Canadian Underwriter

Category: Tech

  • Over-regulation of “driverless” vehicles could stifle industry, say advocates

    Over-regulation of “driverless” vehicles could stifle industry, say advocates

    KANATA, Ont. – Driverless cars, trucks and buses are going to cause a major economic headache, and the federal government needs to be ready, say advocates for the country’s high tech and automotive sectors.

    But Ottawa also needs to tread lightly as it moves to regulate Canada’s blossoming autonomous vehicle industry, they caution.

    Tucked away in last week’s federal budget was a pledge to spend $7.3 million over two years to improve motor vehicle safety.

    Part of that money was earmarked for developing regulations for emerging technologies, including automated vehicles.

    The Canadian Automated Vehicles Centre of Excellence welcomed the investment.

    But the amount being spent in Canada on studying how to regulate is almost nothing compared to what other countries are investing to get autonomous vehicles on the road, said Barrie Kirk, the centre’s executive director.

    Canada lags far behind its G7 counterparts in preparing for what will be a hugely disruptive digital technology, Kirk told industry, government and academic leaders gathered in an Ottawa suburb Wednesday.

    Britain’s government last year set aside almost $200 million for research and development of driverless vehicle technology and to build wireless and other infrastructure to support the vehicles.

    The money has led to an influx of matching private-sector spending to support research by automotive, IT and telecoms companies. Testing is also being conducted in the U.K. in advance of new driverless vehicle regulations.

    In the United States, where vehicles are regulated state by state, the federal Department of Transportation has floated a model set of rules it hopes all states will adopt.

    In Canada, ground transportation falls under provincial and territorial jurisdiction, making it difficult to enact regulations that would be consistent across the country.

    Too much – or worse, inconsistent – regulation will stifle the industry by making Canada less attractive to companies wanting to conduct vehicle research, said Kirk.

    “The more hurdles you raise, the fewer vehicles will be tested here,” he said.

    “At the moment, we in Canada are not really on the car companies’ radar screens as much as I’d like them to be.”

    The effect that tech-driven services such as Uber have had on the taxi industry pales in comparison to the tremors that driverless vehicles will send through the economy, said Kirk.

    Mark Aruja, chairman of Unmanned Systems Canada, said he expects a significant impact on jobs coming within the next three to 10 years.

    “There’s a huge change coming for those who drive as a profession,” predicted Aruja, whose organization has been heavily involved in helping to build regulations around the ballooning remote-controlled drone marketplace in Canada.

    Long-haul truck drivers, taxi drivers, even transit workers could be forced out of work as companies and municipal governments embrace transportation technologies that don’t require someone behind the wheel, he said.

    And, if predictions of significant reductions in automobile collisions hold true, everyone from insurance adjusters to auto body repair technicians could also feel the effects.

    How cities are built will also be affected, say municipal leaders with their eyes on the technology.

    “Just imagine not needing to own a car,” said Bruce Lazenby, the CEO of Invest Ottawa who moderated a panel discussion Wednesday on autonomous vehicle ecosystems.

    “You could get picked up in your driveway by a driverless car you order from a service,” he mused.

    “But wait, would you even need a driveway?” he rhetorically asked an audience of about 80 people.

    “And what about parking garages?”

    Still, even some of those most in tune with changes brought on by the high-tech revolution say they aren’t so sure driverless vehicles are about to take over the roads completely.

    “I own a motorcycle and I’m not about to give that up,” quipped panellist John Wall, senior vice president and head of Blackberry-owned QNX Software Systems.

    “And I will probably still drive a car … for recreation.”

  • Technology playing ever larger role in U.S. specialty lines carriers’ ability to attract and retain clients: Novarica

    Technology playing ever larger role in U.S. specialty lines carriers’ ability to attract and retain clients: Novarica

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    Specialty lines in the United States continue to be hypercompetitive, with technology playing an ever larger role in insurers’ ability to attract, retain and serve clients and brokers (agents) profitably, according to a new report from Novarica.

    The Business and Technology Trends: Specialty Lines report, published on Wednesday, provides and overview of specialty carriers’ business and technology issues, data about the marketplace and 57 examples of recent technology investments by specialty insurers.

    According to the report, specialty carriers are trying to “hold the line” in a low-growth market, with a focus on targeted (e.g. profitable) growth, expense reduction across the enterprise and operational effectiveness leading to increased speed to market for new products.

