Health management services have been an all or none proposition for corporate Canada. A company traditionally has to buy a bundle of services from one provider or assemble a program from a group of vendors. Liberty Risk Services Canada wants to change that.
The Toronto-based company is taking a new tactic to health management with an la carte health management services product that provides all the flexibility of multiple vendors with the simplicity of one manager and one invoice.
“The approach that we’re taking is the virtual corporation approach, meaning that we’re partnering with legitimate experts in a particular field. We blend their core competencies with ours and offer these services to industry across the country,” said Glenn Carmen, vice-president of health management services at Liberty Risk Services Canada.
Liberty can offer a bundled package that takes care of all of a company’s health management needs or design a program in phases or even one service at a time. “It’s a one-stop shop. They don’t have to go through the Yellow Pages to find out who and what is available in the industry, they come to us as the gatekeeper and they know that who we are dealing with is the best in the class.”
The members of Liberty’s network provide services in five areas of specialty:
Health promotion and illness prevention, otherwise known as employee wellness.
Workers’ compensation consulting services.
Occupational medicine including pre-placement medicals, health testing and environmental audits.
Health Services needs analysis, provided by Liberty Risk Services’ in-house staff and via strategic partners.
Medical assistance and file review, which is the determination of the cost effectiveness of treatment strategies. That is in turn fed back to the client case manager.
The flexibility of a building block approach to a corporate health services portfolio was exemplified recently from within the virtual company, said Mr. Carmen.
He pointed to a case management firm that is a member of Liberty’s network of partners. One of their clients is a 1,000 employee strong Canadian division of a large U.S. company.
“They came to us and said the client is looking for pre-placement medicals and a company doctor,” explained Carmen. Liberty provided those services to the client through its network.
Mr. Carmen can also put together a white label or private label package of services. He developed this approach while he was with CBI Health, formerly the Canadian Back Institute. “When I left, they let me take the intellectual capital that I had produced in my 26 months at the company,” he said. Mr. Carmen took the project to Liberty Risk Services last September. CBI Health continues to be one of the providers of the rehabilitation services to Liberty’s clients.
The services of Mr. Carmen’s virtual company became available to Liberty Risk Services as of January 1 and Mr. Carmen is now marketing to corporate Canada.
Liberty Risk Services’ expertise lies in the area of occupational safety, loss prevention, and risk management consulting. Adding other services required by industry in the area of health and disability management will enable Liberty to provide the “full spectrum” of services from prevention to return to work strategies which will provide a measured cost saving for their clients. Products and services that are “best-in-class”.
As this concept and the company develops, growth and expansion will be recognized by the addition of more professional staff and targeted acquisitions. “We are planning on this to occur within the next 12 to 18 months. We are presently meeting with potential “marquee” clients, top Financial Post companies, Fortune-100 and 500 companies, all of which are recognized leaders who want to ‘do the right thing’ for their employees while realizing bottom-line savings. But no company is too large or too small.”
In the future, Mr. Carmen sees the “virtual health management model” being introduced to other countries serviced by Liberty.
Since Saskatchewan’s decision to introduce public auto insurance in 1946, the advancement of government insurers across the provinces has been a sharp thorn in the side of Canada’s private property and casualty insurance industry. The “socialist disease” of government-run auto plans — as referred to by one backbencher in the Ontario Conservative government of the 1970s during a debate on controlling spiraling insurance rates — spread from Saskatchewan to Manitoba, British Columbia and then Quebec following with its own semi-public version in 1978. Recently the Insurance Bureau of Canada (IBC) stepped up lobbying efforts to sway public and political opinion to opening these markets. The drive has mainly been in the west, resulting in counter-attacks by government insurers.The private versus public insurer war looks like it is about to turn ugly.
The slinging match between private companies and the provincial insurers recently escalated with a series of newspaper advertisements trumpeting the results of two studies suggesting that government insureds are getting a better deal than “non-nationalized” insurance consumers. “I have no idea where they got their numbers from,” Lindsay Olsen, the ICC’s regional representative for B.C., states flatly.
She is referring to the ad campaign highlighting the results of the first study, conducted for the Saskatchewan Government Insurance (SGI) by Runzheimer Canada, an international management consulting firm specializing in managing corporate relocation costs.
The Runzheimer study — according to figures released by SGI — show premiums for a driver of a 1998 Ford Taurus were lowest in three of the four provinces with public plans ($1,023 in Regina, $1,185 in Winnipeg, and $1,334 in Vancouver). Montreal, under Quebec’s split no-fault system, was only slightly lower than Toronto, $2,276 compared to $2,351. The rates assumed at least four years of claims-free driving and the purchase of basic auto insurance with $1 million liability coverage, a $500 comprehensive deductible and a $250-$350 collision deductible.
The rate comparison was conducted by Windsor, Ontario-based Compu-Quote Inc., provider of the AutoRater package and other rating software products used by brokers across the country. According to a news release issued by ICBC, that comparison indicates that rates for a single, male, 30-year-old Vancouver owner of a 1998 Chevrolet Cavalier are lower (at $1,160) than those in Toronto ($1,429) and not considerably higher than what the same driver would pay in Calgary ($1,036). Take 10 years off the age of that driver in Vancouver and he would pay less than half that rate at $1,245 of the $3,256 he’d pay in Calgary and about a quarter of the whopping $4,906 premium charged in Toronto.
Apples and oranges
“They [the studies] are a piece of fiction … or something smellier … solely intended to convince the residents of those provinces that they’re getting a good deal,” Alan Wood, the IBC’s regional spokesperson for the prairie provinces, says dismissively. “They’ve been very sneaky. Of course they’ve compared apples and pomegranates and then come out with this outrageously misleading ad campaign that completely misinforms their own car owners and taxpayers.”
He suggests both studies were rigged by the government insurers that commissioned them. In the three western public-plan provinces, Level 4 or four years of claims-free driving, which is what the Runzheimer report was based on, are among the best rates available for that rate group nationally (for example, after four claims-free years, B.C. drivers get a 40% discount on their basic Autoplan rates and the same reduction on optional coverages, such as collision and comprehensive, when they buy the latter from ICBC).
Wood insists SGI chose that Level 4 group “to look good” and completely ignored the fact that private insurers give far better rates for five or six years claims-free.
Merit 4 level rates in Alberta, for example, are comparatively high, Wood adds, “because there’s a good reason for it. With only four years of claims-free driving there are problems with those drivers. But anyway, they represent only about 5% of the drivers in Alberta.”
In addition, both Olsen and Wood looked askance at the comparison rates cited for Alberta, especially the $1,947 premium quoted in the Runzheimer study for the ’98 Taurus owned by a Level 4 driver. “When we pull those same numbers up by Compu-Quote, they (the private insurers’ rates) are roughly half what those ads are claiming,” Olsen says.
Wood adds that his office gets “an incredible number” of calls from people moving into Alberta from B.C. and the other western provinces who insist a mistake has been made on their insurance quote, that “it’s far too low”.
A second look
To sort things out, CU asked Compu-Quote about the comparison conducted for ICBC. CEO John Savage says his company provided the public insurer with a number of rates available from private insurers for the various groups cited. ICBC obviously averaged those to come up with the numbers used in its ad campaign.
When Compu-Quote repeated the exercise at our request, lower rates than those cited by ICBC for Toronto, for example, were found for every age group. For example, premiums as low as $968 were found for the 30-year-old, single male driver of the ’98 Cavalier (as compared to the $1,429 used by ICBC).
And, Savage points out, the higher rates cited in most of the other comparisons can obviously be attributed to private insurers’ treatment of the young, high-risk groups. Take the 17-year old male out of the house living with the couple in their 40s in Toronto, for instance, and that rate drops from the $2,684 used by ICBC to about $900. (The ICBC doesn’t increase rates for young, occasional drivers.)
Quiet stirring
Wood believes the public insurers’ public relations campaigns are a response to the fact that the IBC has been “quietly stirring the bulrushes” in Manitoba and Saskatchewan in an effort to educate consumers about the potential cost-savings that could be gained by ending the state monopoly. It’s a long haul he says, partially because both provinces have been largely closed shops for 25 years, with their crown corporation insurance arms raking in an estimated 98% of the car insurance premiums. With the vast majority of drivers not finding it worthwhile to shop the private market for extension coverage, few insurers can afford to maintain much of a presence in the regional auto market. So the public and, to a large extent, even insurance brokers, have “no idea how the private side operates,” he insists.
That misunderstanding extends to the issue of high rates for youth, especially young male drivers in “free Canada” as the IBC’s spokesperson calls it. He says if older drivers in provinces with public plans realized to what extent they were subsidizing younger, higher-risk groups, they’d likely be much more open to considering a private alternative. This is another public education priority for the industry: in the news release announcing the rate study results (and citing the $4,900 premium a single, male 20-year old driver of the Cavalier would pay, according to CQ), the ICBC said: “These comparisons also illustrate that private insurers continue to discriminate on the basis of age and sex of the owner, even if he or she has a good driving record.”
