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Claims Regulation Needed, UBI Technology

Posted By Thom Young (Full first name: Thomas Clifford John), March 15, 2016

Ethical Regulation Needed for Adjusters

Diamonds and gold are valuable, but reputation is priceless. We invest much time and effort into promoting our business. We stand on the ethical values of professionalism and proclaim that the manner in which we honour the promises made to our customers, along with our attention to their legal obligations, uphold the principles of justice and fairness. With those proclamations comes the legal truth that those who provide insurance contracts are held to a higher standard than the norm in their dealings with the public and that those who sell them are expected to represent customers’ interests ahead of their own. All the good work that is done 99.9% of the time can be set aside by the actions of one representative of our business who takes a tact in the process that is found to be unfair. Even worse than the personal shame of being found unfair due to an error, the perception that preconceived maleficence led to unfair practices leaves us all standing accused in public eye.

I’ve ranted before about the need to license adjusters who adjudicate the claims process just like we license the insurance agents and brokers who arrange the contracts. Such a license could subject adjusters to a code of conduct and ensure the regulatory oversight that would enforce accountability to the public and the industry. No directive of an irresponsible corporation could override that accountability or excuse the failing of it. Accountability to peers accompanied by the need to accept personal responsibility for our actions sets us apart from the warranty claim manager at the auto dealership or the customer-service manager at the bank. The public gains a degree of confidence that exceeds the norm when this process is demonstrated to be in action as customer complaints arise. While our business holds itself to high ideals, human nature doesn’t always meet the bar we’ve set for fairness in our actions.

Recently, the actions of ICBC (the B.C. government insurer) failed on all the points of fairness in its dealings with an insured. According to Insurance Business, the court found ICBC culpable in the groundless malicious prosecution of a 69-year-old immigrant woman. In her decision, Justice Susan Griffin wrote, “Mr. Gould’s handling of the file reveals that, rather than operate from a presumption of innocence, Mr. Gould operated from a presumption of guilt in respect of Mrs. Arsenovski.” The court was so appalled by the manner in which this person was treated that the unusual award of punitive damages were assessed against the insurer.

Our industry press was quick to report on this event. Some have criticized that this legal decision will make it harder to deter fraudulent claims and that the costs of insurance will continue to sky rocket on account of it. While the case may affect the industry’s attempts to limit fraud in claims settlement, the evidence presented in the case was unchallenged. The individual was subjected to a serious disservice by the insurer. The fraud here was the adjuster representing himself as a fair player in our business. Others may take a different perspective, but I see this judgement as a fair outcome against unfair actions by the insurer.

Technology Marches On

UBI continues to evolve. The original intent of a simple device that measures a couple of significant factors against the driving habits of insureds to allow better underwriting selection of better drivers continues to be dwarfed by the technological advancements in the equipment used to do the monitoring.

The other day, Costco wheeled out a pallet of Cobra dash cameras to the front entrance of the electronics department. The cameras were on sale for $99 US, and I couldn’t pass up a new tech toy at that price. This unit has all the of the gadgets employed in the popular GoPro camera rig but coupled with a GPS location program and sensors that measure acceleration, deceleration, turning speeds, and distance travelled. All this is recorded on a 2.1 GB mini-card (an 8.5 GB card is available) that loops the last 2 ½ hours of driving time in the visual, audio, and data record. All I could say about it was “wow.” I took more time getting it out of the package than I did to install the unit in my SUV. Plug and play and away we go with that tingly feeling all men get with new electronic toys.

Twenty five years ago, I had a client who was instrumental in the development of GPS tracking technology and was part of a pilot program installing the company’s equipment in a number of auto and equipment fleets. At the same time, the company was testing the use of video recording in conjunction with GPS tracking. I had a great deal of difficulty finding anyone to insure this equipment. I remember it was about the size of a large piece of luggage weighing nearly 20 kilos and recorded nearly three hours’ use of the vehicles in which it was installed. The cost of this sophisticated piece of technology was around $15,000, and it didn’t really work that well. As I recall, the recordings were in black and white because of the expense and power needs of colour cameras at the time. Overall, it was pretty archaic compared to this little thing I just acquired that sits in the palm of my hand and can record up to 8 ½ hours of 1080 dpi quality video and sound.

