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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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Opportunities in Change, Baseball’s Effect on Insurance, Uber Is Coming, Self-Driving Cars, Alberta Budget

Posted By Thom Young, November 3, 2015

Opportunities in Change

Shortly after the stunning defeat of the Alberta Conservatives, I wrote a rather lengthy column called “Change Is Good, Donkey,” which focused on the positive side of changes that affect our society. The phrase originates in the children’s movie Shrek, when Donkey, the ogre’s sidekick, laments that recent changes are so terrible they can never be overcome. Shrek imparts this phrase with such effectiveness that I often quote it to emphasize that negatives caused by change more often reflect one’s internal circumstances than real hindrances of the future. Rethinking your approach to new circumstances presents an opportunity to correct deficient processes and to find better ways to take advantage of new circumstances.

I like to think I’m a half-full kind of guy and have always attacked problematic issues with the perspective of “what can we learn?” and “how can we build on this?” While this perspective is not always easy, it leads to growth. Whether you’re running a business or deciding where you’re going in life, you will always suffer setbacks that can crush you or provide an opportunity to focus on what can be done to ensure that they either don’t happen again or won’t affect you as badly. Changes will test your resolve, your point of view, and your perspectives on many things, but adapting to these inevitable changes is the only option that will improve your outcome.

The recent changes in the Canadian political landscape present some opportunities. New and younger people with different perspectives are taking control of many areas. Certainly, that can’t be bad.

Canadian evolution into a more pluralistic and tolerant society is truly something to be celebrated. In recent years, we seem to have been more able to find fault with our differences than to enjoy the strength of our diversity. We have plenty of need to fear (and protect against) extremism in any form but need not sacrifice the strength of a Canadian mosaic to feel safe from it.

We certainly have much room for people who are looking for a safe place to live, raise their families, and build their net worth through honest hard work for others and through the use of their own capital and expertise to build businesses that contribute greatly to our economy. We also understand the difference between an economic migrant and a refugee from conflict and persecution. Our nation is second to none in care and compassion. We’ll take our share of migrants in the normal ebb and flow of things, but we’ll do more than our share for the world’s refugees in need. Our country has been built on the hard work of indigenous people and migrants of different creeds and nationalities from all over the world. They are all Canadian. Don’t let anyone tell you that they don’t give more than they take in need!

While we have justified the use of many organic and synthetic substances to alter our moods and allow for revelry, regulated permission to use the fruit of the vine has not followed through to the bud of the bush. Our prisons have far too many people in them as a consequence, black-market gangs flourish, and the amount we expend trying to eradicate its use has proven to have little effect. Clearly, the legalization and regulation of marijuana will produce a much better outcome.

Our country’s new leader is young and inexperienced, but he doesn’t appear to be naïve or foolish. If he accesses the wisdom of his elders and treads carefully into the areas in which he is unsure, then I’ve little doubt that we have nothing to fear from his leadership. If he doesn’t do these things, his passing influence will be of little consequence to our country. I’ve always said we get the kind of government we deserve in our democracy. Change will come and balance the good and the bad.

Finally, don’t let any of my ramblings here convince you that I’m stumping for one political regime or another. I remain apolitical in this journal as always. We can’t affect any immediate change in our political circumstances, but we can find opportunities to exploit to our benefit, and we can hold this new government to the standard of service it has promised the people. In truth, our Canadian political parties do not stray very far from that mystical centre line of governance. I have every confidence that the leaders of all our political parties work to advance what they see as the best interests of the Canadian people. For that they should be respected, at least until the next contest begins.

Baseball’s Effect on Insurance

There’s got to be a way to tie in a sports discussion with an insurance perspective. When the Blue Jays were struggling to keep their World Series chance alive, it must have been hard to remain focused in that mecca of insurance offices located in Toronto. More than a few insurance faces could be found in the crowd shots broadcast during the game, and the rest of the country (even though they, too, were following the contest closely by whatever means available) was complaining about underwriting service being slow from the Toronto head offices. When it comes to Major League Baseball, Toronto is the only skin in the game for Canadians. I remember in my youth that the Canadian favourites were as varied as our vast nation’s regions and that the country stood still during the final innings of any World Series. An American sports journalist recently discovered how baseball-crazy Canada can be when he absentmindedly posed the question “What do Canadians know about baseball; isn’t hockey their game?”