The war is forcing public insurers to reduce rates
The IBC believes its lobbying is achieving success in B.C. The way the insurance industry sees it, since the Social Credit government opened up the PD market, the growing presence of private insurers has forced the ICBC to make its rates more competitive and introduce discounts for better risks. (For example, this January, the Corporation introduced its “Roadstar Gold” level, which kicks in after 15 years of no at-fault claims and amounts to a 20% discount on optional coverages such as extended third-party liability, collision and comprehensive. That’s on top of the Roadstar status given at the nine-years-claim-free mark, w
hich knocks 5% off the basic Autoplan and extended third-party liability and 10% off optional coverages).
Keeping up the pressure
But private insurers aren’t stopping there. According to Olsen, the IBC is continuing to lobby the province to blast the market wide open, citing public opinion polls that show 57% of B.C. residents support “outright privatization” while 81% believe there should be more competition in auto insurance.
In fact, Wood adds, the B.C. lobby effort is part of a general campaign mounted by IBC after it adopted the official position that governments should get out of the insurance business altogether. The Bureau has put more emphasis recently on including export insurance and workers’ compensation in that definition of the “insurance business.” He believes the ground for nurturing the seed of workers’ comp privatization is especially fertile in Alberta, where Ralph Klein’s gung-ho government of hard-core, free-enterprise fans has indicated it’s open to persuasive argument. That idea is also being circulated around Ontario’s Queen’s Park, where Premier Mike Harris is as well known for laying out the welcome mat for privatization proponents.
Bad taste of privatization
It is a harder sell in provinces like Manitoba, where controversy and anger about the recent privatization of the provincial telephone system still linger. And, as Wood admits, changing the auto insurance systems in Manitoba and Saskatchewan isn’t a burning issue for a public preoccupied with cutbacks in health care, education and other public services. “With their car insurance, it’s partly a `better-the-devil-you-know’ attitude,” he adds. “And partly a convenience issue when you’ve only one supplier to deal with.”
Of course, there is also the argument raised by the original architects of public plans that it’s preferable to see any profits accumulated by government insurers going to initiatives like road safety at home, rather than having the extra money shipped offshore to the foreign parents of many Canadian insurers.
While acknowledging that point, Wood points out that private insurers paid the Alberta government $50 million in premium taxes in 1998, employed 10,000 people and put $1.3 billion in paid-out claims back into the provincial economy. And, it’s taxpayers who are potentially on the hook when government insurers have to pay out more in claims than they take in through premiums, as has been the situation for the past several years in Saskatchewan, for example, where SGI ended 1997 with a deficit of nearly $98 million. (Although this had dropped by nearly $30 million in June 1998, the latest figures available.)
Shaking up the numbers
Olsen also questions ICBC’s reported operating surplus of $14 million in 1997, which the government insurer largely chalked up to its investment in road safety. Noting its $.5 million loss a year earlier, the fact that the province’s drivers “are the poorest in the land,” and the creative accounting policies employed by B.C.’s government in the past, Olsen says she questions whether any surplus actually exists.
Rob Brown, a professor of statistics and actuarial science and director of the University of Waterloo’s Institute of Insurance and Pension Research, points out another potential issue with insurance plans administered by crown corporations that are still subject to the political machinations of governments: those billion-dollar pots of reserves. “They are large gobs of money that are just too tempting, especially to deficit-burdened governments. We’ve seen it happen before, with the Canada Pension Plan and the Unemployment Insurance Fund to name a few. The politicians decide those reserves are actually bigger than they need to be…despite what the actuaries say…or should actually be considered surpluses and, whoops, they…disappear into general revenues.”
The industry obviously believes that the stars have come into alignment as far as favoring a major privatization push. With governments having turned increasingly to the right on the political spectrum, taxpayers revolting against the repeated need to bail out publicly managed enterprises, with auto insurance rates having stabilized in most other provinces and few other avenues to growth left available, a prolonged siege at the gates of Canada’s government insurers could force an entry for private insurers.
City
Annual Premium of a 1998 Taurus
Regina
$1,023
Winnipeg
$1,185
$1,334
Vancouver
($1,256 for an ICBC RoadStar gold
Customer with more than 15 years
of claims-free driving
Moncton, NB
$1,470
London
$1,602
Calgary
$1,947
St. John’s, NFLD
$2,119
Montreal
$2,276
Toronto
$2,351
Driver
Vancouver
Calgary
Toronto
Single Male, Age 20
$1,245
$3,256
$4,906
Single Female, 20
$1,245
$1,901
$2,855
Single Male, 30
$1,160
$1,036
$1,429
Married Male, 45
Married Female,42$1,096$1,819$2,684
Single Male 17
Married Male 55
Married Female, 52$1,096$897$1,186
Since Saskatchewan’s decision to introduce public auto insurance in 1946, the advancement of government insurers across the provinces has been a sharp thorn in the side of Canada’s private property and casualty insurance industry. The “socialist disease” of government-run auto plans — as referred to by one backbencher in the Ontario Conservative government of the 1970s during a debate on controlling spiraling insurance rates — spread from Saskatchewan to Manitoba, British Columbia and then Quebec following with its own semi-public version in 1978. Recently the Insurance Bureau of Canada (IBC) stepped up lobbying efforts to sway public and political opinion to opening these markets. The drive has mainly been in the west, resulting in counter-attacks by government insurers.The private versus public insurer war looks like it is about to turn ugly.
The slinging match between private companies and the provincial insurers recently escalated with a series of newspaper advertisements trumpeting the results of two studies suggesting that government insureds are getting a better deal than “non-nationalized” insurance consumers. “I have no idea where they got their numbers from,” Lindsay Olsen, the ICC’s regional representative for B.C., states flatly.
She is referring to the ad campaign highlighting the results of the first study, conducted for the Saskatchewan Government Insurance (SGI) by Runzheimer Canada, an international management consulting firm specializing in managing corporate relocation costs.
The Runzheimer study — according to figures released by SGI — show premiums for a driver of a 1998 Ford Taurus were lowest in three of the four provinces with public plans ($1,023 in Regina, $1,185 in Winnipeg, and $1,334 in Vancouver). Montreal, under Quebec’s split no-fault system, was only slightly lower than Toronto, $2,276 compared to $2,351. The rates assumed at least four years of claims-free driving and the purchase of basic auto insurance with $1 million liability coverage, a $500 comprehensive deductible and a $250-$350 collision deductible.
The rate comparison was conducted by Windsor, Ontario-based Compu-Quote Inc., provider of the AutoRater package and other rating software products used by brokers across the country. According to a news release issued by ICBC, that comparison indicates that rates for a single, male, 30-year-old Vancouver owner of a 1998 Chevrolet Cavalier are lower (at $1,160) than those in Toronto ($1,429) and not considerably higher than what the same driver would pay in Calgary ($1,036). Take 10 years off the age of that driver in Vancouver and he would pay less than half that rate at $1,245 of the $3,256 he’d pay in Calgary and about a quarter of the whopping $4,906 premium charged in Toronto.
Apples and oranges
“They [the studies] are a piece of fiction … or something smellier … solely intended to convince the residents of those provinces that they’re getting a good deal,” Alan Wood, the IBC’s regional spokesperson for the prairie provinces, says dismissively. “They’ve been very sneaky. Of course they’ve compared apples and pomegranates and then come out with this outrageously misleading ad campaign that completely misinforms their own car owners and taxpayers.”
He suggests both studies were rigged by the government insurers that commissioned them. In the three western public-plan provinces, Level 4 or four years of claims-free driving, which is what the Runzheimer report was based on, are among the best rates available for that rate group nationally (for example, after four claims-free years, B.C. drivers get a 40% discount on their basic Autoplan rates and the same reduction on optional coverages, such as collision and comprehensive, when they buy the latter from ICBC).
Wood insists SGI chose that Level 4 group “to look good” and completely ignored the fact that private insurers give far better rates for five or six years claims-free.
Merit 4 level rates in Alberta, for example, are comparatively high, Wood adds, “because there’s a good reason for it. With only four years of claims-free driving there are problems with those drivers. But anyway, they represent only about 5% of the drivers in Alberta.”
In addition, both Olsen and Wood looked askance at the comparison rates cited for Alberta, especially the $1,947 premium quoted in the Runzheimer study for the ’98 Taurus owned by a Level 4 driver. “When we pull those same numbers up by Compu-Quote, they (the private insurers’ rates) are roughly half what those ads are claiming,” Olsen says.
Wood adds that his office gets “an incredible number” of calls from people moving into Alberta from B.C. and the other western provinces who insist a mistake has been made on their insurance quote, that “it’s far too low”.
