The President Speaks

Mr. Robert (Bob) Dempsey, our President and Chief Operating Officer, was a guest speaker at the Hamilton Insurance Brokers Association and Ottawa Brokers Association luncheons in May 2010. In both cases Bob was invited back after making presentations last year to these same Associations.

Bob’s speech centered around some of the major issues facing our Industry in 2010 being: HST, Over Regulation of Government, IFRS (International Financial Reporting Standards), ITV (Insurance to Value), Automobile Reform and Credit Scoring. The two major headliners at both luncheons were Insurance to Value and the use of Credit Scoring.

Insurance to Value 
This is a critical issue in the insurance industry and it affects both Brokers and Insurers. For the past 5 to 6 years, construction costs and the cost of building materials have significantly increased. Insurers have been applying an average of 4-5% inflation factor, when in reality we should have been applying 9-10% inflation. After a few years, we are faced with a shortfall of at least 20% on ITV. Some insurers increased their rates to make up for the loss in premium. However, where the issue remains is in catastrophic losses. Re-insurers cap catastrophic losses at a certain value (which was underinsured) and in the event of a catastrophic loss, there would be a deficit in covered losses. Now, insurers are trying to bring the limit of insurance to its full value at increased rates, causing distress to the consumers. Not only are the consumers paying a higher rate, they are paying a higher rate on a higher limit. Bob believes the rates will come down, but the ITV issue has to be resolved first.

The Guarantee Company is pleased with IBAO in how they took the initiative to partner with SCM Risk Management Services (RMS) and Compu-Quote who introduced the iClarify tool which helps to determine the true value of a home.  The Guarantee Company tested iClarify by inspecting 1,581 homes to establish their value and then put the same 1,581 homes through iClarify. The Guarantee Company found that the homes were on average insured to 78% of their value and iClarify determined they were insured on average to 80% of their true value. Seeing how close the two methods were, Bob is a strong believer that iClarify will be a viable solution to the ITV issue.

Credit Scoring
The Guarantee Company feels that eliminating the use of credit scoring is a huge mistake. Historical data proves that credit scoring is a viable tool to underwriting potential moral risk. The Guarantee Company completed a five year study which concluded the following:

Credit Score 600 and under (considered low credit score, indicates payment problems at some point)	Credit Score 800 and over (considered good credit risk)
* 5.1 % Claim Frequency (1 out of 20 have a claim per year) * 103.7% Earned Loss Ratio	* 3.1 % Claim Frequency * 57.9% Earned Loss Ratio

The Guarantee Company will not surcharge a client because of a poor credit score, but rather provide a discount to those with a good credit score - which is the way it should be.

Banks and other financial institutions use credit checks from either Trans Union or Equifax to prequalify clients for a mortgage or loan. These credit checks are “hard inquiries” and these inquiries are shown on the client’s individual credit report. Whereas, when The Guarantee Company orders a credit score it is called a 'soft inquiry' and the number of inquiries are not registered, therefore not affecting a person's credit score. Historical data has shown that credit scoring is an essential underwriting tool and should not be banned. If credit scoring is restricted, the insurers wi1l lose the benefit of this efficient underwriting tool while at the same time Banks that sell insurance would have access to this data in their client profiles.

Education is the main issue with regard to the use of Credit Scoring. We need to take advantage of this tool and educate the consumer on how it can help them keep their homeowner’s policy premium lower.