Canadian Underwriter May 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

M AY 20 1 0 A Business Information Group Publication #40069240

Riverboat Gambling

BY DAVID GAMBRILL

In it for the Long Haul

BY ANGELIQUE MAGI

Facts About Caps

BY DON FORGERON

PROGRESS COMES FROM

STRENGTH As one of the world’s largest insurers, the ACE Group has the capacity, know-how, people and balance sheet strength to meet your needs today — and to be there for you in the future.

Our commercial lines span property, primary and excess casualty, risk management and engineering, professional risk, and many specialty classes — all with substantial capacity.

We also provide our clients with life, accident and health products specifically designed for the employer, credit and affinity markets.

With offices in more than 50 countries and doing business with companies and individuals in more than 140 countries, ACE is ready to serve you today.

© 2009

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

INSURING PROGRESS®

PROPERTY & CASUALTY

ACCIDENT & HEALTH

LIFE

VOL. 77, NO.5, MAY 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Riverboat Gambling

28

Four factors in Ontario’s new auto insurance reforms still need to be resolved — a new catastrophic impairment definition, a new Minor Injury Guideline, the reaction of lawyers and the future choices of consumers. Without knowing these things, insurers are guessing it will take up to two years to get a handle on the pricing impact of the reforms.

BY DAVID GAMBRILL

FEATURES

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40

The Long Haul

Terrorism

Insurers interested in jumping on board the trucking line of business should think clearly first about how to be successful over the long haul.

Underwriting terrorism risk is a daunting task, because the danger is everywhere and the exposure is huge.

BY MARC SAND

BY ANGELIQUE MAGI

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50

Repair Data

Fund Transfer

The precipitous fall of OEM use, rising labour costs and an opportunity to use ‘appearance allowances’ characterize the current Canadian collision repair market

In an unprecedented move, the B.C. government will transfer more than $777 million from the public insurer into the public coffers over the next three years.

BY GREG HORN

BY DAVID GAMBRILL

16 Minor Injury Caps

44 Data and Risk

If lawyers continue to lose Companies can improve their court challenges to auto inrisk modeling through better jury caps, insurers can expect data management processes.

BY WESLEY GILL trial lawyers to start making some noise in the courts of 48 B.C. and Part XIII public opinion.

BY DON FORGERON Where Part XIII is concerned, B.C.’s insurance regulator is 24 Made in Canada legislating what the CCIR is Seemingly on their way south attempting to achieve through of the border three years ago, voluntary undertakings.

BY VANESSA MARIGA I-CAR’s training courses will remain in Canada thanks to the Automotive Industries As- 54 Loss Transfer Court and arbitration decisions sociation of Canada (AIA).

BY ANDREW SHEPHERD in Ontario have added a few new twists to the application 36 Claims of the province’s Loss Transformation Transfer rules.

Traditional claims transforBY J. CLAUDE BLOUIN mations have focused on the physical damage side. But there is an opportunity to transform the management of accident benefits (AB) and bodily injury (BI) claims.

BY ALLAN BUITENDAG AND JEFF ANDERSON

May 2010 Canadian Underwriter

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VOL. 77, NO.5, MAY 2010

PROFILE

10 Order of Canada Gordon McBean, director of policy at the Institute for Catastrophic Loss Reduction (ICLR), recently received the Order of Canada for his work in researching the impact of natural catastrophes on societies and social order.

BY VANESSA MARIGA

SPECIAL FOCUS

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Editorial

8

Marketplace

56 Moves & Views 58 Gallery

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Canadian Underwriter May 2010

EDITORIAL

OSFI sticks to its principles

This is one of those rare times when Canada is able to duck the pressure to adopt international standards and channel its inner Frank Sinatra, doing things ‘Our Way.’ David Gambrill, Editor david@canadianunderwriter.ca

6

Canadian Underwriter May 2010

Canada’s solvency regulator is channeling its internal Frank Sinatra. It has a plan and is sticking to it, forging its own way in the wake of the global market meltdown.

Based on a number of speeches and the latest version of its reinsurance paper, the Office of the Superintendent of Financial Institutions (OSFI) is clearly sticking to its principles — or more specifically, sticking to its principles-based approach to regulation.

Why? Well, because it can.

OSFI is operating from a position of strength now that the worst global financial crisis since The Great Depression is beginning to be mopped up. Canada has thus far seen its property and casualty insurers get by with nary an insolvency to show for it. Regulatory systems around the world are taking a second look to see what OSFI’s “secret sauce” for solvency might be. Thus, there is no reason for OSFI to deviate from its game plan — and it doesn’t look like the regulator will.

True to its public pronouncements over the past several years, OSFI is continuing its march down the path of a principles-based approach to regulation. International observers were witness to this determination to stay the course when OSFI superintendent Julie Dickson addressed the Heyman Center on Corporate Governance in New York on Mar. 16, 2010.

“A financial sector with strong regulatory rules, but with weak supervisory oversight, is not a safe and sound financial sector,”

Dickson said. She likened “supervisory oversight” to the role of a referee — a ref not only calls penalties for rule infractions, but also controls the flow of the game. Referees “talk to players and coaches about what is expected, what is acceptable and not acceptable, and what situations they will be watching given past experience,” Dickson said.

“They know the personalities of the players in the game, they use carrots and sticks, give some players the benefit of the doubt, and give others no room at all.

The rules are important, but ultimately it is the referees that control the flow of the game.”

Sounds like a risk-based approach to us.

Lest anyone think Dickson was just trying to provoke her U.S. regulatory counterparts, OSFI’s latest reinsurance paper basically proves her point.

OSFI, for example, is proposing to drop its longstanding rule that caps the amount of unregistered reinsurance a company can buy at 25%. In tandem, it is proposing to drop its ceding limit of 75%, meaning insurers no longer have any limits on the amount of risk they can cede to reinsurers. These rules were established after reinsurer failures in the 1980s, and it is interesting that they are potentially going to be dropped at the tail end of a massive market failure.

They are also going to be dropped in the midst of an already-competitive Canadian reinsurance marketplace, where licensed insurers may soon have to contend with increasing competition for premium with unli-

censed insurers. Sounds like a recipe for a financial disaster if pricing starts to drop as a result.

But even though OSFI is dropping its limits, it is not dropping its caution either. It will be keeping its requirement that unregistered (re)insurers maintain enough collateral to cover 100% of ceded liabilities and to post collateral in Canada.

OSFI assistant superintendent Mark E. White told the 2010 IBC Financial Affairs Symposium in Toronto that maintaining Canada’s collateral regime is all the more important now that OSFI is proposing to eliminate its 25% limit on unregistered cessions. In this context, “protecting ceding companies and their policyholders from weak unregistered reinsurers becomes even more important,” he said.

And that means no mutual recognition of potentially inferior solvency regimes. The international community of insurance regulators is “a very long way from harmonizing global insurance regulatory and supervisory standards, and realistically, this is a precondition for effective mutual recognition,” White said.

“Countries like Canada are not likely to accept a lower or unknown standard due to mutual recognition.”

So there you have it: this is one of those rare times when Canada is able to duck the pressure to adopt international standards and channel its inner Frank Sinatra, doing things ‘Our Way.’ You can do this from a position of strength. And clearly OSFI feels it has most of the international financial aces in its hand.

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MARKETPLACE

Regulation TAXES, REGULATORY COSTS EAT UP MORE THAN 11% OF CANADIAN INSURERS’ REVENUES Slightly more than 11% of the $38.4 billion of the insurance industry’s 2008 revenues went towards regulatory and tax costs, according to a PricewaterhouseCooper’s (PwC) report.

Insurance Bureau of Canada commissioned PwC to study, for the first time, the burden of taxes and regulatory costs borne by the insurance industry.

Total taxes borne by the industry in 2008 amounted to $4.3 billion, of which $600 million was income taxes, PwC found.

Twenty-eight insurers provided survey data on regulatory costs to PwC, representing about 54% of the industry’s total market share.

Those survey respondents reported $45 million in borne regulatory costs in 2008.

When PwC extrapolated this to the entire industry, it estimates this figure to be about $85 million.

OSFI SHELVES MUTUAL RECOGNITION The Office of the Superintendent of Financial Institutions (OSFI) has rejected the notion of mutual recognition of international regimes for the purpose of regulating the use of unlicensed reinsurance.

Instead, OSFI plans to

8

Canadian Underwriter May 2010

maintain its collateral regime for unregistered reinsurance.

“It would be premature to consider a full ‘mutual recognition’ framework,” OSFI assistant superintendent Mark E. White told the 2010 IBC Financial Affairs Symposium in Toronto. “There is wide variation in insurance regulation worldwide and Canada has, we believe, one of the most robust insurance regimes, so our obligation is not to give up our protections lightly.”

Under a system of mutual recognition, a supervisor or regulator in one jurisdiction agrees to abide by the standards of a regulator in a jurisdiction where the parent company of a global reinsurer resides — and vice versa.

Setting the context, she cited research that notes the same kind of systemic risk exists in the Bermuda marketplace. “We believe the potential for systemic risk is greater in Canada, where there is tremendous reliance on one model, which is RMS,” Dutel said.

IBC contracted KPMG in late fall of 2010 to conduct research to develop and document best practices for Canadian P&C insurers in managing and modelling catastrophe risks. KPMG is expected to deliver a draft of its final report to IBC on May 11.

Reinsurance

NEW BRUNSWICK’S HOME INSURANCE MARKET SHOWING SIGNS OF “INSTABILITY”

CANADIAN INSURERS OVER-RELYING ON ONE VENDOR’S CATASTROPHE MODEL: KPMG There is a potential systemic risk in the use of catastrophe models in Canada because of the property and casualty industry’s “extensive reliance on vendor-provided catastrophe models, particularly with extensive reliance on one vendor in Canada,” KPMG says in research contracted by the Insurance Bureau of Canada (IBC).

Rachel Dutil of KPMG LLG shared preliminary findings of the research at the 2010 IBC Financial Affairs Symposium held in Toronto.

Canadian Market

New Brunswick’s Consumer Advocate says the province’s home insurance market is showing signs of “instability.”

“One of the biggest issues is the fact that home insurance premiums are on the rise,” the Consumer Advocate says in its 2009 annual general report. “This is due to increased flood claims and increased rebuilding costs.

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

“There appears to be some signs of instability in the market and hopefully this

will not result in issues of availability and affordability as we experienced in auto insurance, not too long ago.”

FACILITY ASSOCIATION “SURPRISED” BY STABLE, DECLINING VOLUMES Facility Association (FA) volumes have not gone up as expected, raising a few eyebrows among FA executive members.

“I am very pleased to report we have, so far, genuine reasons to be surprised,” FA president and CEO David Simpson said in his address to the association’s 2010 annual general meeting in Toronto. “Residual market volumes are stable or declining in almost all jurisdictions.”

The market share of the Residual Market segment across Canada was 0.5%, down marginally from 0.6% in 2008 and 0.7% in 2007.

In some jurisdictions, P.E.I. and Ontario, most notably, the share of the Residual Markets was at an all-time low (2% for P.E.I. and 0.1% in Ontario).

FA is a kind of market of “last resort,” guaranteeing insurance coverage for higher-risk drivers that can’t find insurance in the voluntary insurance market.

ONTARIO AUTO INSURANCE RATES CONTINUE CLIMB IN 2010 Q1 Ontario auto insurance rates continued their upward climb in 2010 Q1, with the province’s auto insurers getting approved

MARKETPLACE

rate increases averaging 5.61% when weighted by market share.

“The rate changes approved in 2004, 2005, 2006, 2007, 2008 and 2009 were -10.60%, -2.43%, 1 .27%, +0.55%, +5.59% and +8.77%, respectively, for the entire market,” the Financial Services Commission of Ontario (FSCO) noted in a quarterly release announcing the rate changes.

bility of the doctor chosen by the defence…”

But in a split 3-2 decision, the Ontario Court of Appeal disagreed.

“While I agree that it may not be necessary to attack

the credibility of the doctor, there has to be something about the facts of the specific case that suggest to the court that an examination should be recorded,” Ontario Court of Appeal Justice

Robert Armstrong wrote for the majority. “It is not enough simply to allege general bias on the part of doctors who do defence medicals in order to obtain such an order.”

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.

Claims BIAS OF DEFENCE MEDICAL EXPERTS MUST BE PROVEN BEFORE TAPING EXAMINATIONS: ONTARIO APPEAL COURT Asserting a “systemic bias,” according to which medical experts are simply “hired guns” for the defence, is not enough to warrant an automatic taping of medical defence examinations, the Ontario Court of Appeal says.

In Adams v. Cook, counsel for the plaintiff made no allegations against the medical specialist selected.

Rather, he suggested there was a systemic bias among health care professionals who undertook medical examinations for the defence.

The Ontario Divisional Court found a request to tape an examination “should not be interpreted to require a specific factual foundation of potential abuse or concern directly attacking the credi-

www.cunninghamlindsey.com

May 2010 Canadian Underwriter

9

PROFILE

Bridging Science and Society Vanessa Mariga Associate Editor

Gordon McBean, director of policy at the Institute for Catastrophic Loss Reduction (ICLR), recently received the Order of Canada for his research on climate change.

Gordon McBean, director of policy at the Institute for Catastrophic Loss Reduction (ICLR), has dedicated much of his professional life to researching a perceived disconnect between natural catastrophes and the socio-political consequences of such major events. He has spent years studying the vulnerability of people in disaster situations.

But recently (and unintentionally), his studies entered the realm of practical application.