A second look
To sort things out, CU asked Compu-Quote about the comparison conducted for ICBC. CEO John Savage says his company provided the public insurer with a number of rates available from private insurers for the various groups cited. ICBC obviously averaged those to come up with the numbers used in its ad campaign.
When Compu-Quote repeated the exercise at our request, lower rates than those cited by ICBC for Toronto, for example, were found for every age group. For example, premiums as low as $968 were found for the 30-year-old, single male driver of the ’98 Cavalier (as compared to the $1,429 used by ICBC).
And, Savage points out, the higher rates cited in most of the other comparisons can obviously be attributed to private insurers’ treatment of the young, high-risk groups. Take the 17-year old male out of the house living with the couple in their 40s in Toronto, for instance, and that rate drops from the $2,684 used by ICBC to about $900. (The ICBC doesn’t increase rates for young, occasional drivers.)
Quiet stirring
Wood believes the public insurers’ public relations campaigns are a response to the fact that the IBC has been “quietly stirring the bulrushes” in Manitoba and Saskatchewan in an effort to educate consumers about the potential cost-savings that could be gained by ending the state monopoly. It’s a long haul he says, partially because both provinces have been largely closed shops for 25 years, with their crown corporation insurance arms raking in an estimated 98% of the car insurance premiums. With the vast majority of drivers not finding it worthwhile to shop the private market for extension coverage, few insurers can afford to maintain much of a presence in the regional auto market. So the public and, to a large extent, even insurance brokers, have “no idea how the private side operates,” he insists.
That misunderstanding extends to the issue of high rates for youth, especially young male drivers in “free Canada” as the IBC’s spokesperson calls it. He says if older drivers in provinces with public plans realized to what extent they were subsidizing younger, higher-risk groups, they’d likely be much more open to considering a private alternative. This is another public education priority for the industry: in the news release announcing the rate study results (and citing the $4,900 premium a single, male 20-year old driver of the Cavalier would pay, according to CQ), the ICBC said: “These comparisons also illustrate that private insurers continue to discriminate on the basis of age and sex of the owner, even if he or she has a good driving record.”
The war is forcing public insurers to reduce rates
The IBC believes its lobbying is achieving success in B.C. The way the insurance industry sees it, since the Social Credit government opened up the PD market, the growing presence of private insurers has forced the ICBC to make its rates more competitive and introduce discounts for better risks. (For example, this January, the Corporation introduced its “Roadstar Gold” level, which kicks in after 15 years of no at-fault claims and amounts to a 20% discount on optional coverages such as extended third-party liability, collision and comprehensive. That’s on top of the Roadstar status given at the nine-years-claim-free mark, w
hich knocks 5% off the basic Autoplan and extended third-party liability and 10% off optional coverages).
Keeping up the pressure
But private insurers aren’t stopping there. According to Olsen, the IBC is continuing to lobby the province to blast the market wide open, citing public opinion polls that show 57% of B.C. residents support “outright privatization” while 81% believe there should be more competition in auto insurance.
In fact, Wood adds, the B.C. lobby effort is part of a general campaign mounted by IBC after it adopted the official position that governments should get out of the insurance business altogether. The Bureau has put more emphasis recently on including export insurance and workers’ compensation in that definition of the “insurance business.” He believes the ground for nurturing the seed of workers’ comp privatization is especially fertile in Alberta, where Ralph Klein’s gung-ho government of hard-core, free-enterprise fans has indicated it’s open to persuasive argument. That idea is also being circulated around Ontario’s Queen’s Park, where Premier Mike Harris is as well known for laying out the welcome mat for privatization proponents.
Bad taste of privatization
It is a harder sell in provinces like Manitoba, where controversy and anger about the recent privatization of the provincial telephone system still linger. And, as Wood admits, changing the auto insurance systems in Manitoba and Saskatchewan isn’t a burning issue for a public preoccupied with cutbacks in health care, education and other public services. “With their car insurance, it’s partly a `better-the-devil-you-know’ attitude,” he adds. “And partly a convenience issue when you’ve only one supplier to deal with.”
Of course, there is also the argument raised by the original architects of public plans that it’s preferable to see any profits accumulated by government insurers going to initiatives like road safety at home, rather than having the extra money shipped offshore to the foreign parents of many Canadian insurers.
While acknowledging that point, Wood points out that private insurers paid the Alberta government $50 million in premium taxes in 1998, employed 10,000 people and put $1.3 billion in paid-out claims back into the provincial economy. And, it’s taxpayers who are potentially on the hook when government insurers have to pay out more in claims than they take in through premiums, as has been the situation for the past several years in Saskatchewan, for example, where SGI ended 1997 with a deficit of nearly $98 million. (Although this had dropped by nearly $30 million in June 1998, the latest figures available.)
Shaking up the numbers
Olsen also questions ICBC’s reported operating surplus of $14 million in 1997, which the government insurer largely chalked up to its investment in road safety. Noting its $.5 million loss a year earlier, the fact that the province’s drivers “are the poorest in the land,” and the creative accounting policies employed by B.C.’s government in the past, Olsen says she questions whether any surplus actually exists.
Rob Brown, a professor of statistics and actuarial science and director of the University of Waterloo’s Institute of Insurance and Pension Research, points out another potential issue with insurance plans administered by crown corporations that are still subject to the political machinations of governments: those billion-dollar pots of reserves. “They are large gobs of money that are just too tempting, especially to deficit-burdened governments. We’ve seen it happen before, with the Canada Pension Plan and the Unemployment Insurance Fund to name a few. The politicians decide those reserves are actually bigger than they need to be…despite what the actuaries say…or should actually be considered surpluses and, whoops, they…disappear into general revenues.”
The industry obviously believes that the stars have come into alignment as far as favoring a major privatization push. With governments having turned increasingly to the right on the political spectrum, taxpayers revolting against the repeated need to bail out publicly managed enterprises, with auto insurance rates having stabilized in most other provinces and few other avenues to growth left available, a prolonged siege at the gates of Canada’s government insurers could force an entry for private insurers.
City
Annual Premium of a 1998 Taurus
Regina
$1,023
Winnipeg
$1,185
$1,334
Vancouver
($1,256 for an ICBC RoadStar gold
Customer with more than 15 years
of claims-free driving
Moncton, NB
$1,470
London
$1,602
Calgary
$1,947
St. John’s, NFLD
$2,119
Montreal
$2,276
Toronto
$2,351
Driver
Vancouver
Calgary
Toronto
Single Male, Age 20
$1,245
$3,256
$4,906
Single Female, 20
$1,245
$1,901
$2,855
Single Male, 30
$1,160
$1,036
$1,429
Married Male, 45
Married Female,42$1,096$1,819$2,684
Single Male 17
Married Male 55
Married Female, 52$1,096$897$1,186
Since Saskatchewan’s decision to introduce public auto insurance in 1946, the advancement of government insurers across the provinces has been a sharp thorn in the side of Canada’s private property and casualty insurance industry. The “socialist disease” of government-run auto plans — as referred to by one backbencher in the Ontario Conservative government of the 1970s during a debate on controlling spiraling insurance rates — spread from Saskatchewan to Manitoba, British Columbia and then Quebec following with its own semi-public version in 1978. Recently the Insurance Bureau of Canada (IBC) stepped up lobbying efforts to sway public and political opinion to opening these markets. The drive has mainly been in the west, resulting in counter-attacks by government insurers.The private versus public insurer war looks like it is about to turn ugly.
The slinging match between private companies and the provincial insurers recently escalated with a series of newspaper advertisements trumpeting the results of two studies suggesting that government insureds are getting a better deal than “non-nationalized” insurance consumers. “I have no idea where they got their numbers from,” Lindsay Olsen, the ICC’s regional representative for B.C., states flatly.
She is referring to the ad campaign highlighting the results of the first study, conducted for the Saskatchewan Government Insurance (SGI) by Runzheimer Canada, an international management consulting firm specializing in managing corporate relocation costs.
The Runzheimer study — according to figures released by SGI — show premiums for a driver of a 1998 Ford Taurus were lowest in three of the four provinces with public plans ($1,023 in Regina, $1,185 in Winnipeg, and $1,334 in Vancouver). Montreal, under Quebec’s split no-fault system, was only slightly lower than Toronto, $2,276 compared to $2,351. The rates assumed at least four years of claims-free driving and the purchase of basic auto insurance with $1 million liability coverage, a $500 comprehensive deductible and a $250-$350 collision deductible.
The rate comparison was conducted by Windsor, Ontario-based Compu-Quote Inc., provider of the AutoRater package and other rating software products used by brokers across the country. According to a news release issued by ICBC, that comparison indicates that rates for a single, male, 30-year-old Vancouver owner of a 1998 Chevrolet Cavalier are lower (at $1,160) than those in Toronto ($1,429) and not considerably higher than what the same driver would pay in Calgary ($1,036). Take 10 years off the age of that driver in Vancouver and he would pay less than half that rate at $1,245 of the $3,256 he’d pay in Calgary and about a quarter of the whopping $4,906 premium charged in Toronto.
