, Cummings showed an example of how competition is stoked through companies being selected against.

For example, Company A does not use credit scoring. It has three policies — a $600 policy, an $800 policy and a $1,000 policy — amounting to total revenue of $2,400. Company A does not use credit scoring to segment these risks, and so it offers an average $800 rate to three of its policyholders.

Company B, on the other hand, uses credit scoring to accurately price the risk. It offers a $600 policy to Company A’s $600 policyholder (who is paying the average $800 premium to Company A).This causes the $600 policyholder to switch from Company A to Company B. Company A now has two policyholders, an $800 customer and a $1,000 customer. Still not using credit scoring, the company offers an average premium of $900 to both.

Again, Company B uses credit scoring to segment its pricing. It offers a rate of $800 to Company A’s $800 policyholder, causing him or her to switch.

Company A is now left with only one policyholder, worth a total revenue of $1,000 — less than half the revenue with which it started.

“The early adopters were really able to take off with [credit scoring], because of that ability to price accurately,” Cummings said of the U.S. market. “There were lower-cost risks and they were able to steal them out from under the slower actors, some of whom were much larger than they were. So it created a real opportunity for that profitable growth earlier on. As soon as everybody realized that’s why Progressive moved so quickly up to the top of the ranks — they were one of the early adopters — that got everybody’s attention. They said, ‘Hey, I’d like to do that, too.’”

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The Other Side of the Desk As an adjuster, I know all about delivering good customer service. But after a flood in our place earlier this year, I learned a whole lot about what the claimants go through.

Keith Edwards

I’m at the other end of the country in February Senior Vice President, when my wife calls to say there’s water all over Training and Development, our living room floor. The condominium staff ClaimsPro vacuumed it up. Apart from the floor being dirty, (an SCM Company) there appears to be no real damage.

Over the next two days, the floor goes from being dirty to “crunchy” (my wife’s term), to looking like the luge run at the Vancouver 2010 Olympics.

I call my insurer on Saturday morning when I get home. I’m immediately struck by the friendly, empathetic and knowledgeable person who answers the phone.To this point, I don’t think I was ever totally convinced by the strident exhortations around customer focus. I change my mind. I am reassured that things are going to turn out well.

Lesson #1: That first call is vital and builds an expectation.

50 Canadian Underwriter June 2010

The independent adjuster (not from my company) called shortly afterwards. Within a couple of hours, he was in the apartment commiserating with my wife. As an adjuster myself, I know my way around claims. As for my wife, I was under no illusion she could be described as anything other than a first-time consumer.The adjuster was friendly and reassuring. He took the time to explain the process and set her mind at rest.

Lesson #2: The first site visit is also key to establishing a positive expectation and good future working relationship.

So far so good, the next step was figuring out the damage. By now, the apartment was starting to smell like a wet dog. I began to worry about mould. Would there be a thorough investigation and resolution, or would the damage lurk behind the walls to be discovered long after my insurer had departed?

During my adjusting career, I have lost count of the number of times I have praised the insurer’s preferred contractor lists and pointed out they stand behind their workmanship. I know the contactors on my insurer’s list by reputation. I was reasonably certain they would do a competent job, but I was not totally persuaded. I found

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myself wanting someone I knew. I had recently spent a large sum of money on bathroom renovations; thus, getting a contractor who would do the repairs correctly and to the highest standards was weighing on my mind, even if my insurer was footing the bill.

Eventually I decide to ask a restoration contractor I had known for 30 years, but not on my insurer’s list, to jointly scope the loss with my insurance company’s contractor.

Lesson #3: Trust is essential. Just because a contractor is on someone’s list doesn’t itself build trust. Perhaps photographs of completed jobs or testimonials would have helped me decide.

The next issue is timing. My wife, an archetypal Type-A personality, wants this done by the end of the week if not sooner, no excuses. I share with her my knowledge of project management principles and dependences. No dice. Wet dog odours, doors that won’t open and jagged floor edges eventually get to both of us. By the time the estimates finally arrive, about 10 days have elapsed from the first report to my insurer.

Lesson #4: Elapsed time is frustrating.

It tends to cause irascibility over the smallest things.

After adjusting for some dissimilarities, it turns out the estimates between my preferred contractor and the insurance company’s contractor are very close.

The advantage goes to my contractor.

More days elapse after my adjuster is asked to confirm what property the corporation is responsible for insuring and to determine the amount of their policy deductible. It turns out to be a moot point: everything damaged is an improvement.

