The Alberta Broker _Dec 2017-Jan 2018

THE ALBERTA

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Making the

author & dragon david chilton named 2018 convention keynote speaker

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What Do The Tax Changes For Private Corporations Mean to You? WATER Are We There Yet? What is InsurTECH? and more–

December 2017– January 2018

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contents

07

FEATURE Making The Cut

David Chilton, a.k.a. The Wealthy Barber, 2018 IBAA Convention Keynote Speaker

10 18

LEGAL-EASE fULL dISCLOSURE

Court confirms duties of insurance brokers and applicants for disclosure of material facts

What Do the Tax Changes for Private Corporations Mean to You? IBC INSIGHT Did we get it right in Fort McMurray?

Panel Discussion: What went right and wrong for industry stakeholders

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departments

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The Alberta Broker is the official publication of the

04 President’s Message 14 Chinook Country Report 21 DID YOU KNOW? 26 pyib perspective

28 caib 2017 graduates 29 IBAA cOURSE cALENDAR 30 Northern Exposure December 2017–January 2018

Published six times annually by:

Publisher and Editor Annette Hubick Advertising Michele Schuldhaus 780.910.2601 Michele@LinkPR.ca The Alberta Broker accepts articles about the insurance industry and its people. Letters to the editor are welcome. The opinions and viewpoints expressed in The Alberta Broker may not necessarily be those of the publisher, the association or its members.

3010 Calgary Trail, Edmonton, AB T6J 6V4 T: 780.424.3320 •1.800.318.0197 F: 780.424.7418 • www.ibaa.ca

President Gerry Baert Chief Executive Officer George Hodgson

THE ADVOCATE WATER: ARE WE THERE YET?

TECH TALK What is InsurTECH?

The Alberta Broker

16

MONEY MATTERS

3 Deacon Lane, Sherwood Park, Alberta T8H 1M7 T: 780.945.1934 • E: AlbertaBroker@LinkPR.ca

Material in The Alberta Broker may be reproduced with the credit to the author and the following: “Reprinted from the Insurance Brokers Association of Alberta’s magazine - The Alberta Broker (date).” Please send a copy to the publisher.

Gerry Baert

President’s Message It’s hard to believe that I’m writing an article especially for the consumer. We do not need company apps reflecting on 2017. One of the things we should all or consumer-facing portals that bypass our own initiatives be proud of is the celebration of Canada’s 150th to deliver technological options to our clients. Companies year as a country that provides us with so much should pay attention to the fact that most of the innovation and so many opportunities. When you look at what is in our industry is coming out of the broker channel and going on in many pockets of the world right now, I feel so their best interests might be served by getting us involved blessed to be Canadian. in the conversation much sooner than in the current schedule.

This year has also presented us with an unusual number of challenges. No doubt the past few years have had their One example of this cooperation occurred after our trip toll on Alberta, with the latest blow being the closure of to Intact’s lab and the work we have done alongside IBAO. the Energy East pipeline project—a colossal mistake, not Intact is starting to make a genuine effort to listen to our just for Alberta but for all of Canada. On the provincial ideas and concerns. political front, we have an NDP government that is The next area we are starting to explore is the efficiency struggling with lost oil revenues and at the same time (or inefficiency) of our BMS providers and what they may trying to change our dependency start to look like in the near future. on that very revenue. I’m sure Initiatives such as CSIO working that project feels like swimming with multiple partners toward “We do not need company apps in mud. We also now have a new a centralized API solution and or consumer-facing portals blended United Conservative companies switching from their old Party that is struggling to find legacy systems to current providers that bypass our own initiatives its identity. To say that Alberta is like Guidewire are getting us a in a little bit of a flux right now step closer to a single-entry system. to deliver technological might be an understatement.

We need to start asking our BMS options to our clients. ” On the insurance side, we are providers how they are going to facing some very real threats. keep up so we stay relevant. Your IBAA tech committee is currently Some of our insurance partners working with Aviva to evaluate BMS providers to answer continue to blur the line between their role as a product provider and ours as the distributor by introducing this exact question. consumer-facing portals or other direct-to-consumer With all these rapid changes in our industry—in technology touches. Your association has been advocating technology, disrupters, mergers and acquisitions and diligently in relation to these new technologies, not only to company interferences—I remain very optimistic about the monitor them but also to work with our insurance partners future of our industry in Alberta. In the new year ahead to see where we can merge broker technology and branding of us, I hope you will take the opportunity to get engaged into these models. in these exciting and industry-evolving conversations.

One of our largest mandates at IBAA is to develop I wish you all the very best over the holiday season and stronger, more transparent working relationships with continued success in 2018. all stakeholders. With our insurance partners, we believe As always, if you want to share your thoughts or a grassroots, national broker tech committee should ideas on any of these issues, please email me at be involved at the earliest stages of the ideas so we can Gerry@GoBlueCircle.com or call me directly at all work together to provide solutions that are viable, 403-770-4949.

Let’s talk, Gerry 4

The Alberta Broker December 2017–January 2018

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Making the Cut

IBAA Names David Chilton, a.k.a. The Wealthy Barber, 2018 Convention Keynote Speaker

Until recently, I believed I would never write another personal-finance book. Luck played such a huge role in The Wealthy Barber’s success that I didn’t want to tempt fate. So what changed my mind? Frustration. After watching Canadians’ savings rates plunge, debt levels skyrocket and investment returns consistently disappoint over the last decade, I was pulling my hair out. I wondered, “How can I help?” I’m hopeful that The Wealthy Barber Returns will answer that question. —David Chilton

Whether it’s helping millions of Canadians achieve personal financial success or investing in low-fat cookbooks, David Chilton has always had a knack for recognizing great ventures, a skill he proudly leverages as a “dragon” on CBC television’s #1 hit show, Dragons’ Den. Called “charming, unpretentious, and funny,” by The Chicago Sun-Times, Chilton puts his business expertise and life experience to work in his informative and inspiring talks.

