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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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IBAA Convention, RIP David Bowie, Uber Regulation and Coverage, IBC’s 2016 Top-Ten Consumer Tips, Financial Scams, Blog Notices

Posted By Thom Young, January 19, 2016
I can’t believe we’re on the second issue of the new year already. I’d be reminding people to write 2016 on their cheques a few years ago, but I don’t know many people who use cheques anymore. I think I’ve written two in the past year, and remembering what date to put on them doesn’t seem to be much of an issue anymore. The times do continue to change, don’t they?

I received a notice the other day for the IBAA 2016 convention on May 15–18 at the Fairmont Banff Springs. This will be a fabulous opportunity for you and your key people to network with insurance brokers, insurance industry partners, and regulators—and even to meet me in person! Outside of all the partying, you can attend insurance education sessions, welcome IBAA's incoming president Julia Marshall, get involved at IBAA's Annual General Meeting, and connect with the Insurance Brokers Association of Canada and IBAA board members and staff. Where else do you get the chance to meet with some of the best minds (did I mention that I’d be there) in the industry? I’m sure someone has a record somewhere of how many of these I’ve attended, and I know others who’ve attended nearly twice as many as I have.

The price of attending this annual event is a bargain from my perspective, especially if you get your application is in before the end of this month so you’re eligible for the “early bird” discount of $100 on the whole convention package. The early bird savings ends at the end of this month, so get your registration in now! You can do it online by clicking here.

An Ode to Excellence—the Passing of a Musical Legend or the Making of One?

The past week recorded a sad note with the news of the death of David Bowie at the rather young age of 69. Cancer took this very talented fellow from us too early in my view. Although a number of people I know have no idea who he was, his influence on the world we live in was extraordinary. I think the first time I heard the word androgynous it was in the context of Bowie’s rather outlandish stage presence in wildly coloured outfits, crazy makeup, and even crazier hairdos that left many wondering about his gender. All this was at a time when the pluralistic perspective that many of us share today was just in its infancy. Still, the music he produced transcended the outlandish projections he used to sell it. He was one of the pioneers of music videos at a time when technology didn’t lend itself to easy sharing, and his absolute excellence as a musician and performing artist identified him as leader in his field. He did very well as an actor as well.

Artistic talent doesn’t always translate to genius, but most artists have exceptional abilities beyond those we see in their art. Bowie was one of those people. In the latter half of the 1990s when the music industry was suffering the effects of advances in technology that brought about devaluation of musical works, Bowie bundled his work into a bond asset (Bowie bonds) that allowed him to value his work for a period of time and to raise the money in the bond market for an effective return. Subscriptions to Bowie bonds were taken up mostly by the insurance business. The rate of return was very good and, unlike the majority of derivatives put together at that time with mortgages and leases, proved to hold its value to redemption. Bowie proved to be an astute financial manager as well as a talented performer.

I recall a very warm evening in September 1983 when I attended a Bowie concert at Winnipeg Stadium. Part of the Serious Moonlight tour, the concert was the largest ever held in Winnipeg with over 40,000 people in attendance. I can’t say that at the time I was a huge fan, but I had an appreciation for a number of his tunes. The promoter of the venue in Winnipeg was a client of ours at the bank I worked at, and the future mayor of Winnipeg offered front-row tickets that were gratefully accepted by several serious looking bankers. I thought I looked a little out of place and actually felt a little old, but the show remains one of the very best I’ve ever attended. The music was perfect and the stage antics outstanding! RIP Ziggy!

More about Uber

It seems you can’t go a week or more without hearing something about Uber in the mail and in the industry press. The files I keep with ideas for these blog articles have so much discussion about ride sharing that I’m having trouble keeping the notes in one place. The first item of interest is the effect of “surge” pricing in the Uber application that made headlines in Edmonton and elsewhere. The price you pay for a ride with Uber seems to operate on a kind of sliding scale. The more the demand, the higher the price. This pricing is fair according to Uber because it encourages a competitive response from participating drivers (they can make more money) and the increased pricing is very well disclosed to customers with text alerts and notices as the increases are determined. Great for Uber and their drivers, but no so much for the consumer.

Responsibly arranging for transportation after celebrating on New Year’s eve saw one fellow watch his $150 car ride turn into a nearly $1200 charge to his credit card. While Uber is standing by its story that the price is fair, that view is not likely shared by the fellow caught in this bind or by the regulator or members of the public who demand protection from these kinds of scams. As I’ve written before, the reason the livery business is so highly regulated is the graft and abuse it attracts. Even with modern technology notices in place, this business seems to need a high degree of regulation to ensure that the public isn’t getting screwed. I’m sure Uber would disagree.

Reasons for regulation to ensure fair play in a marketplace abound, and Uber or any other kind of public service is not exempt from them. An interesting article in the Globe and Mail makes a good case for regulation, focusing particularly on the exploitation of the drivers.

