P&C Industry Year in Review
By Indrani Nadarajah | December 2018 | 15 minute read
Looking back at 2108:
>Recreational marijuana is now legal in Canada.
>The Supreme Court of Canada has agreed to hear a decades-long case involving the cleanup costs of a mercury-contaminated site in Ontario with a tentative hearing date in March.
>Auto insurance continues to be a topic of discussion and insurers welcomed the introduction of a private member’s bill, which advocates rescinding a bulletin capping the number of territories in Ontario.
>There was discussion on the most effective way of tackling the flood problem through “natural infrastructure”.
>Finally, there were some conclusions in ongoing concussion-related lawsuits, both in the US and Canada.
One of the big events for Canadians in 2018 was the legalization of recreational marijuana on October 17, 2018. Marijuana is big business - Statistics Canada estimates that the amount Canadians spend on legal pot during the fourth quarter could range between $816 million and $1.02 billion, with an estimated 5.4 million potential legal cannabis customers in the same period.
From an insurance perspective, licensed producers, or LPs, are not particularly different from other commercial ventures, even though prevailing regulations do not allow them to directly enter the marketplace. For example, Ontario regulations do not allow LPs to own retail stores, nor to have a majority stake in any retail outlet. However, Cassels Brock & Blackwell partner Frank Robinson told BNN/Bloombergy TV the franchising model may be an option for licensed producers to reach out directly to the public.
Claims adjuster Crawford & Company (Canada) Inc. sees auto, commercial and workplace-related losses as the Top 3 claims arising from the legalization of marijuana. There might also be a spike in commercial marijuana-related claims. Apart from damage to the plants and greenhouse, other risks and losses include equipment failure, supply chain losses, business interruption or product liability.
Cannabis and Auto
Intact Financial SVP, Personal Lines, Darren Godfrey said on an earnings phone call in early November that the company is assessing the impact of cannabis on auto use and adjusting rates. He noted there are no Canadian frequency impact studies, so insurers are looking at US studies to help guide them.
Existing Canadian data is concerning. Statistics Canada reported in August that 14% of cannabis users with a valid driver's licence reported driving within two hours of using cannabis. Males were nearly two times more likely than females to report this behaviour. The Canadian Centre on Substance Use and Addiction figures show that the percentage of Canadian drivers killed in vehicle crashes who test positive for drugs (40%) now exceeds the number who test positive for alcohol (33%).
Related: Read more about the impact of marijuana on driving in our October trends paper, The Evolution of Road Safety Priorities: Looking Forward.
Making Auto Insurance More Affordable
A private member’s bill, Bill 42, Ending Discrimination in Automobile Insurance Act, was tabled in the Ontario legislature on October 15. The first debate on Bill 42 is expected in March 2019.
If passed, the bill would eliminate the practice of discriminating against drivers based on where they live. Bill 42 would also amend the Automobile Insurance Rate Stabilization Act to rescind the Financial Services Commission of Ontario’s Bulletin A-01/05, which set the maximum number of territories at 55 in Ontario and 10 in the City of Toronto. Intact Financial Corporation’s CEO Charles Brindamour said the limitation of territories was challenging for insurers, noting that “it is hundreds of territories in other jurisdictions.” Removing that constraint would be a positive for insurers, he said.
Brindamour, who spoke at the release of his company’s quarterly results in November, said his view of the current Ontario government is two-fold: it wants to reduce fraud and unleash competition. “With that sort of mindset, you will get a better outcome for consumers, and I’m confident those principles will guide their decision-making pattern.”
Another private member’s bill, the Ending Automobile Insurance Discrimination in the Greater Toronto Area Act (Bill 44), was defeated on November 1. The bill proposed making the Greater Toronto Area one single territory for the purpose of determining motorists’ insurance premiums.
In its Fall Economic Statement, the Ontario government said it is “committed to lowering auto insurance rates to make life more affordable for the nearly 10 million drivers across the province,” but did not specify a figure. The government will also be conducting a review of how auto insurance rates are regulated with the new Financial Services Regulatory Authority of Ontario (FSRA). The review will examine practices in other jurisdictions.
