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New Year Changes, GAP Insurance, New Beginnings for Refugees

Posted By Thom Young, January 5, 2016

And a New Year Is Upon Us

Looking back at 2015, it’s hard to imagine the changes we have seen take place. Who could have predicted that oil would fall to below $35 dollars a barrel or that the Canadian dollar would drop to below 72 cents? Who’d have thought we’d ever see an NDP government in Alberta or the fall of a fiscally successful Conservative government in Canada to a party running on expanded deficits and relaxed social mores? I wonder what 2016 will bring us.

I’ve little doubt that at some point we’ll see a return to normalcy here in Alberta, but who knows what that means? Alberta’s provincial politics have always been split by an urban versus rural dichotomy. While the turbulence this causes is easy to see in the internal workings of all the parties, the recent imposition of the urban perspective on the operations of family farms has crystallized the divisions in that party.

Discussing politics in a public forum is dangerous. Trying to remain neutral on the issues is bound to annoy as many people as you please. As I’ve often said, change is good. New people with new ideas and perspectives always make for better responses to the challenges of governing a growing society. The world my father envisioned was much different than the one my generation created. My children are shaping the future for my grandchildren who will no doubt one day also complain about the new generation taking over and find fault with the manner in which things are done. I often tell my friends who start ranting about the way thing were, the way young people dress these days, or corruption in politics that they are beginning to sound like my dad did. When I join in, I often remind myself too!

I’m a fan of folk music. The mixture of poetry and rhythms has always intrigued me. Much like writing, the medium provides clarity and lets you communicate with the world in a powerful manner. One of the first folk songs I learned was written in 1964 by a then 23-year-old poet who still can’t sing a lick but paints pictures with words that become masterpieces. His real name is Robert Zimmerman but you probably know him as Bob Dylan. His big hit from 1964 is as poignant and true today as it was when I was just 11 years old!

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you is worth savin’
Then you better start swimmin’ or you’ll sink like a stone
For the times they are a-changin’

I don’t know how that would sound set to rap music, but the message wouldn’t be changed.

GAP Insurance

Have you heard of GAP insurance? Your clients may approach you with information about it from someone else and ask you to explain it. If they do, pay close attention to the description they give, the literature provided by the salesperson, and their perception as to whether or not the purchase of this coverage is “optional” within their agreement to purchase the automobile or equipment in question.

This product is sold mostly by auto and equipment finance dealers to clients who are financing their purchases beyond the values of them. It may also be introduced to clients who are refinancing their current loans. GAP stands for Guaranteed Asset Protection and in effect covers the lender for shortfalls in the underlying insurance. While it can be used for automobile financing, it is by definition a property coverage and, therefore, falls outside of the provisions of regulatory restrictions in wordings for automobile policies. The coverage has been around a while in the U.S. and England, and has been marketed in Alberta from other Canadian jurisdictions. Soon it will be subject to a restricted license regulation requiring the people selling this product to meet some minimum requirements to ensure the public is protected, or at least that the sales people are accountable to someone if they violate the regulations.

Of particular concern to me is that the product is ripe for tied selling with undue influence. Much like the issue I have with creditors selling life and disability insurance products with their loans, the position of influence these people have with regard to the underlying transaction gives the purchaser the perception that the loan may not be approved unless the “optional” insurance product is purchased. As with insurance, anything that will reduce the risk (in this case, of granting credit) will influence the terms and conditions (in this case, of the loan). I’m fine with an ultimatum for the client that says “get the insurance or no loan,” but not if it transfers into an ultimatum that says “take our insurance or no loan.” This product is particularly at risk for this transfer since it has, as yet, little competition. We can’t sell it through our markets and can obtain it only (at this point of writing) through a sub-broker arrangement with a Manitoba broker, even though our office represents the company that sells this product. Without a competitive market for the coverage, a loan offered with this coverage as a condition isn’t giving the customer any options but to purchase it from the same person offering the loan.

The regulations concerning this new product are being considered along with the restrictive licensing. While I cannot presume what the regulations will actually look like when they clear the superintendent’s offices, the license holders will most likely be mandated to disclose fully their compensation for arranging the coverage, and they will also likely be mandated to disclose fully to the customers that the coverage is not a prerequisite to getting the financing.

I’m not a fan of the coverages and have opposed its introduction into our Alberta marketplace. I don’t see it as a benefit to Alberta consumers and, if I did, I would prefer that it be available only through properly licensed brokers who understand the product and coverages, rather than through a permit holder in an auto or equipment dealership. Still, as the coverage is being sold extra-provincially, finding a way to regulate it is better than letting it be sold without supervision.

My research on this product in other jurisdictions shows it’s very lucrative for the insurers offering it with loss ratios below 10%. The fee structure for the sellers is unregulated and normally capitalized into the loans being insured, so it’s quite lucrative for them as well.

New Beginnings for Many

I’ve never been a fan of making New Year’s resolutions, especially when they’re about changing negative behaviour—eat less of this, do less of that. The process is doomed to failure in our northern confines. At the coldest and gloomiest time of our year, do we really want to give up something that gives us comfort? Nope—the best days to set in action a plan for positive personal change is when the winter darkness begins to release its grip on us and the sun starts to warm our days. The snow melts and the trees bud. Finding the discipline to carry forward a self-improvement plan is much easier when the land reawakens with the promise of new life. Wait for spring to give up the donuts and buy the gym membership. Your new exercise machine is less likely to be a clothes hanger in the laundry room when you can work on it in daylight! That’s how I see it, anyway.

Speaking of new beginnings, it was heartwarming to see refugee families from Syria, Iraq, and Afghanistan being welcomed in cities across Canada. Much of our country is built on the backs of immigrants from around the world, and Canada has been in modern times a beacon of hope to those trying escape oppression in foreign lands. In my life I’ve seen refugees arrive in my country from Hungary, Czechoslovakia, Cambodia, Vietnam, Lebanon, Uganda, Somalia, and a half dozen other places. I’ve often wondered how difficult it must be to leave your homes to secure your family’s safety in a strange country. I know many didn’t choose to come to Canada but came because it was a safe place. Once they got here, they quickly set down roots, got their kids educated, got themselves jobs, and built businesses that have contributed immensely to our nation’s wealth. They are very proud Canadians!

I’ve heard many naysayer’s arguments over time. One of the current rants is that the young men should stay and fight for their rights in their own country. Another is that we should look after our own in need before we reach out to help others. Some say we should slow down and do better background checks to ensure these people are not a threat to our society. Each of these naysayer’s arguments has a little bit of truth that gives their lame arguments some validity. Still, the reality is what it always has been. In the chaos and fog of war, millions of people are displaced and on the move, their homes destroyed, their communities razed to rubble, and they leave with little more than the clothes on their backs and the coins they have sewn into them to pay the cost of fleeing to safety. We cannot stand idle and watch them suffer. While it’s easy to make excuses to do nothing, it’s just as easy to find reasons to do something. A young couple at the airport the other day were offering people from a foreign land toques and gloves they had recently bought. The gesture wasn’t a lot, but it was something. If all of us do something, we can make the world a better place. It doesn’t have to cost anything to be a decent human being! Put your fears behind you and put on that welcoming smile. You’ll be surprised by the smiles you get back!

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:  change  Conservative  credit-granting institutions  federal government  GAP insurance  Guaranteed Asset Protection  NDP  provincial economy  provincial government  refugees  rural  tied selling  urban 

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