Canadian Underwriter April 2011

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

A P R IL 2 0 1 1 A Business Information Group Publication #40069240

Web Branches

by DAVID gaMBRILL

Japan’s Ripple Effect

By VanESSA MARIGA

Fair Trade

By CRAIG HARRIS

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VOL. 78, NO.4, APRIL 2011 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

2011 Web Branches

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FEATURES

Canada’s 2011 federal election has temporarily postponed the enactment of regulations prohibiting banks from selling or promoting insurance on their bank Web sites. The regulation, for which brokers have lobbied over the past two years, essentially extends the existing regime that prevents banks from selling or promoting insurance in their bricksand-mortar branches.

BY DAVID GAMBRILL

FEATURES

12

42

Fair Trade

Multivariate Analysis

Alberta’s insurance brokers want a recently enacted, three-province trade agreement between B.C., Alberta and Saskatchewan to be free and fair.

The Economical is calling for more broker and public education on an increasingly individualized and sophisticated means of calculating a consumer’s premium.

BY DAVID GAMBRILL

BY CRAIG HARRIS

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Ripple Effect

Brokers Banding Together

Japan’s largest earthquake in the country’s history, a resultant tsunami and radioactive fallout from a crippled nuclear plant have created a ‘bullwhip effect’ along the global supply chain.

Marketing clusters, management groups and broker networks are all enjoying increased favour in today’s environment of consolidation and increased competition.

BY VANESSA MARIGA

BY VANESSA MARIGA

14 Commercial Insurance Exchange Can Canada learn from the LexisNexis Insurance Exchange, a new electronic exchange for quoting, placing and binding mediumsized commercial risks in the United States?

46 Unisex Insurance The Court of Justice of the European Union has found genderbased pricing is inconsistent with the basic principles of EU law, and has ordered unisex insurance as of Dec. 12, 2012.

BY SALLY GOMERY AND NOLEEN JOHN

BY CRAIG HARRIS

24 Broker Banter

54 Industry Outlook

A look in a few insurance glossaries published several decades ago shows how much the language of the ‘Modern Insurance Professional’ has changed.

At the Swiss Re 2011 Canadian Insurance Outlook 26th Annual Breakfast, the Insurance Bureau of Canada (IBC) takes a look at the early impact of Ontario’s auto reforms.

BY FRANK CAIN

BY DAVID GAMBRILL AND VANESSA MARIGA

38 Good Reputation As technology advances, so too must insurance coverage of data security and reputational risks.

BY ERIN FLETT

April 2011 Canadian Underwriter

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VOL. 78, NO.4, APRIL 2011

PROFILE

10 Gordian Web IBAC technology champion Sheldon Wasylenko is attempting to untie a complicated web of data exchange between brokers and carriers.

BY DAVID GAMBRILL

SPECIAL FOCUS

6

Editorial

8

Marketplace

56 Moves & Views 58 Gallery

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

Art Director Gerald Heydens Art Consultation Pylon.ca

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ISSN Print: 0008-5251 ISSN Digital: 1923-3426

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EDITORIAL

Insuring Against Nuclear Catastrophe

By removing liability for nuclear incidents from general homeowner and commercial insurance policies, insurers are able to concentrate and channel all of their resources into paying the claims made against nuclear operators.

David Gambrill, Editor david@canadianunderwriter.ca

6

Canadian Underwriter April 2011

Ordinary Canadians watching Japan attempt to avert a potential nuclear catastrophe might be fooled into thinking they are not covered by insurance in the event of a similar nuclear incident in Canada.

They are.

It’s just that at first blush, it seems like they aren’t. That’s because of nuclear exclusions existing in Canada’s homeowner and commercial general liability polices. But in the convoluted logic that can sometimes be insurance, those exclusions actually make it possible for insurers to cover (more) damage claims in the wake of a nuclear catastrophe.

Here’s how the regime works in Canada.

In June 1958, a nuclear insurance pool formed in Canada. This ‘pool’ or group of national insurers is intended to spread the risk of damage caused by a nuclear event over a very large financial base. The pool system allows insurers to participate at their individual risk tolerance levels; at the same time, the pooling allows insurers to amass large amounts of capital to cover nuclear risks that are extremely rare historically and therefore difficult to quantify.

Nuclear insurance pools cover the liability of nuclear operators in the event of a nuclear catastrophe. Under Canada’s Nuclear Liability Act, passed in 1976, operators must carry insurance covering nuclear incidents.

As of last year, 27 nuclear insurance pools existed across the world. Japan has a nuclear

insurance pool as well (Japan also has nuclear exclusions in its general homeowner and commercial insurance policies).

Membership in the pools is on a volunteer basis. Regional pools can draw on the capacity of other regional pools.

Canada’s pool, for example, has access to capacity drawn from insurers participating in the United Kingdom and United States nuclear insurance pools.

The Canadian pool currently has 20 members, including Lloyds, for a total liability capacity of approximately $68 million. Additional capacity will be needed if, as anticipated, the limit is increased to $650 million, but more on this later.

Where does the public fit into this? The Canadian nuclear insurance pool is responsible for compensating Canadians for damages arising from a catastrophic event related to a nuclear reactor operating in this country.

The Nuclear Liability Act outlines how Canadians make claims in the event of a nuclear incident in Canada. Basically, the Canadian government forms a nuclear claims tribunal or ‘commission,’ which would have the power to determine the payment of interim financial assistance to victims.

The operator’s nuclear liability policy would respond to the claims, and the operator’s policy would be insured with the capacity amassed by the pools.

Canadian legislation is designed to make the claims process relatively straightfor-

ward. First, it channels all responsibility for a nuclear event to the operator. This means claimants don’t have to waste their time in court proving who was truly at fault for the nuclear catastrophe. Insurers are thus able to channel all of their financial resources to cover the liability of the operator.

And this is where the homeowner and commercial general policy exclusions come in. By removing liability for nuclear incidents from general homeowner and commercial insurance policies, insurers can now concentrate and channel all of their resources into paying the claims made against nuclear operators. This makes it easier to track the insurers’ accumulation of capacity for nuclearrelated claims.

Prior to the election, legislation was in the works to increase nuclear insurers’ existing liability limit of $75 million to up to $650 million.

Also, the proposed legislation would have extended the time period for making claims from 10 years (as it now stands) to up to 30 years after a nuclear incident.

These recommendations were made in Bill C-20, which died on the order paper when Parliament was prorogued in late 2009. The recommendations were once again tabled in Bill C-15, which as of press time had made it to second reading.

The current election has scuttled the legislation once again.

Count the insurance of nuclear risk among the fallout of Canada’s bitter, partisan politics.

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MARKETPLACE

Regulation FEDS’ COMMITMENT TO NEW DEMUTUALIZATION RULES POSTPONED BY SPRING ELECTION The federal government’s proposed budget, introduced on Mar. 22, 2011, confirmed the government was working on a regulatory framework that would allow property and casualty insurance companies to demutualize.

As of press time, the budget had been defeated, triggering a May 2, 2011 election.

“The government is developing a framework for the demutualization of federally regulated property and casualty mutual insurance companies, which will provide, for companies that choose to demutualize, an orderly and transparent process and ensure that policyholders are treated fairly and equitably,” the government notes in its 2011 budget. “The government will be in a position to review applications to demutualize once regulations are in place.

“Amendments to the Insurance Companies Act, including amendments that would prevent any mutual company from demutualizing indirectly, will be introduced.”

ONTARIO RESOLVES TO TARGET AUTO INSURANCE FRAUD The Ontario government announced its intention to target auto insurance fraud in its 2011 budget.

Both Insurance Bureau of Canada (IBC) and Insurance

8

Canadian Underwriter April 2011

Brokers Association of Ontario (IBAO) applauded the announcement.

In the budget, Ontario Finance Minister Dwight Duncan said the government intends to augment the set of reforms implemented on Sept 1, 2010 with the following initiatives: • working with the industry to use the newly established Health Claims for Auto Insurance (HCAI) database to detect potentially fraudulent activity; • introducing new rules to ensure treatments are provided as invoiced; • establishing an auto insurance anti-fraud task force to determine the scope of auto insurance fraud in Ontario and make recommendations regarding detection, investigation, enforcement and consumer education; and requiring auto insurers to annually attest that their companies have established effective compliance controls to satisfy and protect the rights of policyholders and accident victims.

Canadian Market CANADIAN P&C INSURERS REPORTING IMPROVED COMBINED RATIOS IN 2010 Slightly more than half (53%) of 221 Canadian property and casualty insurers posted an improvement in their combined operating ratio, according to data posted by MSA Research.

For the entire group of

companies, the composite COR for 2010 was 99.7%.

Net income increased for 125 of the 221 companies, while it decreased for 83.

Overall, the group of insurers’ collective net income for the year was $3.5 billion.

Ontario auto continues to plague insurers’ results, MSA noted. The industry’s direct Ontario loss ratio for the year was 99.4%

P&C INSURERS’ PROFITS FLAT FROM 2009 TO 2010: OSFI DATA Federally regulated property and casualty insurers reported a net income of $2.5 billion in 2010, virtually flat when compared to 2009’s profit of $2.52 billion, according to filings with the Office of the Superintendent of Financial Institutions (OSFI).

Claims JAPAN EARTHQUAKE, TSUNAMI MODELED TO CAUSE BETWEEN $15 BILLION AND $35 BILLION: AIR Insured property losses from a Magnitude 9.0 earthquake that hit the northeast area of Japan on March 11 will likely range from $15 billion to $35 billion, reported AIR Worldwide.

The earthquake and resultant tsunami has officially killed almost 12,000 people and more than 16,000 remain missing. The earthquake was the largest recorded quake in Japan’s history.

The damage estimate does not include damages from the tsunami triggered by the

quake, nor any potential loss that may stem from nuclear loss. Efforts to repair damage to Japan’s Fukumi nuclear plant, damaged during the natural catastrophe, have raised radiation levels in areas around the plant.

Fitch Ratings released a statement stating it does not anticipate any major rating downgrades for (re)insurers resulting from the Japan quake. Primary insurers may see their catastrophe reserves “significantly depleted,” and reinsurers are “currently wellcapitalized following several profitable years and is capable of absorbing a loss of this magnitude,” Fitch said.

AIR also noted that Japan’s national seismic network remains offline, so ground motion observations are still unavailable, making the damage estimate very preliminary.

JAPAN EARTHQUAKE EXPECTED TO CAUSE PRICING TENSION IN THE GLOBAL PROPERTY MARKET: AON Japan’s recent earthquake and tsunami, combined with recent natural catastrophes in Australia and New Zealand in 2011 Q1, are likely to cause considerable pricing tension in the global property market, said Andrew Laing, property and casualty brokering team leader for Aon in the United Kingdom.

Laing spoke as a panel member during Aon’s Webinar, Japan Earthquake and Pacific Tsunami Response, on March 23.

“While there is a lot of speculation about the ulti-

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MARKETPLACE

mate size of the loss in Japan, it would seem clear the total of all international cat events in Q1 are likely to have some impact on pricing, if not across all regions, then certainly in the recently affected parts of the world,” Laing said.

Should the Asian domestic insurance market tighten, he continued, “more business will flow into the global markets and that is likely to attract a hardening of price.”

judges’ panel, which included trial judges from B.C., Ontario, Quebec and Nova Scotia. Judges on the panel all noted the number of selfrepresented litigants in Canadian courts is increasing.

Ontario Superior Court Justice David Brown noted selfrepresented litigants are estimated to be involved in 25% of the Ontario's civil cases, and in a much higher percentage [up to 50%] of

family law cases. “We can’t handle that,” Brown said.

“The system is not designed to manage that large of a volume of litigation with parties who really don’t know what they are doing.”

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INSURERS SHOULD “TRY HARDEST” TO SETTLE CASES WITH SELF-REPRESENTED LITIGANTS: JUDGE Given the additional time, effort and expense required to try cases involving selfrepresented litigants, insurers might want to give special consideration to settling these cases early, a Nova Scotia judge observed at the Canadian Defence Lawyers 7th Annual Insurance Symposium held in Toronto on March 4.

“There’s not always going to be a good experience [in cases involving self-represented litigants], no matter what you can do,” said Nova Scotia Supreme Court Trial Division Justice John D. Murphy. “The difficulties that arise can be very hard to predict. There may be a lot of ill will, frustration and expense for your [insurance] client.

"We always like to see you in court, but the cases that you may want to try hardest to settle are those where there is a self-represented litigant on the other side.”

Murphy spoke at the CDL

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April 2011 Canadian Underwriter

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PROFILE

Untangling a Spider Web of Connectivity David Gambrill Editor

Insurance Brokers Association of Canada (IBAC) technology champion Sheldon Wasylenko has found himself squarely in the middle of an industry effort to untangle a spider web characterizing broker and carrier connectivity.

With a professional background in information technology, and a long family history in the insurance brokerage business, Insurance Brokers Association of Canada (IBAC) technology champion Sheldon Wasylenko seems a natural choice to help the industry untie the Gordian knot that is broker-carrier connectivity.

Wasylenko’s mother and father bought Rayner Agencies Ltd., the family’s Saskatchewanbased general insurance brokerage, in 1971. It’s tempting to think Sheldon immediately followed the path of his brother and sister in working for the family business. But although

10 Canadian Underwriter April 2011

Wasylenko did ultimately join the family brokerage in late 2005 (he is now a general manager at Rayner Agencies), he first worked in the IT industry for more than 27 years.

Wasylenko moved into IT soon after graduating from the University of Saskatchewan with a commerce degree, specializing in information technology. In 1989, he became a consultant for Digital Equipment Corporation (now HP). He stayed at Digital Equipment for eight years, before moving on to become an account executive at Systemhouse Ltd. for three years starting in December 2001. He then did a four-year stint at EDS, before coming full circle and joining the family brokerage in 2005.

In the IT field, Wasylenko helped a variety of different business clients find service delivery solutions using new technological interfaces with the public. He did multi-disciplinary work in the retail, manufacturing, banking, government and health care sectors, including work with government agencies such as SaskTel, Sask Power and SaskHealth.

For Wasylenko, providing business solutions is his core interest in technology. “I always liked technology, but for me it’s more of the business of technology — how we employ it and use it to make our businesses work better,” he says. “I mean,

I like technology for the sake of technology — playing with the latest mobile devices like we all do. But it’s the application of those devices in our daily life and work environment that are of interest to me. When we can make or make use of technology to enhance our day-to-day life and work environment, that’s what it’s all about.”

