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Flood Coverage Confusion, Demise of the Broker, Driverless Cars, AIC Online License Application

Posted By Thom Young, October 7, 2015
Well, the frost is certainly on the pumpkin in Southern Alberta. As a rather large flock of Canada geese heading directly south flew right over my place, the last one looked back at me as if to ask “What are you waiting for?”  Our fall departure for the southern climes has been delayed since our usual date coincides with the birthday of our middle grandchild. We’re not allowed to be away until after that. Besides, I’ve still got much to get done here this fall, so my Canadian perspective on things remains pure at the moment.

Flood Coverage Confusion

In addition to the usual number of interesting things to talk about at the couple of industry gatherings I’ve attended in the past few weeks, “flood” coverage and its limitations seems to have generated quite a bit of confusion. Many people are concerned about the new limitations on sewer backup endorsements that insurance companies are slipping into customer renewals. The implications for E&O exposure on the broker side are staggering. Clients may think they have coverage but don’t if the proximate cause is “overland water.” If a nearby creek over flowed its banks 72 hours before or after the sewer backup, then the proximate cause is “overland water.” In the past, many of us wondered why sewer backup would respond when the proximate cause was flood, an uninsured peril. Questions of this nature used to be answered with a blank stare, but now an actual wording limits the cover. Do clients still have good coverage? Try explaining the coverage and all the limits and exclusions when, as a broker, you’re not sure about the benefits yourself. The real kick on this will come with the next major flood event, which could be next year or not for five. The interpretation and, more importantly, limitations and exclusions of these coverages will not be firmly established until we meet up with a catastrophic loss. I worry about my customers and the way these changes impact my responsibilities to them.

Advice on the “overland water” coverage provided by various companies is even more difficult. The only wording I’ve been able to secure is the one from Aviva. I’m told that The Co-operators has one on the market and that Wawanesa and Intact are soon to enter into the competitive fray, but I’ve no idea how one product compares with another. Explaining the differences must be very confusing for a personal-lines CSR. A jaded person might suggest that the new coverage isn’t sufficient enough to move forward with a competitive response in any great urgency. We are back to the original conundrum with flood coverage. The coverage needs to provide adequate distribution of risk and sufficient premium to deal with claims. These are interesting times for insurance brokers and even more confusing for the buying public. Oh well, who needs brokers? I’m sure an internet link will eventually provide all the correct answers.

The Demise of the Broker

Once again the industry press is predicting that insurance sales intermediaries (the fancy legal term for sales people) are on the road to redundancy. According to those who claim that you can find online information to purchase just about anything without any assistance, sales people are irrelevant, an unnecessary distraction, and perhaps an annoyance. Online information sites are becoming better, they claim, and giving intelligent choices with proper information prompts to allow the consumer to purchase increasingly complicated things without the need for a company representative. These statements are all true but, and it’s a big BUT, one of the most important parts of arranging a contract that promises to do something in the future is the meeting of minds when the deal is struck. When only one mind is in play, the value of the contract is uncertain because of potential misinterpretations. The legality of the contract may be suspect as well.

Look, I’m not one of those anti-tech people. I’m all for using any available distribution method to get our products and services out to the public, but at the end of the process a real person must negotiate the interests of all parties to the transaction to ensure that their real needs are met and the legal process of the contract is respected. I support the notion that the value added of a properly trained insurance adviser will continue to be an important part of the distribution process for all insurance products. Any suppliers (insurance companies) that fail to understand the support they get from such an individual risks their business success. All of the technical simplifiers, online applications and quotes, information algorithms, coverage prompts, and flashy digital pictures used by the insurance companies serve only to drive to the finished transaction between two people, the insured and the broker/agent. The manner of this meeting could be changed by technology, but the importance of it and the value to all parties won’t be.

Speaking of Human Redundancy, What about Driverless Cars?