On the other hand, the old rule of supply and demand has brought about a responsible reaction to this new exposure that our customers participating in a ride-sharing program have presented to our industry. Aviva has taken the initiative to introduce an endorsement providing a reasonably priced endorsement to an automobile policy to allow for the occasional use of an insured vehicle for these purposes. I expect soon that competitive pressure will bring other companies to the marketplace, and the matter of uninsured drivers will, for the most part, be removed from this discussion. I note as well that a number of companies are verifying their underwriting confirmations with their clients during renewal and putting them on formal notice that they are not covered when using their vehicles in ride-sharing programs. These efforts should go a long way to deflate the “No one told me” defence that we’ve seen when insurers decline to participate in any losses involving a ride-sharing scheme.

Doubtless, I’ll be visiting this topic once again in the coming weeks.

Insurance Bureau of Canada Top-10 Consumer Tips for 2016

Pass these tips on to your clients. They’re definitely good talking points to initiate a review of coverage with your clients. While they may seem like just common sense, any adjuster will tell you that common sense isn’t very common!

IBC's Top-10 Tips for a Safe New Year
  1. Review your insurance policy to ensure that you have adequate coverage.
  2. Shop around to find the right policy for your own unique situation.
  3. To prevent possible slips and falls, keep your walkways and front stairs clear of snow and ice.
  4. Create or review your family emergency plan.
  5. Update your home inventory list by adding new items, including gifts received over the holidays. Note the approximate value of the items, including makes, models, serial numbers, and any other identifying marks.
  6. If necessary, hire an appraiser to determine the value of works of art or jewelry to avoid a possible claims misunderstanding.
  7. Take photos or a video of your home's contents.
  8. Keep your home inventory list, and photos or video of your home's contents, in a safety deposit box, a fireproof safe, or in another secure location away from your home.
  9. If you are renting, ensure you have tenant's insurance. A landlord's policy will not typically cover your personal belongings or liability.
  10. If you have questions, speak to your insurance representative.
For further information, contact IBC's Consumer Information Centre at 1-844-2ASK-IBC.

I used to offer to keep my clients photos and inventory lists in their files. Now a days it’s even simpler to add this stuff digitally to the client records so that their own records are backed up with yours—just another simple thing to help your clients.

Be Careful Out There, People

While we often take for granted our own security in today’s interconnected world, scams continue to circulate because they work. Every day someone is caught up in one of them. I receive between 40 and 60 email messages daily, and just about every day I get a notice that my personal information has expired at one bank or another or that my PayPal account is in need of an update. I bank online and know that my bank will never email me to ask for an update. All real bank communications are done on a secure link when I sign in. Even with those, I may call the source directly to confirm the process. I’m cautious because I follow a discipline learned from experience that not all things are as they seem to appear, particularly when communicating with people you can’t confirm by remembrance. Ensure you talk with your clients and staff about these scams so that people are wary and aware. I had a message the other day that Revenue Canada had issued an arrest warrant for me and I’d better call the given number right away or there’d be big trouble. Sometimes these things are amusing. Still, it’s annoying to know that people get caught up in them.

If it looks too good to be true, it probably is. The advance-fee scam is a version of “I’ll send you a cheque, you deposit it, and then send me a small fee to cover my costs of doing you this favour.” Sometimes they mail you a cheque that looks real enough but, if you deposit it, the cheque will be returned as phony. Of course, the fee you sent will be long gone by the time you find out. Currently, FSCO has sent a warning that “Allstate winners” in Ontario are being sent phony cheques from “Allstate.” No doubt, this scam will make its way here. Catching the perpetrators is difficult, and the scammers multiply like flies. Take one down and two more pop up. Be careful, and let your clients know that their insurance companies will not likely ask for a fee if they send them a cheque.

In Closing

I’m wondering how many are enjoying this new hyperlink delivery system for this column. I don’t seem to be getting the feedback on controversial subjects that I did before. Am I boring you, or has everyone had too much to do over the holidays? I suspect the more likely case is that people don’t know that they need to subscribe to receive notices that a new blog was posted. Please go to the Your Network page on www.ibaa.ca. Follow the links through to the Young’s Stuff blog. Make sure you've logged into the IBAA website so the system knows who is subscribing. At the top left of the page, click “Manage Subscriptions.”

Young's Stuff subscription

If you have some ideas or thoughts on topics you’d like to see covered here just comment on the blog or drop me an email anytime.

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:  bonds  David Bowie  finance  financial scams  fraud  IBAA convention  IBC  Insurance Bureau of Canada  IT  livery business  regulation risk management  ride sharing  safety tips  taxi regulations  Uber  Young's Stuff subscription 

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Uber Confusion

Posted By Thom Young, August 27, 2015
Holidays continue to cut into the production schedule. Attempts to get this done have been made in four provinces and one other country. Thank you for your patience.

