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Ride-Sharing Policy, Brexit, Storms and Systems

Posted By Thom Young, July 5, 2016

SPF 9 for Ride-Sharing Companies

The Alberta headline for the week is all about the SPF 9. George Hodgson sent a memo on June 28th to all IBAA members outlining this new automobile form, how it works, and where it applies. I can’t add anything of substance beyond the very excellent explanation given, so I’ve simply reproduced it below:

Superintendent Approves SPF 9 for Ride-Sharing Companies & Their Drivers

Uber and other ride-sharing drivers experience a unique mixture of personal and commercial exposures. The new SPF 9, if purchased by the Transportation Network Company (TNC), is designed to function with the owner's personal policy and to kick in when commercial coverage is required. How does this coverage work and what does it mean to you as a broker?

The driver's risk is broken into 4 categories that reflect the personal/commercial exposure:



The personal owner's policy covers exposures until the driver logs into a TNC. Upon login, some coverage from the SPF 9 could be available if the owner's policy does not provide coverage and the SPF 9 will provide coverage when the driver has accepted a ride and is en route to pick up. The policy does not cover street-hailed passengers.

What the SPF 9 Means for Brokers

  • Transportation Network Companies would purchase this commercial policy. The standard application form SAF 9 for this policy is attached to the Superintendent's bulletin.
  • The following endorsements are approved for use with the SPF 9: SEF 44 (Family Protection), SEF 23 (Mortgage), SEF 21A and 21B (Blanket Basis Fleet), SEF 13D (Limited Glass), SEF 13H (Hail Deletion), SEF 20 (Loss of Use), and SEF 43 R&L (Limited Waiver of Depreciation).
  • Fleet rating programs may be used with the SPF 9.
  • Drivers for a TNC should disclose that they are a driver to their broker as this is a material change in risk. Brokers should record and rate the risk appropriately on the SPF 1 owner's policy. In some cases, this may mean re-rating the risk as a class 07.
  • Brokers should be able to explain to their clients when their owner's policy (SPF 1) will provide coverage and when the TNC's policy (SPF 9) would provide coverage.

For full information please read the attached Superintendent of Insurance Bulletin.

For further information, please contact Rikki McBride, Chief Operations Officer, IBAA, at rmcbride@ibaa.ca / 1-800-318-0197 ext 101 / 1-780-702-3715.


The industry has taken up the opportunity offered for this coverage in the Alberta marketplace. I’m told that ING has effective coverage through a national brokerage firm for the Uber ride-sharing operations. The coverage works much like an umbrella policy by picking up the commercial exposure where it exists and leaving the personal exposure and rating in place. As IBAA later clarified, the all-comers rule will not apply to TNC driver’s personal insurance applications due to the partial commercial exposure. It will be interesting to see if the personal-lines underwriters will accept this policy as mitigating the extra exposures incurred, look to limit their participation somehow, or apply a limited-experience rating to the equation. All of us are closely following the industry response. As this new set of circumstances is only a week old as I write, I look forward to seeing how it may evolve in the marketplace. If anyone has any insights on this change in our marketplace and how smooth its implementation will be, I’d be very happy to hear from you!

Everyone Is Talking about England These Days

Headline story 1: The English have been beaten at their sport (football/soccer) by the Icelandic national team made up of mostly part-time players with few professional prospects (until now) and coached by a dentist who volunteers his time to help the boys out.

Headline story 2: The English have passed a referendum to withdraw from one of the largest and most successful trade packages ever put together.

Imagine. Over the past three hundred years, successive conquering armies have expended men and resources for the authority to control and govern the European continent, and none have been able to make a go of it. Tired of the waste from competition within the virtually identical genetic haplogroup, the people came together in the name of trade and commerce and formed an economic union that allowed each other to share in the strengths of their markets without interfering with their local traditions and rulers. Wow, was that an achievement, and without a drop of blood shed anywhere! Under the heading that you can’t make everyone happy, many argued the worth of the deal, but the benefits couldn’t be denied. Like the North American Free Trade Agreement, national interests were respected while the free flow of goods between the signatories was promoted to the advantage of everyone. Further, the European Union enabled the citizens of each country to move freely over each other’s borders to pursue education, residency, and employment on a level playing field. What a concept! The union seemed to be a win for everyone by every measurement, and particularly for the United Kingdom. With UK dominance in the financial services sector, its competitive advantage as the main player in these European Union markets brought it huge gains from its participation. Well, along comes political discussion and the economic considerations seem to become unimportant. To placate the body politic in England, the political leaders agreed to hold a referendum on remaining in the European Union and began campaigning vigorously for the “remain” side of the question. For all intents and purposes, winning the vote to "remain" seemed to have slam-dunk certainty but, as we are seeing in many political contests at the moment, the expected logic of the electorate doesn’t seem to apply anymore.

With seeming illogic, the “leave” side carried the day by a margin of less than 2%, and financial markets worldwide are still reeling in shock.  All the positive economic factors in play can’t seem to win an argument against a xenophobic rant that is rooted in the myth of ancient prejudices and promotes the fear of nationalistic failure. Sadly, the process of becoming something bigger and better—of adding the best of your own worth into the mix and of benefiting yourself and everyone else—is too often overtaken by promoting fear of change and fear of those who are different.

The real loser here will be the UK people. Their “United” Kingdom is showing further cracks in solidarity at the prospects of leaving the European Union, and their currency devaluation will hamper their ability to import raw materials for the competitive production and sale of their goods ("U.K. Businesses in Limbo Due to Brexit"). Their education will now be limited by political geography and increased costs. Getting a visa isn’t always easy. Their ability to draw on an elite work force through unfettered access to competitively priced labour markets will further interfere with their current market advantages ("U.K. Businesses in Limbo Due to Brexit"). While some will be happy to proclaim control of their own destiny, that control decreases when people and companies become uncompetitive and difficult to deal with in today’s global marketplace.