If you’ve received any of the little automobile accident video clips that are always circulating, you’ll recognize the quality and utility of these devices. Here’s one that is current. Certainly from a claims perspective, determining who’s at fault and evaluating all the contributing and limiting factors in the liability assessment is a no-brainer when you have a real-time high-resolution digital record of the incident you are investigating. The recordings can limit fraudulent claims as well. A European insurance executive friend of mine with operations in Russia indicated that his company won’t insure any vehicles operating there that aren’t equipped with one of these units. Accidents are most often reviewed from the perspectives of those involved because both drivers have these camera. As I’ve indicated in previous comments on this topic, your new vehicle will soon come with this equipment installed. The benefits of it should be obvious to everyone, except perhaps the people whom we shouldn’t be insuring anyway.

The thought occurs to me that perhaps I ought to be getting some kind of a discount on my insurance for installing this device in my SUV. I have this vehicle insured with Progressive, which lets me be my own service representative with the help of a local agent. To clarify, that just means I do all the work on my policy changes, handle all the communication with the insurer, and he gets the commission for it. He’s a nice guy, and the price I pay is the same whether or not I deal with him, so I don’t mind that he gets a commission for my work. I chose Progressive (with this agent’s help) when I first insured a car in the U.S. because it was the only insurer that would give me credit for my Alberta driving record and didn’t care that my driver’s license wasn’t from the state in which I’m insured. While I’m looking into this discount, I should also find out about the regular UBI device that Flo goes on about all the time. We’ll see if this vehicle that sits in a hot garage for six months of the year will get a better rate than the one I use full time. We’ll see what their underwriters say. Maybe I should call Flo.

In Conclusion

I began this essay complaining about the lack of integrity in an insurer’s claims adjudication process that makes us all look bad. I also took issue with the industry’s somewhat disingenuous fear that the court ruling would impact the industry’s struggle to limit fraud. While I don’t disagree with that assessment, I would rather that the emphasis be focused on the actions of the insurer in this circumstance than upon the plaintiff who was found to be blameless.

If you want to discuss the costs of fraud in the insurance business, you need not look any further than the settlement of section B auto insurance claims. You can determine immediately who’s coaching the insureds when they produce invoices and certificates of a course of treatment that match exactly the benefits provided in the coverage. In Alberta we’ve limited the amounts somewhat with legislation, but in Ontario the no-fault provisions of the insurance provided and the prepayment allowances that came about through the auto insurance reforms over the past 10 years show where the fraud money is going. I saw a preview of an interesting show scheduled to air on CTV on March 12th. The episode of W5 called “The Claim Game” explores the rampant graft and waste that has come about through the manipulation of the claim process by care providers and the absolute lack of regulatory review and correction by the government to limit it. The reporters correctly connect the dots between the amounts paid in claims and the amounts paid in insurance premiums and put the blame for escalating auto insurance costs on the real culprit. While the mantra of insurance corporate greed is often chanted in the political arena, the reality is becoming clear. As a friend of mine often used to say, you can have whatever kind of insurance scheme you want so long as you are willing to pay for it. If you didn't get to see this episode of W5, you can view it on CTV’s website.

It’s strange being in Alberta at this time of year and the only snow I can see is on the mountains. Nice not to have to plow the drive way though.