That gets sorted out. Following reassurances from my adjuster, I instruct my contractor to go ahead and rip out the smelly, heaved floor. But even that can’t begin until the contents are packed and moved out. I have visions of chipped furniture, paintings with holes poked in them and heirlooms lost forever in some gloomy, dank warehouse. My contractor assures me that our moving company, A M J Campbell, has a VIP division that will carefully protect our contents. Sure enough, they turn out to live up to advance billing.

52 Canadian Underwriter June 2010

Lesson #5: Packing up and moving out is expensive, and our lives are connected with our stuff.We need reassurance.

By the time the first workmen are standing in our living room, wrecking bars in hand, we are into our third week.

I have given up trying to explain to my wife why all of this takes so long.

Then, an unforeseen delay; this time, it’s of our own making. Although we are spending $30,000 of our insurer’s money, it occurs to us that it doesn’t make sense to replace everything exactly as it was without thinking if we should update the finishes or add a few improvements.

Unfortunately my wife doesn’t agree with my thinking on this matter (which is not, in itself, unexpected). “What sort of floor do we want?” I ask. She wants what we had. I like hardwood. Should we add some crown moulding? How about larger baseboards? And concealing all those cables running along the floor?

How about a new kitchen? (Now we are getting carried away.) Running around to flooring showrooms and building centres is eating away what little free time I have. Domestic harmony is becoming but a distant memory.

Divorce is narrowly averted in the form of an interior designer who, in an inspired move, comes up with an entirely different solution to our floor conundrum. In addition, the designer sorts through the various costs and practicality of the other contemplated improvements. In a couple of days, we choose

from the samples provided; everything is back on track.

Lesson # 6: Perhaps some innovative insurer could offer, for an additional premium, a lump sum towards design services. Or perhaps restoration contractors could add it to their services?

Lesson #7 is communication.There is not enough of it.

My adjuster is very busy and is not able to get back to me as quickly as I would like. My own contractor does not always respond to my e-mails. I end up connecting people and confirming arrangements.

The flooring sub-contractor is an exception. He calls every morning to check in. He’s always a cell phone call away.

Very reassuring. An adjuster’s fees are often scaled back if he or she does not ‘move the file forward,’ but as a consumer I want those additional touch points.

It occurs to me that increased communication reduces my stress and makes it easier to deal with me.This in turn helps to resolve the claim more quickly and at a reduced cost. For example, in my case, I felt well treated.As a result, I overlooked minor items of the claim that I might have pursued had I felt poorly treated.

Nearly three months later, everything is repaired and the furniture returned without a scratch. Admittedly, our travel obligations added to the time required to resolve the problem, but it was still a long and tiresome business.

What have I learned? Probably more than anything, I now have a full appreciation of the amount of stress a claim can create. In addition, I learned ongoing communication with my adjuster and others involved in resolving the claim can go a long way in reducing a claimant’s high stress levels. Selecting the right contractor, employing good, reliable sub-contractors and ensuring coordination of these trades is also essential.

I’m also thankful I went with a wellknown, reputable insurer and picked their top-of-the-line product.

Overall, my own experience was good.

But it doesn’t hurt the industry to consider the lessons learned from my experience to improve the experience for future claimants.

Premium Technology

Joe Micallef CEO, Macquarie Premium Funding Canada

Premium financing is good for business, great for clients and now, with new technology, easier than you think.

premium-financing products seamlessly to their clients. In a poll of Canadian brokers, more than 60% said they are interested in working with a provider that offers technology as an enabler to better premium financing.

Insurance brokers are generally aware that premium-financing solutions exist for their clients.

In fact, in the wake of the global financial crisis, and with ongoing concerns about the prospects for a full economic recovery, access to credit and financing has never been a more topical issue for businesses in Canada and around the world.

But when it comes to the specifics of premium financing, many brokers still face a learning curve.

Some want to find out more about how this product can help strengthen client relationships and build their business. Others express skepticism based on their somewhat disparate experiences in dealing with financing products and procedures.

The key message for brokers is that premium financing should not be cumbersome or timeconsuming. It should be an integrated offering that allows brokers to serve their clients quickly, easily and better.Technology is available today to help them to do just that.

Recent surveys show brokers are interested in technology solutions that can help them deliver

WHAT IS PREMIUM FINANCING?

54 Canadian Underwriter June 2010

Simply put, premium financing is when an individual or business finances the cost of their insurance.The procedure on paper is straightforward: the insured signs a premium finance agreement that is sent by the insurance broker to a premium finance company. The premium finance company then pays the insurance premium on behalf of the insured.

