Canadian Underwriter

Top Broker Summit: The Evolution of Risk

February 14, 2013   by Regan Reid

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One of the major issues plaguing the insurance industry is its reputation. In the eyes of clients and the public, insurance brokers are not often valued as highly as other business advisors.

“We’re still seen as insurance salesmen,” commented Christine Lithgow, president and CEO of Aon Risk Solutions Canada at Canadian Insurance Top Broker’s second annual Top Broker Summit. At the sold-out, full-day event, 180 delegates heard from industry leaders and clients on what producers can do to grow their business, better their service and demonstrate their true value.

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Growth Through Acquisition

Martin P. Hughes, chairman and CEO of HUB International, began the day with a keynote address that discussed how HUB has grown to become one of the leading brokerages in North America and how the firm plans to grow globally.

Since it was formed in 1998, HUB has completed 250 acquisitions across North America, and in December 2011 it acquired its first brokerage in Brazil.

See photos from the event

Through these many deals, Hughes has learned many lessons along the way. “M&A is great. It’s been the engine that has driven growth for a lot of brokerages,” he said, “but it’s also been the engine that has killed a lot of brokerages.” A key to HUB’s success, according to Hughes, is the firm’s centralized model. “[We have] 250 offices all reporting to one of 22 hubs. So we’ve got 22, what I would call, ‘regional brokerages’ that are really focused on providing value-added service,” he said. “If you don’t have a model that is providing quality service to your clients, it’s just not a sustainable model. It won’t last.”

Emerging Risks

In the second session, a panel of insurers discussed the big issues and risks affecting the industry and how brokers can improve relationships with their markets. The panel featured: Catlin Canada senior underwriter David Connor; Northbridge Insurance senior vice-president of market management Dave De Kuyper; Travelers Canada vice-president of financial and professional services Francine Armel; and Aviva Canada’s vice-president of enterprise risk management Susan Meltzer.

Meltzer discussed the major issues that she believes will have an impact on the industry going forward, including the low interest rate environment, the US fiscal cliff and the increased frequency of large catastrophic losses—something Canada is certainly not immune to.

“I don’t believe that any one large storm like a Hurricane Sandy or an earthquake has a significant impact on the industry as a whole, because that’s what we’re capitalized for,” she said. “What has an impact on profitability, however, is the series of large losses. The randomness of the weather today, the inability of our actuaries to understand truly what’s coming given the changes in the environment and the increased frequency you’ve seen [in a] year or two, is going to, again, put a continuous amount of pressure on the market.”

De Kuyper discussed the evolving needs of customers and noted that today’s consumers are more knowledgeable and expect more from their brokers. He stressed that brokers need to provide better risk management solutions for smaller clients. He stated that 95% of enterprise in Canada is made up of businesses that have revenues of $5 million or less. “There’s a great opportunity for us to get into those smaller accounts to really give them the insights and advice that they need,” he said.

Turning to specific risks, Armel discussed cyber exposure, a risk that can affect any business that collects information, especially personal information. Alberta is the only province in Canada that has a mandatory privacy breach notification requirement. However, there is currently a bill before parliament that would require such notification. “I think it’s safe to assume that when that passes—I think it’s a matter of time, rather than if—we will see perhaps an increase in cyber liability exposure,” she said.

Product recall is another area on the minds of many business owners due to the recent headlines about by XL Foods’ massive beef recall. Connor told delegates that between 2009 and 2011 the number of food product recalls in Canada reached an average of 446 per year. Between 2005 and 2008, however, the average was just 115 recalls annually. He said that the way in which a company responds to a recall could mean the difference between survival and bankruptcy. Brokers need to ask their clients, “Are you prepared? Are there plans in place to act quickly?” said Connor. “Most companies underestimate the financial impact that a withdrawal can have on their balance sheets. Business interruption, in particular, can create a material loss of income.”

CFOs: Privacy and Prevention

The CFO Panel featured: Grant Thornton CFO, David Peneycad; CML Healthcare CFO and executive vice-president, Tom Weber; and St. Joseph Communications CFO, Tim Zahavich. Though these companies have very different business concerns, each CFO felt privacy was a major risk.

For Weber, ensuring patient records are kept private is a top priority. “We do need to invest more,” he admitted. “We can buy insurance and you all can tell us a lot more about what we can and can’t buy, but it’s more the prevention side that our focus is on—around access controls [and] security controls,” he said.

For Peneycad, cloud computing presents serious privacy concerns. “We have an entire group in our firm that spends time evaluating the security controls of the cloud providers themselves. Because you’re actually handing over your files, your data, to somebody else to have their security manage your security,” he said.

Many brokers at the Summit were pleased to learn that CFOs want to hear from their broker more often. “I’m more than happy to sit down with our broker… to talk about the business, talk about the risks, talk about the challenges—apart from the insurance aspect, because that’s where I think you start getting the flow of ideas,” said Weber.

