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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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Risk Management—Common Sense, Regulation, and Insurance—Organ and Tissue Donation

Posted By Thom Young, April 7, 2015

Risk Management in the Modern Era

There’s an email that circulates among the older folk that observes it’s amazing we all have lived so long. We had none of the currently omnipresent restrictions on our play activity. Common sense was the process that guided us into to doing the right thing. Those without common sense often suffered the fate of Darwinism—their failure to survive the challenges of our youth and their inability to contribute to the gene pool made our species stronger. That was the theory then, anyway. I think of this principle when I travel to third-world countries where things seem to work their way through without all the intrusions. Ultimately, some fail to use common sense and suffer the expected consequences.

In an old story about an American lady who fell into a hole in a sidewalk on a downtown Mexico City street, the statement of claim contained all the usual boiler plates—the city and its contractors were negligent in allowing this terribly dangerous obstacle to exist and should have taken many steps to protect the public from injury. The defense of the case was simple—the city produced seven days of video monitoring the hole in the sidewalk exactly as it was when the plaintiff fell in it. By the city’s account, over 3700 people passed by the hole (which had a pylon on both sides of it) and no one fell in it. Case dismissed? Well, not entirely. The city had to pay a small amount and cover the legal costs of the plaintiff, but the award was abnormal by Canadian standards. The plaintiff was found 90% responsible for her own damages because she failed to watch where she was going. The contractor was fined for failing to follow the city regulations that require holes to be covered and proper barriers in place to prevent the public from injury.

Often people lose sight of the reason for regulations concerning individual behaviour. As a motorcyclist who spends a lot of time in the U.S., I’m often asked why I wear a helmet all the time when I ride. The reason is simple: it protects me. The law really isn’t my motivator. When my second child was born, the law still did not provide any incentive to wear a seat belt in an automobile, but we decided to purchase a car seat for our new baby. From the day the car seat was installed, everyone wore a seatbelt in my car to ensure that one of us would survive to look after the guy in the car seat. Funny thought, but a true story. The adjustment period was difficult for the older child who had become accustomed to bouncing around the car and sitting in her (unseat-belted) mother’s lap or sleeping in a bassinette set down on the back the seat. It’s amazing we survived. The aforementioned car seat was likely the cause of many injuries as it was banned from use about ten years after I bought it.

A lot of the risk management procedures that have become regulations initially developed in our industry as attempts to limit the costs of poor individual and business practices. Intense analysis of the causes, consequences, and costs of losses informs the highly competitive selection process in our industry, and we have become very good at it. Our activities eventually prompted the public authority to enact regulations to limit the damage from those individuals who fail to follow the risk-management discipline developed by our industry. Often we hear about the zealous regulator creating obstacles that are both expensive and unnecessary, but these regulations come about not as a result of altruistic attempts to protect people so much as through the reality that limiting personal injury or property damage through regulations reduces the cost to the state in dealing with them. Those who fail to follow the discipline needed to manage their own risks properly offload the costs of this behaviour onto the state which, as the ultimate insurer of the people, receives adverse risks with no selection or mitigation other than by regulation. An actuary might call this the ultimate adverse selection process.
 

How To Make a Difference in Someone Else’s Life

If you’re around a registry office in our province this month, you’ll see a number of initiatives being made to encourage people to sign the authorization to become a tissue donor when processing an Alberta Health card change. National Organ and Tissue Donation Awareness Week (NOTDAW) is from April 19th until April 25th, 2015. Registry agents will be asking about organ donation and providing informational material in support of giving permission for organ donation. Registry agents will be wearing green lanyards showing their support for this cause.

I find it difficult to understand the need to have a discussion about such a simple thing as allowing your earthly remains to be put to some good use helping another before they are discarded in a ritual of remembrance of what a person gave to the world. No matter how much money you amass and leave to help others, nothing could equal the difference you could make in other people’s lives by simply agreeing to donate tissue and organs. This gift of health and recovery is simple, painless, and important.

Did you know that over 4500 people in Canada are on waiting lists to receive organ transplants and thousands more are waiting for tissue donations? That’s 4500 people in pain and suffering whose lives are diminished by a need that is so simple to fill. Over 700 Albertans are on that waiting list for organ transplants.

So here’s what you need to do. Stop what you’re doing right now. Get out your Alberta Health Card, flip it over, and read what the back says. Discuss it with your family, sign it, and have one of your family members witness it—painless and productive work here, ladies and gentlemen, work that will make a difference in the lives of others sooner than you think!

If you haven’t got an Alberta Health card, or the one you have is old and ratty, get on down to the nearest Registry Office and order one. This is one of the few government services that is still provided for free. After you sign it you can laminate it too!

While much information is available on organ and tissue donation, the Alberta Health website posts some handy FAQs.

While on this topic, I have long said that the premise of organ and tissue donation should be an implied consent and not a formal one. That is, if you don’t have a stated and recorded objection to it, then agreement to donate should be assumed. A consent form should not be required in the normal process. Those who object should have a place to record their wishes and have them honoured, but, otherwise, donation should be a mere formality of notice to family members when organs and tissues are harvested to help others. This debate needs to continue, and I offer this opinion in closing to stimulate that discussion.

In Closing

March has come and gone in its usual chaotic manner. I can’t say it came in like a lion or went out like a lamb as our winter was only a brief inconvenience in Western Canada anyway. Spring, for what it is, has begun in Alberta, and the promise of the new year begins with the cycle of tilling and planting. Economic prospects are not as bad as predicted, nor as good as they could be. We will soon be before the polls once again, asked to choose which brand of conservative principles we wish to govern our prosperous and successful piece of Canada. This is a cynical observation my friends, no need to challenge me on it.

Sheldon Casavant, illusionistWe are very quickly coming up on the annual IBAA convention, which this year will be held in beautiful Lake Louise. I am as always looking forward to meandering around that venue in my highland garb and will of course be very happy to see in person many of you who have taken the time over the past year to dress me up or down on my commentary here.

Looking forward to it!

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:  common sense risk management  insurance risk management  organ and tissue donation  regulation risk management  risk management 

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