Chilton began his career by self-publishing his book The Wealthy Barber in 1989. It was written in 26 months and was specifically targeted toward those with little investment experience in order to help them develop positive personalfinance habits. The book has become one of the most popular or the past several years, the IBAA Canadian books of all time, selling over two million copies convention has featured an impressive lineup since its release. of keynote speakers who are “big names” His second book (also self-published) is The Wealthy Barber either as individuals or for the companies Returns, and is yet another runaway Canadian bestseller. they represent. From Mike Holmes and Paul Chilton is also the publisher of the bestselling cookbooks Brandt to corporate giant marketing gurus Looneyspoons, Crazy Plates, and Eat, Shrink & Be Richard Bartrem (WestJet) and Fab Dolan Merry! (working with authors Janet and Greta (Google), these magnet speakers have been a Podleski). key part of the IBAA’s strategy to elevate Chilton is an economics graduate from Register online the convention experience to increase Wilfrid Laurier University, where he won attendance—and it’s been working. for the 2018 IBAA the award for the highest mark in the Despite Alberta’s economic slowdown, convention at ibaa.ca country on the Canadian securities the IBAA convention’s registration Early-bird pricing in effect course.

He is a frequent guest on national numbers have continually risen year television and radio shows. until January 31, 2018. after year and the trade shows have been “We chose David Chilton because he has sellouts. worked with a number of different successful The 2018 convention keynote speaker entrepreneurs and has been very successful in the certainly fits the celebrity mould: former “Dragon” finance/investment space,” explains IBAA COO on CBC TV’s Dragons’ Den and bestselling Author Rikki McBride. “His Canadian roots and entrepreneurial of The Wealthy Barber, David Chilton. Of course, Chilton spirit are mirrored in our member brokers, and we felt that brings many more credentials than his fame to the stage.

F

8

The Alberta Broker December 2017–January 2018

his insights would lead to valuable takeaways that delegates could use in their own businesses.”

The title of Chilton’s keynote is “A Truly Unique Perspective,” which Speakers Spotlight (the speakers bureau with whom IBAA engaged Chilton’s services) states is, “quickly becoming bestselling author, entrepreneur, financial guru and “dragon” David Chilton’s most sought after presentation.”

Speakers Spotlight’s materials describe this keynote as follows:

As someone who has experienced both success and failure, David humorously illustrates how a healthy perspective can lead to positive results, despite what life throws at you, using examples from both his professional and private life, including “behind the scenes” stories from Dragons’ Den. Brenna Pavlidis, sales & event coordinator, western region for Speakers’ Spotlight, adds, “In this fast-paced and fun speech, Dave will draw down from his many business

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experiences to take a look at the surprising traits he most often sees from successful entrepreneurs. Using a unique mix of stories and humour, Dave will have the audience both laughing and learning.”

Editor’s note: David Chilton was unavailable for a personal interview with The Alberta Broker.

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www.can-sure.com 3/15/2017 11:54:41 AM December 2017–January 2018

9

Legal-Ease

Sara Hart and Adam Ollenberger

Full

DISCLOSURE Nova Scotia Co u r t o f A pp e a l C on fir ms Du ties o f B r o ke r s a nd Ap plican ts fo r I n s u r an ce for Disclosure of Material Facts

I

nsurance contracts are contracts of utmost good faith, and this imposes different obligations on applicants for insurance and insurance brokers.

A recent decision of the Nova Scotia Court of Appeal, Marsh Canada Ltd v Grafton Connor Property Inc,1 confirmed the responsibilities of each as regards the disclosure of material facts in an application for insurance.

In 2007, a commercial building in Halifax, the North End Pub (the “Pub”), burned down. The Pub was owned by Beaufort Investments Inc., a company that was part of a group of companies called Grafton Connor. The Pub was insured by Lloyd’s of London pursuant to a policy of insurance placed by Marsh Canada Ltd. Lloyd’s investigated the fire and discovered that, contrary to the representations that were made during the application

for insurance, the Pub was not built of masonry construction and did not have a sprinkler system installed.

Lloyd’s denied the claim and voided the policy on the basis of material misrepresentation by the insured.

At trial, the Supreme Court of Nova Scotia held the misrepresentations were in fact material, as Lloyd’s would have charged a higher premium had it been informed of the relevant risks, and that Lloyd’s was entitled to deny the claim and return the premiums paid by the insured.2 The court found that Grafton Connor was 50 percent liable for the loss due to its “far too lackadaisical … approach to insuring commercial properties worth millions of dollars.” 3 The court further held, however, that the remaining 50 percent of the liability was attributable to Marsh, on the basis that Marsh negligently failed to make inquiries into whether the principals of Grafton Connor had training or experience placing commercial property

10 The Alberta Broker December 2017–January 2018

insurance and assessing and disclosing complex risks, and failed to discuss a property inspection with the insured.4 The court stated: Whether the standard of care will require the insurance broker to make inquiries of the nature described above will depend on the complexity of the risk.

The decisions in Biggar, O’Connor, Wolfe, Goodbrand, and Edwards involved basic life, home and auto insurance applications.

The information required to obtain these types of coverage would be within the personal knowledge of the applicant, regardless of his or her experience with the placement of insurance. In such a situation, there would be no obligation on the broker to make inquiries as to the applicant’s ability to accurately respond to the questions being asked.

Where the risk is significantly more complex, the broker must make additional inquiries, before the application form is completed or the information otherwise compiled, to ensure that the applicant

either has the necessary skill to provide accurate information, or is aware of the options available, including property inspections, to obtain it. Once this obligation has been fulfilled and the information reduced to writing, the cases cited by Marsh will apply, and the applicant will be responsible for reading it over and correcting any inaccuracies.5 In the result, Marsh was found liable for 50 percent of a $2.74 million damages award.

All of the parties appealed or crossappealed the decision, but this article will only focus on Marsh’s appeal.