Clients have a number of good reasons to choose premium financing. Many want to have better control over their cash flow by having another party pay their premium on their behalf.

Others may want to preserve their credit line or maintain their balance sheets. The most typical reason for premium financing, however, is to eliminate the need for the client to make a large lump sum payment to an insurance company.

Most brokers today do not aggressively promote premium financing. They will, however, accommodate a client’s request for this product if asked.

There are some distinct reasons for this reluctance.

Some find the additional time required to explain premium financing to a client, as well as the time needed to process and administer the financing arrangement, partially or completely offsets any gains for the broker. Several have complained that some products require multiple steps to generate quotes.There are common and widespread concerns about the work involved in introducing premium financing to clients.

These concerns, however, are a process problem.They can be solved.The fact is, premium financing represents a huge, untapped opportunity for many brokers and their clients — especially hard-toplace clients who may see access to financing as a lifeline.

TECHNOLOGY TO THE RESCUE So, how can the “process problem” be addressed? What innovative solutions exist that can benefit brokers when it comes to premium financing? And how can technology help reduce the brokers’ administrative burden?

One readily available answer is an on-

line quotation tool that allows brokers to quote a client’s premium financing costs quickly. Ideally, this tool would also provide the flexibility to structure installment dates to suit various policies, as well as offer a continuous contract option and a streamlined endorsement funding procedure.

One such tool exists already, called Web Quote.

Web Quote is designed to save brokers time by allowing them to renew, add to or amend an existing loan without the hassle of dealing with an exhaustive amount of paperwork.This tool comes with accredited (subject to provincial licensing regulations) online, telephone or in-your-office Web Quote training for brokers.

There will be future opportunities to integrate Web Quote into various broker management systems for greater ease of use.The idea is that brokers will be able to access all of the information they need — quotes, reconciliations, etc. — simply by entering a client’s information once.

This option could be integrated into broker management system set-ups, so

all the information is right there at their fingertips. Pilot projects have begun in this area.

Another technological innovation, already in place in Australia, is an end-toend payment and reconciliation system.

This industry innovation streamlines client invoicing, surcharges merchant costs, provides an automatic reconciliation process for trust accounts and allows brokers to offer a broader range of payment options.

There is a strong appetite for this kind of solution in Canada, and vendors are interested in working with brokers to build this kind of technology here.Technological innovation can support and simplify premium-financing solutions for brokers, eliminating many of the concerns around administrative time and multiple procedures. With more streamlined options available today, brokers should be more confident in introducing it as a viable and beneficial option for their clients.

That is the not-so-scary truth of premium financing for the opportunistic broker.

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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

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

ClaimsPro Inc. Committed to providing leading-edge claims management services. www.scm.ca

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

Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com 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 PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com

56 Canadian Underwriter June 2010

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

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

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 The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

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

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

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

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

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

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

6

Pillars for Fighting Fraud Steven Turner Manager, Risk Management and Corporate Security, G4S Secure Solutions (Canada) Ltd.

As insurers outsource their SIU functions to third parties, it becomes increasingly important to take a risk management approach to reduce fraud exposures.

In today’s social and economic climate, insurance companies walk a fine line between customer service and contesting suspicious losses.

Traditionally, the primarily role of an insurance company’s Special Investigations Unit (SIU) has been to react to a specific loss and investigate the circumstances that surround that loss.

For many years now, I have seen a significant reduction of the number of in-house SIU investigators. This downturn has primarily been a response to limited returns on the insurer’s SIU investment. Consequently, I firmly believe a multilayered risk management approach is required to reduce an insurer’s risk and fraud exposure.

Make no mistake: insurers face significant fraud exposures from many different sources. These exposures include claimants, vendors, organized crime, medical providers, brokers, service

providers and internal employees. Without a focused and concerted effort by insurers to prevent, detect and investigate, how can anyone really know how bad their fraud exposure really is?

Many Canadian insurance companies now outsource their claims investigations to third-party vendors. This is not an ideal situation, although I can certainly see the fiscal benefits of taking this course of action. Nonetheless, in my opinion, outsourcing all SIU functions completely would be a mistake. It will result in a net trade-off of short-term gain for long-term pain.

How I can justify such a statement? Simply put, an outsourced SIU investigation deals only with the immediate issues of the claim. They don’t see the claim patterns, trends or interconnected names or entities that emerge.They don’t recognize potential underwriting or broker issues. They will likely not comment on inappropriate or unethical behaviour from an adjuster, particularly if they receive assignments from this adjuster. Also, they will not recommend risk mitigation strategies or provide training and provide value to the front-end claims service.

