Moments in Time (December 01, 2004)

Sweet but Deadly, Lessons From Walkerton

August 2000

Certainly the national focus on decaying infrastructure has shifted dramatically since May when contaminated drinking water caused an E-coli outbreak in Walkerton, Ontario (population, 5,000) resulting in seven deaths, 2,000 reported illnesses and lingering concerns that 7% to 10% of residents may be left with kidney failure or damage. The Public Utilities Commission (PUC), responsible for Walkerton’s water treatment facilities, is covered by the Toronto-based Municipal Electric Association Reciprocal Insurance Exchange (MEARIE).

A $1 billion class action lawsuit on behalf of residents and businesses has already been filed in Superior Court. More will follow in what is expected to be the largest action in Canadian history. There is no doubt that Walkerton and the legal fallout from contaminated drinking water has sounded alarm bells, but in which direction?

The Risk Of Terror

October 2001

Research consultants Tillinghast-Towers Perrin expects the events of September 11 will have “profound effects on the insurance world”. In a detailed analysis of potential industry exposures, the consultants suggest that the total insured loss culminating from the terrorist attacks will likely be in the range of US$30-US$58 billion.

And, while the insurance industry globally has been over-capitalized, much of this excess has been among personal insurers and the top reinsurers, Morgan Stanley say. As such, insurers with large commercial exposures may find themselves over-exposed, while the latest events will likely lead to a shakeup within the reinsurance community. Morgan Stanley believe that the current US$120 billion in annual capacity within the global reinsurance sector could be reduced by about a third as a result of the terrorist attacks and potential for future terror exposures. The shift of the market will also likely favor the “top end” reinsurers who will benefit from increased marketshare. “The result is likely to be a winner-take-all scenario in which the largest reinsurers grab significant marketshare at much higher rates. We aren’t sure yet exactly where the cutoff is for the ‘largest reinsurers’. There is no question that Berkshire Hathaway, Swiss Re and Munich Re fall into this category. We believe that Employers Re, owned by General Electric, should also qualify.”

Toxic Mold Claims: Covering the Bases

November 2002

Events in the Texas homeowners’ insurance market have sent a chill through the North American insurance industry – multi-million dollar court awards, big company withdrawals, exclusion debates. In Canada, insurers have seen the mold threat coming as they watch their U.S. counterparts struggle to keep pace with this emerging peril. And, while there is agreement that mold has the potential to hit the Canadian market just as hard, insurers are looking south to learn from the U.S. example before it becomes too late.

Most notably, in Texas, the hub of the mold crisis, the infamous “Ballard v. Farmers Insurance” case saw an award of US$32 million given to the plaintiff for direct damages, punitive damages, emotional distress and legal fees. In this case, the insurer was slapped with a bad faith suit and found at fault for improperly handling a water damage claim which resulted in mold growth throughout the Ballard home.

And Canada has not been immune from mold in the public spotlight. The closing of courthouses in Calgary, Alberta and Newmarket, Ontario, plus the displacement of 179 residents of the Little Saskatchewan reserve in Manitoba from homes infected with toxic mold, are among the most well-known instances. The B.C. “leaky condo” cases have also raised mold as a potential issue by plaintiffs.

Atlantic Canada: A Political Roller-Coaster

October 2003

This broker suggests that if we learned nothing else from the last year, trying to fix loss ratios in one year is public suicide. That said, the rate increases are working and the markets are turning their numbers around, which is required to have a healthy and competitive insurance marketplace. Frequency has certainly decreased, as insureds are leery of making all but major claims. I feel the market will eventually settle down and frequency will return.

We as brokers have enjoyed the premium increases, which has strengthened our financial position. I personally feel, however, that the industry’s ability to maintain this will be short lived. For brokers with a long-term perspective, how to strategically use this extra income now is the key to our future. Investment in our people, technology and relationships with markets and clients is crucial. In Atlantic Canada, we as brokers have our seat belts firmly fastened, not just around our hips but with our shoulder harnesses on too. It is going to be a bumpy ride.