McBean (pronounced Mc-BAIN) was in Paris chairing an international committee, the Integrated Research on Disaster Risk (IRDR), when Iceland’s Eyjafjallajökull volcano erupted on Apr. 14, sending a cloud of ash into the atmosphere. The cloud drifted over Europe and ground air travel to a halt, stranding trav-

10 Canadian Underwriter May 2010

ellers for one week. McBean was caught in the centre of the chaos, featuring scores of people scrambling to find temporary accommodations while their flights were grounded for safety reasons.

Pre-dating this social disruption, roughly two weeks earlier, on Apr. 7 in Ottawa, McBean became a member of the Order of Canada for his “contributions in atmospheric and climate sciences [that] have enhanced Canada’s stature on the world stage.”

McBean, a self-described “climate guy,” has been researching climate and severe weather since the 1970s. In 1990, the United Nations declared the decade to be the international decade for natural disaster reduction.

McBean joined the national Canadian committee, where he met Paul Kovacs, director of the ICLR. Throughout the 1990s, McBean worked in the public sector. He became the assistant deputy manager of the atmospheric environment service for Environment Canada in 1994.

Six years later, he decided to resign from the public sector.

Around the same time, Kovacs and Alan Davenport — ICLR’s former director of research up until Davenport’s passing in July 2009 — were in the process of establishing ICLR. They offered McBean a faculty position.

Since that time, McBean has

continued to sit on a number of national and international research bodies, including the Intergovernmental Panel on Climate Change. The panel shared a Nobel Peace Prize in 2007 with former U.S. vice president Al Gore. And yet, despite the Nobel Peace Prize already hanging on his office wall, McBean says having the Order of Canada medal pinned on him by the Governor General has meant a lot to him. The award is national and recognizes people’s contributions to Canadian society from across the spectrum. McBean sees the attention around the medal as an opportunity to further spread his message that climate change research and awareness must be linked to the socio-political (or human) dimensions of the problem.

“When do scientists cross from being scientists to being advocates? I think it’s important that we do it and still at the same time maintain our credibility,” he says. “If top scientists don’t speak out on these issues who will the media listen to?”

Climate change is more than just an “emissions reduction game,” he says. “The reality is that with climate change, it’s inevitable that we’ll have more storms, floods and droughts.

Storms, floods and droughts kill people. They cause economic damage. They cause insurance companies to have to pay out

big amounts of money and we have to see this as part of the over all package of disaster risk reduction. Climate change is not a separate topic.”

Roughly two years ago, McBean began chairing the IRDR, which is sponsored by the International Council for Science, the International Social Science Council and the UN International Strategy for Disaster Reduction.

The 2004 Boxing Day Tsunami in the Indian Ocean sparked the group’s formation, he explains.

But although McBean and the committee were able to find abundant research on physical events, weather and climate, not a lot of work was being done to include social issues. “For example, how do governments, right down to the individuals, make the choices that make themselves more or less vulnerable?” he says. “How do they keep informed? What information do they have? What features are dominant in their thinking process?”

Wealthy people, who are presumed to be smart, still insist on having large homes on cliffs overlooking beaches, he notes. And in other areas, poor populations have no choice but to live in shantytowns on hillsides, or on the banks of major rivers. “How does a society function in such a way that it doesn’t provide any opportunities or support, so that

Photo: Sgt. Serge Gouin, Rideau Hall

PROFILE

these people are so vulnerable?” he wonders aloud.

McBean recalls a trip to Venezuela roughly 10 years ago.

As he was driving to the airport with two other colleagues, they looked out the cab window and noticed a town “with houses stacked one on top of the other” perched on the hillside. “It was pouring rain and we simultaneously said: ‘That’s a disaster waiting to happen.’ One week later it did. The whole town just slid

down the hillside. They don’t know how many people died. It was in the tens of thousands.”

McBean expressed hope the legacy of IRDR will be that it has saved lives. “When a similar tragic hazard happens — like a volcano, a flood or a hurricane — we’ll be sure that fewer people die. There will be fewer economic costs and less interruption.” [This is assuming, of course, that governments implement the committee’s findings and recom-

mendations, he says.] “It’s not just the earthquake or the hurricane,” he adds. “It’s about working to make ourselves less vulnerable.”

McBean says being stranded by the volcano for a week served as a reminder to him that impoverished people are not the only ones vulnerable to natural catastrophes. The volcano “brings home in your own mind that these things happen to everyone, including us.” The episode is a

perfect example of the vulnerability of our society, he says. “We as a society just assume that things will work.”

He draws a parallel to the 2003 electricity blackout that affected large swaths of Ontario, Quebec and the northeastern United States. “No ATMs, no credit card systems, no one had $5 in their pocket,” he observes of that event. “I don’t remember the last time I talked to a bank teller. Wherever I am, I just assume that I will electronically be able to access money.

“I just assume that I can be in Paris, get on a flight in the morning and be home for dinner with my wife. When this thing comes up, it hits you that you can’t. It really brings home the vulnerability that we all have because we have set ourselves up in a very technologically dependent society. And this technology is not 100%. It will be impacted by things in ways that we don’t usually think about.”

Events such as the blackout or the Icelandic volcano create uncertainty, he continues, and the uncertainty creates difficulty in making decisions. “That’s another part of disaster risk reduction — to have a thought or thinking process that allows individuals, governments, organizations and insurance bureaus to determine how to make decisions when faced with uncertainty.”

May 2010 Canadian Underwriter

11

Insurers looking to make a buck in North American commercial trucking lines should prepare for a number of long-term challenges before taking the plunge.

Angelique Magi National Director, Transportation, Zurich Canada

Insurers need to think carefully about their approach to writing trucking business if they want to stay in the market for the long term.

Insuring the long-haul transportation segment has seen many twists and turns in the road over the past few years.The challenges markets are facing now — such as escalating legal expenses resulting from catastrophic highway accidents, and the increasingly competitive nature of this specialty line of business — mean trucking insurance, as a chosen target area for growth, must be approached thoughtfully and carefully.

TRUCKING IS DIFFERENT: THE CROSS-BORDER FACTOR To put it plainly, trucking is different than other property and casualty insurance lines. It’s not a

12 Canadian Underwriter May 2010

frequency-driven line with a large number of smaller payouts and shorter settlement periods. It is in fact severity-driven by nature.This is due to the type and size of vehicles covered and the third-party liability limits that trucking companies are legally required to maintain. There may not be a lot of incidents, but when they happen they can be traumatic, destructive and expensive.

Due to the consequences of heavy commercial vehicle accidents, a higher duty of care is placed on overland carriers, especially when driving in the United States. As soon as a vehicle crosses the border, there is a legal requirement for higher liability limits; truckers must contend with different compliance rules and legal environments in each state.Therefore, it is in an insurer’s best interest from a profitability point of view to thoroughly understand and have mechanisms in place to deal with the negative impact of travelling in such areas. Some states are highly litigious and are more costly due to the large awards that can be handed down in U.S. courts.

Experienced transportation insurers are aware of and account for those areas by creating zone rating that evaluates routes down to the last digit of the zip code. Not only does the state in which

Illustration by Sandy Nichols/www.threeinabox.com

In it for the Long Haul

the accident happens matter, but, in some states, the final settlement outcome will vary by county.

The higher litigation expense of managing an American court case from Canadian soil and balancing back reserve and payment structures with a currency exchange are just the beginning of the complexities in today’s cross-border, long-haul trucking sector. Fluctuating currency exchanges between the United States and Canada can also create unique loss-reserving impacts to claims adjusting expenses.

THE PRICE OF BEING UNPREPARED What happens when a major insurer of trucking business suddenly leaves the market place? Brokers and customers need to take their focus off their business to negotiate new insurance with fewer companies from which to choose. Cost consistency leaves the marketplace, and prices could rise exponentially. In short,

it creates an environment of uncertainty and additional anxiety.

We’ve seen competition jump in and out of this area over the past decade.

New players seeing this area as a potential money-maker (e.g. by undercutting the competition) might not be giving adequate consideration to the inevitable $10-million loss. If that high-dollar loss

CANADA’S LEADING SPECIALTY INSURER

THE IMPACT OF TODAY’S ECONOMIC ENVIRONMENT Today’s economy has been hard on all businesses, and the Canadian insurance sector is no exception. Historically, there has been an almost inverse correlation between GDP and insurance profits.

However, this recession has been different. Both the economy and insurance companies’ balance sheets are experi-

Due to the consequences of heavy commercial vehicle accidents, a higher duty of care is placed on overland carriers, especially when driving in the United States. encing downturns at the same time, which is unprecedented. Additionally, 2007 and 2008 saw the beginning of hyper price competition to grab market share in core industries — e.g. manufacturing, construction, real estate — that make up major components of most commercial insurers’ portfolios.

Once again, trucking has become an appetite area for companies that traditionally stayed away from such higherrisk business. And again, as one would expect, the surge of reduced premium pricing throughout the industry — followed quickly by the economic credit crunch — resulted in severely diminished returns throughout the industry.

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happens in the early years, before the new player has adequately reserved enough funds for loss cost development — or even worse, if there are two such accidents in quick succession — the new entrant may find it cannot manage the necessary margin of return to validate the argument to stay in over the long term. This also assumes the new player has properly resourced its infrastructure with experienced claims management services. This is to prepare adequately for and mitigate the costs of the annual claims count that will occur when multiple fleets of 100-plus tractor-trailers are travelling the interstate highways of the United States with a limit of between $2 million and $10 million on each truck.

Let’s consider what transportation insurance might look like in a perfect world.The $10-million accident wouldn’t happen because there would be a satellite feed on every truck to monitor all aspects of driving and would bring the truck to a stop two miles before any accident. In that world, human responses would be completely consistent and foreseeable. The reactions of the driver, those around him, and other drivers on the road in every situation would be 100% predictable.

The reality is that we don’t live in a perfect world. Insurance companies thinking they can price everything right and can make money without putting in the legwork may soon find there is no successful quick win.There is no ‘Get-in, make-your-margin, get-out’ strategy.

That $10-million accident is out there waiting to happen. Inexperienced insurers planning for luck, getting in too quickly to move their top line numbers, hurt both the trucking and insurance industries.

What truckers haul, where they go or how fast they drive is all relatively straightforward to predict. Less predictable are the split-second decisions

14 Canadian Underwriter May 2010

volvement in this particular type of specialty coverage that the extent of the harm done can be consistently predicted — even then, there are surprises. Companies thinking they can do it better, price it right and transact policies faster will likely find, as is usually the case in life, things are more complicated than they first appear.

INVESTMENT OF TIME AND RESOURCES

Once again, trucking has become an appetite area for companies that traditionally stayed away from such higherrisk business. And again, the surge of reduced premium pricing might not be giving adequate consideration to the inevitable $10-million loss. of the person behind the wheel, the driver’s responses and the responses of other drivers on the road. Even if a trucking company has the most experienced drivers, adequately maintained equipment and perfectly secured property loads, another vehicle could still pull out in front of their truck, resulting in a devastating accident.The impact on the lives of those involved through physical injury, emotional distress and financial loss, either independently or as combined factors, will be determined not by a team of actuaries but by a jury of their peers in a local jurisdiction. It is only through continual, deep-rooted in-

Trucking insurance specialists need to invest in developing in-depth pricing models to generate their insurance rates.

They need extensive, industry-specific loss control expertise and talented underwriters who understand the subtle differentiators between a good-looking risk (at the premium level) and a safetyconscious, well-managed risk. They require strong infrastructures including advanced actuarial formulae, deep onsite risk assessment and ongoing consultation.Without an experienced network of claims management and claims legal file management resources in the United States, less prepared players will end up paying more per claim than others.

Even with focused, long-term investment in detailed risk modelling, underwriting analysis and actuarial services, devastating accidents happen. Ten-million-dollar awards happen on this line; at times, they cannot be avoided. But companies working with truck accident data spanning 15, 20 or 60 years have planned for them.

It’s a long road ahead for insurers that are serious about the transportation segment. Winners will understand the importance of generating positive results, while at the same time respecting and appreciating the unbelievable pressures trucking customers face in these challenging times. The best insurers will work together with those customers to make sure we’re all in it for the long haul.

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The Facts about

CAPS Minor injury caps are limited in scope, reduce premiums, have been endorsed by four different provincial governments and have survived court challenges.

Don Forgeron President and CEO, Insurance Bureau of Canada (IBC)

Legal challenges against caps on pain and suffering awards for minor injuries resulting from automobile accidents are currently working their way through the Nova Scotia and New Brunswick judicial systems. A similar court challenge in Alberta was resolved late last year. So far, four different courts in two jurisdictions have found the caps to be fair and consistent with the Canadian Charter of Rights and Freedoms.

Even if similar legal decisions are rendered in outstanding cases, it is unlikely that cap opponents, led mostly by personal injury lawyers, will stand down. Cap critics are expected to shift

16 Canadian Underwriter May 2010

the debate from the courtroom to the public arena where emotional arguments can be more easily won. As a result, changes to the caps are possible; however, the costs associated with any changes must be clearly understood by consumers.

Unfortunately, many consumers — and elected officials — simply don’t understand the scope or purpose of the caps. Insurance Bureau of Canada (IBC) is committed to setting the record straight by reaching out to government officials, journalists and consumers themselves. Our aim is to present the facts. We are confident that when armed with objective facts, consumers will come to their own informed conclusions about the usefulness of the caps.

THE SCOPE OF CAPS One often-misunderstood fact about the caps is their scope. Caps apply only to pain and suffering damages paid to those suffering minor, nonpermanent injuries incurred in motor vehicle

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collisions.They do not apply to the many other benefits to which injury victims may be entitled irrespective of the severity of their injuries.These benefits might include income replacement during the recovery period, medical/rehabilitation services to support recovery or other extra costs experienced as a result of an injury.