What will the future bring for the relationship between the UK and the EU? I believe the UK will soon see the error in its ways. In the process of disentangling themselves from this trade pact, the people will see that they’ve been sold a bill of goods by the “leave” side of this contest. While they were convinced of the positives, they will soon be willing to trade those for the benefits they had by staying. None of this process will be quick. The political turmoil will continue for several months, and the demand to revisit the discussion will dominate the next political contest. History is written from the perspective of those who win in the end, and I believe that those who promoted Brexit will not later be held in high esteem. We shall have to wait and see though. In today’s political environment, I’m increasingly less certain of how things will eventually turn out. Am I getting older and more confused, or has anyone else noticed this unpredictability?

Still, one thing seems certain: with the dominance our industry has in the European marketplace through the stepping stone of England, our industry will suffer if the UK leaves! As Autonomous Research reports, the insurance business is already struggling and will likely slow further with Brexit.


Summertime and the Living Is … Easy (?)

Watching the wild and wacky weather shaking itself out over our part of the prairies these days brings to mind many concerns about the continued discussions about overland water and sewer backup. When a whole community such as Woodlands in South Calgary is completely surrounded and cut off by water from a local storm, I question once again the engineering of our storm runoff systems. On the other hand, when nearly 200 centimeters of hail shut down the main north-south highway in the province for a whole afternoon, I find myself once again in awe of what Mother Nature can toss into the mix whenever she feels like it.

In Closing

I’m presently enjoying my grandchildren while camping out in front of the Ponoka Legion—our 10th year at the same location for the rodeo and chuck-wagon races, boondoggling on the grass. It’s fun to see the teenagers just as excited about the show now as they were 10 years ago. While we’re roughing it out here, the inevitable summer storms are rolling through and pounding us off and on with rain and wind. It’s tornado season. Thankfully the damage has been relatively minimal. Let’s hope it remains so. The prediction is for Canada to be sunny and warm. The flag is proudly flying off the back of our motor home! I hope all of you enjoyed the Canada Day weekend. I know we did.

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:  all-comers rule  Brexit  flood  hail  ride sharing coverage  sewer backup  SPF 9  TNC  Transportation Network Company  Uber  wind 

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Uber Insurance, Fair Risk Distribution, Political Correctness, American Politics

Posted By Thom Young, March 29, 2016

Uber Isn’t Above the Law

It wouldn’t be a blog without some comment about Uber. As I’ve often indicated in the past, the laws regarding the operation and use of livery vehicles in urban areas clearly define vehicles for hire. While many have repeatedly referred to the unique manner in which the Uber ride-sharing works, it is a taxi service by another name with unlicensed individuals and automobiles operating outside of the current rules. Recently in several Canadian jurisdictions, and of particular note to us in Edmonton and Calgary, the municipal authorities have bent over backwards to somehow accommodate the Uber approach to moving people around for a fee. In each case, they’ve attempted to change the rules not only to allow Uber to operate but also to ensure that it operates with the same standards of equipment, driving experience, and insurance as taxi companies. These equivalencies have proven to remove the Uber advantage, though they haven’t seemed to deter Uber from operating (even though Uber has claimed to have removed itself from some jurisdictions). The result has been urban sting operations run by bylaw enforcement officers and an increase in the number of people being charged for operating a taxi service without a license. While the fight isn’t over yet, the more things change, the more they seem to remain the same.

Ensure you let your clients know that the insurance restrictions on the use of their private-passenger vehicles do not allow them to operate as vehicles for hire. They need to know that doing so will place their coverage at risk in the event of an accident, and their material misrepresentation in the use of their vehicle on the application will probably make them a poor risk from then on. Stay tuned, this discussion isn’t over.

Fair and Equitable Distribution of Risk

Modern technology continues to improve risk selection in every facet of the insurance industry. In the life and group benefits side of our business, the ability to analyze the predisposition of an individual to incur a certain kind of medical event that influences morbidity (disability) or mortality (death) has reached the point that the percentile of accuracy for some things is approaching 100%. In our industry, risk selection is a primary component in the competitive success of our product pricing. If a potential claim can be avoided in the company’s underwritten pool, then the members of that group (the insureds) benefit through lower premiums and the managers of the pool (the insurers) benefit through better returns on capital invested to sustain the group. What appears to be a win-win situation at first glance is, however, more complicated for those who form the group with a certainty of a claim. These people become uninsured or are pooled with higher risk insureds and create the opposite effect on the performance of those pools. Higher premiums occur for the insureds and lower returns for the insurers.

For insurance to work, the transference of claims cost to the group has to occur in a fair manner. While many may dismiss ethical concerns from the risk-selection process, the sharing of claims costs for high risk groups has beneficial attributes in the normal marketplace. Automobile insurance is a particularly good example in which those with very poor driving records are still able to obtain at least the statutory insurance coverage necessary to operate a motor vehicle on public highways through a pooling of high risk drivers in the Facility. All insurers operating in the jurisdiction participate in the pooling and subsidize it with capital and cash contributions. Of course, they also share in the distribution of any excesses that occur. This pooling ensures that everyone can get insurance. Without a facility association for Life, Group benefits, or Property and Casualty coverages, it is possible to become uninsurable for these classes of coverage. The industry has no requirement to serve the public should individuals be identified as “high risk” for any reason.

Apart from the government-mandated catch-all that the Facility provides to ensure that everyone who is legally required to have insurance can obtain it, the highly regulated automobile insurance structure also defines the nature of the groups that people are put into for premium calculations. Within reason, automobile insurers can select who they wish to insure, but they cannot reject providing coverages to people who qualify for the posted classes or create rates based on new criteria and information outside of the rating parameters set out in the regulations. When auto insurers start to use new criteria to select risks without getting the criteria approved, the regulator gets quite annoyed and, as we saw in Alberta, will implement reforms to ensure the public isn’t unfairly selected against in the underwriting process.