As the technology continues to advance in this field, we are very close to the tipping point where these vehicles become a reality in the norm. No longer just a strange thing, they will be reliable and cheap enough to become a common sight in many jurisdictions. Getting to this stage won’t be easy. Many hurdles will need to be jumped before the legislation becomes uniform enough to operate these vehicles in different jurisdictions. Further, the reliability of these vehicles in operation will need much demonstration, documentation, and proof. Who is going to insure these vehicles? Who is the insured? Current legislation in Alberta would likely see the vehicle insured in the facility market. The insured would be the owner of the vehicle as per the statute wording of the SPF 1, which defines who is insured. The owner would include the driver whether that be a computer with AI capability or your brother-in-law who borrowed the vehicle while visiting town. The driver will need to be more properly defined, but such definition is not an insurmountable obstacle as the usual operator (normally the owner) would be produced for the application record. In my view, the functional manner in which that person operates the vehicle or delegates its operation would be irrelevant (I repeat, in my view—legal disclaimers abound—this is my opinion). Definition of the driver may have some grey areas that may challenge the regulators, but let’s hope they’re looking at it now and have some kind of contingency in place to deal with it when it happens. Our Alberta regulatory response to changes in our business has tended to follow the leaders instead of making good changes for our market by being the leaders (again, IMHO)!

If anyone thinks we’re talking about something way off future, think again. On last report, 48 vehicles are being operated in a California Google study. These vehicles operate in a highly dense urban environment and function extremely well all on their own, with no human intervention in the completion of their assignments. Yes, some minor accidents have involved these vehicles, but none of them can be defined as at fault—so long as you don’t use the other drivers’ distraction at a driverless vehicle as an excuse. The tests incurred some minor injuries in accidents but, again, they were due to the manual operation of the vehicle by technicians. No reports have been made of any traffic violations in the operation of these vehicles. While only four states have made provisions for autonomous vehicle operation, their use will doubtless soon be expanded to new jurisdictions in short order.

The concept of a self-driving automobile lets the mind wander into some interesting possibilities. For example, in a Top Broker editorial, Jeff Pearce discusses flying cars.

Certainly, driverless cars have a huge number of benefits. All of the advantages of having a chauffeur come to mind.

That $26 a day you pay in parking won’t be much of an issue. Just send your vehicle away to wait for you to tell it to come pick you up. Where you send it might be an issue, but I’m sure you could program around that hitch.

Auto theft would become an issue of the past. Imagine trying to steal a car that’s driving you to the police station, emitting an alarm, and has already sent the police a picture it has taken of the crook trying to steal it. Following that logic, your vehicle can become part of your home security system, keeping an eye on things around the house and reporting suspicious activity to you.

What about the kids needing to get to the rink or to dance? No more juggling schedules or negotiating with other parents to get them there and back—just send the car (or the other parent’s car).

Studies claim that the average person who lives and works in a high density urban environment spends as much as four months of their adult life looking for a parking place. Imagine how many more clients you could see if your car just dropped you off and came back to get you when you were done. Your productivity would increase substantially.

The technology has huge implications for the insurance industry, most of them very positive. Loss ratios on automobile insurance are composed substantially by administration and adjudication costs. Imagine the elimination of arguments regarding fault by the ability to review 360° digital recordings of the accident scene prior to the accident, during the accident, and after the accident? Much less discussion will be needed to determine who did what and who should have done what. The mind boggles. In some insurance markets, recording technology is already making a difference with the mandatory use of GoPro technology in commercial automobiles. We’re moving that way here too as the price of this technology declines. The price won’t be an issue when it comes built into your next automobile.

The mind can wander into the future. We can embrace new technology and work with it, or not. Based on my own musings here, the positives far outweigh the drawbacks. We certainly won’t be talking about distracted driving anymore, and underage drivers will be in a different class than they are now. The future is ours!

New Technical Frontiers

Speaking on the issue of technology advancement ….