Marsh appealed on the basis that the trial judge had applied the wrong standard of care. The Court of Appeal agreed and set aside the finding that Marsh was 50 percent liable. In relation to Marsh’s appeal, the Court of Appeal focused on two issues.

The first issue was whether the trial judge had erred in failing to impute

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continued from page 11 knowledge held by the president of Grafton Connor to the insured company, Beaufort Investments. The evidence disclosed that he knew that the Pub was not built of masonry and did not have sprinklers installed. The Court of Appeal held that as an officer of the insured corporation, Grafton Connor’s president was a directing mind of the corporation and that his knowledge was the knowledge of the corporation.6 On the second issue, the standard of care, the Court of Appeal held that the trial judge had imposed too strict an obligation on Marsh to ensure that the insured was capable of properly assessing the risks for coverage. The insured represented each year that the policy was renewed that the Pub was of masonry construction and had sprinklers installed, and could have corrected the false information that Marsh had prior to the loss. The Court of Appeal held that the trial judge correctly articulated the standard of care expected of insurance agents: … private insurance agents owe a duty to their customers to provide not only information about available coverage, but also advice about which forms of coverage they require in order to meet their needs… … where the customer adequately describes the nature of his or her business to the agent, the onus is then on the agent to review the insurance needs of the customer and provide the full coverage requested.

Should an uninsured loss occur, the agent will be liable unless he or she has pointed out the gaps in coverage to the customer and advised him or her how to protect against those gaps.7 However, the trial judge misapplied that standard by “imposing upon an agent a requirement to verify the information which is in the knowledge of the insured.” The onus is on the insured to make full disclosure of all material facts. The Court of Appeal further confirmed that “[a]n insured’s

duty to disclose material facts is an ongoing obligation.”8 It is not the broker’s responsibility to ensure that the applicant has experience in placing commercial insurance. Furthermore, the misrepresentations related to simple descriptions of the property, not to

applicant’s ability to represent such basic information correctly without further investigation.10 This decision confirms the longstanding principle that insurance brokers are entitled to rely on representations made by their clients in an application for insurance, and that, in general, brokers are not responsible for ensuring that their client’s representations regarding straightforward factual matters, like the description of the insured property, are accurate and complete.

‘‘ ’’ In the result, Marsh was found liable for 50 percent of a $2.74 million damages award. complex coverage issues:

[T]he ability of Beaufort in making its application for insurance to know and correctly represent whether its building was of masonry construction, and whether that building contained sprinklers, did not require any sophistication of its designated representatives in matters of insurance.

Marsh, in keeping with established case law, should be entitled to rely upon the

1 2

3 4 5 6 7

2017 NSCA 54 [Marsh].

Grafton Connor Property Inc v Murphy, 2015 NSSC 195.

Ibid at para 328.

Ibid at paras 313-318.

Ibid at para 318.

Marsh, supra at paras 79-100.

Ibid at para 113, citing Fletcher v Manitoba Public Insurance Co, [1990] 3 SCR 191.

SARA E. HART and ADAM OLLENBERGER are lawyers with Dentons Canada LLP and practice in the professional liability insurance area.

Sara.Hart@dentons.com

12 The Alberta Broker December 2017–January 2018

Adam.Ollenberger@dentons.com

Happy holidays!

Sending our broker partners our warmest thoughts and best wishes for a wonderful holiday season and a happy new year. sgicanada.ca

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Economical Insurance includes the following companies: Economical Mutual Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company, Petline Insurance Company. ©2017 Economical Insurance. All rights reserved. All Economical intellectual property, including but not limited to Economical® and related trademarks, names and logos are the property of Economical Mutual Insurance Company and/or its subsidiaries and/or affiliates and are registered and/or used in Canada. All other intellectual property is the property of their respective owners.

Who? What? Where? Michelle Hammel Edelson Insurance, which eventually became Renfrew Insurance. An active member of his community and a mentor to many, he definitely left a lasting legacy.

BROKER NEWS Trying new things!

David Blain formerly of Arthur J. Gallagher relocated to BFL Canada Insurance Services.

Francesca Berube started a new position with Foster Park Calgary.

Crawford Agencies is now part of Excel Insurance Group.

Mardene Watson of Schwartz Reliance Insurance assumed a surety specialist role within the company.

Schwartz Reliance Insurance also welcomed several new commercial producers: Danielle Meuller, Leslie Boyle and Lori Chogi (formerly of Westland Insurance Brokers Ltd).

Megan Green, formerly of CJ Campbell Insurance, is now working with Dalton Timmis Insurance Group.

Congratulations to BrokerLink on winning one of Applied System’s 2017 Pinnacle Awards for embracing digital transformation!

Congratulations on these new locations!

RMH Insurance Services Ltd opened a new office in Ponoka.

InsureMY Inc. moved into its new Calgary Barclay Square location.

BFL Canada Insurance Services expanded to open a new sales office in Red Deer.

Link Insurance Agency opened a new Quarry Park location.

COMPANY NEWS Congratulations to Sherre Newell on her five-year anniversary with Aviva.

Robert Ines formerly of Aviva’s Edmonton branch replaces Peter Fong in its Calgary office as account executive. Peter left Aviva to assume an account executive role at RTW Risk Managers.

MAX Canada Insurance Company based in Ontario welcomes Steve Manville formerly of A-WIN. Intact Insurance has been busy hiring experts in D&O, cross border, surety, entertainment, technology and E&O. Bryan Trodden, formerly of Zurich, accepted a role as director specialty solutions and Sarah Toth, formerly of Zurich, will assume the role of cross-border specialist. Julie Wong brings 18 years of experience to her new role as manager of entertainment—specialty solutions.

Finally, Alex Campbell will bring 30 years of experience to his new role as vice president surety, western division.

Also at Intact, Mark Petrowich will move to a new role as director commercial operations, and yours truly will assume the role of director strategic projects.