Once he started to work for the family brokerage in 2005, Wasylenko was immediately recruited to work on the insur-

We’ve wanted to see the entire spider web of connectivity condensed down into a single pipe, which is from any BMS system to any company. ance industry’s complex problem of connecting brokerages to their many insurance company carriers. The broad aim is for a brokerage to be able to send policy transactions to multiple insurance companies through its broker management system (BMS), and have the companies complete the transaction by returning data right back into the broker’s BMS. The Centre for the Study of Insurance Operations (CSIO) was trying to help develop a single-en-

try, multiple company interface (SEMCI) solution to this problem at the very time Wasylenko’s brother encouraged Sheldon to represent Saskatchewan brokers on the CSIO board. Based on the encouragement of his brother and at the invitation of the CSIO, Wasylenko joined the CSIO board in April 2005.

Shortly thereafter, the industry abandoned the multi-million-dollar CSIO Portal Project.

“When the Portal went away in 2006, the whole industry went into what I would call a quiet state for a year,” Wasylenko observes. “I think we needed time to regroup and rethink what we really needed to do. What happened after 12-18 months was that a lot of companies started to come out with portal technology. They started to pop up like gophers on the Prairie.

“We [brokers] said we can understand the purpose behind it, and we know why they are coming up with these [individual company portals], but it’s not necessarily the best way to work in terms of workflow.

“If I’m representing half a dozen companies in my office, to train all of my staff to use six different systems fluently is a real challenge. I’d rather train them once. And I would rather train them on a system that I’m using, because that is the investment I made, and I may as well work in that system.”

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PROFILE

This very sentiment among brokers nationwide was reflected in a national survey IBAC conducted soon after the demise of the CSIO Portal Project. In April 2007, IBAC CEO Dan Danyluk approached Wasylenko to become IBAC’s ‘technology champion.’ Wasylenko agreed, and he has since been joined by fellow technology champion Brenda Rose.

IBAC’s technology committee set out in November 2008 to explore ways to improve efficiencies and test broker-carrier connectivity through a pilot project with the industry's leading BMS vendors. Phase 1 of the project involved verifying the vendors' ability to generate one standard, specific, CSIOcompliant XML Policy Change transaction from within their respective broker systems and electronically transmit it to a specified location. The project has now moved into Phase II, Wasylenko notes, which is to see if insurers can receive the policy change transaction created in Phase I in a standard, usable format. Wasylenko describes the goal of the project as a form of electronic pitchand-catch: brokers send out a policy transaction and insurers ‘catch’ it in a format recognized by their systems. Insurers then pitch back their response in a way that the brokers’ management systems can catch it.

This seems straightforward

enough. What has prevented it from happening in the insurance industry thus far?

“It’s a complex array of different systems out there,” Wasylenko says. “Large companies have grown through acquisitions not once, but many times.

They tend to inherit the legacy stuff that comes from those companies. They may have an underwriting system that looks like this — i.e. one that was built on this generation of technology — and they have a policy management system over here that may have been homegrown, or it was built at a different time, using a different platform. And they have to start tying together the underwriting and claims management policy

systems, and their HR stuff. All of that stuff needs to start coming together. You have all of that not once, but many times for different companies. And then you have the broker management systems on the front end of that, and it’s a very difficult.

“What we’ve seen happen is that we have ‘n’ different systems on the front end, you have ‘m’ different systems on the back end, and you have this ‘n’ to ‘m’ relationship. It just becomes this big spider web of connectivity. We’ve wanted to see the entire spider web condensed down to a single pipe, which is from any BMS system to any company.”

If the brokers have their way, untying the Gordian knot (spi-

der web?) would lead to a coveted once-and-done solution.

“It promotes the efficiency of our broker distribution channel when we can take any BMS that’s out there and you can send a policy from that system, whichever one it may be, and go ‘click’ and send it to a company, and that [insurance] company can say, ‘Got it,’” Wasylenko says. “They can then take it internally. They can batch it overnight. In an ideal word, they can send back a response in real time saying ‘Got it. Here’s your answer.’ And that’s all happening within the context of milliseconds in Internet time. That’s where I think I know we can go, and that’s where our project is headed.”

When it might get there is anyone’s guess. Wasylenko noted any project has three fundamental elements — investment, scope and time — and any one of those elements is determined by the other two. In other words, once the scope of the project and the nature of the participants’ investment is clear, the amount of time to complete the project will become known. In the meantime, IBAC’s technology committee is working with brokers, vendors and the insurers in incremental steps.

“We’re excited,” Wasylenko says of the work accomplished thus far. “We’re making progress and I think people are getting behind it.

They see that it’s possible.”

April 2011 Canadian Underwriter

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Stuck in the Middle Freelance Writer

Alberta’s insurance brokers insist a recently enacted, three-province free trade agreement must be not only free, but also equal.

The New West Partnership Trade Agreement (NWPTA) between Alberta, British Columbia and Saskatchewan came into effect in July 2010.

So far, there appear to be more questions than answers when it comes to key issues facing insurance brokers — particularly in Alberta — as a result of the agreement. For example, there is a sense among some Alberta brokers that competitors will gain full access to their home market, yet they will continue to face trade restrictions in their neighbouring provinces.

Formerly known as the Trade, Investment and Labour Mobility Agreement (TILMA) between Alberta and B.C., the NWPTA was expanded to include Saskatchewan as a result of discussions in 2009 with the respective provincial premiers.

The stated aim of the new agreement is to create the largest and most open interprovincial marketplace in Canada by eliminating obstacles to trade, investment and labour mobility.

How this accord will affect the insurance marketplace in two crucial areas — access to public

12 Canadian Underwriter April 2011

auto insurance and credit union regulation — is a question many brokers in Alberta are eager for governments to answer.

PUBLIC AUTO The most obvious concern is how brokers in the energy province will access government-run auto insurance systems east and west of them.

“Free trade for property and casualty distribution becomes difficult, if not impossible, for Alberta to accomplish,” says Harold Baker, executive director of the Insurance Brokers Association of Alberta. “Simply put, it is impossible for private sector business to compete with a public sector that has a monopoly on product and distribution for one or more types of insurance.”

While Alberta brokers can, and have, bought brokerages in B.C. and Saskatchewan to access the public auto insurance in these provinces, the availability and cost of an Insurance Corporation of British Columbia Autoplan or Saskatchewan General Insurance contract represent distinct trade barriers, according to the IBAA. In B.C. in particular, a moratorium by the ICBC on Autoplan contracts means that interested parties must “bid” on contracts that come up for sale, often well over $500,000.

Chuck Byrne, executive director of the Insurance Brokers Association of British Columbia, says his association supports any agreement that

Illustration by Sandy Nichols/www.threeinabox.com

Craig Harris

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increases trade between provinces and encourages economic growth. He adds the NWPTA will likely have little effect on B.C. brokers operating inside or outside the province. In terms of his provincial counterparts to the east, Byrne notes: “There are lots of Alberta brokers who own B.C. brokerages. I expect that will continue in the future.”

Ernie Gaschler, executive director of the Insurance Brokers Association of Saskatchewan, says his association “does not have a formal policy on the trade agreement at this time.”

business communities have built themselves as the government has mandated.

To make significant changes to our business environment, the government must then find a way…to ensure a competitive level playing field remains and that fee trade is not only free but equal.”

As a party to the NWPTA, the Alberta government will be under pressure to harmonize financial regulations with the other provinces as closely as possi-

CANADA’S LEADING SPECIALTY INSURER

CREDIT UNIONS Another issue troubling Alberta brokers is the potential for expanded powers of credit unions to retail insurance products. In the province, credit unions are restricted from selling insurance, either directly or through a subsidiary. That is distinct from B.C. and Saskatchewan, where credit unions are allowed to own insurance brokerages and sell or promote insurance products, under certain conditions.

“We would say that the ‘ask’ of Alberta credit unions has become louder and more aggressive as we expected it would,” notes Baker. “What Alberta credit unions want is the government to expand their business powers. One such power is the ability to sell p&c insurance products at their branches. Some credit unions are actively trying to do joint ventures with their B.C. brethren in preparation of the government changing Alberta laws.”

Indeed, B.C.-based Envision Financial is aiming to create the first interprovincial credit union by merging with Alberta’s First Calgary Credit Union. It has a partnership agreement with First West, which was created from the merger with Valley First Credit Union in January 2010.

These trends are a concern to Alberta brokers, who, according to Baker, have operated fairly under a set of regulations established by the provincial government. “All we ask is that government maintain the existing framework,” he says. “Both the credit unions and our

ble. While the agreement is currently in effect, it will not be fully implemented until July 2013. None of the provincial governments has announced any changes to financial services regulations.

“The government of Alberta sees free trade as the pathway to a powerful economic three-party community in Canada,” Baker concludes. “We hope it is not going to be done with a ‘damn the consequences’ approach.”

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Commercial

Owen, general manager of the LexisNexis Insurance Exchange. “But we are the first of its kind to actually go live.”

The exchange provides a central and collaborative technology platform through which data and documents can be shared between brokers and insurance companies. It is a Web-based exchange allowing brokers to submit insurance applications to multiple carriers in a one-step, real-time process. A “software utility” provided

by LexisNexis is available to all participating brokers and their staff to submit business to contracted markets.

Many of the goals of the exchange are similar to recent real-time initiatives in the Canadian property and casualty market — elimination of multiple data entry, ease of doing business and greater efficiency.

“I think the real driver behind this is the huge margin pressure on brokers,” says Ken Crerar, president of the CIAB. “Yes, the technology has come of age so we can do this, but brokers do not have the margins or the tolerance to deal with the inefficiencies and noise in the traditional insurance process.”

That “noise” comes in the form of commercial insurance processing, in which brokers typically send multiple emails and attachments to several individual companies, thus beginning a cumbersome back-and-forth process.

“The biggest problem with this process,” Owen notes, “is that hardly any of the communication is about the risk itself. We want to take

Opportunity

Craig Harris Freelance Writer

An electronic exchange for quoting, placing and binding medium-sized commercial risks is up and running in the United States. Does the LexisNexis Insurance Exchange hold any lessons for Canada?

After many unsuccessful attempts at creating an open technology marketplace for business transactions, one electronic platform has actually gone live — the LexisNexis Insurance Exchange.

As of October 2010, 16 insurance brokerages in the United States have used the exchange to submit prospective business in real-time to multiple markets, get quotes and bind business via a Web platform developed by LexisNexis.The latter, a provider of information and business solutions to a variety of industries, teamed up with the Council of Insurance Agents & Brokers (CIAB) to launch the placement platform.

“Given the history of these electronic exchanges in the insurance world, many people thought we were crazy to even try it,” says Clyde

14 Canadian Underwriter April 2011

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30

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the chatter out of the business and focus on the actual risk profile and the best insurance solutions in the marketplace.”

He adds that as many as 60-70% of commercial submissions are never even quoted by carriers.

CORE PRINCIPLES The prime benefits of the exchange for brokers are greater access to carriers, improved market knowledge of detailed insurer risk appetites, pre-filled and validated submission data from broker systems and fewer errors. Many big-name brokerages in the United States are among the first set of “early adopters,” including Brown & Brown Inc., EPIC Insurance Brokers, Sterling & Sterling Inc. and Roach Howard Smith & Barton.

Owen says other brokers will be brought onto the exchange “in a controlled fashion” throughout 2011. Crerar says at least 30 brokerage firms are waiting to join the platform. Brokerages do not need to belong to the CIAB to join the exchange, but only members who pay fees will access full services.

Neither the CIAB nor LexisNexis would disclose subscriber fee structures.

For insurance companies and wholesalers, advantages of the LexisNexis Insurance Exchange include the ability to get more accurate submissions, write more closely targeted business and gain underwriting and loss experience.

Owen says any carrier or wholesaler can access the exchange, but companies that join as paying members get more information and analytics geared to risk placement and market trends. Currently, about 100 carriers are using the exchange, he says.

“Right from the start, we have emphasized openness and neutrality,” Crerar says. “I think one of the problems with previous attempts to do this is that they tried to own or corner the marketplace.

We want to leverage the marketplace.”

In late 2010, the Insurance Exchange Trust, an advisory board composed of brokers, carriers and wholesalers, was created to monitor and ensure the platform adheres to its principles of fairness, neutrality and protection of data.

For Crerar, the idea of the exchange is

16 Canadian Underwriter April 2011

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to replicate the relationships currently existing in the marketplace and to bring the parties closer together in a Webbased platform. In addition, the process of collaboration is intended to be much more efficient.

“We are not trying to commoditize insurance, quite the opposite,” Crerar says. “If anything, there will be more customization between brokers and carriers on specific risks. Instead of just looking at price, the exchange will allow all parties to look at products, features and terms to get the best solution for the client.”

Owen notes the broker and carrier sides of the industry really represent “two sides of the fence. Each has built its own systems and processes and these work fairly well, but they don’t work well together.”

We are not trying to commoditize the market, quite the opposite. Instead of just looking at price, the exchange will allow all parties to look at products, features and terms to get the best solution for the client.

Crerar agrees. “We have operability on both sides of this industry. By that, I mean we have our broker management systems, and the carriers have their policy management and underwriting systems,” he says. “What we don’t have is interoperability.”

The LexisNexis Insurance Exchange represents an attempt to address one key aspect of that interoperability — the placement or “upload” function. In particular, it takes that process from an email world and puts it into a Webbased electronic medium. Brokers can create electronic submission folders simultaneously to multiple markets. The exchange does not, however, synchronize the real-time download of data from carrier underwriting system to broker management system, a thorny problem in the side of the insurance in-

dustry in the United States and Canada.

“We recognize insurance carriers in the U.S. all have underwriting processes and systems, but these are in various stages on a company-by-company basis,” Owens says. “Some companies can use the platform as is; others will need integration to exchange forms and data with their brokers.”

The core of the exchange is a standardized and structured insurance database, according to Owen. For most lines of business, this will begin with the ACORD Standards data definitions.

However, the exchange will extend these standard data definitions to accommodate the needs of participants.

In terms of ownership and control of information, the LexisNexis Insurance Exchange believes the data contributed by participants belongs to those participants. The role of LexisNexis itself is to secure and maintain privacy of all data. To that end, any analytics and market information will be aggregated, but individual company data will not be shared.