    Among the key findings:

    • Carriers are pursuing long-term data strategies, starting with data quality initiatives and focusing on data warehouses, operational data stores and appropriate data marts. Carriers are prioritizing reporting tools to allow the business to run ad hoc reports and obtain insights;
    • Improved underwriting and product development flexibility are key considerations. Carriers are continuing to upgrade to highly configurable policy administration systems to improve underwriting and enable product development flexibility to speed entry to profitable niches;
    • Billing efforts focus on handling both retail and wholesaler billing needs. Account billing is becoming a higher priority as part of a shift to a more customer-centric approach;
    • Specialty carriers are extending functionality to agents and policyholders; and
    • New technologies such as the Internet of Things are already impacting specialty carriers. [click image below to enlarge]

    The report defines specialty insurance as covering surplus lines, program business and business written through wholesalers, as well as a large number of other types of business. Examples may include risks with unique underwriting characteristics, such as transportation or aviation risks; unique risks, such as inland marine or professional liability; risks where the policyholder needs an unusual amount of capacity (such as earthquake or coastal property); and businesses that use a distribution channel, such as program business or wholesale business.

  • IBAO president anticipates ‘bright future for brokers who are willing to change’

    IBAO president anticipates ‘bright future for brokers who are willing to change’

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    The insurance industry may not be known for technological innovation, but there is a future for brokers who are willing to change, speakers said Tuesday during the annual general meeting of the Insurance Brokers of Toronto Region.

    Blue glowing hardware with particles“The only thing that’s consistent in the insurance industry is change,” said Frank Silla, incoming IBTR president and personal lines manager of Paisley-Manor Insurance Brokers Inc. “While most people in industries shy away from change, we as brokers embrace it and thrive in it. To name a few changes that have happened in the last few years, we have company portals we have had to deal with, we have had overland flood, cyber liability, identity theft, constant auto reforms once again coming in June.”

    Silla made his remarks after the formal portion of the IBTR’s annual general meeting at Le Parc Banquet Facility north of Toronto in Markham. Silla takes over as IBTR president from Nick Homiak, vice president of Consolidated Insurance Brokers Ltd.

    The guest speaker at Tuesday’s lunch meeting was Doug Heaman, president of the Insurance Brokers Association of Ontario.

    “I don’t think that the insurance industry in its current format is known for its innovation,” Heaman told an audience of about 45.

    Quoting statistics from the Centre for the Study of Insurance Operations, Heaman said 57% of Ontario brokers are active on social media and 43% have a mobile website, while a total of 89% of brokers have a website.

    “That means 11% don’t have a website,” Heaman said. “That was a staggering stat for me, but obviously you can survive without one.”

    Heaman (pictured left) also suggested the “trend” of mergers and acquisitions of brokerages will continue and brokers will need to take advantage of technology in order to compete.

    “It’s not good enough to innovate,” Heaman warned. “You’re going to have to execute as well. As we talk about innovation, it seems impossible to me that insurance companies are able to move more quickly and effectively than brokers in the digital and direct-to-consumer space. Perhaps brokers don’t need to be concerned about this, and maybe you feel comfortable waiting for carriers to develop technology for you, but carriers have legacy systems, they have problems that they’re going to have to overcome that are going to hold them back, as brokers we have [broker management systems] that are holding us back.”

    Broker management systems, Heaman added, “are not currently designed to give us the [customer relationship management] capabilities we need to compete in the digital space to do e-mail campaigns, attract sales, to do all of the things that are going to be required.”

    So both carriers and brokers “face challenges” in the technology space, he added.

    “I believe there is a bright future for brokers who are willing to change, evolve, find a niche, continue to extol the benefits of advocacy, advice and relationships,” Heaman said. “Technology will not replace relationships. Embracing technology and the ever evolving customer demands will present challenges but brokers by and large are an entrepreneurial bunch.”

    Upcoming IBTR activities include a seminar April 25 on errors and omissions for brokers, plus a golf tournament June 8, Silla noted at the AGM.

  • Auto insurers face long-term challenges from self-driving cars; avoidance technologies to benefit insurers: Moody’s

    Auto insurers face long-term challenges from self-driving cars; avoidance technologies to benefit insurers: Moody’s

    Self-driving cars could translate into significantly lower premiums and profits in the long-term for auto insurers as the number of accidents declines dramatically, Moody’s Investors Service said on Tuesday.