So how do we meet the financial goals of an insurance company to reduce claims costs, lower operational costs, maintain high levels of customer service, maintain an effective loss control

June 2010 Canadian Underwriter

57

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

Ottawa - 13th Annual CIP Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . September 15

Halifax – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 13

Toronto - CIP Society Annual Fellows’Golf Tournament . . . . . . . . . . . . . . September 20

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

London - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 24

Hamilton - Annual CIP Society Beach Volleyball Tournament . . . . . . . . . . . . . August 26

St. John’s - Boiler and Machinery/Equipment Breakdown . . . . . . . . . . . . September 29

Saskatoon – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . September 1 Keeping you at the forefront of the P&C industry.

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

program and still remain competitive in the marketplace? The answer is simply to apply a risk management approach to risk and fraud exposures.

SIX PILLARS TO RISK MANAGING FRAUD There are six main pillars to risk managing fraud.

Improve

Investigate

Identify

Risk Management Pillars

Detect

Assess

Prevent

These six pillars encompass many of the principles considered in a gap analysis (i.e. identifying the space between where an organization is and where it should be or wants to be).These six pillars bring focus to the business of insurance and the effective delivery of a quality product. Only through the constant measuring, assessing and improving of a broad spectrum of risks can an insurer ultimately deliver a quality, cost-effective product to the consumer.

Identify the potential risk Conduct a review of all business operations and identify areas that present potential risk to the operation of the business. This includes analyzing those external costs that still need to be managed effectively.

Assess the risk and fraud potential Examine all aspects of the claims process, the underwriting process, the broker process, employee protocols and procedures and vendor management.

Review a selection of denied claims to determine what procedures were successful and what procedures, if any, facilitated the fraudulent claim to be submitted.

Prevent the fraud or risk exposure The review of all processes and policies allows for the development and improvement of new procedures.This would include training and education as well.

Detect the fraud Processes are usually designed to ensure the fair, equitable and prompt settlement of a claim. The detection of fraudulent claims is usually triggered by a procedure or the ability of an adjuster to identify a potential issue. Evaluate various fraud analysis tools and triggers to improve and evolve the process.

Investigate the fraud The decision to further investigate any suspicious loss should be taken on a case-by-case basis.The decision to investigate should be governed primarily by established policies and procedures, thereby eliminating any suggestion of bias or bad faith.

Improve and develop protocols and procedures The entire process should be reviewed constantly to reflect new trends, new technology, new legislation and any additional changes in an insurers’ business model.

In many jurisdictions in the United States, insurers are legally required to report fraudulent claims to their Sate Fraud Bureaus. In addition, they are required to submit mandatory self-audit reports identifying their compliance with the fraud reporting requirements.

Without demonstrating compliance, insurers cannot obtain rate increases. I hope Canada adopts similar measures.

Currently in Canada, the business decision to investigate fraud is left up to each insurer. As a result, it might be argued aggressive claims handling could lead to a competitive disadvantage in the Canadian marketplace. How so? Insurance companies are in the business of making money. It follows that claims must be handled promptly and fair settlements reached expeditiously. In an effort to win customer satisfaction, increase market share and profits, insurers need to reign in their costs. A claims manager once told me that a good claim was a closed claim. Granted, a closed claim might reduce an insurer’s costs.

But what happens if that closed file requires further investigation (thus leaving the claim open longer)? Without a

mandatory anti-fraud reporting program, an insurer’s appetite to properly manage risk and fraud will always be an individual one. Canada should also adopt mandatory fraud reporting legislation.

EXECUTING A RISK MANAGEMENT FRAUD PROGRAM Now that we have identified six pillars to risk managing fraud, we need to discuss further how an insurer should initiate and execute an effective risk management fraud program — a program that delivers a cost effective return on investment.

Insurance companies should dedicate a risk manager to handle the program.

This risk manager would be a key link between all business lines, departments and vendors. Insurers can still outsource their investigations, but the risk manager would provide essential oversight and a vital link to manage the organizations overall exposure to fraud.

The risk manager should conduct and direct an assessment of potential areas for fraud within the organization. Existing fraud and risk mitigation procedures should be examined; where necessary, they should be updated. Policies and procedures dealing with the identification and handling of potential frauds should also be examined. Recommendations should be made to improve and reduce potential fraud exposure. The investigation process would be monitored. The oversight, audits and compliance of vendors and adjusters should be done in conjunction with the claims management team.