My original intent in this story was to point out once again that underwriting predictions are increasing in accuracy due to the ability to analyze the data and define the insureds into increasingly selective groups based on predictions of loss. This accuracy is great for making profitable inroads in the marketplace. Being able to select those who have a lower predictive chance to have a claim creates a huge competitive advantage in the marketplace. The trouble is that the service of insurance is about covering claims, not about avoiding claims or avoiding the people who are likely to incur claims. If data defines those who will not have claims to the extent that the risks are almost certain, risk management procedures will remove many individuals from the insurance pools. This loss in premiums increases the loss ratios. The end result is increased premiums for those who are going to have claims. Far too often, the underwriters believe their goal is to eliminate claims through selection. However, the insurance process only works when enough money is charged to pay for our costs of doing business, including a fair return on investment to our shareholders and paying the claims incurred by the people we insure. Finding the average risk is the purpose of underwriting, not identifying the lowest risk. Without the good risks contributing to the pool, the price of the coverage becomes unobtainable, and without the bad risks driving claims against the pool, the need for coverage at all becomes debatable. Balancing insurance pools with these competing realities is going to become harder and harder as our technology allows us to select the risks without consideration of the average.

Clear as mud?

Politically Correct?

How many differing opinions can dance around the point of a pin without offending the dancers? I’m a big fan of a pluralistic perspective. In terms of social decency, that means you’re welcome to your thoughts and I’m welcome to my thoughts. While my tolerance of your perspective isn’t required, my respect for your right to them is.

The term “politically correct” has been attributed to a number of sources. Most recently an email has been circulating referencing discussions between President Harry S. Truman and General George McArthur using the term in organizing the surrender of Japan to the Allied Powers at the end of WWII. Like most of those stories, this one is untrue and puts General McArthur in a poor light. The history books show McArthur was more concerned and aware of the cultural issues in those negotiations than anyone. Wikipedia documents the use of the term in English writings from the 16th century: “In 1793, the term ‘politically correct’ appeared in a U.S. Supreme Court judgment of a political lawsuit. The term also had occasional use in other English-speaking countries. The term probably entered use in the United Kingdom around 1975.”

My issue with the manner in which the term is most often used is that it suggests that being polite and respectful to others who hold different views on any number of topics is a fault or imposition. These disparaging implications suggest, “I’m being civil and respectful only because the majority considers it necessary, not because I am.” That’s quite a disingenuous point of view, isn’t it?

Certainly, we don’t all have to agree on everything and hold utopian ideals. Vigorous debate and discussion with elevated passion and even vitriol enlarges our minds. In the end though, after both perspectives are presented, we need to go our own way respectfully hoping that others will join us and agreeing to disagree!

The American silly season is in full swing. Sanity seems to have been set aside in that political contest, especially on the conservative side of the aisles. Somehow attacking the premise of being politically correct has become equated with an attack on flawed ideology. Making outrageous statements against people based on their heritage, culture, gender, and other preferences seems to be garnering support from the body politic within the conservative movement. Suspending human rights and violating international treaties that govern proper behaviour in conflicts all appear to be getting a majority of support and are reported on particularly by the conservative media as the new way of doing things.

Clearly, only part of the story is being told here. As usual, the more outrageous the news, the more it gets played for our attention. In reality, the majority of people continue to believe that being correct is more about proper behaviour than it is about political interaction. As we will soon see the American contest of wills on the political front come to a four-year conclusion this November, the success of a politics of bigotry, hatred, and fear will become evident in the outcome. I’ve little doubt that the winners will be more inclined to favour the pluralistic view than what we’re hearing in the press these days. As a long-time conservative, I am hopeful that I can wear that moniker without being compared to the nuts that claim to speak for us.

In Closing

The Easter weekend is almost over. Running my own family resort has been fun this year but, I must say, busy and a little stressful. Spring break always has been like that for us though. I hope the Ishtar bunny brought you many treats and that you enjoyed the holiday from whatever perspective brings you joy. I am now going hiking on the Apache trail!

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:  data management  ethics  Facility Association  group benefits  insurance regulation  life insurance  livery business  politically correct  ride sharing  risk distribution  risk management  statutory coverage  taxi regulations  Uber 

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Troublesome Flood Coverage, Uber Legislation without Industry Backup, Mark Prefontaine Seconded, Blog Activity

Posted By Thom Young (Full first name: Thomas Clifford John), February 22, 2016

Troublesome Flood Coverage?

The introduction of another company’s coverage for overland water (used to be called flood) leaves me underwhelmed with the industry’s attempts to meet the needs of our customers adequately. The underwriting of these products seems limited only to those who are outside of the red zones demarcating high risk for overland water damage. Since the number of insurers even willing to provide this coverage remains minimal, adverse selection will likely favour those who don’t get on the bandwagon. Only those who live where the flood risk is the highest will want to purchase the coverage. Those who don’t live in those zones won’t want to share the cost for claims and return on equity through their premiums and will seek another provider. Well, we’ve been here before, and history repeats itself.

A recent article in Canadian Underwriter magazine sums up a lot of the data being developed to map the risk of flood coverage in Canada. While the accuracy of the models in use can be easily challenged, data management, even with suspect data, is the baseline necessary to determine an actuarial model of rate. As I’m often reminded when I think of those very difficult classes in statistical analysis that I endured way back in the day, even poor data enables easier adjustments in the equation than hypothetical estimations. Although all actuarial prediction is really hypothetical, I know several actuaries who will spend tremendous energy vigorously arguing the scientific merits of their predictions, even when the historical accuracy is different. Such is the mystic nature of number manipulation. Regardless, the data from the research shows that "20% of Canadian [households] could be qualified as high risk, based on our metrics and about 10% of those would be considered very high risk and that's about 1.8 million households." That percentage implies 18 million households and numbers that should lend themselves well to actuarial predictions on the average loses per household from flood. If the actuarial mapping results in the application of a proper rate for these risks, then the competitive contest for these risks will have a proper outcome. If not, then little interest will be generated for continuing to provide coverage for this peril, and we’ll be back where we began.