As one of your representatives on the General Insurance Council, I’ve been working to resolve an amendment to the cumbersome regulations surrounding the DR’s role in recommending an individual for a license. As it now stands, only the DR is able to sign the application to sponsor an individual for a license. The DR is not able to delegate this authority to any other individual in the office. While this duty likely isn’t much of a burden for those operating a smaller shop with only one office and a few employees, the larger the brokerage, the more cumbersome this requirement becomes. New hires in branch offices are often stuck in an unproductive limbo waiting for the paperwork to get completed to give them the proper authority to act as an agent. If the DR is away on holidays or sick leave, further unnecessary delays can occur. In the logical flow of things, particularly in a multiple-office brokerage, the branch or office managers are responsible for the all functions of their location. They recruit, hire, and train new staff and are entrusted with all the duties of a self-directed senior manager except the submission to the regulator to transfer or change the license of one their employees. The DR in head office needs to sign the paperwork physically. I’ve maintained for years that this requirement is inefficient, impractical, and unnecessary. I know many other DRs share my perspective.

Recently, the AIC sent out an email advising of new online provisions for Levels 1, 2, and Probationary New License Applications. If you have not done so already, I strongly suggest that you familiarize yourself with the contents. Transfers and Level 3 General applications are still being handled in the old manner, but I’m told these procedures will also be updated. DRs can now delegate supervision of these online application preparations. DRs still need to endorse the submission to the AIC, but, now that it’s online, DRs can review and digitally endorse the transaction from wherever they are. This provision should provide greater efficiency and speed up the process.

I wonder what the take up is and will be on this processing ability and if it will in fact reduce the amount of paperwork. I will be asking questions about the new process at the upcoming GIC meeting and encourage your feedback on this topic. While I’m supportive of these changes, I still feel the process can be adjusted to provide for the complete delegation of the DR’s authority within larger organizations. I can’t seem to get the point across that the delegation of authority doesn’t negate the responsibility. Please let me know what you think.

In Closing

It’s hard to remain focused and unbiased given the political climate at the moment. It’s hard to be complacent with so many issues before us and so many different points of view! Still, as I voice my opinions in this column, I want simply to remind everyone to exercise the right to express your opinion at the ballot box. I cannot stress enough that this ability is your ultimate right to self-determination. Your vote can help change the things that are bad in the world and make a difference for everything that needs to be supported. This right has been fought for through many generations. The equality demonstrated by the line ups at the voting booths is one not shared by many other people in our world. Tyrants and brutal cultural influences that mute the voices of the people don’t belong in a modern society. Many young people in our new technological society don’t see the need to use this franchise or don’t believe their actions make any difference. They see the “trending” perspective instantly on issues and can’t understand how slow the process of a functioning democracy is to change. That slow process becomes even slower when people don’t vote. Politicians won’t think about to your concerns if they know that listening to your problems won’t get them a vote. Make a difference and get involved. Get out and vote. If you don’t care enough to get out and vote, you can’t later complain about what the government is doing!

The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below or email Thom Young privately. Thom also encourages suggestions for topics.

Tags:  Alberta Insurance Council  Aviva  Aviva overland flood policy  broker channel  competition  customer service  DR authority  driverless cars  Google  GoPro  Intact  online insurance  overland flood insurance  sewer backup insurance  The Co-operators  Wawanesa 

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Global Outreach of Bill and Melinda Gates, Aviva Overland Flood Policy

Posted By Thom Young, February 26, 2015
Updated: March 11, 2015

Imitation Is the Sincerest Form of Flattery

When it comes to industry success and marketing strategy, I’m often asked where I get some of my ideas. I’d like to brag about how they are all original thoughts that I developed all by myself, but the truth is there’s rarely any new idea on how to manage any business that hasn’t been tried before with varying degrees of success or failure. Management and marketing are studies that you never complete. The process continually evolves with the changes in social mores and the behaviour of the market you’ve selected. All those boring economic theories really do come into play when developing a market strategy, and a good healthy understanding of human behaviour is the most important management skill you can develop. Remember the basic rule of everything: “People with experience don’t make as many mistakes as those without, but you don’t gain any experience until you’ve made a whole bunch of mistakes.” The trick is to not make those mistakes more than once.