APPLICATION TO CANADA? Could the exchange apply to brokers and carriers in Canada? Crerar sees no reason why participants from other countries could not use the exchange, “although we have not had those discussions yet.” For non-subscribing participants in the exchange, all brokers technically require is a contracted relationship with select carriers.

In the meantime, the remainder of 2011 stands as a crucial test period for the LexisNexis Insurance Exchange, according to Crerar.While the exchange is initially focused on mid-sized commercial accounts, one of the least automated aspects in the industry, it will expand over time to encompass all lines of property and casualty insurance, as well as life, health, employee benefits and reinsurance.

“For me as a broker, I don’t really need to know how the technology works at a micro level,” Crerar notes. “What we are talking about is a business process change. And when you look at it that way, the possibilities really open up.”

STRAIGHT-THROUGH COMMERCIAL LINES DATA EXCHANGE

“We are now uploading and downloading commercial business with The Insurance Company of Prince Edward Island (ICPEI). The exciting thing is that when we receive the commercial quote back from ICPEI, it is all in a standard electronic format, along with all of the related policy information.

We don’t have to re-input any data; everything is there and can be opened right up in Policy Works.”

Donna McNeill, CIP, Business Insurance Customer Service, Cooke Insurance

THE ICPEI AND POLICY WORKS STRAIGHT-THROUGH SOLUTION enables Donna and her colleagues at Cooke Insurance to exchange commercial lines data electronically with ICPEI directly from Policy Works. This means no re-inputting data or signing into portals.

From beginning to end, Donna does everything from within her Policy Works desktop application including uploading and downloading commercial quotes with ease.

SGI CANADA is just one of nine insurers Policy Works has partnered with to provide real-time solutions for commercial-lines. Policy Works customers are currently exchanging data with Intact, Gore Mutual, Aviva, RSA, Economical, Missisquoi, L’Unique, SGI CANADA, Coachman, The Insurance Company of Prince Edward Island, AXA and L’Union Canadienne. Each and every Policy Works integration uses CSIO coded data.

At Policy Works Inc., our vision from the beginning has been unchanging: link brokers and insurers through technology to better serve insureds.

Everything we do is driven by this one goal. And that includes commercial-lines data exchange.

The concept is simple, really. Give commercial brokers the tools to better manage their books of business and then connect them with their markets. The end result is an efficient and effective independent broker distribution network.

For more information visit policyworks.com

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Japan’s Ripple Effect Associate Editor

The largest earthquake in Japan’s history, the devastation wrought by the subsequent tsunami and the spectre of nuclear radiation has reverberated throughout the global supply chain.

Japan experienced its largest earthquake in history on Mar. 11, 2011, a Magnitude 9.0 quake that occurred off the eastern coast of Honshu, Japan. The quake triggered a 1-in-1,000-year tsunami event responsible for wiping out entire cities and ports. The quake and tsunami, which have officially killed 12,000 people thus far, damaged several nuclear reactor facilities, heightening the risk of a potential nuclear crisis and radiation contamination.

Economic loss estimates hover around $300 billion dollars. Preliminary insured loss estimates are about 10% of the economic losses.The impact of this catastrophe on the global supply chain — and the insured losses associated with disruptions to that chain — remain uncertain.

18 Canadian Underwriter April 2011

THE CATASTROPHE(S) IN JAPAN: EFFECTS ON THE GLOBAL SUPPLY CHAIN The media is filled with stories of breaks in the global supply chain arising from the March 11 events in Japan. For example, Apple’s newly launched iPad2 has two main components manufactured in the affected area of Japan. Japanese car manufacturers are already feeling the pinch, with parts supply being squeezed. And the seafood industry is left scrambling because of fears that fish from this area are no longer safe due to radiation.The list goes on. It’s hard to find an industry that is not affected.

“Japan is the third-largest economy in the world, and this event is all-encompassing in terms of disruption,” says Ken Levine, FM Global’s chief agent in Canada. “Not only was there physical damage to manufacturing facilities, there have been rolling blackouts, the safety and well-being of the population and the workforce is still not clear, and damage to the infrastructure needed to transport goods is quite significant. This will impact supply chains considerably in the months and years ahead.”

Experts compare the Honshu earthquake to

Illustration by Sandy Nichols/www.threeinabox.com

Vanessa Mariga

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two recent events of similar scale, Hurricane Katrina and 9/11.

“If I was to look to Katrina and 9/11, this is much broader in terms of the fact that Japan is the third-largest economy in the world, geographically it’s relatively small and the industrial activity is therefore much more concentrated,” says Levine. “Barring the catastrophic loss of human life in both Katrina and 9/11, Katrina was very local: it did not affect a large swath of American industry or commerce.

“9/11, likewise, was a very localized event. Although it affected the business environment primarily, we were able to work around that.

“Japan differs, in that it touches a wide swath of industry. It’s compounded by the fact that we have the trifecta of catastrophes, with the ongoing threat of nuclear contamination exacerbating the problem.”

Just as what happened in the example of Hurricane Katrina, in Japan there is a huge issue around re-mobilizing a workforce and getting plants that may not have sustained much damage up and running again.

“With Katrina you couldn’t get people in because they had to be inoculated initially,” says Bill Rowland, manager of XL’s cargo book of business. “They had to have the proper amount of water, food and gasoline.The wildcard in Japan is the radiation.”

Just how long will this event take to unfold, and how will it unfold? There is no clear-cut answer, experts say.

“The loss itself will continue to unfold in multiple waves, meaning you have had the initial panic; you had some very specific examples of folks in the automotive and technology industries that had issues with supply right away,” says Gary Lynch, Marsh’s supply chain risk practice leader. “In the second wave, as purchasers react or over-react, that in and of itself creates another challenge.”

During the panic phase, companies tried very quickly to repurpose products, use alternate materials, find new suppliers or coil in all of the stock sitting out in the channel at the time. Suppliers able to meet the demand may find

20 Canadian Underwriter April 2011

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themselves scrambling to meet a spike in demand, fuelled by new purchasers who had been relying on Japanese suppliers. This in turn, causes the supplier to increase its demand for materials upstream, setting off a ripple effect. Lynch calls this the ‘bullwhip effect.’

Suppliers able to meet an increased demand may find themselves scrambling to meet a spike in demand fuelled by new purchasers who had been relying on Japanese suppliers.

This in turn causes the supplier to increase its demand for materials upstream, setting off a ripple effect. This is called the ‘bullwhip effect.’

THE BULLWHIP EFFECT “You look at your forecast for the amount of goods you’ll have to supply,” says Lynch. “As that forecast becomes inaccurate, the behaviours on the back end then tend to respond upstream. Suppliers are trying to prepare for their other suppliers’ requests.

And they are trying to anticipate their suppliers’ requests. So it reverberates, and you have more of an oscillation as you look upstream.” He adds that due to the recession, many manufacturers are much leaner, running from 85% to 125% capacity. This amplifies the need to ramp up production to meet increased demand.

“The losses initially are going to be a challenge, but then the reaction and the way that we’ve altered our supply chains on the fly could potentially create another wave of exposure that may dwarf what we initially see,” Lynch says.

Avoiding this type of overreaction involves foresight and careful consideration prior to an event. Many companies study the direct links in their supply chains, but they need to conduct multitiered analyses, experts say.

Art Ferland, director of customized services for Zurich Global Corporate Canada, says the logistics of a supply chain has to be assessed to the point when an underwriter — or a risk manager managing the company’s supply — feels the company can do little more to make the situation better. Applying risk profiling to identify the need for risk management improvements or a risk transfer product when the exposure cannot be mitigated by the company can help to provide clarity.

The absence or short supply of bigticket items is not the only thing that can cripple an organization. Ferland illustrates this by pointing to a hospital’s operation. “When we talk about a hospital’s key elements, many people think immediately of the MRI machines or the x-ray machines,” he says. “But think about latex gloves: Those five-cent gloves are crucial to conducting surgeries and medical procedures. But if the single supplier disappears, then the hospital can’t function. A small item inconsequential to the overall cost of the finished product can cause a shut-down.”

The growing popularity of just-intime production has compounded these risks, he adds. “It’s always important not to put all of your eggs into one basket,” says Rowland. “It’s important to constantly re-check and review how your logistics chain is set up and to find new options. Something might be more expensive when sourced from a different area, but it might be worthwhile to go that route to ensure that your customers are supplied.”

He points to one of his clients, an auto manufacturer, who recently pushed to make sure a significant number of its

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parts can be used in various models.

Therefore, if something happens, they can shift quickly to a different supplier.

“Most of the organizations’ products, about 70 to 80%, are supported by external supply chains,” says Lynch.

“When we map our supply chains, we usually look back one tier, But behind that [tier] are hundreds, if not thousands, [of other tiers] contributing to the delivery of that value. But for some reason, we lock in on that first tier and assume everything will be all right if it’s not directly affected. We don’t live in that world anymore. The infrastructure and source of materials needs to be factored in to risk management strategies.”

AVAILABLE INSURANCE COVERAGE If a Canadian company has experienced a break in its supply chain because one of its suppliers relied on a Japanese organization that can no longer deliver, what kind of insurance coverage is available?

Most likely the company can recover losses under contingent business interruption or contingent loss, said Henry Daar, executive vice president with Aon’s Risk Solutions Property Practice, during a Webinar.

“If you have a supplier that can no longer supply or meet your demand, you’ll have to find a new supplier,” he said. “If you had been paying the Japan-

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Typically business interruption loss is covered only if direct physical damage is done to an insured property. Recently, a coverage has been launched that is triggered by both physical and non-physical occurences. This differs from coverage for trade disruption, which requires named perils for un-named suppliers. ese supplier $2 for each component, and your new supplier charges $3, that extra cost of $1 may well be recovered as a contingent extra expense. Extra expenses are those incurred to keep your business running as normally as possible. Even if you had to send an employee to South Korea to investigate a new supplier, but didn’t choose that supplier, you can likely still recover the cost of the trip.”

Typically, business interruption loss is covered only if direct physical damage is done to an insured property, Ferland says. But Zurich recently launched an all risk coverage for named suppliers that is triggered by all physical and non-physical occurences.This differs from cover-

age for trade disruption, because trade disruption requires named perils for un-named suppliers.

Nuclear contamination adds an extra wrinkle, though, since it is generally carved out of coverage. “If nuclear contamination is the sole reason that a customer can’t receive your goods, then it may be no coverage exists,” said Daar.

“However, and this is a big ‘however,’ just because a nuclear loss is an occurrence later in the chain of events, the nuclear exclusion might not totally override the extra expenses and income losses that result from otherwise covered events. It’s going to be a fact-by-fact determination on the nuclear exclusion.”

One thing is clear: events like the Mar. 11 trifecta of disasters tend to spur a surge in demand for these types of coverages. But the impact on the global market remains unclear. Sources predict a hardening in catastrophe exposures and an uptick in demand for contingent loss and interruption coverages.

“We believe this will be a marketchanging event,” says Levine. “On the strength of its magnitude, coming on the heels of the New Zealand earthquake and Australian floods, we can expect companies that had their balance sheets affected will be doing something more deliberate in terms of capacity and pricing.”

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The

Modern Insurance Professional

Strangely, many contemporary insurance terms do not appear in the seminal insurance and business glossaries published three decades ago.

Frank Cain

Michael Palermo & Associates Insurance Ltd.

A glossary of insurance terms can take up any number of pages. There are terms to suit the generality of the insurance business and there are terms that relate specifically to a particular type of insurance. Put these together, and you get a host of words, phrases and explanations that are commonplace in the vocabulary of today’s insurance industry professional.

Of course, some terms used in insurance today share a place in the lexicon of non-insurance businesses. “Impact,” “presence,” “going forward” can all be considered such terms doing double duty.

One of the more common glossaries for insurance is the one authored and published in 1961

by Walter Jennings, who retired as a claims advisor in 1983 after 32 years with the Hartford Insurance Company. For more general business

24 Canadian Underwriter April 2011

word usage, we can turn to John L. Locke, a professor of linguistics at Lehman College, New York, and the author of Eavesdropping.The works of both authors appeared at a time when words had a common ancestry — they evolved from simple, ordinary language. Since then, however, business language has transformed into a neology of nouns-as-verbs and portmanteaus in which the extravagance of using two words together to make one word has become dictionary-worthy.

In trying to compare how today’s business language measures up against the jargon of the past, I decided to try to find some analogies in Jenning’s Insurance Glossary as a start. I must admit I am having some problems. Try as I may, I am unable to apply a commonality with the past and present. I relate the following, by way of example.

GLOSSARY OF INSURANCE TERMS The contemporary usage of ‘track’ (to understand a concept or explanation) does not appear in Jennings’s glossary of terms, nor does ‘leverage,’ ‘brand’ or ‘rightsizing’ (redundancy program). I find no reference to ‘contingency planning’ or ‘management visibility’ in Jennings’s work. I’ve

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Early insurance glossaries appeared at a time when words had a common ancestry — they evolved from simple, ordinary language. Since then, however, business language has transformed into a neology of nouns-as-verbs and portmanteaus in which the extravagance of using two words together to make one word has become dictionary-worthy.

checked twice and I do not see ‘ideate’ (finding ideas) or ‘value-added.’The term ‘stakeholder’ is nowhere to be found.

Under the letter ‘B’ in Jennings’s glossary, I checked for the contemporary term ‘Box of hamsters’ (workplace or situation lacking vision). Nothing there.

‘Empowerment’ and ‘exit strategy’ do not appear to have been considered. So I guess it stands to reason that a ‘paradigm shift,’ which is commonly interpreted as finding a new world, occurred following the publication of Jennings’ work.

The closest I could come to ‘Generation X’ is general average (an expression in marine lines). I would have thought today’s expression ‘on the runway’ was a sure bet to be found under Aviation.

Not a chance. ‘Spin up’ (often used in the sense of creating) and ‘face-time’ are similarly losers, as is ‘siloed’ (completely separated with no communication between).

‘Solutionary’ and ‘secret sauce’ were never meant to be included under ‘S.’ ‘Truthiness’ would have been a great item for a counterpart of Fraud. Couldn’t see it.

‘Seamless’ and ‘open kimono’ (to be open in discussions, in case one wondered) might have been mistaken for ‘tailor-shop’ talk. ‘Think outside the box’ is not there and understandably: it might have been interpreted as ‘Should I refrain from having more cereal’?