I was reading a recent article about baseball with an insurance angle. Matt Harvey, a first-string pitcher for the New York Mets, had surgery to repair his arm in 2013 and was advised by his doctor to sit out this year’s playoffs so that the repair could heal. Not wanting to sit out but at the same time not wanting to end his career by not heeding the doctor’s advice, he sought a way to transfer his risk to those willing to bet on his being able to both perform and heal at the same time. His broker, Scott Boras, was able to secure him an insurance policy for his future contracts. So if you’re a fan of the Mets, their pitching roster remains full on account of the efforts of an insurance broker!
I wonder if this discussion could fall under the age-old debate between underwriters and brokers that there are really no bad risks, just bad premiums. Just think, the insurance industry may well be partly responsible for the failure of Marty McFly’s prediction of a Cubs’ World Series win in 2015. One could look “back to the future” for the last time we saw a Trudeau in office and the Blue Jays win a pennant. I guess history is doomed to repeat itself.

Uber Is Coming! Uber Is Coming!

Technology is driving change faster than municipal governments can respond. I recently walked past an “Uber drop off” sign that was hanging from a parking pylon outside Cesar’s Palace in Las Vegas. A small space for about two cars was set aside. When I asked the valet about it, he said no one was using it as the drivers can’t tell one passenger drop off from another and that pickups happen on the street because the Uber drivers don’t want the hassle of working their way through the lobby entrance. Apparently, the app lets the passenger find the Uber vehicle at any convenient location. Still, more than 50 people were lined up at the taxi pick up, and taxis were picking them up as fast as they could.

For those following the news, reports continue from Toronto, Edmonton, and Calgary about attempts to deal with Uber’s impact on the highly regulated livery business. With or without regulations, Uber appears to be making inroads, and the public is slowly but surely taking up the service. At the same time, we’re advising our clients that their insurance will likely not respond to their needs if they participate in Uber. Discussions with claims and underwriting people around Alberta verify that at least a half dozen or more claims have been denied on account of participation in the Uber service. One company has announced that it is working on a solution to provide a coverage extension for this kind of use, but so far it seems to be caught up in the painfully slow process of regulatory adaptation to worldly changes, so insurance confusion continues. If anyone has any current insights on this and would like to share them with me, I would be most thankful for your contribution.

Self-Driving Cars

My article on this topic received quite a bit of feedback. One writer was less than optimistic that there’d be any real advances coming anytime soon. From his perspective, the unreliability of the technology, particularly the sensor interfaces in the automobiles, was demonstrative of the shortcomings likely to restrict the further development of driverless cars. I’m not so sure he’s right. The cheap parts that now monitor the performance of the automobile may not give the central processing unit reliable data on which to act, but I would argue that the current CPU (that is, the driver) isn’t sufficiently intelligent enough to react to the information from its own human sensors already. Ask any garage mechanic about the conditions vehicles arrive in as a result of the operator failing to react to little things like the warning light for the oil pressure or the intense shaking of the car as a result of a wheel wobble or even the lack of functional braking ability due to inattention to the sensor warnings? At least a mechanical CPU would deal with its programming to get the problem sensor repaired or replaced. The more critical the sensor, the greater urgency would be for the programmed reaction.

CBC articles recently reported that Ontario has prepared legislation on the use of self-driving automobiles for implementation in January 2016. The requirement that licensed operators be behind the wheel of the vehicles they’re not in control of is confusing, but most perspectives on new things from the government DMV always are. Certainly, the requirement for a licensed operator negates the insurance issues, doesn’t it? Confusion will reign, no doubt, but those of us who have negotiated the roads in downtown Toronto might think that self-driving automobiles give hope for improvement over the competence of most current drivers. I wonder when the program will be expanded to Alberta.

Be Careful What You Wish for  . . . Politics

I’ve been reviewing the Alberta budget with great interest. Was the election promise of a balanced budget just a pipe dream? The Alberta Advantage seems to be waning. We’ll doubtless be discussing the need to implement a regressive PST soon, perhaps combined with an increase in the national regressive GST adjustments. Fortunately, we will get to vote on these issues in the next elections that are only four short years away. I can hardly wait!

In Closing

We are quickly coming up on Remembrance Day. If you live in or near Calgary, get down to Memorial Drive and stop to walk around the field of crosses that are set out in honour of the fallen. Each one of these crosses has the name of a Southern Albertan who died in the conflicts we remember. It is an awesome tribute to those who made the ultimate sacrifice for their country and their beliefs. Put on your poppy and pause for a moment and reflect on that!

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:  baseball insurance  driverless cars  federal government  livery business  provincial budget  provincial government  ride sharing  Uber 

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