Of course, identifying the risk exposure is the first part of the process. Knowing that 1.8 million homes are at an ultrahigh exposure to the peril won’t be very helpful until the frequency of loss is determined. In reality, we have no records for most of North America that are relevant for losses of any type over 150 years old. Forest fires, flood, and earthquakes that occurred over 100 years ago had little consequence to any large group of people simply due to the demographics of that historical era. If 10% of the dwellings in Canada incurred such a loss in any calendar year, people would clearly be concerned about the availability of coverage in Canada, but that’s not the way catastrophic losses work. Flood losses usually occur in a small localized area on an infrequent basis. We toss around terms like 100-year, 500-year, and 1000-year floods as if they have meaning when, in fact, these descriptions are only an excuse for the lack of mitigation efforts.

I still believe that flood coverage needs some form of statutory basic wording so that the competition between the insurers is based on risk selection and premium, rather than on limiting the coverage through different definitions of the peril. As brokers, we should not be forced to present our solutions to the clients based on the shortcomings of one company over another in the definition of the insured peril. That process is confusing to the public, fraught with errors and omissions exposures for each of us, and goes against the principles by which we currently manage the competition between our insurers. When the choices go beyond the cost and drill down into the wordings, how do you assure clients that what you are giving them the best option in the market? How do you know which company has the most comprehensive coverage when you have no access to its wordings? When we present options to our customers, will we have to provide a disclaimer that “better coverage may be out there, but this proposal is the best I can do?”

Some may say that forcing statutory wording upon the insurers is unfair and that a residual risk-sharing facility could allow those companies that prefer an alternative wording to cede their risks into a pool. Australia and England follow this practice to provide an even playing field in the market for these coverages. In these jurisdictions, the capital necessary to backstop these losses comes from government guarantees that insure neutral charges to the insurers. Strangely enough, the losses in these pools have been manageable and have produced positive cash flow. Stability appears to have some advantages over time.

The efficacy of flood coverage in Alberta will not be tested until the next significant flood event. I, like most observers in our industry, will be watching closely to see if this recent private-corporate response will mitigate the amount of money our governments end up throwing at these losses. Whether the premiums for the coverage produce underwriting surpluses or deficits will also be interesting to see. Time will tell.

As I reflect on the review of yet another “new” overland water endorsement and attempt to determine what makes it better or worse than the other three I’ve looked at, I’ll close this discussion today by once again pointing out that I’m not alone in my continued insistence that consistency is preferable to total confusion. We need more industry leaders calling for an agreeable wording that sets a baseline for overland flood coverage and standardizes the coverage. While supporting the need for consistency, Philip Cook, CEO of Omega Insurance Holdings Inc., suggests another approach to consider—developing catastrophe coverage that would respond to a variety of catastrophic losses.

Municipal Uber Legislation without Industry Backup

Many articles have appeared in the press about the municipal legislation that Edmonton City Council passed to address this new (old) form of ride sharing, and most of them are touting it as the new model for municipalities across the country to address the issue in their locations. The legislation didn’t make everyone happy and was particularly unpopular with the taxi owners and drivers who see this new entrant into the livery business as direct competition to them in their highly regulated and access-regulated marketplace. Still, it was an attempt to find a compromise that addresses the reality that Uber is here to stay, and ignoring it or waiting for it to go away is not likely going to change that. The legislation requires Uber drivers to match the level of insurance protection that is in place for the traditional taxi industry. While the model seems to resolve a number of issues, it unfortunately fails to address the fact that the insurance industry has yet to introduce the new coverage products. So far, I’ve seen one company announce that a new product is coming, but I’ve seen no information yet as to what it will look like or cost, or when it will be actually available. Some companies have tightened their underwriting procedures and included questions that specifically ask if customers are using their vehicles for ride sharing, while others are polling clients on renewal for confirmation of their current use. Meanwhile at the regulatory level, no changes have been made to the SPF 1 in Alberta (or elsewhere) regarding ride sharing of any sort, the SEF 6 has not been modified to allow for Uber-like exposures and rating, and no additional endorsements regarding ride sharing have been created. Under the automobile regulatory regime, any such changes would have to be approved by the Superintendent of Insurance in Alberta for use, and, as far as I am aware, nothing is pending on these.

While the Edmonton municipal authorities have addressed the problem, everything else remains in limbo pending the application of the insurers for new tools and the approval of the regulator for their use. So, despite all the optimistic articles on this topic, nothing has changed so far.

If anyone has anything new to share on this issue, I’d be happy to hear about it.

Mark Prefontaine Seconded

Speaking of the regulator, did you know that our current Superintendent of Insurance, Mark Prefontaine, has taken a new temporary role within the finance ministry? While our government has made no official announcement as yet, the following memo about Mark was posted on the Pension Information page in the Alberta Treasury Board and Finance website:

Effective January 11, 2016, Mark Prefontaine will be taking a one year secondment within Alberta Treasury Board and Finance as Senior Assistant Deputy Minister. Mark will be working closely with the Deputy Minister and will be responsible for  key organizational strategies and will oversee and manage special projects and priorities spanning across government, the department and multiple divisions of Treasury Board and Finance.

Please be advised that Nilam Jetha (see bio) will be the Acting Assistant Deputy Minister of Financial Sector Regulation and Policy (FSRP), and also the Superintendent of Pensions, Insurance, and Financial Institutions. Nilam has been with FSRP for the past two years in a project management capacity, and brings over 25 years of Government of Alberta leadership experience to the role.

I suspect that in due course additional information will be distributed. However, I would have expected/appreciated a more widely spread official government message assuring us all of continued stability in the regulation of our volatile industry. In a memo on February 18, 2016, George Hodgson assured us that IBAA will continue to have a good working relationship with the Superintendent’s office, that he has met with Ms. Jetha, and that Mark will assist her throughout the transition. That message may help quell uncertainty among IBAA members, but the transition affects more than those in the association. Official reassurance from the government that the course of the department will remain steady should be a priority.

In Closing

As I sit here in Playa del Carmen looking out over the pool and the beach, I’m reminded in the top right corner of my computer that the weather in High River is less than 10 degrees off of what we’re enjoying here. The pool is likely cooler though!

