If a member of a farming community lost his barn to fire, the other community members would pool their resources and help that family rebuild. In some cases, it was not voluntary, but required. There are other applications similar where the loss of horses, equipment etc. for one community member would bring the rest of the community together to help. We see a form of that today on social media with ‘Go Fund Me’ campaigns to help those in need of financial assistance after a loss or a medical emergency. A lot of people contributing a small amount each often makes the life saving difference.
People form social groups because there is safety in numbers. As society became more complex the concept of banding together to help people and businesses in their time of loss has evolved. It’s become a financial transaction in a contract of indemnity, which transfers the cost of risk to a third party for a fee. Rather than share time and resources, consumers now pay a premium to an insurance company. In return, the insurance company manages the pool of funds and assumes the risk. Some of us have insured losses and the insurer pays to make us whole, hence the term ‘Indemnity’. Others, who are fortunate enough to have no losses, are secure in the fact that they would be indemnified in the event of a loss, be it property damage or for damages sought as the result of our negligence, alleged or otherwise.
The losses of the few are paid by the premiums of the many.
Insurance rates are currently on the increase for many classes of business across Canada, and consumers are justifiably upset. Many believe it is just another money grab, a way to increase the insurance industry profits at the expense of the consumer. As an insurance industry member, I know how tough it is when costs go up and our income from our business or from our employment is down.
What if insurance as we know it, didn’t exist. Take a look at some facts!
In 2018 Canadian Property & Casualty Insurers (Source IBC Facts Book*)
Paid $39.1 BILLION in claims.
They employed 128,300 individuals
Paid $9.4 BILLION in taxes and levies to federal and provincial governments
Helped recover $23 Million in stolen vehicles
If insurance didn’t exist, would it still be possible to;
Get a mortgage on your home?
Borrow money to buy a new car?
Borrow money to buy stock and equipment for your new business?
Lease space for your new business?
Import/Export and sell goods from/to other countries?
The short answer is NO.
Bottom line is this. The insurance industry and the people in it underpin the economy by financing risk. In any industry there will be dissatisfied customers, people who are confused and need a little extra assistance or education. A little knowledge is a dangerous thing. A more in depth understanding of how the insurance industry works would be helpful in defusing some of that anger and dissatisfaction. The problem is….. where to begin with that explanation? The rules and regulations under which insurers world wide are required to operate add a significant cost element. A good example is in the automobile insurance segment. Government interference in what has become a political issue has resulted in a tide of red ink. No other private or public business suffers this level of interference in their operations. Return on equity figures for the insurance industry would not be acceptable in any other business facing the same degree of risk. An Example? Nobody criticizes the Chartered Banks for their huge profits.
As mentioned above, a little knowledge is dangerous, and that is because it is often out of context. If you want a little more knowledge that is relevant and tailored to your needs and level of understanding an independent broker is your best option. More important is a broker willing to spend the time to provide you with information that is relevant to you. Heather Cournoyer is that kind of broker. Call me and find out. There is no charge for a consultation!
Overall the majority of individuals serving the consumers are doing their best.
If you want to know more check out my previous blogs:
In May we talked about the “Hard Insurance Market” and we are certainly feeling it more and more. Affordability and availability in certain classes are a huge issue. We are getting more requests for “quotes”. “How much would you charge for my insurance?”
Well that depends. How much protection do you want? Are you prepared to spend some time figuring that out? When was the last time you sat down with your insurance provider and reviewed your business operations, property values, values of stock and equipment? Are you at risk for a cyber-attack? Can you afford to operate if your website is subject to a ransom?
We don’t object to going to our medical doctor to have our annual checkup. In many ways, insurance shouldn’t be any different. Although it does seem to be standard practice to get the renewal, check the price and then move on. That’s unless the price has increased. Then we want a “quote”.
As a broker, it’s my responsibility to ensure that I understand enough about my client’s business to recommend adequate and suitable insurance protection.
Sadly, in the majority of cases with my new clients I deal with, we find out that there are gaps in their insurance that they were not aware of.
Let’s look at some examples:
General Contractor had leased a $150,000 piece of equipment on a short-term basis and advised his insurance provider. The broker told him it was covered. Upon review of their existing coverage, there was no endorsement or policy change reflecting that coverage.
· My advice – get everything in writing!
Wholesaler had ordered additional stock and had it stored at another location as he had no space at his premises. He failed to notify his insurer and assumed that it would be automatically covered as he had a sufficient amount of insurance to cover all his stock.
· My advice – Sometimes there may be a clause in the policy which will extend the cover for a short period of time. If so, it will be clearly stated in your contract. In my new client’s case, it was not included in the contracts. When in doubt call your insurance broker. It can be added for a small additional premium.
Home-based business – Caller operates an esthetics business from her home in the corporate name. She has Professional Liability Insurance for her business but no Commercial General Liability. If any of her clients are injured e.g. (slip and fall on the ice or snow) she has no insurance protection.