    201602181320450bzfq4qrdhlk5eiitc5b5ow55A new report from Moody’s – titled P&C Insurance – Global: Self-Driving Cars Could Send Auto Insurance Industry Skidding – noted that while self-driving cars will likely force auto insurers to rethink their business models, widespread adoption of this technology is decades away, allowing insurers plenty of time to adapt.

    In the near term, accident avoidance technologies in vehicles, such as automatic braking, adaptive cruise control and lane departure prevention, will have a more immediate, positive impact on auto insurers. These features are “becoming more prevalent and will lead to lower accident frequency in the next five-to-ten years,” Moody’s added in a statement.

    Related: Ford CEO looks to autonomous cars, sharing economy

    “Accident avoidance technologies are becoming more common in cars which should reduce the number of accidents and boost insurer profits,” said Jasper Cooper, Moody’s Investors Service assistant vice president. “However, auto insurers will also face higher auto repair costs from embedded cameras and sensors which are often located in or near bumpers.”

    Automakers like Ford, Nissan and Tesla have announced plans to introduce self-driving cars in the next few years, which could initially be optional on luxury vehicles. “Widespread adoption of self-driving cars is still decades off, but it raises questions of what an auto insurer’s role will be in a world with far fewer accidents,” Cooper added in the statement. “Regulators, lawmakers and courts will have to determine how liabilities are shared among insurers, automobile manufacturers, and technology companies.”

    Related: Nissan plans to have self-driving cars on the road by 2020

    Moody’s report noted that once self-driving cars are mainstream, accident frequency will fall sharply, translating into significantly lower premiums and, consequently, lower profits for auto insurers. The industry impact could be dramatic over the very long term given that personal auto is the largest P&C insurance line in many countries, including the United States, Moody’s said.

    Despite the uncertainties self-driving cars cast over the auto insurance industry, insurers have time to innovate and diversify in order to stay competitive in a potentially narrower market. Moody’s expects significant industry changes, including consolidation, failure and the potential rise of new entrants as self-driving cars have a transformative impact on the global auto insurance industry.

  • Uncertain times highlight need for change at the CFO, finance levels: Deloitte

    Uncertain times highlight need for change at the CFO, finance levels: Deloitte

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    An increasingly uncertain business climate means finance departments have just four to five years to modernize if they are to meet the rising expectations of the organizations they serve, suggests a report issued Tuesday by Deloitte.

    Chief financial officers (CFOs) “need to unlock the value of their finance teams by shifting them away from generating data to producing insights that better support the organization in making important business decisions,” notes Modernizing Finance: Why the time is now and how Finance can get there.

    CFO, finance change to help meet business needs

    “Many finance teams are constrained by outdated software tools, incongruent processes and a lack of automated controls for the reliability of information that results in a lot of manual workaround and wasted time,” Mike Goodfellow, a partner at Deloitte Canada, says in a statement from Deloitte. “They need to set out a vision of where finance needs to be in four to five years, supported with a game plan to achieve that objective,” Goodfellow says.

    However, he notes in the report, “finance teams are bogged down in generating data, rather than producing insights to better support their CEOs in making important business decisions.”

    Citing results from a survey of more than 1,000 finance leaders who attended the company’s Finance Trends conferences across Canada in late 2015 and early 2016, 84% of respondents said they should be working as partners with the C-suite to shape the organization’s strategic direction.

    Despite the view, though, just 25% of polled CFOs reported that they had the time to devote to strategic activities that help shape and define their organization’s operational plans. In addition, slightly more than half of those respondents – 51% – still spend the majority of their time in steward/operator roles.

    CFOs see a number of key impediments to being a catalyst/strategist, the report shows.

    Deloitte-CFO key impediments to being a catalyst:strategist

    What is holding CFOs and finance back from spending more time on strategist/catalyst activities?

    The problem for most finance functions “is that they are struggling to keep pace with the continually expanding number of KPIs (key performance indicators) they are being asked to report on. That, together with poorly aligned processes and the outdated technologies they use to gather information on those KPIs, makes it difficult, if not impossible, for these finance teams to get off the reporting treadmill and take on other tasks,” states the report.

    Finance “could develop scenario-based stress tests that assess the impact of changing economic and market conditions and help your organization determine an appropriate strategic and operational response,” Goodfellow notes in the report.

