Marketplace

REINSURANCE

New approach to mitigating, preparing for floods needed: Zurich

“There is a need for a radical rethink on the approach to mitigating and preparing for floods,” says Mike Kerner, chief executive office of general insurance at Zurich Insurance Group.

Kerner made the comments following Zurich’s release of two research papers as part of its global flood resilience program. One report, produced in collaboration with the Institute for Applied Systems Analysis and the Wharton School at the University of Pennsylvania, focuses on how mass urbanization and climate change may worsen the impact of floods.

In the past two decades, about 87% of aid funding went toward emergency response, reconstruction and rehabilitation, and 13% to reducing and managing risks.

“We need to focus more on pre-event mitigation, as opposed to focusing almost solely on recovery. Because we know that ‘after a flood’ is really just ‘before the next flood,'” Kerner argues.

Deepwater Horizon video reveals concern over preventer efficacy

Investigators with the U.S. Chemical Safety Board (CSB) suggest the same conditions at the time of the Deepwater Horizon blowout – prompting

the largest oil spill in United States history – could occur at other drilling rigs, perhaps making existing blowout preventer designs less effective in emergency situations.

A drill pipe that buckled as a result of a mechanism known as “effective compression” caused the Deepwater Horizon’s blowout preventer to fail to seal the Macondo well following an explosion on the rig, suggests the CSB’s 11-minute narrated video computer animation.

The video shows the blowout preventer’s blind shear ram – an emergency hydraulic device with two sharp cutting blades meant to cut the drill pipe and seal the well – likely did activate.

But because the drill pipe was buckled and off-center inside the blowout preventer, it was trapped and only partially cut.

Effective compression has never before been recognized as a problem affecting drill pipe during well operations. Investigators say the same conditions “could occur at other drilling rigs – even if a crew successfully shuts in a well.” This could make existing blowout preventer designs less effective in emergency situations.

CANADIAN MARKET

Arthuer J. Gallagher completes acquisition of Noraxis

Arthur J. Gallagher completed its acquisition of Noraxis Capital Corporation in early July, in a deal the company notes makes it a top five insurance broker in Canada.

“Bringing together Gallagher’s existing Canadian broking operations with those of Noraxis will create a strong platform and extensive regional spread for future national growth,” notes Arthur J. Gallagher.

“It also creates the opportunity to develop a high-end specialty business in Canada through the effective deployment of existing Gallagher strengths in energy, construction and mining, as well as wider London-based specialty expertise and capabilities.”Noraxis is a full service brokerage operating across Alberta, Manitoba, New Brunswick, Nova Scotia and Ontario from 26 offices.

REGULATION

Tough measures needed to fight auto fraud: IBC

Insurance Bureau of Canada (IBC) has urged Ontario’s now-majority Liberal government to re-table Bill 171, the Fighting Fraud and Reducing Automobile Insurance Rates Act, which died on the order paper when the provincial election was recently called.

Bill 171 proposed allowing only licensed health care providers to be paid on auto claims directly by insurance carriers. The bill also had proposals to regulate towing and storage providers.

IBC president and chief executive officer Don Forgeron said during a recent speech that IBC plans this fall to provide the industry with “greater detail” on recommendations to address auto claims fraud, distracted driving and educating consumers on auto coverage in Ontario.

“In the months ahead, we intend to support the government with actions that will address what consumers have told us they want in an auto insurance system,” such as lower premiums, Forgeron said. IBC will also be exploring “how to close down the many opportunities for fraud and abuse in the system.”

Code should require backup power for longer: Ice storm panel

Ontario should consider building code changes to require all new and existing buildings to provide a means for back-up power for a longer period of time, and the City of Toronto should consider adjusting the 90-centimetre guideline for primary lines and the 30-centimetre guideline for secondary wires, suggests the panel reviewing the December 2013 ice storm.

Most of Toronto Hydro’s customers lost power after ice-laden tree branches fell on overhead power lines.

There were also reports of claims from falling branches damaging homes and vehicles, frozen water pipes, fire damage, fridge and freezer losses and living expenses.

