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Marketing Seasons, Remembrance, Alberta Fiscal Health, UBI Behaviour, Oil and Gas

Posted By Thom Young, December 1, 2015
Updated: November 30, 2015

How Many Days until Christmas?

Now that the flap over Christmas decorations displayed before Remembrance Day is over, I guess we can enjoy the real beginning of the Christmas season, unless of course you celebrate American Thanksgiving. Before people protested that a change to the Christmas marketing season prior to Remembrance Day was disrespectful to veterans, they complained about Christmas marketing before American Thanksgiving. Historically, the fall decorations celebrating the harvest were removed during the last week in November, and up went all the Christmas decorations. Music in the shopping malls quickly changed to classic carols, and lineups to see Santa began. The current transitional marketing seasons seem to be working. The vast majority of shoppers don’t seem to mind that the seasons run together. If they didn’t like the atmosphere being created for them, they wouldn’t go to the malls.

Speaking as a veteran, I believe that if you took a moment out of your busy life on November 11th and thought for a minute about all those who have made a sacrifice for their nation, and if you wore a poppy in remembrance, then that “remembrance” is good enough for me. I wouldn’t be bothered a bit if you were putting up Christmas decorations while you did that. While I’m sure I do not speak for all veterans, most of the veterans I know feel the same way. In my youth, at eleven minutes after eleven on November 11th, buses and cars pulled over on the street and men stood with their hats off and their heads bowed, school was interrupted for announcements, and then all stood for a brief silent tribute in memory of all who served. This unified action of Canadian citizens was quite a thing to witness and participate in. Many of our citizens vividly remembered the horror of war as they were survivors of it, so the act of remembrance was very real to them. Still, after this short meaningful tribute was over, people got back in their cars or went back to their desks and got on with whatever it was they were doing. The practice of devoting a whole day and a civic holiday to remember our veterans came much later. Now that very few of the generation that participated in the 2nd World War are left, I sometimes wonder what they would have thought of the new generation’s take on this act of remembrance and the controversies that always seem to arise about it. For my generation of veterans, the seemingly endless attempt by others to find things that are disrespectful to veterans is both annoying and confusing. Lest we forget.

Interesting Times in the Fiscal Health of the Province of Alberta

So far the political transition for Albertans and especially for those of us who have business dealings with our provincial government has been interesting. On the energy side of things, no consideration has been given to any relief for this industry that is suffering from the steep decline in oil prices. As no one has any control over the price of any internationally traded commodity, no fault can be found with the government for the price of oil. However, as the industry once again goes into hibernation to await the return to profitability that increased oil prices will bring, some declarations of support and patience from our government would provide some confidence for both investors and industry leaders on what the future will hold. Instead, we see next to nothing of any substance and no leadership whatsoever. The capital risk takers will not likely have much incentive to take this opportunity to improve their operations while awaiting a market correction. The rumours persist that increased royalties and environmental restrictions are in the offing. Nothing like being kicked when you’re down, is there?

Our Albertan economy is not as tightly tied to the yoke of the oil and gas industry as it was in the mid-1980s when the collision of international price volatility and domestic resource policies saw capital flee and production grind to next to nothing. Still, the current situation is unsettling with the large number of variables at play here. Suffice to say that the oil and gas industry in Alberta is not very happy with the current competitive environment that will continue to slow down production and shelve large projects until confidence returns.

On a positive note, the surplus supply of labour and equipment has greatly reduced development costs. Perhaps now would be the time to put that advantage to work in repairing and improving the infrastructure of our province. Maybe another lane on that QE2 would improve safety and reduce travel times. An actual ring road around Calgary would improve the transport of goods. Highway 2 south still wanders through a half dozen little towns and would be improved with freeway completion. In the north, twinning completion on Highway 63 to Fort McMurray and Highway 43 to Grande Prairie would save many lives.

The distribution of oil and gas ties together economic and environmental considerations. Our country is self-sufficient in production of oil and gas but can’t find a way to reconcile the benefits of that reality with a distribution system that gets raw materials to the refinement centres and the product distributed around the nation. Instead, we compete for delivery of unrefined product from foreign sources that subject us to wide price fluctuations driven by international events. Whoever thought this plan up has to be asked why. Discussion of building a pipeline to deliver the product from source to market now results in a huge uproar about the environmental implications. This is confusing given that the oil going to those production facilities now is floating up Canadian rivers, rolling along on Canadian railroads, and being pumped through aging pipelines from the shore facilities. The potential for an environmental catastrophe in the current model is more pronounced than bringing the product to market on a new pipeline. Perhaps we should now ponder this mystery from an economic perspective, rather than the political one.

People Behave Better under Supervision

A recent report on the use of UBI in Canada observes that installing in an insured’s car a device that monitors driving behaviour produces better driving. Who’d have thought? A couple of years ago, I predicted that the main benefit of UBI to the public would be the change in behaviour (and thus fewer claims) that would result from this monitoring. The benefits of UBI continues to be an interesting philosophical discussion within the industry as, statistically, the benefits for the insurer in using UBI to select better risks may well now outweigh the use of UBI to make better risks out of the drivers using it.