We need to recall the reason the caps were introduced in the first place, namely to control spiraling auto insurance claims costs and rising premiums while continuing to provide sufficient benefits to injury victims. While some would argue that any limitation on pain and suffering awards is unfair, it is instructive to remember that claims costs were increasing significantly.This was not because injuries had become more serious or even more expensive to treat, but rather because pain and suffering court awards for minor injuries, such as sprains and strains, had grown so significantly.

GOVERNMENTS ENDORSE CAPS This brings us to another important point: the fact that four separate governments concluded that caps on pain and suffering damages for those with minor injuries represented the best method of controlling injury claims costs and stabilizing premiums. Other methods of controlling costs were discussed and debated, but caps were preferred because they were considered reasonable, had the greatest potential to be effective and still ensured robust benefits to collision victims regardless of the severity of their injuries.

If declining premium rates are any indication of success, these governments appear to have made the right decision.

Take Alberta, for instance. Since the introduction of reforms in 2004, including the implementation of a pain and suffering damages cap, auto insurance premiums have dropped by 10.4% on average. This despite the fact that, when it implemented the cap, the government also greatly enhanced accident benefits.

In fact, the province increased the limit

18 Canadian Underwriter May 2010

on medical and rehabilitation treatment — to which all collision victims have access — five-fold from $10,000 to $50,000.

COURT CHALLENGES Opponents of the cap launched a court challenge in 2008. Fortunately, in June of 2009, the Alberta Court of Appeal released its decision upholding the constitutional validity of the cap. The court found “the legislation, as a whole, responds to the needs and circumstances of those suffering minor soft tissue injuries.” The plaintiffs then sought leave to appeal this decision to the Supreme Court of Canada, which refused to hear the case, thereby bringing this legal challenge to an end.

Despite the success of caps, opponents continue to challenge the caps in the courts while also pressing politicians to remove them through legislation — at a significant cost of time and money.

Similar legal events have unfolded in Nova Scotia.The Supreme Court of Nova Scotia upheld the constitutional validity of the province’s cap in February 2009.

Ten months later, after an appeal by the plaintiffs, the Nova Scotia Court of Appeal unanimously upheld the cap’s constitutional validity. As in the Alberta case, the plaintiffs in Nova Scotia sought leave to the Supreme Court of Canada. The Supreme Court has yet to announce whether it will hear the case.

The situation has become more complex in Nova Scotia because the new NDP government has initiated a cap review. In its submission on the question, IBC urged the government to assess all alternatives to changing the cap against the overriding principle of maintaining affordable and stable auto insurance for the province’s motorists. In this regard,

IBC’s submission points out that there is an important difference between changes to the cap that might produce a one-time increase in tort claims costs and yet not pose a serious threat to future market stability, and other changes that would likely set in motion ongoing cost pressures, ultimately pushing up premiums.

All of this in a province that has enjoyed a remarkable 23.1% reduction in average auto insurance premiums — from $1,069 in 2003 to $822 in early 2010 — since the introduction of reforms, including the implementation of a pain and suffering damages cap.

Nearby, in New Brunswick, another cap challenge is under way, although no court date has been set. We do know, however, that in the seven years since cost-saving reforms were introduced there, average annual auto insurance premiums have dropped by 35%.

Yet another cap challenge can be expected to take place in Prince Edward Island, where consumers have so far enjoyed a 15% drop in auto insurance premiums since the introduction of auto insurance reforms in 2004.

FACTS SPEAK FOR THEMSELVES All in all, the facts speak for themselves.

In every jurisdiction where they have been implemented, minor injury pain and suffering damages caps have helped to lower costs and stabilize auto insurance premiums. Despite their proven success, however, opponents continue to challenge the caps in the courts while also pressing politicians to remove them through legislation — at a significant cost of time and money.

Insurers are prepared to operate within the range of possible insurance systems that governments determine will best serve their consumers. However, if a cap is removed in one system, another effective cost-saving measure must replace it. Only in this way can balanced auto insurance systems, offering fair and adequate compensation to collision victims while ensuring fair and stable premiums for all consumers, be realized.

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Canadian Repair Trends

Greg Horn

Every quarter when I compile the data for Vice President, Mitchell’s Industry Trends Report, the Canadian data Industry Relations, results are particularly intriguing. Canada’s Mitchell International Inc. unique mix of government and public insurers, as well as its dramatically varied geography, lays the framework for dynamic results. For example, after several quarters of very stable new OEM parts use last year (compared to 2009 Q3 levels), our 2010 Q1 data shows a dip of three full points in OEM parts use across all repairable vehicles.

(Please see Figure 1 on Page 22).

Which part category was the beneficiary of the drop? Beneficiaries of the drop are almost equally used and aftermarket parts, which rose 1.2 and 1.1 points respectively during the same period.

What’s remarkable about this change is that it

20 Canadian Underwriter May 2010

occurred so rapidly, while used and aftermarket parts procurement and delivery infrastructure remained almost unchanged.The availability and delivery of alternate parts in Canada has always been a challenge, as less populated provinces and territories traditionally use fewer alternative parts than more urban provinces (See Figure 1).

This shift in parts use also appears to be affecting the bottom line of repairable estimates, with the overall average severity for these vehicles decreasing in Canada — particularly with regard to the typical claim cost for all loss lines, which averaged $25 less than the same time last year.

REPAIR COSTS DATA Direct repair program collision shops also influence the high percentage of appraisals that are supplemented, as Canadian provinces have traditionally shown supplement rates in the 50% range — meaning that around half of all appraisals written in Canada are supplemented one or more times. In 2009, a supplement accompanied 52.4% of all estimates, with 74.2% of those estimates increasing in overall severity. Diving into the details of 2009 estimate data illustrates

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that Canadian supplement totals added and an average of 14.4% (or $438.86) to the final appraisal total, with the majority of that sum allocated for parts. In fact, there was not a single supplemented estimate in which a part was not added to the initial estimate.

Our recent data also shows labour operations are on the rise, with 58.7% of estimates increasing in the category.This indicates that parts missed upon the first inspection, many of which are not part of an assembly (where labour would be included), are causing this spike.

Bumper reinforcements are a great example of parts that would be included in the labour involved in a bumper overhaul operation.

We’ve also found some interesting trends in percentages and appearance allowance dollar amounts, especially since their use can also sway claims costs. Appearance allowances are one way for carriers to help control costs, no doubt benefitting their insured.Taking appearance allowances for minor imperfections on expensive parts is truly a win for the

Direct Repair Program collision shops influence the high percentage of appraisals that are supplemented. In 2009, a supplement accompanied 52.4% of all estimates.

vehicle owner and the insurance company, especially in light of today’s increasing deductibles trend. By avoiding the replacement of expensive items, like costly headlamps — on which a minor scuff can mean an $800 replacement — improving the bottom line is well within reach. Of course, the appraiser and insured need to agree the vehicle owner can live with the minor imperfection; if so, this exchange for a reduced deductible is a win-win situation.

In Canada, the average appearance allowance hovers around $200, which is definitely a nice chunk of change. But the frequency of appearance allowance has dwindled recently to around 4% of estimates written. There should be increased opportunity to suggest appearance allowances given the prices of trim, wheel/tires and lamps in today’s market.

I keep my finger on the pulse of Canadian data because it varies so much from the other markets where Mitchell provides estimating data. It can change at the drop of a hat — or perhaps more accurately, at the drop of exchange rates or hail stones.

Figure 1

Canada ––OEM Canada OEMParts Use 75.9% 75.0%

3/07

22 Canadian Underwriter May 2010

01/08

76.2% 75.2%

75.7%

72.7%

03/08

03/09

01/10

01/09

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I-CAR in Canada Andrew Shepherd Director, Collision Training, AIA Canada

Resurrected from a near-death experience three years ago, I-CAR’s training courses will remain in Canada, with the Automotive Industries Association of Canada (AIA) in the driver’s seat.

I-CAR International, based near Chicago, has delivered short-term — normally four-hour — training courses to collision repair shops, insurance staff and others throughout the United States and Canada since 1985. These courses focus on the latest materials, technologies and repair techniques used in collision repair shops.

I-CAR harnessed individual training courses into a certification system about 10 years ago.

Now, individuals with sufficient training credits and ongoing training become Platinum Class members, while businesses with staff members who have sufficient I-CAR training become designated as Gold Class. As noted below, this system will be undergoing changes in the near future.

24 Canadian Underwriter May 2010

Three years ago, I-CAR International indicated that it would be exiting the Canadian market.This intended direction has changed: earlier this month, the Automotive Industries Association of Canada (AIA Canada) and I-CAR International signed a License Agreement for delivery of ICAR training in Canada.

As of May 1, AIA Canada has taken over management of this important skills updating mechanism for the Canadian collision marketplace.

MOVING TO A “MADE IN CANADA” APPROACH AIA Canada is a national trade association representing the automotive aftermarket industry in Canada. It represents manufacturers, re-builders, manufacturers agents, warehouse distributors, national distributors, buying groups, wholesalers, machine shops, retailers and, through its councils, the interests of collision repair shops and automotive service and repair outlets.

AIA Canada, in submitting a proposal to manage I-CAR training in Canada, recognized a number of key issues: • I-CAR courses are critical to the capacity of the

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industry to deal cost-effectively with the repair of newer cars.Very few alternatives for technical skills upgrading are available to Canadian operations.

• I-CAR training has industry-wide recognition among technicians and managers, the collision chains and the insurance sector. Although support for Canadian delivery was sometimes spotty over the years, the reputation for quality is very strong.

• The dozens of regional volunteers overseeing I-CAR training and the corps of trainers delivering instruction are incredibly committed and work tirelessly for the good of the industry.

All in all, most observers feel the program has enormous potential in Canada.

The potential exists not only to increase

Insurance companies have a very strong interest in having collision repair shops maintain a high level of technical skills and competency, enabling effective repairs to today’s modern and complex vehicles. the take-up and market penetration of the program, but also, with adjustments in the certification system, to become the primary professional development mechanism for shops across the country.

I-CAR AND THE INSURANCE SECTOR The insurance sector’s relationship with I-CAR training has been close over the years. Insurance companies have a very strong interest in having collision repair shops maintain a high level of technical skills and competency, enabling effective repairs to today’s modern and complex vehicles. The insurance industry in Canada has told us it believes strongly

26 Canadian Underwriter May 2010

that shops possessing a broad base of advanced technical skills will help ensure that collision repairs to policyholders’ vehicles are completed with the utmost attention to safety, and that the finished product is returned to the consumer in pre-accident condition.

Insurance adjusters and appraisers themselves require up-to-date understanding of modern materials and processes; over the program’s history, they have comprised up to 30% of the trainee ranks within I-CAR. Many from the insurance industry are also involved at the volunteer level in local I-CAR committees across Canada.

There are higher-level links as well.

The public insurance system in Manitoba, for example, require that participating shops be I-CAR Gold status.They also require that each shop have at least one I-CAR certified welder. Insurance companies in other provinces promote I-CAR training through direct repair programs, sometimes with financial incentives.The widespread availability of ICAR training and the integrity of its certification and reporting systems are important contributors to the objectives of the insurance industry.

THE ROAD AHEAD As AIA takes over management of the ICAR training for the Canadian marketplace, a series of short- and longer-term initiatives will be launched.

In the short term, AIA will solidify the administrative underpinnings of the program. In large measure, a newly developed Web/database portal will support this objective.The portal would allow trainees and managers to register for training, view past training and certification activity (from all sources), view class schedules and registrants and track progress toward certification objectives. The old paper coupon system used by I-CAR International will be replaced by a much easier online version.

Also in the short term, AIA’s advisory committee, with input from program volunteers and trainers, will revise program policies and procedures to reduce cancellations and improve customer service.

In a few months, we’ll be recruiting new trainers and making more classes

In the short term, AIA will solidify the administrative underpinnings of the I-CAR program.

In large measure, a newly developed Web/database portal will support this objective. available in more regions of the country.

We’ll be reviewing the course pricing structure to make it simpler. And we’ll be starting some in-depth customer surveying to gather opinions on everything from class video effectiveness to scheduling to new course requirements.

Over the longer term, AIA and its advisory groups will be examining I-CAR proposals for a new curriculum matrix, which will work to focus training on the specific skill needs of key positions in the collision shop — such as refinish technician, structural and non-structural technician, estimator and appraiser.

These changes suggest some amendments to the current Gold and Platinum Class structure may be forthcoming.

Finally, over the longer term, AIA Canada will be looking at the larger human resource questions of the industry, including recruitment, retention and training concerns. We want to see AIA Canada and I-CAR training as integral components of human resource development for the automotive aftermarket industry.

The changes ahead are exciting. They promise to have a tremendous impact on the aftermarket sector as well as its insurance partners.

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Riverboat Gambling Ontario’s auto reforms will be missing several crucial details when they are implemented on Sept. 1, 2010. Without knowing these details, insurers will be gambling that their initial pricing of the new product will be correct.

BY DAVID GAMBRILL

28 Canadian Underwriter May 2010

Ontario’s

auto insurance reforms, to be implemented Sept. 1, 2010, are intended to create some measure of cost certainty for auto insurers. How ironic, therefore, that the anticipated result of the reforms — at least for the first six to 24 months — is a period of profound pricing uncertainty. Why? Because insurers are now preparing to implement the reforms without knowing the shape or size of several of the reform’s key components.