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:  adjuster  Cobra dash camera  customer service  ethics  fraud  GoPro  ICBC  insurance industry reputation  insurance regulation  IT  Progressive Insurance  risk management  telematics  The Claim Game  UBI 

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Cyber Security, Direct-Line Changes in the Industry, Optical-Recognition Vehicle Registration

Posted By Thom Young, February 2, 2016

The Evolution of Cyber Security

Logging into a work station hasn’t really changed much in the last 20 years. Some IT managers have tried to improve the locks at the gate but, no matter their efforts, people still seem to find a way to defeat the safeguards put in place. If you’re like me, you likely keep a file somewhere with all the passwords for the various places you need to access on your computer. While the practice isn’t recommended, it’s sort of necessary, isn’t it? My file is four pages long. I have a good memory, but not that good. Most of my passwords also contain minor deviances from each other. The similarity helps me remember them without needing to go look in this file. That practice too is not recommended, but I’ve been using that system to manage my passwords since I studied cryptology as a young soldier nearly 45 years ago. Back then, we learned that any password could be cracked with enough time. The effectiveness of a password then as now is determined by the time necessary to crack it. No matter how complicated a password you use for any application, the improvement in computing power and speed are constantly reducing the time needed to break the code. Recently, I’ve been using a password-management program to remember a number of my logins. This program claims to use an algorithm to store my password, and this filter changes routinely to provide a very secure storage site. I’ll stick with the story I’m telling though: all passwords can be cracked with enough time and effort, no matter how you calculate them.

The amount of effort invested in trying to access a password has to be valuable relative to what you get out of it. I’m quite sure that no one is going to invest much time trying to access my account with the American Philatelic Society, but maybe they’d be willing to put supercomputer power to work on my banking or business logins. I’m flattering myself with my own importance here, but I think you’ll understand my point.

I’ve been following a number of articles on cyber security recently and noted one in Canadian Broker magazine citing the most common passwords in use today. Despite all the warnings, few of us seem to take heed or even care. Here’s the latest list of the top 20 most-used passwords:

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Password
123456
password
12345678
qwerty
12345
123456789
football
1234
1234567
baseball
welcome
1234567890
abc123
111111
1qaz2wsx
dragon
master
monkey
letmein
login
princess
qwertyuiop
solo
passw0rd
starwars
Change from 2014
Unchanged
Unchanged
Up 1
Up 1
Down 2
Unchanged
Up 3
Down 1
Up 2
Down 2
New
New
Up 1
Up 1
New
Down 7
Up 2
Down 6
Down 6
New
New
New
New
New
New

A programmer friend of mine advises me that he has a simple little application on a thumb drive that will try all of these (and some not listed) on any login in less than 10 seconds. Apparently, you can download this app off the internet. If you’re using these passwords for any application login, I think you should immediately consider changing them to something more secure.

A strong password needs to be at least eight characters long and should contain both upper and lowercase letters, at least one number, and at least one non-numeric or alphabetical character. It should be a random group and not contain a complete name in letters. The longer the password following the same principles, the more secure it is. As I stated at the outset of this discussion, all passwords are breakable, but the stronger it is, the longer it takes to break it and, therefore, the better protected the data past the password becomes. Microsoft has some good advice on this subject.

Recently, much talk has circulated on the future use of biometrics as the new standard for a secure login. Essentially, some indicator unique to you, such as your fingerprints, retinal scans, heartbeat, palm print, voice analysis, or facial features, can’t be easily duplicated by a computer hacker or thief. This biometric identifier can be read by your computer, often without the need to install a special piece of hardware. Almost all laptops and notepads now come with a built-in camera. All that is needed is the correct facial-recognition software to provide only you with access without having to input anything on the keyboard. Likewise, audio filters and touch pads determine fingerprints and such.

Facial-recognition software is advancing at such a tremendous pace that retail establishments commonly use it to track customers in their stores. A computer program tags their images with data on when they come, what they purchase, and what their preferences are. The information is available for analysis and target marketing later.  I’ve seen this kind of software demonstrated in conjunction with an office data-management system similar to that used by many brokers in their offices now. When clients walk in the door, the program notifies reception with their names and CSR. Depending on the program’s configuration, the CSR can be automatically advised that the clients are in the waiting area, and either a computerized reception station informs the clients that the CSR will be out to meet them momentarily or the receptionist is prompted to say the same thing. All this information is integrated on the CRS’s workstation or tablet with the production records in the clients’ records and files. This is quite an efficient process compared to that just a few years ago. A number of American banks are also using this technology to increase safety and security for their customers and the business.

