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The Canadian property & casualty industry experienced relatively stable premium growth this year, about 1.9%, which is in line with other advanced economies.1 However, overall, 2013 was a trying year for the Canadian industry, prompting outgoing OSFI superintendent Julie Dickson to christen it the “annus horribilis.” There were record breaking floods in the middle of the year, followed by a train disaster. The Ontario government also put auto insurers on notice, demanding that premiums be reduced by 15%. In keeping with the trend of the past few years, there was also further consolidation this year: The Travelers Companies, Inc. announced on November 1, 2013 that it had completed its acquisition of The Dominion of Canada General Insurance Company from E-L Financial Corporation Limited. The combined organization, now renamed as Travelers Canada, will remain headquartered in Toronto. (Travelers announced in June that it would acquire The Dominion for $1.1 billion in cash.) On a smaller scale, three Ontario mutual insurance companies officially amalgamated in 2013, creating The Commonwell Mutual Insurance Group. The group began operations on January 1. Farmers’ Mutual Insurance Company (Lindsay), Glengarry Mutual Insurance Company and Lanark Mutual Insurance Company received regulatory approval to amalgamate from the Financial Services Commission of Ontario on October 25. Flooding – An expensive global problem
Canada is not alone in weathering an increasing flood problem. Preliminary sigma estimates, released in August, show that total economic losses from natural catastrophes and man-made disasters were US$ 56 billion in the first half of 2013. The global insurance industry covered US$ 20 billion of the total losses, of which US$ 17 billion were caused by natural catastrophes. In the first half of 2013, flooding was a main driver of natural catastrophe-related losses, causing an estimated US$ 8 billion in insurance claims globally. In fact, 2013 is already the second most expensive calendar year in terms of insured flood losses on sigma records.2 In June, heavy rains in central and eastern Europe caused massive floods that resulted in economic losses of close to US$ 18 billion and claimed 22 lives. The estimated US$ 4 billion cost for the insurance industry makes this the second most expensive fresh water flood. This year's flooding in Europe was also more expensive than the 2002 floods in the same region which cost the industry over US$ 2 billion (US$ 3 billion at current prices).
                                                             1 Sigma Global insurance review 2013 and outlook 2014/15. Retrieved from 2 Swiss Re press release. Catastrophes cost global insurance industry more than US$ 20 billion. August 21. 2013. Retrieved from 2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  In December, the UK was assailed by a one in 500 year flood. Coastal properties were inundated by storm surge caused by record-breaking high tides. Preliminary insurance estimates were expected to be “in the tens of millions of pounds rather than the high hundreds of millions, potentially reaching £100m,” a PwC analyst said, with the largest claims arising from business interruption policies.3 Typhoon Haiyan
2013 also saw new records for wind speed being established. Typhoon Haiyan came ashore at Category 5 strength with estimated maximum sustained winds of 315 kph (195 mph), the strongest tropical cyclone to make landfall. It was the fourth strongest cyclone ever recorded.4 At least 7,498 people were left dead or missing. More than 26,000 were injured. The storm also prompted excessive rains and storm surge heights approaching 6 metres in height. Total economic losses, including damage and reconstruction costs, were estimated at US$5.8 billion. Because insurance penetration in the Philippines is low, insured losses will likely only range between $300 million and $700 million, according to risk modeling firm AIR Worldwide. 5 Climate change and Canada
Canada’s international reputation in the area of climate change, already battered, took a further beating this year. 1. An annual European report by the Climate Change Performance Index, which was released to coincide with a United Nations climate change conference in Doha, ranks Canada 55th of 58 countries in terms of tackling greenhouse gas emissions, ahead of only Iran, Kazakhstan and Saudi Arabia. 