Apples and oranges
“They [the studies] are a piece of fiction … or something smellier … solely intended to convince the residents of those provinces that they’re getting a good deal,” Alan Wood, the IBC’s regional spokesperson for the prairie provinces, says dismissively. “They’ve been very sneaky. Of course they’ve compared apples and pomegranates and then come out with this outrageously misleading ad campaign that completely misinforms their own car owners and taxpayers.”
He suggests both studies were rigged by the government insurers that commissioned them. In the three western public-plan provinces, Level 4 or four years of claims-free driving, which is what the Runzheimer report was based on, are among the best rates available for that rate group nationally (for example, after four claims-free years, B.C. drivers get a 40% discount on their basic Autoplan rates and the same reduction on optional coverages, such as collision and comprehensive, when they buy the latter from ICBC).
Wood insists SGI chose that Level 4 group “to look good” and completely ignored the fact that private insurers give far better rates for five or six years claims-free.
Merit 4 level rates in Alberta, for example, are comparatively high, Wood adds, “because there’s a good reason for it. With only four years of claims-free driving there are problems with those drivers. But anyway, they represent only about 5% of the drivers in Alberta.”
In addition, both Olsen and Wood looked askance at the comparison rates cited for Alberta, especially the $1,947 premium quoted in the Runzheimer study for the ’98 Taurus owned by a Level 4 driver. “When we pull those same numbers up by Compu-Quote, they (the private insurers’ rates) are roughly half what those ads are claiming,” Olsen says.
Wood adds that his office gets “an incredible number” of calls from people moving into Alberta from B.C. and the other western provinces who insist a mistake has been made on their insurance quote, that “it’s far too low”.
A second look
To sort things out, CU asked Compu-Quote about the comparison conducted for ICBC. CEO John Savage says his company provided the public insurer with a number of rates available from private insurers for the various groups cited. ICBC obviously averaged those to come up with the numbers used in its ad campaign.
When Compu-Quote repeated the exercise at our request, lower rates than those cited by ICBC for Toronto, for example, were found for every age group. For example, premiums as low as $968 were found for the 30-year-old, single male driver of the ’98 Cavalier (as compared to the $1,429 used by ICBC).
And, Savage points out, the higher rates cited in most of the other comparisons can obviously be attributed to private insurers’ treatment of the young, high-risk groups. Take the 17-year old male out of the house living with the couple in their 40s in Toronto, for instance, and that rate drops from the $2,684 used by ICBC to about $900. (The ICBC doesn’t increase rates for young, occasional drivers.)
Quiet stirring
Wood believes the public insurers’ public relations campaigns are a response to the fact that the IBC has been “quietly stirring the bulrushes” in Manitoba and Saskatchewan in an effort to educate consumers about the potential cost-savings that could be gained by ending the state monopoly. It’s a long haul he says, partially because both provinces have been largely closed shops for 25 years, with their crown corporation insurance arms raking in an estimated 98% of the car insurance premiums. With the vast majority of drivers not finding it worthwhile to shop the private market for extension coverage, few insurers can afford to maintain much of a presence in the regional auto market. So the public and, to a large extent, even insurance brokers, have “no idea how the private side operates,” he insists.
That misunderstanding extends to the issue of high rates for youth, especially young male drivers in “free Canada” as the IBC’s spokesperson calls it. He says if older drivers in provinces with public plans realized to what extent they were subsidizing younger, higher-risk groups, they’d likely be much more open to considering a private alternative. This is another public education priority for the industry: in the news release announcing the rate study results (and citing the $4,900 premium a single, male 20-year old driver of the Cavalier would pay, according to CQ), the ICBC said: “These comparisons also illustrate that private insurers continue to discriminate on the basis of age and sex of the owner, even if he or she has a good driving record.”
The war is forcing public insurers to reduce rates
The IBC believes its lobbying is achieving success in B.C. The way the insurance industry sees it, since the Social Credit government opened up the PD market, the growing presence of private insurers has forced the ICBC to make its rates more competitive and introduce discounts for better risks. (For example, this January, the Corporation introduced its “Roadstar Gold” level, which kicks in after 15 years of no at-fault claims and amounts to a 20% discount on optional coverages such as extended third-party liability, collision and comprehensive. That’s on top of the Roadstar status given at the nine-years-claim-free mark, w
hich knocks 5% off the basic Autoplan and extended third-party liability and 10% off optional coverages).
Keeping up the pressure
But private insurers aren’t stopping there. According to Olsen, the IBC is continuing to lobby the province to blast the market wide open, citing public opinion polls that show 57% of B.C. residents support “outright privatization” while 81% believe there should be more competition in auto insurance.
In fact, Wood adds, the B.C. lobby effort is part of a general campaign mounted by IBC after it adopted the official position that governments should get out of the insurance business altogether. The Bureau has put more emphasis recently on including export insurance and workers’ compensation in that definition of the “insurance business.” He believes the ground for nurturing the seed of workers’ comp privatization is especially fertile in Alberta, where Ralph Klein’s gung-ho government of hard-core, free-enterprise fans has indicated it’s open to persuasive argument. That idea is also being circulated around Ontario’s Queen’s Park, where Premier Mike Harris is as well known for laying out the welcome mat for privatization proponents.
Bad taste of privatization
It is a harder sell in provinces like Manitoba, where controversy and anger about the recent privatization of the provincial telephone system still linger. And, as Wood admits, changing the auto insurance systems in Manitoba and Saskatchewan isn’t a burning issue for a public preoccupied with cutbacks in health care, education and other public services. “With their car insurance, it’s partly a `better-the-devil-you-know’ attitude,” he adds. “And partly a convenience issue when you’ve only one supplier to deal with.”
Of course, there is also the argument raised by the original architects of public plans that it’s preferable to see any profits accumulated by government insurers going to initiatives like road safety at home, rather than having the extra money shipped offshore to the foreign parents of many Canadian insurers.
While acknowledging that point, Wood points out that private insurers paid the Alberta government $50 million in premium taxes in 1998, employed 10,000 people and put $1.3 billion in paid-out claims back into the provincial economy. And, it’s taxpayers who are potentially on the hook when government insurers have to pay out more in claims than they take in through premiums, as has been the situation for the past several years in Saskatchewan, for example, where SGI ended 1997 with a deficit of nearly $98 million. (Although this had dropped by nearly $30 million in June 1998, the latest figures available.)
Shaking up the numbers
Olsen also questions ICBC’s reported operating surplus of $14 million in 1997, which the government insurer largely chalked up to its investment in road safety. Noting its $.5 million loss a year earlier, the fact that the province’s drivers “are the poorest in the land,” and the creative accounting policies employed by B.C.’s government in the past, Olsen says she questions whether any surplus actually exists.
Rob Brown, a professor of statistics and actuarial science and director of the University of Waterloo’s Institute of Insurance and Pension Research, points out another potential issue with insurance plans administered by crown corporations that are still subject to the political machinations of governments: those billion-dollar pots of reserves. “They are large gobs of money that are just too tempting, especially to deficit-burdened governments. We’ve seen it happen before, with the Canada Pension Plan and the Unemployment Insurance Fund to name a few. The politicians decide those reserves are actually bigger than they need to be…despite what the actuaries say…or should actually be considered surpluses and, whoops, they…disappear into general revenues.”
The industry obviously believes that the stars have come into alignment as far as favoring a major privatization push. With governments having turned increasingly to the right on the political spectrum, taxpayers revolting against the repeated need to bail out publicly managed enterprises, with auto insurance rates having stabilized in most other provinces and few other avenues to growth left available, a prolonged siege at the gates of Canada’s government insurers could force an entry for private insurers.
The RIMS 99 Conference & Exhibition, to be held in Dallas, Texas from April 11th to 16th, is an apt lead-up to the 50th anniversary of the Risk and Insurance Management Society Inc. (RIMS). The organization’s international conference also represents a significant coup for Canadian risk managers with the appointment of Susan Meltzer, assistant vice president insurance and risk management at Sun Life Assurance Company of Canada, as president for the 1999/2000 term.
This year’s conference theme “Many Goals, One Direction” embodies where the risk management profession has evolved from and where it going, notes Meltzer. “We [RIMS] have completed numerous studies on where risk management has come from. Now it’s time to take a look at where the profession is going.”
As a risk professional, there are two central issues at stake, Meltzer observes. The first is that an effective mechanism has to be established to provide risk managers with the appropriate skills and tools to advance their capabilities – RIMS was created to serve this task and will continue to develop and introduce professional enhancement products for its members.
The second challenge which has to be embraced by the profession is pressing home the importance of risk management at the corporate level. “We have to get the message across at a corporate executive level that risk management is changing, the basic risk environment we are dealing with is changing. This is the cornerstone of RIMS 99, and we will be voicing this message strongly in the year ahead.”
