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Why interest rates might not rise further Canadian Underwriter

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OTTAWA – The pace of economic growth in Canada slowed in the third quarter as business investment spending fell and the growth in household spending slowed, raising questions about the future pace of interest rate hikes by the Bank of Canada.

The Canadian economy grew at an annualized pace of two per cent in the third quarter compared with 2.9 per cent in the second quarter, matching the expectations of economists, according to Thomson Reuters Eikon.

However, economists said the details in the latest reading of the economy showed troubling signs of weakness, adding that a separate report showed the economy ended the quarter on a weak note.

The Bank of Canada raised its key interest rate target in October to 1.75 per cent, its highest level in about a decade. Investor expectations are that the central bank will keep its key rate on hold when it makes its next scheduled rate announcement next week, but expectations had been that it would likely raise it in January.

Paul Ferley, assistant chief economist at Royal Bank, pointed to the decline in business investment and a larger-than-expected drop in residential investment as disappointing.

And Ferley said it looks like economic growth in the fourth quarter will be even slower.

“It is looking like right now that Q4 growth could closer to one per cent than two,” he said.

Ferley said he continues to expect an interest rate increase in the first quarter, but that it will be contingent on how the economy fares and if the slowing in the last three months of 2018 proves to be transitory.

The third quarter ended on a weak note as real gross domestic product edged down 0.1 per cent in September. Statistics Canada noted it was the first move lower after seven consecutive months of growth.

The agency attributed September’s decrease to lower output across all goods-producing industries which slipped 0.7 per cent. Services industries edged up 0.2 per cent.

Stephen Brown, senior Canada economist at Capital Economics, said the fourth quarter will get a bit of a boost from the resumption of the Syncrude facility and the inclusion of legalized marijuana in the statistics for the first time.

“But the bigger factor is that the economy faces big headwinds from lower oil prices and weak new home sales,” Brown wrote in a report.

“Both suggest that investment could fall further in the quarters ahead. That will give the Bank of Canada pause for thought and means that a January rate rise is looking less likely than it did a month ago.”

In the third quarter, spending on non-residential investment in buildings and engineering structures fell 1.3 per cent, as investment in the oil and gas sector slowed. Machinery and equipment investment by businesses fell 2.5 per cent.

Meanwhile, the growth in household spending slowed to 0.3 per cent in the quarter, compared with 0.6 per cent in the second quarter. The drop came as spending on durable goods fell 0.7 per cent, with spending on vehicle purchases falling 1.6 per cent.

Total residential investment also fell 1.5 per cent as spending on new home construction dropped 4.7 per cent, the largest decrease since the second quarter of 2009. Renovation spending fell two per cent, while ownership transfer costs rose 7.1 per cent.



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CoreLogic takeover of Symbility approved by shareholders Canadian Underwriter

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Canadian claims software vendor Symbility Solutions Inc. is a step closer to being acquired by data provider CoreLogic Inc.

Calgary-based Symbility said Thursday an overwhelming majority of its shareholders have approved a $160-million deal originally announced Oct. 22. The deal still has more hurdles to cross, including approval by the Court of Queen’s Bench of Alberta and the TSX Venture Exchange.

“We view Symbility as the leading innovator when it comes to claims automation, workflow and customer experience,” Steve Brewer, executive for insurance and spatial solutions at Irvine, Calif.-based CoreLogic, told Canadian Underwriter earlier in an interview.

Symbility Property, a claims processing and estimating software product, is used by property and casualty insurers. CoreLogic provides data to both the real estate and property insurance sectors. For example, property and casualty insurers can buy data on property hazard to predict wind and flood losses.

CoreLogic has an existing relationship with Symbility. CoreLogic inherited a third of Symbility in 2014 when CoreLogic bought Marshall & Swift/Boekh LLC.

Marshall & Swift/Boekh bought its stake in Symbility in 2012. Part of that deal was a five-year agreement to refrain from acquiring more shares in Symbility. Then, in 2017, CoreLogic made an offer to acquire Symbility for 60 cents a share in cash. That offer was not immediately accepted, so Symbility officials looked for other potential buyers and also negotiated with CoreLogic for a higher price, Symbility said in a securities filing in 2018.

Ultimately, Symbility’s board accepted an offer by CoreLogic to pay 61.5 cents a share. That offer was put to the vote at the Dec. 13 special meeting of shareholders. More than 99% of shareholders voted in favour.



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How to go direct-to-consumers without ticking off your brokers Canadian Underwriter

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Are you an insurance company looking to build up your direct-to-consumer capabilities without alienating the broker channel, on whom you rely for your core business?

Here are three tips for you, as outlined by bloggers Ned Calder, Shahriar Parvarandeh and Michael Brady, all three from the growth strategy consulting firm Innosight.  Their blog is published in the Harvard Business Review.