Despite the pricing uncertainty, property and casualty insurers, many of which are losing money in the Ontario auto lines, are applauding the government for addressing their concerns about escalating claims costs — particularly in the no-fault accident benefits side. For example, Ontario’s reforms will impose a $3,500 cap on medical/rehabilitation and assessment/examination expenses for minor injuries. They will cap the cost of each assessment at $2,000. They will also allow Ontario consumers to customize their insurance policies. Consumers will see their standard accident benefits package reduced to $50,000 for medical and rehabilitation benefits related to non-catastrophic injuries (down from the current level of $100,000). Consumers will also have an option to pay higher premiums to buy back higher limits (back to $100,000, for example, or the Cadillac package of $1.1 million); they might also purchase optional benefits — such as caregiver, housekeeping and home maintenance, for example — that were once part of the mandatory package.

May 2010 Canadian Underwriter 29

COVER STORY

Riverboat Gambling “This is all good,” George Cooke, president and CEO of The Dominion, said of the overall reform package. “It’s a way better scenario now, in my view, than where we were.”

And yet, there is that pesky problem of how to price the new product. In particular, Ontario auto insurers are vexed right now about how to price the product without knowing at least four key aspects of the reforms.

First, the Financial Services Commission of Ontario (FSCO), Ontario’s insurance regulator, has made it a priority in 2010 to nail down a definition of what constitutes a ‘catastrophic impairment.’

The regulator has called for a panel of industry stakeholders to review and refine the definition, which is important to insurers, because anyone with a catastrophic injury arising from a motor vehicle collision is subject to a higher level of accident benefits ($1 million). That has a huge impact on an insurer’s claims costs.

Second, also up in the air is the direction of the government’s proposed new Minor Injury Guideline (MIG), which will determine the types of injuries that are subject to the $3,500 minor injury cap. The MIG is intended to replace the existing Pre-Approved Framework (PAF) Guideline for Grade I and II Whiplash Associated Disorders Third, many insurers are trying to figure out whether cost savings on the AB side of the equation will be lost on the tort side, as lawyers pursue litigation to make up for what they can’t secure for their clients in the form of accident benefits.

Finally, there is background uncertainty related to how consumers respond to their new options. Essentially, insurers will have to price the product without reference to any historical data about what the take-up rates of these options will be.

And so where pricing the auto product is concerned, over the next two years, Ontario auto insurers will essentially be thrust into the role of riverboat gamblers. Insurers and their actuaries will essentially be pricing the product with the same scientific rigor as a Mississippi riverboat gambler playing the roulette wheel, or betting the house on Lucky Number 7s.

30 Canadian Underwriter May 2010

“Until these [post-reform] claims start to close, and you get a broadbased perspective on the exposure on these claims, you have no idea [how to price],” said Steve Smith, president of the Farm Mutual Reinsurance Plan, echoing the views of many other insurers. “It’s not like everybody else is going

With the reduction LQ VWDQGDUG EHQHÀWV [from $100,000 to $50,000], we expect to see more applications for a determination of a catastrophic injury in the hopes that the impairments will meet WKH GHÀQLWLRQ

to be starting to reserve and handle their claims consistently, so there’s no way as an industry… we are going to know for at least 24 months what the effect of the reforms will be. You’re going to have people reserving conservatively. You’re going to have them reserving optimistically. The early indications are easily going to be a guess at best.”

Adds Cooke: “I don’t want somebody out there thinking I have a negative tone [about the reforms]. I just think that anyone thinking that [the outcome] is anything other than uncertain is crazy.”

ROOTS OF UNCERTAINTY The Catastrophic Impairment Definition It’s commonly acknowledged insurers will not know how catastrophic impairment is to be defined until well after the Sept. 1, 2010 implementation date. Best guesses are that the province will take at least six to nine months to undertake its proposed review, with an outside timeline of one year.

The new definition is important. As Cooke points out, scientists who developed the definition of a catastrophic impairment currently in the Statutory Accident Benefits Schedule (SABS) never really intended the definition to be used to determine access to medical benefits in an auto accident. “They were developed as a preliminary screening technique so that medical people would know how to treat people who were suffering from a brain injury or a serious type of injury,” Cooke said. “And we’ve effectively turned them into a padlock on a gate for benefit access. It really, I think, puts an inappropriate level of pressure on that guide and definition.”

Insurers are concerned that recent court and arbitration decisions have mutated the definition in a way that makes it difficult to gauge how many consumers may be subject to a catastrophic injury determination. Such a determination expands an insurer’s exposure multi-fold, since it entitles those with severe brain or spinal injuries to a much higher level of accident benefits than they would receive for more minor injuries. By the standard of the new reforms, it’s the difference between a $50,000 non-catastrophic claim and a $1-million catastrophic claim.

Irene Bianchi, vice president of claims and corporate services at RSA, represented the view of many other insurers when she said she was “quite disappointed” not to see a real strengthening of the catastrophic impairment definition prior to the Sept. 1 implementation date.

“Prior to this reform introduction, the cat definition had been significantly diluted, I think, from its original intention,” she said. “We were starting to see a significant number of cat applications, a real jump from what we had seen over the past two

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Riverboat Gambling or three years. That really is a huge, huge spend for insurance companies. When a lot of different types of claims are being deemed catastrophic, our exposure kind of goes through the roof.”

Leonard Sharman of the Co-Operators General Insurance Company says the cat definition has been “diluted” by court and arbitration decisions that have deemed accident victims to be catastrophically impaired, even though their injuries come in below the 55% minimum threshold for a Whole Person Impairment and Mental and Behavioral Disorder. “With the reduction in standard benefits [from $100,000 to $50,000], we expect to see more applications for a determination of a catastrophic injury in the hopes that the impairments will meet the definition,” Sharman said.

Cooke has a somewhat different take on the cat definition. He believes the industry, which has focused so much on tightening the cat definition over the past two decades, may in fact have got it backwards.

“I think we should have spent way more time defining what the minor injury actually is, and putting boundaries around it, and found a way to open the policy limits up to allow access for the more seriously injured people,” he said.

“The reason for that is two-fold: first of all, if you make a mistake by being too exclusive at the minor injury end, the chance of doing harm to somebody is much less. Let’s say somebody with a WAD-II whiplash and lower back strain, which is a very common occurrence in an auto accident, ends up two physio or chiro treatments shy [of their full prescribed treatment, after their limits are used up]. That’s $90, not the end of the world. But if by tinkering around with the cat definition, you end up actually [depriving], say, 250 people a year that deserve access to benefits in excess of whatever the lower limits are…those people are in a very awkward spot, because they’re not going to have the kind of care that they need.”

Cooke acknowledges his opinion may not represent the majority view of the industry, and it doesn’t. But the government will be including these kinds of 32 Canadian Underwriter May 2010

views, plus those of health care service providers, in its future deliberations. In the meantime, how is an insurer supposed to price a product for Sept. 1 without knowing exactly who is entitled to the higher limits?

I don’t want somebody out there thinking I have a negative tone about the reforms. I just think that anyone out there thinking that the outcome is anything other than uncertain is crazy.

It might be difficult, but it’s not impossible, said James Russell, chief underwriting officer for Aviva Canada. “Typically, you like to see things play out and see how they cost, but you know we’re not in that environment, so there’s definitely uncertainty around [the cat definition],” said Russell. “But you have to make an estimate.You have to go with what you feel the intent is. It does appear that the intent is to have a robust definition in place and to put measures in place to make sure that the product is affordable. Sometimes you have to go by the intent, and that’s the place for you to start.”

The New Minor Injury Guideline As part of its reform package, the government is establishing a new Minor Injury Guideline (MIG). Minor injuries falling within the guideline are subject to a benefits cap limit of $3,500. The MIG is

nowhere near in place, and the creation of the new regime appears to be a longterm project for the government. A final, definitive version of the MIG is not expected until after years of consultation. In the meantime, the province is expected to release interim guidelines in June 2010, and these guidelines appear likely to look like a variation of the Pre-Approved Framework (PAF) guidelines now contained in the SABs. PAF guidelines cover whiplash and whiplash-associated injuries. Insurers are concerned that if the interim guidelines for the MIG closely resemble what is now contained in the PAF, not many claims will fall under the MIG’s caps, since very few claims right now actually fall within the PAF guidelines.

“The MIG seems to resemble very closely the PAF,” observes Ken Lindhardsen, vice president of claims operations for the Ontario, Western and Atlantic regions of Desjardins General Insurance Group. “The premise of the PAF, like the MIG, was that a majority of minor injuries — the intent was probably somewhere around 80% — would be treated in PAF. But our experience, and the experience of other insurers, I’m sure, is that a significant portion of claims that we had anticipated to be covered under the PAF were not covered by the PAF. And that had to do with the fact that the PAF didn’t explicitly include psychological issues. So there was an opportunity there, when psychological issues came into play, for those injuries to be moved outside the PAF. For us, it was a significantly lower portion than the 80% that ended up being treated within the PAF. And with the MIG, there still seem to be some issues that need to be addressed there in terms of whether those psychological issues will result in [minor injuries] being treated within the MIG or not. It is another X-factor or level of uncertainty for us in terms of what the overall impact is going to be.”

Bianchi echoes Lindhardsen’s remarks, putting a rather sobering number on RSA claims that fall outside the PAF. “[The reforms] cap a claim at $3,500 in Ontario now for all treatment and assessments,” she says. “That doesn’t really seem to be much different than our pre-approved

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Riverboat Gambling framework guideline, the PAF. But unfortunately, in terms of our experience, we have less than 1.5% of all of our AB claims in that pre-approved framework.

So okay, the big difference [between the proposed MIG and the PAF] is what? This is what we are struggling with. We’re really not sure if we’re going to see a lot of change, because so few of those claims now actually fit within that band.”

How Will Trial Lawyers Respond?

As they struggle to place a price on the reforms, insurers are left to wonder whether any savings on the AB side will result in higher claims costs on the tort side. “We expect to see tort costs increase, but this was not considered in the reforms,” Sharman said. “No tort costing exercise was done.”

Insurers fully expect creative and inventive trial lawyers to attempt to obtain tort damage awards when they find the door of no-fault accident benefits closed to their clients. For example, given that AB benefit limits in the standard package have been reduced from $100,000 to $50,000, insurers fully expect trial lawyers to put additional pressure on the catastrophe definition and MIG guidelines.

“There’s a lot of speculation that the AB is simply going to get transferred to the tort side,” said Smith. “Right now, when you look at the cat determination rules, and minor injury rules, a lot is wide open to interpretation.” And now that the standard benefits package is down to $50,000, he added: “Everybody is going to want to go cat determination.”

Bianchi likens the relationship between no-fault accident benefits and tort costs to squeezing a balloon. “If you get rid of something on the one side, it’s going to pop up on the other side,” she said.

“So we are expecting to see some more activity on the tort side. As plaintiffs are unable to collect on the accident benefits side, they will go to the tort side, if there is an opportunity to have a tort claim.

“Personal injury lawyers are an extremely creative and intelligent bunch.

I take my hat off to them, because at every opportunity, whenever there’s new legislation, they are quick to find the loopholes.”

34 Canadian Underwriter May 2010

The ‘X-Factor’ of Consumer Choice Consumer choice is central to the province’s reforms. Widely praised by regulators, politicians and insurers alike, the element of consumer choice does add another, difficult dimension to pricing.

Quite simply, Ontario’s auto product has not offered choice before. And so insurers do not have a history of data indicating consumer preferences. Insurers don’t

It’s quite an actuarial challenge. It’s where the actuaries have to park some of their science and draw up a little bit of art, in terms of what they do. know, for example, how many people will opt for the standard product, how many people will buy options. Without this information, insurance actuaries will have to guess how people will respond to the options from which they will have to choose starting on Sept. 1. “It’s quite an actuarial challenge,” Cooke said of pricing the reforms. “It’s where the actuaries have to park some of their science and draw up a little bit of art, in terms of what they do.”

Insurers are projecting a certain amount of guesswork will be involved when they file the first reform-related rate applications with the regulator. As soon as those approvals are announced, the marketplace will then be able to see what the various insurers have guessed in terms of pricing for the new product.

Insurers will also be checking their rate

requests against IBC data. Some cite the possibility that insurers will likely re-file rate requests before Sept. 1, making adjustments once they have looked to see how other companies have filed. “Will the whole industry price at the most optimistic level of reductions to start?” Russell said. “I can’t really say that. I’m not sure that would happen, but you have to make an assumption based on what you feel is going to happen.”

Post-Reform Pricing Once the reforms are implemented, it will take awhile before insurers begin to notice trends in their claims litigation files.

At the same time, they will be amassing data on how consumers are selecting their new insurance options. If the government committee comes up with a catastrophe impairment definition and an interim MIG by the end of the year, as projected, then all of the pieces of the pricing puzzle should start coming together. Insurers suggest post-reform pricing trends will start to manifest anytime between six and 24 months. Several said six months might be too optimistic; most thought two years would be a more realistic timeline for getting a sense of how effectively the reforms will control insurers’ claims costs and thereby stabilize pricing.

By that time, it’s quite possible the window of opportunity for costs savings will be closed. One potential dilemma of a “slow-drip” reform process, as one insurer characterizes it, is that the cost savings on the no-fault side may be sabotaged by higher claims costs on the tort side, or by lawyers’ ability to get around the new accident benefits caps.

It’s one reason why some insurers are longing for a “CTL-ALT-DEL” approach to reform, as Baron Insurance Services Inc. president Barb Addie terms it in an article. She’s referring to keys pressed in a computer to get out of a program that has stopped functioning. In the context of auto reform, it would mean jettisoning everything that’s been done before, and drawing up a new auto insurance product from scratch. It’s a pie-in-thesky dream, some say, but it’s clear that incremental reform creates problems of its own.

Journey

to Claims

Transformation

Traditional claims transformations have focused on the physical damage side of auto claims. But opportunities exist to transform the management of accident Allan Buitendag benefits (AB) and bodily Senior Vice President, injury (BI) claims.