While traditional insurance has always played a significant role in reducing corporate risk exposures, and will continue to do so, the playing field of risk management has become broader and the rules are adapting as the games evolves, she says. “This isn’t about insurance programs, it’s about developing and managing risk programs. Risk management as a profession has to break free from the view of ‘it’s all about buying insurance’ to be taken in as an integral part of the corporate business process.”
In this regard, Meltzer’s term as RIMS president will see the introduction of two additional national risk gatherings, the emphasis being on corporate and financial risk management.
Meltzer explains that the conferences — the first to be held in Toronto in the spring of next year and the second in New York City in the fall — will bring together risk managers and corporate CEOs. “The conferences aren’t about insurance, the purpose is to create a forum where the thinking processes of both risk management and corporate strategy can be brought together. This will be a very exciting development, a first time attempt to advance risk planning into the executive decision making process. Risk managers and CEOs need to come to terms with the concept that risk management is about balancing risk and financial resources, which all feeds back to the strategic decisions made by the corporate executives.”
Meltzer’s ease at slipping behind the driving wheel of RIMS is not surprising. She became a member of the society nearly 16 years ago when first venturing into the risk management profession. In the early stages, the relationship between RIMS and its Canadian members was strained, she notes.
However, that picture has changed, over recent years RIMS’ Canadian membership has increased substantially and several Canadian risk managers currently occupy prominent posts in the organization’s committee and executive functions. “Cooperation between RIMS U.S. and Canadian chapters has never been better. In terms of the close economic and business ties between the two countries, I think it’s really neat that Canadian risk managers are being taken as seriously from the other side and that the Canadian profession is showing such strong interest in a cross-border development initiative such as RIMS.”
Meltzer’s professional background to risk management is grounded in insurance. She began her career in 1975 working for a national commercial insurance brokerage. Meltzer joined the quasi-government Canada Development Corporation in 1983 as a risk manager, which she describes as, “a very interesting experience,” the nature of the corporation’s activities providing broad exposure to a multitude of business activities and risks. She then entered the employment ranks of Bell Canada as a risk manager for ten years until an “irresistible offer” to create a risk management department from scratch was made by Sun life in 1996.
The ability to “create” was the main appeal of the Sun Life offer, she remarks, this was a major national financial services company embracing the concept of risk management for the first time. “Prior to the establishment of the risk department, Sun Life had an insurance buying function. The challenge of setting up a risk management department was to evaluate the company’s risk exposure and needs, both locally and globally, and maximize on available resources. It took close to a year just to identify these objectives and come up with a game plan,” she notes.
Since then, Sun Life has established a full internal risk management team of seven professionals. The premium savings made by the company over the past two years can fund the costs of the risk department for the next five years, Meltzer observes.
Initially, the process of moving from a conventional insurance buying function was gradual, dealing with specific exposures and bringing the portfolio together as an integral risk program, she adds. “We have since brought the claims management function in-house and leveraged our insured exposures to increase our range of covers whilst marketing our insurance program to ensure the best values. Our objective is now to look at the broader risk exposures, the key is to get the business managers to incorporate the risks taken on with new ventures along with the rewards when making decisions to proceed.”
Meltzer concedes that her higher office at RIMS will occupy more time. “I’m lucky to have an understanding employer, one which understands the importance of risk management and the role RIMS plays in our profession,” she says.
Meltzer is willing to provide a sneak preview of events planned for RIMS 99. The opening day is usually set aside for the society’s meeting of the board of directors, she notes. This year, however, an open session will be held after the meeting to enable members to put forward their own issues, “it’s about bringing RIMS closer to its members”.
The conference opening address on the Monday will see the unveiling of a special RIMS 50th anniversary logo which will be followed by the release of a historical video next year when RIMS reaches its official 50th birthday. The conference will provide details of RIMS’ “Fellow in Risk Management” professional designation and skills training program which was recently launched.
The second annually completed “Quality Score Card” survey of insurance services, which is jointly sponsored by RIMS and the Quality Insurance Congress, will be released at the conference. Last year’s score card results created a minor furor in the insurance industry due to the low rating several leading national brokers and companies received from risk managers. The companies in question suggested that the methodology applied in the survey rating was unfair on a company to company basis.
As such, Meltzer says the rating technique of the score card has been fine tuned to address these concerns, however, independent evaluation of last year’s survey indicated that there were no real problems with the manner in which the results were derived at. “There will probably be a couple of companies not happy with this year’s results either,” Meltzer says, “the real issue is not the independent scoring but the overall result. We all knew last year that service in the insurance industry was not up to standard, the results merely confirmed it. I don’t think there is going to be any significant improvement in the numbers this year either.”
The score card is not intended to point fingers at certain companies, its purpose is to provide a measurement of standards to identify ar
eas that can be improved on, notes Meltzer. “In that sense I think the survey has been highly successful. We just have to look at the recent joint agreement reached between RIMS and brokerage J&H Marsh & McLennan on the disclosure of contingency commissions to customers. I think this was directly motivated by the 98 Quality Score Card. I don’t believe there is a single broker out there who will be able to resist disclosure of contingency earnings.”
Shortly after the J&H Marsh & McLennan earnings contingency disclosure announcement, Willis Corroon New York issued a statement indicating that they will no longer include a client’s premium in contingency calculations if so requested. The insurance market is definitely reacting to the needs of risk managers, Meltzer notes, “it’s just a matter of time before the insurance industry catches up with the standards set by RIMS”.
As I approached the first aisles of the “Exhibitors’ Showcase” it occurred to me for perhaps the sixth or seventh time just how technologically advanced our business had become. The three-day-long brokers’ convention had started, and half of the convention floor in our city’s largest hotel had been converted into an impressive showcase of computers and printers, advanced software, broker management systems, digital imaging devices, cell phones and technical gadgets by the bushel.
As the company’s senior marketing representative I was expected to be a visible presence at the convention, to help out in our hospitality suite, and to make contact with those brokers in my territory who were attending the convention. It was not yet mid-morning, but already the exhibit floor was crowded with convention delegates.
As I stopped beside a gleaming exhibit where a new broker management system was being demonstrated, I saw a familiar figure nearby staring intently at the computer screen and writing on a notepad. It was Al, a fifty-ish broker who operated in a town of 75,000 some 160 kilometers from the city. He had represented our company for many years.
“Window shopping, Al?” I asked.
He turned to me with a smile and flipped his notepad shut. “I call this risk management, Dave,” he answered, and when he saw my raised eyebrows, went on. “Risk management is supposed to be the science of reducing the chance of disaster, cutting down the possibilities for catastrophe. Well, that’s what I’m doing.”
He closed the fingers of one hand into a fist. “The risk I manage is my business, my brokerage. It’s a pretty successful one, but I’ve kept it that way by managing the risk as best I can. By hiring good staff, by computerizing, by adding good software, and so on.” He waved his hand at the exhibit area. “That’s why I come here – to find out what’s newer, what’s better, what’s more cost-effective.” He smiled again. “It’s my own risk management program at work.”
We walked together down another aisle of the exhibit area and Al glanced sideways at me. “For instance, my visit here this year has convinced me that it’s definitely time for me to go transactional. Been putting it off for years, but my senior CSR has convinced me to bite the bullet.”
Al had a sizeable chunk of personal lines’ business, plus a number of large farms and some commercial. Although he wasn’t one of our major brokers, he gave our company a decent slice of good business and serviced his clients conscientiously.
“I bought a good broker management system some years ago,” he said. “The vendor has already told me my system is powerful enough to handle my going fully transactional. The real problem is me. I guess I’m emotionally attached to the good old client file system.”
I nodded. “Some brokers still are. But the advantages of transactional are pretty overwhelming.”
Al held up his hands. “Oh, I know, Dave. My senior CSR has run them by me fifty times already.” He began to raise fingers one by one as he reeled off a list of advantages. “Productivity increases because there’s faster turnaround of transactions: almost no wasteful time spent filing or re-filing, or looking for files. More effective use of staff because anyone can take any call and bring up the file of the client who’s on the phone. Huge reduction in paper-handling time. Better control of operations because all those pre-defined activities don’t let you forget important tasks, since they not only document what’s been done, but follow-up for you just in case your memory fails. And, of course, less frustration in hunting through inches of paper clipped and stapled together in files –“
He paused for a second and I jumped in. “Greater security of information too, Al. No more loose file folders lying around the office. Plus, moving to transactional means that you have really made your own commitment to insurance’s electronic revolution.”
As I spoke, a figure detached itself from the crowd around us and a cheerful female voice rose about the conversational hum. “Revolution, Dave? I know you marketing reps can be revolting at times — but revolution?”
Facing us was Joanne, co-partner in a thriving suburban brokerage and as outgoing and efficient as she was direct.