Over the years I’ve read probably over a thousand motivational and management books. They’re easy to find in the bookstore, on the internet, or in the library in my basement. Literally, tens of thousands of books exist on how to be a better sales person, manager, and business owner. Almost all of them deliver a core message that doesn’t change much. Know your product, know your customers, and know your employees. Treat everybody well, work hard, and you’ll be successful. There’s a lot of ground to cover before you figure all that out though, and getting it right more often than not means getting it wrong first.

The best advice is to associate yourself with successful people and pay attention. I’ve rarely met anyone who has achieved any degree of success who isn’t generous with time and willing to help you address issues you face. Following people who are successful has been a favourite pastime of mine since I first learned how to read, and paying attention to the key turning points that contributed to their success is where you should be making notes. Whether reading Homer or Plato, or the biography of Henry Ford or Winston Churchill, there are as important lessons to learn as in following Steve Jobs, Richard Branson, or Bill Gates.

Speaking of Bill Gates, I have a copy of his original book The Road Ahead, which I bought the day it came out. It was a hard read at the time. Mr. Gates is a much better computer programmer than an entertaining writer, but his perspective on things is interesting to note. Unlike Steve Jobs, who was an innovator, Gates developed standard equipment that dominated the marketplace, and his ideas about what the road ahead would look like certainly weren’t as exciting to me as understanding how he’d managed to create this empire that continues to dominate the business-machine marketplace. He knocked old mechanical standards off the shelves, leaped over the competition, and introduced subscription-based software advances that are now the norm in an industry that barely existed when he started. He did this with what many would describe as a mediocre product that fell far behind the capabilities of his main competitors’ offerings. In doing so, he became the richest man in the world—all from a standing start in a garage in 1975. Quite the story of success. Now Bill Gates and his wife Melinda run a charitable foundation that lets him manage the tremendous amount of wealth he’s accumulated toward the improvement of others in the world. The idea of a foundation bettering others and funded by a single individual is not new. The Carnegie Foundation has probably produced more positive advancement in education than any government organized enterprise. However, the global outreach by a single person is truly new and, in my view, the success of such an endeavour will have a serious positive effect on the further advancement of our species.

Late last month, the Bill and Melinda Gates Foundation put forth a progress report on their efforts to improve the lot of humanity. It was done with both a look at the results they are able to measure on significant markers and predictions of what the future improvements will be fifteen years from now. It is an interesting read and I’m privileged to be able to share it with you:


Fifteen years ago, the two of us made a bet.

We started our foundation in 2000 with the idea that by backing innovative work in health and education, we could help billions of people improve their lives. The progress we've seen so far is so exciting that we are doubling down on the bet we made 15 years ago.

Here's our bet: The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. We're putting our credibility, time and money behind this bet because we think there has never been a better time to accelerate progress and have a big impact around the world.

Here are four big breakthroughs we see coming by 2030:

First, child deaths will go down by half. In 1990, one in 10 children in the world died before age 5. Today, it's one in 20. By 2030, it will be one in 40. Almost all countries will include vaccines for diarrhea and pneumonia, two of the biggest killers of children, in their immunization programs. Better sanitation will cut the spread of disease dramatically. And we're learning how to help more mothers adopt practices such as proper breastfeeding and skin-to-skin contact with their babies that prevent newborns from dying in the first month after they're born.

Second, Africa will be able to feed itself. Today, the continent has to rely on imports and food aid to feed its people, even though seven out of ten people in sub-Saharan Africa are farmers. Part of the problem is that African farmers get just a fraction of the yields that American farmers get. In the next 15 years, however, innovations in farming will erase these brutal ironies. With better fertilizer and hardier crops, African farmers will be able to grow a greater variety of food and sell their surpluses to supplement their family's diet with vegetables, eggs, milk, and meat.

Even as climate change makes farmers' job more difficult, we can get them enough innovation and information to increase productivity by 50% for the continent overall. Countries like Ghana are also building better roads and adopting policies that make it easier to move food to the places where it's most needed. In 15 years, Africa will still import food when it makes sense to do so, but it will also export much more, eventually achieving a net positive trade balance.