National Leader of Insurance Operations, Looking across the industry, many traditional PricewaterhouseCoopers claims transformations have focused on the physLLP ical damage side of auto claims. System replacements and vendor management initiatives aimed at the “tin” side of an automobile accident have addressed some of the opportunities to improve expenses and better control losses. However, there is still a lot of opportunity to improve the bottom line by transforming how accident benefits (AB) and bodily injury (BI) claims are managed.

Jeff Anderson Vice President, Consulting Services, PricewaterhouseCoopers LLP

TRADITIONAL TRANSFORMATIONS Canadian property and casualty insurers continue to seek greater efficiencies, including reducing direct and indirect indemnity costs in their claims operation. Many have embarked upon or

36 Canadian Underwriter May 2010

will soon start claims transformation initiatives, including operational improvements and the implementation of claims management systems.

While successes — and some failures — are widely acknowledged, the journey has really only just begun. Leading players are focusing their efforts on the next wave of claims transformation, which should include: • externalizing business rules and leveraging analytic tools; • integrated claims, rate and data usage to improve consistency of vendor service outcomes; • advanced data analytics for managing fraud; and • aggressive case management approaches to accident benefits and soft tissue injuries.

Traditional claims transformation initiatives have focused on organizational and process improvements and technology-enabled improvements through claims management systems, imaging, workflow and document management.

Although efficiencies have been realized through shared services, triage and resource specialization, better processing and enhanced customer service, those embracing new and proven technologies have realized additional benefits including paperless processes, automated workflow and load balancing and early efforts in auto adjudication.

Many traditional claims transformations have focused on the physical damage side of auto claims. But what about exploring opportunities to transform how accident benefits and bodily injury claims are managed?

AB and BI claims usually carry large reserves, so improving loss management here can have a big impact on an insurer’s bottom line. For an insurer to truly maximize results, many approaches transforming the physical damage side of a claim now need to be applied to the “soft tissue injury” and “indemnity payments” side. As they did with the “tin” side, progressive insurers should continue to embrace a combination of technology and process improvements. But they should also apply that winning combination beyond the high-volume claims, to include the high-impact claims as well. Here are some approaches that can be transitioned:

EMBRACE MORE AGGRESSIVE CASE MANAGEMENT Embracing case management through enhanced processes and supporting technology affords the greatest paradigm shift for claims management — and potentially the greatest rewards.This can be done through: • processes and procedures tailored to the claimant and/or claim situation; • active information management across the lifecycle of the claim supported by an electronic claim file; • seamless integration with claims analytics, fraud management, subrogation, adjudication and payment; • structured, scripted processes and activities to drive productivity and enhanced customer service; • straight-through processing, balanced with enhanced controls; • integration with external tools and industry benchmarks such as “duration of

disability” guidelines; and • more accurate and consistent reserving for larger claim amounts.

Case management delivers demonstrable benefit across the claims function, but its greatest contribution will be in the accident benefits and soft tissue injury area. Case management principles have been adopted in the workers compensation area for some time; Canadian insurers are now recognizing their applicability to bodily injury and accident benefits. Indeed, direct and indirect costs can be measurably reduced through: • proper evaluation and identification of claimant recovery needs; • a tailored approach to recovery and rehabilitation unique to the claimant and claim; • pro-active management of process and third parties involved (chiropractors, physiotherapists, drug and medical, etc.);

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• emphasis on reducing the time to recovery; and • improved accuracy in setting reserves.

Ongoing initiatives are focused directly on the transformation of the bodily injury and accident benefits claims management area — including the design and development of new people, process, technology and information management solutions.These fully integrated solutions include several pieces: an electronic claim file, best practices with respect to triage and assignment at first point of contact, disability duration guidelines to inform case management processes and decision making, the collection of deep and rich data for analytics and benchmarking, as well as strong case management behaviours and measurements.The end results should be better outcomes for injured parties and improved results for the insurer.

modification by the business, with less IT support required — and leveraging analytic tools, carriers can automate processes to deliver screening and triage results that surpass those of manual processes. Analytic tools can perform a variety of functions in today’s claims departments, including triage and assignment, fraud and recovery screening, knowledge-based decision support, trend analysis and predictive modelling.

These can increase efficiency in screening and triage in several ways: • Pre-screened claims are routed to specialized, internal departments that can work with external networks to identify leakage and improve recovery results.

• A closed-loop feedback on results provides for proprietary data-marts to be refreshed and historical data mined for continual improvement. (Please see Figure 1.)

IMPROVE THE CONSISTENCY OF VENDOR SERVICE OUTCOMES

USE BUSINESS RULES AND ANALYTIC TOOLS By externalizing business rules — which provides a retrospective review and

Integrated claims, rate and usage data improves consistency of vendor service outcomes by actively managing vendor

Figure 1

Contact Management Rules-driven

Rules-driven

fraud screen

recovery screen

Analytics vendors

Modern claims data model

Recovery function

Recovery outsourcers

Special investigation unit

External investigators

Figure 2 Collect caselevel loss and spend data

Examine variability by case type

Examine variability by dimension

Develop granular spend strategies

Figure 3 Adjuster review Completed fraud questionnaire Factual misrepresentation

Nextgeneration claims system

Claim data Claim data with fraud information Fraud investigation results

Perpetrated fraud Fraud case management

38 Canadian Underwriter May 2010

MANAGE FRAUD WITH ADVANCED DATA ANALYTICS Managing fraud using advanced data analytics improves the ability to identify high-quality referrals. For instance, dynamic scripting, fraud questionnaires and more comprehensive up-front data capture reveals potentially suspicious claims early in the claim’s lifecycle. By combining analytics with structured data, carriers can analyze suspicious claims using proprietary claimant data, special investigation unit (SIU) data and external industry databases. The use of analytic engines and modelling tools focuses the efforts of the SIU on the highest-value targets for both single incident and multi-party investigations. Once a suspicious claim is identified and referred to the SIU, the carrier can use case management software to track the claim through to resolution. (Please see Figure 3.)

THE ROAD AHEAD

Claim data Policy fraud

networks. Forward-thinking insurers have recognized that treating vendors as partners will facilitate knowledge and data-sharing, improve decision-making accountability and align incentive programs.Vendors (such as external adjusters, repair networks and legal services) can make better decisions if they are provided with reliable, complete case data.

Both carriers and partners should be able to update data. As a result, they can leverage detailed data to conduct audits, historical analysis and trending to reduce the variability of claims outcomes.

Extreme variability is of particular importance because it has a disproportionately higher impact on overall claims operations leakage than minor deviations. Historical data can also be used to develop granular spend strategies and provide incentives to align partners.

(Please See Figure 2.)

Fraud analytic engine

SIU review

Canadian insurers recently embarking on claims transformation should be commended for their efforts because significant strategic and competitive advantages have been achieved. These initiatives are laying the foundation for the next wave of transformation — which is only just beginning.

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The Face of Terror

Marc Sand CEO, V.I.P. Protection

The number and variety of domestic and international corporations conducting business in Canada and the rest of the world is growing daily, exposing all to the risk of disruptions related to terrorist activities.Terrorism represents a risk of disruption to any business, potentially resulting in shut down time, reconstruction, employee and family counseling, to name just a few consequences.

Terrorism insurance is a difficult product for insurance companies. Underwriters face a challenging task, since the likelihood of terrorist attacks is very difficult to predict and the potential liability is enormous. The Sept. 11, 2001 attacks, for example, resulted in estimated losses of $31.7 billion. The combination of uncertainly and potentially huge losses makes it difficult to define the parameters of potential damage. Therefore, most insurance companies exclude terrorism from their coverage in casualty and property insurance.

40 Canadian Underwriter May 2010

Since 9-11, a substantial stand-alone terrorism market has developed, Aon noted in a March 2006 publication, Stand-Alone Terrorism Insurance Market Update. “This market has enough capacity to fill gaps adequately in most property insurance placements where the property ‘all risks’ insurers are unwilling to offer terrorism coverage.”

Corporations can purchase terrorism insurance to cover their potential losses and liabilities that might occur due to an act of terrorism. Additional insurance for personal accident coverage — including war and terrorism, workers compensation, worldwide fleet, transit/cargo insurance and even personal insurance — are available.

(In Baghdad, such coverage is offered for about $70.)

WHAT IS AN ‘ACT OF TERRORISM?’ Canada’s Criminal Code defines “an act of terrorism” in two parts.The first and second part of the definition can be found in section 83.01 (1) of the Criminal Code, which applies to activities inside or outside Canada. Satisfying either part of the two-part definition constitutes a “terrorist activity.”

The first part refers to actions in contravention of United Nations conventions. Such conventions are related to the unlawful seizure of aircraft, civil aviation safety, crimes against internationally protected persons, hostage-taking,

Illustration by Sandy Nichols/www.threeinabox.com

Underwriting terrorism insurance is a challenging task, since the likelihood of terrorist attacks is difficult to predict and the potential liability is enormous.

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protection of nuclear materials, maritime safety, oil rigs, bombings and the financing of terrorism.

The second part refers to an action that is done “in whole or in part for a political, religious or ideological purpose, objective or cause.” This action might be undertaken “with the intention of intimidating the public, or a segment of the public, with regard to its security, including its economic security, or compelling a person, a government or a domestic or an international organization to do or to refrain from doing any act.”

Furthermore, the action is intended to cause: 1) death or serious bodily harm to a person, 2) danger to a person’s life, 3) a serious risk to the health or safety of the public or any segment of the public, 4) substantial property damage or 5) “serious interference with or serious disruption of an essential service, facility or system, whether public or private, other than as a result of advocacy, protest, dissent or stoppage of work that is not intended to result in [harm].”

Throughout the Anti Terrorism Act, careful attention has been paid to the requirements and guarantees of the Canadian Charter of Rights and Freedoms.

FREQUENCY AND TYPES OF TERRORISM Recently we have seen a 244% increase in the number of anti-government extremist groups, the kind of groups that spawned the likes of Timothy McVeigh 15 years ago. April 19, 2010 marks the fifteenth anniversary of the Oklahoma City bombing, perpetrated by McVeigh (who was described in media reports as a racist, anti-government fanatic), and killed 187 men, women and children.

In addition, recent shootings in Mexico City and Tijuana raise the specter of narco-terrorism.

Kidnappings in the world, mostly in Mexico and South America, have increased by 100% over the past six years.

Mid-term captivity kidnapping-and-ransom events in Mexico alone happen at a frequency of 1,200 per year, and range in duration between five days to five months. Long- term events occur about

42 Canadian Underwriter May 2010

10 times per year and last between six months and one year. “Express” kidnaps that are considered to be robberies happen about 10 times per day, and last between one and three days.

Corporations have adapted, securing kidnap and ransom insurance for operating in foreign countries. A variety of coverages are available.

MANAGING TERRORISM RISKS Insurance Concentration of risk is a big factor in determining availability for terrorism insurance. Most commonly, insurance companies are using an approach similar to the one used for natural catastrophe risks.

According to Guy Carpenter’s Global Terror Update 2009, nine Organization for Economic Co-operation and Development (OECD) countries — including Canada (although companies in Canada do offer standalone terrorism insurance policies) — have not established terrorism insurance schemes of any kind in either the public or private sectors. They include Denmark, Italy, Norway, Portugal, Sweden, Japan, Korea and Mexico.

In the Netherlands, insurance payments related to terrorism are restricted to a maximum of $1 billion per year for all insurance companies. This includes property, life, medical insurance, etc.

In the United Kingdom, after the Baltic Exchange bombing in 1992, all UK insurers stopped including terrorism cover on their commercial insurance policies

as of Jan. 1, 1993. (Home insurance policies were unaffected.) As a result, the government and the insurance industry established Pool Re, which is primarily funded by policyholders.

The government guarantees the fund, although its support is to be repaid from future premiums. (To date, the government has not had to make a payment.)

In the United States, in mid-2007, the idea of another extension to TRIA (Terrorism Risk Insurance Act) was tabled; officially, it was known as TRIREA (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions, including a mandatory “make available” clause for nuclear, chemical biological and radiological (NCBR) coverage and the ending of the distinction between domestic and foreign terrorism. However NCBR was not largely adopted in the public sector.

Risk Management Crisis management planning is also an important tool upon which insurance companies and underwriters rely when assessing coverage for a company’s terrorism risk exposure. For every dollar spent on developing a solid crisis management plan ahead of time, $7 is saved in losses when an attack strikes or disaster occurs.

But the preparation of policies, procedures, crisis management plans, implementation and execution of all those steps is still not enough. It is important that insurers and insureds consult with certified anti-terrorism specialists who have been involved in the war of terrorism and the prevention and detection.

A solid crisis management plan needs proactive — and not reactive — thinking.

The involvement of all citizens, frontline police offers, emergency evacuation and response teams, business professionals, insurance companies and underwriters — basically, everyone — is vital. We cannot rely only on information we learn through media. We need to look beyond that. Risk management is key in the prevention and managing of any act of terrorism or catastrophic event.

RIMS CANADA CONFERENCE

2010

Edmonton | September 26th - 29th

Plenary Speakers Peter Mansbridge

Sir Salman Rushdie

Last year this recipient of 12

Controversial, provocative, and

Geminis became the only Canadian

celebrated, British-Indian writer

TV journalist to have had a sit-down

Salman Rushdie, 63, is uniquely

interview with a working U.S.

Photo by Beowulf Sheehan

qualified to address the subject

president – Barack Obama.

of risk.