Al’s the one who’s going radical,” I said. “He calls running his own brokerage his personal risk management project. As part of managing the risk better he’s made up his mind to go fully transactional. He just hasn’t decided when.”
Joanne gave Al a quizzical look. “Risk management, eh? I like that. I guess we all manage the risk of being in our business as best we can.” Then she reached over and squeezed Al’s arm. “Let me guess. You’re probably wondering if you should go all the way in one step, or whether you should ease your way into transactional operation. Am I right?”
Al stopped dead. “Joanne you’ve been reading my mind. I decided to visit two business friends of mine I play golf with in the summer. They’ve both gone transactional. Their operations are roughly the same size as mine, maybe a little bigger.” He shook his head. “Funny thing was – these two guys each took a different approach. One just set a date and on that date jumped fully into transactional, the other took the phase-in approach.”
Joanne looked over at Al and smiled. “None of my business – but why didn’t you take your senior CSR along with you?”
Al stopped in his tracks again. “Dammit, you’re right! That would have been the smart thing to do.”
“Everyone’s got twenty-twenty vision in hindsight,” Joanne said as we began walking again. “But tell me about that phase-in operation.”
“Well, all his daily client activities were logged on their system screens, but they still maintained a paper client file. For a few weeks the CSRs left their bundle of client files in their work areas in the usual way.” Al shrugged his shoulders. “Apparently it became obvious pretty soon that there was no sense in keeping the paper client files, so they just stopped. That was it — they were fully transactional.”
“Why the phase-in?” I asked. “Was he unsure of his staff’s ability to adjust?”
Al shook his head. “No, he told me it was mostly to give him and his staff a comfort zone. It allowed them to plan ahead in stages. It gave them a window they could back out of, or modify, at any time. When they actually switched to pure day filing it was really a minor transition for them all.”
“Hey,” Joanne said with a laugh, “different strokes for different folks. Tell you what I did. We set a target date to go transactional. For four or five months before that date we staged weekly all-staff meetings. We encouraged everyone to air their views and concerns and to share their ideas. That way, nobody felt they weren’t consulted, and I think we all learned a few truths about how effective or non-effective we can be at times.”
By now we had reached an open section of the exhibit hall where chairs and tables were scattered freely among the hotel’s potted palms. We had barely got comfortable when I heard a high-pitched giggle from Joanne and followed her pointing finger. Advancing in our direction was the burly figure of Harry, who ran a successful brokerage in the city suburbs. He was balancing four large cups of coffee on his briefcase as he walked gingerly towards us.
“I thought I should do the right thing for this tired-looking group,” he said, passing each of us a cup. “You all look damn serious. What’s the topic today?”
“It’s risk management,” I replied. “Coping with the many risks of being in the insurance business.”
Al grinned at Harry. “I want to kick the paper dependency habit and go transactional. Not too many of us old traditionalists left any more, but I’m just agonizing a little.”
“Not over the ‘why’, though?” Harry queried and got a shake of the head from Al.
“Nope — it’s just the ‘how’ that bothers me a bit – saying goodbye to those comforting pieces of paper.”
Harry took a sip of his coffee and sat down. “Well, we can’t completely escape the paper trail, but when you go transactional you cut down to one daily activity file which has various paper
items in it. In our office it gets filled the next day. One person picks up all the hard copy stuff from every desk around ten in the morning — takes about four minutes flat. That file is then day-dated, and that’s it for paper. Everything else we need to know is available on our screens. We haven’t had a paper file for any of our customers for four years.” He looked over at Al. “To be honest with you, I now trust what’s on my screen more than a loose sheet of paper with notes on it.”
Beside me, Joanne sat forward in her chair. “It’s a great system, all right, but you shouldn’t think of going transactional as reaching some magic problem-solving goal. It simply means you process work one way — electronically — instead of trying to juggle paper and electronic data together.”
Al nodded thoughtfully and Harry went on. “Another big advantage of transactional: your phone line gets you in to all your office files. I can dial into my system from home. I can be talking to a client in my living room and updating his screen in the office fifteen kilometers away. Or, if I get a call at home, I can start the claim process right away. No more coming in to the office on Monday morning with a briefcase full of paper notes and scribbles.”
“You’ll probably find some side benefits, too,” I added. “A couple of brokers in my territory were amazed at how much surplus filing space they wound up with after going transactional. In fact, one of them figured he could have kept five years’ worth of client information on site if he had wanted to. He didn’t, of course. He kept the past two years only. The rest he shipped to off-site storage.”
A small frown had settled on Al’s normally placid face. “What about those old client files?” he said, looking around us. “Shouldn’t you keep them close by in case they’re needed?”
“You’d be surprised at how little they’re used.” It was Joanne speaking. “We keep ours in a locked room in our office. Access is strictly limited so the confidential information is secure. When I first went transactional I still had a couple of older staff who were uneasy and tried to do things the old paper-intensive way.”
“So how did you handle that?” Al asked.
“Easy,” Joanne replied. “We installed a simple register on the central file so that every time anyone took a paper file out, they had to record the fact – plus the reason for getting it out. When we reviewed why people were getting out these files, it soon became obvious it just wasn’t necessary.”
“Okay, I’ll buy that,” Al said agreeably, setting his cup down on the floor. “But I have another question. What about all those special pieces of paper: house evaluations, driver-training certificates, photos of risks?”
“No problem,” Joanne answered. “Remember, the transactional process has two sides to it: one is information, the other is a reference to a hard copy item. For instance, your screen tells you that you received an item from the insured. Let’s say it was a driver-training certificate. The screen will tell you that you’ll find that item in the activity file of that day, or – if you’re a technology freak like some brokers I know, you’ll have digitally photographed that item. The screen will remind you of that fact, then it’ll retrieve it for you.”
“It all sounds pretty convincing for my personal lines,” Al said, nodding his head. “But what about commercial?”
Harry’s voice cut through the momentary silence. “Good question. And the short answer is commercial’s different. Fact is, you pretty well have to have to retain a paper file, because if you’re going to take a commercial risk to market at renewal time, you need all the information in one spot: the inventory, the balance sheet, the correspondence, the company quotes, the whole ball of wax.”
“Well, it’s nice to hear there’s still room for a dependency here and there,” Al said with a laugh.
“Speaking of dependency,” I said, getting to my feet and looking towards the banquet hall. “My stomach tells me it’s lunch time, folks. Shall we?”-
Announcements in Coming Events are run free of charge as a service to the industry. Items should be submitted by the first of the month prior to the month in which the announcement is to appear.
Insurance Bureau of Canada: Financial Affairs Symposium. Contact Tracy Waddington at 416-362-2031 ext. 352. Sheraton Centre, Toronto, ON. Mar. 24.
Institute for Catastrophic Loss Reduction: National Earthquake Conference. Contact Alan Pang at 416-362-2031 ext. 342. Robson Square Conference Centre, Vancouver, BC. Mar. 26.
Ontario Risk & Insurance Management Society: Monthly Business Meeting and Breakfast. Contact Marlene Jones at 416-215-4288. Toronto Marriott Eaton Centre Hotel, Toronto, ON. Mar. 29.
Institute for International Research: Year 2000 Liability and Contingency Planning. Contact Institute for International Research at (416) 928-1078. Holiday Inn On King, Toronto, ON. Mar. 29-31.
Women in Insurance Cancer Crusade: Fundraising Dinner. Contact WICC at 416-366-7600. Sheraton Centre, Toronto, ON. Mar. 31.
Risk and Insurance Management Society: Annual Conference & Exhibition. For more information contact Madeline Bou at 212-286-9292. Convention Centre, Dallas, TX. Apr. 11-16.
Blue Goose Luncheon. For more information, call 416-665-1311. Royal York Hotel, Toronto, ON. Apr. 19.
Speakers Club of the Insurance Institute of Ontario: “The Great Debate”. Contact Rejeanne Dorion at 416-350-4137. Toronto, ON. Apr. 19.
Institute for International Research: Channels 99 Conference. For more information contact I.I. Research Corporation at 416-928-1078. Toronto Marriott Eaton Centre Hotel, Toronto, ON. Apr. 27-30.
Swiss Reinsurance: 14th Annual Monte Carlo Gala (Proceeds donated to the Amyotrophic Lateral Sclerosis Society of Canada (aka Lou Gehrig’s Disease). Contact Glenn McGillivray at (416) 408-5941 for ticket information. Four Seasons Hotel, Toronto, ON. Apr. 30.
Every end is a new beginning. This has never been truer than in today’s fast paced world where everyone and everything is constantly being reinvented.
As I look at my career in the risk management field, I can see that risk management is an evolutionary process where people and companies become more aware of their risks and how to manage them profitably. This evolution can be seen as a continuum of stages from spectator to coach and moving along this path involves increasing awareness of the risks inherent in the operation, and how to manage them.
While the insurance industry provides a vital and indispensable resource to business, it must be coupled with an integrated risk management program to ensure “post-loss” survival.