    “Enhanced systems would enable finance to capture and summarize relevant information, including financial and non-financial performance. Finance might also provide modelling scenarios and predictive analyses that address different capital allocation decisions, return on investment implications and various cost of capital models,” he points out.

    To meet the growing asks of the organization and bring greater value to it, the reports suggests that finance teams need to do the following:

    • identify where finance is today and determine the capabilities it needs for the future;
    • create a compelling vision for finance that is aligned with, directly linked to and supportive of the overall corporate vision;
    • define the characteristics and attributes that describe and can be demonstrated in the actions and activities of the finance team members as they bring the vision to life; and
    • develop an actionable roadmap consisting of 180-day “sprints” that describe what finance needs to do to move towards its desired future state.

    Perhaps, the biggest difference in what finance of the future will look like is that there will be no paper. “Finance teams will be using cloud-based applications on mobile devices to transact their business, and highly standardized, simplified workflow-enabled business processes to handle the rest,” the report states. “Day-to-day transactional finance – from payables, receivables and invoices to treasury transfers, journals, capital expenditures and the close cycle – will be managed centrally in shared services centres,” it notes.

    “With operational processes automated and integrated, CFOs will be able to devote greater attention to delivering data-driven insights that enable them and their C-suite colleagues to make smarter decisions. Using integrated planning models and sophisticated analytics tools, Finance will be able to undertake rapid, scenario-based planning, cost modelling and risk simulations with forecasting cycles shortened to the point where same-day turnaround is the norm,” the report adds.

    “Many organizations, for example, now have ‘risk czars’ or chief risk officers who are responsible for monitoring the risks facing the organization, including currency, foreign exchange, competitive, demographic, environmental, regulatory changes, new standards and other factors, and assessing the impact those risks may have on the organization’s strategy,” the report notes.

    “CFOs will increasingly serve as their organization’s chief economist, scanning the wider landscape to monitor larger macroeconomic events and interpreting what they could mean to the business,” it adds.

    “Finance is on the cusp of a major change that will result in it being markedly different in just five years’ time,” Goodfellow says in the statement.

    “The good news is that Finance won’t need to throw out all of its current systems and processes and starting over from scratch. This is much more about evolution than revolution,” he adds.

  • Cyber risk, interest rates, economy remain major concerns for insurers: A.M. Best

    Cyber risk, interest rates, economy remain major concerns for insurers: A.M. Best

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    Concerns regarding cyber risk, interest rates and the economy remain prominent among insurers, according to the latest quarterly survey from A.M. Best Company.

    The Best’s Special Report, released on Thursday, included several hundred responses, representing property and casualty (70.4%), life & annuity (22.2%) and health (5.3%) insurers, with the remaining 2.1% identifying themselves as surety, reinsurance, credit and term or title insurance. Among others, topics included U.S. Federal Reserve predictions, Own Risk and Solvency Assessment (ORSA), interest rate predictions, mergers and acquisitions, predictive analytics and the current competitive landscape facing insurers. [click image below to enlarge]

    For the survey, titled A.M. Best Winter 2015/2016 Insurance Industry Survey, A.M. Best asked insurers to vote on the most-used word or phrase they encountered in 2015. In the P&C segment, “cyber risk” was the most popular answer, capturing 34.6% of all responses. Low interest rate environment came in second at 25.4%. “This risk has become prominent for the industry as the media highlights continued attacks from a variety of threats, ranging from individual criminals to purported foreign governments,” A.M. Best said.

    Insurers were also asked what they felt would be the main driver of industry M&A activity in 2016. Strategic use of excess capital came in highest at 29.3% followed closely, at 27.2%, by being used to meet targeted growth and market share objectives. Although 32.6% of companies do not plan to participate in any type of M&A in the upcoming year, another 66.3% are considering it for various strategic reasons tied to expansion of the business, A.M. Best reported. Respondents’ views of the industry’s M&A activity tie closely to their own plans to utilize it, with most responses centered around growth of products, distribution, and geographical expansion. [click image below to enlarge]

    A.M. Best currently maintains negative outlooks on the commercial lines, reinsurance and health segments and stable outlooks on the personal lines, life & annuity and life reinsurance segments. The survey found that although most respondents considered both the commercial lines and reinsurance segment to have a stable outlook, a substantial minority (36.8% and 27.8%, respectively) indicated a negative outlook.