· My advice – She should have been advised to see if her home insurer will provide her with a home-based business liability extension on her home insurance. If not, she should purchase a Commercial General Liability policy.
These are just a few examples of situations that can lead to a costly claim with no insurance coverage.
Benjamin Franklin said there were only two things certain in life: death and taxes. But I’d like to add a third certainty: Insurance.
We can’t do much about death although advances in medical technology and better nutrition has done a great deal to prolong life.
As for taxes, they are imposed on us. Do the following comments sound familiar?
“Why do I have to pay school taxes.I don’t even have any kids?”
“I think the government should pay for it.They have lots of money.”
“I’ve paid into employment insurance all these years so I’m not going to look for a job until my benefits run out”
When it comes to insurance, these are just a few of the comments I’ve heard over the years.
“I’ve never had a claim why are my premiums going up?”
“I’ve been paying insurance for years and it’s my turn to collect”
“The insurance companies have lots of money so why shouldn’t I pad my claim?”
“Insurance companies are always just looking for a way to deny my claim and rip me off!”
Taxes and insurance both often feel like another $$cash grab$$, just a hand in our wallets for no perceptible return. As far as taxes go the waste is in the way in which governments spend. We do need to have some way to fund social infrastructure even if we think government should only be responsible for taking out the garbage and making sure sewage always runs downhill. Add to that our social responsibility says to set aside a little bit for those who are in need. So yes, some taxes make sense.
Insurance premiums come right out of our pockets and if a claim is never made, it does seem like a wasted expenditure. Purchasing insurance is not always voluntary. Mandatory automobile insurance is a good example although purchasing the minimum statutory requirement is not a good idea. (As a side note, the statutory minimum auto insurance is not insurance at all, but a financial responsibility certificate. But that’s another story.) It is a personal choice as far as physical damage insurance is concerned, unless your vehicle is financed. The banks need to secure their risk, be it for a loan or mortgage or lease on real property. The choice is to walk everywhere and live in a tent, or buy/lease a vehicle and a house.
When we think about insurance or taxes there is a perception that this seemingly endless supply of money is coming from “them” when in fact every dollar actually comes from our contributions to “them” in the form of premiums or taxes. There is one major difference between the two, and it’s huge. Insurance companies are typically privately-held or public companies that must operate at a profit. Unlike governments, Insurers are not allowed to borrow money to pay for increased costs and must meet a series of tests in order to remain licensed.
The basic principle states that the premiums of the many pay the losses of the few. In order to remain viable and in compliance with solvency regulations insurers therefore need to set premium levels accordingly. An insurer going broke is not in a position to pay your claims when you do have one.
How are the dollars that you pay for your insurance every year spent?
Whether it’s taking your kids to school, driving on the roads, collecting employment insurance, or going to the hospital, the money has to come from somewhere. This also includes such things as repairing your car after a collision, redoing your basement after a flood, rebuilding your business after a fire or being sued and having your insurance defend you and pay for the consequences of your negligence.
The fact is that insurance in general makes it possible for members of society to be financially responsible in the event of unforeseen disaster. For this reason we are all protected, not just by the insurance we choose to purchase for ourselves, but by the insurance purchased by others in our society who share our roads, provide our services, and who manufacture and ship all of the myriad goods and commodities society requires.
Without insurance to backstop the risk, nothing would be built, manufactured, sold or shipped. The houses we live in, the roads we drive on, or the getting the sewage directed downhill and the clothes on our backs would not be provided. We would indeed be walking everywhere and living in tents, assuming we could make them ourselves.
The next time your insurance premium comes due, by all means complain, grit your teeth and call your broker to inquire about the best way to reduce the cost. An experienced broker will educate you and help you make an informed decision about how to best manage and finance your risk.
When your tax bill comes due, complain and grit your teeth, then just pay it and appreciate the privilege of living in this country. Unlike with Insurance, there is nobody to really talk to who can be of much help.
The insurance industry is the only consumer product I can think of that has to price its product based on data from the past without having any idea what their costs will be in the current year!
Let’s compare the insurance product to a car. The automaker can accurately predict his cost of goods, labor, overhead, taxes etc. They build in a profit based on what they anticipate they can sell that car for. Easy right?
Now let’s just talk about insurance on property- not auto, liability, cyber risks or the myriad of other products available. Traditionally, insurers could rely on statistics developed over time to forecast future trends. Based on that, they determined the premiums they would charge for that business. Those premiums would have to allow for the costs of all claims, adjusting expenses, distribution costs, overhead costs, taxes and hopefully some profit. Seems simple. Right? NOT!
Add in a factor for competition, changing government regulations and weather patterns that are no longer patterns at all. Also consider rapidly-advancing technologies combined with aging infrastructure and aging buildings and you have a recipe for disaster.
