Risk and Reward

These five Canadian innovations were game changers in their day. Here, we acknowledge how they transformed their fields, and offer snapshots of current risks.



It’s too easy to reach for a maple leaf or an “eh” to define something as Canadian. A few years ago, Ipsos Reid and the Dominion Institute asked Canadians to name the achievements that best represented our country. The answers pinpointed pivotal innovations on different fronts, from a space-worthy robotic arm to some baskets and a ball that would eventually unite us as “We The North.” Breaking new ground is risky business, and so is sector evolution, whether it’s earthbound or not.

THEN: The Canadarm triumphs
NOW: Space risk’s next frontier

During a 1981 mission, the space shuttle Columbia had some special help from its 15-metre robotic arm, kicking off the “Canadarm’s” 30-year run as an invaluable space assistant and a point of national pride. The original arm is retired now, but there’s still plenty of activity in lower and outer orbit shaping the next wave of space risks.

Though basic coverage—insuring space vehicles and their payloads—haven’t changed dramatically in the past decade, the landscape has, according to Chris Kunstadter, senior vice-president and global underwriting manager at XL Catlin. Call it the “new space”: “It’s gone from NASA or the Canadian Space Agency overseeing multi-billion dollar programs to companies realizing they can do things more inexpensively and handle the risk in a different way,” he says, noting that instead of sending one satellite up, a typical mission might launch anywhere from “10 to 1,000 satellites.”

Insurers are watching closely. Rocket and satellite technology has stabilized in the past ten years, and carriers are “comfortable” with it, he notes, but emerging technology is poised to change the game. For example, the latest satellites are capable of producing higher-resolution imagery of the Earth or weather patterns. “There may be more failures in the next five years because of new launch vehicles and new satellites,” he notes.

New coverages have emerged for major railways… but the stricter requirements are harder on smaller shortline operations…”

Space debris is another concern. The insured cost of a satellite ranges from $40 million to $200 million, according to a 2012 Allianz report, Space risks: a new generation of challenges. And, just one collision could cause a costly chain reaction of debris, Kunstadter points out: “There are certain areas where there’s a concentration of dangerous material that could cause a problem if there was a collision.”

Those factors are reshaping the industry against a competitive space insurance market and soft market conditions. This requires carriers to be diligent about allotting capacity and pricing, he says. The ratio of premiums to maximum exposure has been decreasing — last year it was 0.9, and “may decrease even further, just because of the soft market and the increasing values of the some of the larger satellite programs.”

He points to an upcoming launch worth $740 million USD in a sector where yearly premiums might be in the $650 million USD range. “We’re all keeping our fingers crossed for that launch to be a success,” he says.

While one large loss might jolt participating insurers, it wouldn’t stop them, he says, describing the overall market as “stable.” The new risks “don’t scare us, we embrace [them.]”

THEN: Banting & Best discover insulin
NOW: Product liability across borders

In 1922, a Canadian teenager was the first person to ever receive a shot of insulin, courtesy of Dr. Frederick Banting and medical student Charles Best. Their work changed diabetes treatment forever—and, as pharmaceutical research and manufacturing forges ahead, it bumps up against a globalized risk landscape. Product liability is in sharp focus: a recent Allianz Global Corporate and Specialty (AGCS) report singles out the rise in claims against pharmaceutical companies, particularly in the U.S. At issue at present: links between specific products, like talcum powder and ovarian cancer, and ties to asbestos. “In three separate cases during 2016, juries awarded $72m, $55m and $71m respectively to plaintiffs in talcum powder cases tried in Missouri. As of October 2016, there were believed to be around 1,700 similar lawsuits in state and federal courts,” the report, Global Claims Review: Liability in Focus 2017, states.

Risk “borders” are part of that scrutiny. “Everyone in the underwriting community is concerned,” not least because jurisdictional lines have become blurred in this sector, says Francis Duke, chief operating officer and founding partner at LL Renaissance Insurance Brokerage in Vancouver. In some cases, companies aren’t willing to manufacture certain healthcare or medical devices—he points to the example of a Canadian patent on a specialized insulin needle. It’s sold, but not manufactured here—an Irish company makes them. From an underwriting perspective, “it’s become a global world—are we insuring Canada or are we insuring Ireland?” he says. “It’s become a very challenging question.”

Though there’s no lack of global capacity for such risks, domestic capacity is another issue. “There’s a lack of availability and affordability in the insurance marketplace to take care of these kinds of risks and clients, whether they’re private independents or larger corporations,” he says.

A late 2016 Superior Court of Quebec decision may offer a glimpse of how the Canadian risk landscape will shake out—it dismissed a class action seeking damages from a drug manufacturer over alleged “adverse reactions” to antibiotics—but in the meantime, Duke says, “underwriters don’t want to take the risk.”

Major risk events not only highlight the need for multi-pronged planning – including business continuity, crisis management, and cyber insurance – but reveal newer layers to those plans…”

THEN: The last spike
NOW: Short-line pressures post-Lac-Mégantic

In 1885, railway financier Donald Smith drove the last spike into the Canadian Pacific Railway, completing a project that brought a country together.

More than a century later, railway risks have come under heavy scrutiny: the 2013 Lac-Mégantic disaster prompted new government requirements for federally- regulated freight rail carriers in the sector, requiring higher minimum liability coverage depending on the goods and volume they carry, as well as strict limits for self-insurance.