I wonder what new developments we’ll see in the future. I also wonder what inroads will be made into personal privacy when customers’ movements are tracked by facial-recognition software and the retailers share the information among themselves. Will we walk into the grocery store to find a basket already containing all our usual items and a few special ones being promoted by the store? I don’t know how I’d feel about that marketing. I also don’t know if a negative view would make any difference because the change seems to be inevitable.


Direct-Line Changes in the Industry

Last week, we were all a little surprised to learn that the Royal Bank of Canada decided that its general-insurance returns weren’t adequate to its needs and reached an agreement with Aviva Insurance for RBC’s P&C purchase. This acquisition initially sounded to me like a good deal for our industry—another major bank admitted it had been unable to compete on a level playing field and was vacating the business. In fact, the reality seems to be that Aviva has purchased RBC General Insurance Company’s general-insurance book of business and appointed the company to represent its products in the same manner as any other broker. While I’m now not so sure anymore that this transaction is a win for our business, I am sure that it’s not a loss.

We compete in a competitive marketplace. As brokers, we have better choices for our customers than most of our competitors. Direct writers, whether they be offshoots of company players on the broker side of the game or agents for a stand-alone business, cannot effectively compete with the brokerage channel on price or product. This difference has always been the case and continues to be the reality of the insurance marketplace in North America. Aviva partnering with RBC Insurance isn’t going to change that reality. Neither will Intact expanding its direct channels in the marketplace nor, as I read today, Economical introducing a direct channel, affect that difference. These efforts by any insurers are doomed to lack-luster returns and short-lived efforts just so long as we as brokers get out there and compete for our market share. We excel at giving the best service to our customers and finding the best insurance solutions for them in price and product, so we don’t need to fear anyone in our market. Time will tell if this new venture between Aviva and RBC will be a success.  However, as brokers, we should all continue with excellent customer service so that we continue to beat RBC in competition.

Manitoba Gets Rid of License-Plate Stickers

When talking about technological advances, the simple process of eliminating license-plate stickers for registration renewal, as Manitoba has done, doesn’t at first seem like much of a big deal. So what if, in Alberta, it would eliminate the annual ritual of obtaining a new expiration sticker and putting it on your license? However, the reason these stickers have become redundant is just a small sample of how the technical advancements of optical recognition have progressed. The dash camera that is becoming standard on all police cars is connected to the provincial database through the computer in the police car and can read any license plate from quite extraordinary distances and instantly determine the registration status. The sticker, on the other hand, relies on the human eye’s limited vision and can determine only its validity. Wired cars are the new norm. Soon the digital repository of information relative to the owner and operators of the car will become part of the digital record available to law enforcement. Tracking stolen vehicles and citing drivers for infractions will become an automated process. Photo-radar tickets will contain the identity of the drivers, an automatic adjustment to their driving records, and a link to the insurer’s databases. Immediate adjustments in premium can be determined and the real function of UBI will come into play. Customers will be charged for the true underwriting risk immediately. Talk about an incentive to change behaviour! The duties of traffic police will be not much different than those of the parking authority—digitally recording infractions and violators. The world is going to continue to change.

In Closing

I’m hoping the take up of people following my column continues to increase. The new format allows IBAA members to make comments directly on the blog and share thoughts not only with me but also with other readers. If you prefer, you can email me instead with any comments you’d like to make. Just remember to subscribe to the blog (under Your Network in www.ibaa.ca) so you receive notice of its publication. Looking forward to hearing from you!

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  banks  biometrics  broker channel  cyber security  direct writer channel  IT  license plate  optical recognition  passwords  RBC  telematics  UBI  vehicle registration  Young's Stuff subscription 

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IBAA Convention, RIP David Bowie, Uber Regulation and Coverage, IBC’s 2016 Top-Ten Consumer Tips, Financial Scams, Blog Notices

Posted By Thom Young, January 19, 2016
I can’t believe we’re on the second issue of the new year already. I’d be reminding people to write 2016 on their cheques a few years ago, but I don’t know many people who use cheques anymore. I think I’ve written two in the past year, and remembering what date to put on them doesn’t seem to be much of an issue anymore. The times do continue to change, don’t they?