Kim Peterson of Intact Insurance will move to a new role as director operational performance, Ingrid Butler Seiben of Intact’s Edmonton office will now be director commercial auto Alberta.

Former director of claims Ritesh Grover will assume the role of director BSU and CSU Alberta.

CONDOLENCES We lost one of the pioneers of our industry on October 22: Jack Edelson.

Jack was the founder of Barron

14 The Alberta Broker December 2017–January 2018

INDUSTRY PARTNERS Glenn Labelle recently joined Kernaghan Adjusters. With over 30 years of industry experience, Glenn will be an asset to the Calgary team.

GIVING BACK A shout out to Byron Broten of Byron Broten Insurance Agency, Cam Clay of Alpine Insurance and Financial, Crista Costen of Costen Insurance, Gerry Baert of Blue Circle Insurance and Grant Clarke of BrokerLink who, along with employees of Intact Insurance, recently travelled to Nicaragua as a part of Bridges to Community (see photo next page). This charitable organization builds homes for deserving families in Nicaragua, one of the poorest countries in the Western hemisphere with wide-spread underemployment and poverty. I am told by other participants over the last three years that this trip is not easy but it’s very rewarding. Well done everyone who has participated in this worthy cause!

Thank you to everyone who contributed this month.

Contributions are definitely welcome. Anyone who sends in news for the next edition of the “Chinook Report” will be entered into a draw for a Chapters gift card, potentially picking up a copy of David Chilton’s The Wealthy Barber Returns!

MICHELLE HAMMEL Director of Strategic Projects Michelle.Hammel@intact.net

Bridges to Community, Nicaragua Cam Clay

Gerry Baert

Grant Clarke

Crista Keaton

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The Alberta Broker

December 2017–January 2018 15

What Do the Tax Changes for Private Corporations Mean to You?

By Colin Brecht and Brad Berry, Partners at BDO Canada LLP The Liberal government in its 2017 budget announced that it would be reviewing certain tax planning strategies that it believed resulted in “wealthy” individuals gaining unfair tax advantages over other Canadians.

The three tax saving strategies that they reviewed were income splitting, holding passive investments within private corporations and surplus stripping.

As you may have already heard on July 18, 2017, finance minister Bill Morneau released the much anticipated consultation paper proposing how private corporations are used to gain such tax advantages. In the paper three specific tax practices were addressed.

1. INCOME SPLITTING Let’s examine income splitting first and what it means to you.

Do you have a family trust?

Do you have family members as shareholders in your private corporation?

Have you undertaken tax planning whereby additional family members were introduced as shareholders in your private corporation or via a family trust in order to multiply the capital gains exemption on a potential sale?

Are you providing a dividend to fund your grandchild’s education using a family trust?

Are your family members’ NOT active shareholders’ in your private corporation?

If you answered “yes” to any of these questions above, the proposed changes will impact you negatively as the following summary shows.

Private company dividends paid to adult family members will be subject to a “reasonableness test.” If the amount is deemed “unreasonable,” these dividends will be taxed at the highest marginal rate, which in Alberta is 48%.

Dividends will be even more restrictive for children aged 18–24.

Individuals will no longer qualify for the capital gains exemption on capital gains realized before turning 18, or on capital gains accruing before the age of 18.

Gains that accrue during a period in which a trust holds the property will generally no longer be eligible for the capital gains exemption (certain exceptions exist for spousal trusts, etc.).

If the capital gain has been included in split income, it will not qualify for the capital gains exemption.

However, there are some things to consider in the near term.

Salaries can still be paid to family members as the July 18, 2017, proposals do not affect salaries paid to family members.

Consider whether “crystallizing” the capital gains exemption of adult beneficiaries of your family trust makes sense in 2017, or in 2018 under the proposed transition rules.

Consider larger dividends prior to 2018.

After what can only be described as an uproar and apparent revolt from the middle-class entrepreneur, the Department of Finance has been “rolling back” some of the proposed changes.

On Monday, October 16, the ministry announced that it will be loosening the rules regarding the application of the Income Sprinkling proposals and that it will not proceed with the Capital Gains Exemption proposals.

While loosening the rules surrounding income sprinkled is welcomed, it doesn’t provide much clarity at this time. What was a test based on reasonableness has now been replaced with a concept of “clear and meaningful contributions.” What the capital gains exemption actually means is difficult to say until the draft legislation regarding the rules is released. However, it would appear that the use of a family trust will no longer prohibit the beneficiaries

16 The Alberta Broker December 2017–January 2018

from utilizing their capital gains exemption.

2. PASSIVE INVESTMENT INCOME Let’s now further discuss holding passive investment portfolios inside your private corporation. Currently, there is an incentive to invest within a private corporation as you can invest higher after-tax dollars. If you earn $100 of income in a private corporation, you will pay either 12.5 percent or 27 percent in tax, leaving you with $87.50 or $73 to reinvest. This rate differs from that of the top earners in Alberta who would be left with $52 after paying a 48% percent tax rate.

Finance wants to eliminate this apparent advantage by introducing an alternative approach to taxation.

While the approach that will be chosen is unknown at this time, both proposals remove the refundable tax mechanism and create a top marginal tax rate well in excess of 48% and near 70%. What this change means to you is there will be a potential crushing tax compliance burden on you. It certainly provides no advantage to earning income through a business and investing and also severely undermines a business owner’s retirement and succession planning.

On October 18th, the government announced that it will proceed with measures to limit the deferral benefit of earning passive income through a private corporation. A maximum threshold of $50,000 of investment income per year can be earned in a corporation and not be subject to the new regime as it will continue to be subject to the current refundable tax system. No indication of how the $50,000 will be determined was provided—for example,

will the full capital gain on sale of securities be included, or 50 percent of such a gain? The government gave reassurances to business owners who have significant investments in passive assets in corporations that the new rules will be prospective and will apply to new investments only. That is, income earned on existing assets will not be affected. The government will release draft legislation as part of its 2018 federal budget. However, there is no indication of an effective date for the new proposals.

