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Young’s stuff 6 08 for distribution fall 2017

Posted By Thom. C. Young (Full first name: Thomas Clifford John), October 22, 2017

Young’s stuff 6 08 for distribution fall 2017





It’s been a very busy summer for me, and I apologize to my readers for my inability to find the time necessary to bring you these stories in a more regular manner. The project has been taking a back seat to some more pressing issues but I will try to get my time better set aside to get these out more regularly. If you have any topics that you’d like to engage me with or see me focus on, this is now posted in a true blog format for members of the IBAA and starting a conversation on any topic is as easy as clicking a couple of buttons on the Blog page and tapping out a few thoughts. I will immediately respond and others following will be advised so that the timely exchange of ideas will be served. Of course, you can also engage with me privately at any time by sending me an email at which come to me directly and as many of you know I respond quickly and directly to each email I receive. If you’re reading this on Facebook, LinkedIn or Twitter, responses within those formats will be responded to directly as well!



** IMPORTANT ** Alberta General Insurance Council elections!


Every General Insurance license holder in Alberta has received an email from Election Buddy on behalf of the Alberta Insurance Council with a hyperlink to a ballot that allows them to vote for their choice for a position on the General Insurance Council. The link shows the 5 nominees who are standing for election and has a little bio on each. You click on the link from the email, review the people and their bios and click on a box for your choice. The site verifies your choice with you and you’re done. The whole process takes about 5 minutes, some more, some less but it really is a very simple task. The reality up to now has been that less than 10% of general insurance license holders invest this simple amount of time in making a choice for who is going to represent them and their industry in the process of developing policy that will affect them and adjudicating and disciplining those who bring our industry into disrepute. It is appalling to me the apathy that exists here. Here is a memo that I sent to all the license holders that I sponsor:


“You may or may not know I sit on the GIC and the topic of participation in these elections is often discussed at the board meetings, especially when there’s nearly 12,000 eligible voters and less than 1,000 actual invest the 5 minutes it takes to do so. While I go on about this in discussions about voter turn out at the meetings I’m more than aware that you license holders who are sponsored by me rarely vote as well. You have all received an email from the AIC uniquely coded to your general insurance license number that links you to Election Buddy’s web site. Only you with your AIC recorded email address can access this to vote. Take that 5 minutes and select one of the 5 candidates running. I know personally most of these people and any one of them would make a great addition to the AIC/GIC team. The GIC has some serious work to do fixing regulations and making policy that affects YOU. Have some influence in the process by selecting someone to represent you. Most other jurisdictions don’t get to choose the people who make policy and sit as their judges, you do but there’s been talk of changing that in Alberta because no one seems to care. Do you want to choose the next member of the council or have some bureaucrat or politician make that choice for you?”


I know you’re at your computer reading this, just a few more minutes of clicking your mouse and you can say you made a difference! I’ve already voted and it only took 2 minutes!


You have until November 1, 2017 to cast your ballot, so make this a priority for this week and get it done!


Market disruption in Alberta for General Insurance license holders and businesses….


This story is for the Alberta General license level three people or as they are more commonly known as the Designated Representative’s out there. Those who are one, those who were one and might want to be one again and those who might want to become one all will be interested in this story. It’s also pertinent to anyone who might want to sell their brokerage to someone or bequeath it to their heirs. Every brokerage has a Designated Representative and every brokerage is only a heart beat away from having to deal with the problem of getting a new DR in place within two weeks!


As a result of the general insurance licensing regulatory reforms that came into being in 2012, severe adjustments to the licensing standards were made in Alberta. The education standards for all General license levels were changed and new examinations came into play for each level of license. The immediately noticeable results of these changes were the seeming inability of newly recruited customer service representatives to pass the level one licensing examinations. At one point the pass/fail rate dropped below 30% and the industry began making a lot noise with the regulator at the amount of resources being wasted at recruiting. When only one out of every three people you hire and train can pass the licensing exam, the costs to your business are immediate and two-fold, you spend a lot of time looking for and qualifying people and your business suffers through lost opportunity and poor service issues. The issues with the level one license pass fail rate were nothing compared with the virtually awful failure rate for the level 3 with a nearly 85% failure rate! As a result of the agitation of our industry the AIC set out a plan to undertake a review of the license standards and study material with the industry for each level of license.