I received a notice the other day for the IBAA 2016 convention on May 15–18 at the Fairmont Banff Springs. This will be a fabulous opportunity for you and your key people to network with insurance brokers, insurance industry partners, and regulators—and even to meet me in person! Outside of all the partying, you can attend insurance education sessions, welcome IBAA's incoming president Julia Marshall, get involved at IBAA's Annual General Meeting, and connect with the Insurance Brokers Association of Canada and IBAA board members and staff. Where else do you get the chance to meet with some of the best minds (did I mention that I’d be there) in the industry? I’m sure someone has a record somewhere of how many of these I’ve attended, and I know others who’ve attended nearly twice as many as I have.

The price of attending this annual event is a bargain from my perspective, especially if you get your application is in before the end of this month so you’re eligible for the “early bird” discount of $100 on the whole convention package. The early bird savings ends at the end of this month, so get your registration in now! You can do it online by clicking here.

An Ode to Excellence—the Passing of a Musical Legend or the Making of One?

The past week recorded a sad note with the news of the death of David Bowie at the rather young age of 69. Cancer took this very talented fellow from us too early in my view. Although a number of people I know have no idea who he was, his influence on the world we live in was extraordinary. I think the first time I heard the word androgynous it was in the context of Bowie’s rather outlandish stage presence in wildly coloured outfits, crazy makeup, and even crazier hairdos that left many wondering about his gender. All this was at a time when the pluralistic perspective that many of us share today was just in its infancy. Still, the music he produced transcended the outlandish projections he used to sell it. He was one of the pioneers of music videos at a time when technology didn’t lend itself to easy sharing, and his absolute excellence as a musician and performing artist identified him as leader in his field. He did very well as an actor as well.

Artistic talent doesn’t always translate to genius, but most artists have exceptional abilities beyond those we see in their art. Bowie was one of those people. In the latter half of the 1990s when the music industry was suffering the effects of advances in technology that brought about devaluation of musical works, Bowie bundled his work into a bond asset (Bowie bonds) that allowed him to value his work for a period of time and to raise the money in the bond market for an effective return. Subscriptions to Bowie bonds were taken up mostly by the insurance business. The rate of return was very good and, unlike the majority of derivatives put together at that time with mortgages and leases, proved to hold its value to redemption. Bowie proved to be an astute financial manager as well as a talented performer.

I recall a very warm evening in September 1983 when I attended a Bowie concert at Winnipeg Stadium. Part of the Serious Moonlight tour, the concert was the largest ever held in Winnipeg with over 40,000 people in attendance. I can’t say that at the time I was a huge fan, but I had an appreciation for a number of his tunes. The promoter of the venue in Winnipeg was a client of ours at the bank I worked at, and the future mayor of Winnipeg offered front-row tickets that were gratefully accepted by several serious looking bankers. I thought I looked a little out of place and actually felt a little old, but the show remains one of the very best I’ve ever attended. The music was perfect and the stage antics outstanding! RIP Ziggy!

More about Uber

It seems you can’t go a week or more without hearing something about Uber in the mail and in the industry press. The files I keep with ideas for these blog articles have so much discussion about ride sharing that I’m having trouble keeping the notes in one place. The first item of interest is the effect of “surge” pricing in the Uber application that made headlines in Edmonton and elsewhere. The price you pay for a ride with Uber seems to operate on a kind of sliding scale. The more the demand, the higher the price. This pricing is fair according to Uber because it encourages a competitive response from participating drivers (they can make more money) and the increased pricing is very well disclosed to customers with text alerts and notices as the increases are determined. Great for Uber and their drivers, but no so much for the consumer.

