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In this Issue

Editorial 1

Insurance Due Diligence 2-3

Travel Insurance and 4Travel Assistance

EDITORIAL

Barry F. Lorenzetti

The Cover Note

symmetrical (or asymmetric) wa r f a r e i s n o t a n

expression often used in the business world, but if we take a minute to look around and ponder, it becomes clear that the phrase does reflect the conditions under which enterprises have to operate today. What is asymmetrical warfare by definition?

Asymmetr ical war fare can describe a conflict in which the resources of two belligerents differ in essence and in which the weaker combatant uses unconventional strategy, tactics and weapons to offset deficiencies in quantity or quality.

Transposed to business, this means that being a large, established and successful organization today does not guarantee a prosperous future. Short of outright acquiring their competitors, in order to attain success on a continued basis, companies must be agile, adapt, imagine, reinvent, set trends, seize or create new opportunities and mitigate risk. Client experience rests not only on the company’s internal performance or execution,

but is also influenced by the creativity of competitors with access to unconventional tools and channels and the products and services offered in the marketplace. The same applies to employee experience in your organization.

Globalization, instantaneous mass communication (which has led to democratization of businesses) , crowdfunding and the ideals held by the new generations of workers, which are very different from those of their parents, have turned the conventional business approach on its head and leveled the playing field. Individuals and organizations with very little means compared to rich, but conventional companies that are slower in reacting and adapting, can become overnight successes by taking advantage of the new environment.

Commanding considerable wealth may enable Company  A to “borrow”, with impunity, patented technology from a competitor too broke to pick a fight. But what if Company  A is taken to task by the social media community? How much of a public beating can Company A take before its reputation is tarnished and financial loss occurs?

H o w m a n y o u t s t a n d i n g employees is Company B prepared to lose to competitors or to new enterprises before acting on company values a n d e m p l o y e e m o r a l e ? A key employee l o s t to a new enterprise can become

A

a fierce rival with the help of crowdfunding and social media strategies. Equally, an existing competitor, insignificant to date, can evolve into a nightmare if it succeeds in acquiring key employees from Company B.

The same danger lurks in failing to explore the global market for new suppliers, technologies and applications for one’s products or services. The vast possibilities presented by globalization can easily become a double-edged sword.

This is the current business environment and in order to achieve success going forward, Management teams will need to master the weapons of choice to wage asymmetrical warfare: open-mindedness, agility and vision. They will also have to ensure that these attributes become an integral part of their company’s culture. The bigger the company, the taller the challenge will be.

In this issue, our feature article is written by Lisa Giannone, Vice-President and Team leader from our Montreal office, in which she discusses the benefits of performing due diligence on an insurance portfolio, i.e. rethinking an insurance portfolio, one of the many risk mitigating measures available to organizations. For his part, Richard Paquin, Senior Client Executive at our Consulting Services division, provides an overview of travel insurance.

The weapons of choice to wage

asymmetrical warfare:

open-mindedness,

agility and vision.”

“

FALL 2014 - Volume 7 Issue 3

The Cover Note

RISK MANAGEMENT AND INSURANCE

Page 2

1. Identification of risk exposures entails a high level overview of what could potentially go wrong based on industry specific knowledge and expertise. Is there a risk mitigation solution for each of the identified risks?

2. Analysis of coverage in place entails an extensive overview inclusive of contractual obligations the company has with its current clients and suppliers. Regulatory requirements of the jurisdictions under which the company operates is also reviewed to ensure rules are adhered to.

a) The current property policy contains a co-insurance clause which would penalize the insured’s loss recovery if the limit of insurance purchased is not at least equal to the percentage of co-insurance applied to the values of the insured property;

b) A liability policy does not contain “rip and tear” coverage for a manufacturer whose principal operations include installation of roof trusses. The costs associated with replacing product deemed faulty can then be substantial;

c) In the case of a food manufacturer, the contractual language with an important client (hold harmless) states that the company is obligated to pay for all expenses related to a product recall. A gap is often observed in comprehensive general liability policies that do not contain any product recall coverage. Although in most cases it is limited to expense coverage only, it remains an important coverage to have in this type of industry.

3. Recommendations designed to improve the current insurance program include an extensive review of areas for improvement followed by an appropriate course of action. For each line of coverage, comments should also take into account the adequacy of limits, retentions and cost.

