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Young's Stuff 7.01

Posted By Thom Young (Full first name: Thomas Clifford John), January 22, 2018

Young’s stuff 7.01 for distribution January 2018

 

Happy New Year!

In that arbitrary way in which we mark times passing we are now in the 2018th year. This marks the beginning of my 65th year on the planet (the anniversary of which won’t happen until September) and I’m told that I should get my Canada Pension Plan application in the works because it will take 9 months to process it. The concept of efficient processing of applications is lost upon the government even more than it is with the insurers. Hard to believe that it would take 9 months to process anything in this day and age. Most of us are the ones doing the processing now too so where’s the hold up? 

 

If you are a follower of the endless bits of trivia that circulate you’ll enjoy these statistics:

 

After circling our sun for 364 and a ¼ times in 2017 the sun lost 174 trillion tonnes of mass keeping our planet warm and well lit. This reduction in its mass had the effect of reducing the gravitational pull on our planet resulting in the size of the orbit of our earth around the sun increasing by 1.5 centimeters.

 

At the same time, the moon moved 3.8 centimeters further away from the earth.

 

Meanwhile the Andromeda galaxy moved 3.5 billion kilometers closer to us while the universe itself expanded by more than 60 trillion kilometers.

 

The best guess is that while this was happening over 150 billion new stars were formed in the universe. No estimates as to how many stars burned out were given but the concept of a balance of sorts was postulated.

 

The beginning of a new year is a great time to take stock of your fiscal achievements. A personal assessment as to what you have accomplished in the past year and measurement of that against your long-term goals is recommended. Review things like how much longer you have to pay off your house or car, tackle the calculations to determine how much you need to set aside to take that big trip you’ve been dreaming about. The beginning of a new year is a good time to weigh these kinds of goals and reset the planning for things that you can touch.

 

Improving your emotional self worth is something to consider as well but if you want my advice I’d recommend you set that off for a couple of months. The short cold days of winter are very hard on some people in the Northern Hemisphere. Keeping a positive attitude and visualizing the good things in this process of life is challenging for many at this time of year. You can take comfort in the reality that each day is progression towards the reality of a little more light and warmth. There is a promise that spring will soon come and that with it the doldrums of winter will soon pass. The promise of spring brings the sensory joy of watching the awakening of life all around you. Trees budding and grass springing from the recently frozen ground is both pleasing to see and smell, and it stimulates the part of our brain that is full of positive expectations for us all. It’s much easier to make life plans when your perspective is shaped by the joy of spring.

 

So, speaking about insurance for moment……

 

Moving on into 2018 there are going to be a lot challenges before us. Not the least of which will be figuring out the ever-changing landscape for insurance and financial intermediaries. The distribution of insurance products continues to evolve with the development of new technologies and the products. Everyone wants a piece of that revenue generator called insurance and the development of new insurance products and the push to allow them to be sold with little if any training or regulatory oversight continues.

 

Products like the GAP insurance being sold by automobile and equipment dealers continue to be introduced to the market place. The people selling this coverage have a license that is essentially a permit obtained with a fee and they are giving people advice on what seems to be a pretty basic and simple product until they start answering questions about the underlying SPF 1 and SEF forms in relation to the coverage provided by the GAP wording. Recently a broker brought to my attention a discussion with an insured wherein the need for an SEF 43R was questioned by an automobile dealer when a GAP policy was put in place.

 

Where does the sales intermediary discussion on insurance moves from the point where you are licensed and held to account to competency by the regulatory body and simply trying to mitigate the risks to a lender without consideration of the consequences to the insured, the public is at risk. If you’re wondering, GAP cover doesn’t mitigate the need for a 43R on a new vehicle from the insureds perspective, although it makes no difference to the lender whose shortfall in cover by the underlying SPF 1 is covered by the GAP regardless. In the equipment dealership that’s arranging this GAP coverage their emphasis is on meeting the needs of the lender so the insured can get financing and the needs of insured are clearly not paramount. Of course, there’s no conflict there is there? (of course there’s conflict!)

 

If you discover an equipment dealer representative giving your client advice on anything to do with the SPF 1 coverage a quick call to the Alberta Insurance Council will produce a formal investigation by the regulator. The rules for selling GAP coverage require that considerable notice must be given to the insured about the shortfalls of the process and that the granting of credit can’t be conditional upon purchasing the coverage. There are already regulations prohibiting giving insurance advice without a license to do so. If someone in the process of selling something is giving advice on what you hold a license to sell and they don’t, make a complaint.