‘Information Superhighway’ is missing. ‘Mashup,’ ‘modularity’ and ‘netiquette’ suffer the same fate. I thought for sure that a ‘content management system’ (also known as a CMS) would have been included, but I’m still looking. ‘Aggregator,’ ‘mindshare’ and ‘mis-

26 Canadian Underwriter April 2011

sion critical’ missed the boat (Uh oh, it’s happening to me, too).‘Offshoring,’‘Eat their own dog food’ (use what you are selling to others) and ‘client-centric’ would have been thought-provoking candidates, but no votes!

‘Core competency’ isn’t there. I couldn’t see ‘co-opetition’ (yes, that is spelled correctly) or ‘circle back.’ I also couldn’t believe that ‘business process out-

Under the letter ‘B’ in Jennings’s glossary, I checked for the contemporary term ‘Box of hamsters’ (workplace or situation lacking vision).

Nothing there. sourcing’ was omitted. I thought some pages from the books were missing.

Under the ‘R,’ I’m still searching for ‘Red Zone,’‘reverse fulfillment’ and ‘rich media.’ I will let you know when I find them.

In my zeal to overcome the inconsistencies in the usage of words over the years, I put myself to the test. Using the terms of my current work environment, and applying terms today that reach into the farthest corners of business, here is what I can tell you about the modern insurance professional (with apologies to the late comedian George Carlin):

I’M A MODERN INSURANCE PROFESSIONAL I’m a productive protagonist, practising antagonist, underwriting play-child and a client-friendly chit-chatter.

I’m a double-portalled multi-tasker

and drink from a flask with no questions asked.

A downloading, upper-crusted, baked on high heat flabbergaster.

I can upgrade and off-put, interact and quick connect.

A multi-witted answer man, emailed and photocopied paper wrangler.

An uploaded rating structure, outsourced and formatted.

I’m lowbrow and high-handed, evenly paced and recklessly candid.

I can outpace, I’m unphased, and an automated functioning workaholic.

I can interpersonalize, digitalize, categorize and fraternalize without disguise while eating fries.

A policymaker, judgment-staker, and a prolific premium taker in up-sell phase.

I’m a high density, low intensity and over-exposed accommodator.

I can intersperse, be diverse and functionally converse without flourish.

A fax-mad, multicopied, scanned and ready, biorhythmic data feeding, computer-processed message grinder.

I’m an underwriting, over-rating, coverage inflating, broker-gating, twofisted desk grating, coffee slating, morning waiting pencil gnasher.

A put-on-hold, call-back-later phone system hater.

I’m a screaming, screening, booting up, logging off, CONTROL-ALT-DELETE fanatic and mid-market tool.

I’m a harmonized, specialized, dotcom cyber-head, spaced out and ready to crash.

I’m a speed-reading, keyboard dealing, freaking memo reeker, charged up and downplayed.

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Web Branches Amendments to the federal Bank Act would prohibit banks from selling or promoting insurance on their bank Web sites. This is an extension of the same regulatory regime that applies to banks’ bricks-and-mortar branches. The new online prohibition is an election away from being enacted, representing a victory for consumer protection, brokers say.

BY DAVID GAMBRILL

Canadian Underwriter Underwriter March April 2011 28 Canadian 2011

It

is ironic that bitter political partisanship triggering Canada’s current federal election has postponed regulations promoting a common principle supported by all political parties — that is, banks should not be allowed to promote or sell unauthorized insurance on their banking Web sites.

The federal government published proposed new regulations to this effect in the Canada Gazette on Feb. 12, 2011. Interested parties had 30 days to comment on the proposed new regulations. Just before press time, it seemed everything was proceeding according to plan and a longstanding issue for Canadian brokers would finally be addressed. But then a funny thing happened on the way to Parliament.

Already several years in the making, the new regulations seem to be on hold once again as Canada elects a new government for the fourth time since 2004.

April 2011 Canadian Underwriter 29

COVER STORY

Web Branches For most brokers, the timing isn’t critical. Seen from a broad perspective, brokers have been urging a ban on promotion of insurance on banks’ Web pages ever since that fateful day in February 2009, when Canada’s federal solvency regulator ruled banks were allowed to sell and promote insurance on their bank Web pages.

Brokers respectfully disagreed with OSFI’s interpretation of Canada’s Bank Act. They say the fundamental premise of Canada’s legislative ban against banks selling or promoting insurance out of their physical branches is that consumers are vulnerable at the point of lending credit. They believe the same logic applies to bank Web sites, which they see as de facto bank branches in today’s technological age.

Canadian Finance Minister Jim Flaherty agreed with the brokers. Now, almost two years of consultations later, regulations are a mere election away from being enacted. So really, after spending what’s another four-week delay?

Purpose of the Prohibition Section 416 (2) of Canada’s Bank Act says: “A bank shall not act in Canada as agent for any person in the placing of insurance and shall not lease or provide space in any branch in Canada of the bank to any person engaged in the placing of insurance.”

Brokers know by rote the public policy reason for this prohibition. It relates to the fact that banks can offer loans or credit to consumers. In theory, at least, this gives banks the power to influence customers to buy the bank’s insurance, because consumers will fear the denial of credit if they don’t. Thus, the legislation promotes consumer protection and fair competition between the banks and insurers, by removing the possibility that banks might use their unique credit-lending powers to gain an unfair advantage over consumers and competitors.

“When the consumer is buying a mortgage and he sits there and the banker says, ‘What about your insurance?’ the first thing [the consumer] thinks is, ‘I’d better buy it here. I want to make sure I 30 Canadian Underwriter April 2011

get the mortgage,’” says Basil Crosbie of Crosbie Job Insurance Ltd. “I think that’s where there’s concern.”

The credit-granting situation is indeed “super-charged,” agrees Dan Danyluk, executive director of the Insurance Brokers Association of Canada (IBAC). “It’s one where the balance of power is distorted. It’s an area in which the lights are way too bright for people to have to deal with that. The banks, as we’ve always said, have every right to own an

When the consumer is buying a mortgage and he sits there and the banker says, ‘What about your insurance?’ the first thing the consumer thinks is, ‘I’d better buy it here. I want to make sure I get the mortgage.’ I think that’s where there’s concern. insurance company and do. They can throw all of their resources behind that.

What they can’t do is take advantage of their power position as one of the few financial institutions in the country [that can offer credit to consumers]…

The expectation was that there needed to be regulations to make sure that everybody played nicely in the sandbox.”

Web sites and “Branches” First passed in 1871, the current version of the Bank Act most recently received Parliamentary Assent in 1991. A few things have changed since then, most notably the proliferation of the Internet and its use as a means of commerce. Brokers see links posted on banking Web sites, referring customers to bank-owned insurance operations. Thus the fundamental question arises: if the Bank Act makes no reference to Web pages, are they functionally equivalent to bank “branches”?

“In our view, the Web site has become a de facto branch,” says Crosbie. “More and more Canadians are doing all of their banking on the Web.” Pamela Gilroy-Rajotte, president of the Insurance Brokers Association of Manitoba, advances the logic a step further, linking Crosbie’s observation to the spirit and intent of the regulations. “We believe that credit-granting institutions should not be selling insurance at the point of granting credit,” she says. “And essentially if someone is on a bank Web site conducting their banking business, that’s exactly what’s happening.”

For Richard Pindral, president of the Insurance Brokers Association of B.C., when banks refer consumers to their own insurance operations on their Web sites, they are blurring the line between their core banking activities and insurance activities. These activities are supposed to be “separate and distinct” under the legislation. “I think the line was a little bit blurred, or the distinction was blurred, when banks had their Web sites with links that went to the insurance operation,” Pindral said. “In my mind, it was not a separate and distinct situation.”

Brokers thus went to the federal regulator to answer their central concern: Were banks allowed to do online what they were not allowed to do in their physical branches?

OSFI Ruling, Political Fallout OSFI made a ruling on the issue that markedly parted company with the broker’s understanding of the Bank Act. In a February 2009 ruling, OSFI said “the definition of ‘branch’ in the Bank

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COVER STORY

Web Branches Act, both in English and French, refers to physical premises,” citing “numerous provisions in that statute that specifically distinguish a Web site from being a branch.” And then, the bombshell conclusion: “[F]or purposes of the regulations, a bank Web site is not a bank branch,” OSFI ruled. “As a result, a bank may, on its Web site, promote in Canada any insurance policies or any insurance companies, agents or brokers, subject to the conditions that the regulations impose on such promotion outside a branch.”

Disagreeing vigorously with OSFI’s conclusion, brokers engaged in about 14-15 months of political activity to change the regulations. Their efforts quickly bore fruit. The opening salvo came when Brossard-LaPrairie MP Alexandra Mendes introduced a private members bill, Bill C-457, into the House of Commons in March 2010.

In some ways, the private member’s bill went beyond the narrower issue of banks selling insurance on Web sites.

The text of the bill in first reading said simply: “No bank shall, in Canada, promote an insurance company, agent or broker.” It went further to add: “No bank shall provide a telecommunications device that is primarily for the use of customers in Canada and that links a customer with an insurance company, agent or broker by any means, including the Internet.”

The government took action of its own in October 2009, when Finance Minister Jim Flaherty sent letters to the Canadian Bankers Association, IBAC and the Trust Companies’ Association of Canada. In his letter, Flaherty announced his intention to introduce new legislation that would effectively reverse OSFI’s interpretation. “As you know, the business of insurance is not permitted in a bank branch, other than for some limited activities, as laid out in the Bank Act and supporting regulations,” Flaherty said in his letter to Danyluk. “The Government of Canada intends, at the earliest opportunity, to adopt specific policy measures by adapting our policy to reflect technological advances. This means that Web 32 Canadian Underwriter April 2011

sites will become subject to the same insurance business regime that currently applies to branches.”

After soliciting comments on the proposal, the government came back with a framework for its proposed regime in May 2010. The new regulations, which are not officially registered, were introduced in the Canada Gazette on Feb. 12, 2011. The amended regulations begin by defining a “bank Web page” as follows:

It would definitely be our wish or our hope that any rules that apply to the banks would also extend to the provincial credit unions as well. I think that was the intent.

That’s how we would like to see things work out. “a Web page that a bank uses to carry on business in Canada, including any information provided by the bank that is accessible on a telecommunications device.

It does not include a Web page that is only accessible by employees or agents of the bank.” The amended regulations go on to clarify that “a Web page is not a bank Web page by reason only that the Web page provides access to a bank Web page or promotes the business of a bank in Canada.” In other words, the Web page has to be owned or controlled by the bank.

Essentially, the amended definition takes care of a concern expressed by some brokers during the consultation period that mobile devices might be perceived in a different way than Web pages. “A telecommunication device that is going into a Web site is really still just going into a Web site,” as Danyluk puts it. “So it’s not like it’s just two different worlds or two different things. I think that they have picked that up, and rightly so, to make sure that there is clarity.”

But the real meat of the prohibition is contained in s. 7.1(1) of the amended regulations. First of all, promotion of insurance “may take place on a bank Web page if it relates to an insurance company, agent or broker that deals only in authorized types of insurance.”

Examples of “authorized insurance” include insurance related to charges for lost credit or charge cards, mortgage insurance, coverage of liabilities arising from car rental contracts and/or travel insurance, to name a few.

However, the amended regulations add, “a bank shall not, on a bank Web page, provide access to a Web page — directly or through another Web page — through which there is promotion of: (a) an insurance company, agent or broker that does not deal only in authorized types of insurance; or (b) an insurance policy of an insurance company, agent or broker, or a service in respect of such a policy, that is not of only an authorized type of insurance.”

Brokers across the country appear satisfied the wording of the regulatory amendments addresses their concerns.

“Our view is that the minister’s intent is what the suggested regulations reflect,” Danyluk said. “And that is to replicate online what has been the longstanding situation in bank branches — that credit-granting institutions ought not to be selling insurance or promoting insurance or marketing insurance at the point of granting credit.”

“As far as the way the regulation is written now, we support it,” added Randy Carroll, president of the Insurance Brokers Association of Ontario (IBAO). “I think there was a lot of

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COVER STORY

Web Branches thought put into the direction of the change, with a keen eye on making sure that consumers were protected.”

First Banks, Next Credit Unions?

Insurance brokers know well that credit unions have the same power as banks to grant credit to consumers. But whereas the federal Bank Act applies to banks, credit unions are governed by provincial legislation, and so the federal regulations do not apply to the credit unions. For some provincial broker associations, particularly in jurisdictions where the credit union presence is strong, the next step is to make sure the provincial legislation is aligned with the regulatory amendments in the Bank Act. Heather Pottle, president of the Insurance Brokers Association of Saskatchewan, says her association has heard complaints from member brokers about the promotion of insurance by banks and credit unions, including on their Web sites. When asked if credit unions should follow the same (amended) regulations as banks related to Web sites, Pottle replied: “All credit granting institutions should be required to follow these same rules.” To ensure this, Pottle said the association “told MLAs who attended our annual reception in March [2011] that we would like the provincial government to implement the same rules for credit unions at the first possible opportunity.”

Gilroy-Rajotte says Manitoba brokers share the concerns of their neighbouring brokers. “Locally, we are seeing the local credit unions doing this [promoting insurance on their Web sites] as well,” she says. “So that’s a concern to us, because there is no difference [between a credit union and a bank]. Credit unions are still a credit-granting institutions and consumers are vulnerable at the point the credit is granted.”

Gilroy-Rajotte notes provincial legislation governing credit unions varies from province to province. She says IBAM intends to raise the issue with Manitoba’s Credit Union Central in the hopes of working out a cooperative solution. In the meantime, the association is studying the various provincial 34 Canadian Underwriter April 2011

legislative regimes across the country.

The intention is to hammer out a regulatory solution for Manitoba that would be acceptable to all stakeholders, including the province’s credit unions.

Marc Leger, president of the Insurance Brokers Association of New Brunswick, says similar discussions are happening in his province. “Here in New Brunswick, our Credit Union Act is provincially regulated, but when it was created, it was done so to mir-

In our view, the Web site has become a de facto branch. More and more Canadians are doing all of their banking on the Web. ror the national Bank Act,” he said. “So it would definitely be our wish or our hope that any rules that apply to the banks would also extend to the provincial credit unions as well. I think that was the intent. That’s how we would like to see things work out.”

But it’s not automatic, he observed.