New coverages have emerged for major railways—AIG introduced a $1-billion USD policy in 2014—but the stricter requirements are harder on smaller short-line operations, which carry an estimated 35 million tonnes of freight per year and account for 20% of the country’s rail capacity, according to the Railway Association of Canada. A 2015 RAC/CPCS Transcom Ltd. report, Review of Canadian Short Line Funding Needs and Opportunities, projects that short-line premiums could rise by up to $250,000 per year under the updated liability benchmarks, and that access to coverage could be difficult.

The capacity is still there for small players, says Steve Leibel, managing partner at Leibel Insurance Group in Edmonton. Though he notes that some carriers, like Lloyd’s, are restricting some liability cover. “Lloyd’s is holding off. They’re being selective,” he says, noting more detailed risk analysis, compared to the past. “Based on what goes up for renewal—there are a lot of questions and information they want to get right now.”

Concerns over premiums are adding pressure to short-line railways as well, he says as they weigh the level of self-insurance they can take on, he says. “They have to figure out what they can afford, they don’t want to bankrupt themselves on one loss.”

THEN: United Nations peacekeeping leader
NOW: New missions, new territory

When Prime Minister Justin Trudeau announced a renewed Canadian commitment to peacekeeping efforts last year, the move re-established one of the country’s key roles on the world stage, and shone a renewed spotlight on its risks.

Peacekeeping forces aren’t always military—they often include non-government groups, like retired RCMP or police contingents or security contractors, says Mark Johns, vice-president at Special Risks Insurance Managers Ltd. “For every soldier you have in a country, there are probably two or three non-military people [with] different duties.” Added to those “troops”: non-profits working alongside formal peacekeeping efforts on infrastructure projects like schools or clinics. With a three-year peacekeeping pledge from the federal government, “we’ll see an upswing in the private sector.”

For those peacekeepers, much of the risk comes with insuring health and safety, “since domestic insurance excludes losses due to war or terrorism,” notes Johns. To coverage for private peacekeepers and their activities, specialized coverage will “mimic” a domestic plan for those on extended missions, or close the gap in traditional policies that exclude war or terrorism for those on shorter stints.

There’s a heightened focus on security: along with expected questions for mission-bound private contingents, Johns stresses planning, noting that questions like, “You’re going to Sudan, tell me about your security. How are our people living? How are you being transported, do you have guards?” are commonplace. Insurance advisors can’t plan for such clients, but “we can certainly raise the flags.”

Other risks are heightened: a 2006 International Peace Academy study on so-called “commercial”: peacekeeping found that management gaps between organizations leading the mission and private security providers “carry significant legal, reputational, operational and strategic risks for those organizations, writes James Cockayne in Commercial Security in Post-Conflict Settings.

Along with those issues, one of the biggest signs or increased risk comes from potential insureds themselves. “We’ve had enquiries about areas where usually people wouldn’t be concerned — places like Belgium or France,” Johns says.

THEN: One ball, two baskets
NOW: Protecting the game (and head office)

Hockey’s our sport, no question, but sadly, we didn’t invent it. However, Canadians can take credit for basketball: James Naismith may have been teaching in Massachusetts when he created it, but he’s ours, and so is the game. More broadly, current sports risks are wide ranging, though a 2013 CIP Society report underscores two key areas: larger exposures to sporting events and venues, like terrorism, and injury-related risks. The report, Sports Insurance: Today’s Key Risk Issues, points to the 2013 Boston Marathon bombing as a bellwether and predicts rising prices for cancellation coverage if something similar happens again. Major risk events not only highlight the need for multipronged planning–including business continuity, crisis management, and cyber insurance—but reveal newer layers to those plans, according to Marsh Risk Consulting experts who led a 2016 presentation on catastrophic sports risk. “The risks that were prevalent 10 years ago aren’t necessarily the ones that will sit at the top of your list today,” noted Renata Elias, vice-president with MRC’s reputational risk and crisis management practice in the U.S., during the webinar.

However, injury tends to garner the most attention, with both teams and players opting to protect themselves—and their contracts— with specialty coverage, notes Greg Sutton, president of Sutton Special Risk Canada. “If they’re still fairly young, the contract they’re in is still guaranteed, but if you do have a career-ending injury or sickness, you’ll expose yourself to losing out on future earnings.”

On his side of the business, high profile exposures have evolved in recent years, he notes. “We’ve gone from knee injuries to concern about exposure to the eyes, head injuries and concussions,” he says. “We’re now a lot more diligent [and] aware of documenting concussion history.”

Despite the public focus on injury, the market is intensely competitive. “Pricing is still way below what it should be,” he notes.

Broader fallout may change that, on the liability side, at least— recent lawsuits filed against a leading helmet maker by former NFL and college football players continue to raise questions for insurers. The CIP report notes that “the question for the NFL is not whether the insurers are required to help the league but, rather, what percentage of the league’s expenses each insurer is obliged to cover.” In the interim, some like Sutton, have one answer: “We don’t cover NFL players.”

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Copyright © 2017 Transcontinental Media G.P. This article first appeared in the June/July 2017 edition of Canadian Insurance Top Broker magazine

Copyright © 2017 Transcontinental Media G.P.
Transcontinental Media G.P.