    When asked what insurers saw as the leading disruptors for the next five years, over half of respondents cited economic events, capital markets and political events as potential concerns. Technology companies and big data were each viewed as disruptors about 10% of the time. Only 1.1% identified global warming as a potential issue.

    Regarding predictive analytics, less than half reported using it, with insurers reporting the use of predictive analytics citing underwriting (82.2%), claims (39.7%) and strategy (24.7%) as the major areas of focus. Insurers applied predictive analytics primarily to homeowners’ insurance, private passenger auto liability and auto physical damage. To a lesser degree, but still meaningful, predictive analytics was applied to workers’ compensation, commercial multi-peril, commercial auto and “other” lines of business. Nearly half of respondents indicated an average range of improvement in their loss ratio of zero to 1.5%, with another 37.8% reporting improvement between 1.5 and 3.5%. Improvement of 3.5% or greater was reported by nearly 15% of respondents.

  • Bill proposing mandatory insurance coverage for railways hauling dangerous goods reaches second reading

    A bill proposing to mandate specific levels of insurance for Canadian railway operators – of $1 billion in some cases – was tabled Monday in Ottawa for second reading in the House of Commons.

    MPs debated Bill C-52, the Safe and Accountable Railway Act, introduced by Conservative Transport Minister Lisa Raitt.

    Currently, Canada’s Railway Third Party Liability Insurance Coverage Regulations stipulate that railway operators must be covered for third-party liability, third-party bodily injury or death. However those regulations do not mandate a specific coverage limit. The Canadian Transportation Agency – which has the authority to issue and suspend certificates of fitness – currently reviews each railway’s insurance coverage on a case-by-case basis.

    Bill C-52, the Safe and Accountable Railway Act, was tabled in the House of Commons for second reading. It proposes additional insurance requirements for railways hauling crude oil and other dangerous goods

    Montreal Maine and Atlantic Railway – whose crude oil train derailed July 6, 2013 in Lac-Mégantic, Quebec, killing 63 – filed for protection in 2013 under the Companies Creditors Arrangement Act.

    “Under the Canada Transportation Act, federally regulated railways must carry insurance, but the Lac-Mégantic tragedy has proven that the measures now in place are simply not sufficient,” Raitt said Monday in the House of Commons.

    Related: TSB assesses damage from crude oil train derailment

    After the Lac-Mégantic derailment, “we realized that MMA had $25 million in liability insurance,” said Hoang Mai, NDP MP for the Montreal area riding of Brossard-La Prairie, Quebec. “That amount does not even begin to cover the $400 million that has been spent to date on cleaning up and rebuilding, and that cost may still go up.”

    Bill C-52 “identifies specific levels of insurance that must be carried, depending upon the type and volume of dangerous goods that the railway transports,” Raitt said.

    “Class 1 railways carry significant quantities of dangerous goods, and they will be required to hold $1 billion in insurance,” said Larry Maguire, Conservative MP for Brandon-Souris, Manitoba, adding that Canadian National Railway Company and Canadian Pacific Railway Ltd. “customarily carry more insurance than that.”

    Related: Rail Risk

    “At the other end of the spectrum, railways carrying little or no dangerous goods would be required to hold $25 million in insurance,” Maguire said of Bill C-52. “For short-line railways carrying higher amounts of dangerous goods, there would be an initial requirement to hold either $50 million or $125 million in insurance. One year later, those levels would increase to $100 million and $250 million respectively. This phase-in period would allow short-line railways time to adjust to the new requirements. The (Canadian Transportation) Agency would be able to make inquiries to determine whether railways are maintaining the correct amount of insurance, and must revoke or suspend the certificate of fitness of any railway that fails to comply.”

    Raitt said Monday that the insurance requirements proposed under Bill C-52 “would come into force 12 months after the bill’s royal assent, giving the insurance market the necessary time to adjust, and railways enough time to obtain the necessary insurance, which is usually purchased on an annual policy.”

    The Safe and Accountable Rail Act also introduces new liability and compensation rules, based on the “polluter pays” principle. 

    “Bill C-52 would provide the (Canadian Transportation) Agency with the ability to apply administrative monetary penalties to any railway failing to comply with insurance level requirements or failing to report a change in its operations that could affect its insurance,” Maguire said. “These penalties would go up to $100,000 per violation.” 