Leonard Brody

Jeff Rubin

A tech entrepreneur, venture

Canadian economist and energy

capitalist and author, Calgary-born

expert Jeff Rubin came to

Leonard Brody, at just 39, has already

prominence in the early 1990s with

been involved in the building and

his accurate prediction of a decline

financing/or sale of five companies.

in Ontario real estate prices.

Educational Sessions To complement these outstanding speakers, the conference will offer more than 20 concurrent educational sessions designed to appeal to delegates at every level and facet of industry. New this year will be a workshop and plant tour of a world class water treatment plant. Be sure to visit the technology showcase in the Exhibit Hall for the latest in programs and tools to assist risk managers.

Early Registration ends August 1st. Visit us at www.rimscanada.ca

Discovery

Ingenuity

Resources

Integrity

Success

Managing Data, Reducing Risk Wesley Gill Governance, Risk (ERM) and Compliance, SAS Canada

Companies improving their data management processes might find a correlated improvement in their risk modeling.

to populate their sophisticated models to a standard that was acceptable for regulatory purposes.

As a result, 70% to 80% of the effort associated with many of the regulatory capital framework initiatives related to the collection, cleansing, preparation and storage of the required data.

Even before the recent financial crisis, risk management and changes to regulatory capital frameworks were considered the next big things for insurers. With rating agencies recommending that insurers implement an enterprise risk approach to ensure an excellent rating standard, and with implementation dates for new regulatory capital frameworks fast approaching, insurers cannot afford to wait to start risk management projects.

Insurance companies can ascertain a lot from the lessons banks learned when implementing Basel II legislation. One of the biggest issues the banks faced in Basel II related to data management, not modelling.The banks concentrated on the modelling side and considered themselves well-equipped for risk modelling. But they found the data required by the regulatory framework was not available in a consistent or reliable form

PLANNING A DATA MANAGEMENT PROJECT

44 Canadian Underwriter May 2010

For any insurer, risk models are going to rely on someone pulling together a lot of data from different — typically incompatible — IT systems distributed throughout the entire company. Such data might feature different names for the same things (John Smith or J. Smith), discrepancies in how data is represented (April 1, 2009 or Apr 10/09), multiple representations of the same data (i.e. both internal and external customer risk ratings, making it difficult to come up with one risk rating for the customer) and so on.

Ideally there should be an enterprise data warehouse for the whole company, one that integrates all relevant information from internal IT systems and external sources, and that serves as a uniform and reliable source for all kinds of analytical tasks, including risk analysis. In this way,

TM

this summer join

WICC at Relay For Life the Canadian Cancer Society’s biggest event at Esther Shiner Stadium in North York on June 25, 2010 More than a fundraiser, Relay For Life is a unique, inspirational, outdoor community event that brings family and friends together overnight for 12 hours of fun and fundraising to beat cancer.

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

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

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

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

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

100 teams

For more information and to register your team(s) go to wicc.ca WICC formed in 1996 to mobilize the Canadian insurance industry in the fight against cancer. Over $4 million has been raised across Canada to support cancer research projects since inception.

Design compliments of

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

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

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

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

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

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

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

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

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

RISK MANAGEMENT

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

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

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

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

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

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

INSURANCE LAW

46 Canadian Underwriter May 2010

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

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

you can be sure the same source data used for balance sheet reporting is also taken into account for risk codes, which is extremely important for the validity, transparency, reconciliation and acceptance of analysis and reports.

Fortunately, one of the insurance company’s most important assets is its data, but this is often underused. One reason why this data is underused is because up to three-quarters of it is unstructured data — i.e. emails, adjuster notes, financial reports, etc. Hence, insurers must implement both data-mining and textmining techniques to gain maximum benefits from their risk management applications.

To ensure a successful data management project, an insurer must focus on the core basic elements: defined data sources, data exchange or ETL (extract, transform and load) processes, data quality, a unified data model and repository and governance.

DATA MANAGEMENT FOR RISK Data sources One of the most difficult parts of a data management project is determining which data sources will need to be accessed. A risk management system should be able to process and integrate information from a variety of sources, including front- and back-office applications and of course mergers and acquisitions. Because of these activities, insurance companies are notorious for having multiple legacy systems. These legacy systems often result in multiple data silos.

Another data challenge facing insurance companies is the wide variety of formats. Data may be stored in relational databases, flat files, outdated database formats, XML or other formats. Additionally, some of the relevant data may be unstructured, free-form text. Once the data has been identified, insurers must decide how to extract the data, where to store it and how to store it.

Unified data model and data repository A data warehouse is essentially a large relational database that consolidates data from core data sources of various appli-

cations. Sometimes a data warehouse will have one or more “data marts” with specific purposes. Data marts are smaller, subsidiary databases populated from the main data warehouse (the official source).

When implementing a data warehouse, it is imperative to use a data model. The data model is a “single version of truth” that stores comprehensive, accurate, consolidated and historical information related to the insurance industry.The model should be consistently modified to reflect the evolving entities

Data is one of the insurance company’s most important assets. But it is often underused because up to three-quarters of it is unstructured (such as emails, adjuster notes, financial reports, etc.). and business issues that affect the capital and risk platform. According to research firm Celent, “insurers should consider purchasing a predefined data model, preferably one that is compatible with ACORD XML standards, from a systems integrator or technology vendor with deep experience in data mastery for insurance.”

ETL and data quality Data mapping and cleansing are by far the most challenging parts of any data management project. It is generally recognized that 70% to 80% of the implementation effort for a risk management project is associated with data management. The use of ETL tools designed specifically for the insurance industry can provide significant efficiencies.

Data quality is paramount for any system that operates for the sole purpose of producing valuable business information. No insurance company can ever be sure that its economic and/or regulatory capital calculations are accurate and reliable if the supporting data is not cleansed and validated according to de-

fined business rules. A simple description or abbreviation can have multiple meanings. Within auto insurance, the abbreviation BI stands for “bodily injury,” while for business owner policy insurance, BI represents “business interruption.” These discrepancies are only exaggerated as insurers implement a cross-border data warehouse.

Auditability/governance A vital component of any risk management system is the ability to reproduce the results from a regulatory and governance perspective. One challenge facing insurers with regulatory capital initiatives is with the disclosure requirements prescribed and the ability to reconcile and trace the data back to its origins.

To address this issue, a data management system is critical. The system should generate audit trails and trace information throughout the flow of data, from the point of extraction within the source systems all the way to report generation. This way, regulators and internal auditors can validate the path of the data, and internal developers can use this log information to iteratively improve process capacity. Additionally, a data management system should maintain historical data, which is vital for back-testing, historical simulations and comparison of calculations/analysis results between time frames.

CONCLUSION To survive and emerge stronger, it is essential for insurance companies to implement an enterprise risk management strategy that meets current, expected and future regulatory requirements.

Fundamental to this initiative is a holistic, unified approach to data management — one that ensures a smooth flow of information throughout the organization.

Although new regulatory capital frameworks are not due to be implemented until 2013 or later, from both a business perspective and a change management perspective, it would be advisable to start early with the design of a data management system that is flexible enough to anticipate regulatory requirements.

May 2010 Canadian Underwriter

47

Legislative

Vanessa Mariga Associate Editor

B.C.’s insurance regulator believes OSFI’s amendments to Part XIII reduce regulatory transparency and increase risk. And so whereas the CCIR issued a voluntary consent and undertaking to deal with any potential uncertainty, B.C. decided to legislate protection.

The Office of the Superintendent of Financial Institutions (OSFI)’s changes to Part XIII of the Insurance Companies Act create an increased risk to the public when unlicensed reinsurance is being used, warns British Columbia’s regulator, Financial Institutions Commission (FICOM). In response to this perception, FICOM took legislative action in February 2010, including placing more responsibility on brokers to act as “gatekeepers” and protect the public when unlicensed insurance is at play.

In a February 2010 bulletin addressed to foreign primary insurers, FICOM said the changes “made under Part XIII of the federal Insurance Companies Act could allow foreign insurers to insure risks in this province without that business being regulated in Canada. This province believes that this creates an increased risk to the public of this

48 Canadian Underwriter May 2010

province and has taken steps to address that risk.”

Starting this year, OSFI implemented amendments to Part XIII, outlining a new test for “insuring in Canada a risk.” Basically, OSFI’s test no longer focuses specifically on the location of the insured risk, but rather on the location of business activity.

In an interview with Canadian Underwriter, Michael Grist, FICOM’s deputy superintendent of insurance and pensions, says OSFI created complications in determining whether or not business is being written in Canada. “An example would be if a foreign insurer was soliciting business in B.C., it might be viewed under the federal test as not requiring a license, because solicitation is only one of the criteria — it’s not a sole determining factor,” Grist says. “But in B.C., solicitation of insurance business requires you to be licensed. So that’s a situation where you might not be caught under the federal rules, but you would be caught under the B.C. rules.”

FICOM thus placed a condition upon business authorizations of foreign branches. Basically, “if you’re insuring a risk in B.C., you must conduct that business in Canada,” Grist says. “That would prevent a foreign insurer based in London, for example, from having two books of business, where it would solicit into B.C. for business and yet that business would not be subject to the usual protections of the Canadian system.”

OSFI’s amendments reduce the transparency of the regulatory system, FICOM contends, making

it easier for bogus insurers to operate in Canada.

“Under the old Part XIII rules, if we came across a bogus insurer, the first question we would ask them is:‘Are you licensed federally to provide property and casualty insurance in Canada?’ And if they weren’t, it was fairly easy for us to shut them down.We would just issue a cease-and-desist order,” Grist says.

“Now, because the indicia used to determine whether an insurer needs to be licensed federally are more complicated, we think it’ll be more difficult to shut those companies down.They may argue that they’re in the process of being federally licensed.”

For example, Grist says FICOM issued a cease-and-desist order in 2004 against a bogus insurer domiciled in Costa Rica that had placed approximately 400 liability policies in Canada. The ‘insurer’ used synthetic gemstones and debentures against Costa Rica land as its capital.

Under the new regime, it would be more complicated to put a quick halt to these sorts of bogus insurers, FICOM argues.

B.C. made the move to legislate, whereas the Canadian Council of Insurance Regulators (CCIR) issued a voluntary Consent and Undertaking (C&U) to foreign (re)insurers.The C&U is similar to FICOM’s amendments to its Financial Institutions Act, in that both attempt to offer the same protections. But Grist believes FICOM’s legislation is more flexible: the C&U sets out the specific activities that must be undertaken by foreign insurers, while FICOM’s legislation features more general wording.

“In drafting the requirements, we felt our approach was the simplest,” Grist says. “Things change over time. Ours references the specific section of the federal Insurance Companies Act. If things change over time, as long as we’ve referenced the federal legislation, we think it’ll be okay.Whereas if you get more detailed, and lay out specific requirements, those tend to change from time to time and require further amendments.”

Consumer protection is at the core of FICOM’s action, Grist says. To help navigate through the more complex regulatory environment, new requirements

have also been placed on the broker “to ensure that if a consumer in B.C. needs to access the unauthorized insurance market — because, for example, appropriate coverage is not available in Canada — they get the right advice.

The Insurance Council of British Columbia has requested comment on what these requirements should look like, says Doug McLean, FICOM’s executive director of insurance.The draft rules include that the broker should make “appropri-

ate disclosure to the insured about the credit worthiness of the insurer.” The broker must also take “reasonable steps to ensure that similar coverage is not available from an authorized insurer, and that the client is advised of the risks associated with placing business with an unlicensed insurer.”

The draft rules also require brokers to file a quarterly report detailing how much business is placed with unauthorized insurers.

Now it’s back to our series of “Did You Know” facts and figures about the Ontario chapter of RIMS. Next up ...

AWARDS and RECOGNITION!

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

ORIMS Member winners of the Harry & Dorothy Goodell Award recognizing outstanding lifetime achievement in the field of Risk Management: • • • •

1980 - Daniel E. Sullivan 1982 - Douglas Barlow 2001 - Donald M. Stuart 2005 - Susan Meltzer

ORIMS Member winners of the Richard Bland Award recognizing outstanding contribution in the field of legislation: • 1975 - Donald M. Stuart • 1993 - Lloyd Hackett ORIMS Member winners of the Arthur Quern Quality Award acknowledging individuals and organizations that develop innovative products, processes, programs, systems, services or enterprise risk management solutions that serve to raise the quality of the industry: • 2005 - ORIMS Corporate Member - TSSA (Technical Standards and Safety Authority) for its risk-based inspection model And finally, we are proud to remind you that these ORIMS Members have represented us well as Past Presidents of RIMS: • • • • •

1971 - 1972 1975 - 1976 1993 - 1994 1999 - 2000 2004 - 2005

Douglas Barlow Daniel E. Sullivan J.A. “Tony” Bridger Susan R. Meltzer Nancy L. Chambers

www.ontario.rims.org

May 2010 Canadian Underwriter

49

David Gambrill Editor

B.C. has called on the province’s public insurer to transfer more than $777 million of its money into the public coffers, begging the question: Government ‘cash grab,’ or maintaining the integrity of the private auto insurance market?

B.C. announced in its March 2010 budget an estimated transfer of $777 million over three years from the public auto insurer, the Insurance Corporation of B.C. (ICBC), to the provincial government coffers.

This kind of transfer is unprecedented in B.C. and elicited howls of outrage in the media by the government’s opposition critics, who portrayed the move as an attempt by the province to raid the public insurer’s piggy bank.

Both the ICBC and the government, however, see this move as a way to transfer surplus capital from the public insurer in a manner that won’t

50 Canadian Underwriter May 2010

see the ICBC undermine the private market for optional auto insurance rates.