 

The last word on GAP coverage, much like title insurance coverage, is in my view unnecessary and sold in a conflict of interest with little if any benefit to the insureds. While many may challenge me on this with all kinds of hyperbole, the simple fact that the loss statistics on both these products consistently measure equal to the expense ratios of operations. Simply stated, all the premium goes to underwriting profit and expense ratios and next to nothing goes to pay claims. That in my opinion is a disservice to the public and brings our industry practices into disrepute. As usual, your mileage may vary!

 

So, there’s something to think about as the intrusion into our highly regulated business is constantly being weakened by exempted sales intermediaries. I was going to go on about the current failings of the travel insurance industry and the shortcomings in the advice given to customers by unlicensed and unqualified advisors, when you read about an 84 year old man being sold a policy of travel insurance when it clearly states on the application and policy documents that there is no coverage in the policy for anyone over 64, one wonders about the process. More for another time.

 

What do you think about the sale of insurance products by people who have no clue what they’re talking about, no training, no comprehension of the process and no responsibility for their actions? Should these people be licensed and subject to a knowledge level equal to the products they sell?

 

Send me an email thom.young@landy.ca or post a comment in the blog and let’s get a discussion going.

 

Government auto insurance?

 

I recently had a lengthy conversation about automobile insurance with a cousin who moved to BC to retire several years ago. She was quite distressed about the fact that while she moved from an urban environment to a rural one and has an excellent driving and claims experience record, her insurance is nearly twice as much for the same automobile as it was in Alberta. She’s been complaining about the price difference since she moved there but the new wrangle in the discussion was the move to introduce a minor injury cap on claims in BC and she wanted to know how it works in Alberta. It sure is a complicated discussion with a layman about how the essence of the insurance actually works. Even in the simplest of terms it made for a very long discussion. Generally, she seemed to get the gist of the reality that the premium paid is mostly determined by the amount paid out in claims. The efficiencies of administration cost not withstanding, the more claims paid out the more money that needs to come in.

Caps for unquantifiable damages for injuries in settlement of claims are not new and certainly have been in play forever. A closely guarded secret in every claims department is where the red line between a reasonable settlement is offered or a legal defense is mounted. For the most part the process works in a competitive environment as part of the checks and balances in the system. Limiting the amounts paid for legitimate claims is not the desired outcome of caps, but slowing the increasing amounts of money paid out for minor things that are difficult to quantify has been attempted with limited success since the beginning of modern insurance practices.

 

It certainly is without a doubt easier to impose limits when you are the only insurer. Having a monopoly not only lets you charge what you want but to some degree allows you to pay what you want too. A common complaint by repair facilities in the government insurance provinces is that the insurer sets the shop rates and the quality of materials in its assessment of damages. Trying to charge more gets you off the list of certified repair facilities and that can be bad for your business. Of course, we can’t just whine about government insurers doing this as we all know to some degree or another many regular insurers attempt to do the same thing, however their ability to do this is tempered by the competitive reality of the marketplace and getting a bad reputation can make things difficult to maintain market share when you must compete for it. As far as minor injury caps go these provide a defined benefit approach to settling injuries, left undefined injury costs and premiums will continue to rise and that is a market disrupter we don’t need.

 

I for one think we’re safe from government interference in the insurance industry in Alberta, at least in the short term. The political motivation for action on insurance has historically come about in an unhealthy insurance market and things are going well for our industry at the moment. There’s certainly no political motivation to do anything and even where the industry is promoting adjustments to regulations that it supports, the government has no desire to act.

 

What do you think about minor injury caps? Should caps be increased, decreased or are they fine where they are? Send your comments to thom.young@landy.ca or feel free to input in the blog below.

 

In conclusion…..

 

I’m working on an issue about the technological changes affecting our industry. Everything from self driving cars to artificial intelligence and how it will affect our industry. I spent about 5 minutes talking to a girl named Darla who was trying to sell be health insurance before I realized I was talking to a robot. She was very good, intuitive and logically responsive. This is the way telephone sales is evolving in a number of businesses. When a robot calls making a survey of who your insurance is with and when it expires the basis for data mining will be greatly enhanced. Interesting times.

Just to note that no regulatory changes have been processed since my last report. License equivalencies remain pending the approval of the finance Minister and there continues to be no indication that it will be forthcoming any time soon. Pass rates for the Level 3 license continue to improve but…..

 

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.

 

 

XXX

 

 

 

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