Finally, the risk manager should review the trends, patterns and data analysis of all investigated claims to determine if company procedures and protocols provided an environment that contributed to the potentially fraudulent claims being submitted. New software and technology tools should be evaluated.Where necessary, training programs should be developed or updated to reflect new protocols and procedures.

A risk manager will need to have the qualities of an investigator, an adjuster, a trainer and an auditor. He or she must be capable of interacting with all levels management and have a proficient understanding of all lines of business.

June 2010 Canadian Underwriter

59

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

Aviva Canada, The Economical Insurance Group (TEIG) and The Dominion say they intend to use iClarify validation services delivered by CompuQuote. Their support continues past the pilot phase of the data validation tool into full production.

More than 50 member firms of the Insurance Brokers Association of Ontario (IBAO) used iClarify data validation services to provide property quotes to more than 40,000 consumers during a recent pilot test. IBAO CEO Randy Carroll says test brokers have been challenging iClarify’s efficiency and data accuracy and are pleased with the initial results. “We have all agreed data accuracy at time of quote is critical to solving the industry's ITV [insuranceto-value] problem,” said Catherine Coulson, TEIG’s vice president of personal lines insurance. “Our brokers have told us they have seen the benefits of utilizing iClarify,” said Steve Whitelaw, The Dominion’s vice president of underwriting and business information. James Russell, chief underwriting officer at Aviva Canada, added they “expect the new tool will help drive workflow efficiencies as well as improve customer experiences.”

60 Canadian Underwriter June 2010

2

Marshall & Swift/Boeckh (MSB) has teamed up with Compu-Quote Inc. to launch a replacement cost calculator. MSB will integrate its RCT technology into CompuQuote’s RCT EvaluRater product to form the Replacement Cost Technology EvaluRater.

The product is intended to “significantly improve the process of determining residential reconstruction value, delivering both immediate and long-term workflow benefits to both Canadian insurance agents and brokers nationwide,” a joint release says.

3

Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction, has been chosen as a lead author of an Intergovernmental Panel on Climate Change (IPCC) report.

Specifically, Kovacs will serve as lead author of Chapter 26, North America, of the Working Group II contribution to the IPCC’s Fifth Assessment Report (AR5). The appointment is the first step in a four-year drafting process, scheduled for completion in 2014. More than 1,200 people were nominated for the 311 available coordinating lead author, lead author and review editor positions. Candidates underwent a thorough review; input from observer

3 organization representatives and senior leaders in climate science helped determine the final selections. Kovacs has been involved with the IPCC for a number of years, and served as a lead author of Chapter 14 of the Fourth Assessment Report, published in 2007. The work done by the IPCC also earned the group a Nobel Peace Prize — along with former U.S. vice president Al Gore — in 2007.

4

Canada’s Minister of Finance has issued Letters Patent to DAS Legal Protection Insurance Company Limited (DAS Canada), making it the first insurer in the country to specialize in offering legal expense insurance. The company will provide customers with policies that cover costs arising from unexpected legal events. “We are in the process of finalizing provincial licenses in Ontario, Alberta and B.C. and will be offering legal expense insur-

4 ance products through the P&C broker channel this summer,” DAS Canada CEO Barbara Haynes says.

5

Insurance Bureau of Canada (IBC) has launched a two-fold initiative to improve property valuations. One part of the initiative targets insurers; the other is an educational campaign directed towards consumers. For insurers, IBC released best practice guidelines. The best practices offer practical advice about the roles and responsibilities of insurers and their expectations of other principal stakeholders in the habitational valuation process, an IBC release says. For consumers, IBC has launched a Webbased campaign. The campaign highlights the importance of consumers having basic knowledge about their homes. Animated banners on various consumer Web sites will direct consumers to IBC’s Web site. Consumers will find

MOVES & VIEWS

7

8

with Odlum Brown Ltd., most recently as a senior vice president and director. Her board experience includes work with Simon Fraser University, the B.C. district of the Investment Dealers Association and the Minerva Foundation for B.C. Women (where she was a founding member and past chair).McKinstry replaces T. Richard Turner as ICBC board chair.

8 10a FAQs about home replacement cost and an interactive home assessment checklist. IBC member companies and insurance representatives can access a policy insert and brochure to distribute to consumers, the release adds.