3. CONVERSION OF INCOME INTO CAPITAL GAINS What is surplus stripping? Surplus stripping is extracting funds from your private corporation at either a zero or lower tax rate (capital gains rate) as opposed to extracting those funds as a dividend or salary. The Canadian tax system is designed so that shareholders who earn income through a private corporation and repatriate it to themselves as a dividend will pay approximately the same amount of tax as if they earned the income personally.

Thus surplus strips undermine this concept of “integration.”

So what has changed regarding surplus stripping and what can you do? § The anti-avoidance rule will be extended to apply to an increasing number of transactions that are not arm’s-length. § The changes will negatively impact some estate planning such as pipeline planning. § Revisit any current or intended planning to ensure you are onside as the impact is severe. § Since the new rules can have a significant impact on taxes paid on death, revisit your estate planning. § Revisit any past planning where an amount may be receivable now resulting from a past transaction. § Meet with your tax adviser and discuss any planning strategies that may apply to you.

Surprisingly on October 19th, the Department of Finance announced it will not be moving forward with measures relating to the conversion of income into capital gains. The government discovered during the consultation process that the measures proposed in July would have resulted in unintended consequences, particularly in respect of taxation upon death and intergenerational transfers of businesses.

Specifically, the July proposals would have substantially increased the cost of passing on family businesses to the next

generation. Owners of such businesses would have been in a difficult position: finding more tax efficiency in selling to a buyer outside the family than to a family member.

Cancelling the proposals for conversion of income into capital gains reopens some doors for some old tax planning that has just been made new again. The cancelled proposal may seem too good to be true. Hopefully, the capital gains inclusion rate isn’t increased with the next federal budget to reduce the benefits of this planning.

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The Alberta Broker

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December 2017–January 2018 17

IBC Insight

Bill Adams

Panel Discussion

Did we get it right in Fort McMurray?

What went right and what went wrong for stakeholders and our industry?

T

he experience of Fort McMurray continues to reverberate throughout the property and casualty (P&C) insurance industry, governments and especially in the community itself, where the struggle to rebuild and return to normal is a real and an everyday challenge for some.

How our industry responds to its customers in natural disasters was

tested by the scale of this fire: 10% of the town’s residences were destroyed, 90,000 residents were forced to flee and $3.7 billion in insurance claims resulted.

Since then, multiple stakeholders have been examining the response, trying to assess what worked well and what needs to be improved before the next disaster strikes.

In October, a panel at the National Insurance Conference of Canada

in Quebec City explored how the insurance industry performed in Fort McMurray for the affected residents of the Regional Municipality of Wood Buffalo. Each panellist was, and remains, deeply involved in the disaster and its after-effects. Here is an edited portion of the discussion.

I served as the panel moderator and joining me were:

Erin O’Neill, operations manager for the recovery task force at the Regional Municipality of Wood Buffalo Reid Fiest of Global National, who reported extensively from the disaster zone and had the opportunity to speak with many of the residents Shane Schreiber, managing director/ assistant deputy minister at the Alberta Emergency Management Agency Mike Van Elsberg, deputy senior vice-president, claims—Western Canada at Intact Insurance

My opening remarks Did we get it right in Fort McMurray? Many think that we did pretty well. At IBC, we continue to hear praise for how the P&C insurance industry responded. But this session isn’t about self-congratulations. We want to get to the heart of what worked and what didn’t. Erin, do you want to start us off?

Erin O’Neill What went well from my perspective is how adjusters and insurance companies were on the ground gaining situational awareness of Fort McMurray. Being there allowed them to talk to the residents and it really helped, and it is still helping today. They could see and understand what people were going through because it’s different than a

typical larger city where there are lots of services and stores. We have no Home Depot or Costco, and we have only one furniture store.

The other great thing was IBC being embedded in the emergency operations centre. We had many opportunities for efficiencies, and that went really, really well.

In terms of what went wrong, I heard early on that the insurance industry threw money at the town, which was great because many claims were settled. For somebody like me, whose house was OK and who only needed to have the ducts cleaned, that worked well. But a lot of people have really nice bar fridges in their garages today. We’re hearing now that many people whose homes were lost or damaged are having a harder time and

continued on page 20

continued from page 19 have lots of questions. A lot of people are saying, “It would have been easier if I’d lost my whole house as opposed to going through that process when I had major damage, but not a whole loss.”

Reid Feist Looking at issues we heard about from a news perspective, the idea of different insurance adjusters came up a lot. Whether it was an independent operator or a company adjuster, residents would tell me, “We were talking to one guy for weeks or months, and it would change all the time.” Obviously, continuity in a disaster is an issue. I also covered the 2013 floods in southern Alberta, and we got a lot more email about problems with insurance companies back then. We didn’t get the same in Fort McMurray, and I think that probably the insurance companies had learned a bit from other disasters.

Shane Schreiber From a provincial perspective, the good is that you, Bill, were in the room.

Bill and the insurance industry were in the Regional Emergency Operations Centre almost from day two of the event. That was critically important because we had an insurance expert in the operations centre who was also doing the communications. It also allowed us to plan in a collaborative manner the steps going forward. There was the white goods (fridges and freezers) disposal plan that worked well, largely because we had all the people in the same room coming up with a plan.

I think it is now best practice to invite an insurance industry expert into the

operations centre to begin planning the re-entry and recovery ASAP. We’re going to continue to use this approach in Alberta, and in talking to my fellows across Canada, it sounds as if they like the idea too. It allows you to move at the speed of trust in a complex environment.

The bad is that there were those who were uninsured or underinsured.

Also, a number of people were just not aware of what was covered and how to move their claim forward. And then there’s the psychological impact and psychological impasse that people can come across when they’re faced with

residents and customers, we are one in the same. We are going to attempt to replicate this practice in every province across the country.

Mike Van Elsberg We also need to focus on the emotional recovery of our customers.