4. Benchmarking is an important element of the diligence

process. Companies want to know what their peers (with similar operations and exposure) are doing when it comes to limits, retentions and premiums (where available). Anonymous information from a wide-range of sources can be obtained. However, a tailor-made benchmarking exercise where identified peers are called upon to obtain specific information is often more revealing.

5. Cost of new insurance and its applicability on the current insurance program is important because the company wants to know which elements are driving cost and ensure its overall competitiveness. With accurate information, a cost indication can be obtained and, of course, take into account current market tendencies.

Strategic recommendations are provided as a conclusion to the process which allows the company to have a clear understanding of its current risk mitigation tactic and where it should or desire to be in a certain period of time.

Generally, when companies are merging, acquiring or being acquired, the last item on their due diligence list is insurance. Ignoring insurance can be very expensive and the issues

INSURANCE DUE DILIGENCE

Regardless of the industry segment in which you operate, whether it be retail, mining, transportation, real estate, agriculture, construction, sports, media, pulp and paper, energy, etc., insurance expertise and specialized services are critical to transferring certain risks to the insurance market.

To this end, an “insurance due diligence exercise”, which aims to identify operational risks and how they are mitigated, whether internally or externally, is a valuable tool. Insurance products continue to be the most common solution used by companies to mitigate risk. The process’ objective is to provide businesses with strategic recommendations based on findings and in line with their risk culture.

This process is demonstrated by the diagram below:

Lisa GianonneCommercial-Lines Damage Insurance BrokerVice President, Team LeaderBFL CANADA Risk and Insurance Inc., Montreal

Here are some examples:

Volume 7, Issue 3 Page 3

HALIFAX | QUEBEC | MONTREAL | OTTAWA | TORONTO | WINNIPEG | CALGARY | KELOWNA | VANCOUVER

1-866-688-9888

45 Westwind Drive Hammonds Plains, NS  B3Z 1K6 Tel: 902-864-4982 Fax: 902-864-0200

5670, Spring Garden Road, Suite 500 Halifax, NS  B3J 3R4 Tel: 902-471-5000 Fax: 902-404-4344

2590 Laurier Blvd, Suite TBC 600 Quebec City, QC  G1V 4M6 Tel: 418-658-6337 Fax: 418-654-2045

2001 McGill College, Suite 2200 Montreal, QC  H3A 1G1 Tel: 514-843-3632 Fax: 514-843-3842

BFL CANADA Risk and Insurance Inc.

BFL CANADA Risk and Insurance Services Inc.

2685 Queensview Drive, Suite 101 Ottawa, ON  K2B 8K2 Tel: 613-722-7798 Fax: 613-722-7829

181 University Ave., Suite 1605 Toronto, ON  M5H 3M7 Tel: 416-599-5530 Fax: 416-599-5458

BFL CANADA Insurance Services Inc.

175 Carlton St., Suite 205-175 Winnipeg, MB  R3C 3H9 Tel: 204-594-0260 Fax: 204-594-0259

877 Henderson Highway Winnipeg, MB  R2K 2L8 Tel: 204-661-2446 Fax: 204-663-0344

1167 Kensington Crescent NW, Suite 200 Calgary, AB  T2N 1X7 Tel: 403-451-4132 Fax: 403-313-3365

5185 South Ridge Drive Kelowna, BC  V1W 4Z4 Tel: 250-575-2327 Fax: 778-477-0011

1177 West Hastings St., Suite 200 Vancouver, BC  V6E 2K3 Tel: 604-669-9600 Fax: 604-683-9316

Send comments or suggestions to publications@bflcanada.ca

arising from a failure to pay attention to insurance may have long-term repercussions.

There are a variety of important risks that could emerge from an insurance due diligence exercise in respect of both the buyer and seller’s insurance program. These may touch upon liability (contractual, directors and officers, fiduciary), environmental risks and workers compensation, for example.

1. Contractual obligations with clients and suppliers (in the form of hold harmless or indemnification clauses) can be transferred within a comprehensive general liability policy. Thus, the review of all past and present contracts from an insurance perspective becomes an important element of the process.

2. An example of a gap in coverage with respect to a Directors and Officers liability

policy would be, for example, in the case where New Co acquires Old Co, increasing its original size by a percentage exceeding the percentage limitation included in its policy. If appropriate measures are not taken and Old Co’s insurance policy is cancelled, potential incidents that occurred with Old Co in its pre-acquisition and continued after it was acquired would not be covered by either policy.

