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Elusive At Times…

By Andy Schwartze

Years ago, following the completion of a very respectable post secondary education, I found myself working in the insurance field (not entirely my first choice; few regard it as a career destination) and, as a rookie among some pretty seasoned professionals, came to numerous early conclusions about this business sector, its good sides and its shortcomings.

My bosses (there were four of them) were aghast, when I announced one sunny afternoon that I was in no way interested in, and intended to avoid as much as I reasonably could, a lifetime career mired in the world of auto insurance. My mentors were dumbstruck at this pompous arrogance and, in defence of their own careers, proceeded to voice their disenchantment with my attitude.

After all, I was reminded, the car insurance policy could well be the stepping stone to bigger and better things. How could I ever expect to build a meaningful client relationship with someone if I was not prepared to take the “bad” with the “good”? Auto insurance, in those days, was considered to be the most common stepping stone to developing a client’s account on its many other fronts. I held my ground, which I have done to this day, and treat car insurance as a necessary evil that has to be endured and dealt with for those of our clients with whom we have already established a more in depth business relationship.

Auto insurance stands as another shining example of why governments should stick to regulating financial stability and not dictate procedure at the retail level. Anyone, in Ontario, who owns and drives an automobile, is going to soon be subjected to a harassing deluge of correspondence and phone calls, as yet another intrusion by government makes itself felt. Ever since the Bob Rae era, government has increased its role in telling the auto insurance industry what to do and how to do it.

Some years ago, certain medical and rehab costs (relating to auto accident injuries) were downloaded on to the insurers. This spawned the buildup of an entire industry of rehab and care facilities that, knowing an insurer was footing the bill, found easy ways to keep their growing rehab patients coming back continuously for treatment; in many cases long after the need had faded.

After all, if the patient can get free chiropractic treatments and an insurer keeps paying the bill, who would dare tell the patient his/her time is up? And if insurance premiums have to go up, because of this, blame the insurance companies for being greedy. Hospitals will discharge you when they’re done with you … an auto insurer doesn’t have that privilege.

After many years of insurers having to endure this growing cost squeeze, even government had to recognize the problem (fraudulent in way too many cases) and, once again, step in.

Now, in Ontario, the standard medical/rehab insurance coverages in the auto insurance policy are being reduced and insurance brokers are mandated to make three attempts to have you select the coverage levels, each of which comes at a price. On a file that typically pays the broker a mere $125 per year, the workload has just gone up significantly, again.

Insurance is an ever moving cost target for the buyer. In the case of auto insurance it is very much influenced by government intervention; in the commercial sector it is moved by a combination of interest rates and competition, which ebbs and flows with claims results and legal precedents.

It has always fascinated me that, in the revenue producing real estate insurance field, insurance costs have been surprisingly stable. Back in the early 1980s, an apartment building owner would pay in the area of 3.5 cents per $100 of coverage for building insurance.

Thirty years later, this rate level remains essentially unchanged. Certainly claims histories, where properly disclosed, will move an account above and below that level. But, in all of those years, we continue to negotiate insurance deals in that 3 cent to 4 cent zone. How many utilities, taxes and other operating costs can say the same thing?

What is notable about this is that governments have not interfered in this sector. The market has, very quietly and very effectively, provided a long period of stable pricing that continues to make this niche of insurance inexpensive in comparison to its automotive counterpart, where cars (on a seasonably adjusted basis) have become cheap yet insurance costs have risen.

Interestingly, the property management field is another area where governments have maintained a “hands off” attitude (although a few years ago there was some talk of licencing; thankfully it didn’t last long). In this service sector too, costing has been remarkably stable; still being limited to a very small percentage spread based on the rental income produced by the building.

In a strangely incomprehensible comparison, the quality of commercial insurance services and property management services have increased in quality, become more professionally reliable and have maintained a continuous level of cost stability for many decades.

One can only again conclude the obvious. In the financial services sector governments need to monitor balance sheets and catch the crooks. Customers and their service sector providers are more than capable of keeping an eye on one another and making sure that good work is done at a reasonably sustainable price.

Andy Schwartze, BSc., MBA, CIP, is an insurance broker specializing in property management and real estate. He is a former President of the Insurance Institute, has taught in the community college system and provides continuing education to other brokers. He can be reached at andy@takecover.ca