6

The Aviva Community Fund competition is returning again this year, with Aviva Canada offering $1 million to support community initiatives across Canada. This doubles the company’s $500,000 pledge in 2009. The second installment of the competition will begin in the Fall. More than 2,000 ideas were proposed during last year’s competi-

10b tion. Eight community winners were selected. “This year, we wanted to build on the passion we saw from Canadians in response to the first Aviva Community Fund, by upping our commitment with a $1-million pledge,” says Aviva president and CEO Maurice Tulloch.

7

Nancy McKinstry has been appointed chair of the board of directors of the Insurance Corporation of British Columbia (ICBC). McKinstry received the Order of Canada in 2005.

She has served on corporate, university and non-profit boards in recent years, and spent more than two decades

SPECS Limited, a provider of independent property damage valuations and cost control services, appointed John McAlister as Prairie regional manager. McAlister will execute SPECS’s business development strategies for the region, drive sales support and marketing activities, as well as build, maintain and strengthen client relationships.

Prior to this new role, he served as the branch manager of SPECS’s Calgary branch.

9

Optimum General has chosen to work with iter8 Inc. in the development of a modern, connected broker portal. Optimum General is a Canadian company that underwrites property and casualty insurance through three subsidiaries with eight regional offices. Its products are distributed through more than

600 independent brokers.

Optimum is active in four main insurance lines: automobile, personal property, commercial property and liability insurance. iter8 will provide communic8 licensing and services to ensure Optimum’s portal is fully connected to brokers and third-party information sources. communic8 supports all North American standards including ACORD, CSIO, AL3 and XML, as well as proprietary services and networks.

10

St. John's Downtown Development Commission bestowed an award of distinction on the 2009 RIMS Canada Conference Committee. The ‘Destination St. John’s Award of Distinction’ is presented to a conference chair/committee who, through the hosting of a conference in St. John's, has generated significant economic benefits and increased the profile of the city. St. John’s served as the host city for the RIMS Canada Conference in September 2009. Betty Clarke [10a] and Marilyn Leonard [10b] served as co-chairs of the conference organizing committee. The RIMS Canada conference injected more than $1 million into the local economy over the course of the conference, said Clarke.

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SCOR held a “Soirée spéciale” at the Art Gallery of Ontario in Toronto on Apr. 20, 2010, in celebration of SCOR’s 40th birthday in 2010. Many clients, insurance brokers and guests from across Canada and United States attended. As a result of the volcanic activity in Iceland, chairman Denis Kessler and various members of the SCOR Group’s executive committee were unable to attend. Henry Klecan, Jr., managing director of SCOR’s operation in the Americas, hosted the evening event.

SCOR is the fifth-largest global reinsurer in the world, including its global P&C segment (following the consolidation of SCOR Re/Converium), Global life segment (following the consolidation of SCOR Life Re and Revios) and Global Investments. The evening’s reception in Baillie Court, featuring an artistic flare and modern design, was a perfect setting for an enjoyable night. Guests enjoyed a relaxed and vibrant evening.

Renowned Canadian jazz/stride/blues artist Michael Kaeshammer, the “CSJA 2010 nominee for male vocalist of the year,” provided the entertainment.

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

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

The theme was ’32 Degrees Fahrenheit’ at the opening reception of the Risk and Insurance Management Society (RIMS) 2010 Annual Conference & Exhibition in Boston in April.

But the atmosphere was anything but chilly. Hundreds of RIMS delegates sampled local Boston fare, enjoyed live music, caught-up with old colleagues and made new friends as the excitement built for the conference kick-off.

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The RIMS 2010 Opening General Session on April 26 in Boston marked the 60th anniversary of the association.

RIMS executive director Mary Roth reflected on the achievements of the risk management community over the past several decades.

RIMS president Terry Fleming suggested delegates reflect on the advancements made in the profession,and also focus on future opportunities. During the session, the prestigious Harry and Dorothy Goodell Award was presented to Stephen M. Wilder, vice president of risk management at The Walt Disney Co. Gary Loveman, chairman, president and CEO of Harrah’s Entertainment Inc., gave a

keynote address, ‘Playing the Right Card,’ in which he outlined challenges in running the U.S.’s largest gaming company. During the Awards Luncheon, also on April 26, Lance Kayfish, risk manager at the City of Kelowna, British Columbia, received the Richard W. Bland Memorial Award. The award recognizes the dedication and commitment of a RIMS member in the area of legislation or regulation. Also at the awards ceremony, theSaskatchewan and Newfoundland and Labrador chapters achieved ‘Super Star’ status. RIMS recognized the chapters for increasing their respective memberships by 9% last year.