Responsibly arranging for transportation after celebrating on New Year’s eve saw one fellow watch his $150 car ride turn into a nearly $1200 charge to his credit card. While Uber is standing by its story that the price is fair, that view is not likely shared by the fellow caught in this bind or by the regulator or members of the public who demand protection from these kinds of scams. As I’ve written before, the reason the livery business is so highly regulated is the graft and abuse it attracts. Even with modern technology notices in place, this business seems to need a high degree of regulation to ensure that the public isn’t getting screwed. I’m sure Uber would disagree.

Reasons for regulation to ensure fair play in a marketplace abound, and Uber or any other kind of public service is not exempt from them. An interesting article in the Globe and Mail makes a good case for regulation, focusing particularly on the exploitation of the drivers.

On the other hand, the old rule of supply and demand has brought about a responsible reaction to this new exposure that our customers participating in a ride-sharing program have presented to our industry. Aviva has taken the initiative to introduce an endorsement providing a reasonably priced endorsement to an automobile policy to allow for the occasional use of an insured vehicle for these purposes. I expect soon that competitive pressure will bring other companies to the marketplace, and the matter of uninsured drivers will, for the most part, be removed from this discussion. I note as well that a number of companies are verifying their underwriting confirmations with their clients during renewal and putting them on formal notice that they are not covered when using their vehicles in ride-sharing programs. These efforts should go a long way to deflate the “No one told me” defence that we’ve seen when insurers decline to participate in any losses involving a ride-sharing scheme.

Doubtless, I’ll be visiting this topic once again in the coming weeks.

Insurance Bureau of Canada Top-10 Consumer Tips for 2016

Pass these tips on to your clients. They’re definitely good talking points to initiate a review of coverage with your clients. While they may seem like just common sense, any adjuster will tell you that common sense isn’t very common!

IBC's Top-10 Tips for a Safe New Year
  1. Review your insurance policy to ensure that you have adequate coverage.
  2. Shop around to find the right policy for your own unique situation.
  3. To prevent possible slips and falls, keep your walkways and front stairs clear of snow and ice.
  4. Create or review your family emergency plan.
  5. Update your home inventory list by adding new items, including gifts received over the holidays. Note the approximate value of the items, including makes, models, serial numbers, and any other identifying marks.
  6. If necessary, hire an appraiser to determine the value of works of art or jewelry to avoid a possible claims misunderstanding.
  7. Take photos or a video of your home's contents.
  8. Keep your home inventory list, and photos or video of your home's contents, in a safety deposit box, a fireproof safe, or in another secure location away from your home.
  9. If you are renting, ensure you have tenant's insurance. A landlord's policy will not typically cover your personal belongings or liability.
  10. If you have questions, speak to your insurance representative.
For further information, contact IBC's Consumer Information Centre at 1-844-2ASK-IBC.

I used to offer to keep my clients photos and inventory lists in their files. Now a days it’s even simpler to add this stuff digitally to the client records so that their own records are backed up with yours—just another simple thing to help your clients.

Be Careful Out There, People

While we often take for granted our own security in today’s interconnected world, scams continue to circulate because they work. Every day someone is caught up in one of them. I receive between 40 and 60 email messages daily, and just about every day I get a notice that my personal information has expired at one bank or another or that my PayPal account is in need of an update. I bank online and know that my bank will never email me to ask for an update. All real bank communications are done on a secure link when I sign in. Even with those, I may call the source directly to confirm the process. I’m cautious because I follow a discipline learned from experience that not all things are as they seem to appear, particularly when communicating with people you can’t confirm by remembrance. Ensure you talk with your clients and staff about these scams so that people are wary and aware. I had a message the other day that Revenue Canada had issued an arrest warrant for me and I’d better call the given number right away or there’d be big trouble. Sometimes these things are amusing. Still, it’s annoying to know that people get caught up in them.