This debate continues in the U.S., where UBI data have been collected 10 more years than in Canada. The active monitoring of underage driving behaviour in the U.K. has been producing huge benefits in both selection and the modification of behaviour of this class of business. The stellar results in regard to this class of business makes one wonder if its use should be mandatory.

Certainly, the continued development of smart technology is changing all facets of our industry. Most smart phones record continuous data on your location, speed of movement, and other information such as the temperature. The introduction of the data from these devices into trial evidence is now routine in both civil and criminal law. New automobiles are coming with built-in LTE Wi-Fi. Within the next 10 years, your new automobile will have all the features of your phone built directly into it and will sync with your phone whenever you enter your vehicle. Real-time video recording of all that is happening in and around your vehicle or what people are doing to it will be built right into the vehicle’s CPU, so disputes as to fault for anything will be much simpler to resolve. As this technology continues to develop, some people may not even see the fact that they are being monitored while using it, while others will increasingly raise public debate on where personal privacy ends within and without your home. In particular, we’ll all need to reconsider the authorities we give people to use our personal information and images as the significance of that license continues to change.

Looking into the Future Is Fun

While predicting the benefits of new technology on our business and society is interesting, we need to remember that many things change while others remain the same. Constancy is particularly true of human nature. Roman philosopher Marcus Tullius Cicero, born around 100 years BCE, influenced many things still felt today. Of particular note, his writing on the constitutional regulation of people’s rights and the division of power in a republic are still found in contemporary teachings on the subject. We often hear little snippets of his ideas on many things quoted to support opposing sides of a debate. On state funding though, his thoughts rarely deviated. I do enjoy one of his best quotes:

 "The Budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt.  People must again learn to work instead of living on public assistance."—Cicero, 55 BCE

Even today, I don’t think you will find too many tax-paying people who would disagree with this perspective on things. As we in Alberta ponder the irony of throwing out a fiscally irresponsible government and replacing it with a more generously philosophical group in protest, the teachings of the past should not be forgotten.

In Closing

I received a memo from my staff the other day reminding me that it’s time to get the annual Christmas letter done. In all the years I’ve been in business, I’ve written a brief one-page essay each Christmas to share with our customers and our business partners. For me, there is no greater reminder that the holiday season is soon upon us. The challenge to keep that message new, refreshing, and relevant is an interesting one. For now, the challenge of hosting American Thanksgiving is more pressing.

The news is focusing on roads closing due to snow storms and cold weather. Bundle up, people. Winter is just starting!

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:  budget  privacy  provincial economy  Remembrance Day  telematics  UBI 

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Will RBC Leave P&C Insurance or Just Whine about Fair Marketplace Competition? Does Digital Imaging Impact Privacy?

Posted By Thom Young, March 23, 2015

RBC Leaving P&C Insurance?


I suppose it is a good day for the insurance industry when we hear a bank executive whining about how difficult it is to compete in the Canadian insurance marketplace. Of course the banks are not really complaining about the competitive nature of the insurance industry but are whining about the rules and regulations that limit their abilities to cross-sell the insurance product to their clients and use their incredibly extensive distribution system to promote their insurance products.

In a recent interview, David McKay (CEO of the Royal Bank of Canada) is quoted as lamenting the returns on the bank’s Property and Casualty insurance sales, citing the regulatory environment as a troubling factor that does not allow banks to sell their services out of their branches. It is a familiar spin on the issue—somehow the banks’ inability to do good things for their customers is a disservice to the buying public. A cynical person might observe that the public commentary by one of Canada’s senior bankers is simply a positioning play in the ongoing lobbying efforts by the banking industry to change the rules that make them play fair in the marketplace.

Mr. McKay has an unusual background in the senior ranks of Canadian schedule-A bank executives. He’s the only one who has come to his position of authority from a background in personal banking services. Most rise through the ranks on the commercial side of things and read reports about such things as insurance products. This fellow has an intimate knowledge on how the competitive process works and certainly a really good handle on how to maximize the economies of scale in their distribution system. Being forced to separate the marketing and service aspects of the insurance line from their multi-line product marketing approach is clearly a problem for them. He expresses the possibility that the bank may cut and run from the P&C market but stay well entrenched in the Life side of things—such as creditor life coverage and health-coverage extensions in their credit card product.

Most of their Life products are sold from their branches and by bank officers because “creditor life” products are exempt from the restrictions against marketing alongside other bank services, and the bank officers who are “selling” these products do not require a license. These exemptions get the bank into an inter-jurisdictional role on regulations. You see, people in a position of influence on the outcome of an insurance sale aren’t allowed to have a Provincial insurance license because the regulations believe that their authority over the individual buying insurance is considered to be prejudicial to the transaction. Bank officers fall into this category and for good reason. If you’ve acquired a mortgage or loan directly through a bank, you’ll come to understand the why of this when the mortgage insurance is offered in the transaction. To avoid purchasing the insurance, a serious discussion ensues with the mortgage officer, and signatures are required on several waivers before proceeding with the mortgage. Further, if the bank insists on the life insurance as a security covenant for the loan, you are at risk of not getting the financing you are requesting. The inference that the bank officer wants you to purchase the bank’s mortgage insurance product and the pressure to purchase this insurance from the bank is, in my view, unfair. Still, it happens every day and perhaps is why this product is so profitable to the banks.