Meanwhile, other provinces are also investigating ways to reduce their insurance costs. From November 1, 2018, distracted driving fines in Manitoba surged from $203 to $672 under the Highway Traffic Act. Along with the fines, distracted driving will be penalized with a three-day licence suspension and five demerit points. Individuals charged with distracted driving will have to pay $50 to get their licence back after the suspension. Manitoba's fines are the highest in Canada for a first-time distracted driving offence. PEI rates second highest, with fines of $575.
CAA Insurance also rolled out the country’s first-ever, pay-as-you-go auto insurance program in July. With CAA MyPace, drivers in Ontario can pay for their auto insurance in 1,000-kilometre increments. The program uses a telematics device that each MyPace customer will get free-of-charge, to plug into their cars. The CAA program will only focus on tracking mileage. A CAA spokesperson said the response has been outstanding, "because the program offers low-mileage drivers in Ontario more choice and more control based on their lifestyle.”
The tornadoes that ripped through the Ottawa-Gatineau area on September 21 cost the industry $300 million in insured damage, bringing the total for insured damage across Canada for this year to $1.7 billion. This is in line with the trend of the past decade - property and casualty insurance payouts in Canada have more than quadrupled in the last nine years to an average of $1.8 billion.
Weather-related lawsuits are increasingly becoming an issue as affected residents and businesses try to cope with the impact of such disasters. A $950 million lawsuit was brought by 4,000 residents of four Manitoba First Nations following the 2011 floods. The lawsuit alleged the residents were forced to leave their homes in 2011 when the Manitoba government diverted water from the Assiniboine River to reduce the risk of flooding in Winnipeg. In January 2018, a judge approved a $90 million payout to up to 7000 residents of the four nations.
In June this year, the Fort McMurray Airport Authority sued its insurer, FM Global, for close to $35 million, to cover the damages its facilities sustained during the 2016 wildfires. The airport is also seeking $2 million in aggravated, punitive and exemplary damages. Few other details have been made available.
Wildfires in the summer of 2017 saw about 12,000 square kilometres burned and caused about $127 million in insured losses in British Columbia. The 2018 wildfire season surpassed that devastation, and is now the worst fire season on record, with more than 13,000 square kilometres burned.
Worldwide, insured losses from wildfires in 2017 were about US$14 billion, the highest ever recorded, Swiss Re said in a report released in early 2018. The preliminary insured loss estimate of the California Camp and Woolsey wildfires is between US$9 – 13 billion, according to RMS. This fire season represents the second consecutive year with more than $10 billion in insured losses. It has already left one insurance company in tatters. AIG, Chubb and Farmers have the largest exposures from the fires.
The Insurance Bureau of Canada hired researchers at the University of Waterloo, the Intact Centre on Climate Adaptation and the International Institute for Sustainable Development, to look at the problem of flooding, and to suggest the most cost-effective mitigation measures.
The report, Combating Canada’s Rising Flood Costs, says conservation and restoration of “natural infrastructure,” like wetlands, forests and flood plains, can effectively reduce the impact of flooding. The report highlights the town of Gibsons in British Columbia, the first municipality in North America to declare natural infrastructure as municipal assets. It used an assessment tool established by the Municipal Natural Assets Initiative to evaluate the worth of its aquifer and natural ponds. Gibsons found that monitoring these assets to provide storm water storage costs about $30,000 a year. Engineering and building a storage facility (also known as grey infrastructure) would have cost nearly $4 million.
Researchers also flagged a 250-metre naturalized channel in Oakville, Ontario, that provides $1.24 million to $1.44 million of stormwater conveyance and storage annually.
The study reports that higher dykes, diversion channels, dams and better waste water and sewage treatment plants are needed to deal with the increased flooding problem. (The Federal Government plans to invest $2 billion over the next 10 years through the Disaster Mitigation and Adaptation Fund, which will support large-scale infrastructure projects like diversion channels, wetland restorations, wildfire barriers, and setback levees with a minimum price tag of $20 million.)
Meanwhile, the Federal Government is also mulling over the feasibility of a government-backed flood insurance scheme.
Automated Cars – Where Are We Now?
