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Insurance North of 60

Doing business in the territories requires a keen understanding of the landscape - and patience

Think North. Forget for a moment about the cold that gets into your bones and doesn’t quit, because we’re Canadians after all—we’re used to it (even though we keep grumbling about it). Think North north. Real North. Now combine our usual deep freeze with the problem of getting where you need to go—and taking what you need with you.

In the Western Arctic, the Great Slave region—Yellowknife, Fort Smith, Hay River—sure, you’ve got a full network for driving. But as soon you head above Yellowknife, there are only seasonal roads that are good from late January to late March, when enough ice has built up on the Mackenzie River and other rivers and lakes to allow trucks to pass.

The road could be open more than 60 days, but that depends on certain factors, such as the high cost of operating it—because once it’s opened, the wind can still blast through and build a great wall of white that makes it impassable.

In the summer months, there’s a sealift service on the Mackenzie River system. But both before and after those relatively merciful months, the water levels can be either too low or the ice can start to form, which means a barge can’t pass.

Read: Underwriting a Trip Through the Northwest Passage is No Easy Feat

Welcome to the one of the most beautiful yet challenging places in Canada to do insurance.

And we haven’t even mentioned yet how your customer base is in one of the most sparsely populated regions of the country. “Logistics is probably the biggest difference that we have up here compared to southern Canada,” says Greg Merrithew, president of Arctic West Adjusters.

That difference means the highways department has to have equipment constantly on the roads to keep them open. Merrithew points out that the big tab for all this maintenance means the territorial government doesn’t take on any more than it needs to for the basic necessities of a community.

“When a loss happens in these remote regions, there can sometimes be additional challenges,” says Mike Marino, assistant vice-president, energy, mining and chemical risks practice at RSA. “But, our partnership with specialized expert adjusters helps ensure claims are handled quickly and effectively…. We would fly them to the site as soon as possible to assess the damage.”

Up in Nunavut, we’re talking no roads at all. In a vast territory of more than 2 million square kilometres, there are only two ways to bring in materials: sealift and air.

Boat access is available only eight weeks of the year thanks to the ice, leaving only air access for the rest. So if there is a loss after the last barge has come in, there’s no way to get larger building materials—ones that don’t fit on an aircraft —on site until the following year.

“Logistics is probably the biggest difference that we have up here compared to southern Canada”

“You better have a lot of business interruption coverage,” says Colin Matychuk. Matychuk is commercial account executive and business development manager for the Northern region at HUB International Horizon Insurance. Before that, he was the managing director for Nunavut Insurance Brokers for 10 years before HUB International acquired it. “A 12-month indemnity period isn’t going to cut it. Depending on the business, 12, 24, 36 months.”

While you can get materials into the Eastern Arctic by chartering a Hercules C-130, it’s at a cost of $90,000.

“Nunavut is the most challenged because it is an infant,” says Colin Matychuk. “It only came into existence 15 years ago, and so they are still building basic infrastructure there. There are remote parts of the Northwest Territories, as well, that would have similar issues and challenges that Nunavut would have. But, Nunavut, in its entirety, has challenges because of the lack of infrastructure.”

And like any infant, you never have enough hands for the work. Claim costs in the North are extraordinary, which Colin Matychuk attributes to a severe lack of labour in comparison to what we’re used to in the provinces, all of which creates quite a backlog. Down in Saskatoon or Calgary, if an adjuster needs to bring in an expert such as a structural engineer, she picks up the phone and calls any one of a number of available experts to assign the job. In the Arctic, no such luck—because there’s simply not that type of expertise.

Never Enough Hands
This means Greg Merrithew and other adjusters must hire an expert from the south, schedule them, and then fly them to Yellowknife to connect with another aircraft that will bring them to the community. As he will tell you, some communities only have one aircraft a week, which means paying your fresh expert their hourly rate when they could be in a community for a whole week between aircraft.

In Yellowknife itself, there are, naturally, contractors and other tradespersons, but they’re not readily available and there’s still a shortage.

On top of all that, there’s the internal challenge of training and keeping competent staff. Those with the right skill sets don’t stay unemployed long in the North. While the shortage of good adjusters is a national challenge, Merrithew has the added burden of having to entice adjusters to leave the southern provinces—where there is plenty of work—to move to the NWT.

Read: Hub Acquires Nunavut Insurance Brokers

Brokerages face the same issue, according to Colin Matychuk. To deal with the sparse hiring pool of professionals and to keep costs down, Nunavut Insurance Brokers has their processing office based in Winnipeg. “To make that business model work we needed economies of scale and we needed to be able to process at an appropriate cost structure, which was something that we couldn’t do there. If you are physically there you are incurring northern costs, whereas if you are here, it is southern costs.”

