Canadian Underwriter
Feature

Prepare for Anything


April 1, 2016   by Greg Meckbach, Associate Editor and Jason Contant, Online Editor


Print this page Share

Attendees gathered at the Canadian Catastrophe Conference in downtown Toronto this past February to hear about all things catastrophe: insured losses, cyber risk, resilience and more.

UPPING MUNICIPAL RISK MANAGEMENT

Offering incentives to municipalities to invest in addressing risk and improving resilience is a dialogue that deserves more attention, attendees heard during the Canadian Catastrophe Conference, produced by Catastrophe Indices and Quantification Inc. (CatIQ).

“We want to move to dialogue that can help provide clear incentives for cities that invest in improving and addressing risk, and encourage other stakeholders in investing in addressing risk and improving resilience,” said Matthew Lynch, vice president of global partnerships and initiatives with Toronto-based World Council on City Data.

As a “general sort of template,” Lynch cited the National Flood Insurance Program’s community rating system. “If communities take certain levels of actions, it feeds back into the premiums they are offering,” he told conference attendees.

“We’re looking at those linkages – standardized indicators that can help broker those linkages between risk resilience and insurability,” he said.

Commenting on city-level performance, “there are a number of things that greatly influence that risk base, be it planning controls, design and implementation of building codes, performance and infrastructure, emergency response capabilities,” Lynch explained. Though dialogue between insurers and municipalities in Canada is “already happening a lot anyway,” he said, “I think there’s always room for more.”

Ewa Jackson, manager of ICLEI Canada, an association for urban sustainability, pointed to a climate change-related incentive for municipalities introduced by the Nova Scotia government.

Municipal climate change action plans essentially provide a roadmap that “every municipality in Nova Scotia is going to follow to get more climate-ready, and that’s both on the mitigation and adaptation side,” Jackson said. “Climate change has really amplified existing risks.”

Barb Szychta, vice president of risk management services with Frank Cowan Company, said her company sees climate change as a “very significant emerging risk” for municipalities given that it has an impact on many local services. “Climate change is not something that a municipality alone can fix; it’s a partnership. They need the various levels of government,” Szychta advised.

CHECK QUAKE COVERAGE

The threat of an earthquake in British Columbia should have reinsurers checking policy terms carefully, Balz Grollimund, head of earthquake for Swiss Reinsurance Company, suggested to attendees.

“We also need to understand what these policies look like. What do they cover when claims go really bad? How does that affect the claims process?”

Grollimund cited a 2013 report from AIR Worldwide, commissioned by Insurance Bureau of Canada. In the British Columbia scenario, involving a magnitude 9.0 quake off the west coast, large parts of suburban Vancouver would be affected by liquefaction, he said, adding this also affected Christchurch in 2011.

“That’s the ground underneath the buildings, becoming not solid, but liquid,” he explained. “If you walk on the beach next to the place where the wave hits the sand and if you step on the sand too hard, then your foot sinks in because the sand becomes liquid,” he said.

Grollimund said the most expensive quakes in history were Japan’s Tohuku event ($54.7 billion) and California’s Northridge event ($33.2 billion).

PREPARATION KEY TO LESS LOSS

The 2013 flooding in southern Alberta has better-prepared claims executives for another major catastrophe, speakers suggested during the conference.

“You think you are ready, but you’re never quite ready for what was to unfold,” said Mathieu Lamy, senior vice president of claims at Intact Financial Corporation. “I don’t think we were quite ready to handle that from an adjusting standpoint,” Lamy suggested.

Noting that there was a lot of learning from the southern Alberta flooding, “we never prepared as much as we should of for water. I think now we’d be in a better place to do that,” he said.

Preparing in advance can help mitigate losses when they do occur and improve claims experience, the speakers pointed out. “We incorporate a process of what we call a ‘pre-mortem,'” said Pat Van Bakel, president and chief executive officer of Crawford and Company (Canada) Inc. “That gives you the forward-looking opportunity to build mitigation strategies to, hopefully, prevent some of those failures when they happen.”

Rissa Revin, general counsel and senior vice president, claims and compliance for Munich Re Canada, said “for me, it’s really about the role we play in the preparatory stage, in preparing for the event and how we can assist our partners in achieving the best results.”

When talking about economic loss, insured loss and closing the gap, “a lot of what we’ve seen as an industry reaction to the floods of 2013 in Toronto and Calgary has been the exact opposite,” Van Bakel contended. “We’re reducing coverage, reducing availability of coverage, increasing deductibles, putting in sub-limits and charging more for it.”

WESTERN CANADA HARD HIT

Canada was hit with six severe-weather catastrophes last year, with all but one affecting the western part of the country, said Carolyn Rennie, director of catastrophic loss analysis for Catastrophe Indices and Quantification Inc.

“2015 was the year all hail broke loose,” Rennie said, noting CatIQ tracked six Cat (more than $25 million in damage) events and 10 notable (losses of $10 million to $25 million) events in 2015.

“Alberta incurred the majority of losses from catastrophes” last year, she said, pointing out that CatIQ has tracked 69 catastrophes since 2008.

Between 2008 and 2013, including catastrophic and notable events, these resulted in an average of $1.4 billion in damage annually on a nominal basis.

The most expensive event in 2015 occurred July 21, when a severe convective thunderstorm in Alberta produced tennis ball-sized hail and wind gusts of as much as 110 kilometres per hour, prompting $260 million in insured losses. There was damage to roof shingles, siding and extensive auto damage.

OPERATIONAL TECHNOLOGY RISK

“Operational technology” is at risk of attacks from malicious code, Jose Fernandez, a professor at Montreal’s Ecole Polytechnique, said at the conference.

“The attack vectors are potentially the same” as for computer networks, Fernandez explained, but the consequences and the actors are not the same. “Somebody who is infecting your machine, who wants to make a buck by using it to send spam is not going to be interested in the machine of an industrial control engineer more than any others.”

It is difficult for operational control experts to evaluate risk of what Fernandez calls a “cyber cat,” noting “there’s no historical data.” It is more that “we have this chicken and egg conundrum, where there is no chicken and no egg.”

FLOOD OF INFORMATION

Insurance Bureau of Canada (IBC) now has flood maps that allow it to “assess flood risk right down to the residential level for both fluvial and pluvial flooding,” Craig Stewart, IBC’s vice president of federal affairs, said at the conference.

RELX Group plc’s LexisNexis Risk Solutions unit announced last year it had been selected by IBC as a lead partner to develop flood hazard maps and property-level exposure data for Canada.

“We have just received the results of that work now,” Stewart reported. “It’s available to insurance companies now so that they can underwrite risk.”

The data shows 20% of households could be qualified as high risk and 10% of those would be considered very high risk. “You need to have a solution that is going to encourage uptake by Canadians regardless of income level and that may mean some sort of private-public partnership at the end of the day.”