Uber? This innocuous Germanic word is one of those strange ones that can mean a number of different things depending of the turn of the phrase. Loosely meaning about, over, or even better depending on the inflection or context of the phrase it is used in, it has made its way into the English language as a noun referencing several different business enterprises. From our insurance perspective, it means confusion on automobile coverages for people involved in a ride-sharing program. In its simplest form, a ride-sharing program hooks you up with people who share the cost of a trip to a common destination. The Uber phone app simplifies the contact process and makes it immediate. Confusion arises, however, with the commercial aspect: a person with a perfectly good automobile and some free time can offer Uber services at a fee, which makes it a livery business with driving services and automobiles for hire.

The structure of the modern taxi business has evolved from a chaotic free for all. In the beginning, drivers with a horse and buggy could cruise the streets of a town or village offering rides for a fee to whomever they wished at whatever rate they wished. Following pure capitalist form, at busy times rides cost more than when the demand was limited or when the competition was intense, and equipment standards and driver qualifications were virtually irrelevant. The term caveat emptor (buyer beware) certainly applied as customers had no assurance whatsoever that their interests were being protected, and they were often injured in person or in pocket by the services offered.

The public was not very well served, and the industry had quite a reputation for both taking advantage of their customers and caring next to nothing about their safety. Additionally, the industry was rife with graft and crime—routes and stops were often controlled by organized criminals who ran a protection racket skimming money from even the most honest hack. Because of this reality, the taxi business became and still is a highly regulated and intensely supervised business. Rules cover everything from the condition of the vehicle to the kinds of insurance needed to operate a taxi. Further, becoming a taxi operator requires a fairly large investment of capital to obtain first a license and then a vehicle. It’s not hard to imagine why the taxi business is up in arms about wide-open competition from a group of independent, unregulated, and unsupervised operators who have none of the regulatory expenses to deal with and can cherry pick the best locations and clients with a technological advantage. Those of us who participate in our highly regulated industry should be a little understanding of how unfair this discrepancy is to the honest hard-working cab drivers.

Considerable evidence is mounting that people providing and taking ride-sharing services through Uber are not properly insured. Public liability coverage is a bit of a grey area as Uber does purport to provide some form of overlapping coverage for those who participate. While I have looked at the wording, I’m not prepared to make a committed statement to either its adequacy or inadequacy until someone challenges it before the courts and the Canadian judiciary weights in on the scope of coverage. I do know from my cursory review that there are enough potential gaps to drive a cab through. Certainly, the statutory conditions in the owner’s SPF 1 would preclude any payment for physical damage incurred by a vehicle in this service. The conditions involve two issues of disclosure and change of use and touch on a specific exclusion. No coverage would apply outside of the statute coverages for the third party under section A and occupants under section B, and the owner would be liable for reimbursement if these coverages were triggered under the statute.

Many of us have had a number of clients approach us over the past couple of months about their coverage when providing this service. No doubt, we all have been clearly conveying the short comings of their policy for this ride-sharing service and clearly warned them about the possible consequences of losses that might occur. If you’ve been unclear or vague on the topic, you should rethink your position. The Superintendent of Insurance offices have circulated a memorandum to all General insurance license holders on what they feel are the short comings of both the personal coverage for the undisclosed use of a vehicle in the Uber program and the apparent short comings they see in the much-vaunted insurance coverage that Uber claims will protect the service providers. We’ve already seen a number losses in which people who have been participating in the Uber program found themselves uninsured for their own physical losses and in doubt about the limits of coverage for third parties.

These stories have recently made their way into the industry press and supplement the frequent news coverage of cab drivers’ angst over the encroachment of the Uber system on the taxi market and the discord amongst civic authorities on Uber’s interference in the regulation of the livery business. Uber is certainly here to stay. If the regulatory authorities want to reign in the effects of Uber’s disruption of regulations and lack of insurance protection for all participants in the Uber process, they need new legislated tools to do so. The regulatory authorities need to quit whining about the change and respond to it. Municipal and provincial entities need to produce new enforceable regulations and begin policing them. As a broker, I’ve got nothing but bad news for my customers about their personal insurance coverage and really little in the way of reasonable options to present my clients if they want to obtain coverage for this exposure! On top of that, my clients are being told by Uber not to worry because they are covered by its policy, a statement we know to be untrue!

Remember when all we had to worry about was our clients delivering pizza with their private passenger insurance coverage?


That’s all for this week—from Manitoba, Mexico, Saskatchewan, Alberta, and BC. Follow the bouncing ball!


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:  livery business  public liability  ride sharing  SPF 1  statutory coverage  taxi fees  taxi regulations  third-party liability  Uber 

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