    Currently, federal regulations stipulate that railways must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” CTA stated in a discussion paper released in late 2013. At the time, CTA invited public input on whether there should be more and/or different third-party liability insurance requirements for the transportation by rail of commodities, such as dangerous goods.

    With Bill C-52, the government is proposing a supplementary compensation fund to cover damages, arising from crude oil accidents, which exceed the mandatory insurance limits.

    “The fund would be financed by the shippers of crude oil through a levy of $1.65 per tonne,” Maguire said. “Railways would collect the levy and remit it to the government and the funds would be kept in a special account on the consolidated revenue fund. Once the fund reaches the targeted capitalization of $250 million, the Minister of Transport could stop the levy and then reinstate it again when and if ever necessary. The fund would be managed by an administrator appointed by the Governor-in-Council. The administrator would be responsible for establishing and paying out claims.”

    Bill C-52 has yet to be put to a recorded vote because the time allocated Monday for government orders expired.

  • Google to build a self driving car prototype with no steering wheel; will not be sold publicly

    LOS ANGELES – Google will build a car without a steering wheel.

    It doesn’t need one because it drives itself.

    Google's self driving car prototype The two-seater won’t be sold publicly, but Google said Tuesday it hopes by this time next year, 100 prototypes will be on public roads. Though not driving very quickly – the top speed would be 25 mph.

    The cars are a natural next step for Google, which already has driven hundreds of thousands of miles in California with Lexus SUVs and Toyota Priuses outfitted with a combination of sensors and computers.

    Those cars have Google-employed ”safety drivers” behind the wheel in case of emergency. The new cars would eliminate the driver from the task of driving.

    No steering wheel, no brake and gas pedals. Instead, buttons for go and stop.

    ”It reminded me of catching a chairlift by yourself, a bit of solitude I found really enjoyable,” Sergey Brin, co-founder of Google, told a Southern California tech conference Tuesday evening of his first ride, according to a transcript.

    The electric-powered car is compact and bubble-shaped _ something that might move people around a corporate campus or congested downtown.

    Google is unlikely to go deeply into auto manufacturing. In unveiling the prototype, the company emphasized partnering with other firms.

    The biggest obstacle could be the law.

    Test versions will have a wheel and pedals, because they must under California regulations.

    Google hopes to build the 100 prototypes late this year or early next and use them in a to-be-determined ”pilot program,” spokeswoman Courtney Hohne said. Meanwhile, by the end of this year, California’s Department of Motor Vehicles must write regulations for the ”operational” use of truly driverless cars.

    The DMV had thought that reality was several years away, so it would have time to perfect the rules.

    That clock just sped up, said the head of the DMV’s driverless car program, Bernard Soriano.

    ”Because of what is potentially out there soon, we need to make sure that the regulations are in place that would keep the public safe but would not impede progress,” Soriano said.

  • Off Track

    The Canadian Transportation Agency (CTA) is asking federally regulated railway operators, as part of a recently released discussion paper on liability insurance requirements, whether or not there is a need to revise rules to establish minimum coverage requirements for liability insurance. Stakeholder input on the adequacy of insurance coverage for the issuance of certificates of fitness required for federal railway companies and possible improvements to the current regulatory framework on insurance requirements is due January 21.

    Rail safety has been in the news of late following a number of derailments, the most high profile of which was the tragic loss of almost four dozen lives in July in Lac-Mégantic, Quebec.

    CTA currently reviews the insurance coverage of federally regulated railway firms on a case-by-case basis, examining a number of risk factors, including the volume of dangerous goods transported. The paper was issued November 19, about a month after the ruling Conservatives announced the federal government plans to require federally regulated railway operators to carry “additional insurance.”

    The discussion paper poses several questions, one being whether or not the government should mandate “minimum requirements.”

    Unlike other industries that have liability risk stemming from their handling of hazardous materials – such as operators of nuclear reactors – railways regulated federally are not mandated to have a specific dollar value of liability insurance limits. By contrast, nuclear reactor operators must have basic liability insurance of at least $75 million for each nuclear installation, an amount that federal natural resources minister Joe Oliver has commented will be increased, through legislation, to $1 billion.

    Oliver also plans to require major crude oil pipelines to have a minimum “financial capacity” of $1 billion “to respond to any incident and remedy damage.” That capacity could include insurance coverage. 