3. Environmental risks often threaten the viability of transactions. If a transaction is processed without the environmental risks being correctly evaluated or addressed, the profitability of the acquisition can be significantly reduced. Some other issues rest in the uncertainty of remediation cost estimates, liability buy-outs and unknown environmental risks.

4. When acquiring a company, there needs to be an audit of the workers

compensation policies, outstanding claims reserves and premium status. The claims experience can affect premium for several years. However, without an audit, it is impossible to know which claims could be settled and closed. An adverse effect on loss history will increase premium. Also, for premium purposes, it is important that employees be classified at an appropriate rating. Some policies are rated retrospectively; settlement, files closing and proper accounting for claims can actually result in a premium return.

Lastly, the buyer will always seek to protect itself from risks related to acquiring a business or its assets. The buyer will seek contractual protection in the form of warranties and indemnities, usually provided by the seller. The buyer may seek security for a breach of any warranty or indemnity by insisting that the seller provide a guarantee in respect to his obligations. Another method would be for the buyer to retain part of the purchase price after closing the transaction, and for this amount to be used to pay any potential claims that would arise under the warranties and indemnities. Products made available by the insurance market such as “Reps and Warranties” are viable solutions to take into account.

The above is a very broad overview of the wide range of issues at play when it comes to insurance in various situations. Make sure to ask your broker to perform a due diligence exercise on a regular basis to guide you with respect to the range of possible insurance solutions available.

Page 4 Volume 7, Issue 3

EMPLOYEE BENEFITS

2590 Laurier Blvd, Suite TBC 600 Quebec, QC  G1V 4M6 Tel: 418-658-6337 Fax: 418-654-2045

3448 Stanley St. Montreal, QC  H3A 1R8 Tel: 514-843-3632 Fax: 514-843-3842

181 University Ave., Suite 1605 Toronto, ON  M5H 3M7 Tel: 416-599-5530 Fax: 416-599-5458

200 - 1167 Kensington Crescent NWCalgary, AB T2N 1X7 Tel: 403-451-4132Fax: 403-313-3365

BFL CANADA Consulting Services Inc.

TRAVEL INSURANCE AND TRAVEL ASSISTANCE

Richard PaquinGroup Insurance Plans AdvisorSenior Client ExecutiveBFL CANADA Consulting Services Inc., Quebec

Are you planning a trip? Your group plan insurer and travel assistance is there to help you out before, during and after your trip.

Before you leaveWhatever your destination may be, it is always safer to be well informed before leaving.

Are you travelling while suffering from a chronic or ill controlled condition? Have you recently been hospitalized or admitted to an emergency ward?

Your policy provides protection for accidental injuries and sudden and unexpected illnesses. However, you might not be covered if you are already suffering from a chronic or poorly controlled condition and that, for example:

• You have observed an increase or a return of the symptoms;

• Your medication has been changed;• You have recently been released from the hospital.

Before you leave, contact your insurer to make sure you are eligible for travel insurance. Depending on the case, you could either get this confirmation over the phone or you will need your doctor to fill out a medical questionnaire, which will help determine if the policy covers your condition or not for the duration of your trip.

Attention: Your policy is not effective in countries under a travel warning from the Canadian Government (unless you were already in the country before the warning was issued). Refer to your insurance booklet for all the details. Are you travelling in a country requiring proof that you have travel medical insurance?

Just call your insurer and ask for a confirmation letter stating that you are covered for emergency medical care.

During your tripShould you happen to need medical care while you are abroad, we strongly suggest that you contact your travel assistance service (the contact details are on your insurance certificate) before you get to the doctor’s office. Medical assistance is available 24 hours a day.

How do I know where to go if I need health care?

Through the travel assistance service, your insurer will direct you to the doctor, clinic or hospital that is the best suited to provide you with the medical help you need.

Do I have to pay the doctor, clinic or hospital fees?

In most cases, your insurer can make the required arrangements so that you won’t need to pay yourself. Naturally, you should confirm this with the insurer by contacting your travel assistance service prior to visiting the health care facility.

If you have already paid the fees, make sure to keep the detailed original receipts, the medical records and proof of payment. You will have to submit these documents to your insurer upon your return.

Your insurer can help you in situations such as:

• Trip interruption or delayed return;• Loss or theft of documents;• Translation services in case of an emergency;• Legal accident or incident.

After you returnIf you have been in contact with your insurer during your trip through the travel assistance service, your insurer has already opened a file and mailed the required forms to your house.

If you haven’t contacted your insurer while you were abroad, please do so upon your return to start the settlement process.

Bon voyage!