The article, entitled ‘Building a Direct-to-Consumer Strategy Without Alienating Your Distributors,’ is written generally for all companies, but some of its ideas may resonate with carriers and their broker partners. For carriers, it may provide insights into how to balance direct-to-consumer and broker distribution sales models. For brokers, it provides a glimpse into how a carrier might attempt to approach their customers without drawing retaliatory measures.

First, “embrace stealth,” the bloggers advise companies wishing to pursue a direct-to-consumer strategy.

Before the advent of the internet, companies looking to test new business models might start selling quietly in a new geographic territory. Here, they were free from the constraints of distribution contracts that restricted their ability to sell direct in traditional geographic markets.

“But that is harder to do in the digital age, as customers and partners anywhere can easily see what you’re doing online,” the bloggers note.  “Alternatively, the company can operate in stealth mode by targeting customer segments that have been poorly served or ignored by traditional distributors.”

The authors give the example of Verizon, which quietly launched a startup called Visible that offers no-contract mobile phone service subscriptions for a $40 flat fee. Only available for purchase through an app, this model competes mainly with smaller-brand, low-end providers, and therefore is not much of a threat to Verizon’s massive distribution network of company-owned, partner, and authorized reseller stores that are selling higher-margin services.

Second, Calder, Parvarandeh and Brady call on companies to “create hooks” that compel their distribution partners while at the same time minimizing their bargaining leverage. “There are many ways to build hooks, including bundling products, monopolizing a category, or developing features that are indispensable to a subset of customers,” the authors write.

An example is when Microsoft launched its Surface line of tablets in 2012. The move put Microsoft in competition with its traditional distribution partners, including Acer, Lenovo, HP and Dell. However, Microsoft had a monopoly on the desktop operating system market, so its partners, which were already hooked on Microsoft Windows, had little choice but to accept Microsoft’s direct-to-consumer strategy.

Third, the authors call on direct-to-consumer strategies to include a way to minimize their distributors’ pain. “Supporting downstream partners’ business can…reduce the risk of retaliation.”

For example, the heavy equipment manufacturer Caterpillar introduced a vehicle management platform that provides customers with insights on vehicle use, health and location.

“The platform is sold directly to customers, frequently removing downstream partners from the sales process,” the bloggers write. “Ultimately, though, the platform benefits partners because it alerts customers when they need to get their equipment serviced by these local partners — a key revenue stream for Caterpillar’s distributors.”



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Not all Ontario schools follow this cyber security rule Canadian Underwriter

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Some former school board employees can still look at children’s records – including address and date of birth – over the Internet because their access to this system has not been revoked, the Auditor General of Ontario suggested in a recent report.

Each school child gets an Ontario Education Number. A computer system administered by the provincial education department stores data – including the child’s name, date of birth and gender, address and educational records. This data can be accessed by some ministry staff and local school board employees.

Inactive user accounts are “not always being cancelled after workers leave their jobs,” auditor general Bonnie Lysyk wrote in her 2018 annual report, tabled Dec. 5 in the legislature. “These accounts are accessible on the Internet, creating a risk that confidential student information may be exposed to the public.”

Public-sector privacy breaches are a concern to underwriters because liability insurance can kick in if an organization is named in a negligence lawsuit.

An alleged privacy breach is the subject to two proposed class action lawsuits before the Ontario Superior Court of Justice.

The lawsuits allege that staff working for the Rouge Valley Health System sold contact information – on women who had given birth at the hospital – to people selling registered educational savings plans. The plaintiffs are seeking damages of about $450 million.

“Cybersecurity is the protection of computer systems and data from theft of, or damage to, their hardware, software or electronic data, as well as from disruption of the services they provide. It also includes protection against the misdirection of data to the wrong servers or recipients,” the 2018 Ontario auditor general’s states.

For school boards, there is a risk of identity theft perpetrated by cybercriminals, the auditor general added.

Nearly three in four Ontario school boards that replied to an Auditor General survey said they did provide formal information security awareness training to teachers and staff with access to their computer systems.

“As the methods and techniques used by attackers to manipulate school board staff into divulging sensitive information become increasingly sophisticated, the importance of providing updated cybersecurity awareness training continues to grow.”

Recent privacy breaches affecting Canadians include an attack on Marriott International Inc. and Starwood Canada ULC hotels. Hackers stole contact information as well as credit card, passport and travel information belonging to as many as 500 million guests over four years,. The Canadian Press reported earlier.

An earlier breach involving  Norfolk General Hospital of Simcoe, Ont. resulted in a lawsuit and a coverage dispute involving Aviva, which had argued that it was not obligated to pay legal defense costs for a nurse who was sued. Judge Markus Koehnen of the Ontario Superior Court of Justice ruled against Aviva Canada, which argued the nurse’s conduct did not arise from the hospital’s operations.  Judge Koehnen reasonsed that the nurse’s conduct was one example of a risk that Aviva’s Professional and General Liability and Comprehensive Dishonesty, Disappearance and Destruction Insurance Policy was intended to cover.



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