We could use some more subscriptions to this blog. The distribution list (while rising) has deteriorated substantially since we made it necessary to get to the website to view it. Please let your staff know that it is still being produced and easily available. Website interaction on any of the issues I’m going on about is also lacking. I’d very much like this blog to initiate a dialogue with several people on some of these points. Come on, folks. Give it a try!

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  E&O  livery business  Mark Prefontaine  Nilam Jetha  overland flood insurance  ride sharing  SPF 1  statutory coverage  Superintendent of Insurance  Uber  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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Opportunities in Change, Baseball’s Effect on Insurance, Uber Is Coming, Self-Driving Cars, Alberta Budget

Posted By Thom Young, November 3, 2015

Opportunities in Change

Shortly after the stunning defeat of the Alberta Conservatives, I wrote a rather lengthy column called “Change Is Good, Donkey,” which focused on the positive side of changes that affect our society. The phrase originates in the children’s movie Shrek, when Donkey, the ogre’s sidekick, laments that recent changes are so terrible they can never be overcome. Shrek imparts this phrase with such effectiveness that I often quote it to emphasize that negatives caused by change more often reflect one’s internal circumstances than real hindrances of the future. Rethinking your approach to new circumstances presents an opportunity to correct deficient processes and to find better ways to take advantage of new circumstances.

I like to think I’m a half-full kind of guy and have always attacked problematic issues with the perspective of “what can we learn?” and “how can we build on this?” While this perspective is not always easy, it leads to growth. Whether you’re running a business or deciding where you’re going in life, you will always suffer setbacks that can crush you or provide an opportunity to focus on what can be done to ensure that they either don’t happen again or won’t affect you as badly. Changes will test your resolve, your point of view, and your perspectives on many things, but adapting to these inevitable changes is the only option that will improve your outcome.

The recent changes in the Canadian political landscape present some opportunities. New and younger people with different perspectives are taking control of many areas. Certainly, that can’t be bad.

Canadian evolution into a more pluralistic and tolerant society is truly something to be celebrated. In recent years, we seem to have been more able to find fault with our differences than to enjoy the strength of our diversity. We have plenty of need to fear (and protect against) extremism in any form but need not sacrifice the strength of a Canadian mosaic to feel safe from it.

We certainly have much room for people who are looking for a safe place to live, raise their families, and build their net worth through honest hard work for others and through the use of their own capital and expertise to build businesses that contribute greatly to our economy. We also understand the difference between an economic migrant and a refugee from conflict and persecution. Our nation is second to none in care and compassion. We’ll take our share of migrants in the normal ebb and flow of things, but we’ll do more than our share for the world’s refugees in need. Our country has been built on the hard work of indigenous people and migrants of different creeds and nationalities from all over the world. They are all Canadian. Don’t let anyone tell you that they don’t give more than they take in need!

While we have justified the use of many organic and synthetic substances to alter our moods and allow for revelry, regulated permission to use the fruit of the vine has not followed through to the bud of the bush. Our prisons have far too many people in them as a consequence, black-market gangs flourish, and the amount we expend trying to eradicate its use has proven to have little effect. Clearly, the legalization and regulation of marijuana will produce a much better outcome.

Our country’s new leader is young and inexperienced, but he doesn’t appear to be naïve or foolish. If he accesses the wisdom of his elders and treads carefully into the areas in which he is unsure, then I’ve little doubt that we have nothing to fear from his leadership. If he doesn’t do these things, his passing influence will be of little consequence to our country. I’ve always said we get the kind of government we deserve in our democracy. Change will come and balance the good and the bad.

Finally, don’t let any of my ramblings here convince you that I’m stumping for one political regime or another. I remain apolitical in this journal as always. We can’t affect any immediate change in our political circumstances, but we can find opportunities to exploit to our benefit, and we can hold this new government to the standard of service it has promised the people. In truth, our Canadian political parties do not stray very far from that mystical centre line of governance. I have every confidence that the leaders of all our political parties work to advance what they see as the best interests of the Canadian people. For that they should be respected, at least until the next contest begins.
 

Baseball’s Effect on Insurance

There’s got to be a way to tie in a sports discussion with an insurance perspective. When the Blue Jays were struggling to keep their World Series chance alive, it must have been hard to remain focused in that mecca of insurance offices located in Toronto. More than a few insurance faces could be found in the crowd shots broadcast during the game, and the rest of the country (even though they, too, were following the contest closely by whatever means available) was complaining about underwriting service being slow from the Toronto head offices. When it comes to Major League Baseball, Toronto is the only skin in the game for Canadians. I remember in my youth that the Canadian favourites were as varied as our vast nation’s regions and that the country stood still during the final innings of any World Series. An American sports journalist recently discovered how baseball-crazy Canada can be when he absentmindedly posed the question “What do Canadians know about baseball; isn’t hockey their game?”

I was reading a recent article about baseball with an insurance angle. Matt Harvey, a first-string pitcher for the New York Mets, had surgery to repair his arm in 2013 and was advised by his doctor to sit out this year’s playoffs so that the repair could heal. Not wanting to sit out but at the same time not wanting to end his career by not heeding the doctor’s advice, he sought a way to transfer his risk to those willing to bet on his being able to both perform and heal at the same time. His broker, Scott Boras, was able to secure him an insurance policy for his future contracts. So if you’re a fan of the Mets, their pitching roster remains full on account of the efforts of an insurance broker!
 
I wonder if this discussion could fall under the age-old debate between underwriters and brokers that there are really no bad risks, just bad premiums. Just think, the insurance industry may well be partly responsible for the failure of Marty McFly’s prediction of a Cubs’ World Series win in 2015. One could look “back to the future” for the last time we saw a Trudeau in office and the Blue Jays win a pennant. I guess history is doomed to repeat itself.

Uber Is Coming! Uber Is Coming!