2. A Washington-based group, the Center for Global Development, issued a separate report that ranked Canada 27th on the environment out of the world’s wealthiest 27 countries.6 While it may appear that little official effort is being expanded on managing climate change, there is no doubt that the risks are stark, and weather-related claims are increasing, especially auto, home and business interruption. Alberta has always been particularly vulnerable to natural disasters. In the four years from 2009 to 2012, when insured losses in Canada from natural catastrophes were pegged at, or near, a billion dollars a year, Alberta suffered the most with an average of $673 million a year in insured losses from natural catastrophes.7 Alberta got no respite this year. The Insurance Bureau of Canada (IBC) reported that insured property damage in the wake of the June 20 flooding in Alberta exceeded $1.7 billion, making it the costliest insured natural disaster ever in Canada. Most of the claims were for auto and home. 8 The floods displaced 100,000 people and caused the deaths of four Albertans.                                                              3 PwC blog. UK coastal flooding - insurance industry impact. December 10, 2013. Retrieved from
4 Fischetti, Mark, blog. Was Typhoon Haiyan a record storm? Scientific American. November 12, 2013. Retrieved from
5 Baker, Liana. Insured losses from Typhoon Haiyan may be $300 million to $700 million. Reuters, November 17, 2013. Retrieved
6 Cheadle, Bruce. Canada’s climate policy worst in developed world. Canadian Press, November 18, 2013. Retrieved from
7 CITOPbroker. Innovative climate change adaptation strategies needed: IBC. May 29, 2013. Retrieved from
8 Ruquet, Mark. Best, Moody’s Perspectives: Canada Insurers' Outlook After Record Floods. July 2, 2013. Propertycasualty Retrieved from
2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  The Alberta government announced new policies in mid-July to help residents pay for improvements to bolster their homes against future flooding and, if necessary, to relocate outside flood fringe zones, as well as stopping future development approvals on floodways and annotating property titles to ensure prospective buyers know that properties got flood relief in the past or are on floodways. 9 The province divides “flood hazard” areas into floodway and flood fringe zones. A flood fringe zone is “generally shallower” with water flowing more slowly than a floodway zone. New development in the flood fringe may be permitted, but must be flood-proofed. The portion of the flood hazard area where flows are deepest, fastest and most destructive is a floodway. New development is discouraged in the floodway and may not be permitted in some communities.10 The latest policies are not without their complications, with some residents decrying the inconsistencies in the way the floodway maps have been drawn.11 GTA floods
The storm and flash flooding on July 8 in the Greater Toronto Area also set a record for Ontario’s most expensive natural disaster, according to the Insurance Bureau of Canada, with estimates topping $850 million. The storm saw 126 millimetres of rain fall on Toronto in a two-hour period. The downpour was more than the amount of precipitation Toronto receives in an average July. Impact on insurers
Dickson warned her audience in September to be “increasingly focused on climate risk.” The increased frequency and severity of catastrophe losses are part of the new reality for insurance companies. “Within the last five years, we have seen a level change in insurer losses to around $1 billion or more annually.” 12 This year, Intact Financial Corp. reported its first underwriting loss in 10 years. The country’s largest property and casualty insurer reported third quarter net income of $47 million compared to $92 million for the same period last year, a decline of almost 50% TD Bank Group also reported that severe flooding in Alberta and the Toronto area would result in a loss for its insurance business, which would have been profitable without the weather-related expenses. TD Insurance faces an after-tax net loss of between $240 million to $290 million for the period, which covers the months of June and July.13 Dickson acknowledged that part of the problem is that catastrophe models available for Canada focus on earthquake, with some limited modeling of winter storm and tornado, wind and hail. There are no commercially available Canadian models that could be applied to flooding, bush or forest fires or hurricanes.                                                              9 Canadian Underwriter. New Alberta policies aim to mitigate future flood damage. July 15, 2013. Retrieved from
10 Govt of Alberta website. Flood hazard mapping. July 18, 2013. Retrieved from
11 Graveland, Bill. Alberta flooding 2013: 6 months later, life is still not normal in Alberta. December 15, 2013. Canadian Press.
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12 Dickson, Julie. Speech at the National Insurance Conference of Canada, Gatineau, Quebec. , September 23, 2013. Retrieved