This year, Google’s robotic cars were allowed on Californian roads for the first time without a human on hand to take control in an emergency. Waymo’s 39 driverless cars (without steering wheels or pedals) can cruise through some California suburbs at up to 104 kilometres per hour. Waymo launched an early rider program in Phoenix, Arizona in early 2017, providing vetted residents access to the fully self-driving fleet each day via a mobile hailing app.
In Canada, Ontario launched a 10-year pilot in 2016 that permits driverless cars on public roads, but requires a licensed driver in the driver’s seat at all times. It also requires “all participants” to have at least $5-million in insurance.
According to a January 2018 Report of the Standing Senate Committee on Transport and Communications, the advantages of connected, automated vehicles could be “astronomical.” A 2015 estimate by the Conference Board of Canada calculates that the economic benefit from automatic vehicles alone could reach an estimated $65 billion annually in collision avoidance, increased productivity, fuel cost savings and congestion avoidance.
The Insurance Bureau of Canada, which released its position paper on driverless vehicles this year, recommends a single insurance policy covering both driver negligence and the automated technology. “This is the only way to ensure that vehicles continue to be properly insured and that people injured in collisions involving automated vehicles are compensated fairly and quickly,” IBC said in a release. “As humans cede control of driving to automated technology, there will likely be fewer collisions, but the collisions that do occur will be caused increasingly by product malfunction. The current laws will create uncertainty and confusion for some people injured in collisions that involve automated vehicles, possibly delaying treatment for their injuries and claims payouts.”
In October, the Supreme Court of Canada agreed to hear a dispute over whether the Ontario government can force Weyerhaeuser Co. and Resolute Forest Products to clean up a contaminated site near the Grassy Narrows First Nation.
The 50-year old problem was created when the Dryden Paper Company, which operated a pulp and paper mill in Dryden, Ontario, constructed a waste disposal site (WDS) for mercury-contaminated waste and buried eight concrete cells. The mercury seeped out, causing devastating damage to the local communities and the environment. In 1976, Dryden Paper and Dryden Chemicals amalgamated to form Reed Ltd., which was acquired by Great Lakes Forest Products in 1979.
In 1985, the Ontario government agreed to indemnify Great Lakes and Dryden Paper “from and against any obligation, liability, damage, loss, costs or expenses incurred” as a result of “the discharge or escape or presence of any pollutant … including mercury or any other substance, from or in the plant or plants or lands or premises” owned by Dryden Paper. This was part of the settlement agreement in which Dryden and Great Lakes agreed to pay about $12 million in 1977.
On August 25, 2011, the Ontario Ministry of the Environment issued a Director’s Order requiring Weyerhaeuser Company and Resolute Forest Products Canada, to perform remedial work on the contaminated site. (Resolute, previously AbitibiBowater, succeeded Great Lakes Forest Products. Weyerhaeuser acquired some Dryden assets in 1998.)
Weyerhaeuser maintained that the 1985 indemnity still held. The province stated that the indemnity only covered third party claims resulting from mercury spills, not regulatory compliance costs. But Justice Glenn Hainey of the Ontario Superior Court of Justice agreed with Weyerhauser, and also found that Resolute was entitled to be indemnified.
The Ministry of the Environment appealed. The majority opinion noted that, “as a result of the 1998 assignment of the full benefit of the Ontario Indemnity from Resolute corporate predecessor, Bowater, to Weyerhaeuser, Resolute has no legal interest in the Ontario Indemnity upon which it can assert a claim against Ontario.” The appeal hearing is scheduled for March 20, 2019.
In other legal news, class action lawsuits have been launched in Ontario against 11 insurance companies – including Intact, Aviva, Unifund Assurance, belairdirect, Certas Direct and Allstate – over allegations that the companies withheld HST payments to claimants, or used unfair and illegal practices to calculate HST. The Financial Services Commission of Ontario has also been named as a defendant for not taking appropriate action despite receiving numerous complaints.
In November, the Marriott hotel group reported a hack of the guest reservation database at its Starwood unit. The hack affects some 500 million guests, and for about 327 million of them, the data included passport numbers, emails and mailing addresses, Marriott said. (The Marriott hack may rank only below Yahoo as one of the biggest of personal data, when 3 billion users were exposed to a 2013 security breach.)