Many people can make it through these situations quite well, but there’s also a segment of people who struggle emotionally. I don’t know if we’re putting enough time and effort into helping with emotional resilience. We still have customers today at Intact who don’t know what they want to do. They’re very frustrated, they’re very upset, but they simply can’t make a decision on what they want to do regardless of the support that’s there. So that’s something that we need to learn from.

I don’t know if it’s an insurance industry thing, but when you’re looking at the resilience of a community, I think that everyone at the table needs to put their minds to that.

A lot of people are saying, “It would have been easier if I’d lost my whole house as opposed to going through that process when I had major damage, but not a whole loss.” having lost all of their belongings and their home, and they’re standing around a neighbourhood that’s been burnt out.

I weighed in here I just want to touch on that best practice. The sense of moving at the speed of trust is an important aspect in the response. I’m pleased to say that we have formalized an understanding between the Alberta Emergency Management Agency and IBC about including insurance representatives in future operations centres. Maybe between incidents we need to take some time to talk about how we can rely on one another and clarify the expectations of each side when responding so that when we are moving swiftly to help

20 The Alberta Broker December 2017–January 2018

A video of the full discussion is posted online at http://www.niccanada.com/ NICCtv.aspx where the panelists assess the tight level of engagement between industry, government and aid organizations and how this served the entire operation. They also considered the provocative question of whether it’s possible to satisfy everyone in such a large disaster.

BILL ADAMS Vice President, Western & Pacific, Insurance Bureau of Canada

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The Alberta Broker

2017-11-02 2018 12:04 PM December 2017–January 21

The Advocate

George Hodgson

Water:

Are We There Yet?

Parents travelling on a family vacation may be annoyed when the “Are we there yet?” question arises quickly and frequently, but we should be asking it from time to time to assess both our mapping and the destination. Currently, the question is being fairly asked about flood insurance. In fact, a member broker recently undertook a survey of IBAA members in preparation for a panel discussion on the topic at the National Insurance Conference of Canada.

In general, the survey reported satisfaction with the flood offerings. For example, 63% of broker respondents said that overland flood products are sufficient for Alberta homeowners and 80% said the same for Alberta businesses. When asked if premiums are reasonable, 83% answered positively, ranging from “sometimes” to “in all cases.” Just over half (52%) of the brokers surveyed reported that homeowners had purchased flood coverage.

All of this looks rather encouraging, but a look behind the numbers

is necessary before one can come to any broad conclusions. A first important consideration is that the survey was not scientific. It did not account for determining issues such as demographics, flood zones, etc.

For example, if a large percentage of brokers who answered the survey have clients exclusively located in low flood risk zones, it is not surprising that most would say that flood products are sufficient and that premiums are reasonable. Furthermore, some of the broker clients in these zones may choose not to purchase flood insurance but still feel that the product is sufficient and reasonably priced.

On the other hand, if the clients for survey respondents were heavily weighted in high-risk flood areas, the clients may not feel that overland water flood products are either sufficient or reasonably priced. In fact, clients in these high-risk flood areas may have no overland flood products available at all.

22 The Alberta Broker December 2017–January 2018

A healthy number of comments populated the survey text boxes and showed a range of respondents—from those who were very positive about the coverage available to those who expressed serious concerns with the offerings. Again, without a breakdown of where the comments were coming from, full analysis of the results is difficult.

Regardless, a few common comments expressed concern regarding the differences between various flood offerings. Some brokers said that the range of wordings and offerings resulted in more work and more paperwork.

Some highlighted the lack of consistency between company offerings, while others advocated for more consistency.

Perhaps the most concerning sentiment is fear of the significantly higher errors and omissions risk.

The flood discussion at the National Insurance Conference of Canada (NICC), held October 1-3, 2017, dealt with similar issues. Presenters noted that the landscape has changed considerably

from 2013, with flood coverage currently available for 90% of Canadians. They also noted the wide variety of coverage, very similar to the IBAA survey.

The two main concerns emanating from both the IBAA survey and the NICC discussion are the elevated E&O risk arising from the variety of policies available and the fact that coverage is either unavailable or unaffordable for up to 10% of Canadians.

The variety of policies presents the proverbial double-edged sword for brokers. On the one hand, the increased E&O risk associated with the increased complexity causes great concern. In some cases, clients may think they have flood coverage, when in fact all they have is sewer backup. In others, the flood coverage they do have may be seriously inadequate for the flood that happens.

They may even be in a flood zone and have no coverage at all and then find themselves in the middle of a catastrophic event.

On the other hand, this same complexity in the offerings increases the value proposition of the broker. Brokers have the skill and options to buy the best insurance to cover their clients’ needs.

Yes, flood insurance is complicated; yes, the policy wordings have some serious differences; yes, a wide range of coverage is available—from none to comprehensive.

What differentiates a broker from a

direct agent or an insurance company website is the fact that a broker has access to a variety of products, understands them and properly explains them to his or her clients, thus offering advice and choice.

For those who wish for consistency in the products available, think about what that means. While consistency reduces the E&O risk, more significantly it commoditizes the flood product and reduces consumer choice and competitive invention. A further result is the diminished broker value proposition at a time when brokers sometimes have difficulty explaining their value to their clients. Brokers who offer a variety of products to their client while explaining the differences in coverage and recommending the most appropriate policy will have increased the value of their services to the client while mitigating the E&O risk.

A much tougher problem to solve is that up to 10% of the Canadian population cannot purchase flood coverage or find it too expensive to buy.

Canada was the only G7 country that did not offer residential flood coverage in 2014, and a significant concern in product development was that the coverage in the other six countries did not work well enough. One common problem in the other countries was that 5% to 10% of dwellings were not covered, a gap that appears to be the case here as well.

