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Flood Coverage, Broker-Direct Balance, Stampede Breakfast, IBAC (CAIB) Volunteers, Orlando Massacre

Posted By Thom Young, June 21, 2016

Flood Coverage

In my discussion of federal political advocacy last issue, I mentioned that the politicians all seem to be very aware of and interested in our industry’s response to the need for flood coverage. I’m always quick to mention the terms “overland water” and “sewer backup” in the discussion because people need to know that the changing dynamics of these coverages seem to be merging them into one. In order to drive flood coverage towards premium adequacy, you can’t have one without the other in some markets. It’s a saleable perspective: if you are in an area where you should be concerned about a sewer backup, you should be also concerned about overland water. Most people will agree that the proximate cause of most sewer backup is actually overland water. Combining the two coverages eliminates “the chicken and the egg” claims discussion that generates public confusion and protest when one side of the street is covered. This random coverage is an ongoing issue because many companies are still not providing any coverage for “overland water” perils and are offering only the old “sewer backup” endorsement. This competing coverage is now both a public issue and a broker E&O nightmare.

The failure of the insurers to develop a standard of coverage that is set out in common wording and is used by all companies referencing this protection will likely be a major issue for our business. No company or insurance adviser is immune from the confusion that will arise with the next catastrophic loss in a major urban centre. If we as brokers are advising clients to take coverage with one company or another but are confused by the variances in the wording and the special limits for “overland water” or “flood” coverage, we will not be able to describe the differences sufficiently for the client to understand the coverage and make an informed choice. Consequently, we will be held responsible for any shortfall in the coverage that causes the client an uninsured loss. Of course, the insurers will suffer the same challenges and may even be found liable to the public for failure to set a standard of coverage, but any liability charges would be years after the headlines sullying our reputations have long passed.

The political perspective on disaster relief programs may further jeopardize public good will. Some provincial and federal politicians have suggested that the programs in place for uninsured losses from flood can now be reviewed and the budgets for them limited so that these funds can be freed up for other needed programs. Well, the reduction may not be that simple. As most brokers will tell you, “overland water” coverage is excluded for those living within 300 meters of running water and the new forms won’t likely even cover “sewer backup” for these folks. When these exclusions become apparent after the next weird weather event, don’t be surprised if you’re asked to explain what happened. I can’t help but note that, as I write, the community of Dawson Creek is suffering from just this kind of thing. I know everyone’s tired of hearing me quip that we are just three days of rain away from a repeat of the 2013 flooding that devastated Calgary and High River. I recently toured some of the work underway to mitigate the Highwood River’s potential to create havoc again. While mitigation is happening, we’re far from prepared to deal with the kind of flood we saw just three years ago.

Nature Abhors a Vacuum—Eventually Everything Finds a Balance

The issue of “broker” companies entering into the direct-writing business is always foremost in discussions between brokers. Of particular concern is the manner in which the competition takes place and the use of the data accumulated from the customers for further sales and marketing by both the brokers and the company. The other main concern remains the name by which the competition takes place. It should be clear to anyone that competing with your brokers by using the same name as that used to write the business the broker sends the company is seen as a breach of trust, a violation of the exclusivity anticipated in the contract between the broker and the company and just downright wrong! To further belabour the point, the public is also very confused when they see the same name on the insurance contract that is on the broker’s wall and advertising. They expect to receive service and advice from the broker. Well, this confusion will of course sort itself out, eventually. If a “broker” company wants to be a “direct writer” under the same name as it is a “broker” company, then it will damage the relationship. Their support from brokers may wane to their detriment. All things being equal, I believe they will either have to commit fully to participating in the marketplace one way or the other.

With more competition in the direct-writing market, the direct writers may well be gearing up to hold their market share by offering their products at the same price through the brokerage market. According to Canadian Underwriter, “CAA Insurance Company announced on Thursday (June 16, 2016) that it has appointed 17 ‘well-known and experienced brokerage firms across Ontario’ to provide its customers with more choice.”

This is quite a move for an affinity-group insurance company. Would a membership in the Automobile Association come as part and parcel with an insurance application? I wonder as well if the agent will get a fee for this part of the transaction. Auto clubs have affected the insurance industry before. The roadside assistance endorsement SEF 35 was created to provide a direct competitive response by the insurance industry to the entry of automobile clubs into the automobile insurance markets. An actual Auto Club package that provided some of the auto club services such as mapping and hotel planning used to be sold by brokers for one market. Now most that has gone by the wayside—no need to spend an hour talking about a road trip with someone when you can simply Google a route (complete with turning directions) and immediately get a whole bunch of information on all the amenities you might need on your trip. As in most of the travel industry, technology has taken over the heavy lifting, leaving little money for the service providers, but the affinity group of auto-club members continues to survive. In Alberta, their operations seem quite healthy, and they compete actively in the insurance and travel marketplace. I wonder if they will be appointing Alberta brokers to represent them. If not, I’m pretty sure they’ll be watching the success of the Ontario efforts closely. I know I will be.

