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:
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.
In my May article “What’s going on with my Property insurance? Where’s my quotation?” we talked about increased premiums and the number of insurers no longer writing certain classes of business in property insurance.
Is pricing and availability for Liability Insurance any different? No – not really.
There are certain classes of businesses where many insurers who may have offered coverage are lapsing renewals and not offering quotations for new business.
And here’s news hot off the press. Insurance companies are in business to make a profit just like any other business owner. When a certain class of business is not generating enough revenue to pay for the claims, they will stop writing that class. It’s no different than any other business owner who can’t sell a product at a loss.
Is there anything you can do? Yes. Here are a few tips for you and some examples of classes of business that are prone to higher losses.
1. Know your premises. Are there areas that could lead to a slip and fall claim? Stairs, parking lots. Keep maintenance logs that record time, dates, conditions of inspections. Normally you will want to have one person or department responsible and keep those records for up to 5 years!
Lawsuits arising from slip and fall claims continue to increase both in frequency and severity. Building owners and snow removal contractors are feeling the pressure of increased premiums. As recently as six months ago, I was aware of several Lloyd’s Syndicates and a number of domestic insurers who were still providing coverage for snow removal. The premiums were increasing however coverage was still available.
Now there are fewer domestic insurers writing this class and many of the Lloyd’s Syndicates have pulled out as well. This is not the first time and it won’t be the last. In a Canadian Underwriter Article in 2002, https://www.canadianunderwriter.ca/features/snow-no-mercy/ they speak to some of the issues; under-priced premiums, increased claims for slip and falls and loosely-worded contracts.
2.Be careful when preparing or signing any contracts. Are their ways of limiting your liability or perhaps transferring that risk? Are you assuming a risk you shouldn’t be? Does a Hold Harmless Agreement work for or against you?
Recently I went to use the services or firm who wanted me to sign an agreement holding them harmless should they cause damage to my property, whether they were responsible or not? Do you ever read those agreements before signing them? Might be a good idea.
3.Obtain Certificates of Insurance. You want to ensure that all suppliers and sub-contractors carry their own Liability insurance. In some cases, you may wish to explore being an additional insured on their policy.
Whether you are a business owner or homeowner, anyone hired to work on your premises must carry insurance. Let’s take the example of the homeowner who decides to create that awesome “great room”. The contractor removes the bearing wall and without the proper support, the entire structure of the roof is compromised. Without insurance to back up the subsequent property damage, the homeowner can be stuck with a huge repair bill.
I’ve proudly represented the insurance industry for 35 years. There isn’t a day that goes by that I don’t see anything negative about our industry. I’ve heard all the stories about increased premiums, poor claims services, crappy claims settlements, underwriting decisions that don’t make sense and the list goes on. Many people are just angry at the industry.
That saddens me because as an insider, I understand. But it doesn’t always have to be this way. We can know our rights and be better informed.
So, let me tell you a story about another industry, one that I recently had an experience with, that opened my eyes to those people who really hate mine.
I recently had a fall which occasioned a visit to the emergency room for a wrist injury. Subsequently I was sent to the hospital for a splint. I was told that I was to have an appointment later that month with Dr. Jones (names have been changed to protect the innocent). A couple days later I was contacted and advised that an appointment had been made with Dr. Smith at a certain clinic and not Dr. Jones as I was advised. The information provided was that it was first-come, first-serve and the clinic opened at 10:30 a.m. I arrived at 10:00 a.m. and was told that the clinic actually opened at 8:00 a.m. and that there was an hour wait for my appointment. I saw that the appointments had been triple-booked for every five minutes. Finally, at 1:00 p.m. (that’s 3 hours folks) I met with Dr. Smith only to be told that I was supposed to see Dr. Jones. Needless to say, I was extremely frustrated but rather than take it out on the individuals involved in this entire process, I did some research.
Apparently, in the summer due to falls, there is an increased need for specialists. The number of patients increases dramatically but the number of specialists remains constant. Thus, the need to triple book just so everyone has an opportunity to see the specialist. Secondly, having been in hospital waiting for surgery, I know that appointments and some surgeries are bumped for unplanned critical situations – car crashes for instance. Lastly, someone made a mistake in booking my appointment. And don’t we all make mistakes sometimes?
So rather than disparage the entire health profession, I chose to ask questions. What were the problems and potential solutions? That’s a discussion I will be having with my MLA.
This brings me back to the insurance industry. The industry in Alberta does have its challenges.
Did you know that of the last 8 catastrophic weather-related issues between 2010 – 2016 that 6 of them were in Alberta? We as consumers are paying for that with our premiums!
Did you know that aside from the Fort McMurray fire, that water claims are more common than fire losses? Over land water claims from floods, sewer back-ups, frozen pipes in commercial buildings and the list goes on!
Severe weather continues to cause extensive damage across Canada. 2018 saw $1.9 Billion in insured damage.
When a disaster hits, the number of claims increase dramatically but the number of trained insurance professionals (adjusters) is the same. It’s no different than the issue of specialists in the medical profession that I mentioned before. Service will suffer but everyone needs to be seen.
Bottom line is it’s time to become informed before we jump to conclusions and disparage an entire industry.
1. Read your policy, ask questions! Did you know that there is no such thing as “covered for everything”? Insurance policies have exclusions and they have them for a reason. Remember, it’s a contract that the insurer MUST abide by. Those contracts are governed by Statute or Civil law and insurers in many cases cannot legally do what you want them to do. Know your rights and responsibilities!
2. Talk with your agent or broker. They are paid either a salary or commission to help you. Ask the questions. Get the answers you need and understand. Never assume anything.
2. The Insurance Bureau of Canada is the Trade Association for the private insurance companies who are members. They have a consumer information line staffed by experienced insurance professionals who are ready to answer any questions you may have – 1-844-2ask-IBC (1-844-227-5422)
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 firstname.lastname@example.org or give me a call! 587-597-5478.