In consultation with the industry stakeholders a complete review of the curriculum design for preparation of examinations for each level of license holders took place and a new curriculum design came into play at the end of this review. This process took nearly 3 years and I’m not so happy to report that so far as the level 1 license exam goes, the pass rate is now back to the unacceptable 40% (or so) that it was before we began the review and with regards to level 2, it seems that the pass rate is climbing but still not to the extent that would indicate that the review and rewrite of the exams has accomplished the goals set out at the beginning of the project. So far as the level 3 license results go, it does seem that people are now finally able to pass this exam but the number of attempts do not produce a sampling large enough to make a verifiable statement that this problem is solved and all of the industry education stakeholders have commented that the curriculum for the level 3 exam continues to test for advanced insurance concepts that have virtually nothing to do with the role or responsibilities of DR in a general insurance brokerage. Every brokerage must have a DR but holding the bar to the same conceptual level of proficiencies for the DR of an Alpha House employing thousands of agents as that of the corner store insurance brokerage focusing on personal lines coverage and employing 3 or 4 agents is absurd. Even more absurd is attempting to measure the competency of an individual in advanced insurance concepts through the application of a multiple-choice examination is a totally dysfunctional way to make that measurement. Every educator will tell you that the higher the complexity of a question the harder for the candidate to choose “the best” answer from 4 choices. This is why advanced concepts are tested on long answer essay results. Despite this obvious situation the AIC has continued to put forward a multiple-choice examination for this critical license that is difficult to pass and not relative to the role of the DR’s function.


Let me be clear hear that I have no issues with testing for advanced insurance concepts for the positions within our industry that require knowledge of them. Certainly, the level 2 license has been structured for that expectation and insurance concepts should stay in that level of testing but the level 3 role is one of regulatory responsibility and all about the regulations surrounding market conduct and the role of the person in the brokerage that ensures qualification for and compliance with the regulations and statutes. Having an understanding of reinsurance concepts and components of advanced risk transference has literally nothing to do with being a DR in Alberta (or anywhere else so far as I’m aware) nor does understanding the tax codes for Canada or employment standards in Alberta, yet we’re continuing to test on these things for some reason.


In general, it can be said that the Alberta licensing regulations are pretty much the most difficult to deal with in all of Canada, we have step licensing in place but no regulations providing any reason for them. The regulations we do have are confusing and give us little in the way of defining the rules and penalties for failure to be in compliance. In fact, the penalties for poor market conduct come from violation of the statutes governing market conduct, not from the regulations. It is very difficult to justify the licensing structure as it presently exists and it won’t be fixed until our industry challenges it at a political level.


Consider that under the existing regulations an Alberta level 1 license holder operates unrestricted in service to the public and can solicit, arrange any plan of coverage and bind the coverage without the need of any assistance from any other level of license holder. On their first day at work they can without restriction write any kind of risk without any help from anyone. The Regulations provide a nefarious and confusing reference to the level 1 agent being supervised but all that really means is there must be a higher-level license in the organization and as there must be a DR in the organization there’s the assumption of supervision but no requirement for it and no penalty for the failure of it. The level two license besides allowing for the undefined supervision of an unrestricted level one licence holder is pointless except for compliance with the prerequisite of two years at this level prior to being able to become a level 3 DR. Of course, this begs the question that if the level 2 license holder has no ascension in responsibility over a level 1 what is the point or need for obtaining a level 2 license if you do not at some point want to become a DR?