Stampede Breakfast in Calgary, Wednesday, July 13, 7:00–11:00 a.m.

9705 Horton Rd. SW, CGY, Southland parking lotCome and join around 1500 of our closest friends for a regular old-fashioned western whoop up. There’ll be lots to eat, world famous chuck-wagon drivers, line dancers, and a live band. It’s our 23rd time, and I think we’re starting to get it right. This has turned into an “all industry” event that you don’t want to miss. It starts early enough that even the 15 people in Calgary who do any work that week can get in on the fun before they get to the office.  

IBAC Volunteer Work—CAIB Review

I’m working my way through the chapters of CAIB 2 covering business interruption and crime coverage and reviewing their content for relevancy and accuracy in our ever-changing marketplace. Reacquainting myself with the material is interesting: I find I learn more by teaching than I ever did by studying. As I’m plodding along with this project, the thought crossed my mind that those of you far more in tune with the current market than I am might have helpful contributions to these topics. If you, do I’d be happy to include them in my overview of the suggested changes to the instruction program. For example, we’ve come a long way from the old 3D wording as the basics for crime coverage, but all the new package stuff just builds on the old foundation. I wonder if tossing out the basics might hinder comprehension of the reasons the new package works the way it does. Many of you are far wiser on this topic than I, so I’d welcome your ideas. The email address below is my personal one. Feel free to drop me a note.

In Closing

Real life is stranger than fiction—watching the news these days sure hammers that saying home. The events unfolding to the south of us make me pause and reflect. The aberration that occurred in Orlando leaves me simply overwhelmed with grief for the people killed and injured and their families. I can make no comment that makes any sense of this. It is just so sad. Something has to be done. While I can hope for change, the lack of it after the massacre at Sandy Hook leaves me with a fatalistic view, believing that it will continue to get worse before it gets better. Pray I’m wrong!

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:  broker channel  CAA  CAIB  competition  direct writer channel  disaster relief  Hill Day  insurance industry reputation  mitigation  Orlando massacre  overland flood insurance  sewer backup insurance  Stampede breakfast 

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Flood Coverage Confusion, Demise of the Broker, Driverless Cars, AIC Online License Application

Posted By Thom Young, October 7, 2015
Well, the frost is certainly on the pumpkin in Southern Alberta. As a rather large flock of Canada geese heading directly south flew right over my place, the last one looked back at me as if to ask “What are you waiting for?”  Our fall departure for the southern climes has been delayed since our usual date coincides with the birthday of our middle grandchild. We’re not allowed to be away until after that. Besides, I’ve still got much to get done here this fall, so my Canadian perspective on things remains pure at the moment.

Flood Coverage Confusion

In addition to the usual number of interesting things to talk about at the couple of industry gatherings I’ve attended in the past few weeks, “flood” coverage and its limitations seems to have generated quite a bit of confusion. Many people are concerned about the new limitations on sewer backup endorsements that insurance companies are slipping into customer renewals. The implications for E&O exposure on the broker side are staggering. Clients may think they have coverage but don’t if the proximate cause is “overland water.” If a nearby creek over flowed its banks 72 hours before or after the sewer backup, then the proximate cause is “overland water.” In the past, many of us wondered why sewer backup would respond when the proximate cause was flood, an uninsured peril. Questions of this nature used to be answered with a blank stare, but now an actual wording limits the cover. Do clients still have good coverage? Try explaining the coverage and all the limits and exclusions when, as a broker, you’re not sure about the benefits yourself. The real kick on this will come with the next major flood event, which could be next year or not for five. The interpretation and, more importantly, limitations and exclusions of these coverages will not be firmly established until we meet up with a catastrophic loss. I worry about my customers and the way these changes impact my responsibilities to them.