The Credit Union Act in the province does not immediately reflect any changes made to the Bank Act. But whereas some provincial broker associations are discussing the need to ensure the amended Bank Act regulations

apply also to credit unions, other provincial broker associations seem less affected by the issue of credit unions selling insurance on their Web sites. This might be due either to stricter provincial regulations on the activities of credit unions, as in Newfoundland, or the comparatively more benign activities of credit unions in provinces such as Ontario.

“Right now, it’s not an issue for us, because in Newfoundland, the credit unions are not allowed to sell property and casualty insurance at all,” said Crosbie. “They’re allowed to sell their life products and credit protection insurance, but they’re not allowed to sell P&C….The fact that they aren’t allowed to sell P&C at all means they’re not allowed to promote it on their Web site.”

In Ontario, credit unions do not appear to have shown the same aggressive approach to promoting their products on Web sites as banks.

“We haven’t seen the credit unions in Ontario using the Internet in the same way as banks,” Carroll said. “I think they [credit unions] have been more respective of the spirit and the intent of the law. In this province, the last time we went out and surveyed the credit unions, over 60% of the credit unions offer some type of group, home and auto program to their members and they do that through brokers, so there is a huge relationship there. Consumers that belong to credit unions are very well served in relation to property and casualty insurance. Maybe that’s one of the reasons why they haven’t taken it upon themselves to go to the same extreme as the banks have.”

Enforcement As of press time, the amended Bank Act regulations are not enacted and remain in limbo. As these words are put to page, no regulations are in place that would restrict banks from promoting or selling insurance on banking Web sites.

At the same time, the proposed new regulations were not erased when Canada’s government fell on a non-confidence motion on Mar. 25, 2011. Unlike proposed legislation, which would need

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COVER STORY

Web Branches

We believe that credit-granting institutions should not be selling insurance at the point of granting credit. And essentially if someone is on a bank Web site conducting their banking business, that’s exactly what’s happening.

to be re-introduced by a new government, regulations remain on the books waiting for the government of the day to pass them. Given the near-universal support for the amendments expressed to the brokers by MPs representing all political parties, brokers hope the amended regulations will be rubber-stamped by the newly elected government.

“From our lobby efforts, when you go back and take a look at all parties, we didn’t have a single party that was opposed to our position,” says Carroll, literally hours before the government fell. “Ms. Mendez put a bill through from the Liberal side. Mr. Flaherty on the finance side supported us, and consumers, by putting through regulatory changes that would amend the Bank Act. Our conversations with the NDP were very supportive. The conversations with the Bloc were supportive. So if an election is called [the election will be held on May 2, 2011], at the very worst it puts us into a holding pattern until a government is re-elected.”

36 Canadian Underwriter April 2011

Once the amended regulations are passed, brokers will be watching carefully to see how OSFI regulates them. “You have to see that there is enforcement, and I think that OSFI has done a good job on other issues, and I do believe they will do a good job on this issue,” said Danyluk.

“This is fundamental. This is part of the license to operate.”

Pottle says monitoring Web sites is a very different proposition than monitoring local, physical bank branches.

“Web sites are very public, so it should be easy to monitor and enforce these regulations,” she says. “Web sites are not localized to an area. I checked online and could not find evidence of banks marketing unauthorized insurance products.”

Brokers remain concerned about how existing regulations related to banks’ physical branches are enforced. “I know brokers across the country would say they are concerned about the enforcement of the regulations that are currently in the Bank Act,” said Leger. “There

doesn’t seem to be a policing body out there that’s willing to monitor and enforce this as strongly and as thoroughly as we would like to see. We’re not seeing any reports of large fines levied.”

Pindral, in fact, would like enforcement to be incorporated into the Bank Act legislation. “Maybe put some penalties in there,” he said. “I would think without that, you will always have this grey area in which the banks are doing something that in our minds could be challenged.”

And such a “grey area” is what started the whole Web site issue to begin with, Pindral points out. “When we dealt with OSFI in trying to get the Web site issue clarified [in 2009], OSFI’s interpretation of those [existing] rules and regulations wasn’t the same as our interpretation,” Pindral notes. “I think we are always going to have that. That’s the reason why the banks will keep on attempting to see if there is room for manouevring, to have their insurance operations and their bank operations somehow under a joint umbrella.”

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Data security is a problem for companies across the globe. Any business using the Internet to transmit personal information, credit card or debit payments and other sensitive information is exposed to risk. Businesses, large or small, face similar risk exposures: the loss of proprietary and confidential information through mishandling, hacking or stolen equipment requires companies to be prepared for customer resentment, damage to their reputation and possible lawsuits. Lawsuits related to data security issues are costly for any company’s bottom line.

As the ease of information sharing continues to develop at warp speed, so too does the chance of a security breach. Cyber liability risks, typically not covered under property or general liability policies, require their own unique policies, tailored to each company’s vulnerabilities.

The insurance industry has addressed the need for coverage for privacy breaches, network secu-

38 Canadian Underwriter April 2011

rity breaches, and technology errors and omissions, but thus far these policies (cyber, privacy, NetAdvantage and Digitech) have yet to develop sufficient coverage for the loss of a company’s biggest asset — its reputation. A digital information loss, compliance or product failures, corporate slander and numerous other unwanted events can have a disastrous impact on a corporation’s image, reputation and bottom line, requiring the company to manage the crisis quickly and efficiently.

As Berkshire Hathaway Inc. CEO Warren Buffett once said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” A company’s reputation should be considered one of its most valuable, yet most vulnerable assets. In a study The Economist conducted in 2005, 84% of the executives surveyed said their company’s reputational risks had increased significantly over the past five years.1 Dr. Leslie Games-Ross, in her book, Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation, wrote: “Three facts are indisputable: no reputation is bulletproof; no company can afford to be reputation-blind; and no suit of armor is impenetrable to completely and indefinitely protect reputation.” Companies must

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be vigilant about protecting their reputation and stakeholder trust, so that when a crisis does occur, an action plan is in place to handle repercussions and minimize losses.

In recent years, the media and general public have become increasingly unforgiving of the errors and misfortunes of corporations and celebrities in all areas of commerce — in many instances, with just cause. However, the negative effects of the public’s indignation can be

A more responsive reputational risk insurance policy is needed to provide coverage in the event of an adverse media blitz that could damage the policyholder’s ability to exploit their products and brands. traumatic. As evidenced by what happened to golfer Tiger Woods,Toyota, BP and other scandals, when a reputation comes under fire it can often be irreparably damaged or take years to be repaired. In 2009, for instance, Tiger Woods had several endorsement contracts pulled after news of his extramarital affairs.Toyota had to recall 270,000 vehicles in Canada to address faulty pedals, resulting in the halt of production at seven factories. And after an oilrig explosion killed 11 workers and dumped almost 5 million barrels of oil into the Gulf of Mexico, BP saw its company share price plunge from almost $60 per share before the explosion in April 2010 to nearly $30 per share in June 2010.

These unexpected situations no doubt resulted in other, untold financial consequences that, while discussed less often, also have a negative effect on employees, brokers, underwriters, CEOs, lawyers and other stakeholders.

General insurance policies do not cover reputational harm, although more specialized policies protecting a company against reputational harm are available and can be attached to an umbrella

40 Canadian Underwriter April 2011

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policy by way of endorsement. Traditional business interruption or product liability recall policies do not provide first party revenue protection following a loss. In light of this gap, a more responsive reputational risk insurance policy is needed to provide coverage in the event of an adverse media blitz that could damage the policyholder’s ability to exploit their products and brands.

Businesses today run on technology. Emails sent every second disclose confidential company information around the world. Online retailers rely on middlemen (payment processors) for all credit card transactions. Social insurance numbers, no longer stored in a locked file room, are stored digitally on a network that may or may not be safeguarded. Loss of sensitive and private information caused by misplaced laptops, stolen USB cards and other portable devices is becoming an everyday ordeal.

Privacy Commissioner of Canada Jennifer Stoddart concluded in an October 2010 report that Google, when it developed its Street View feature, violated Canada’s Personal Information and Protection and Electronic Documents Act (PIPEDA) by retrieving e-mail addresses, passwords, usernames and other personal information from unsecured wireless networks in Canadian neighbourhoods. Google informed the privacy commissioner that its lawyers were reviewing policies and procedures with the company’s engineers to make sure such breaches would not happen again.

Compounding the potential damage of identity theft related to data breaches, Canada has yet to implement notification laws, leaving consumers unable to protect themselves. Hopefully it’s only a matter of time before Canada adopts similar laws to the ones in place in the United States. Given the rapid development of technology and the related emergence of the relentless cyber hacker, some insurance companies have been quick to develop more up-to-date privacy policies that protect businesses from lawsuits arising out of privacy breaches.

Computer attacks, operational errors, network outages and data breaches can completely paralyse an organization by bringing down the information infrastructure and communication lines.This breakdown can damage relations with clients, suppliers and regulators. Also, it can seriously erode financial performance, causing investor concern. Standard property, liability or crime policies typically do not cover damage to or loss of intangible assets (data and systems), so there can be a significant gap in coverage. This exposure is made worse by the increasing corporate dependency on technology. Similar to the new privacy policies, well-timed data and network security insurance policies have been developed to address hacker attacks and security issues.

The role of insurance is changing rapidly. Although many technology and privacy (cyber) policies in the industry do not currently address a company’s

Given the rapid development of technology and the related emergence of the relentless cyber hacker, some insurance companies have been quick to develop more up-to-date privacy policies that protect businesses from lawsuits arising out of privacy breaches. financial loss due to a security breach or privacy loss, a select few are introducing important data and network security policies and privacy policies designed to fill this void. Equally important is the advent of reputational risk insurance designed to protect the very valuable, but somewhat intangible, corporate reputation. With improved coverage, corporations can react faster to adverse issues, be more effective in protecting the organization and secure the trust and confidence of clients while at the same time securing the bottom line.

1 Economist Intelligence Unit 2005.

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Sophisticated Analysis Editor

The Economical Mutual Insurance Company wants to improve understanding of sophisticated methods used to determine more individualized premium rates.

As insurance companies become increasingly sophisticated in their ability to calculate premium rates that more accurately and precisely reflect the risks they are underwriting, it will be important for insurers to educate brokers and consumers on the new techniques they are using.

The Economical Mutual Insurance Company sat down with Canadian Underwriter in March 2010 to discuss the importance of educating brokers and consumers about increasingly individualized — and more accurate — methods for pricing risk.

The issue is top of mind for The Economical, which has reworked its existing auto insurance product, updating the way it is designed and priced. The updated auto product will be launched May 15, pending regulatory approval.

Key to the product update is an increasingly common, ‘multivariate’ approach to pricing risk. The approach essentially moves away from a more generalized, class-based approach to

42 Canadian Underwriter April 2011

writing risk, focusing instead on the interplay between risk characteristics, thus allowing insurers to derive premium on a more individualized basis.

WHAT IS ‘MULTIVARIATE ANALYSIS?’ To some, it may seem like a person has to hold an advanced degree in Mathematics and Statistical Analysis to understand how a person’s premium is derived. And referring to terms like ‘multivariate analysis’ probably doesn’t help to dispel that notion. Simply put, the technique allows insurance underwriters and actuaries to analyze millions of different combinations of ‘variables’ — which in this context would be the consumer’s risk characteristics (age, years licensed, age of the car, etc.) — to come up with a precise, accurate premium for that particular consumer.

Brokers have expressed concern about transparency related to the rapidly evolving sophistication of the analysis. This concern was raised at an insurance company CEO plenary discussion at the Insurance Brokers Association of Ontario (IBAO) 90th Annual Convention held in Niagara Falls in October 2010.

The brokers’ concerns might be summarized as follows. A broker sends his or her client’s risk characteristics to an insurance carrier.These vari-

Illustration by Sandy Nichols/www.threeinabox.com

David Gambrill

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ables are then input into the carrier’s statistical package, or ‘black box,’ which spits out a premium number. How is the process of obtaining this final premium amount then explained to the consumer?

Or to put it another way: if the underwriting technique for analysis gets too complex, if brokers don’t understand what’s in the complex rating structure, then how will they be able to explain the premium price to a client?

The transparency issue is further complicated by competition between carriers. Private insurance companies have a legitimate business interest in keeping the exact formulae used to determine premium prices confidential — especially if that confers an advantage over competitors.

There is a place where all of the parties can meet, according to The Economical, and it is important to explain all that can be explained to brokers and consumers. Multivariate analysis is not

Page 29

necessarily “new” — major carriers are all using it, and The Economical has been using the method for seven or eight years already — but as the technique is increasingly employed and refined, brokers and companies that cannot keep up will be at a competitive disadvantage.

“It’s been in the industry for awhile and a couple of our leading competitors are quite good in this space, so we need to keep up, otherwise our brokers are at a competitive disadvantage,” says Katherine Mabe, president and CEO of The Economical. “We need to make sure they have the most competitive pricing capabilities on the street. We want our brokers to have the very best tools. If we were to say, ‘We aren’t going to go this way because it’s difficult to understand,’ then we leave [brokers] at a disadvantage. So what we have to do is give brokers as much education as we can to explain generally how it works.”

INCREASED SOPHISTICATION This might be easier said than done.

The techniques employed can refine pricing to a dizzying degree. The ‘Old World’ of looking at variables featured somewhat clunky, cumbersome ‘classes’ of people. A consumer might have seen his or her premium rise or fall simply because of the claims experience of his or her class. For example, a young man’s premium might go down simply as a result of a 25th birthday, which would take them out of the riskier 18-24 category of drivers. It’s not that the customer’s driving got better, it was simply that the class of drivers to which he belonged had a better claims experience.

Multivariate analysis allows underwriters to look at the different effects of multiple factors combined together. And it allows underwriters to account for when the importance of one variable may be amplified, exaggerated or rendered insignificant when analyzed in

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combination with others. “So it literally becomes millions of combinations of price points instead of 20,” as Mabe notes.

“The sheer number of possible combinations in today’s sophisticated rating structure compared to prior ones, it does make it more difficult and more challenging for brokers to understand, and therefore the end consumer as well,” says Scott Lennox, vice president of pricing and research and development for The Economical. “I think that’s where they [brokers] struggle.You can’t necessarily communicate that level of complexity because there are just far

too many combinations. As Kathy mentions, we can communicate key messages, the key drivers of information [i.e. the risk characteristics]. But there is always going to be a gap between what we communicate and the millions of possible combinations that gives it that little bit of uncertainty. I think that’s where the education and the communication become so critical with this.”