ICBC is a Crown corporation that provides auto insurance for all B.C. motorists. It offers a minimum Basic Autoplan coverage, available only from ICBC, which includes up to $150,000 in accident benefits and up to $200,000 for damages claimed by other drivers. In addition, ICBC competes with private insurers on Optional Extended coverage, including collision repair and comprehensive coverage if the vehicle is stolen or vandalized.

Just prior to the financial crisis in 2008-09, ICBC says it started to accumulate excess capital for a rainy day. “ICBC has only recently accumulated more Optional capital than is required,” Mark Jan Vrem, ICBC’s manager of media relations, explained in an email to Canadian Underwriter.

“At the end of 2007, capital on the optional side of the business reached levels that were sufficient to meet our regulatory requirements, protect customers from unexpected events and volatile rates, and to reinvest in the business. Given the volatile financial marketplace of the last two years, this capital was retained in the company to protect our customers.”

Illustration by Sandy Nichols/www.threeinabox.com

Robbing Peter to Pay Paul?

th

Annual WICC Golf Tournament on July 12th, 2010 Held at the prestigious Angus Glen Golf Club

For entry and sponsorship opportunities,

go to www.wicc.ca to register Design donated by

Putting the pieces together.

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

CIP Society Events and Seminars CIP Society National Leadership Award nominations . . . . . . . . . . . . . .Open until June 1

Vancouver - Professional Liability/E&O Insurance . . . . . . . . . . . . . . . . . . . . . . . . .June 15

Toronto - Fraud in the 21st Century: New Twists & Trends . . . . . . . . . . . . . . . . . . .May 26

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

Halifax - Fraud in the 21st Century: Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . .May 28

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

Toronto - Severe Weather and its Effect on Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .June 2

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

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

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Ottawa - Spring Luncheon “Insuring Against Identity Theft” . . . . . . . . . . . . . . . .June 10

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

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

But with the market crisis passed, the Province of B.C. saw no reason for ICBC to maintain the excess Optional capital.

In its budget, it called for ICBC to transfer $487-million to the provincial government coffers in 2010, $144-million in 2011 and $146-million in 2012.The government’s March 2010 budget and fiscal plan states: “ICBC’s financial performance since the current regulatory framework was put into place in 2002/03 has resulted in the corporation being well capitalized in both its Basic and Optional insurance lines of business as measured according to the guideline set by the federal government’s regulator of insurance companies. Basic insurance capitalization is the purview of the BC Utilities Commission, which set rates for compulsory vehicle insurance. However, in proposed changes to ICBC’s legislation, government will reinforce the application of the federal guideline to ICBC’s Optional insurance capitalization to ensure ICBC operates in a manner similar to private insurance companies in a competitive marketplace. Income from this line of business that is not required to maintain sufficient capital to meet the federal guideline will be remitted to the CRF in support of core government services.”

When the government announced its intention, the Opposition roared in the legislature. NDP MLA Bruce Ralston, the opposition critic for finance, questioned the move to limit the insurers’ cash reserves during Mar. 4 Question Period.

“Why doesn’t the minister leave it to the ICBC board of directors to make the decision how large their cash reserves should be, rather than by enshrining it in legislation and forcing them to transfer it to the government’s books?” Another critic, MLA Mike Farnsworth, said the move would not allow ICBC to provide its customers with potential premium reductions. “With this $780 million unprecedented cash grab, they are

taking away the opportunity to reduce optional coverage and other coverage even further,” Farnsworth said.

The dilemma for the government is that it did not want ICBC to use its surplus capital to undercut rates offered by private insurers in the province’s optional insurance marketplace. As it

The dilemma for the government is that it did not want ICBC to use its surplus capital to undercut rates offered by private insurers in the province’s optional insurance marketplace. stands, over the past five years, ICBC’s optional rates have gone down by 17% and its basic rates have not increased in three of the last five years. Transferring the excess capital to the government’s coffers was one to ensure ICBC’s rates remained competitive with private insurers’ rates in the Optional insurance marketplace.

Certainly the transfer wasn’t in danger of making consumers’ rates increase, ICBC said in a statement to Canadian Underwriter. “The terms of the transfer

ensures enough capital is kept within the company to meet our regulatory requirements, protect our customers and reinvest in our business,” Vrem noted, adding further that there would be “no direct impact on rates, which are mainly driven by claims costs.”

Industry observers note that although this kind of public insurer-to-government transfer is novel in B.C., it is not without precedent in Canada.

Saskatchewan’s public insurer, SGI Canada, has paid a dividend to the province for many years and says it will continue to do so. “This dividend that SGI Canada pays each year is based on a percentage of our profit and is dependent on a number of factors, such as the level of capitalization of the organization, needs of the shareholder, future capital requirements, etc.,” says Tim Kydd, assistant vice president of communications at SGI. The payment of dividends is based on a policy decision by SGI’s shareholder, the Province of Saskatchewan. SGI Canada paid out a special dividend of $22 million in 2000 as a result of having excess capital at that time.

But the Saskatchewan example is different from B.C. in many ways. Chief among them, in Saskatchewan, the money is not coming from the arm of SGI that writes basic auto insurance.

SGI’s public insurer is made up of two distinct entities. On the one hand, SGI Canada is fully competitive, selling property and casualty insurance products such as home, farm, business and extension auto in seven Canadian provinces.

The Saskatchewan Auto Fund, on the other hand, is the province’s compulsory auto insurance program, operating the driver’s licensing and vehicle registration system. “The Auto Fund is designed to be financially self-sustaining over time,” says Kydd. “It does not receive money from, nor pay dividends to, the provincial government.

May 2010 Canadian Underwriter

53

Transferring Loss The rules around loss transfer appear to be straightforward enough, but court and arbitration decisions in Ontario have added a few new wrinkles to its application.

J. Claude Blouin Founding Partner, Blouin, Dunn LLP

Special thanks to Mona Gobran for her

contribution to the article.

Loss transfer permits an insurer paying accident benefits to be indemnified by another insurer for all or part of the accident benefits paid to an insured person, under certain circumstances. Under the Insurance Act,1 automobile insurers pay accident benefits to insured persons who are injured in motor vehicle accidents. In certain circumstances, the “first party insurer,”2 the insurer responsible for the payment of the statutory accident benefits, is entitled to be indemnified by another insurer, known as the “second party insurer.”3 This entitlement to indemnification is known as a “loss transfer.”

Statutory authority for loss transfer is found in Section 275 of the Insurance Act4 and Section 9 of Regulation 664.5 Put simply, insurers of motorcycles and motorized snow vehicles can claim loss transfer from any other class of insurer involved in an accident (other than motorcycle, motorized snow vehicle or off-road vehicle) as long as some degree of fault is attributed to the other vehicle as determined by the Fault Determination Rules.6 Similarly, first party insurers of vehicles (other than heavy commercial vehicles) involved in accidents with heavy commercial vehicles can claim loss transfer from insurers of heavy commercial vehicles.

ENFORCEMENT OF LOSS TRANSFER A request for loss transfer is usually preceded by a Notification of Loss Transfer from the first party insurer to the second party insurer. The second party insurer generally requests information

54 Canadian Underwriter May 2010

about the claimant. The second party insurer is not entitled to dispute the accident benefit payments made by the first party insurer to its insured. It is only entitled to dispute the reasonableness of a payment.7 There is no entitlement to indemnification for the first $2,000 of benefits paid.

The second party insurer is generally entitled to receive sufficient medical records from the first party insurer to satisfy itself of the reasonableness of the payments made.8 If the second party insurer does not respond to the request or disputes its obligation to indemnify the first party insurer, the dispute must be resolved by arbitration pursuant to the Arbitration Act.9 The parties may either agree to arbitration or the court may order it to proceed. Typically, the parties draft their own arbitration agreement that provides for an appeal to the court on questions of law or questions of mixed fact and law.

SCOPE OF LOSS TRANSFER In Ontario, Financial Services Commission of Ontario (FSCO) Director’s Bulletin No. 11/94 indicates loss transfer is available for the following kinds of benefits: • the cost of any assessment conducted under the Statutory Accident Benefits Schedule;10 • the cost of services provided by a case manager related to the co-ordination of medical; • rehabilitation and attendant care services; and • all expenses covered by the Schedule.

Payments such as interest on overdue benefit payments, as well as punitive awards, are not benefits under the Schedule. Rather, they are sanctions imposed for the first party insurer’s failure to pay the benefits11 and are therefore not subject to loss transfer. In addition to sanctions, it has been held that loss control efforts12 — including administrative expenses and surveillance costs — are not subject to indemnification.13 The costs of Section 24 examinations have gen-

erally been found to be benefits. Therefore, they are subject to indemnification. However, the first party insurer’s costs of Insurer Examinations (IEs) have generally been found to be loss control measures and therefore not reimbursable.

PRACTICAL MATTERS While all of the above may seem straightforward, court and arbitration decisions over the years have added a few wrinkles into the process of loss transfer.

Here are some things for insurers to think about when engaged in the process: • There is a two-year limitation period for commencing a loss transfer arbitration. In fact, one Ontario court has found there is a “rolling limitation” period in loss transfer cases.14 • Disputes often arise about what constitutes a “heavy commercial vehicle.”This is defined as a commercial vehicle with a gross vehicle weight greater than 4,500 kg. But the truth is, figuring out a vehicle’s gross weight at the time of loss can be problematic.

• Lump sum settlements of statutory accident benefits claims are subject to loss transfer.

• A second party insurer reimbursing a first party insurer must record such payments as accident benefit payments and not liability payments.

• In Ontario, a fault chart governs the measure of indemnity, and therefore disputes arise as to the applicability of a particular rule from the fault chart. Liability is decided in accordance with ordinary rules of law if no particular rule applies.This often requires the arbitrator to conduct a mini-trial on the issue, which involves the viva voce evidence of the drivers and any witnesses to the accident.

1 Insurance Act, R.S.O. 1990, c. I.8.

2 "First Party Insurer" means the insurer responsible under subsection 268 (2) of the Act for the payment of statutory accident benefits; R.R.O. 1990, Reg. 664, s. 9 (1).

3 "Second Party Insurer" means an insurer required under section 275 of the Act to indemnify the First Party Insurer; R.R.O. 1990, Reg. 664, s. 9 (1); O. Reg. 780/93, ss. 1, 6.

4 Supra, note 1.

5 Insurance Act, R.R.O. 1990, Reg. 664.

6 Fault Determination Rules, R.R.O. 1990, Reg. 668.

7 Although the loss transfer provisions do not directly address when payments should be made or the consequence of delayed payment, it is generally expected that payments are to be made on an ongoing basis. Further, the Second Party Insurer may not withhold payment subsequent to the claim being closed.

8 State Farm and Citadel, February 21, 2006, Arbitrator Guy Jones, unreported.

9 Arbitration Act, 1991, S.O. 1991, c. 17. s. 10.

10 Statutory Accident Benefits Schedule – Accidents on or After November 1, 1996, R.R.O. 1990, Reg. 403/96, s. 24.

11 F.S.C.O. Bulletin: No. A-11/94.

12 “Loss control efforts” have been defined as measures to limit the payment of benefits as opposed to benefits in and of themselves.

13 Allstate Insurance Company of Canada and AXA Boreal Insurance Inc., May 7, 1999, Arbitrator Bruce R. Robinson, unreported.

14 State Farm Mutual Automobile Insurance Co. v. Dominion of Canada General Insurance Co., [2005] O.J. No. 5502.

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CNA Canada

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CSN Collision & Glass

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Crawford & Company (Canada) Inc.

19

Cunningham Lindsey Canada Economical Insurance

9 27

The Guarantee Company of North America

13

Great American Insurance Group

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25 5, 35, 52 46 68 (OBC)

instouch.com

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ORIMS

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RIMS Canada Conference 2010 – Edmonton

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RSA – Royal & Sun Alliance Insurance Company of Canada The Ontario Broker magazine (IBAO) Wawanesa Insurance WICC

7 55 23 45, 51

May 2010 Canadian Underwriter

55

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

Axis Reinsurance Company has announced two appointments to its Canadian branch. Rohit Trivedi [1a] has been appointed vice president, Canadian Claims. He joins Axis from Munich Re Group, where he established and led the claims department for Munich Re’s primary arm, Temple Insurance. Vangie Artes [1b] accepted the role of assistant vice president of Axis property. She previously held underwriting and management positions at Royal & Sun Alliance, AIG and most recently Catlin Canada.

2

Sharon Ludlow has been appointed CEO of Swiss Re in Canada and head of Canadian and English Caribbean operations, effective June 1, 2010. She will succeed Jean-Jacques Henchoz, who will return to Switzerland after five years in Canada.

Ludlow currently serves as chief financial officer of Swiss Re in Canada. “Sharon brings a high degree of financial and business acumen to this role and is a respected leader with established credibility across the financial services industry in Canada,” said Pierre Ozendo, chairman and CEO of Swiss Reinsurance America Corporation.

“We wish to thank JeanJacques for his exceptional service and commitment to

56 Canadian Underwriter May 2010

Swiss Re in Canada and the English Caribbean over the past five years. Thanks to his leadership, this operation has sharpened its client focus and performed very well for the firm.” Prior to her experience at Swiss Re, Ludlow was vice president of finance and administration for Liberty International Underwriters Canada. Before that, she led the demutualization and initial public offering for Canada Life Financial, where she also launched an independent subsidiary, Kanetix, an online site for insurance and mortgage purchases.

3

Derek Reedie is Catlin Canada’s newly appointed product manager for construction. Reedie has been in the industry since 1998. Most recently, he was underwriting manager of construction with Zurich.

Prior to that, he worked for RSA and Dominion of Canada, where he started his career.

4

The Economical Insurance Group (TEIG) has introduced TEIG NOTA, an early notification system that informs brokers of an ‘event of interest.’

