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Fort McMurray: How Can We Help?

Posted By Thom Young, May 10, 2016

Fort McMurray: How Can We Help?

Despite a host of issues to discuss, my focus in this column is on the Fort McMurray catastrophe. The scale of the tragedy and scope of the disruption is just becoming known. As I write, the current estimates are that over 1600 “structures” have been lost to date and several hundred more are in imminent risk saved only by the whim of the winds and the valiant efforts of the fire fighters and volunteers doing all they can. By the time you read this column, our industry response to this historical disruption to the people that we serve will be well underway. The media has conveyed the confusion and the concern in this mass scramble to evacuate a community of more than 80,000 people and the reality of people navigating their vehicles with their families and whatever possessions they could grab through the conflagration of a forest engulfed in flames. One client of ours reported that the windows of his car were, at one point in his journey to escape, too hot to touch on the inside. Another told the story of his family seeing the flames lapping at the back of their home as they were going out the front door. By some form of providence, no lives were lost directly from the fire, the sad tragedy of a traffic accident taking two young lives notwithstanding. I cannot recall such a successful movement of that many people in so short a period of time and over geographical distances of such proportions. Floods cause evacuations with a much lesser sense of urgency than feeling the heat of a fire on your back while running away. This truly amazing story has only just begun.

Our insurers have sent many notices about the systems in place to deal with the clients who are out of their homes with little or no documentation and very confused about what to do now. While they can find help in many places, getting the information out to these people is the problem. The magazine Canadian Insurance Broker has put out a guide for brokers that is very comprehensive and is being updated regularly.

If people don’t know who they are insured with, they can be referred to the Insurance Bureau of Canada, whose coordinated name and address searches with their members can identify claimants’ policy information to get the claimants in touch with their company’s claims centres. The process is tedious though and the frustration level high, so be patient with these people if you are trying to help them.

I had an interesting discussion with a broker the other day who was of the opinion that assisting an insured who is not a client with the claims process on behalf of the insurer is somehow an infraction under the Insurance Act. Nothing could be further from the truth, and you’re adding to the frustration these people are experiencing if you tell them that you can’t help them. Pushing them back on their broker is futile as well. I know of one brokerage firm an office of three agents that has 3500 clients in Fort McMurray. The office has been evacuated, and no one can get in to restore operations until the evacuation orders are lifted. The three brokers working there have all lost their homes and will be dealing with their personal priorities for a while. If you get a call from people looking for help with their claim, please provide them with information and advice.

  • Get them in front of the right people to initiate their claim.
  • Tell them to keep good records of their expenses.
  • Advise them as you would your own clients on beginning to prepare the lists of belongings lost.
  • Advise them on the time they have to get their claim started.
  • Most importantly, comfort them with assurances that you would give your own clients.

Of course, you will need to qualify the advice because you haven’t seen their policy, but you can provide general advise. You know what’s covered under a homeowners policy, and the statutes are absolute no matter who the insurer is. These people are desperate for words of comfort, and we can give it to them without creating an estoppel. Do what you can to help!

Replacing Alberta Official Documents

People who have been evacuated from Ft. McMurray and are in need of replacement documents—from auto registrations to driver’s licenses and birth certificates—can obtain these at most registry agents offices free of charge. The government has waived the fees for these people and most registry offices have waived them as well. People who are starting to rebuild their lives can be directed to a registry office to get this task underway.

In Closing

I am busy with a number of things focusing on the Ft. McMurray event and am cutting my essay short for this issue. Much more is to come on this story. After the tragedy of Slave Lake, much dialogue surrounded what could and should have been done to prevent what occurred there from happening again. All of our communities situated in the boreal forests of Canada must take note and begin to implement mitigation and suppression efforts to protect against wildfires. That discussion is for another day. Today, we focus on helping our fellow Albertans get through this.

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  customer service  evacuation  Fort McMurray  IBC  Insurance Bureau of Canada  mitigation  wildfire 

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Climate Effects on Insurance Stability, Distracted Driving Continues, National Tissue and Organ Donation, Canadian Senate Tragedy

Posted By Thom Young (Full first name: Thomas Clifford John), April 27, 2016

Climate Change Effects on Insurance Stability

In my recent musings through the industry press, I came across an interesting article on climate change entitled “The Earth’s Temperature Has Just Shattered the Thermometer.” Why the insurance industry in particular hasn’t gotten on board with the current flavour of the debate on global warming or, as we’ve come to hear it called now, climate change has always been a mystery to me.