The solution seems to be a partnership between builders, homeowners, all levels of government and the insurance industry. Some of this partnership involves mitigation, some involves regulation, some involves increased coverage and some involves outright government assistance for recovery from flood losses where coverage is not economically viable for the insurance industry to provide. Government is currently assessing the public’s reaction to the coverage that is available and the way companies are fine tuning their policy wordings. Governments at all levels will likely continue to study these results in the short term at least.

So, back to the original question: “Are we there yet?” The answer is clearly “no,” but we have come a long way in the last three or four years and are certainly in a better spot than we were in 2013 and 2014. The good news is that affordable coverage is available for upwards of 90% of Canadians. The variety of coverage is not necessarily bad news. It presents an opportunity for brokers to shine, and the better ones will.

GEORGE HODGSON CEO IBAA GHodgson@ibaa.ca

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The Alberta Broker

December 2017–January 2018 23

What Is

?

by Grant Patten, Digital Media & User Experience Specialist, CSIO

InsurTech refers to a set of business models and/or platforms that create an enhanced customer experience by applying innovative technologies to the insurance industry.

W

hile some brokerages together with insurance companies are risk by blending open data with and insurance listed below: machine learning, ultimately helping companies worry Sureify, branding itself “the insurers improve their bottom line by that InsurTech bridge between carriers and customers,” declining the riskiest fraction of their startups may compete for market focuses on improved underwriting books. share, InsurTech is actually more of Senteri provides smart an opportunity than a threat to connected devices that give the P&C insurance industry. insurers dynamic updates on “There are very few InsurTech McKinsey & Company revealed their risk, such as the risk in firms challenging core insurance some interesting statistics at an customers’ homes. Senteri’s InsurTech conference in April: mobile app allows customers to systems providers ...

It is true, • 60-90% of all InsurTechs verify the products installed in today are offering a valuetheir property that qualify for however, that the simpler insurance added service to insurance insurance discount programs, companies to improve the such as security systems, smoke products such as personal lines way they do business and alarms and automated door locks. auto may see more disruption.” increase profitability Claimatic, branding • Only 9% are truly disrupting itself “an Uber for claims,” the full value chain provides a plug-in solution that There are very few InsurTech firms and customer engagement by integrates with existing claims challenging core insurance systems providing insurers with more data on management software systems to providers. Instead, most tend to focus policyholders via mobile and Internetautomatically assign the best available more on augmenting and improving a of-Things devices. managers, field adjusters and vendors to specific niche aspect of insurance. Some Tyche is an interactive platform handle claims based on real-time data. examples of InsurTech firms working allowing underwriters to assess casualty

24 The Alberta Broker December 2017–January 2018

Alberta InsurTech startup Besure is a risk-sharing platform developed to facilitate the process of self-insurance among communities through software.

Pools are initiated and managed by groups, organizations and associations with shared risk.

What does InsurTech mean for brokers?

The above examples are provided to illustrate how InsurTech firms can present more of a competitive benefit, rather than a threat, to traditional business models. It is true, however, that the simpler insurance products such as personal lines auto may see more disruption. CoverHound, for example, is an auto insurance comparison shopping platform that has gained some traction in the U.S. CoverHound acts as a broker, helping customers shop for insurance, compare rates and negotiate the best policies for their individual needs. Most brokers are aware that they must continue to innovate to meet the needs of a changing consumer and offer valueadded services beyond basic auto insurance; more complex products, such as commercial insurance, still very much require the advice and consultation of a knowledgeable broker to sell effectively.

InsurTech provides brokers with an opportunity to leverage these innovative products and services allowing brokers to augment and reinforce their value proposition as knowledgeable advisors.

How will InsurTech change P&C insurance?

Many in the industry are actively developing answers to just this question by learning about this emerging digital landscape, engaging with these startups and considering their innovative ideas, and even funding, acquiring or partnering with them. Aviva Canada, for example, has already demonstrated its interest in engaging the InsurTech startup scene by hosting hackathons and launching an accelerator program, in partnership with Ryerson University, for early stage InsurTech startups that require rapid development.

What can we expect in the near future?

We’re likely to see other forwardthinking insurers launch InsurTech programs and accelerators similar to Aviva’s in the coming months and years.

InsurTech startups will likely continue raising significant amounts of funding, and acquisitions of these startups by insurers and investment companies will also likely continue. Toronto investment company Mill Street & Co, for example, recently acquired

Tuque, an InsurTech startup based in Ontario. Tuque provides a mobile app and website allowing customers to buy home, auto and business insurance as well as legal and tax coverage. This is clearly an exciting time for the P&C industry and it will be interesting to see how InsurTech continues to evolve in Canada. Consult CSIO.com for more articles and educational resources on technology relevant to the broker channel.

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The Alberta Broker

December 2017–January 2018 25

PYIB Perspective Ian Brown

Premium Cost vs.

Quality of Service

Do Customers Understand the Risk of Price Shopping? insurance brokers, we can educate As the challenging economic climate pervades our province, our clients on a wide range of issues. an increasing number of clients seem motivated by price to Many of our clients aren’t even aware shop for their insurance. The quality of service and product of basic insurance practices. The ability to advise them of may become secondary in their considerations. Of course proper coverage and products in our industry that best suit consumers want to reduce their insurance cost, but coverage their needs, review new coverage that is being released and that meets their needs should be the primary consideration. go into detail about how and why a If disaster strikes and the coverage If disaster strikes and the coverage coverage would benefit them really fails to respond, they stand to lose differentiates our role as a broker more financially than they would fails to respond, they stand to lose from that of a direct writer or a with a higher premium. As brokers, bank agent. we have the knowledge and the more financially than they would I’m sure we have all prioritized position within the industry to prove with a higher premium. this type of customer service and the association slogan: “Your best make it a part of our daily routine. insurance is an insurance broker.”