Technology is driving change faster than municipal governments can respond. I recently walked past an “Uber drop off” sign that was hanging from a parking pylon outside Cesar’s Palace in Las Vegas. A small space for about two cars was set aside. When I asked the valet about it, he said no one was using it as the drivers can’t tell one passenger drop off from another and that pickups happen on the street because the Uber drivers don’t want the hassle of working their way through the lobby entrance. Apparently, the app lets the passenger find the Uber vehicle at any convenient location. Still, more than 50 people were lined up at the taxi pick up, and taxis were picking them up as fast as they could.

For those following the news, reports continue from Toronto, Edmonton, and Calgary about attempts to deal with Uber’s impact on the highly regulated livery business. With or without regulations, Uber appears to be making inroads, and the public is slowly but surely taking up the service. At the same time, we’re advising our clients that their insurance will likely not respond to their needs if they participate in Uber. Discussions with claims and underwriting people around Alberta verify that at least a half dozen or more claims have been denied on account of participation in the Uber service. One company has announced that it is working on a solution to provide a coverage extension for this kind of use, but so far it seems to be caught up in the painfully slow process of regulatory adaptation to worldly changes, so insurance confusion continues. If anyone has any current insights on this and would like to share them with me, I would be most thankful for your contribution.
 

Self-Driving Cars

My article on this topic received quite a bit of feedback. One writer was less than optimistic that there’d be any real advances coming anytime soon. From his perspective, the unreliability of the technology, particularly the sensor interfaces in the automobiles, was demonstrative of the shortcomings likely to restrict the further development of driverless cars. I’m not so sure he’s right. The cheap parts that now monitor the performance of the automobile may not give the central processing unit reliable data on which to act, but I would argue that the current CPU (that is, the driver) isn’t sufficiently intelligent enough to react to the information from its own human sensors already. Ask any garage mechanic about the conditions vehicles arrive in as a result of the operator failing to react to little things like the warning light for the oil pressure or the intense shaking of the car as a result of a wheel wobble or even the lack of functional braking ability due to inattention to the sensor warnings? At least a mechanical CPU would deal with its programming to get the problem sensor repaired or replaced. The more critical the sensor, the greater urgency would be for the programmed reaction.

CBC articles recently reported that Ontario has prepared legislation on the use of self-driving automobiles for implementation in January 2016. The requirement that licensed operators be behind the wheel of the vehicles they’re not in control of is confusing, but most perspectives on new things from the government DMV always are. Certainly, the requirement for a licensed operator negates the insurance issues, doesn’t it? Confusion will reign, no doubt, but those of us who have negotiated the roads in downtown Toronto might think that self-driving automobiles give hope for improvement over the competence of most current drivers. I wonder when the program will be expanded to Alberta.
 

Be Careful What You Wish for  . . . Politics

I’ve been reviewing the Alberta budget with great interest. Was the election promise of a balanced budget just a pipe dream? The Alberta Advantage seems to be waning. We’ll doubtless be discussing the need to implement a regressive PST soon, perhaps combined with an increase in the national regressive GST adjustments. Fortunately, we will get to vote on these issues in the next elections that are only four short years away. I can hardly wait!
 

In Closing

We are quickly coming up on Remembrance Day. If you live in or near Calgary, get down to Memorial Drive and stop to walk around the field of crosses that are set out in honour of the fallen. Each one of these crosses has the name of a Southern Albertan who died in the conflicts we remember. It is an awesome tribute to those who made the ultimate sacrifice for their country and their beliefs. Put on your poppy and pause for a moment and reflect on that!

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:  baseball insurance  driverless cars  federal government  livery business  provincial budget  provincial government  ride sharing  Uber 

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12-Storey Bonfires, Insurance Reputation, Uber Regulation, UBI Costs and Benefits

Posted By Thom Young, September 22, 2015
Updated: September 28, 2015

12-Storey Bonfires?

The issue of risk management for wooden buildings has arisen again with the Quebec government’s endorsement of safe practices for the construction of mass timber buildings up to 12 storeys.

Risk management and assessment is one of the most important parts of the broker’s role in the underwriting process. In order to price the exposure to loss properly, the necessary information must be collected to determine the chance of loss and to categorize the class of risk. On the commercial side, we often extrapolate this data from the design and architectural plans prepared for the project. These are frequently used in underwriting and rating Course of Construction coverage, and rating, as with all buildings, is determined by the type of construction and the materials used. Imagine being presented with plans for a 12-storey building of frame construction. Logically, your first thought might be that these people are nuts. You might be right.

For a very long time, the logic that you couldn’t safely build a building out of wood more than three storeys high went unquestioned. Engineering limitations of the materials and construction techniques were simply inadequate to build safely beyond this height, though many tried and often with disastrous results—disastrous in the construction phase and deadly in the completed stage. The history of many communities is peppered with stories about this or that great fire and its resulting loss of life. Building codes and regulations were developed and have limited the devastation caused by fire damage in frame structures, but they have in no way eliminated the losses. In particular, several large communal structures such as nursing homes and row-housing units have suffered total-loss situations from lightening and the ensuing fire, as well as from wind storm. The damage to these structures has also often caused loss of life. We can still go a long way to improve the safety of these types of structures, and I believe we should.

tall apartmentFrom our perspective as insurance advisers, we are concerned about the availability of coverage and the impact of large losses on the pricing our customers face. We should also, however, be concerned with providing them good advice about the exposures they might now face. Ultimately, the cost of any loss works its way through to rating for that type of risk, and we know what damage catastrophic losses can do to the marketplace. Today, six-storey frame structures—the regulated height allowed by building codes in most Canadian jurisdictions—are commonly built. Building codes have no national standards but, for the most part, the various provincial regulations are much the same. Engineering quirks in the building codes play with the definition of storeys in some jurisdictions, transferring the first floor into a part of the basement so what looks like seven storeys may be defined as six by that province’s building codes. Still, a whole lot of wood is going into these structures. As we’ve seen in B.C., Alberta, and Ontario, they can and do make for spectacular total losses during their course of construction. After completion, we’ve also seen how a small fire originating on a balcony can transfer to a multi-million-dollar loss in just a few minutes. While political pundits are quick to argue about the costs of insurance imposed upon their constituents, few seem to understand the function that insured losses play in the development of a fair price for an insurance policy covering varied risks. If a condo owner or tenant has a $100,000 unit loss in this type of dwelling, it takes a very long time to recover the costs of such claims through minor rate adjustments, especially if 20 or more people are impacted in the same loss for similar amounts. I’ll leave the math to you, but one fire in a condo complex could produce a 25% increase in the cost of insurance for all condo-unit owners in the territory and a like adjustment to the condo corporation’s costs for insurance too. These costs are simply passed on to the occupants through assessment or rent. This risk is something to consider when asked by your clients why their rates have increased once again.