I occasionally hear a smidgen of concern from underwriting gurus and the odd senior executive for the belief that climate change is going have a huge impact on the earth, but there really hasn’t been a full-blown united expression of belief that dire consequences will come about if action isn’t taken immediately to reverse the effects of human influence on the earth’s climate. In my private discussions with a number of senior people in our industry, a nagging doubt persists about the causal relation of human beings to climate change. Often the science of climate change itself is doubted. Some point out that the historic and geological records display wide swings in climate around our globe and that archeological records during human habitation show long periods of cooling and warming in unidentifiable cycles with indeterminable causes. With little consensus on what actually happened, scientists themselves speculate on what caused the last ice age to occur and what caused it to end.

The insurance perspective is unique. In our business, predictive cycles are critical to the success of our enterprise. We share and mitigate loss risks. Actuarial analysis is a predictive science. Assumptions about future events are based on historical data, and those predictions are adjusted by applying variables such as changes in climate, demographics, or even chance. The insurance analysis can get very complicated and inexact, for example, integrating variables such as ethnicity, cultural behaviour, DNA analysis, and the now-mapped human genome. Definitive conclusions are not necessary in actuarial analysis to allow for their possibility and calculate the mathematical probability. (Thinking about such calculations, I’m glad I decided to be a broker, rather than an actuary. Several times in my insurance career, I’ve listened to actuaries debate the validity of their calculations. I have always come away from those meetings with a great degree of confusion—and a throbbing headache.) Thus the divergent views on climate change may be irrelevant to an insurance-based risk analysis.

Regardless, I take exception to the claim in the above article that the effects of global warming may bankrupt our business. Hogwash! Long before our well-capitalized and reserved guarantees would not be honoured, the whole financial sector would need to have collapsed. If anyone is concerned about such a potential collapse, I’ll bet I could find some insurance executives to support increased rate surcharges to build special reserves for that purpose. The thing is, though, the surcharge would have to be shared by all market participants, so the regulator would have to mandate it. In the political realm, I think the science needs to be a little more exact.

As I am finishing up this piece, my morning newsfeeds contain this dire warning:

UN Calls for Long-Term Climate Stability
The world faces even greater catastrophic weather incidents unless leaders vow to go further to cut greenhouse gas emissions. The head of the UN Office for Disaster Risk Reduction is today (Apr. 21) calling for signatories of the Paris Agreement to go beyond existing commitments.

“It is clear that weather and climate are implicated in 90% of major disaster events attributed to natural hazards. Droughts, floods, storms, and heatwaves have the potential to undermine many developing states’ efforts to eradicate poverty. Climate change is adding to pre-existing levels of risk fuelled by exposure and socio-economic vulnerability,” Robert Glasser said.

He called for the more than 160 countries that have signed the Paris Agreement to “scale up the level of ambition” to cut emissions or face the “real danger of being overtaken by the rapid pace of global warming.” (Insurance Business)


Let the political discussions begin.

Distracted Driving Continues Unabated

According to Sgt. Glenn Bangs, the number of distracted-driving tickets issued in Edmonton seems to increase year over year. Police in Edmonton say that “the worst offenders are people 33 to 44 years old.” In 2012, 4597 distracted driving tickets were issued in Edmonton, jumping to 5197 tickets in 2013, 5285 tickets in 2014, and 5928 tickets in 2015.

Statistics, damned statistics. Were exactly the same efforts made by the Edmonton police force each year? Likely not, but the statistics make a good angle for a story, don’t they?

Regardless, the anecdotal evidence on distracted driving finds most in agreement that the activity is not abating anywhere in any way. Either the increasingly severe penalties and increased efforts at enforcement seem not to deter the activity, or not enough time has been factored into assessing the result. Since January 1st, 2016, fines for this infraction in Alberta have increased to $287 and, more importantly, add three demerit points on the driver’s license. These demerits brings the activity into our realm, and now insurers are able to select against and charge for the increased risk that these people present. A whole calendar year or more will pass before the deterrent effect of these costs will be measurable.

