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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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Marketing Seasons, Remembrance, Alberta Fiscal Health, UBI Behaviour, Oil and Gas

Posted By Thom Young, December 1, 2015
Updated: November 30, 2015

How Many Days until Christmas?

Now that the flap over Christmas decorations displayed before Remembrance Day is over, I guess we can enjoy the real beginning of the Christmas season, unless of course you celebrate American Thanksgiving. Before people protested that a change to the Christmas marketing season prior to Remembrance Day was disrespectful to veterans, they complained about Christmas marketing before American Thanksgiving. Historically, the fall decorations celebrating the harvest were removed during the last week in November, and up went all the Christmas decorations. Music in the shopping malls quickly changed to classic carols, and lineups to see Santa began. The current transitional marketing seasons seem to be working. The vast majority of shoppers don’t seem to mind that the seasons run together. If they didn’t like the atmosphere being created for them, they wouldn’t go to the malls.

Speaking as a veteran, I believe that if you took a moment out of your busy life on November 11th and thought for a minute about all those who have made a sacrifice for their nation, and if you wore a poppy in remembrance, then that “remembrance” is good enough for me. I wouldn’t be bothered a bit if you were putting up Christmas decorations while you did that. While I’m sure I do not speak for all veterans, most of the veterans I know feel the same way. In my youth, at eleven minutes after eleven on November 11th, buses and cars pulled over on the street and men stood with their hats off and their heads bowed, school was interrupted for announcements, and then all stood for a brief silent tribute in memory of all who served. This unified action of Canadian citizens was quite a thing to witness and participate in. Many of our citizens vividly remembered the horror of war as they were survivors of it, so the act of remembrance was very real to them. Still, after this short meaningful tribute was over, people got back in their cars or went back to their desks and got on with whatever it was they were doing. The practice of devoting a whole day and a civic holiday to remember our veterans came much later. Now that very few of the generation that participated in the 2nd World War are left, I sometimes wonder what they would have thought of the new generation’s take on this act of remembrance and the controversies that always seem to arise about it. For my generation of veterans, the seemingly endless attempt by others to find things that are disrespectful to veterans is both annoying and confusing. Lest we forget.

Interesting Times in the Fiscal Health of the Province of Alberta

So far the political transition for Albertans and especially for those of us who have business dealings with our provincial government has been interesting. On the energy side of things, no consideration has been given to any relief for this industry that is suffering from the steep decline in oil prices. As no one has any control over the price of any internationally traded commodity, no fault can be found with the government for the price of oil. However, as the industry once again goes into hibernation to await the return to profitability that increased oil prices will bring, some declarations of support and patience from our government would provide some confidence for both investors and industry leaders on what the future will hold. Instead, we see next to nothing of any substance and no leadership whatsoever. The capital risk takers will not likely have much incentive to take this opportunity to improve their operations while awaiting a market correction. The rumours persist that increased royalties and environmental restrictions are in the offing. Nothing like being kicked when you’re down, is there?

Our Albertan economy is not as tightly tied to the yoke of the oil and gas industry as it was in the mid-1980s when the collision of international price volatility and domestic resource policies saw capital flee and production grind to next to nothing. Still, the current situation is unsettling with the large number of variables at play here. Suffice to say that the oil and gas industry in Alberta is not very happy with the current competitive environment that will continue to slow down production and shelve large projects until confidence returns.

On a positive note, the surplus supply of labour and equipment has greatly reduced development costs. Perhaps now would be the time to put that advantage to work in repairing and improving the infrastructure of our province. Maybe another lane on that QE2 would improve safety and reduce travel times. An actual ring road around Calgary would improve the transport of goods. Highway 2 south still wanders through a half dozen little towns and would be improved with freeway completion. In the north, twinning completion on Highway 63 to Fort McMurray and Highway 43 to Grande Prairie would save many lives.

The distribution of oil and gas ties together economic and environmental considerations. Our country is self-sufficient in production of oil and gas but can’t find a way to reconcile the benefits of that reality with a distribution system that gets raw materials to the refinement centres and the product distributed around the nation. Instead, we compete for delivery of unrefined product from foreign sources that subject us to wide price fluctuations driven by international events. Whoever thought this plan up has to be asked why. Discussion of building a pipeline to deliver the product from source to market now results in a huge uproar about the environmental implications. This is confusing given that the oil going to those production facilities now is floating up Canadian rivers, rolling along on Canadian railroads, and being pumped through aging pipelines from the shore facilities. The potential for an environmental catastrophe in the current model is more pronounced than bringing the product to market on a new pipeline. Perhaps we should now ponder this mystery from an economic perspective, rather than the political one.

People Behave Better under Supervision

A recent report on the use of UBI in Canada observes that installing in an insured’s car a device that monitors driving behaviour produces better driving. Who’d have thought? A couple of years ago, I predicted that the main benefit of UBI to the public would be the change in behaviour (and thus fewer claims) that would result from this monitoring. The benefits of UBI continues to be an interesting philosophical discussion within the industry as, statistically, the benefits for the insurer in using UBI to select better risks may well now outweigh the use of UBI to make better risks out of the drivers using it.

This debate continues in the U.S., where UBI data have been collected 10 more years than in Canada. The active monitoring of underage driving behaviour in the U.K. has been producing huge benefits in both selection and the modification of behaviour of this class of business. The stellar results in regard to this class of business makes one wonder if its use should be mandatory.

Certainly, the continued development of smart technology is changing all facets of our industry. Most smart phones record continuous data on your location, speed of movement, and other information such as the temperature. The introduction of the data from these devices into trial evidence is now routine in both civil and criminal law. New automobiles are coming with built-in LTE Wi-Fi. Within the next 10 years, your new automobile will have all the features of your phone built directly into it and will sync with your phone whenever you enter your vehicle. Real-time video recording of all that is happening in and around your vehicle or what people are doing to it will be built right into the vehicle’s CPU, so disputes as to fault for anything will be much simpler to resolve. As this technology continues to develop, some people may not even see the fact that they are being monitored while using it, while others will increasingly raise public debate on where personal privacy ends within and without your home. In particular, we’ll all need to reconsider the authorities we give people to use our personal information and images as the significance of that license continues to change.

Looking into the Future Is Fun

While predicting the benefits of new technology on our business and society is interesting, we need to remember that many things change while others remain the same. Constancy is particularly true of human nature. Roman philosopher Marcus Tullius Cicero, born around 100 years BCE, influenced many things still felt today. Of particular note, his writing on the constitutional regulation of people’s rights and the division of power in a republic are still found in contemporary teachings on the subject. We often hear little snippets of his ideas on many things quoted to support opposing sides of a debate. On state funding though, his thoughts rarely deviated. I do enjoy one of his best quotes:

 "The Budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt.  People must again learn to work instead of living on public assistance."—Cicero, 55 BCE

Even today, I don’t think you will find too many tax-paying people who would disagree with this perspective on things. As we in Alberta ponder the irony of throwing out a fiscally irresponsible government and replacing it with a more generously philosophical group in protest, the teachings of the past should not be forgotten.

In Closing

I received a memo from my staff the other day reminding me that it’s time to get the annual Christmas letter done. In all the years I’ve been in business, I’ve written a brief one-page essay each Christmas to share with our customers and our business partners. For me, there is no greater reminder that the holiday season is soon upon us. The challenge to keep that message new, refreshing, and relevant is an interesting one. For now, the challenge of hosting American Thanksgiving is more pressing.

The news is focusing on roads closing due to snow storms and cold weather. Bundle up, people. Winter is just starting!

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:  budget  privacy  provincial economy  Remembrance Day  telematics  UBI 

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