There are three deadly risks that can destroy a business: Time, Market Share, and Image. Unless these are recognized early, their impact will be the greatest challenge the company will face and if not addressed before hand, their effect can be lethal.
The spectator: The first stage in the evolution
Spectators are new businesses, businesses that have built in redundancy, and businesses that have never had a loss and rely totally on insurance. All are unaware of the risk arena they operate in.
New businesses are preoccupied with the operational aspects of building the business. Management is concerned with only “pre-loss” goals like profitability or logistics and hasn’t become aware of the various post loss goals that must be addressed when a loss occurs.
Mary ran a word processing operation out of her home. It was extremely profitable and several customers became regulars and were recommending her. Last week the power surged and burned out some of the circuits in the computer. She had called the computer’s company and finally got a technician to look at the computer. Meanwhile several of her jobs were now late and customers were getting angry and losing confidence. Mary had never anticipated this. Mary was now struggling with survival issues (post-loss goal) rather then profitably and growth issues (pre-loss goals).
Companies used to build redundancies into inventories so that any interruption in operation would not affect sales. For example sales outlets might keep two-week inventory in stock. While this risk management technique was useful should a loss occur, it was costly. In today’s business environment the cash was more vital so as the business eliminated these redundancies its risks increased and unless it has contemplated the full impact of this move on the business, the stage is set for disaster.
Finally, businesses that have never had a loss and rely totally on insurance to manage their risk are positioned for a rude awakening. As Mary in the example above discovered, insurance is not the answer to all the risks a business faces. If power surges were anticipated in the original policy wording then the damage to the computer may be covered but what about down time, lost revenue, and damage to your reputation as a viable concern. After a loss the business may never recover if these critical risks were not identified and dealt with.
Insurance professionals working with business at this stage should try to make their customers aware of the fact that while insurance is essential it is not a remedy for all risks that the company will face. They can assist the operation in developing a minimal risk management program that will identify risks that are better managed through a risk control program.
At this stage, education is the most essential component in developing awareness of various risks that the operation faces. Education can occur through an industry network, newspaper and magazine articles and educational programs offered by professional organizations like the Risk and Insurance Management Society (RIMS) that have professionals working with risks.
When I first got involved in the area of risk management I found that my awareness developed exponentially through my interaction with industry peers and involvement with RIMS. As my awareness grew I began to evolve to a team player in the management of Coca-Cola’s risks.
The team player:
The second stage of evolution
Team players are companies that have become aware that the managing of risk needs their involvement and cannot be abdicated. While these companies vary in size, they all share the realization of the importance of planning out post-loss goals and setting out a strategy for how risks will be handled.
Risk management programs begin to develop that address risk financing, risk control and communication and the opportunities offered in each area. There is more team interaction between the broker, insurance provider and company representative that works to develop effective and profitable programs.
Often these businesses find that when they get more involved with the managing of their risks, the insurer is more open to exploring new risk financing options that will give them a better return on their insurance program.
Claims management is a critical financial concern that involves the company, the customer and the product. This is the critical satisfaction equation of any business. How the customer is handled is essential to the image that the company has worked hard to develop, and the management of its image is vital.
At a minimum the business should work closely with the insurance claims people to ensure the company message is continuous. In my experience with the Coca-Cola system in Canada the customer is king and getting on claims quickly and handling the outcome expeditiously was vital for success.
Again, by working with the insurer and claims personnel, the business finds it can reduce insurance costs, reduce claims cost and improve customer relations all by getting involved in managing the risk.
Risk control programs involve working with the insurer to find ways to eliminate or reduce the impact of losses on the business. As a team player, most companies will tend to think in very traditional solutions like sprinkler systems to reduce losses from fires or vehicle inspections to reduce liability losses. As well, the business expects a significant reduction in the insurance premium to cover any investment in these programs.
However, risk control programs do not always result in decreased insurance premiums due to spread of risk concept often used in setting premiums. Risk control programs can prevent or significantly reduce a loss and that can often mean the difference between survival and extinction for the business.
Communication programs usually are very minimal and involve simply reporting on the insurance premiums. It is vital that the risk control program, claims management as well as risk financing programs all be measured and reported on to all areas of business. The executive will seek a snap shot of how the program is working where the operations will want more bottom line details but it is essential to have “buy-in” from all levels of the business to make the programs effective.
Eventually the business realizes that the management of risks is ultimately their responsibility and taking the lead and setting the philosophy can capture significant financial rewards. The management of risks is as critical to an operation as the management of its finances, logistics, operations and sales. At this points the business becomes the coach or master of it’s destiny.
The coach or master:
The final stage in the evolution
As a coach the business now establishes a risk management policy setting out how it will handle the risk inherent in the operation and putting in place a program for continuous improvement in the ongoing review and management of risks. Many large national and international companies occupy this area as well as operations that have survived a significant loss that insurance could not alleviate.
Having assessed the risks inherent in the organization and developed innovative risk control and risk financing programs for the operation, the business now focuses on managing change. A manager or vice-president is now assigne
d responsibility for monitoring the programs and ensuring their profitability and cost effectiveness as well as their adaptability to the changing operational, organization and regulatory or business environment.
The communication strategy involves annual reporting to the Board of directors as well as to the operational entities setting out the goals and opportunities captured by the risk management program.
Change is the only constant in today’s environment however every change brings new opportunities. As a business moves along the risk continuum from total unawareness of risks to managing the full range of risks it finds endless opportunities. Harnessing these opportunities is the million-dollar opportunity.
Businesses that have never had a loss and rely totally on insurance to manage their risk are positioned for a rude awakening.
‘-based Reliance National, a subsidiary of Reliance Group, has introduced Enterprise Earnings Protection Insurance (EEPI), the first insurance policy designed to protect publicly held companies against earnings disruption volatility and adverse results.
EEPI covers a wide range of circumstances that can negatively impact a corporation’s earnings, such as a decrease in demand for goods and services, an increase in the cost of raw materials, supply chain or distribution problems, weather-related events, natural and man-made disasters or other uncontrollable events that could increase expenses or reduce revenues reducing earnings. If an insured corporation misses its operating earnings target by a certain preset percentage due to losses covered by the policy, EEPI will provide a cash payment above a predetermined amount to cover the earnings shortfall.
The coverage works in conjunction with a corporation’s existing insurance programs and any underlying financial instruments utilized to hedge various risk. EEPI serves as an additional layer of protection against catastrophic property and casualty losses while providing primary coverage for certain financial, operational and business exposures. “The insurance and financial markets are converging, and we are on the forefront of this trend,” says Saul Steinberg, Reliance Group chairman.
Reliance has partnered with Swiss Re and several other financial institutions to provide the capacity and capital market structures necessary to support the program.
The Dallas Convention Centre will host the 37th Annual RIMS Conference & Exhibition, expected to draw more than 9,000 risk management professionals from April 11th to the 16th.
The conference will feature guest speaker Colin L. Powell, former U.S. Joint Chief of Staff. It will also host more than 150 educational programs and 40 industry seminar sessions. The exhibition hall, which will be open for the full week, will hold more than 350 exhibitors and vendors.
At the RIMS annual membership meeting — to be held April 12 — the current president Mark DeLillo will turn over the reigns to Susan Meltzer, assistant vice president of insurance and risk management at Sun Life Assurance Company of Canada, who will become the first Canadian female president of the organization.
Despite deteriorating conditions in the property and casualty insurance market, insurers continue to slash already low premium rates. Market observers forecast this trend to continue for at least 24 months as insurers prioritize marketshare over revenue prosperity. Simply put, the insurance price war – particularly intense in the commercial lines arena – can only lead to a sustained buyer’s market. Against this insurance backdrop, risk managers as a profession have broadened their skills and duties beyond the traditional cover purchasing function. With new risks and approaches in risk rating emerging in the market, the risk manager is coming of age at the corporate level.
The newly released 1998 Risk and Insurance Management Society, Inc. (RIMS) Benchmark Survey, conducted by RIMS and Ernst & Young LLP, illustrates dramatic change awaiting the risk management profession.
Polling 865 American and 86 Canadian risk managers, the survey concludes the cost of insured risk continues to decline, the insurance market remains competitive, interest in new risk-financing vehicles is increasing and risk managers are expanding their corporate roles. These results are consistent with CU’s survey of Canadian risk managers, who are increasing their corporate profile while keeping one eye firmly fixed on insurance industry developments.
Susan Meltzer, assistant vice president of insurance and risk management at Sun Life Assurance Company of Canada and the incoming president of RIMS, says risk managers should not be concerned with the short to medium-term insurance rate outlook. “I just don’t think you’ll see a market correction. There’s too much capacity heating competition in the market. Besides, who cares? The last one [correction] only lasted a year and rates have been declining ever since.”