If it looks too good to be true, it probably is. The advance-fee scam is a version of “I’ll send you a cheque, you deposit it, and then send me a small fee to cover my costs of doing you this favour.” Sometimes they mail you a cheque that looks real enough but, if you deposit it, the cheque will be returned as phony. Of course, the fee you sent will be long gone by the time you find out. Currently, FSCO has sent a warning that “Allstate winners” in Ontario are being sent phony cheques from “Allstate.” No doubt, this scam will make its way here. Catching the perpetrators is difficult, and the scammers multiply like flies. Take one down and two more pop up. Be careful, and let your clients know that their insurance companies will not likely ask for a fee if they send them a cheque.

In Closing

I’m wondering how many are enjoying this new hyperlink delivery system for this column. I don’t seem to be getting the feedback on controversial subjects that I did before. Am I boring you, or has everyone had too much to do over the holidays? I suspect the more likely case is that people don’t know that they need to subscribe to receive notices that a new blog was posted. Please go to the Your Network page on www.ibaa.ca. Follow the links through to the Young’s Stuff blog. Make sure you've logged into the IBAA website so the system knows who is subscribing. At the top left of the page, click “Manage Subscriptions.”

Young's Stuff subscription

If you have some ideas or thoughts on topics you’d like to see covered here just comment on the blog or drop me an email anytime.

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:  bonds  David Bowie  finance  financial scams  fraud  IBAA convention  IBC  Insurance Bureau of Canada  IT  livery business  regulation risk management  ride sharing  safety tips  taxi regulations  Uber  Young's Stuff subscription 

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Cat-Risk Preparedness, Overland Flood Clarity, IT Basics for Insurers

Posted By Thom Young, November 17, 2015

Cloudy with a 50% Chance of a 5.5 or Greater Earthquake in the Next 10 Years

In our technologically advanced world, we are often underwhelmed by our ability to predict natural events with any degree of certainty yet overwhelmed when experts predict calamities and trends. Meteorological predictions beyond three days in the future retain little more than a 50% accuracy rating, which, as any statistician will tell you, has the same certainty as flipping a coin in the air. As I’ve often noted, the science of weather modeling really only began in the 1970s when the first weather satellites were launched and began collecting rudimentary data that advanced the understanding of weather in general and, particularly, of hurricanes. As modern technology has exponentially increased the amount and type of data upon which the science is based, the science continues to evolve. New data sometimes contradict the old hypotheses and provoke new insight. The National Oceanic and Atmospheric Administration (NOAA) and its one of its partners, the U.S. National Weather Service, meet to determine warnings and updates about the upcoming hurricane season.

The accuracy of this information may depend on perspective. A statistical review from a Houston newspaper claims NOAA’s predictive analysis is accurate “6 out of 10 times, or twice as often as chance would predict” based on the average number of hurricanes per year, and the NOAA website confirms this ratio of around 50%. Further, the Houston article indicates that the accuracy assessment was affected by the small sampling. All that considered, the information seems about as helpful as standing at the edge of the ocean and reading the Farmer’s Almanac.

Seismologists are predicting a catastrophic earthquake and tsunami in the Pacific Northwest—much like the 2011 event that occurred in Japan—is inevitable, could happen at any time, and would involve the heavily populated areas of Seattle and Vancouver. They opine that the magnitude of such an earthquake is indeterminable but that the area is long overdue for a “big one” and calculable pressures along known fault lines are the highest they’ve ever seen. References abound to the specter of a disaster along the lines of that portrayed in the movie San Andreas, but saying that a major earthquake is inevitable is no more useful than forecasting another eventual ice age. The motivation to prepare is substantially reduced if the inevitability has no sense of urgency or expiry date. Inevitability also evokes fate: if nothing can be done to avoid the disaster, getting ready for it won’t be the number one item on a list of things to do “someday.”

The governments charged with protecting us from disasters are allocating money to build shelters and create emergency resources. Emergency protocols are being practiced. I predict these efforts will not be enough. The “big one” will overwhelm the infrastructure in place and the ensuing chaos will include devastating personal suffering and economic turmoil, much like that we’ve seen in Japan and Indonesia. These countries are still trying to recover from the effects of earthquakes and tsunamis. I advise everyone to be prepared! Put together a survival kit. Make sure to have at least 12 liters of water and three days’ dry food per person in your household. Have a heat source available that isn’t dependent on the probably crumbled infrastructure. Hope that after 72 hours either you have been evacuated or the infrastructure will be available for use. Your cell phone and lights will not likely work very well if at all when the floors collapse, so plan for the worst. Those who consider the contingencies and possible responses will have a better chance of survival.