The other thing, too, is that brokers will become more used to it and therefore more comfortable with it, Lennox adds. Practice makes perfect, so to speak.

Understanding will gradually displace uncertainty as the technique becomes more widespread in its use. “It’s something that is a little bit different, and I think that until [brokers] really work with it and understand it a little bit better from that perspective, there is going to be a little uncertainty that they have. But it does allow us to be able to compete directly with one of the

44 Canadian Underwriter April 2011

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brokers’ major concerns, which is the direct market.”

Insurers generally note the increasing sophistication of their underwriting techniques often benefits consumers, because the pricing more adequately reflects the actual risk.This means drivers who are good risks are not subsidizing drivers who are poor risks. The challenge will be in how to explain this to consumers.

Lennox gives one example of how sophistication might actually reduce price for a consumer. “As an example, we rate by age as well as by years licensed,” he says. “If you look at the analysis on the one-variable-at-a-time method, we call that a one-way analysis, your conclusion would be that younger operators have a worse experience than older operators, and so they should be paying maybe 20% more, for example.

“You could also do the analysis based on the number of years [the consumer was] licensed, and your analysis would show those who don’t have a lot of experience are maybe 20% worse than those who have longer experience.

“A young, inexperienced operator could be paying 1.2 times 1.2 [based on age and years licensed, respectively], so they would be paying double.

Multivariate analysis essentially moves away from a more generalized, class-based approach to writing risk, focusing instead on the interplay between risk characteristics.

The key is, what is driving the worse experience of that group? Is that they don’t have a lot of experience, or is it age-related? You want to make sure you are charging the right thing for the right reason.”

In the above example, there is an overlap — in statistical terms, a ‘correlation’ — between age and years licensed. For example, the older the driver’s age, the more years he or she will

likely be licensed. Using the multivariate technique, an insurer can account for this overlap when determining the premium price. “So an individual that’s 50 years old who immediately gets their license doesn’t pay 20% more [because of the zero years licensed] because the 20% [premium increase] for the inexperienced operator maybe mostly driven by younger operators,” as Lennox explains. “So that’s a way that you remove the double-counting, in a way.”

To the average consumer, these methods likely appear to be very technical, and the different combinations of vari-

ables are bewildering, even to insurers.

In some situations, a broker or insurer couldn’t possibly begin to describe all of the factors and formulae that go into the generation of a consumer’s premium.

Still, insurers do have a role to play in explaining the method to brokers and consumers. Transparency in this context, Mabe says, is about telling the customer which variables or combinations of variables made the most difference in price.

“You can say, ‘Here is the price,’” says Mabe. “‘Now it’s a little bit more than last year.We can’t tell you the whole formula that goes into it, but here are the three things that you can do to improve this price.’

“It could be a variety of different things. It could be everything from the driving record has changed, the vehicle is a year older and that takes the premium down, or it’s a new vehicle.

But if you can get at that, it can help consumers.”

WHERE INDUSTRY LEADERS MEET

2 11 S e p t e m b e r 2 5 - 2 7 , 2 0 1 1 - B a y s h o r e We s t i n , Va n c o u v e r

Register Now at www.niccanada.com The NICC is Canada’s pre-eminent insurance conference attended by senior executives of insurers, brokers, reinsurers, risk managers, regulators and industry associations.

Together with our senior advisory committee of industry CEO’s, we are once again making the NICC a can't miss industry leadership event.

Social events include a pre-conference golf tournament, a high-quality spousal program, an opening night cocktail reception, a gala dinner and exciting post-dinner entertainment featuring one of the world's top comedians, Rich Little.

Allan Gregg – Conference M.C. Sessions and speakers include: t Tiff Macklem, Senior Deputy Governor of the Bank of Canada t Modernization of the Regulatory Regime – Moderator: Robert McDowell (Fasken).

Panelists: Bernard Dupont (OSFI), Jim Falle (Aviva), Carolyn Rogers (FICOM BC); Stuart Carruthers (Stikeman) t Global Reinsurance Panel – Moderator: Peter Zaffino (Guy Carpenter).

Panelists: Henry Klecan (SCOR), Marty Becker (Alterra Capital), Costas Miranthis (Partner Re) t Global Economic Outlook – Josh Feinman, Chief Economist, Deutsche Asset Management t The Great California ShakeOut – EQ Lessons for Canada – Keith Porter (University of Colorado) t Canadian EQ – Preparing for the Big One – Moderator: Paul Kovacs (ICLR).

Panelists: Garry Rogers (NRCan), Alister Campbell (Zurich), Ken McCrea (Wawanesa) t Regulators and Insurers: Bridging the Divide – Don Forgeron (IBC) t Managing Business Transformation – Moderated by Greg Maciag (ACORD).

Panelists: Robert Merizzi (Aviva), Jamie Bisker (IBM), John Mullen (CapGemeni) t Fighting Personal Lines Fraud – Moderator: Jon Schubert (ICBC).

Panelists: Rick Dubin (IBC), Carol Jardine (TD Insurance), Joseph Wehrle (NICB) t Subrogation Success – Moderated by Chris Giffin (Giffin Koerth). Panelists: Mark Bailey (MEA Forensic), Joe Turcotte (FM Global), John Vamplew (Whitelaw Twining) t Developments in Commercial Litigation – Laura Cooper (Fasken), Jim Sullivan (Blakes) For more information visit www.niccanada.com or contact Laura Viau at laura.viau@msaresearch.com.

NICC sessions are accredited by RIBO. Please visit www.niccanada.com for details

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Gender Neutral The Court of Justice of the European Union has found gender-based pricing is inconsistent with the basic principles of EU law, and has ordered unisex insurance as of Dec. 12, 2012. The same discriminatory insurance practices may have a more tenuous hold in Canadian law as well.

Sally Gomery Partner, Ogilvy Renault (Ottawa)

Noleen John

Legal Consultant, Insurance Team, Norton Rose LLP

The Court of Justice of the European Union (ECJ) announced on Mar. 1, 2011 that genderbased pricing is inconsistent with the basic principles of EU law and that it will not be allowed as of Dec. 21, 2012. The ruling in the Test Achats case will have a fundamental impact on both the insurance and pensions industry in the United Kingdom, where differential pricing between men and women based on actuarial factors is widespread, especially in relation to life, motor and health policies. It also raises questions about any potential effects such a decision may have in Canada.

THE ECJ’S DECISION The Transition The ECJ’s decision calls for a transitional period of up to Dec. 21, 2012, at which time all insurance pricing must become unisex. When the EU’s Gender Directive was introduced in 2008, it required the use of the carve-out to be reviewed five years after implementation. Basically, the

46 Canadian Underwriter April 2011

ECJ used this window of review to allow insurers time to adjust to unisex pricing. The insurance market had expressed concern before the judgment that the ECJ would ban gender-based pricing with immediate effect. It is of some comfort the court has allowed a transitional period of slightly shorter than two years within which insurers must adapt their policies and practices.

The Uncertainty The judgment is quite short, and unfortunately it does leave some questions unanswered. For example, it is not actually clear what effect the removal of the carve-out from Dec. 21, 2012 will have on existing contracts. Contracts entered into before the Gender Directive came into effect should generally be safe from the ruling’s effect.

For U.K. contracts entered into after Apr. 6, 2008 and before Dec. 21, 2012, it seems likely they will be exempt from the new unisex requirements (provided they have complied with

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the requirements of the carve-out — for example, differences in premiums or benefits are proportionate to published actuarial and statistical data that do not relate to pregnancy or childbirth).

However, it is possible to argue the judgment could catch some existing contracts, in situations in which new benefits are purchased after the end of the transitional period, for example, and make them subject to the unisex requirement. Unless the ECJ makes a further statement, the effect on existing contracts may not be known until the U.K. government specifies how it will change the Equality Act 2010 to reflect the judgment.

It may be that motor insurers are slightly better placed than life and health insurers to carry on using more risk-based assessments, since they have potentially more factors and data on which to base their assessment. They will, however, face the same problem as life and health insurers in terms of not being able to control the mix of male/female business they get. They will therefore need to be confident in their assumptions. Some gender-targeted business models will need to make changes to the way they operate.

They also need to be clear the rating factors they are using are not a proxy for gender.

Insurers have in a sense been left holding the baby: the new rules should not apply to reinsurance, although reinsurers may want some comfort that direct insurers are complying with the new rules. Also, Solvency II will presumably require a realistic, risk-based assessment of insurance liabilities. This could involve using available statistical data on gender, thus leaving the insurer with a real-world view of what is going on — a view upon which it might have to rely for pricing. Unfortunately for consumers, it seems that they may end up bearing the cost of this.

Finally, it is worth noting that a proposed EU Equality Directive is looming on the horizon. This would prohibit discrimination on grounds of religion or belief, disability, age or sexual orientation. As originally drafted, this proposed

48 Canadian Underwriter April 2011

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directive contained a carve-out for insurance similar to what has just been found to be invalid. It currently contains a statement that in relation to age and disability, where their use is a determining factor in the assessment of risk based on relevant actuarial principles, statistical data or medical knowledge, it shall not be deemed to constitute discrimination for the purposes of the directive. However, following the logic of the Test Achats case, pricing based upon these characteristics could also be considered to be incompatible with EU law. Therefore, it is possible this carve-out could be removed.

COULD THIS HAPPEN IN CANADA? The Supreme Court of Canada ruled in Zurich Insurance v. Ontario (Human Rights Commission) in 1992 that higher automobile insurance premiums for single male drivers under the age of 25 were dis-

Coupled with the ECJ ruling in the Test Achats case, caselaw suggests it may be difficult for the Canadian insurance industry to prove there are no reasonable and practical alternatives to setting premiums based on discriminatory grounds. criminatory under the Ontario Human Rights Code. But this scheme was permitted because the code allows discriminatory practices if there are “reasonable and bona fide grounds” for doing them.1 A majority on the court held a discriminatory practice is reasonable in the context of insurance so long as it is based on a sound and accepted insurance practice and there is no practical alternative. Setting higher premiums for young, single males was sound because it achieved the legitimate business goal of aligning price with risk.There was no practical alternative, because actuarially reliable data that would allow the insurance industry to set premiums based on non-discriminatory criteria were not available.

Two judges on the Supreme Court dissented in the Zurich case. In their view, an insurer must not only prove a statistical correlation between a particular group and higher risk, but a causal connection. Also, the dissenting judges found the insurance industry should not be able to rely on its inaction in collecting data, nor should it be able to rely upon its contention that premiums have always been set based on criteria we now recognize as discriminatory under human rights legislation.

On challenges to discriminatory insurance practices, Canadian court rulings since Zurich have largely followed the approach of the dissenting judges.

For example, an individual was refused life insurance in a 1999 case because his wife was HIV-positive. The British Columbia Human Rights Tribunal held this amounted to discrimination on the basis of marital status.2 The tribunal rejected the insurer’s contention that this discrimination fell under the exception in Zurich. Essentially, the tribunal found the insurer had not provided any evidence that it would be impossible to assess the risk involved using non-discriminatory criteria. It was not enough for the insurer to show, as it had in Zurich, that its current practice was widespread in the Canadian industry and that no data was currently available to assess risk otherwise.

Coupled with the ECJ ruling in the Test Achats case, this caselaw suggests it may be difficult for the Canadian insurance industry to prove there are no reasonable and practical alternatives to setting premiums based on discriminatory grounds. Given that the industry in Europe and various jurisdictions in the United States do not — or will not, as of December 2012 — permit the use of sex as a rating variable, Canadian courts may look askance at attempts by Canadian insurers to claim that they cannot do likewise.

1 Zurich Insurance Co. v. Ontario (Human Rights Commission), [1992] 2 S.C.R. 321.

2 J. v. London Life Insurance Co., [1999] B.C.J.R.T.D. No. 35. See also: Battlefords and District Co-operative Ltd. v. Gibbs, [1996] 3 S.C.R. 566

Joint Forces Associate Editor

Management groups and broker networks are becoming more popular in response to the current environment of consolidation and increased competition.

A long-rumoured spate of merger and acquisition activity finally seems to be gaining traction in the Canadian marketplace. Big brokerage firms and insurers are clearly on the acquisition trail, and many point out it’s becoming tougher for independent firms to remain truly independent.

How to avoid getting swept away in the merger mania? Marketing clusters, management groups and broker networks are by no means a new phenomenon, but some suggest these types of organizations are gaining importance in the current environment.

A marketing cluster or management group is essentially the banding together of several smaller firms — typically in the same general geographic region, but with enough space between them so that they’re not in direct competition with one another.The firms form an entity in which they pool their respective premium volumes and share costs for infrastructure. Although they leverage shared premium volume to negotiate with carriers, the firms still operate relatively independently of one another, each with its own principal and management team.

Broker networks, on the other hand, differ from management groups or marketing clusters. In a broker network, the firms operate entirely independent of one another. Membership within the network is tightly controlled, with members signing confidentiality agreements.

Once in, member firms meet on a regular basis and share crucial information — financial per-

50 Canadian Underwriter April 2011

formance records, for example — in order to help one another develop best practices.The networks are not meant to operate in place of broker associations, but serve as a compliment.

Membership tends to be much smaller. And whereas associations serve as advocates in the political realm, the focus of the network is entirely inward, on improving the operational side of the business.

MANAGEMENT GROUPS “Clusters or management groups have been around for a number of years and it is a good way for smaller operations to manage through difficult times in order to maintain a good representation of market and choice,” said Randy Carroll, CEO of the Insurance Brokers Association of Ontario. “We have not really seen an increase of late, but we had a slight increase in the number of mergers and acquisitions. For brokerages restricted to few market choices or that are looking to gain access to markets without selling, it’s an option worth considering.”

Rick Elliott, principal of Elliott Nixon Insurance Brokers Inc. in Blyth, Ontario, says being a member of Huron Insurance Managers Group (HIMG) has allowed his firm to retain a focus on offering personalized client service and building

Illustration by Sandy Nichols/www.threeinabox.com

Vanessa Mariga

solid relationships that he feels are typical of smaller firms, but with the benefits of being a part of a larger organization. HIMG is comprised of five independent firms in southwestern Ontario (the other four are in Brussels, Goderich, Seaforth and Linwood). In a small business, employees frequently have to be jacks-of-all trades, he says.

