Risk Management and Insurance

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1 AMSC Risk Management & Claims Services Will Burtenshaw Senior Director Risk & Claims David Johnson Senior Director Client and New Service Development

2 September Headlines Calgary Mayor Nenshi shocked by damage from heavy summer snow August hail storm in Alberta tops $450 million in insured damage Flood-related deaths exceed 461 in India, Pakistan

3 September Headlines 2014 Prairie Flood Losses to Reach $140 million Mexico Struggles to return order to hurricane hit resort of Los Cabos Alberta s wacky weather causing an increase in premiums Sources: Insurance Business and Canadian Underwriter

4 Some advice from 2012 Telling the weather story Public and private sector leaders need information about regional climate trends in order to adapt for the future. These weather trends are already affecting Canadians. The climate will continue to change, with varying impacts across Canada s regions Severe weather is projected to increase over the next 40 years. Canada must adapt to this new reality. - Insurance Bureau of Canada: Telling the Weather Story June 2012

5 World 2013 Some stats: In 2013, 308 disaster events: 150 natural catastrophes and 158 man-made. Typhoon Haiyan struck the Philippines in November 2013, one of the strongest typhoons ever recorded worldwide. Killed 7,500 people and left more than 4 million homeless. June flooding in India, in which 6,000 died. Economic losses from catastrophes were US $140B. Asia had the highest losses. Insured losses were roughly US $45B. Natural catastrophes generated US $37B of losses and man-made disasters the other US$ 8B in claims. Biggest losses included large scale floods in Europe and Canada, record-level hail and multiple windstorm events in Europe, convective thunderstorm and tornado events in the US and Typhoon Haiyan in the Philippines. - Swiss Re Sigma No. 1, 2014

6 2014 World Losses First half of 2014 February storms which hit Tokyo and central Japan brought overall losses around US $5B and insured losses of more than US $2.5B The record winter and blizzards in North America also caused significant losses totaling US $3.4B. Natural catastrophes marked by pleasingly low levels of global claims. Economic losses of US $42B and insured losses of US $17B Below ten year average (US $95B and US $25B respectively). - Munich Re, July 9, 2014

7 Insurance Services More than 725 members participate in the GI program MUNIX Self-Insured Reciprocal MUNIX reciprocal coverages include: Property Liability Errors & Omissions/Directors & Officers Auto Physical Damages (only)

8 Why manage risk? Why spend the time and money to manage risks isn t that why we have insurance? Fact: Insurance policies may respond for the cost of replacing a damaged asset or defending and paying for a liability claim, but insurance does not cover the full costs of any claim.

9 Challenges to Managing Governmental Risks There are limitations and challenges to managing risks for municipalities: Politics Limited resources Public entities are held to a higher standard

10 Insurance is not purchased out of desire, but out of necessity. It isn't a commodity which is enjoyed nor displayed nor sought after by its owner. It is like headache tablets or spare tires bought with the hope that they will never have to be used. Insurance should be the last line of defense and available after all other safeguards have failed.

11 Risk Management is essential! Insurance is just one tool in a risk plan..

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14 What is risk management and why is it important before a disaster? The process of making and carrying out decisions that will minimize the adverse affects of risk on a municipality.

15 "An ounce of prevention is worth a pound of cure." Today, this statement provides the guide for the control of risk. Risk may be reduced, eliminated, or certainly controlled by using a well-planned risk management program.

16 The chance of something going wrong: the danger that injury, damage or loss will occur

17 From 12/31/2013 & 1/1/2014 Alberta now considered a region of Natural Catastrophe Flood considered higher risk than earthquake due to historically higher frequency Lloyds/London marketplace became prominent with capacity and better deductible language Deductible effects: Traditionally Alberta Flood deductibles were between $10,000 to $100,000 flat

18 From 12/31/2013 & 1/1/2014 Reaction from Canadian insurers are implementing flood deductibles of: A percentage and minimum of insured values at insured location essentially a per structure deductible (i.e. 5% of TIV at location subject to minimum of $1,000,000 + ) or Flat higher flood deductibles for high risk flood locations/risks (i.e. $20,000,000 + ) Capacity effects: Many Canadian domestic insurers are not offering flood capacity for renewals or for new business to them Canadian domestic insurers are restricting/reducing their flood capacities dramatically

19 What can you do? Balanced risk management & insurance program Risk management: Procedures and protocols Contingency plan Crisis management plan Communication plan

20 What can you do? Insurance Program: If you experienced a flooding in 2013, then your program is being tested lessons learned to be incorporated into the program If you were fortunate not to experience a flood event model a flood scenario against your insurance program if you are located in flood prone areas