Government approves SGI rate program

The Saskatchewan government has given the green light to a 3.4% overall increase to Saskatchewan Auto Fund vehicle rates, along with rate rebalancing, and a 1% hike to the capital amount on all rates.

Effective August 1, the 2014 rate program will bring 95% of vehicles to within 5% of the rate required for their vehicle group to break even, reports Saskatchewan Government Insurance (SGI).

As a result of rate rebalancing, 82% of vehicle owners in the province will get a rate increase, with an average annual hike of $44; 17% will get a rate decrease, with an average annual reduction of $12; and about 6,000 will see no change to premiums.

RISKS

Economic impact of cyber crime estimated at US$445 billion

Stopping cyber crime – the cost of which is being estimated at US$445 billion worldwide – can positively impact world economies, argues a report from the Center for Strategic and International Studies (CSIS), sponsored by McAfee Inc.

Losses from cyber crime include those directly connected to the digital and electronic clean-up needed after an attack, notes McAfee.

Studies estimate the Internet economy generates $2 trillion to $3 trillion annually, a share of the global economy that is expected to grow rapidly. CSIS estimates cyber crime extracts between 15% and 20% of the value created by the Internet.

“The technology exists to keep financial information and intellectual property safe, and when we do so, we create opportunities for positive economic growth and job creation worldwide,” says Scott Montgomery, McAfee’s chief technology officer, public sector.

More than $191 million in disaster assistance since Alberta floods

The Alberta government noted in June that it has provided more than $191 million to date in disaster assistance to municipalities and First Nations to begin rebuilding following last year’s devastating flooding, the most expensive insured natural disaster ever in Canada.

The flooding affected more than 100,000 Albertans in 30 communities, including homeowners and businesses.

Payments of $71.5 million have been issued to almost 10,500 Albertans who have applied for Disaster Recovery Program funding, including 1,500-plus small businesses, and 107 eligible homeowners living in the floodway who have expressed interest in the relocation program.

TECHNOLOGY

Economical opts not to move forward with UBI right now

Economical Mutual Insurance Company has no plans to move forward with telematics and usage-based insurance (UBI) at this time.

Economical, which has closely studied and continues to monitor telematics and UBI, is ready to move, notes Karen Gavan, the company’s president and chief executive officer. That said, “we’re not pushing it forward at this time because we think the technology is changing so rapidly and its
adoption is probably going to be driven by things much broader than the cost of insurance,” Gavan says.

“While telematics has the potential to change the insurance landscape and give consumers the power to change their behaviour, its real potential can be far greater than just managing your insurance rates,” she argues, citing businesses and municipalities that have adopted telematics technology to improve productivity.

CLAIMS

Need for insurers to “rethink” how they underwrite

Canadian insurance carriers should “rethink” how they price coverage and what they cover in light of industry-wide insured losses from severe weather in recent years, Fabian Richenberger, president of Northbridge Insurance, has suggested.

Insured losses from severe weather were $915 million in 2010, $1.7 billion in 2011, $1.2 billion in 2012 and $3.2 billion in 2013, Richenberger said during an event hosted by the Property Casualty Underwriters Club.

“It used to be we would have a billion-dollar loss every four or five years, and that’s how we would price our products,” he told attendees.

The implication of recent insured losses “is we have to rethink how we underwrite, how we price our business, what type of coverage we provide. At the same time, we have to make sure, as an industry, that we provide better incentives to our customers so that they install sump pumps, that they use hail resistance materials, things like that.”

With last year’s severe flooding, he said the combined ratios of Canadian property and casualty carriers was about 104%, when they should be in the 93% to 94% range, especially with low interest rates.

State Farm paid out $137 million in lightning claims in 2013

State Farm reports it paid out $137 million in claims due to damage from lightning strikes in the United States and Canada last year.

In 2013, State Farm paid out $800,000 for 110 lightning claims in Canada, with the average being $7,000 per claim. Claims in Ontario reached $650,327, $95,009 in New Brunswick, and $59,679 in Alberta.

Approximately 5,000 claims are estimated to be filed in Canada for lightning-related property damage (excluding fires) each year.