As more data breaches are reported in the news, more businesses are purchasing cyber insurance. Regulatory requirements are also getting tougher. On November 1, mandatory breach notification regulations came into force in Canada under the Personal Information Protection and Electronic Documents Act (PIPEDA).
In what may be a positive trend for the industry, a recent survey published by Silicon Valley-based analytics firm, FICO, found that 40% of Canadian firms have cybersecurity insurance that covers all likely risks – up from just 18% in 2017. Canadian firms that did not have any cyber insurance dropped from 36% in 2017 to 22% in 2018.
The survey also found that 56% of Canada’s financial services companies have full cyber risk insurance, compared to 23% in 2017.
The industry with the most exposure to cyber risk in Canada is power and utilities, where 60% of companies reported they have not taken out cyber insurance. In addition, 40% of these companies do not plan to purchase cyber insurance anytime soon.
The Ponemon Institute/IBM 2018 Cost of a Data Breach Study, released in July, found that the average global probability of a material breach in the next 24 months is 27.9%, a slight increase over last year’s 27.7%. South Africa has the highest probability of experiencing a data breach at 43% percent.
In the study, Canada has the highest direct costs of US$81 per compromised record. These are costs related to engaging forensic experts, lawyers, or offering identity protection services to victims. The U.S had the highest indirect per capita cost of US$152, which refers to employees’ time, effort, and other organizational resources spent notifying victims and investigating the incident, as well as the loss of goodwill and customer churn.
Ponemon/IBM also report that the average company spends US$3.7 million in direct and indirect costs to recover from security breaches.
In mid-November, the National Hockey League announced a tentative US$18.9 million settlement with 318 retired players who had sued the league, accusing it of failing to protect them from head injuries or warn them of the risks involved with playing. The NHL did not acknowledge any liability for the players' claims and it can terminate the deal if all the players or their estates don't choose to participate. Each player who opts in will receive US$22,000 and could be eligible for up to US$75,000 in medical treatment.
The settlement is significantly less than the billion-dollar agreement reached between the NFL and its former players on the same issue of head injuries.
2018 also saw the conclusion of a lawsuit filed by the Canadian family of the late ice hockey player, Derek Boogard. In 2013, the Boogaards filed a suit against the NHL. The suit claimed that indiscriminate prescriptions for painkillers issued to Boogaard by team physicians had led to his addiction. The Boogaards said the league should have been aware of the increased risks of concussions faced by enforcers. The suit was dismissed in 2017 on procedural grounds. The Seventh Circuit Court of Appeals affirmed that dismissal in May 2018.
In March, Canada’s Supreme Court would not hear Arland Bruce’s concussion lawsuit against the Canadian Football League and former commissioner Mark Cohon. The decision came after the Supreme Court of British Columbia and British Columbia Court of Appeal dismissed the suit, ruling that Bruce was bound by terms of a collective agreement calling for arbitration of injury-related claims. His arbitration hearing is due to be held in the Spring. (Bruce’s legal team had argued the CFL’s collective agreement is unusual because athletes individually negotiate their pay, have no long-term disability insurance plan, are excluded from occupational health and safety regulations and aren’t entitled to workers compensation.)
However, a class-action claim for concussion-related damages involving over 200 former CFL players remains active. It was filed in Ontario in 2015 but had been on hold during Bruce’s legal proceedings.
ADVANTAGE Monthly trends papers
This paper is part of an open online library of ADVANTAGE Monthly trends papers, published by the CIP Society for the benefit of its members and of the p&c insurance industry. The trends papers provide a detailed analysis of emerging trends and issues, include context and impact, and commentary from experts in the field.
The CIP Society represents more than 18,000 graduates of the Insurance Institute’s Fellowship (FCIP) and Chartered Insurance Professional (CIP) programs. As the professionals’ division of the Insurance Institute of Canada, the Society’s mission is to advance the education, experience, ethics and excellence of our members. The Society provides a number of programs that promote the CIP and FCIP designations, continuous professional development, professional ethics, mentoring, national leaderships awards, and research on the issues impacting the p&c insurance industry in Canada.