I’ve always been on the fence on this subject, and I’m still looking for the statistical link between the activity and increased claims costs. So far, I’ve yet to see any unbiased assessment that supports such a claim. I’m not arguing that the activity is safe or that it should be allowed, just wryly observing that incidence of loss overall doesn’t support the conclusions of many.

Technology is available to limit the use of cell phones in automobiles. Perhaps, as with seat belts, such controls should be mandatory. Someone with three distracted-driving tickets in Alberta would owe nearly $1000 in fines and incur 9 demerit points, leaving the Facility as the only carrier willing to insure such a driver. The extra cost of installing limiting technology in such a person’s vehicle would look like a bargain in comparison.

Clearly, this debate must continue before a resolution to the problem will present itself. When I was a young lad, the largest distraction while operating a motor vehicle was drinking and driving. The rules weren’t very severe or enforced. Many didn’t believe it was a problem, and people who pronounced their proficiency at operating a motor vehicle after consuming considerable amounts of alcohol were unchallenged by the majority. Statistics and science proved them wrong, and the social rules that allowed for drinking and driving started to change. The seriousness of the act and the carnage it produced became a significant social issue that produced stronger and more effective penalties and intolerance for the activity to the extent that effective enforcement is now the norm and the results life changing. We will continue to monitor this issue closely.

National Tissue and Organ Donor Week

If you attended an Alberta Registry Office last week, you may have noticed that the clerks were wearing a lanyard to bring attention to the need for organ and tissue donors in Canada. The Alberta Registry Association has undertaken this cause to promote donor registration in the Alberta. The voluntary process for collecting the permission of Albertans to donate their organs and tissues is woefully inadequate to the need. Currently, 120,000 people are on waiting lists for transplants, and that number seems only to be rising. The simple act of registering to make this huge humanitarian contribution takes only a minute and can end up giving the gift of a healthy life to someone living on the edge of finality or with the limitations of an easily corrected disability. Please make this a topic for discussion in your household. It costs you nothing and improves the community around you. When you next visit a Registry Office for any service, consider asking for assistance in registering yourself for this donation. You can even do it now yourself at MyHealth.Alberta.ca.

I believe that donation consent should be implied, meaning that approval is implied unless someone registers to opt out. People would then be required to make an effort to register their objection and to think about the donation. Tens of thousands of people would be removed from waiting lists and receive the simple procedures that would improve their lives. In a perfect world, everything would be perfect, wouldn’t it? Do have this discussion. It is important!

The Senseless Tragedy of the Canadian Senate

One of the most controversial articles I’ve written, as measured by the reader response, was my observations on the Duffy trials and tribulations. My point regarding the unnecessary existence of the Red Chamber in the workings of our Canadian parliamentary system brought a number of comments about the sober second thought envisioned by Sir John A. MacDonald, the need for an unbiased review to restrain the mob of democracy, and the belief that an august group of esteemed Canadians could bring some influence upon political realities. I responded to these writers by observing that the current structure of our senate meets none of the desires envisioned for it and that, without any political will to fix the problem, perhaps the senate could be done away with by a consensus. Well, that demolition is not likely in my lifetime.

The declaration by the judiciary that senator Mike Duffy has been found innocent of all charges brought against him is not a declaration that his actions were moral, just, or even wrong, but one that reinforces the wanton abandon of accountability to the people of all the senators in our Canadian senate.

I predicted that Mike Duffy would not be convicted of the charges brought against him. Political pandering and media circus aside, there was never any inkling of any rules broken or laws broken. The legal review affirmed that no expense rules existed to begin with. Mr. Duffy can now expect to be reinstated in good standing to his position and fully reimbursed for any holdbacks on his compensation and expenses. Likely a jig will be danced, particularly by those who were waiting to see if any charges might be brought against them for similar claims. In the end, the shame of it all is that the cost of all of these proceedings, including Mr. Duffy’s defence costs, will be borne by the Canadian taxpayer. No doubt though, the shame will neither be great enough nor the cost absurd enough to stimulate any action to correct the deficiencies!

In Closing

Once again, with the wonderful spring we’re having, watch for the two-wheelers on our roads and highways. Look twice. The most common accident between a car and a motorcycle occurs when the car turns in front of the biker. The first thing car drivers always say is that they didn’t see the biker. The truth is that they weren’t looking for them.

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:  actuarial analysis  catastrophic risk  climate change  distracted driving  organ and tissue donation  regulation risk management  senate reform  senator Mike Duffy 

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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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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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