Enough of the doom and gloom! Chances are the big one won’t happen in the next 100 years. Toss that coin often enough and you’ll eventually be right!
 

Confusing Overland Water (Used To Be Called “Flood”) Coverage

These past weeks have seen several announcements and a number of reports from various insurers on their participation in this coverage for personal-lines risks. If those of us in the industry are confused, we won’t likely be able to assist our customers in understanding their options for coverage. If your clients are insured with company A, they have coverage for sewer backup so long as a flood doesn’t occur either 72 hours before or 72 hours after (I think). With company B, as long as they are outside of the red zone by any waterway, we might be able to cover them for sewer backup—unless the overland water reaches a point higher than the imaginary line, but maybe not for overland water (I think). Company C is putting together another new wording that doesn’t match the wordings of Company A or B but has the same intent. Company D is considering their options. What a mess this has become! Without standard wording, how do we develop an informed recommendation to the buying public? The confusion is getting worse with every new wording announced in the competition for personal-lines business. Can anyone say E&O nightmare? Am I the only one who is looking to the horizon in anticipation of the next serious water event in Alberta? What kind of claims mess will we be sorting out as a result? Need I remind everyone that three days of rain such as we had in 2013 can produce a similar event? Sure, mitigation efforts are underway, but the assurances are coming from the same engineers that approved the construction of numerous housing developments impacted by the July 2013 event.

The deviations from a norm cannot be sanctioned in package wordings. For the process to work, all industry players must offer a similar promise to respond to a similar event. They cannot limit or exclude things that are covered by the wordings already in place. The differences lead to confusion in the marketplace and undermine the confidence of consumers in the advice they receive from agents and brokers.

Package policies were developed to provide consumers a common and expected minimum coverage and to provide insurance companies with a basis for competition. The rule in the development of standard IBC package policy wordings was that everyone would build from the same basic wording so every consumer could be assured that the basic coverage was identical from company to company. Beyond that, each company was free to enhance its coverage and provide all the extras it wished to consumers, excluding modification to the Statutory Conditions, which were still required. This rule of consumer protection seems to have changed with overland flood coverage. Since definitions and limitations are all over the place, brokers are in a precarious situation (E&O risk, as well as professional reputation) when trying to advise their clients, and the public may be unsure of what is covered and the value of their premium dollar.

We need to act now. Broker and consumer associations must call for clarification of this matter. IBC should be looking for consistency among its members on the wordings in use to define overland flooding and the limitations of its availability. The public properly expects that what they are buying from an insurer is defined the same way no matter how it is packaged or which  insurer they choose.
 

Should Insurers Buy an IT Company?

I was amused by a recent article in which the author suggested that an insurer should purchase an IT company. The headline caught my eye as I determined that finally someone was on the right track to resolving the IT nightmare that we endure. The archaic legacy systems that the insurers continue to use are inefficient, slow, and limited. The continued attempts to improve accessibility and efficiency by introducing unworkable “portals” that offload inefficiencies onto the broker cost the industry millions of dollars in administrative costs and stress. Since I was hot under the collar before I even started to read the article, imagine my surprise when I found that the article was only suggesting that such a purchase would help insurers understand and mitigate cyber risk. The author’s view that risk mitigation would be the main benefit certainly suggests he doesn’t understand the issues, at least those at stake from my perspective.
 

In Closing

I have followed the geese and am writing this column from the side of my pool. Please send me a note about things you’d like to hear about. It’s hard to stay focused on insurance issues without your feedback.

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:  catastrophic risk  consumer protection  E&O  earthquake  hurricane  IT  overland flood insurance 

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