    Risk factors vary widely

    But for railways, CTA explains, the government does not set a dollar value on coverage requirements because the operators “can vary a great deal” on risk factors such as volume of traffic, commodity mix, scope of operations, number of crossings and whether they run through rural or urban areas. The Railway Third Party Liability Insurance Coverage Regulations do stipulate that operators must be covered for third-party liability, third-party bodily injury or death, including injury or death to passengers and third-party property damage, excluding damage to cargo.

    In addition, railway operators must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” the paper notes.

    CTA reports there are 30 federally regulated railways. The agency reviews coverage for each of these operators and has the authority to issue and suspend certificates of fitness. CTA issues certificates of fitness only “if it is satisfied that there will be adequate third-party liability insurance coverage for the proposed construction or operation,” notes an e-mail from a CTA spokesperson.

    One certificate that CTA did suspend was that for Montreal, Maine and Atlantic (MMA) Railway Ltd., whose freight train with 72 crude oil tanker cars derailed in Lac-Mégantic. CTA announced in August that MMA had not demonstrated its third-party liability insurance “is adequate for ongoing operations.”

    Two months later, CTA postponed – until February 1, 2014 – the date that its suspension of MMA’s certificate would take effect. MMA was found to have “demonstrated that there is adequate third-party liability insurance coverage, including self-insurance,” for its railway operations to February 1.

    Commenting on the decision to allow MMA to continue to operate until February 1, CTA stated October 16 that it found “a significant decline” in the overall volume of commodities – including dangerous goods – transported by MMA, and the volume of dangerous goods was forecast to drop by more than 80%. The railway’s risk exposure was reduced because MMA stopped shipping crude oil and “the distance over which dangerous goods are carried has been reduced” by 90%.

    The ruling was based on risk factors, including class and volume of dangerous goods transported, that the agency is mandated to examine when deciding whether or not to issue a certificate of fitness. Among the other risk factors considered for each railway operator are passenger ridership, passenger and freight train miles, volume of railway traffic, types of population areas served, number of level crossings, speed of trains, train crew training, method of train control and the applicant’s overall safety record.

    As part of its public consultation, CTA is now asking if those factors are sufficient, if the list should be expanded or if any factors on the list should be removed.

    In the case of MMA, the railway had a policy with XL Insurance Company Ltd. with a per occurrence limit of US$25 million, note court documents filed along with the company’s application for protection under the Companies’ Creditors Arrangement Act (CCAA). XL covered MMA for pollution clean-up expenses, bodily injury and property damage, while a separate inland marine policy with Travelers Property and Casualty Company of America covered MMA for property, rolling stock, track and repairs and business interruption.

    In its CCAA submission last summer, MMA noted it had not received any indemnity either from Travelers or from XL, “notwithstanding claims presented. “

    Need for varied requirements?

    CTA is asking stakeholders if there should be more and/or different third-party liability insurance requirements for the transportation of certain commodities, such as dangerous goods. Questions include whether or not regulations should be revised to establish minimum requirements, if there should be a distinction “between general commodities and dangerous goods,” and whether or not a need exists for separate coverage requirements of Class 1 railways (such as Canadian National and Canadian Pacific) and shortline railways.

    Beyond the public consultation, the federal government has suggested it plans to strengthen the law mandating railway insurance. “As efforts to clean up and rebuild Lac-Mégantic demonstrate, railway companies must be able to bear the cost of their actions,” Governor General David Johnston read from the recent Speech from the Throne on October 16. “Our government will require shippers and railways to carry additional insurance so they are held accountable.”

    As well, the Standing Senate Committee on Energy, the Environment and Natural Resources has suggested there be a minimum level of insurance. “The scope of the Lac-Mégantic disaster and the reported difficulties in securing funding for loss of life and personal and property damages, as well as environmental clean-up and other liabilities, underscores the need for minimum thresholds for liability coverage,” notes a committee report, Moving Energy Safely: A Study of the Safe Transport of Hydrocarbons by Pipelines, Tankers and Railcars in Canada, released in August.

    Some provinces already mandate a specific dollar value for the railways they regulate. CTA does not regulate railways that “reside wholly within the boundaries of a single province,” adding the majority of provinces require “insurance coverage for third-party liability.”

    For example, Ontario Regulation 301/96 stipulates that railway operators in the province must have liability coverage, with a “primary limit” of at least $10 million per occurrence, for third-party bodily injury or death, third-party property damage (excluding damage to cargo), passenger liability and named perils pollution.