In reality, however, it’s often difficult for brokers to get time with a CFO. “How do we, as brokers, … get your time?” asked one conference delegate. “First off, you scare us,” replied Peneycad. “The reality is, there are a lot of risks that we don’t assess every day that you guys will touch through other clients, through your assessment of the market… that we’re just blinded to or we’re so tied up in our day-to-day operations we’re just not seeing them.”

In session four, Joe Micalleff, CEO of FIRST Insurance Funding of Canada, made the point that brokers understand their clients’ businesses better than they may realize. Brokers should use this knowledge to refer clients to other service providers that will help them grow their business. “Helping your clients grow their business, will help you grow your business,” he said.

Over lunch, conference delegates heard Richard Loreto, president of R.A.L Consulting deliver the findings of the Insurance Institute’s study, A Demographic Analysis of the Property and Casualty Insurance Industry in Canada: 2012 to 2022. Among the study’s findings was the fact that, if every unrestricted broker who reached the median retirement age between 2012 and 2022 were to retire, the industry would lose 84% of its workforce. Loreto called this the “tsunami projection,” but used the statistics as a warning.

After lunch, delegates had the opportunity to meet senior level risk managers and discuss their priorities and challenges. In this popular session, a risk manager joined every table and producers were able to ask questions and learn what corporate insurance buyers need from their brokers today. After 10 minutes, the risk managers rotated and every table was introduced to a new risk manager from a different industry.

Talent Troubles

The Top Broker Panel featured three veteran brokerage leaders leaders who discussed their growth plans as well as the challenges and opportunities they see facing the industry. The panel included: Christine Lithgow, president and CEO of Aon Risk Solutions Canada; Steve Thomas, CEO of Jardine Lloyd Thompson Canada; and William Zanoni, chairman of Arthur J. Gallagher (Canada) Group.

Attracting and retaining talent is one of the major issues facing the industry today and with a top priority for the panelists. To attract talent, Lithgow said the industry needs to improve its image. “[We] really have to come together and raise the profile of the industry as a whole, and get away from being seen as insurance salesmen.”

Movement between firms is also a difficult challenge. When Zanoni ran into a colleague whose firm had “stolen” several Gallagher brokers, the colleague said, “At the end of the day we can only take people if they’re not happy. That’s when they leave.” That statement taught Zanoni that, in order to retain talent, his firm needed to focus on creating an environment that people want to work in.

Additionally, Lithgow said she’s most concerned that the brokers that are retiring in the next couple of years are leaving behind a less experienced generation. “We’ve had such a prolonged soft market that brokers and underwriters have worked in a completely different environment in that time frame where everything is based on price rather than properly underwriting risk and properly brokering risk,” she said. “So I’m very concerned about talent gaps.”

One issue that was discussed throughout the day was the financial backing of brokerages by insurance companies. This is something Thomas said he’d like to put an end to. “Are we brokers, independent brokers with a fiduciary duty for our client? Or [are we] agents of insurers?” he asked. “The insurance companies shouldn’t be in the brokerage business, in my opinion,” added Zanoni. “They tried it in the US and it didn’t work.”

Lithgow ended the panel discussion with a stern message to insurers: “The service level from insurance companies has to get better,” she said. “It is appallingly bad.”

Climate Change and Property Longevity

In part one of the Climate Change session, Heather Auld, former associate director of Environment Canada, and David Lapp, manager, WFEO-CEE Secretariat, Engineers Canada, discussed how climate change will affect building codes and engineering requirements. In her presentation, Auld outlined many of the weather-related changes associated with climate change, including the potential for Canada to experience an increase in high windstorms. “We have a certain level of windstorm that we design our buildings for, and if the winds increase above that level, we have the potential to see a lot of damages,” she said. In his presentation, Lapp demonstrated how small changes in the weather could lead to catastrophic failure. He showed that a 25% increase in peak wind gusts could cause a 650% increase in damages to built structures.

In the second half of the session, Charles Fogden, senior vice-president of Aon Risk Solutions, moderated a discussion between Lapp, Auld and two risk managers: Mark Roberton, director of risk management and insurance at Nexen Inc.; and Sonia Coward, a risk manager for Ontario’s Durham region. Coward said that Durham has $10.9 billion worth of infrastructure that needs to be replaced. To prioritize the risks, Durham looked at the severity and frequency of claims across the region and mapped their climate risks.

The final session of the Summit, the Corporate Counsel Panel, offered delegates the opportunity to learn the role of corporate counsel in a company’s risk management. The panel included: Graeme McPhail, vice-president legal and associate general counsel at Rogers; Kathleen Howie, vice-president, general counsel and secretary of Chartis; Brian Hilbers, acting corporate counsel at Bruce Power; and Joe Milstone, partner and founder of Cognition LLP.

Hilbers said he needs his broker to be able to distill complex policy wording into everyday language. He said he finds policies “basically incomprehensible” and he contacts his broker to help him understand his policy frequently. Milstone added that a broker needs to draw attention to gaps in coverage and discuss the costs and benefits associated with addressing a risk.


Copyright 2012 Rogers Publishing Ltd. This article first appeared in the December 2012 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.