13 Friend, David. TD insurance warns of Q3 loss on flooding in Alberta, Toronto. July 13, 2013. Canadian Press.
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2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  
The Lac-Mégantic Rail Disaster
Canada also experienced its fourth worst rail disasters this year. The derailment occurred in the town of Lac-Mégantic, on July 6, 2013, when an unattended 74-car freight train carrying crude oil ran away and derailed, resulting in deadly explosions. Forty-seven people were confirmed. More than 30 buildings in the town's centre, roughly half of the downtown area, were destroyed. Claims to local insurers were estimated at $25 million for Intact Financial, $18 million for Promutuel and $7 million for Desjardins Group. The railway company, Montreal, Maine and Atlantic, which filed for bankruptcy soon after the disaster, had its insurance coverage approved by the Canadian Transportation Agency earlier this year, the Globe and Mail reported.14 Its third party insurance coverage, underwritten by XL Insurance, was only $25 million, far less than the estimated $200 million cleanup costs.15 The Canadian Transportation Agency has since said it will review how it determines minimum insurance requirements for railways. A rail-safety audit completed just days before the deadly July train crash found “significant weaknesses” in Transport Canada’s oversight of federally regulated railways.16 1. a lack of knowledge of rail routes used to transport dangerous goods, 2. too few safety auditors, 3. poorly trained inspectors, and 4. no follow-up or sanctions when safety problems are identified. The auditor general found that only 14 safety audits of Canada’s 31 federally regulated railways had been completed in the previous three years. Eight of those 14 audits focused on just the two largest operators, Canadian National Railway and Canadian Pacific Railway, leaving Canada’s smaller operators largely unchecked.17 Provincial auto insurance changes
This year, the Ontario provincial government also passed legislation to reduce auto insurance premiums in the province by 15% (8% by August 2014 and a further 7% in 2015). Ontario also proposed measures to reduce fraud in the system and committed to studying additional potential cost-saving initiatives intended to balance the reduction in premiums. For its part, OSFI warned that it will be looking at how insurers are affected by, and manage these changes, while adhering to minimum capital requirements.                                                              14 MacKrael, Kim and Giovanneti, Justin. Canadian Transportation Agency approved MM&A’s coverage. August 11, 2013. Globe and Mail. Retrieved from 15 McLaughlin, David, Tomesco, Frederic, Kary, Tiffany. Montreal Maine Railway files for bankruptcy after crash. August 8, 2013. Bloomberg News. Retrieved from 16 Government of Canada , Office of the Auditor General Fall Report. “Oversight of rail safety – Transport Canada. Chap 7.” 2013. Retrieved from 17 Cheadle, Bruce .Rail-safety audit days before fatal Quebec crash found ‘significant weaknesses’ in government oversight. November 26, 2013. Canadian Press. Retrieved from 2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  “For example, if Ontario auto insurance business starts to lose money and companies decide to enter new markets or begin selling new products as a way of making up the losses, companies will need to ensure that they are not replacing one risk with a new risk – namely operating in a market they do not understand. We are already seeing moves into commercial lines and, without the right experience and controls, the more likely it is that mistakes will be made and that pricing will be inadequate,” Dickson explained. “As a prudential regulator, OSFI will continue to focus on the impact on risk management at companies and the impact on capital. Companies that already have low ROE due to ineffective underwriting, lack of solid claims management, etc., would not want to use the Ontario proposal to avoid making needed change. We expect companies to recognize the constraints imposed by the Minimum Capital Test (MCT) in their rate-making process and to continue to consider the MCT, given its focus on risk, as well as their own view of the risks associated with Ontario auto insurance.”18 Concussion in sports – Who is liable?
The National Hockey League (NHL) has also found itself vulnerable to concussion-related lawsuits. Early this year the family of former hockey enforcer Derek Boogaard, who died from an accidental drug and alcohol overdose on May 13, 2011, sued the NHL over his death in a wrongful death suit. Boogaard’s family alleged that Boogaard was addicted to the painkiller pills he was given by team doctors. According to court documents, Boogaard was prescribed 1,021 pills during the 2008-2009 season, and 150 oxycodon pills over a 16 day period, prior to two surgeries, at the end of the 2008-2009 season. Boogaard was posthumously diagnosed with chronic traumatic encephalopathy (CTE).19 In late November, 10 former NHL players, including former Maple Leaf Gary Leeman, launched a class action claiming that the league had not done enough to protect players from concussion. The number of players involved has since ballooned out to 200.20 In response to the lawsuit, Bill Daly, Deputy Commissioner of the National Hockey League, said, "We are completely satisfied with the responsible manner in which the League and the Players' Association have managed player safety over time, including with respect to head injuries and concussions. We intend to defend the case vigorously and have no further comment at this time."21 The need for clear wording