    In Quebec, provincially regulated railways transporting hazardous substances are required to have $10 million in liability coverage, while those carrying passengers must have $20 million and others must have $5 million in coverage.

    CT A is also asking those taking part in the public consultation if any mechanisms should be established in the regulations “to ensure that railway companies notify their insurer” of changes that could mean its coverage is no longer adequate. Would administrative monetary penalties be an “appropriate mechanism” to enforce compliance? Should there be a mechanism to ensure railway firms notify their insurers of all substantive changes on a timely basis? nger adequate.

  • CN defends safety record in face of three train derailments within a month

    GAINFORD, Alta. – CN Rail is defending its safety record after three high-profile derailments involving trains carrying hazardous materials within the space of a month while apologizing for the latest mishap.

    Thirteen cars on a CN (TSX:CNR) freight train carrying a cargo of oil and liquefied petroleum gas went off the rails near the tiny hamlet of Gainford, about 80 kilometres west of Edmonton, early Saturday morning.

    There were two explosions reported and the community was evacuated as a precaution.

    The situation was so volatile that firefighters simply backed off and let the fire burn itself out. They estimated it could take at least 24 hours for that to happen and told a news conference late Saturday that it could be up to 72 hours before residents could return to their homes.

    Saturday’s mishap occurred two days after residents in the Alberta community of Sexsmith were forced from their homes when four CN rail cars carrying anhydrous ammonia left the rails. That followed the derailment of 17 CN rail cars, some carrying petroleum, ethanol and chemicals, in western Saskatchewan on Sept. 25.

    There were no injuries in any of the derailments.

    TracksDespite the cluster of derailments, a CN spokesman said rail remains a safe way to transport materials.

    ”CN’s safety record has been very solid, in terms of its main track derailments last year, they were the lowest on record,” said company spokesman Mark Hallman.

    ”The vast majority of commodities, such as dangerous commodities, that are transported from origin to destination, more than 99 per cent reach destination without any accidental release.”

    Federal New Democrat MP Olivia Chow took issue with that assessment. She called on the federal government to take stronger action to improve rail safety.

    ”The latest train derailment, fire and evacuation tell the Conservative government that vague promise without a clear work plan is not enough,” Chow said in an email.

    She said inspections need to be increased and automatic braking systems need to be mandated. Municipalities also need to be given better information about what dangerous goods are being transported on trains.

    Federal Transport Minister Lisa Raitt’s office issued a statement saying the federal government has invested over $100 million in rail safety and brought in tougher fines for companies that violate safety regulations.

    Three of the rail cars on the train that derailed Saturday caught fire. They were carrying liquefied petroleum gas. Four freight cars carrying crude didn’t break open, Hallman said.

    CN said the train was travelling to Vancouver from Edmonton.

    The Gainford area remained under a state of emergency Saturday night. Travel on the Yellowhead Highway – the main east-west corridor in northern Alberta – was restricted.

    The Transportation Safety Board was sending investigators to the scene to determine the cause of the derailment.

    In a statement, CN said the track was tested last week as well as last month and no issues were found. It also said an inspection of the train when it left Edmonton on Friday found no problems.

    CN was clearly sensitive to the public relations fallout from the derailment. The company brought in some of its top brass to manage the situation, including Chief Operating Officer Jim Vena.

    He apologized to the residents of Gainford for the disruption and promised the company would get to the bottom of what happened to prevent it from happening again.

    ”We run a safe railroad, but we do have incidents,” Vena said.

    The recent derailments come as documents obtained by Greenpeace suggest CN is considering shipping Alberta bitumen to Prince Rupert, B.C. in quantities matching the controversial North Gateway pipeline.

    A departmental briefing note obtained under access to information laws said CN was reportedly working with Chinese-owned oil giant Nexen to examine transporting crude by rail to be loaded onto tankers for export to Asia.

    CN denied it made a specific proposal for Prince Rupert, but said it will consider any such project as it comes up.

    The Northern Gateway project has faced intense scrutiny and criticism and it was unclear whether the project would get the necessary approval.

    There has also been intense scrutiny over shipping oil by rail following July’s horrific derailment of a Montreal, Maine and Atlantic train in Lac-Megantic, Que. The subsequent fire claimed 47 lives.

     Saturday October 20: Parkland County (Alberta) Fire Chief James Phelan media briefing