The banks have disrupted our marketplace over the years. CIBC and the Bank of Nova Scotia both “cut and run” from the direct sales of P&C insurance after poor returns. Their impact on the Canadian marketplace could not have been measured as a positive one from the consumer’s point of view, but CSRs may have enjoyed the increase in baseline salaries that came about by this new competitor for market share. Certainly, as a brokerage owner, competing for staff at these higher salaries wasn’t in the budgets initially, and disruption of the industry was clearly evident for us. The banking industry is functionally driven by results. There’s no patience for under-performance, and success is measured by the target of a business plan that is measured every quarter. It always gave me comfort as an ex-banker to know that every three months someone was answering questions at a board meeting about the returns on funds employed in the Property and Casualty business. The excuse that the regulations are hampering the business plans would begin to wear thin very quickly. Competitive pressure mounted at those board meetings as some banks were able to make the program work. If in fact the Royal Bank is considering leaving the marketplace for P&C insurance, we shouldn’t see this move entirely as a win for our industry. Our point should continue to be that the Canadian public continue to be served by a very competitive insurance marketplace where the industry companies compete fairly with each other to the benefit of the consumer. The regulations for fair competition in this industry seem to be working to ensure that in the end the consumer remains the winner. The withdrawal of one competitor for whatever reason will not have any adverse effects on the consumer or provide a windfall for any insurer. With or without the Royal Bank of Canada, the marketplace for the distribution of P&C products remains healthy in Canada!

The only advice I might give to Mr. McKay is to take care the door doesn’t catch him on the backside on his way out!

So What Is a Reasonable Expectation of Privacy?

I had a commercial client who many years ago developed a service that kept track of rolling stock for municipalities. The service used geographic positioning satellites (GPS) data to track the location of equipment. The technology seems pretty routine these days with all the standard GPS stuff built into cell phones, computers, and almost all new-model automobiles and trucks, but back then it was a new world of information processing. Analyzing the data produced improved many efficiencies and security for the municipal authorities using the service. However, the benefits of this service were not well received by many of the employees who were soon to discover their whereabouts were no longer in any doubt. I remember several grievances were filed against one city by employees who held onto the belief that their privacy was being violated by this kind of scrutiny after several of them had been caught in some compromising lies about their locations. In the end, it was determined that their privacy was not violated since they were using their employee vehicles. Still, the spectre of big brother played out in the media and in the coffee rooms.

security cameraThe debate about privacy continues to take on new dimensions with the development of modern surveillance equipment and the ability of data mining software to analyze the data gathered. Without getting too deep on the technical side of things, most of us should readily perceive that much of what we do these days is digitally recorded by cameras in the community. Walking into a shopping mall creates a digital image of every individual and, with computer software, an operator can track your movements through the mall, the time you entered and left, and even the stores you visited. Do they have the right to do this? No laws prohibit the gathering of information in such a manner. As long as the information is not used to violate your legal right to privacy, your public activities are free for the review of anyone interested in gathering the data. Sounds kind of creepy, doesn’t it?

I was reading an interesting article about parking lot surveillance of automobiles. The idea of a parking lot attendant holding you up as you enter or leave a parking lot is long disappearing. Digital imaging software paired up with camera surveillance systems is now able to record your vehicle license information on entering the lot and match it to you in the exit queue, producing an invoice at the exit gate. Tap your credit card and away you go—a simple and easy process—but what happens to the data being collected to complete this transaction after you are done? Apparently, the vehicle data created by this software system is being pooled and made accessible for a fee to law enforcement and private contractors. The mining of this data is having great positive results in the recovery of stolen vehicles and finding fugitives hiding from the law. The private contractors who are looking for vehicles as security for loans in default and bailiff defaults are able to track the location of the vehicle and its occupant. Often, they are able to find this data before the vehicle leaves the parking lot it entered. A digital record of the vehicle license plate, driver, and the vehicle itself can all be made available for a fee. Apparently, you can run, but you really can’t hide anymore.

I have been polling friends on this topic, and the opinions I have received range from “If you got nothing to hide, then why would you care?” to “No one has any right to follow me around and no business sharing this information about me without my permission!” Watch for that sign at the parking lot entrance that disclaims responsibility for anything and advises you park at your own risk to expand to include a notice and disclaimer about surveillance. You have been warned.

In Closing

I am travelling again and find myself trying to get this project completed in between jaunts to exotic places. It’s always nice to find time to spend with the family or, as it goes now, for them to find time to spend with us! I received a number of notes on the last issue. A nice one was from someone who sends this on to her 80-year-old mother who looks forward to it. I am happy to see my work enjoyed.


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:  banks  competition  privacy  retail insurance  video surveillance 

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