21 Insurance coverage treatment Have flood insurance it is available on a commercial basis Deductible structure/language Business Interruption/Loss of Revenues Extra Expense coverage Expediting Expense coverage Mould coverage (restricted) Asbestos coverage (restricted) Evacuation Expenses coverage Sue & Labour Expenses coverage Payroll Coverage0

22 The 2013 floods insurance marketplace reaction Insurance marketplace now reviewing the Alberta natural catastrophe landscape Reaction is slow Reaction is inconsistent Flood Capacity review Insurers reviewing their portfolio Rates Deductibles Capacity/limits

23 Is your municipality prepared? Risk tools- emergency plan and business continuity. Identify exposures to loss Analyze loss exposures Examine Risk techniques Select risk techniques Implement the techniques

24 Risk Management key objectives Reduce frequency and cost of claims ( insurance) Save Resources Protect Public Image Protect people from harm Reduce Legal Liability Protect the environment Know what the risks are Increase stability of operations Increase defensibility of lawsuits

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27 Steps to take before a disaster.. Know and trust your insurance provider Make sure you review your insurance policies every year and make sure that every property is on the schedule Keep detailed inventories of contents. Make sure that the listed values are correct. How much will it really cost to rebuild?

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30 Some things to be aware of Claims typically have to be sudden or accidental For example, insurance is not a maintenance policy. Most policies will typically not pay for regular wear and tear. If you have an older building which needs shingles replacing, that s not an insurance claim. But if a hail storm completely destroys the shingles, they may be covered

31 What are the deductibles? Are they the same for everything or different? Vehicles and buildings will have different deductibles Flood and earthquake are typically much larger than fire deductibles

32 Exclusions What is an exclusion? An exclusion gives a condition for which an insurance policy does not cover. For example, typically most policies will exclude (not cover) mold or asbestos remediation. Sometimes, you have to purchase specific insurance to cover the risk such as boiler and machinery insurance, as typical policies exclude boiler explosion. Insurance is complicated, so you need to have confidence in your insurance advisor.

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35 Other Considerations Contractual obligations Lease agreement responsibilities Landlord -Tenant agreement responsibilities Personal belongings of tenants Internal policies Personal belongings of staff what do people keep in their desks? Privacy legislation implications Liability effects - can you be sued for negligence? Directors & Officers Liability General Liability Pollution Liability - is there an exposure?

36 After the disaster, it becomes a claim An adjuster will be assigned to determine the extent of the damage and if coverage has been triggered and what if any exclusions apply. The adjuster is the eyes and ears of the insurer.. Will require cooperation from many parties including your team. For significant damage several things will happen: a) restoration experts trained in the most current best practices will be brought in for water removal, fire/smoke restoration, mould removal and other disaster restoration services. Remediation may include drying out walls and contents, or removal depending on the damages

37 Post disaster b) A specialized multi-disciplined, post loss construction consulting firm, with a staff of highly qualified and experienced construction management, and restoration professionals will be engaged to determine the costs to repair and or rebuild. c) If a building is damaged repairs will be effected to return it to the same condition it was in. d) If a building is destroyed, you will have to decide if you want to replace the building in like kind and quality or if you want to build a grander facility. But realize, that you won t get extra funds for the enhancements. e) It takes time many factors come into play such as loss of rents, getting bids from contractors etc and determining what will be rebuilt

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39 Anatomy of a claim Claims Costs Retained Costs Soft Costs Claim costs Loss or damage to asset Court awarded damages Defense Costs Adjuster Fees / Expert Fees Retained Costs Deductibles Fines / Penalties

40 Anatomy of a claim Internal costs and staff time Claims Costs Retained Costs Soft Costs Initial reporting, investigation, gathering information Interruption of services Responding to customer complaints Prep time examination for discoveries, pre-trial meetings, court time, etc.

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42 Changed attitudes Someone else is responsible for my injury has replaced a previous willingness to accept the risk of injury. Society has higher expectations for the designers, installers and operators of governmental infrastructure systems. The monetary setback is not a matter that needs to be solved by the individual but is a responsibility of a third party.

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45 Risk Management Program Module 1: Essentials of Municipal Loss Prevention and Facility Loss Control Module 2: Liability Loss Control Public Works Module 3: Fleet and Equipment Loss Prevention Module 4: Liability Loss Control Parks and Recreation Module 5: Liability Loss Control Contractual Issues Module 6: Liability Loss Control Municipal Errors and Omissions Module 7: Environmental Risk Management Guidelines Module 8: Insurance Basics Module 9: Enterprise Risk Management Module 10: Emergency Planning & Business Continuity Module 11: Seniors Facilities Module 12: Workplace Violence Modules 13: WHIMIS Module 14: TDG