Embracing Change

2013 National Insurance Conference of Canada (Gatineau, Quebec)

Attendees of the 7th annual National Insurance Conference of Canada (NICC), held September 22 to 24 in Gatineau, Quebec, were treated to a mix of fact and opinion. Issues on the radar included everything from overland flood to supply chain risks and earthquake modelling.

Solid data key to flood insurance

Development of a viable flood insurance program in Canada demands that insurers have conversations with policyholders and clearly outline what homeowner policies cover, Kathy Bardswick, president and chief executive officer or The Co-operators, suggested during a panel discussion at NICC.

The home insurance product has become a commodity where consumers have an expectation that everything is covered, Bardswick said.

Policyholders, for their part, must make more deliberate decisions on their policies, she said. “The ideal that we should be working toward is helping the consumer make the appropriate risk management decisions that they need to make.”

Encouraging homeowners to take effective risk mitigation measures, as well as discouraging rebuilding in high-risk flood zones, should be a focus of the insurance industry, noted fellow panelist, Guy Vézina, senior vice president of general insurance at TD Insurance.

“It’s a challenge right now to make the insurance affordable,” Vézina said. “The only solution to me is prevention.”

Vézina reported that approximately half of the structures destroyed in the Calgary flooding in June were built after 2005 – another year in which Alberta was slammed by severe flooding.

Still, people chose to build their homes in a floodplain, something that must stop, he said. Part of the problem is that many consumers likely do not know they are, in fact, in a floodplain.

The insurance industry would also benefit from more information. Bardswick said that the industry needs to invest in data, an investment that will not be cheap, but is clearly necessary. 

Earthquake model coming to Canada

Catastrophe modelling firm AIR Worldwide plans to launch an earthquake risk model for Canada in 2014, after having completed a study commissioned by the Insurance Bureau of Canada (IBC).

Next June, the firm is scheduled to release its earthquake model for Canada, including risk in British Columbia and Eastern Canada, David Lalonde, senior vice president of consulting and client services for AIR, told Canadian Underwriter during NICC.

The model will look at fire spread risk, will have an updated tsunami model, will include an updated liquefaction model, and will have an earthquake-triggered landslide model, Lalonde reported. Beyond that, the offering includes improved data resolution and uses the latest soil maps from the Canadian Geological Survey.

“What’s unique about Canada is that the location of the population is along the border of the United States,” he said. That means a large event at home could have a particular impact for companies writing business internationally and for some reinsurance companies.

Gregor Robinson, IBC’s senior vice president of policy and chief economist, provided NICC attendees with the highlights of the commissioned study, which will be released at the end of October.

The study, based on a one in 500 year return period, the regulatory standard for which insurers in Canada must be capitalized, looks at the impact on the industry of a 9.0-magnitude event off the coast of British Columbia, and a 7.1-magnitude quake near Quebec City.

In the Western scenario, the quake would hit 75 kilometres off the coast of British Columbia in the Cascadia subduction zone in late July and be felt as far away as 400 kilometres. It would create long, seismic waves that would be especially damaging to tall buildings.

Robinson said shaking would account for 82% of the total direct losses from the event. Combined with landslides, liquefaction would account for roughly 10% of total direct losses, he added.

Robinson reported the scenario would also lead to a tsunami that would generate waves of about two metres once they reached Victoria, and slightly less for Vancouver. The tsunami would account for about 7% of total direct losses.

Overall, such an event would have an extreme impact on supply chains and the overall Canadian economy, as roads, pipelines and airports would all be affected, Robinson said.

Impacts on auto insurance

The insurance industry should encourage consumers to use available tools to become better drivers as vehicle and road technology evolves and becomes mainstream, NICC attendees were told.

Barriers to more automation in vehicles are now largely political rather than technological, noted Craig Weber, chief executive officer of Celent.

Collision-avoidance features, lane-changing support and warnings, and external cameras are becoming more mainstream in vehicles, he said during a panel session on the future of auto insurance. The features, along with telematics technology and automated enforcement, all have implications for the auto insurance industry and should play into the future strategies of auto insurers, he added.

Robyn Robertson, president and CEO of the Traffic Injury Research Foundation, noted, however, that many Canadians may not be at the point where they fully understand how current vehicle safety features work. Drivers “don’t really seem to get that the way they drive is going to influence how well those features work,” Robertson reported.

Michel Laurin, president and chief operating officer for Industrial Alliance Auto and Home Insurance, suggested use of telematics technology may be a way to encourage drivers to improve behaviour.

Supply chain gaining profile

Two out of three companies recently surveyed by Deloitte reported they have a supply chain risk management program, Kelly Marchese, principal of supply chain and manufacturing at Deloitte, said during a presentation at the NICC.

Noting that supply chains are now so complex, “it’s that much more challenging to manage those supply chains,” Marchese said. “Anything from natural disasters to human rights violations have an impact on supply chains, counterfeiting and quality failures – the list goes on and on.”

Citing past catastrophic events in Thailand and Japan, Linda Conrad, director of strategic business risk management at Zurich Financial Services, told attendees that many supply chain losses were uninsured. “There’s some person that has to pay for that and it may be because they didn’t understand what their true exposure was.”

Injection of Youth

Young people will be a key part of the insurance industry’s own destiny, Peter Hohman, president and CEO of the Insurance Institute of Canada, told attendees of the NICC.

Through its Career Connections program, which targets young people, the institute has connected with more than 800,000 students (about half a million in high school and 300,000 in university and college) in the past five years, Hohman reported. Young people are being sought to help “organizations recruit that essential younger demographic to ensure there is a pipeline of future talent entering our industry.”

Demographic research undertaken by the institute in 2007 showed an under-representation of those aged 32 and younger working in insurance. However, the 2012 study indicated those aged 17 to 32 rose from 12% to 27%.

That said, once people enter the profession “the need for investment in their skills development is essential.”

Canadians want their insurance professionals to be qualified and educated, suggest findings from a poll commissioned by the institute earlier t his year.

In all, 82% of respondents agreed an insurance professional who has received an education in their field is more likely to give a comprehensive and qualified quote for an insurance policy, and 90% said that they would better trust an insurance professional with up-to-date credentials, Hohman reported.