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June 2010 Canadian Underwriter

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More than 3,900 exhibitors filled the Exhibit Hall at the RIMS 2010 Annual Conference & Exhibition in Boston. Companies pulled out all the stops; features ranged from a free chair massage at LeasePlan USA to a friendly ‘race around a track’ at the ClearRIsk/Riskonnect booth.

The show floor bustled with more than 4,700 delegates — a 20% increase over the 2009 conference. Many booths had dedicated meeting lounges, where delegates had the opportunity to sit and have some face time with company reps.

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A mountie (albeit, with a Boston accent) guided Canadian delegates of the RIMS 2010 Annual Conference & Exhibition in Boston to the RIMS Canada Night Celebration at the Sheraton Boston. Sponsored by SCM Insurance Services and the Canadian Litigation Counsel, attendees were greeted with a patriotic red cocktail and treated to a ‘Boston: Then and Now’ coffee table book as a souvenir. Joseph Restoule, president of the William H. McGannon Foundation, accepted $20,000 in donations ($10,000 from the RIMS Canada Council and Newfoundland and Labrador Chapter and $10,000 from SCM Insurance Services).

Restoule also offered an update on the McGannon Foundation’s achievements.

It granted four scholarships in 2009 totaling $12,500.

The foundation also launched its first Student Involvement Program at the RIMS Canada conference in St. John’s. The program allowed two risk management students to attend the conference under the mentorship of members of the RIMS Community.

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ACE Canada

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

Bruce Walker David Brosnan, Chief Executive Officer of ACE Canada is pleased to confirm the appointment of Bruce Walker to the position of Chief Financial Officer.

As a senior financial executive, Mr. Walker brings approximately 20 years of insurance experience to the role. Rounding out his significant financial capacity, Mr. Walker also brings additional capabilities in the areas of governance, information technology, strategy development and key stakeholder relations.

Complementing his considerable international financial experience in the United States, Latin America and the United Kingdom, Mr. Walker holds a Bachelor of Arts degree in Political Science and Economics from McGill University and is a member of the Canadian Institute of Chartered Accountants.

Celebrating 25 years of insuring progress, the ACE Group is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited (NYSE:ACE), the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries. Additional information can be found at: www.acelimited.com

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

The Risk Management Counsel (RMC) of Canada held a fundraiser for Women In Cancer Crusade (WICC) at Great Cooks on Eight in Toronto on Apr. 28. Guest speaker Sarah Richardson, host of Sarah’s House on HGTV, shared inside tips on home decorating. Guests enjoyed delicious treats and bid on a huge array of items in a silent auction.

The silent auction raised $2,172 for WICC. RMC supplemented the auction proceeds with a donation of $5,000, raising the grand total to $7,172 for WICC.

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

CCR’s Annual Blues Night once again heated up Fionn MacCool’s in downtown Toronto. Guests sang the blues — all in good spirit — alongside Shrimp Daddy & the Sharpshooters at the Apr. 14 event.

Beth Bull David Brosnan, Chief Executive Officer of ACE Canada is pleased to confirm the appointment of Beth Bull to the position of Vice President, Claims.

As an accomplished executive, Ms. Bull brings over 15 years of progressive claims management experience to the position. Prior to joining ACE, Ms. Bull held a comparable role at a leading insurer. Ms. Bull is a graduate of St. Clair College where she obtained a diploma in Business Administration Marketing and also holds a Canadian Insurance Professional designation.

Ms. Bull will be charged with providing leadership to ACE Canada’s diverse group of productspecific claims professionals while delivering superb service to our clients.

Celebrating 25 years of insuring progress, the ACE Group is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited (NYSE:ACE), the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries. Additional information can be found at: www.acelimited.com.

www.ace-ina-canada.com June 2010 Canadian Underwriter

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More wishes will be coming true this year thanks to the 16th Annual Starlight Insurance Gala, held in support of Starlight Starbright Children’s Foundation. Themed ‘Springtime in Paris,’ the black tie event raised $175,000 on May 1, exceeding last year's amount. Just short of 450 tables represented all segments of the industry. Joann Brjnas addressed the audience with touching memories of her daughter Samantha Flannigan’s courageous fight against osteosarcoma, a common type of bone cancer, as Flanigan maintained her determination to express joy and love.

Brjnas conveyed her gratitude towards a Starlight Wish for its role in the care Samantha had received, and confirmed Samantha’s anticipation of the Wish.

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June 2010 Canadian Underwriter

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

Viva l’Italia! The Insurance Brokers of Toronto Region held its annual Friendship Night on May 6 with the theme of Italy. The Spirale Banquet Hall in Toronto was festooned in red, white and green streamers. Amici mixed, mingled, perused exhibits and sampled traditional Italian fare from bruschetta to cannelloni.

