Moments In Time (November 01, 2004)

Bad Faith Claims: Opening the floodgates?

March, 1995

Bad faith claims have been the great Canadian insurance non-occurrence. For more than a decade, the industry has been preparing to deal with a U.S.-style explosion of litigation that simply failed to materialize.

Suchy vs Zurich Canada may change all that.

It is possible to regard Suchy as a minor decision on an interlocutory application. This, indeed, may be a correct assessment of its importance.

The case can equally well be regarded as judicial recognition that the failure to “respond to the needs” of an insured in what the courts conclude is a timely manner gives rise to liability for bad faith.

Moreover, if that failure causes the insured to go under, the liability would include the whole of the loss of anticipated profits from the business.

If this latter view is correct, the potential exposure of insurers is huge, especially in an economy where many businesses are one skid away from insolvency.

Watercraft were among the hardest hit in BC storm

November, 1997

The worst winter storm in 75 years has British Columbia property-casualty insurers reeling. “The number of claims is in the tens of thousands,” said Brian Stanhope, Insurance Bureau of Canada vice-president, Pacific region. “We’re trying to get a handle on the estimated cost. It’s probably not as bad as we first thought – $100 million – but it could be $80 million. I can’t get anyone to meet with me because they’re all running around to take care of claims.”

Between Saturday, Dec. 28, and Sunday, Dec. 29, about 35 centimetres of snow fell in the Vancouver region and more than 40 centimetres in Victoria, bringing both cities to a stop, stranding travellers and closing sections of the Trans-Canada Highway.

The rain that followed the blizzard increased the weight of snow on buildings and other structures, crushing them. Boats, especially pleasure craft in storage and commercial greenhouses were hardest hit. Shelters at many marinas collapsed under the snow, sinking thousands of boats and damaging others.

“The marine industry estimates many boats won’t be repaired for a year because of the shortage of skilled repairmen,” Mr. Stanhope noted. “And many were uninsured.”

A Silver Cloud With a Dark Lining

Statistical Issue, 1998

According to preliminary Statistics Canada figures (as analyzed by Insurance Bureau of Canada) profit for Canada’s p&c insurers exceeded $1.8 billion in 1997. A decrease in the industry’s loss ratio of 1.3 per cent to 71.3 and a 1.1 per cent decline in its combined ratio to 103.1 coupled with a 14.1 per cent increase in investment gains and an overall increase of 5.5 per cent in net income meant the industry came out of 1997 moderately better than it did in 1996 – the year that extreme weather battered the country to the tune of $600 million.

According to Paul Kovacs, senior economist with IBC, the industry’s return on equity at 12.4 per cent (13 per cent in 1996) was moderate again for 1997. Each year since 1978 the industry recorded an underwriting loss, with overall profitability being maintained by investment earnings. During the 1990s, however, the ten per cent a year growth in investment earnings came to an end as inflation and interest rates began to fall. Accordingly, says Kovacs, maintaining stable industry earnings through the 1990s has required declining underwriting losses.

Y2K: It’s 11:50 PM and not all’s well

May, 1999

TRAC recently released its third and final survey of Y2K readiness in Canada’s insurance industry. The current study, based on data collected between December 1998 and February 1999, is a follow-up to one released in March of 1998.

Based on the compiled results, TRAC believes that most companies will be sufficiently ready in 2000 to minimize the threat that the Y2K problem poses to their business. However, there will be a significant minority of companies that will not be ready in time.

The good news is that most insurers have been working on this problem diligently for at least two years and the results are starting to show. As at February 28th, 1999, a full 50% of the p&c companies said that they had finished converting, testing and implementing their mission-critical systems and 32% said the same about their interfaces with external business partners. On the underwriting side, 73% of commercial writers say that they have given their underwriters Y2K specific training and 87% say that they are willing to decline business on the basis of Y2K risks.