We’re consistently told by the Alberta Insurance Council that these regulations came about through industry consultation and agreement but as long as I’ve been in this industry I have never found a reason to support such a intrusive set of regulations governing the operations of a business nor can I find anyone other than the regulator speaking out in support of these regulations in Alberta. Even stranger is the reality that one would normally expect that the motivation to put in place such a strict set of regulations governing the customer service market would be in response to a failing of the existing standards to protect the public. Isn’t that what would be the role of a properly functioning regulator, to define a failure in the market place and put in regulations to correct poor market conduct so that the public isn’t at risk? Well I can tell you that every General Insurance complaint received by the Alberta Insurance Council from any source is documented, investigated, summarized and reviewed, discipline is given where due with due process in the conclusion of every investigation. You can examine the public record for the past 25 years and you will find that the number of infractions is miniscule by measurement to the number of license holders with no uptick at any point to suggest a need to harden or complicate the licensing process. You can find no evidence in review of this data that new general insurance agents are the cause of more complaints than experienced ones (in fact I believe the review would conclude the contrary) and you can find no evidence that there has been any increase or decrease in the findings of fault in investigations of all license holders. There’s nothing in the data that would indicate that the Designated Representatives (which just used to be a license holder nominated by the brokerage with no regulatory definitions of qualification) were subject to more investigations and sanctions before or after these new regulations were put in place nor any instance that I can recall where a DR was sanctioned for noncompliance with the new regulations.


You can conclude by my review that in my opinion we’ve seen much regulatory change in Alberta that has been extremely disruptive to our industry for which one can find no substantive reason for implementation and for which one can find no benefit to the public because. It should not have happened but it has.


We are in dire need of restructure and review of the way the general insurance industry in Alberta is regulated and represented. No one can claim that the General Insurance regulatory changes implemented in 2012 came about because of full and proper consultation with the industry.  Had they been the issues we’re dealing with 5 years later would have been resolved before they arose. I believe that if proper consultation had been in place with the implementation of the new education standards we’d have seen education equivalencies in place for each license level as in every other jurisdiction in North America. I think the logical expectation as well that information would have been provided to the industry education stakeholders so they could properly prepare a course syllabus and allow for proper teaching constructs to allow candidates to successfully challenge each of the levels of the exams.


Alberta and Ontario are the only provinces that demand that the Designated Representative in a Brokerage must pass an examination but the exam in Ontario focuses on the regulatory responsibilities of the DR, not on insurance knowledge and concepts. Alberta and Ontario are also the only provinces that have set an administrative barrier to becoming the DR in an insurance brokerage by requiring that a certain amount of time at a lower level of license be in place before you can hold the position of the DR. This has caused severe issues with the start up of new brokerages and the transference of ownership of established ones in both jurisdictions. I’m told that in Ontario there are several hundred brokerages where the DR is a surrogate lending his/her name to the process so that the operation of the corporation isn’t impeded by the lack of a DR. I know in Alberta that there are several dozen similar operations where the DR isn’t affiliated with or have an equity position with many brokerages for which they are the DR. In both jurisdictions this is skirting the regulations intent but not outside of them at law. Just as well though, there’s no indication from any review that the public is being impacted or disserved by these arrangements. As I stated at the outset of this essay, these regulations in Alberta came into place despite any indication that the previous status quo needed amendment.


We have a problem in Alberta and it needs to be fixed! What do you think needs to be done to get some action underway to correct the problem?



Catastrophe follows catastrophe follows catastrophe…….


Well the predictions for more severe and frequent storms began in earnest following the record breaking hurricane seasons of 2004 and 2005, but those predictions didn’t come true until this year which may break the records again. Perhaps that means the cycle is 12 years? I don’t know but I do know that the historical records of damage from Hurricanes striking land go way back, but the meteorological records that detail anything that can be seriously analyzed only go back to the 1970’s. Still, the level of destruction from events like Harvey this past August is unprecedented. If you consider that in the suburbs of Houston nearly 150,000 homes sustained severe damage with over 100,000 of them as a result of severe flooding which resulted from record rainfall, not storm surge. Data is still being developed but I’m told than over 70% of the dwellings dealing with water damage from flooding are less than 25 years old. Why these subdivisions were built upon a provable flood plain without any mitigation such as retention and draining infrastructure is anyone’s guess? Certainly, the survey technology and flood mapping was available to the city planners who authorized these residential developments, they can’t claim that the topographical information wasn’t available 30 years ago, it was.