But when resources are shared across the group or cluster, that eases the dayto-day operational burden, allowing employees to specialize or really focus on an area of the market.

“We have support from the other offices [and that has] certainly enhanced the job for the customer service representatives,” he says. “So they always have other people they can call on if their management team is away.”

When the group first formed, each office had individual and separate broker management systems (BMSs). The overhead of sustaining their own individual BMS grew increasingly onerous for each of the firms; quite a bit of redundancy existed between the businesses.When HIMG came into fruition, they developed a minimum standard for workstations and consolidated their BMS and servers. Essentially, the five firms have a digital pipeline between one another that allows instant communication and information transfer, as well as online meetings.

“If someone is working on a piece of business and they’re not sure which market to use or who to talk to, we can direct them to the best market,” Elliott says. “That speeds the quote back to the client and it gets bound.The management group allows us to lean on one another.”

Costs for BMS or server infrastructure are spread evenly across the firms. But each firm is required to cover the costs of their own internal infrastructure such as workstations, printers, etc.

Coordinating these types of investments requires a balanced approach, Elliott observes. Some firms are larger than others in the group. It may be tempting for them to push the costs of upgrades onto the smaller ones, eventually wearing them out financially.

“We try not to be on the bleeding

52 Canadian Underwriter April 2011

edge of technology,” Elliott says. “We work through these decisions together.

This is not a melting pot. Each member has to realize that what seems appealing for an individual firm may not be best for the group. And ultimately, what’s best for the group is best for the individual firms.”

Overall, Elliott said his brokerage is still the same small brokerage, just within a larger group. “But now we have the time to put better business on the books, which is beneficial for the carriers, and makes for positive long-

Management groups allow participant brokers to lean on one another. Costs for BMS or server infrastructure are spread evenly across firms. term relationships with both the insureds and the insurers,” he said. Also, he added, members of the group have outpaced carriers’ premium growth.

NETWORKS Networks, on the other hand, allow brokerages to operate entirely independently of one another. But as friendly competitors, they work together to develop practices that they believe will help them compete against larger conglomerates.

In Canada, these ‘self-help’ groups have come and gone in various incarnations. The Canadian Broker Network (CBN), comprised of 12 independent

commercial firms from across Canada, has been in existence for roughly a decade.

Bruce Rabik, chief operating officer at Rogers Insurance in Calgary, says the group has evolved to be extremely tightknit, with trust being the cornerstone of its existence.

“We share complete financial statements with one another, because that’s what really facilitates deep discussion about why one firm is doing so well on an expense line, or in a segment of the market,” he says.

Members are tightly screened. Each firm has an opportunity to veto a new member. Confidentiality agreements are signed, and the group tries to keep membership numbers relatively small and spread across a vast geographic area.

Daryn McLean, principal of MooreMcLean Corporate Insurance, is also a member of CBN. “There’s a real trust issue that we’re not going to compete for staff and business,” McLean says. “I think it’s very important from an independent standpoint. We have very strict criteria. We don’t want to add brokers for the sake of adding them.”

Both McLean and Rabik’s firms have joined an international network, Intersure.

Intersure is a North American-based network of independent brokers with just under 40 members in Canada, the United States and Mexico. It is based on the same basic principles of trust and the sharing of knowledge, but members of the network also have reciprocal agreements; thus, if a Calgarybased brokerage has a Canadian energy company travelling to Mexico, they can bind coverage through the local office.

“Intersure extends our firm’s reach across North America,” Rabik says. “It provides us with a very powerful competitive advantage.”

For the most part, U.S. brokers face challenges similar to their Canadian counterparts, he says. “So it’s been an incredible learning experience from them, even for the little things, like including the number of years an employee has been in the industry on the name plate of their office,” Rabik. “That sort of thing is small, but can make a big difference with clients.”

TM

See you at Relay...

By James Daw, Insurance Bureau of Canada

First he lost his father to cancer at 10. Then, five years ago, his mother was diagnosed.

Crawford’s Campaign for the Cure

“I could see the fear in her eyes and the memories flooding back,� says John Sharoun, chief executive of Crawford & Co. Then a wave of worry and grief struck at work, too. “It seemed we were getting news from around the country of employees, their mothers, fathers, brothers, sisters, friends and loved ones being touched. At a very young age, one of our VPs lost his life to cancer.� “So to honour their memory – to celebrate their lives, their struggles – we do what we can to bring an end to this dreadful disease.�

His national insurance adjusting company threw its support behind the Women in Insurance Cancer

Go all of the way when you support cancer research.

Ensurco Quest for the Cure

That’s how teammates from Ensurco Insurance Group Inc. approached their first candlelit Relay For Life last summer.

For them, there would be: s .O NAPS OR EARLY EXITS FROM %STHER 3HINER 3TADIUM IN .ORTH 9ORK EVEN THOUGH IT S ALLOWED h7E stayed up ALL night,� recalls the brokerage’s president, Raymond Faraone. s .O HALF HEARTED FUND RAISING (IS TEAM CAJOLED nearly $17,000 in pledges. “We were third overall (for a single team) in fundraising.� s .O lRST TIME mUKES h.OW THAT WE HAVE A CLEARER idea as to what to expect, we’ll be better prepared this year. Our goal for 2011 is to exceed last year’s donations!�

Crusade, before and after it began promoting industry participation in the Canadian Cancer Society’s Relay For Life.

At last count, the more than 1,400 Crawford employees had raised about $440,000, much of that through the 20 teams that have walked and run in the relay each of the last two years. “My first year I was overwhelmed,� Sharoun recalls of Relay For Life. “The survivors’ lap is powerful and emotional.� “You can’t help but be filled with admiration. Any time, talking with the survivors is a remarkable journey. It brings back a flood of emotions for all of those you’ve lost.�

The team members knew every cent they raised would go to cancer research. That’s because when WICC formed in 1996, it was on the basis that 100% of the funds donated through WICC campaigns would directly support cancer research projects. .OW 7)## IS RALLYING TO MAKE THE INDUSTRY S THIRD sponsorship of Relay For Life the best yet. “It’s uplifting to think that, for every dollar we raise, we’re getting that much closer to a cure,� says Faraone.

He found that participants reflect and connect DURING THE WELL ORGANIZED EVENT “The lighting of the candles was a very emotional experience for our entire team,� he recalls. “It’s truly wonderful to see humans embracing each other, working together toward a common goal.�

Relay Facts: all you need to know to be part of Relay this summer! s 4HE #ANADIAN #ANCER 3OCIETY S .ORTH 9ORK Relay For Life at Esther Shiner Stadium is now one of the biggest industry events in the GTA. s 4HIS YEAR IT TAKES PLACE ON &RIDAY *UNE 3AVE THE DATE s RFL celebrates cancer survival and commemorates lost FRIENDS AND FAMILY MEMBERS FROM PM AM s 3TAYING OVERNIGHT IS NOT MANDATORY BUT IT IS A UNIQUE PART OF the event. s 7)## IS ENCOURAGING TEAMS FROM THE INSURANCE INDUSTRY TO raise $440,000.

s 4EAMS CAN BE MADE UP OF COLLEAGUES FAMILY FRIENDS

clients (it’s ok to have teams that are larger or smaller than 10). s )T S ALL ONLINE 'O TO www.wicc.ca/relayforlife to set up a team or join an existing one. s 7HEN SETTING UP A TEAM PICK @7)## UNDER @#OMPANY TO ensure your team funds count for the industry campaign. s 2EGISTRATION COSTS PER PERSON s %ACH TEAM MEMBER IS ASKED TO RAISE A MINIMUM OF in pledges.

WICC at Relay For Life For more information and to register your team(s) go to wicc.ca

Design compliments of

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Swiss Re 2011 Canadian Insurance Outlook 26th Annual Breakfast

David Gambrill Editor

Vanessa Mariga Associate Editor

10:45 PM

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ke Over the o m S

Horizon After Ontario reformed its auto insurance product in 2010, IBC sees the industry's accident benefits loss ratio decrease, but liability loss ratios are on the rise. On the global reinsurance side, Swiss Re notes record earthquake losses in 2011 Q1.

Insurance Bureau of Canada (IBC) and Swiss Re combined to observe some recent trends in the Canadian P&C and global reinsurance markets at the Swiss Re 2011 Canadian Insurance Outlook 26th Annual Breakfast meeting held in Toronto on Mar. 31.

IBC reported Ontario’s auto insurance reforms, introduced on Sept. 1, 2010, have brought some relief on the accident benefits side. But rising auto liability loss ratios are a concern.

And Swiss Re suggested the Mar. 12, 2011 Japan earthquake and resultant tsunami may have the effect of hardening global rates.

ONTARIO AUTO Increased loss ratios on the auto liability side and other signs suggest the reforms have not entirely eliminated abuses in the auto accident benefits side of the business.

Gregor Robinson, IBC’s senior vice president and chief economist, made the observation while answering the question ‘Are the Ontario auto reforms working?’

54 Canadian Underwriter April 2011

Ontario auto insurance premiums represent about 25% of the total premium collected by Canadian property and casualty insurers across the country. After worsening financial results in Ontario auto over the past three years (IBC estimated Ontario auto losses totaled $1.7 billion in 2010), Ontario implemented auto insurance reforms on Sept. 1, 2010 to help bring insurers’ claims costs under control.

It is still early in the reforms, but already insurers are starting to see worrying trends, Robinson said at the breakfast. First among them, the Ontario auto loss ratio went up from 97% in 2009 Q4 to 107% in 2010 Q4.

“On first glance, the results don’t look good, with a 10% increase over the last quarter of 2009 for the total Ontario auto loss ratio,” said Robinson. “But this result is deceiving, because it hides a significant decline in the no fault injury benefit loss ratio over the period. Although [the Ontario auto personal accident loss ratio is] still bad at 155%, the decline provides evidence that the reforms are bringing savings.”

By way of comparison, the Ontario auto personal accident ratio in 2009 Q4 was 172%.

But deteriorating liability results have somewhat offset the gains made on the accident benefits side, Robinson noted. “More worrying is the news that, throughout the year, liability results were eroding dramatically in Ontario,” he said. “This raises the possibility that a new threat may be emerging on the tort side of the auto product.”

The Ontario auto loss ratio for liability increased from 64% in 2009 Q4 to 90% in 2010 Q4, IBC data show.

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Robinson also highlighted one trend in the data that suggests reforms haven’t fully curbed abuses in the accident benefits system.

Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), stated after the reforms were implemented that 55% of all minor injuries would have to fit within the new Minor Injury Guideline (MIG) introduced in the reforms for insurers to make a profit.

IBC stats show a provincial average of 69% of minor injuries receiving treatment are within the MIG. But there is a wide discrepancy between the MIG numbers for claimants outside the Greater Toronto Area (where 81.5% of minor injury claimants are within the MIG) and within the GTA, where only 57.3% of minor injury claimants are within the MIG. “A much higher proportion of minor injury claimants outside the GTA is getting guideline treatment, suggesting that the reforms have not eliminated the excesses and abuses of no-fault benefits in the GTA,” Robinson said.

Robinson noted insurers with preferred health care provider networks have a much higher percentage (80.8%) of claimants falling within the MIG guidelines.

MARKET AFTERSHOCK OF GLOBAL NATCATS The first quarter of 2011 has brought the highest earthquake losses in the history of the global property and casualty and global reinsurance industries, said Christian Mumenthaler, Swiss Re’s chief marketing officer, reinsurance.

Mumenthaler offered a retrospective of catastrophic events from 1970 to the present day. Estimated earthquake losses hit a first-quarter record in 2011 Q1, with devastating events in Japan and New Zealand pushing estimated insured losses to more than $30 billion.

“And it’s only Q1,” Mumenthaler said.

For the most part, the private market in Japan covers only commercial risks, and only 3% of businesses take up the coverage, he said. Otherwise, the insured

losses projected as a result of the Magnitude 9.0 earthquake and subsequent tsunami — currently projected anywhere between $12 billion and $35 billion — could have been higher, he noted.

Although the insurance losses of the Japan quake are manageable, the hardening of rates in Japan is very certain, Mumenthaler said.

When asked if the events of 2011 Q1 will be enough to spur a hard market in

a separate interview after the presentation, he said the impact on global rates is still uncertain. But “historically these types of events have spurred hard markets,” he added.

In his presentation at the Swiss Re breakfast, Mumenthaler noted that in addition to earthquakes, it is clear weather-related events are “growing quite significantly, even in low years.”

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April 2011 Canadian Underwriter

55

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MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

Cunningham Lindsey Canada (CLC) Claims Services Ltd has promoted Maureen Fraser to vice president of business development. Fraser joined CLC in 1996 and has held numerous roles, including accident benefit adjuster, call centre manager and business development representative. “Maureen has been a longstanding member of our sales team and this promotion reflects her commitment and ongoing success delivering superior customer service to our existing clients, in addition to developing new customer relationships within Canada,” said Albert Poon, CLC’s senior vice president of national business development.

2

AXA Pacific Insurance Company, a subsidiary of AXA Canada, has released a new Buy Online car insurance solution for Alberta motorists. Billed as a first of its kind, AXA Pacific says its ‘hybrid approach’ offers consumers a choice between a direct online sale and a broker-driven online sale. Consumers entering through www.axa.ca select a broker and then have an option to purchase the product online with no broker assistance or, if necessary, can seek the broker’s advice to finalize the sale. “We understand the growing importance

56 Canadian Underwriter April 2011

of the Internet distribution channel and believe that our approach offers consumers the best of both worlds,” says AXA Pacific executive vice president Jennie Moushos. “They can get a quote quickly and efficiently, and still benefit from having a true expert to make sure they walk away with the coverage that's right for them.”

3

The Co-operators has contributed $100,000 to the International Cooperative Alliance (ICA)’s Japan Disaster Recovery Fund. The fund was established to support the rebuilding of co-operatives in Japan following the Mar.11 earthquake and tsunami. The ICA is an independent, non-governmental organization that unites, represents and serves co-operatives worldwide. “As a co-operative, our organization is guided by the seven universal co-operative principles, one of which is ‘co-operation among co-operatives,’” said Kathy Bardswick, president and CEO of The Co-operators and a member of the ICA board of directors.

4

AEGIS London, a Lloyd’s syndicate and subsidiary of AEGIS (Associated Electric & Gas Insurance Services Limited), has announced two Canadian-based appointments.