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

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The 2010 Ontario Insurance Adjusters Association (OIAA) Out of Town Conference was held May 13 and 14 in Hamilton, Ontario.The two-day ‘Hollywood Hits’ event included a trade show, seminars, a Hollywood Premiere Party, red carpet cocktails, a formal dinner and other exciting events.

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APPOINTMENT

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

Andre Mancini

The partners of McCague Borlack LLP are pleased to announce the appointment of Andre Mancini in the area of Marketing & Business Development .

Andre will act as the firm’s liaison with the London Market and will co-ordinate with the affiliated firms of Canadian Litigation Counsel across Canada.

McCague Borlack LLP is the largest insurance litigation boutique in Canada with over 50 lawyers, 15 clerks and 40 support staff , the firm has the bench strength and capability to meet our clients needs efficiently and effectively without compromising our tradition of personalized service.

McCague Borlack LLP provides complete coverage, subrogation, dispute resolution and risk management services across Canada by its affiliation with Canadian Litigation Counsel throughout the United States, Mexico, United Kingdom and Europe as an affiliated member of The Harmonie Group.

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Brokers from the Greater Toronto Area gathered at the Roosevelt Room in Toronto on May 19 to help Catlin celebrate five years in Canada and the company’s 25th anniversary.

The event was a great success, with more than 150 people in attendance.

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APPOINTMENT

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

Ken Driedger, FCIP

Kenneth B. Irvin, President and Chief Executive Officer of Munich Reinsurance Company of Canada (Munich Re) is pleased to announce the appointment of Ken Driedger to the position of Assistant Vice President, Casualty, Vancouver Regional Office.

Ken joined the company in 2002 as Senior Casualty Underwriter in the Vancouver Regional Office and subsequently was promoted to Casualty Manager in 2007. He is responsible for the technical evaluation and marketing of facultative business for Munich Re’s western clients. Ken has a FCIP designation and over 24 years experience in the insurance and reinsurance industry.

Munich Reinsurance Company of Canada is a member of the Munich Re Group, one of the world’s leading risk carriers.

Munich Re has more than 47,000 employees globally and over 4,000 corporate clients in more than 160 countries.

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ACE Canada held a cocktail reception on May 20 to mark the opening of its new corporate headquarters and to celebrate its 25th anniversary. ACE’s new head office is located within the Telus Tower at 25 York Street in Toronto.

The Telus Tower is a Leadership in Energy and Environmental Design (LEED) gold building. The site was a natural choice due largely to ACE's focus on climate change. To demonstrate its commitment to mitigate the effects of climate change, ACE Canada commemorated the event by planting a tree in honour of each guest.

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APPOINTMENT

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

Valerie Malmsten, B.Sc., FLMI

Kenneth B. Irvin, President and Chief Executive OfďŹ cer of Munich Reinsurance Company of Canada (MunichRe)is pleased to announce the appointment of Valerie Malmsten to the position of Assistant Vice President, Information Services.

Valerie joined Munich Re in 2000 as Coordinator, Information Services and was promoted to Manager, Information Services in 2004. She has an Honours Bachelor of Science degree from Carleton University in Mathematics and Systems Engineering and the FLMI (Fellow of the Life Management Institute) designation.

Munich Reinsurance Company of Canada is a member of the Munich Re Group, one of the world’s leading risk carriers.

Munich Re has more than 47,000 employees globally and over 4,000 corporate clients in more than 160 countries.

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

What is the ‘New Normal?’

Speakers at the CIP Society Symposium 2010 answered this question from a variety of perspectives at the Toronto Board of Trade on May 13. The annual insurance industry symposium featured seminars designed to tackle the theme: ‘Conquering an Uncertain Future.’ Seminar topics included making the most of your legal services, risk managing unforeseen events and leading multiple generations in the insurance industry of the future.

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“In a little place

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He called Intact Insurance from his motel and talked to Emma Doiron, a Claims Representative. It’s why he wrote us a letter. “I was amazed to be on my way the next day in a rental car with everything being looked after.” At Intact Insurance we know accidents can happen anywhere. It’s why we promise to get your customers back on track in a way that’s respectful, fair and as easy as possible. Because we believe insurance isn’t about things, it’s about people. People like Ian, who love the open road.

)0.& t "650 t #64*/&44 Certain conditions, restrictions and exclusions may apply. Products and 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.