Now one has to measure how much these losses can be attributed to a predictable event like a hurricane and how much can be attributed for failing to build to allow for that event. Whether we’re experiencing more severe losses as a result of weather events or we’re experiencing more severe losses as a result of where and how we are building our towns and cities should be a primary part of our efforts to understand how we should be mitigating future losses. I’m as concerned about the damage from the storms as from the failure to mitigate them. People affected should be too. We’ve seen in our own province what the failure to engineer residential developments properly can do in the face of an extreme weather event. Over 300 dwellings in High River were complete and total losses from flood damage in 2013 despite the best efforts at the time to mitigate the potential for this peril. It is my personal assessment that much of those losses occurred by failure to understand the potential of the flooding and even to allow for the possibility of the breach of the levee’s designed to prevent the damage that occurs. Plan A failed and there was no Plan B. In Houston it would seem that there wasn’t even a Plan A in place.


Right on the heels of all the hurricanes comes the tragedy of more California wild fires. I first learned of this from a client who called to ask me if there was anyway to insure for the business interruption of his business caused by the destruction of his supplier’s inability to supply him with Cabernet Sauvignon grapes destroyed by the North Napa Valley fires. Events that occur all around the world have direct consequences to our industry and people right here in Alberta.


Flipping on the news I immediately saw that the construct of this loss was huge. Over 4,500 homes and untold numbers of businesses caught up in the conflagration of 100 kph winds blowing fire along the wilderness valleys north of Napa, California. While watching an overview on TV the announcer was using a google overhead of the area showing the fire damage and aptly described the movement of the fire as following the border between the developed area and the wildlands and pointing out that the abutment of these two areas lacked any adequate fire break to prevent the movement of the fire or to even allow the firefighters to stand against it. New developments right up to the forest edge were apparent in the mapping of the damage. Again, reinforcing the need to mitigate for the possibility of losses from perils like this when developing our cities.


In Alberta the failing of our defenses and resources to prevent catastrophic fire losses were pointed out before and after Slave Lake and again after Fort MacMurray. An Emergency Measures expert indicated to me that there are over 75 cities, towns and hamlets in Alberta that are in the direct path of a possible wind driven fire and with a shortage of resources to fight fires as well as the lack of fire break defenses. There’s also very little being done to fix this problem. As we saw in the Southwestern Alberta fires last month and the grass fires near Medicine Hat, much more must be done to prevent these serious losses and we should be getting work done to fix this now, not after the next dry season and corresponding fire outbreak. The political reality of this needs to be addressed at every level of government! As well, our industry needs to buck up and get on this here and now. Communities that are not protecting their citizens need to be identified and shamed into getting busy at it. The simple refusal of insurers to provide coverage where they are well aware of the risks of sever catastrophic loss is the first step in getting the problem resolved!


What do you think? How should our industry react to the failure of municipal planners to mitigate catastrophic losses? In the UK municipalities receive a rating from the insurance advisory boards that bands the risks based on the assessment of perils and the towns efforts to mitigate them. Levee’s and water retention engineering to prevent water losses are rated on effectiveness after scrutiny by engineers. Separation of structures and developments from forests and industrial exposures are evaluated. Where the risk is assessed the rating is public and there’s quite a bit of motivation on the part of the civic authorities to improve those ratings because the costs of financing, insurance and taxes are all factored into the cost of housing and development based on those ratings. Hard to sell a house where the costs of insurance are three times what other houses cost to insure in other communities. Hard to finance a house purchase without insurance. Hard to promote your community with that black flag hanging over it.