In November, the Ontario appeal court upheld an earlier ruling by Justice Mary Anne Sanderson declaring that Wawanesa Mutual Insurance Company has a duty to defend a homeowner's insurance client who was sued in a third party claim over a traffic accident that injured their daughter. In August 2003, 8-year old Kelly Bawden was injured by a vehicle while riding her bicycle along a sidewalk in Toronto. The vehicle was driven by Joyce Wilson. Kelly Bawden's parents, David and Elizabeth Bawden, sued the Wilsons. The Wilsons counter-sued the Bawdens, alleging that Kelly’s injuries may have been caused, or contributed to, by her parents’ negligence in “failing to properly instruct and supervise Kelly."                                                              18 Dickson, Julie. Remarks to the 2013 Property and Casualty Insurance Industry Forum, Cambridge, Ontario. June 6, 2013. Retrieved from 19 Mitchell, H. Family of Derek Boogaard files wrongful-death lawsuit against NHL. Los Angeles Times. May 13, 2013. Retrieved from,0,5342902.story see also 20 Canadian Press. NHL concussion lawsuit grows to over 200 players: lawyers. November 28, 2013. Retrieved from 21 National Hockey League press release. NHL issues statement on concussion suit. November 25, 2013 Retrieved from 2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  The Bawdens' homeowner insurer, Wawanesa, had refused to provide a defence to the Wilsons' third-party claim against the Bawdens. In a March 22 decision, Justice Sanderson found that Wawanesa has a duty to defend. Wawanesa appealed, but on Nov. 26, the Court of Appeal for Ontario upheld Justice Sanderson's ruling. The homeowners' policy that Wawanesa wrote for the Bawdens covered them "for claims made or actions brought against" them for personal liability — which includes "bodily injury or property damage arising out of your personal activities anywhere in the world.” In its defence, Wawanesa relied on an exclusion that states: "You are not insured for claims made or actions brought against you for . bodily injury to you or to any person residing in your household other than a residence employee." As the court of appeal noted, the exclusion was worded in a way to prevent claims arising out of collusion between family members. However, Wawanesa contended that the exclusion "removes all claims for bodily injury by the insured and those residing in their household from the general coverage for claims against the insured for bodily injury." Neither Justice Sanderson, nor the appeal court, found the argument persuasive. Justice Sanderson observed that “exclusions must be interpreted narrowly” and Wawanesa “chose not to use words clearly extending the coverage to direct or indirect actions.” The use of the wording “arising out of” was missing from that exclusion clause, she noted in her judgement. The wording of the exclusion clause, when compared to the wording of the coverage and in the context of the policy wording as a whole, is consistent with an intent to exclude only direct claims between or among family members and to leave coverage for indirect claims by third parties against household members intact, Justice Sanderson ruled.22 Looming issues
Is a pandemic imminent?
A Towers Perrin interview of global insurance industry executives ranked a pandemic, a large-scale natural catastrophe and a food/water/energy crisis as the three most important extreme risks for the insurance industry.23 As far as a pandemic is concerned, the signs are not very reassuring. On December 7, 2013, Hong Kong confirmed its second H7N9 avian flu fatality. Some 140 people died in a H7N9 outbreak in the mainland earlier this year that wreaked havoc and caused billions of dollars of losses in the country’s poultry industry.24 This virus also appears to be resistant to the anti-viral drug Tamiflu. Saudi Arabia has also found itself “hosting” a novel coronavirus, called MERS (Middle East Respiratory Syndrome), which was first isolated in June 2012. This virus has since been found to have originated from camels. As of December 17, 2013, the World Health Organisation confirmed that 165 people have contracted MERS worldwide, of which 71 have died. The upside is that the virus does not appear to spread easily between humans.25                                                              22 Bawden v. Wawanesa Mutual Insurance Company, 2013 Ontario Court of Appeal, 717. Retrieved from 23 Towers Watson press release. Insurers say global pandemic is their major extreme risk. December 3, 2013. Retrieved from 24 Russell, Flannery. Hong Kong confirms a second H7N9 bird flu case. Forbes. December 7, 2013. Retrieved from 25 Bakr, Amena and Kelland, Kate. MERS virus found in camels in Qatar, linked to human spread. November 28, 2013. Reuters. Retrieved from 2013 YEAR IN REVIEW By Indrani Nadarajah
ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013  
The threat of cybercrime has been gathering more attention over the past few years, but efforts to contain it are still not particularly successful. A global report released in October by security software firm Symantec Corp. says the cost of cybercrime in Canada has risen in the past 12 months to US$3 billion. The report estimates seven million Canadians fell victim to cybercrime in the past 12 months, with offences ranging from bank or credit card fraud to identity theft.26 The average cost of a breach is about $188 per stolen record, and the average loss per incident is $9.4 million, according to a study from the Ponemon Institute, a research center focused on information security. 27                                                              26 CBC News. Cybercrime moving to smartphones and tablets, say experts. October 2, 2013. Retrieved from 27 Ponemon Institute research report. Cost of cybercrime study: United States. 2013. Retrieved from ADVANTAGE MONTHLY: emerging trends and issues. The CIP Society. December 2013.




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