RIMS statistics support Meltzer’s analysis. The Canadian cost of insured risk, according to the Benchmark Survey, reached a ceiling of $3.90 per $1000 of revenue in 1990. Since then, the figure has slowly declined hitting a decade low of $2.13 per $1000 in revenue in 1997.
U.S. insured costs were on the rise until 1992, hitting a decade high of US$8.30 per $1000 of revenue to steadily fall back to 1997’s level of $5.25 per $1000. While these figures indicate that insured risk costs are in steady decline, the U.S. rate is shown to track the combined ratio of commercial insurers — which also hit a decade low in 1997 at 87.9%.
Don Smith, president of TRAC Insurance Services, notes combined ratios have been declining but forecasts the ratios will rebound. “There’s no question underwriting ratios are strong now but the general feeling is that combined ratios are not going to keep declining, they will soon flatten out or rise. With continued low interest rates — and the majority of insurer investments in bonds — investment income will worsen as well,” he says.
Bending over backwards
All of which would indicate commercial rates will spike upward. Still, Smith says the competitive environment that is sparking consolidation will continue to restrain commercial rates. “Companies are working for marketshare and not for underwriting profit. My gut instinct is that risk managers can count on this for a while, and won’t have to worry about huge increases for at least 24 months.”
As further testament to the eager response of insurers and service providers to the commercial buyer’s market, brokerage J&H Marsh & McLennan recently announced an agreement with RIMS to establish a procedure for disclosure of contingency earnings. A long-standing contentious issue with the risk management profession, J&H Marsh & McLennan’s move opens a door on broker commission disclosure which many risk managers believe will lead to the opening of a floodgate. In this vein, competitor broker Willis Corroon issued notice that it plans to offer corporate clients the option of excluding their premiums from contingency fee negotiations.
Keeping watch
Even with these considerations, and the two-year declining rate forecast, some risk managers are skeptical about the insurance market, and are investigating other risk vehicles as contingency options.
Brad Silver, risk manager at NOVA Chemicals Corporation, is weary of this so-called “buyer’s market”. “My concern with this soft market is when you go through this cycle, there’s bound to be a rebound. And no one knows when it will occur,” he says.
Silver has been examining alternative risk transfer and capital market solutions as contingencies in the event of a significant rate hike being applied. He readily admits, however, that the current moderate cost of premiums renders alternative planning to theory, “we’re monitoring the alternatives but obviously the economics of alternative risk financing is challenged by the soft insurance conditions”.
Risk managers are warned to proceed with caution when engaging in capital markets, alternative transfers and self-insurance. Meltzer suggests capital market alternatives might not be ready for the extent of damage caused by certain catastrophes. “The capital markets are used to make money. One major catastrophe and you might possibly see a number of risk options dry up,” she says.
Richard Whitehouse, risk manager with the Government of Alberta, says self-insurance programs are effective but some corporations cheat themselves in the process. “Lots of people say they are self-insured but they’re not. Self-insurance is recognizing insuring oneself is a budgetary issue and putting the money aside…others are recognizing the issue, but are treating the money put aside as a capital surplus,” he notes.
Sobeys Canada Inc. risk manager Joe Hardy is a proponent of using self-insurance, alternative vehicles and insurance as integrated risk programs. He says risk management has evolved past insurance administration and rate increases should not be a paramount concern for the profession. “We are engaged in an evolving role. We no longer just buy insurance, we’ve expanded into loss prevention specialists, risk controllers and managers of our companies’ risk portfolios.”
Cheap may not be good
He warns, however, that the cheap rates accompanying the buyer’s market may be producing a degree of complacency among risk management ranks. For instance, he refers to Y2K liability exclusions being applied by insurers to coverages which could open up a really ugly can of worms (and significant loss exposures) for corporations assuming the risk has been transferred. Risk managers need to look beyond their insurance policies and create integrated risk programs – using insurance, self-insurance and other vehicles — to ensure total coverage and recovery.
Meltzer also makes reference to Y2K, noting the insurer reaction to the phenomenon is more of a concern than any possible escalating rates. “To see that an insurer’s knee-jerk reaction is to run to the hills when a problem like Y2K develops is disappointing. What are they here for if not to cover all of the risks that my company has?” she asks.
Certainly, Y2K — in particular negotiating with insurers on coverage — is keeping risk managers busy says Nowell Seaman, manager of insurance services at University of Saskatchewan. Risk managers are playing a key role throughout corporate North America identifying liabilities emerging from Y2K and negotiating coverage with insurers. “You would hope that in this soft market, I’d spend less time negotiating with carriers. Unfortunately, the negotiations I’m undertaking with insurers is a lot like negotiating my rates in a harder market, and it’s taking my time away from other proactive risk programs that I’ve been planning to undertake,” he says.
Still, whether it is the product of fewer negotiations or a more accommodating corporate environment, risk managers across Canada report expanded roles in the day to day operations of their organizations.
Expanded focus
Risk managers have become corporate consultants in a variety of areas including finance, mergers and acquisitions, legal liability, environment risk control and human resource, with Y2K contingency planning playing a pr
ime role. “Certainly the profession is engaged in change,” says Hardy whose role encompasses financial management. “The finance world is becoming a much bigger player in risk management. Security-hedging, foreign exchange issues, mergers and acquisitions…these are areas where management is asking for more feedback from risk mangers,” he adds.
Silver’s risk management department recently played a role in a company acquisition. “Management included us in the due diligence process so we could identify and prepare NOVA for the risk associated with the transaction,” he says.
Heather Zomar, the City of Surrey risk manager, says the municipality has tried to spread risk control throughout the complete organizational rank. “We’re trying to encourage enterprise-wide insurance management. We have a cross-functional risk management team that looks at how risk affects more than one department. Our ultimate goal is to have each employee be their own risk manager,” she says.
Just as important as these initiatives are the corporate philosophy being exercised. Risk management is clearly being embraced as a corporate-wide philosophy, not just a curious science exclusive to one department. “There is greater recognition of risk management at corporate board levels. Titles within companies are changing from risk managers to directors, from directors to vice presidents. And more and more officers are seeing risk management’s potential as a profit centre,” adds Hardy.
Even brokers and insurers who deal with risk managers are noticing the evolution of the profession. “Risk managers are now split into two different categories,” says Sean Mooney, economist at reinsurance brokers Guy Carpenter & Associates.
He adds, “there are the insurance people who perform primarily a treasury reporting function and then there are the more sophisticated financial managers. Typically we deal with insurance buyers but with more integrated capital-type programs, we find ourselves dealing with financially knowledgeable risk managers.”
Standards and education
With such a variety of roles for risk managers, it is no surprise the profession is apprehensive to create a standard definition for the job title. The Canadian Standards Association (CSA) is attempting to do just that, and meeting plenty of opposition along the way. The organization recently released its “Risk Management Guidelines for Decision-makers” and while the word ‘standards’ is nowhere in the title, risk managers are concerned this type of document will be interpreted as a blanket professional definition.
Meltzer argues standard definitions are problematic in an industry where no two risk mangers perform the exact same task. “If you tell [current RIMS president] Mark DeLillo that risk managers need to expand into financial risk management, he’ll tell you his company has no place for this function. In his instance, he is seeing the expansion of risk management into human resource,” she says. With risk management an accountable process with a set decision-making structure that can be applied to any business sector, Meltzer suggests industry guidelines already exist.
What is not debated is the need for universal educational requirements. While Canada already has the Canadian RIMS Institute which offers a fellowship program, the rest of the world has recently following suit. RIMS has announced the adoption of a fellowship program that adopts many of the Canadian standards, building upon the associate of risk management designation and inte- grating other specialized expertise courses into the curriculum. As part of the elective requirement, students can expand their knowledge base by studying specialty courses including human resource, economics, contract law and worker’s compensation, among a host of business-related courses.
The new standards will bridge the gap between the profession and academia. Says Norma Nielson, professor of insurance and risk management at the University of Calgary’s Faculty of Management, “the new education standards will create a stronger connection between the professional and traditional academic communities”.
Meltzer, for one, is quite proud of RIMS’s recent fellowship adoption. “The most exciting part is that it is modeled after the Canadian model. Canadian risk managers should have a lot of pride in the fact that they designed the standards that the rest of the world will follow,” she says.
The Export Development Corporation (EDC) posted record year end results for 1998. The corporation provides financial and risk management services to Canadian exporters, serving a record 4,183 exporters last year — a 13% increase on 1997.
The EDC’s business volume grew by 21% in 1998 from a year earlier with a record $34.7 billion and net income rose by $7 million to $135 million. While the number of claims paid decreased 4% to 1,357, the dollar value of these claims jumped by 67% from $43 million in 1997 to $72 million, reflecting a more challenging international trade climate. “These results demonstrate the critical role EDC continues to play in helping Canadian businesses grow and prosper through international trade,” says EDC president Ian Gillespie. “Our solid financial performance will benefit Canadian exporters through enhanced financial capacity to support future risk-taking on their behalf.”