What we see now, in some classes of business in the insurance industry, is the result. Many domestic insurers are pulling out of classes that they normally wrote at very competitive pricing – probably too competitive as they are now realizing. Many Lloyd’s of London Syndicates are no longer operating. Brokers entire contracts are being cancelled across Canada in order to get rid of unprofitable business.
So why should the average consumer care? Because your brokers’ contract to write business was one of those cancelled by one or maybe several insurance companies. They are currently trying to find replacement coverage for hundreds of clients. It could also be because your insurer is no longer writing insurance for high-rise buildings or restaurants, etc. Maybe you had a claim last year. Maybe you haven’t had a claim, but the data indicates you probably will!
That’s where your broker comes in. Their job is not just to find you insurance but also at the best price possible. Not easy! There are hundreds of consumers shopping right now. Yet the number of insurance companies willing to sell certain products has declined. And it’s not just those clients whose policies aren’t being renewed. It’s also those that have seen increases in premium of anywhere from 20% to 120%. They are shopping too.
So, what’s the answer? There is no simple answer. But here are some things you can do.
1. Review your limits of insurance. Don’t reduce them just for the sake of saving money but are you over-insured? Consider an appraisal on your buildings? Some insurers will then provide Guaranteed Replacement Cost. It’s well worth it in the event of a claim!
2. Increase your deductibles. How much can you afford to pay? It’s not uncommon to see $5,000 to $50,000 deductibles on certain types of risks now.
3. Inspect your properties. Are there places where you can work to eliminate the potential for loss? Have you checked the underground sewer lines for blockages? How’s your roof? Does it need repair? Water losses are now more prevalent than fire claims.
4. Before you go shopping ask your broker if they have checked other insurers they represent. A broker who is staying on top of current trends will have a pretty good idea of whether or not your premiums are still competitive.
5. If you do go shopping, find a broker who is willing to really work with you and take the time to do it right. You would never hire an employee without a resume and a reference, so check the brokers’ qualifications, experience and reputation.
6. And finally, be patient. Brokers and Underwriters at insurance companies are experiencing additional workloads as a result of renewal re-underwriting. New business departments are being flooded with new quotes. In some cases, they are getting three times the normal number of submissions.
Some of the above suggestions for saving money may also apply to your other lines of insurance such as auto or commercial liability. We’ll talk about liability insurance in our next blog!
For more information or to answer any of your questions, email email@example.com or give me a call! 587-597-5478.
After the story about Goldilocks and her trespassing in the Bears Den broke in the tabloids there was a storm of controversy. The Bears agreed not to press charges and ultimately became good friends and mentors of the charming if somewhat ditzy girl.
The Bear family owned Three Bears Insurance, a successful brokerage firm specializing in providing customized insurance and risk management solutions to Small and Medium Businesses. Based on her EXPERIENCE in testing porridge, chairs and beds, Goldilocks and the Bears realized the girl had a natural talent for finding the right fit. They took her on as an apprentice broker working alongside Baby Bear. Once she had completed the necessary hours of community service for her earlier transgressions and an intense program of EDUCATION, the Bears hired her as an Insurance Broker.
On the surface the job seemed simple and easy. Meet the client, work with them to gain as much of an understanding of their business as possible and identify and analyze their business risk. Sometimes she would identify risks that clients weren’t even aware of but which they needed to know about. Many of the things that kept them awake at night were easily dealt with once they were identified. In reality, there was many hours of work done behind the scenes in order to deliver the correct advice. Not the least of these tasks was selection of and negotiation with the right insurer.
Two of her first clients were the First and Second of the Three Little Pigs. Unfortunately for them, the houses built of straw and sticks did get blown away, but were rebuilt with the necessary building code upgrades all paid for. Luckily for them, she understood that the buildings, being older, would probably not be up to code if they had to be rebuilt. She had purchased additional coverage for that eventuality. Throughout the claims process she exhibited considerable EMPATHY which made the process, although still stressful, a lot easier to manage
The Third Little Pig had previously discussed risk management options with Goldilocks taking in to account the peril posed by the Big Bad Wolf and decided to build with bricks so he suffered no loss. He relied on her EXPERTISE!
The moral to this story is to keep looking until you find the right Insurance Broker for your needs, and then listen to their advice so you can make an informed decision.
Thus endeth the story but not the lesson, which is why Heather Cournoyer, CCIB, CIP is the right broker for you!
EDUCATION– Canadian Chartered Insurance Broker, Chartered Insurance Professional, Foundations of Risk Management
EXPERIENCE – Over 35 years experience as an insurance broker and business owner
EMPATHY – Having had the opportunity to work with hundreds of insured clients in her career she understands how stressful and confusing the claims process can be. She listens and understands!
EXPERTISE – It’s not just her understanding of insurance that makes her an expert in her field. Having been a business owner herself and working with hundreds of others businesses owners over the years, gives her a unique advantage. A Certificate from Ryerson University in Entrepreneurial Mentorship doesn’t hurt either!
ENTHUSIAM – Heather loves what she’s doing – helping others thrive and survive! It shows when you meet with her.