Advice on the “overland water” coverage provided by various companies is even more difficult. The only wording I’ve been able to secure is the one from Aviva. I’m told that The Co-operators has one on the market and that Wawanesa and Intact are soon to enter into the competitive fray, but I’ve no idea how one product compares with another. Explaining the differences must be very confusing for a personal-lines CSR. A jaded person might suggest that the new coverage isn’t sufficient enough to move forward with a competitive response in any great urgency. We are back to the original conundrum with flood coverage. The coverage needs to provide adequate distribution of risk and sufficient premium to deal with claims. These are interesting times for insurance brokers and even more confusing for the buying public. Oh well, who needs brokers? I’m sure an internet link will eventually provide all the correct answers.

The Demise of the Broker

Once again the industry press is predicting that insurance sales intermediaries (the fancy legal term for sales people) are on the road to redundancy. According to those who claim that you can find online information to purchase just about anything without any assistance, sales people are irrelevant, an unnecessary distraction, and perhaps an annoyance. Online information sites are becoming better, they claim, and giving intelligent choices with proper information prompts to allow the consumer to purchase increasingly complicated things without the need for a company representative. These statements are all true but, and it’s a big BUT, one of the most important parts of arranging a contract that promises to do something in the future is the meeting of minds when the deal is struck. When only one mind is in play, the value of the contract is uncertain because of potential misinterpretations. The legality of the contract may be suspect as well.

Look, I’m not one of those anti-tech people. I’m all for using any available distribution method to get our products and services out to the public, but at the end of the process a real person must negotiate the interests of all parties to the transaction to ensure that their real needs are met and the legal process of the contract is respected. I support the notion that the value added of a properly trained insurance adviser will continue to be an important part of the distribution process for all insurance products. Any suppliers (insurance companies) that fail to understand the support they get from such an individual risks their business success. All of the technical simplifiers, online applications and quotes, information algorithms, coverage prompts, and flashy digital pictures used by the insurance companies serve only to drive to the finished transaction between two people, the insured and the broker/agent. The manner of this meeting could be changed by technology, but the importance of it and the value to all parties won’t be.

Speaking of Human Redundancy, What about Driverless Cars?

As the technology continues to advance in this field, we are very close to the tipping point where these vehicles become a reality in the norm. No longer just a strange thing, they will be reliable and cheap enough to become a common sight in many jurisdictions. Getting to this stage won’t be easy. Many hurdles will need to be jumped before the legislation becomes uniform enough to operate these vehicles in different jurisdictions. Further, the reliability of these vehicles in operation will need much demonstration, documentation, and proof. Who is going to insure these vehicles? Who is the insured? Current legislation in Alberta would likely see the vehicle insured in the facility market. The insured would be the owner of the vehicle as per the statute wording of the SPF 1, which defines who is insured. The owner would include the driver whether that be a computer with AI capability or your brother-in-law who borrowed the vehicle while visiting town. The driver will need to be more properly defined, but such definition is not an insurmountable obstacle as the usual operator (normally the owner) would be produced for the application record. In my view, the functional manner in which that person operates the vehicle or delegates its operation would be irrelevant (I repeat, in my view—legal disclaimers abound—this is my opinion). Definition of the driver may have some grey areas that may challenge the regulators, but let’s hope they’re looking at it now and have some kind of contingency in place to deal with it when it happens. Our Alberta regulatory response to changes in our business has tended to follow the leaders instead of making good changes for our market by being the leaders (again, IMHO)!

If anyone thinks we’re talking about something way off future, think again. On last report, 48 vehicles are being operated in a California Google study. These vehicles operate in a highly dense urban environment and function extremely well all on their own, with no human intervention in the completion of their assignments. Yes, some minor accidents have involved these vehicles, but none of them can be defined as at fault—so long as you don’t use the other drivers’ distraction at a driverless vehicle as an excuse. The tests incurred some minor injuries in accidents but, again, they were due to the manual operation of the vehicle by technicians. No reports have been made of any traffic violations in the operation of these vehicles. While only four states have made provisions for autonomous vehicle operation, their use will doubtless soon be expanded to new jurisdictions in short order.

The concept of a self-driving automobile lets the mind wander into some interesting possibilities. For example, in a Top Broker editorial, Jeff Pearce discusses flying cars.

Certainly, driverless cars have a huge number of benefits. All of the advantages of having a chauffeur come to mind.

That $26 a day you pay in parking won’t be much of an issue. Just send your vehicle away to wait for you to tell it to come pick you up. Where you send it might be an issue, but I’m sure you could program around that hitch.

Auto theft would become an issue of the past. Imagine trying to steal a car that’s driving you to the police station, emitting an alarm, and has already sent the police a picture it has taken of the crook trying to steal it. Following that logic, your vehicle can become part of your home security system, keeping an eye on things around the house and reporting suspicious activity to you.

