Risk Management (October 01, 2009)

CANADA NEEDS ITS OWN MODEL FOR EMPLOYER PRACTICE LIABILITY (EPL) POLICIES

The Canadian commercial marketplace requires standard policy wording for Employer Practice Liability (EPL) policies that are distinct from U.S. policies.

The Risk Management Counsel of Canada delivered a seminar, Employer’s Dream: Insurer’s Nightmare! Employer’s Liability: The Need for a Canadian Model, at the RIMS Canada Conference in St. John’s, Newfoundland on Sept. 15.

Jorge Segovia, a panel member and a partner at Cox and Palmer in St. John’s, noted two main differences between Canada and the United States that highlight the need for Canadian insur- ers to approach EPL coverage in a distinct manner.

First is the definition of wrongful dismissal in Canada and in the United States.

In the United States, a wrongful dismissal claim can arise if the termination involves some form of statutory breach such as discrimination.

In Canada, wrongful dismissal is simply the fact that an employee that has been terminated has not been given reasonable notice or pay in lieu of notice.

The second distinction has to do with punitive damages.

In the United States, punitive damages are not covered by EPL policies because the size of the damages being awarded in the U.S. is quite high. In contrast, in Canada, where the awards are quite modest, most insurers agree to cover the damage awards.

CREDIT RISK LOSS RATIOS CLIMB PAST THE 100% MARK

Loss ratios for credit risk insurance climbed from between 20% and 30% prior to the financial crisis that began in 2008 Q3 to more than 100% currently, driving a hard market in the line, said Daniel Galvao, senior vice president of financial products at Marsh Canada Ltd. (Toronto).

Galvao spoke at the RIMS Canada Conference being held in St. John’s, Newfoundland from Sept. 13-16. He was a panel member at the session, Credit Risk: Risk Management Implications on Managing Financial Volatility, Corporate Governance and Counter Party Exposure.

Prior to Sept. 2008, the credit risk market was incredibly soft and ultra-competitive, with plenty of capacity and lots of new product launches said panel-member Todd Pickett, a general agent with Coface Canada (Toronto).

“Fast forward to 2008 Q3, and it’s now a very hard market with record losses,” he said.

“Underwriting is definitely conservative. We have done three major cuts in our capacity in the past 12 to 18 months and each time we have cut capacity by about 5% across the board, so capacity is definitely shrinking.”