The Quebec endorsement of twelve storeys also raises the issue of special interest groups, such as the forest-product producers and the construction associations, who come to the political pundits with requests for changes in building codes. While politicians regularly question the insurance industry about the high cost of insurance, the ramifications for their constituents of approving these code changes is often ignored. Great proposals that extol the benefits of increased jobs and lower housing costs are often on the song sheet of building associations when making the case for a building-code review. They are convincing tales in persuasive language but include little discussion of the potential down side and review of the actual experience. I think only four to five years ago (or so) the first six-storey frame condo complex in B.C. was approved for development. While still in the framing stage, a fire completely destroyed the building. Fire departments in Surrey and surrounding towns were overwhelmed by the intensity of the blaze and could do nothing to limit the loss except to keep it from spreading. The loss was insured but had an immediate impact on the course-of-construction coverage rate that is still felt today.

Oh, Those Damned Insurance Companies!

While holidaying in southern B.C., we were once again exposed to that seemingly more common natural disaster of forest fires. Fires to the south in the U.S.A. were producing copious amounts of smoke and ash, making breathing and seeing difficult for some. The usual sunny and warm late August afternoons and evenings were very unpleasant in many areas. The usual spectacular sunsets were replaced by the sinking sun looking more like a moon glowing through the haze, while the mountains in the distance would periodically flare up in bright red eruptions, sending plumes of smoke into the upper atmosphere. The results were apparent through much of Alberta, and relatives as far to the east as Winnipeg were complaining about the air quality.

Driving on the southern route took us through the community of Rock Creek, which used to be like so many other rural B.C. Interior communities, a hodgepodge of modular homes, very old mobile homes, and newer mansion-like retirement homes built along the riverside where the land is cheap and the ambiance is superb. The town of Rock Creek on the southwest side of the river is now, for the most part, leveled. The fire showed no preference for either the old shacks and mobile homes or the new million-dollar mansions, reducing them to piles of white ash. The heat was so intense that even the concrete foundations were reduced to soft sand. Total losses are both the easiest and hardest claims adjustments to make. The comment that “at least there was no loss of life” does little to diminish the tragedy for those who have lost everything.

Discussing the event, a local businessman in a nearby community indicated that a number of his clients had suffered losses. Without knowing my involvement in insurance, he began to rag on about the insurers who he’d been told were already “short changing” their insureds. He reported one of his clients had already been told by his insurer that he’d have to downsize after the fire. I began asking for more details as I was confused by this position. “Was it a new home?” “Yes.” “Was it his primary residence?” “Yes.” “So why wouldn’t the guaranteed replacement cost clause put it back the way it was?” “What’s a replacement cost clause?” he asked. The fellow soon realized I was in the insurance business and changed his tone about the bad insurance company taking advantage of their mutual customer. Some friendly discussion revealed that this fellow had rented some scaffolding to the customer, and the home, along with an addition he was building, was a total loss. I began to wonder if the customer had advised his insurers about the addition. Conclusions are difficult without all the facts, but it struck me as odd. Insurance companies are collectively responding with extraordinary measures to meet the needs of their clients in the face of an insurable and, for most part, insured catastrophe. Nonetheless, the public perception remains twisted and maintains the notion that insurers try to take advantage of their customers by not living up to the terms of the contract with them. This lack of faith has become a common theme in my writing. I seem to run into it too often. We have much work to do to improve the public’s perception of the industry.

Uber Again

Well, it seems I’m not the only one calling for amendments to the regulations regarding Uber. Edmonton City Council is considering new legislation governing vehicles for hire. While most changes in this kind of legislation tend to annoy most everyone equally, we can hope that any adjustments will provide oversight to the unregulated activities of Uber. On the product side, Intact has taken a lead with its new offering, determining that the risk is in need of coverage and that the risk is insurable. It has announced an initiative in consultation with provincial regulators and Uber to develop a product to meet the needs of both parties. This initiative will likely put competitive pressure on other insurers to get involved as well. Personal-lines auto underwriters seem quite agitated when discussing exposures in the Uber business model. Perhaps they will get an endorsement to offer our clients. Time will tell.

UBI Again

This topic never seems to go away. Those who follow the industry press may have seen me quoted in a recent article. I was approached for my thoughts on Allstate’s new patented approach and to provide some commentary as to how I see UBI “turning the industry on end.” Well, I don’t see any real significant changes to what we do coming about through the introduction of UBI in the Canadian market. Our neighbours to the south have been using UBI for about five years now and have not seen any real disruption in their marketplace. Where it’s been introduced, we’ve seen the competitive offering of a group of major insurers match any gains in market share through it by offering their own versions. Loyalty to brokers and companies hasn’t been negatively impacted. Further, the inference that the data gathered affronts clients’ privacy has not been supported. No privacy complaints regarding UBI have been brought against any insurer. I suspect our Canadian experience will not be dissimilar.

About the savings provided through UBI, I say the product just allows for selective underwriting and disrupts the classes of risk by introducing new classes. The amount of money that is needed in the pool of auto insurance in any province is not reduced by UBI, so, where its take up is substantial, the cost of the claims in these new classes will be shifted to the old. This transfer introduces a political reality that will attract the regulators’ attention. A 25% reduction for one group will net a 25% increase for another group. That won’t get good press anywhere. While some will say that the “new” group should fairly pay its actual costs based on the losses, remember that the premiums paid by the many should cover the losses of the few. Disrupting this principle with a business model based on new technology will not be considered fair by those paying the extra premium required to maintain the financial reserve needed to pay claims. Wow, heavy philosophical insurance stuff here!