What about the kids needing to get to the rink or to dance? No more juggling schedules or negotiating with other parents to get them there and back—just send the car (or the other parent’s car).

Studies claim that the average person who lives and works in a high density urban environment spends as much as four months of their adult life looking for a parking place. Imagine how many more clients you could see if your car just dropped you off and came back to get you when you were done. Your productivity would increase substantially.

The technology has huge implications for the insurance industry, most of them very positive. Loss ratios on automobile insurance are composed substantially by administration and adjudication costs. Imagine the elimination of arguments regarding fault by the ability to review 360° digital recordings of the accident scene prior to the accident, during the accident, and after the accident? Much less discussion will be needed to determine who did what and who should have done what. The mind boggles. In some insurance markets, recording technology is already making a difference with the mandatory use of GoPro technology in commercial automobiles. We’re moving that way here too as the price of this technology declines. The price won’t be an issue when it comes built into your next automobile.

The mind can wander into the future. We can embrace new technology and work with it, or not. Based on my own musings here, the positives far outweigh the drawbacks. We certainly won’t be talking about distracted driving anymore, and underage drivers will be in a different class than they are now. The future is ours!

New Technical Frontiers

Speaking on the issue of technology advancement ….

As one of your representatives on the General Insurance Council, I’ve been working to resolve an amendment to the cumbersome regulations surrounding the DR’s role in recommending an individual for a license. As it now stands, only the DR is able to sign the application to sponsor an individual for a license. The DR is not able to delegate this authority to any other individual in the office. While this duty likely isn’t much of a burden for those operating a smaller shop with only one office and a few employees, the larger the brokerage, the more cumbersome this requirement becomes. New hires in branch offices are often stuck in an unproductive limbo waiting for the paperwork to get completed to give them the proper authority to act as an agent. If the DR is away on holidays or sick leave, further unnecessary delays can occur. In the logical flow of things, particularly in a multiple-office brokerage, the branch or office managers are responsible for the all functions of their location. They recruit, hire, and train new staff and are entrusted with all the duties of a self-directed senior manager except the submission to the regulator to transfer or change the license of one their employees. The DR in head office needs to sign the paperwork physically. I’ve maintained for years that this requirement is inefficient, impractical, and unnecessary. I know many other DRs share my perspective.

Recently, the AIC sent out an email advising of new online provisions for Levels 1, 2, and Probationary New License Applications. If you have not done so already, I strongly suggest that you familiarize yourself with the contents. Transfers and Level 3 General applications are still being handled in the old manner, but I’m told these procedures will also be updated. DRs can now delegate supervision of these online application preparations. DRs still need to endorse the submission to the AIC, but, now that it’s online, DRs can review and digitally endorse the transaction from wherever they are. This provision should provide greater efficiency and speed up the process.

I wonder what the take up is and will be on this processing ability and if it will in fact reduce the amount of paperwork. I will be asking questions about the new process at the upcoming GIC meeting and encourage your feedback on this topic. While I’m supportive of these changes, I still feel the process can be adjusted to provide for the complete delegation of the DR’s authority within larger organizations. I can’t seem to get the point across that the delegation of authority doesn’t negate the responsibility. Please let me know what you think.

In Closing

It’s hard to remain focused and unbiased given the political climate at the moment. It’s hard to be complacent with so many issues before us and so many different points of view! Still, as I voice my opinions in this column, I want simply to remind everyone to exercise the right to express your opinion at the ballot box. I cannot stress enough that this ability is your ultimate right to self-determination. Your vote can help change the things that are bad in the world and make a difference for everything that needs to be supported. This right has been fought for through many generations. The equality demonstrated by the line ups at the voting booths is one not shared by many other people in our world. Tyrants and brutal cultural influences that mute the voices of the people don’t belong in a modern society. Many young people in our new technological society don’t see the need to use this franchise or don’t believe their actions make any difference. They see the “trending” perspective instantly on issues and can’t understand how slow the process of a functioning democracy is to change. That slow process becomes even slower when people don’t vote. Politicians won’t think about to your concerns if they know that listening to your problems won’t get them a vote. Make a difference and get involved. Get out and vote. If you don’t care enough to get out and vote, you can’t later complain about what the government is doing!

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:  Alberta Insurance Council  Aviva  Aviva overland flood policy  broker channel  competition  customer service  DR authority  driverless cars  Google  GoPro  Intact  online insurance  overland flood insurance  sewer backup insurance  The Co-operators  Wawanesa 

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