Third, mobile banking will help the poor radically transform their lives. Today, some 2.5 billion people don't have access to cheap and easy financial services—a problem that makes it much more difficult to be poor. If your savings is in the form of jewelry or livestock, for example, you can't very well chip off tiny pieces to cover routine daily expenses.

But in the next 15 years, digital banking will give the poor more control over their assets. The key will be mobile phones. Already, in developing countries with the right regulatory framework—such as Bangladesh—people are using their phones to store money digitally and make purchases. By 2030, 8% of the adults without bank accounts today will be doing the same.

And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.

Fourth, as high-speed cell networks grow and smartphones become as cheap as today's voice-only phones, online education will flourish. Before a child even starts primary school, she will be able to use her mom's smartphone to learn her numbers and letters. Software will be able to see when she's having trouble with the material and adjust for her pace. Of course, software will never replace teachers. But by allowing teachers to do things like upload videos of themselves and get feedback from their peers, it can connect them in new ways.

What will it take to make sure life really does improve faster for the poor? We need advances in technology and we need to deliver them to the people who need them most. We also need to close the gender gap. Countries where girls don't go to school or women can't open a business will be left behind.

Another crucial factor will be people who care about helping those in the world's poorest places improve their lives. We're aiming to recruit millions of new advocates—we're calling them global citizens—to urge world leaders to be ambitious when they meet in September to adopt a new set of goals that will guide the world's efforts to tackle disease, poverty, and climate change for the next 15 years.

Beyond 2015, we hope these global citizens will hold governments and other decision-makers accountable for meeting those goals.

You can show your support by signing up at www.globalcitizen.org, where you can learn how to get engaged and connect with other organizations working to make 2015 a historic year. We believe that informed, passionate people can work together to make the world a more equitable place. In fact, we're betting on it.

Read more at http://www.gatesnotes.com/2015-Annual-Letter.

In The Road Ahead, Bill Gates makes many predictions of improvements in human development as a result of technological advancements, but clearly the ones that will level the social condition are the ones on which he’s making the best progress.

A Turning Point in the Canadian Insurance Marketplace?

Reading in the industry press this week and hearing from a couple of little birdies attending a conference in Houston Texas, there would seem to me to be on the horizon the biggest change in our Canadian insurance market in my life time. The word is that Aviva is about to launch (effective June 2015) the availability of a water damage endorsement to the standard IBC homeowners wordings that includes coverage for overland water damage. This form will be initially available in Ontario and Alberta. Details are very sketchy, and, try as I have in the past several days, I’ve not yet been able to get any more information than that about this.

Many questions are being asked about this policy. We are all anxious to know what the sub-limits might be, what the exclusions are, and how pricing compares to the residual market. I, like many of you, am holding my breath in anticipation of this information, but it is absolutely refreshing to see this positive development for our clients. The competitive marketplace is already buzzing about this, and no doubt some anxious reviews are being undertaken by senior underwriting and actuarial managers in all of the companies competing for personal-lines property clients. Brokers should be enthused that this new desirable product is being introduced first through a broker company and not a direct writer. I will predict that the introduction will begin with a limited form that will be substantially increased over time as loss experience is developed and in response to competitive pressures. This policy is long overdue and will quickly become a marketing touch point with your customers and your insurers. If you’re not talking with them about this yet, you should be!

I am following this closely and promise to report further in my future columns as the information becomes available. A great big “well done” goes to Sharon Ludlow, President, Aviva Insurance Company of Canada, and her team for leading the way on this. I note that Sharon is well positioned as a director on the Institute of Catastrophic Loss Reduction as well, which no doubt has provided factual insights into the viability of such a program. I’ve been often quoted as a believer in the viability of this type of product in Canada and am absolutely ecstatic about its development.


The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below or email Thom Young privately. Thom also encourages suggestions for topics.

Tags:  Aviva overland flood policy  Bill and Melinda Gates 

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