Costs aside, any technological changes that reduce losses have a positive impact on the insurance marketplace. UBI fails to deliver on this principle as well, with one exception—young drivers. Where young driver’s behaviour is monitored and corrected through the use of UBI, claims decrease by as much as 40%. The real savings to these drivers class don’t have to be absorbed by other classes. While these savings are a big plus, the most important part of the story is that UBI monitoring of these drivers results in a 70% reduction in bodily injury and death. If we can get our kids through their learning-to-drive years without serious accidents, then we’re really onto something good. In a perfect world, we’d make this mandatory, wouldn’t we?

In Closing

Fall is in the air. Thankfully, early snow in the foothills didn’t last very long. The forecasts for some very warm weather in the coming weeks seem overly optimistic, but those excellent weather prognosticators are calling for a warm winter on account of El Nino. We’ll see.

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:  building codes  construction associations  forest producers  insurance industry reputation  Intact  Quebec regulations  special interest groups  timber-frame buildings  Uber  UBI 

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Uber Confusion

Posted By Thom Young, August 27, 2015
Holidays continue to cut into the production schedule. Attempts to get this done have been made in four provinces and one other country. Thank you for your patience.

Uber? This innocuous Germanic word is one of those strange ones that can mean a number of different things depending of the turn of the phrase. Loosely meaning about, over, or even better depending on the inflection or context of the phrase it is used in, it has made its way into the English language as a noun referencing several different business enterprises. From our insurance perspective, it means confusion on automobile coverages for people involved in a ride-sharing program. In its simplest form, a ride-sharing program hooks you up with people who share the cost of a trip to a common destination. The Uber phone app simplifies the contact process and makes it immediate. Confusion arises, however, with the commercial aspect: a person with a perfectly good automobile and some free time can offer Uber services at a fee, which makes it a livery business with driving services and automobiles for hire.

The structure of the modern taxi business has evolved from a chaotic free for all. In the beginning, drivers with a horse and buggy could cruise the streets of a town or village offering rides for a fee to whomever they wished at whatever rate they wished. Following pure capitalist form, at busy times rides cost more than when the demand was limited or when the competition was intense, and equipment standards and driver qualifications were virtually irrelevant. The term caveat emptor (buyer beware) certainly applied as customers had no assurance whatsoever that their interests were being protected, and they were often injured in person or in pocket by the services offered.

The public was not very well served, and the industry had quite a reputation for both taking advantage of their customers and caring next to nothing about their safety. Additionally, the industry was rife with graft and crime—routes and stops were often controlled by organized criminals who ran a protection racket skimming money from even the most honest hack. Because of this reality, the taxi business became and still is a highly regulated and intensely supervised business. Rules cover everything from the condition of the vehicle to the kinds of insurance needed to operate a taxi. Further, becoming a taxi operator requires a fairly large investment of capital to obtain first a license and then a vehicle. It’s not hard to imagine why the taxi business is up in arms about wide-open competition from a group of independent, unregulated, and unsupervised operators who have none of the regulatory expenses to deal with and can cherry pick the best locations and clients with a technological advantage. Those of us who participate in our highly regulated industry should be a little understanding of how unfair this discrepancy is to the honest hard-working cab drivers.

Considerable evidence is mounting that people providing and taking ride-sharing services through Uber are not properly insured. Public liability coverage is a bit of a grey area as Uber does purport to provide some form of overlapping coverage for those who participate. While I have looked at the wording, I’m not prepared to make a committed statement to either its adequacy or inadequacy until someone challenges it before the courts and the Canadian judiciary weights in on the scope of coverage. I do know from my cursory review that there are enough potential gaps to drive a cab through. Certainly, the statutory conditions in the owner’s SPF 1 would preclude any payment for physical damage incurred by a vehicle in this service. The conditions involve two issues of disclosure and change of use and touch on a specific exclusion. No coverage would apply outside of the statute coverages for the third party under section A and occupants under section B, and the owner would be liable for reimbursement if these coverages were triggered under the statute.

Many of us have had a number of clients approach us over the past couple of months about their coverage when providing this service. No doubt, we all have been clearly conveying the short comings of their policy for this ride-sharing service and clearly warned them about the possible consequences of losses that might occur. If you’ve been unclear or vague on the topic, you should rethink your position. The Superintendent of Insurance offices have circulated a memorandum to all General insurance license holders on what they feel are the short comings of both the personal coverage for the undisclosed use of a vehicle in the Uber program and the apparent short comings they see in the much-vaunted insurance coverage that Uber claims will protect the service providers. We’ve already seen a number losses in which people who have been participating in the Uber program found themselves uninsured for their own physical losses and in doubt about the limits of coverage for third parties.

These stories have recently made their way into the industry press and supplement the frequent news coverage of cab drivers’ angst over the encroachment of the Uber system on the taxi market and the discord amongst civic authorities on Uber’s interference in the regulation of the livery business. Uber is certainly here to stay. If the regulatory authorities want to reign in the effects of Uber’s disruption of regulations and lack of insurance protection for all participants in the Uber process, they need new legislated tools to do so. The regulatory authorities need to quit whining about the change and respond to it. Municipal and provincial entities need to produce new enforceable regulations and begin policing them. As a broker, I’ve got nothing but bad news for my customers about their personal insurance coverage and really little in the way of reasonable options to present my clients if they want to obtain coverage for this exposure! On top of that, my clients are being told by Uber not to worry because they are covered by its policy, a statement we know to be untrue!

Remember when all we had to worry about was our clients delivering pizza with their private passenger insurance coverage?


That’s all for this week—from Manitoba, Mexico, Saskatchewan, Alberta, and BC. Follow the bouncing ball!


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:  livery business  public liability  ride sharing  SPF 1  statutory coverage  taxi fees  taxi regulations  third-party liability  Uber 

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