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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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Claims Regulation Needed, UBI Technology

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

Ethical Regulation Needed for Adjusters

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

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

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

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

Technology Marches On

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

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

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

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

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

In Conclusion

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

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

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

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

 

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

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