But the company keeps offices in Rankin Inlet and Iqaluit to interact with the customer. That customer gets a very personal experience, because those offices each have a staff of one.

Yep, welcome to the North. How do you like your job? Let’s qualify that—which one? Because in a land mass so large and with such a small population, says Matychuk, the only way for communities to work is for people to wear many different hats. Up in Nunavut, a contractor might also refuel planes, own a pizza delivery service and run a daycare. 

The Mental Checklist

While insuring a contractor is pretty straightforward in the south, with 30 different markets for a broker to choose from, there are only about seven or eight in Nunavut, so a very different approach is needed. “Often you are piece mealing, so to speak, multiple insurers and products together to make an insurance program work. That’s probably the biggest difference. It’s just how diverse the operations are and how much that limits you in terms of what the marketplace will provide.”

And when it comes to claims handling, pre-planning is essential. Mike Marino says with deadpan common sense that it would have to take into consideration “the remoteness or lack of seasonal access by regular transportation.”

RSA Canada provides the full gamut of options in the territories, but the majority of their business is mining, and oil and gas exploration…which is kind of like providing coverage for an army. Big firms deploy big equipment to hunt that black gold and those mineral jackpots. So the companies need to build ice roads. They need the right workers, plus whole camps to keep these employees fed and bunked in. They need power, which often means diesel generators—and yes, that means more fire exposure. If you have an incident when your region is cut off, that adds up to a lengthy loss period. “From the exploration and development phase, right through the operational phase, they all have their own sets of challenges and risks that need to be addressed within the coverage,” says Marino.

“I just don’t believe that you can insure Nunavut from behind a desk. There are just too many variables that can possibly go on.”

He says you have to consider not only operational risk but also reputation and environment. “Mining companies are very resourceful and adept at reducing risk, and these measures are often built into their operations from early on. Luckily, in most cases, you aren’t dealing with catastrophic risk, with business interruption being the more common loss.”

According to Larry Lythgoe, vicepresident for the Western Region at Aviva Canada, many insurance companies partner up with local vendors where possible. That way, there is a relationship, and available support, in the event of a loss. And longer wait times for home inspection and building cost estimates are simply facts of life for underwriters. But when it comes to deciding appropriate coverage, brokers who work in the region know the lay of the land very well.

“We know what questions to ask to extract the information we need to physically underwrite a risk,” says Colin Matychuk, who makes a point of regularly visiting clients to ensure nothing gets missed. “I just don’t believe that you can insure Nunavut from behind a desk. There are just too many variables that can possibly go on.”

He says none of the available software programs on replacement costs are relevant for Nunavut; they simply don’t have a Nunavut factor—or a northern factor at all. “You can try and manipulate it all you want, and you will still not come to the true replacement costs.”

Read: Adventure Tourism: Seeking Coverage for Thrill-Seekers

Because his firm works with a large number of contractors in the area, he’s been able to ask the rebuild cost to come up with an accurate number for replacement costs, which is higher than anywhere else in Canada. “When we write our northern business, we put on our little northern hats and literally go through our mental checklist of all things northern.” That can include everything from pollution to doubling indemnity periods on business interruption.

And again and again, matters will be decided by the scarcity of resources and the unforgiving remoteness of where you are.

Think of a big loss in January. Before construction can even start, you wait until that single sealift a year brings in your materials come September. And on that sealift, you have only the options of an 8x8x20-foot container or open deck space. And that deck space books up fast— well in advance of sailing. The materials needed to settle the claim might not arrive for another year. So now you’ve got a building or structure that’s out of commission for a year or more, leaving the adjuster to try and find alternative arrangements. That’s devastating if it’s a case of a home-owning family.

Read: Nunavut Tour Operators Get Liability Coverage Relief

“Do they have relatives they are prepared to bunk up with?” asks Greg Merrithew. “What can we do on a temporary basis? It’s just absolutely amazing the challenges that you have when you have a personal loss on a homeowner policy. So how do we do it? It depends on the extent of the loss.”

Sometimes, explains Merrithew, it comes down to determining whether an item can be built right on site from materials that will fit on a Hercules aircraft or a barge.

“When you think about what’s the big difference between adjusting our insurance claims in the north versus the south, it’s 90 percent logistics. Part of that is the knowledge: how do you do it? We know the problems up front that we are going to encounter, we know the challenges and we know the solutions.”

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Copyright 2014 Rogers Publishing Ltd. This article first appeared in the July 2014 edition of Canadian Insurance Top Broker magazine.

Transcontinental Media G.P.