As long as we keep emphasizing in our practice what So what makes an insurance broker different? Some differentiates us from other types of competitors, I believe clients forget the fact, or let alone are even aware, that that potential and existing clients will start to focus more on insurance brokers operate independently of the insurance quality of service from their exceptional insurance brokers company and solely on behalf of our customers. We have than on the price of the product. We have to keep doing what access to a great range of insurers and products that are not we do best, putting our clients first, and have them understand directly available to the public. Unlike direct writers and that their satisfaction is our number one objective. captive agents, we have the ability to shop the products.

Unlike most consumers, we also have the knowledge to compare the products and determine the value for individual needs.

JENNIFER BROWN In addition to knowledge, we have the resources to Director-at-Large educate and advise our clients. I believe that educating PYIB the consumer brings many positives in any profession. As JBrown@CJCampbell.ca

26 The Alberta Broker December 2017–January 2018

The Alberta Broker

December 2017–January 2018 27

Professional Development Janis Losie

Presenting the CAIB Graduates of 2017 I am thrilled to be writing this month’s professional development article because I am excited to share with you the list of IBAA CAIB graduates for 2017. CAIB represents the gold standard of achievement for Canadian insurance brokers. It is also the first step in the trilogy of excellence—CAIB, CPIB and CCIB. Much like the CIP for insurance company employees, this trilogy is a crowning achievement for the professional insurance broker, recognized by insurance brokers throughout Canada. I also salute the graduates’ past and present employers for supporting IBAA’s continuing education programs and recognizing the value that the CAIB designation confers.

Without further ado, please join me in congratulating this year’s graduates.

They have worked long and hard to obtain this designation and we are very proud of them all!

RaeAnne Gibson HUB International

CAIB Honours Graduates 2017

Division of Peace Country Insurance Amanda Hawboldt HUB International Phoenix Ryan Honish AON Risk Solutions

Kim Breker Rushton Agencies Tiffany Flaig Western Financial Group

Phoenix Insurance Brokers Amber Laflamme Drayden Insurance Kelly O’Sullivan Toole Peet Insurance Sasha Sather Top Alberta Average Grade, Drayden Insurance Kim Toller A-WIN Insurance

CAIB Graduates 2017 Kim Breker Rushton Agencies Zakia Chowdhury Westland Insurance Brokers

Kerry Coates Western Financial Group

Tyler Dunsmore Foster Park Brokers Jennifer Eaton MD Marine Insurance Kayla Eresman Western Financial Group

Tiffany Flaig Western Financial Group RaeAnne Gibson HUB International Phoenix Insurance Brokers

Amber Laflamme Drayden Insurance.

Charlene Gize A-Win Insurance Terrie Grills Sexsmith Insurance a

28 The Alberta Broker December 2017–January 2018

Terri Kiddine Mclean & Shaw Insurance Brokers (Grande Prairie)

Dana Lockhart Mason Agencies Insurance

Curtis Luu Challenge Insurance Group May Metke BrokerLink Cody Miller BrokerLink Brandy Miron Drayden Insurance Wanda Noren Sexsmith Insurance a Division of Peace Country Insurance Kelly O’Sullivan Toole Peet Insurance Natalie Regner Thomson Schindle Green Insurance & Financial Services Sasha Sather Drayden Insurance Marilyn Smith Drayden Insurance Kendra Sommerville Western Financial Group Riley Spak BrokerLink Morgan Speirs Truman Insurance Agency Rob Stewart Lundgren & Young Insurance Heather Theiss BrokerLink Kim Toller A-WIN Insurance Tenille Unruh Iridium Risk Services November Varga Western Financial Group Ana Vasquez Progressive Home Warranty Cheryl Walters Western Financial Group

Donna Ward Roger E. Johnson Agency

Lisa Waskul HUB International Phoenix Insurance Brokers Connie Wiebe Thomson Schindle Green Insurance & Financial Services Jennifer Wymenga Helen Hunley Insurance Kaitlyn Younger Western Financial Group Marnie Zorn Toole Peet Insurance JANIS LOSIE Director, Media Relations, Marketing & Communications IBAA JLosie@ibaa.ca

C CAIB

ibaa courses More classes at ibaa.ca

Fast Track

13 &

SATURDAYS CAIB 1 Edmonton Mar 24-Apr 21 Calgary Apr 7-28 CAIB 3 Calgary & Edmonton May 26-Jun 2

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Licensing

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Designation Exam

CAIB

February 7 March 21 May 2 July 4 September 12 October 24 December 5

Ensure Online Training

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CAIB 2 Tuesday evenings Apr 24-Jun 26 CAIB 3 Wednesday evenings Oct 3-Nov 28 CAIB 4 Wednesday evenings Apr 18-Jun 27

The Alberta Broker

December 2017–January 2018 29

Who? What? Where? Tracy Fata

Northern Excel Insurance Group expanded with the purchase of Crawford Agencies in Ponoka and Atrix Insurance Management in Hinton.

CHARITABLE WORKS

BROKER NEWS Evaluate Insurance (formerly McLean and Shaw – Grande Prairie) moved to a new location just steps away from its old location. Staff will be busy this next year with the purchase of the small commercial book from AON Grande Prairie.

Sims and Associates moved its Bear Hills office into Ponoka.

Many of the industry associations held various fundraising events in the fall. Results were not available at press time.

• The AAIA charity gala, held on November 4, raised funds for the Rainbow Society of Alberta.

• On November 2, The Edmonton Insurance Association held its annual food-bank-drive kickoff party and silent auction to raise funds for the Edmonton Food Bank. They then challenged industry partners to collect food bank donations that were picked up and delivered to the Edmonton

30 The Alberta Broker December 2017–January 2018

Food Bank in the first week of December. Special thanks to the pickup crew from Carstar.

• Women in Insurance Cancer Crusade (WICC) held a Pancake Breakfast on November 8, with all proceeds going to the Canadian Cancer Society.

Company News SPECS announced the addition of two contents appraisers to their prairie division; Edmonton branch welcomes Sarah York and Calgary branch welcomes Melanie Trach.

TRACY FATA Regional Underwriting Manager TFata@PortageMutual.com