1 Nazir Haji [4a] has been appointed senior vice president, business development and Spencer Shusterman [4b] is senior vice president of claims. The appointments are part of AEGIS’s plans to support and grow its coverholder business in Canada.

Haji joins from Aviva Insurance Company of Canada, where he was senior vice president of the Ontario region. Shusterman most recently served with SCM Risk Management Services Inc., where he developed and led a new claims management practice.

5

The Centre for the Study of Insurance Operations (CSIO) has appointed David Osmars as chairman of the board. In addition, Keith Eva has been named interim president of CSIO. Osmars is executive vice president and chief information officer of AXA Canada. He has more than 30 years of broad and diversified insurance experience.

4a

4b Keith Eva is retired from RSA Canada, where he held many positions over a 27year career. For 15 years, Eva was vice president of management services and chief information officer of the Canadian organization.

The CSIO board of directors is working with Eva to search for a new president of CSIO.

6

Pembridge Insurance and Applied Systems Canada are launching a joint venture to offer realtime transactions aimed at improving broker workflows.

Pembridge’s Broker Connectivity solution will soon deliver billing and policy inquiry functionality to brokers using Applied Systems

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MOVES & VIEWS

bard Canada in Toronto, responsible for overseeing the national broker group. He was instrumental in the development and enhancement of diverse commercial insurance programs.

7 TAM (The Agency Manager) and WARP, Applied Systems’ real-time technology. Using this technology, brokers’ workflow will begin and end in the broker management system (BMS), promising an efficient workflow without the use of a portal. Pembridge and Applied Systems also plan to deliver Broker Connectivity Auto New Business Upload soon after.

7

Ironshore Canda Limited has created a specialty casualty division to underwrite insurance coverages for general liability as well as umbrella and excess liability programs. Stephen Stewart has been named vice president to head the division. The new division will address the insurance needs for various industry classes, including manufacturing, construction, railroads, agriculture, public entities and the energy sector, among others. Stewart most recently served as the commercial underwriting manager for Lom-

8

Report Impaired Drivers (RID), a program encouraging residents to call 911 to report suspected impaired drivers to the police, has been expanded to Prince Albert and Moose Jaw, Saskatchewan.

RID is a partnership led by SGI, SLGA and the Moose Jaw Police Service, with support from Mothers Against Drunk Driving, and Students Against Drinking and Driving. The program was introduced last March in Saskatoon, before expanding in September to Regina. The program has led to 137 impaired driving charges in Saskatoon and 20 in Regina as of the end of last month.

9

Andrew Barnard has been appointed president and chief operating officer of Fairfax Insurance Group, effective Apr. 1, 2011. Barnard will oversee all of Fairfax’s insurance and reinsurance operations worldwide and work with the presidents of those operations on strategy and coordination. Barnard is currently president and CEO of

OdysseyRe, a reinsurance unit of Fairfax. When Barnard takes on his new role at Fairfax, Brian Young will replace him as president and CEO of OdysseyRe. Barnard will move to the role of vice chairman. Currently, Young serves as OdysseyRe's chief operating officer.

10

Allianz Corporate & Specialty Canada (AGCS) is now offering insurance products and services for midlevel business in the Canadian market. AGCS Canada will design insurance solutions for mid-sized companies across a wide range of sectors, including manufacturing/distribution, construction,telecommunications/med ia and will include companies operating internationally. For mid-sized clients with operations outside Canada, AGCS can design insurance policies in accordance with local insurance regulations in the United States and other countries.

11

The Insurance Corporation of British Columbia honoured filmmakers between the ages of 9 and 25 years old with its 180 shortfilm contest. The contest invited youth to make short films about speeding, impaired driving or distracted

driving that would cause other young drivers to rethink risky driving habits. More than 110 filmmakers submitted 124 films. Their work resulted in a total of 110,000 views on the contest’s YouTube channel. Three filmmakers in each category won the top prize packages worth $7,800 in filmmaking equipment and software. The following videos took top spot in their respective categories •Speeding: Nelson Talbot (Langley, BC), 2 Fast 2 Fatal; • Impaired Driving: Lauren Holmes (Vancouver, B.C.), Live Fast, Die Young; and •Distracted Driving: David McDonald (New Westminster, B.C.), If Lives Are in Your Hands.

12

Kernaghan Adjusters has opened a new branch in Courtenay/Comox, British Columbia. Brad Murray has joined the branch as appraiser and specialty risks adjuster. Currently he serves as the control adjuster for several logging and forestry programs. Debbie Halstead also joins the team as a senior adjuster.

She began her career in 1978, working for major insurance companies. She moved to the independent adjusting side in 1988 and has been a multi-line adjuster ever since.

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The Toronto Insurance Women’s Association (TIWA) Wine and Cheese was held at a new venue this year — The Hyatt Regency in Toronto on King Street. More than 1,200 guests attended the association’s signature event on Feb. 17.

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

Jorge Arruda, BComm

Kathy Mabe, President and CEO of The Economical Insurance Group, is pleased to announce the following appointment.

Jorge Arruda has been appointed to the position of Senior Vice President, SBU and Delivery Management Repositioning from his previous role as Senior Vice President, Operations, Jorge will ensure the competitiveness of the Company’s strategic business units, oversee highest level strategic projects and lead the organization’s demutualization program.

Jorge has over 25 years of insurance industry experience and has been with Economical since 1995.

Founded in 1871, The Economical Insurance Group® (TEIG®) is one of Canada’s leading property and casualty insurers, with $4.6 billion in assets and a surplus exceeding $1.2 billion. Canadian owned and operated and based in Waterloo, Ontario, TEIG services customers’ needs through branches and service offices across the country.

60 Canadian Underwriter April 2011

The Commonwealth Insurance Company invited guests to indulge in the afternoon tradition of Ladies High Tea on Mar. 4.

Held in Victoria’s Restaurant at Le Meridien King Edward Hotel in downtown Toronto, guests took a break from their busy days to sip tea, chat and enjoy savories, scones and pastries.

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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 Vancouver – PROedge Seminar: Earthquake, Part II . . . . . . . . . . . . . . . . . . . . . . . April 14

Halifax – CIP Society Spring Fling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 28

Saskatoon – Commercial Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 18

Burnaby – PROedge Seminar: COC VS Wrap-Up Liability . . . . . . . . . . . . . . . . . . . . May 4

Regina – Commercial Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 19

Regina – PROedge Seminar: Ethics and the Insurance Professional . . . . . . . . . . May 17

Kamloops – PROedge Seminar: Water Escape & Slip, Trip & Fall . . . . . . . . . . . . . April 19

Saskatoon – PROedge Seminar: Ethics and the Insurance Professional . . . . . . . May 18

Toronto – PROedge Seminar: Business Strategy – 2 Day Workshop . . . . . . . . . . April 27

Surrey – CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 25

Ottawa – PROedge Seminar: Fiduciary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . April 28

Nationwide – Application Deadline for Rhind Scholarships . . . . . . . . . . . . . . . . . May 31

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Dean Bulloch, MBA, CHRP

Kathy Mabe, President and CEO of The Economical Insurance Group, is pleased to announce the following appointment.

Dean Bulloch has been promoted to the position of Senior Vice President and Chief Human Resources Officer.

Formerly Vice President, Human Resources, Dean now has the mandate to execute the company’s strategic-level human resource management initiatives, including organizational effectiveness, talent identification, and leadership formation. Dean will assume leadership of Corporate Services operations.

He will continue to lead the organization’s focus on employee engagement and corporate social responsibility.

Dean started with Economical in 1996, as Manager, Training and Development and progressed through a diverse set of increasingly responsible human resources leadership roles. Prior to joining Economical Dean held a number of management positions in the retail banking sector since 1984.

Founded in 1871, The Economical Insurance Group® (TEIG®) is one of Canada’s leading property and casualty insurers, with $4.6 billion in assets and a surplus exceeding $1.2 billion. Canadian owned and operated and based in Waterloo, Ontario, TEIG services customers’ needs through branches and service offices across the country.

62 Canadian Underwriter April 2011

Software solutions provider iter8 is celebrating its tenth year of property and casualty insurance services in 2011.

To mark the occasion, iter8 invited industry clients and friends to its tenth anniversary party on Feb. 28 at the Sheraton Centre Hotel in Toronto right after the Insurance Canada Technology Conference.

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David Crozier, CIP, CRM

Kathy Mabe, President and CEO of The Economical Insurance Group, is pleased to announce the following appointment.

David Crozier has been appointed to the position of Senior Vice President, Operations.

Progressing from his former position as Vice President, Commercial Insurance, in his new role David will lead and oversee the Company’s field operations in all regions and will be responsible for leading all brokerrelated entities. This structural change optimizes how Economical supplies its products and services to key stakeholders.

David has been in the insurance industry for over 18 years and joined Economical in 2006.

Founded in 1871, The Economical Insurance Group® (TEIG®) is one of Canada’s leading property and casualty insurers, with $4.6 billion in assets and a surplus exceeding $1.2 billion. Canadian owned and operated and based in Waterloo, Ontario, TEIG services customers’ needs through branches and service offices across the country.

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Brovada held a hospitality reception for clients, partners and attendees immediately following the Insurance Canada Technology Conference on Feb. 28 in Toronto. Brovada executive also celebrated winning the ‘Insurance Canada Technology Award,’ in conjunction with Pembridge Insurance Company, at the conference’s awards dinner.

April 2011 Quarter Century

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Bharat Kannan, CA, CFA, BMath

Kathy Mabe, President and CEO of The Economical Insurance Group, is pleased to announce the following appointment.

Bharat Kannan has been appointed to the position of Vice President, Finance and Controller.

Promoted from the position of Director, Performance Measurement, Bharat will continue to build on the Company’s strong control environment while setting and sustaining Economical’s strategic financial posture. His record of success in leading the Company’s performance measurement activities will be a key enabler of his department’s contributions to Economical moving forward.

Founded in 1871, The Economical Insurance Group® (TEIG®) is one of Canada’s leading property and casualty insurers, with $4.6 billion in assets and a surplus exceeding $1.2 billion. Canadian owned and operated and based in Waterloo, Ontario, TEIG services customers’ needs through branches and service offices across the country.

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The fourth annual St Baldrick’s event was held on Mar. 10 at the Duke of Westminster Pub in Toronto. St Baldrick’s started in the United States in 2000 when three reinsurance executives turned their annual St Patrick’s Day party into a fundraiser for Childhood Cancer. Participants raise money by shaving their heads in solidarity with kids with cancer. In Canada, St Baldrick’s has partnered with Childhood Cancer Canada so that all money raised stays in Canada. Proceeds go towards funding the most promising research projects for Childhood Cancer. Seventeen people volunteered to have their heads shaved this year.

Participating companies included Travellers Canada, Marsh Canada, Liberty International Underwriters, Swiss Re, Creechurch and Beach and Associates. The final figure has yet to be finalized, but the efforts raised approximately $32,000 to $33,000.

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The HKMB HUB Hockey Challenge for Charity dropped the puck on the 6th annual event on Mar. 7, raising funds for the United Way and WICC (Women in Insurance Cancer Crusade).

This event has grown steadily since the inaugural game in 2006; this year, the six-team tournament at the Air Canada Center had more than 66 players, 30 major corporate sponsors and 300-plus spectators on hand to enjoy the hockey.

The Accidental Benefits provided live music in the cozy atmosphere of the Ice Box Lounge, and musical recording artist Michael Burgess treated everyone to a hair-raising version of the national anthem.

Dwight Drummond of CBC News dropped the ceremonial puck opening the tournament.

Canadian sports broadcaster Gord Stellick was on hand as the celebrity MC for the evening. The event raised more than $30,000 for both charities.

The PDS Network

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

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The Sovereign General Insurance Company hosted an elegant evening of fine food, martinis and jazz at the National Club in Toronto on Mar. 2. Guests were entertained by a talented local jazz trio led by Pat Collins. The event celebrated the significant contribution and support Sovereign has received from its revamped broker network as the company successfully transitioned from a commercial account underwriter into an active, mid-market insurer.

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Hundreds partied with a purpose at an all-industry St. Patrick's Day Charity Social on Mar. 10 at Grace O’Malley’s Irish Pub in Toronto. The event’s organizers and five sponsors — Forensic Investigations Canada, Claims Pro, Assessment Rehabilitations Services, Belfor Restoration and Dutton Brock LLP — donated money raised from a prize draw to WICC.

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Crawford & Company (Canada) Inc.'s 2010 Crawford Cares campaign raised more than $111,000 for the Women in Insurance Cancer Crusade (WICC), a new record for the company's annual campaign. Crawford Cares has raised more than $450,000 for WICC since the campaign was established in 2004. Typically, Crawford employees raise between $50,000 and $55,000 annually. The 2009 donation increased to $80,000 and 2010's donation of $111,035 shattered that benchmark.

“This year, more than any other year, our employees completely embraced WICC and Crawford Cares,” said Steve Anderson,

CAA Insurance Company’s claims department did a little something different for Valentine's Day. “We have a lot of new faces in our department this year, and we wanted to get everyone together for a little social so they would get to know each other away from their desks,” the company said in a statement. CAA distributed t-shirts that said, ‘I Love Claims’ and encouraged staff to dress in red or pink. Later in the afternoon, everyone enjoyed

Crawford's senior vice president of corporate markets and administration. “They jumped in whole-heartedly and participated in various fundraisers, payroll deductions, the Relay for Life and other activities.

I really don't think we can express how proud we are of our

staff and all of the efforts they consistently make for this wonderful cause.” John Sharoun, Crawford & Company (Canada)'s CEO, added: “Crawford employees threw their hats into the ring and raised the bar this year. The addition of the Relay for Life event really

boosted our employees' enthusiasm and fundraising efforts. We had a wonderful time staying up all night, honouring friends and loved ones.

For that event alone, employees and Crawford branches across Canada raised more than $75,000."

Valentine's Day cake and coffee and some social time.

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CNA Canada’s growing presence in Canada was recognized by a series of product fairs held from Jan. 24 to Feb. 17. The fairs were held in each of the five regions where CNA branch offices are located: Toronto, Vancouver, Montreal, Calgary and Winnipeg. Each fair was held in an elegant, intimate venue, and brokers were introduced to CNA’s products and services.

This personal, face-to-face approach allowed local CNA branch representatives to strengthen existing broker relationships, create new business opportunities, plan broker visits and risk control seminars, and educate brokers on new cross-sell opportunities across the CNA enterprise.

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