Events of interest include NSF cheques, initial assignment of an adjuster, revised adjuster assignment, invalid/incomplete banking information or a three-pay re-

1a

1b

2

3

minder notice. Brokers can choose to receive notifications electronically via CSIO download or email in a timely manner, allowing them to be proactive when dealing with the policyholder. “Brokers rely on us to develop tools that assist them in providing the best customer service possible,” said Jorge Arruda, senior vice president of operations at TEIG. “Notifications are a key component of those tools and help to further round out our broker solutions, launched under TEIG Connex Suite.”

5

Mike Morris [5a] has been appointed vice president of central operations at Cunningham Lindsey Canada (CLC). Morris

joined CLC in 1988 as a trainee. He moved through the ranks and was appointed assistant vice president in 2008. He is based at CLC’s head office in Mississauga, Ontario. In addition, Andrea Digdon [5b] has been appointed assistant vice president of the Atlantic Region at CLC. She was most recently Halifax branch manager at CLC.

6

Claudine Davoodi [6a] has been appointed as Crawford & Company (Canada) Inc.’s vice president of operations for the region of Quebec. Davoodi will continue to work closely with Quebec branch managers and will have operational responsibility for all of Crawford’s

MOVES & VIEWS

5a

5b

10

8 6a claims operations throughout the province. Andrea Zimny [6b] has been named assistant vice president of Claimsalert for Crawford operations in Canada. Claimsalert offers centralized claim intake 24 hours a day, seven days a week for Crawford clients.

Zimny will continue to manage both the Waterloo and Montreal Claimsalert centres.

7

Private equity firms Stone Point Capital LLC and Hellman & Friedman LLC have acquired Sedgwick Claims Management Services Inc. for approximately $1.1 billion. “We are excited to be partnering with Stone Point and Hellman & Friedman for the next

6b stage of Sedgwick CMS’s growth,” Sedgwick CMS president and CEO David A. North said in a press release.

“Stone Point and Hellman & Friedman share our vision for continuing the growth of Sedgwick CMS through focusing on our clients and delivering highly responsive, cost-effective claims and productivity management solutions,” he added. The transaction is expected to close during the second quarter of 2010, subject to usual and customary conditions and the receipt of regulatory approvals, according to a joint release.

Bank of America Merrill Lynch and Barclays Capital have provided commitments to finance the transaction.

RSA has teamed with MarshBerry, a consulting firm, to offer RSA’s key brokers tools to grow their businesses. MarshBerry, a U.S. broker consulting firm, offers expertise in management, peer-to-peer exchange network, informational services, sales effectiveness and merger and acquisition advisory services.

Through its resources and insurance industry knowledge, MarshBerry will act as a support tool and improvement network for key broker partners.

“Our goal with MarshBerry is to help our brokers bring a new level of expertise to their business,” Shawn DeSantis, senior vice president of broker business, said in a release.

9

Kingsway Financial Services Inc. (TSX:KFS, NYSE:KFS) has announced that its president and CEO Colin Simpson, “having substantially completed the downsizing and restructuring of the Kingsway Group,” will resign on June 30, 2010 to pursue other

career interests. Larry Swets, currently the company’s executive vice president of corporate development, will take over the role of president and CEO on that date. Swets was appointed to the Kingsway board in January 2009 as part of a settlement the company reached with minority shareholder Joseph Stillwell and the Stillwell Group. Simpson will remain on the company’s board of directors. The company’s chairman, Spencer L. Schneider, commented: “We thank Colin for his dedication and hard work, and we are pleased that he has agreed to continue to work with us on the board. We look forward to working with Larry in his new role.”

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McLarens Canada, has announced two new appointments to the claims management and the sales and marketing departments.

Laurie Walker [10] joins McClarens as director of Ontario auto accident benefits. She has more than 23 years of insurance adjusting experience, with extensive experience in Ontario accident benefits catastrophic claims, mediation, litigation and auditing. Dave Bernardi joins the sales and marketing team in the newly created role of regional sales manager for Quebec and Atlantic Canada. He holds 15 years of sales experience in the financial services sector.

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More than 150 industry representatives, a record turnout, attended the 51st Annual Reception of the Quarter Century Club held Mar. 31 at the Hilton International in Toronto. The event was a roast for claims industry veteran Malcolm “Mac” Ross, senior vice president with ClaimsPro (an SCM Insurance Services company). After 42 years of working in the insurance industry in Ottawa, Mac, who “didn’t think I’d ever want to be roasted,” commented in his closing remarks of the roast: “It’s a wonderful day. A day I won’t forget.”

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APPOINTMENT

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

Craig Duncan Gary Owcar, President and C.O.O. of CNA Canada, is pleased to announce the recent appointment of Craig Duncan as Vice President, Claims for Canada. In Mr. Duncan’s new role, he will provide strategic leadership and direction to the Canadian Claims organization, and will be responsible for the direction, management and implementation of strategic objectives and policies for all aspects of claim handling in accordance with CNA’s strategic plans.

Mr. Duncan brings over 20 years of experience to this role, and was most recently in a senior leadership role with Crawford & Company, where he had national claim and client management responsibilities.

Mr. Duncan is a client-focused business leader with a proven track record in claims management, control, and audit, with specific experience in building high performance teams. Mr. Duncan is a member of the Ontario Insurance Adjusters Association and the National Association of Fire Investigators. He holds a Bachelor of Arts (Hons.) degree fromtheUniversityofWesternOntarioand is a Chartered Insurance Professional, as well as a Certified Fire and Explosion Investigator.

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

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

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GALLERY

The Honourable Order of the Blue Goose International, Ontario Pond held its 10th Annual Scotch Nosing at the Rosewater Room in Toronto on Apr. 8. More than 150 guests attended the sold-out event.

They were treated to a fourcourse meal and some of Scotland’s rarest, ‘specialedition’ single malts. Ed Patrick, one of Scotland’s finest international scotch whiskey experts, was on hand to share his expertise. Jack Jackson, Piper and distinguished member of The Robert Burns Federation, made a special guest appearance. Proceeds of the event were donated to Women in Insurance Cancer Crusade (WICC).

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Canadian Underwriter May 2010

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

Jean Marion Larry Shumka, President and CEO of SCM Insurance Services, together with Bill Moorman, Senior Vice-President, Operations, Central Region, for ClaimsPro, is pleased to announce the appointment of Jean Marion to the position of District Manager, GTA. Reporting to the Senior Vice-president, Central Region, Jean will be responsible for overseeing all aspects of the day-to-day operations in the Greater Toronto Area.

He will be responsible for the promotion of new business and the consistent improvement of ClaimsPro standards and goals, increasing quality and the development of mentoring programs. Jean will also work in consort with the Senior Vice-President, Central Region in developing and communicating process changes and promoting our guiding principles and a team environment within the district.

Jean began his career in 1981 and has been working as an independent adjuster for 22 years. Joining ClaimsPro in 2007, Jean has quickly risen from Ottawa Branch Manager to North Eastern Ontario District Manager. His work with the branches in North East Ontario has been integral in creating and sustaining the growth we continue to see in this area.

Jean currently holds his CIP designation and is working towards his Fellowship.

ClaimsPro traces it roots back to the original Shumka Craig & Moore Adjusters Canada Ltd. office founded in Edmonton, Alberta in 1986. Today SCM Insurance Services is made up of three companies, ClaimsPro, Forensic Investigations Canada and SCM Risk Management Services, with over 130 branches coast-to-coast and over 1450 employees. www.scm-claimspro.ca

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GALLERY

WICC Ontario held its 14th annual gala dinner, Dream in Colour, on Apr. 14, 2010 at The Westin Harbour Castle Hotel in Toronto. WICC dinner co-chair and evening emcee Michael Butler introduced WICC co-chair Carolyn Horan, who presented Rick Perciante, acting CEO of the Ontario division of the Canadian Cancer Society, with a cheque from WICC for Cdn $300,000. Gold Flame Awards went to Pat McNally, Michael Daniels and Stephen MacConnell (IBANB/ IBANS Convention Motorcycle Ride); MSA Research Inc. and North Waterloo Farmers Mutual. McKellar Structured Settlements received the Lew Dunn Memorial Award. Marilyn Horrick, past dinner chair, introduced WICC Relay for Life co-chairs Paul Martin and Robert Landry, who spoke about their renewed commitment to the event and the committee’s new $444,000 goal for the 2010 Relay for Life. A special presentation was made to Lyna Newman, who has been the executive director, board member and secretary of WICC Ontario for more than a decade.

She is transitioning to the chair of the WICC golf tournament.

Barb Reddick is the new board member, executive director and secretary of WICC Ontario. Attendees witnessed Etobicoke School of the Arts performances of SPLASH and DanceESAtion, and a live painting performance by artist Fritz Branschant. Since the inception of WICC in 1996, more than $4.25 million has been raised by the property and casualty insurance industry.

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APPOINTMENT

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

Simon Barker

The partners of McCague Borlack LLP are pleased to announce the appointment of Simon Barker as Counsel to the firm and co-chair of its Marine Law Practice Group.

Simon is currently the Chair of the Canadian Bar Association’s National Maritime Law Section and Chair of the Federal Courts (of Canada) Bench and Bar Liaison Committee. In addition, Simon will continue his admiralty law practice advising clients in both the public and private sector.

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 land throughout the United States, Mexico, United Kingdom and Europe as a member of The Harmonie Group.

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Given today’s hectic schedule, some people find it difficult to carve out a little one-on-one time with their significant others and loved ones.

And so CSN Collision & Glass hosted ‘Date Night with CSN’ on Apr. 21, bringing together more than 100 of its members, insurance adjusters and their spouses on a date.

After sharing refreshments at Jack Astor’s, located at Square One in Mississauga, Ontario, CSN’s guests watched a private screening of the new hit comedy “Date Night” starring Steve Carell and Tina Fey. The evening featured great food, great company and great fun. Happier and more relaxed couples can now be found everywhere!

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

CARSTAR Automotive Canada Inc. held a grand opening celebration for a new location in Welland, Ontario on Apr. 22.

Owned and operated by James Richardson, CARSTAR Welland is located at 16 Lincoln Street West. It is the 84th location in Ontario and the most recent addition to CARSTAR’s network of more than 135 locations in 10 provinces throughout the country. Richardson has been involved with the collision industry for the past 38 years.

He will be working alongside his wife and business partner Heather in operating the 10,000-square-foot facility.

Steve LeBlanc is managing the store.

CARSTAR IAC (International Automotive & Custom) Collision Woodbridge held a grand opening celebration of their location on Apr. 22.

Located at 219 Westcreek Dr., CARSTAR IAC is coowned by lifelong friends Rocco Aurellio and John Costa. CARSTAR IAC is housed in a 30,000square-foot facility, and is dubbed a “one-stop-shop” for customers. It offers collision repair, customization, mechanical, installations and specialized parts services, all of which are available onsite. The facility is conveniently located near highways 400 and 407, only two kilometers from the large Vaughan Mills Shopping Centre.

Shannon Hoyt ClaimsPro appoints Shannon Hoyt to Vice-President, Ontario Accident Benefits

Larry Shumka, President and CEO of SCM Insurance Services, together with Bill Moorman, Senior Vice-President, Operations, Central Region, for ClaimsPro, is pleased to announce the appointment of Shannon Hoyt to the position of Vice-President, Ontario Accident Benefits.

Shannon has excelled in her 15 year career in the industry. Shannon spent the first five years of her career with a major national insurer moving to the independent side of business with ClaimsPro in 2000. For the last five years, she has held a number of management positions. In her new role, reporting to the Senior Vice-President, Central Region, Shannon will be responsible for all aspects of the regional Accident Benefits process including business development / client relationship, internal training & development, quality assurance & OAB system development. Shannon will work closely as a technical advisor with Ontario’s management team to ensure success.

Shannon holds her CIP designation and is a graduate of the University of Toronto.

In 1986 Shumka Craig & Moore Adjusters opened their doors in Edmonton, Alberta.

Our commitment is to innovative technology, expert staff, and solid customer service.

This allowed us to grow from a single office to a national company. ClaimsPro, an SCM Company, is the largest supplier of claims management services with over 90 branches coast to coast.

www.scm-claimspro.ca

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

The Property Casualty Underwriters Club (PCUC) held its Spring Thaw on Apr. 30 at the Rosewater Room in Toronto. The annual event added some sunshine to everyone’s day. Attendees warmed up to great company, cocktails, food and special entertainment.

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An insurance policy is like a good goalie: it’s the last line of defense in business protection. A Great American insurance policy can be a game-changer, making you a winner with your clients. With Great American on your team, you’ll have the power play advantage from start to finish.

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“We were

robbed

on December 4th.”

Carmen, customer, Québec

Carmen remembers Dec 4th like it was yesterday.

She remembers her overpowering sense of loss.

Cherished possessions, gone forever. But she also remembers how she felt after Sacha Mihajlovic, Intact Insurance Adjuster, rushed over. It’s why she wrote us a letter. “He managed to completely calm me and my husband… made us feel like we were not alone.” At Intact Insurance we know that break-ins rob people of more than their possessions. Memories and sentimental attachment are also stolen. It’s why you have our word that we will make the experience of getting your customer back on track as respectful, fair and easy as possible. Because we believe insurance is not about things, it is about people.

People like Carmen and her family, and yes, you too Sacha.

)0.& t "650 t #64*/&44 Certain conditions, restrictions and exclusions may apply. Services are not available in Saskatchewan or Newfoundland. The BIP logo is a registered trademark of the Insurance Brokers Association of Canada (IBAC) used with permission. All other trademarks are properties of Intact Financial Corporation used under license. © 2010, Intact Insurance Company. All rights reserved.