This is an issue as we begin moving in North America to map these exposures and the industry is receiving considerable resistance from municipal authorities who are not excited about their risk exposures being identified and publicized. I would think though that its long past the time for this to begin to happen. The costs of insurance are born by all of us, the essential actuarial assumptions define the need for normal risks for premium to be shared fairly. Where risks exist that are excessive and could be mitigated, the costs of insurance and even the availability of it should be reflected by the nature of the risk and efforts to limit the possibility of it. Fire suppression equipment in a restaurant is virtually mandatory for these reasons, you can’t get insurance without it, you can’t get a lease or borrow money without insurance and bylaws have been enacted to protect the public from the fire exposure on restaurants without fire suppression equipment. I think you see where I’m going with this!


With the recent introduction of residential overland flood coverage in Canada there’s finally been an effort underway to prepare risk maps to accurately determine the actual risks relative to the locations being insured for this new peril. Of course, risk mapping by its nature lends itself to proper analysis of all perils, not just flood. For most of Canada there has been little done on risk mapping for overland flooding or anything else since the 1960’s and that’s sad because much of our urban developments in the past 50 years have expanded out into the flood plains around all our major cities and disrupted the prior infrastructure. Consider recent events in Slave Lake Alberta or Fort MacMurray, where the existing risk management maps held no relevancy at all to the current stage of development in these communities. It should be no surprise to anyone when a mini supercell hovers over a city like Burlington Ontario for 3 days and produces a flood event that had no historical equal causing billions of dollars of mostly uninsured losses occurs. Post analysis of the event shows that losses could have been reduced to nominal interruptions in commerce waiting for water to recede. The post analysis also determined that efforts to mitigate water losses had not allowed for the potential catastrophic effect of a stagnant weather system dumping huge quantities of water for such a long period. Further new development around the community had not built in the necessary drainage capacity and in effect had the effect of funneling water downstream to an area already overwhelmed by the event. Sound familiar? Same thing happened in Alberta in 2013 resulting in the High River, Okotoks and Calgary flooding events and as much as we’d like to hope we’re prepared for the next one, I like to remind people that we’re only 3 days of rain away from finding out. I have little doubt that when that happens we won’t be as prepared as we think we are.


As I’ve written previously, severe weather is the new reality. Hurricanes, windstorms, supercell rain events, storm surges in coastal areas, F5 tornadoes both in greater frequency and arriving in urban areas. I have no reason to believe that we’ll be able to change the weather anytime soon but I know we can build better, smarter and out of harms way. We’d best get at this now. If the houses that were destroyed around Houston are rebuilt in the same places without any improvement in drainage or flood mitigation then we’ll be paying to rebuild them again in short order. That would be silly!


As I finish this the news is reporting another 1,500 homes lost in the North Napa Valley area from uncontrollable wild fires. Nearly 10,000 firefighters are battling the blaze and they thought they had it under control yesterday afternoon but it thought otherwise. The scope of the destruction is horrendous and as those of us in risk management know, it could have been avoided with a little better municipal planning.


I’d Love to hear other thoughts on this!






In conclusion………


As many of my readers often point out when these essays get out in the 4,000 word range they are difficult to read. Well I’ll point out that there’s about three issues worth of Young’s stuff here so if you’ve plowed through to this point you’re caught up with my commitment to the project. 😊


On the topic of regulatory reform and the effects of it, I must point out that our industry through the General Insurance Council has a voice that can be heard and brought forward in both the making of good regulations and fixing bad ones. To have that voice you need to vote. Find that email from election buddy and make a choice for someone to represent us. You have until November 1st to get it done!!! Do it now!!!



Normal disclaimers apply:


The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below (you need to be logged on for the link to appear) or email Thom Young privately. Thom also encourages suggestions for topics.








Tags:  Building in the right places to avoid losses  Preventing Catastrophic losses  Regulations causing market disruption  Voting for GIC rep 

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