Fire Marque – An Interview with Alec Harmer – HTM Insurance President

Elliott Insurance Services    May 17, 2017

Home Insurance - Fire Department Charges

Getting a bill in the mail for a fire department call may be a bit unsettling, but that is exactly what is happening to homeowners all over Canada. At first there is a shock of getting a bill in the first place, and then there is a serious concern when you realize it is not from your municipality or local fire department at all. Fire Marque is a company that states that they provide funding to the community’s fire departments. In our local communities there has been a lot of confused phone calls and concerned residents (1,2,3) regarding the by-laws that were put in place to allow companies such as Fire Marque to collect for fire department charges from insurance companies.

To get more information about Fire Marque and how it affects the insurance industry, we talked to Alec Harmer the current President & CEO of HTM Insurance. Alec has been the President & CEO of HTM Insurance for the past 6 years and brings 34 years of insurance industry experience to the conversation. Having spoken about Fire Marque and its domino effect within the insurance industry before, we couldn’t think of a better person to get the point of view from the insurance stand point.

For people who are unaware, can you describe what a company like Fire Marque is and how they operate?

Fire Marque is basically a collection agency. They’ve enticed the municipalities to sign up with them to collect fire department coverages from the insurance companies’ policies. So after an individual has a fire, the fire department will send off information to Fire Marque about the situation and what it cost the fire department. Fire Marque will then contact the person who had the fire and ask who their insurance company is. Then they basically bill the insurance company for the fire department charges, up to the limit that is allowed under the [homeowners insurance] policy.

In your own personal opinion, do you feel that Fire Marque has created a problem in order to create a business? This is not a new concept in business as many businesses create a problem, bad breath for example, and then create a product to fill that new need

Many of the municipalities are struggling financially, so they are looking for any way to get a dollar without trying to raise taxes for the community that they service. Fire Marque is made up of former adjusters and they’ve seen that coverage [Fire Department Charges] in policies and they looked at that and thought that if these municipalities would change their by-laws so that they can collect fire department charges, then we could access the insurance coverage and we could take a cut of the money collected. They take about 30% of the proceeds from the insurance policy and make their money off of that cut.

They didn’t create a problem, they looked at an opportunity to go to the municipalities who are looking for more money anyway that they can find and say that they have a solution for you. We[Fire Marque] will do all the collection work and it will just be money to you[municipality] and you will have to do very little work. It is a winning situation for the municipalities.

On the negative side, as insurance companies, our premiums are driven by our claims costs. So, if we are now paying for fire department charges that we were not paying for before, our claims are going to go up, and we will have to raise premiums to cover the extra costs. When you look at it from a community wide basis, financially it would be much better for the municipalities to just add a few dollars to our taxes because the same people who pay property taxes pay insurance. So, if we have to cover the fire department costs that we are now paying through the Fire Marque program, we will have to raise premiums. If you look at the amount we have to raise premiums, it far outweighs the cost that the municipality is going to benefit by. That same community is paying much more as a group of people to the insurance industry than it would if the municipality were to raise taxes, and took that money and gave it to the fire department. The way I look at it is, it is about 2.5 times more than if the municipality were to charge directly.

If you think about it… if there is a fire department charge for $1000, the first thing that is going to happen is Fire Marque is going to take 30% away. So the municipality is going to put $700 in their pockets. The insurance industry pays the $1000, so the companies have to get that $1000 from the policyholders. They have to charge the full $1000, plus cover their costs, add a little bit of profit, and charge RST (Retail Sales Tax) for insurance. All of those things start to add to a charge of $2000 to cover a $1000 claim, with all of the costs and taxes. So tax payers are paying $2000 through their insurance and they are receiving $700 towards their fire department. Using an example like this,  it is easier for anyone to understand the scenario that is happening.

Why do you feel it is important to educate the public and municipalities on the after effects of the Fire Marque contracts with the municipalities? Do you feel maybe the people making these decisions or by-laws are not fully informed?

There are two to three aspects to that whole thing. There is a general mistrust with insurance. When someone has the idea that we will just charge the insurance companies, there is a willingness to do that. We see that in a number of things, not just property and causality insurance, but in a number of areas where the cost is much more money for an insurance company than it would be to go and buy it directly.

The other message that is being provided to the municipalities is “This program won’t cause policyholders any money. Insurance companies are already collecting money for fire department charges but are never paying them out”. If you are in the insurance industry at all, you will know that this is a competitive industry and if there are claims that you are not paying out on, but you are charging for, you are not going to be competitive. Definitely it is not a good statement for them[municipality] to hear and they are buying into that. They think that the community is not going to see any rate difference in their property insurance because of this program. Again going back to the finances, it doesn’t make sense[what the municipality is told]  because there is going to be extra claims costs and yet somehow premiums are not going to go up? They have been told a story about how insurance companies’ rate. We [Insurers] rate by putting claims in a big pool and average them over the number of policyholders to determine our rates. Our rate making process is much more sophisticated than that. It is down to postal code ratings and we are getting down to GPS coordinate ratings soon. So if one community has adopted the program and they have “X” amount of fire department charges per year, and a similar community next to them has not adopted the program, there is going to be a difference in costs and therefore, insurance rates.

Is there a fear that the fire department coverage will be removed from insurance policies due to companies that operate like Fire Marque? Not an HTM specific question, but for the insurance industry as a whole.

I think that one of the interesting aspects of that whole program is that it only targets insurance. If you had two neighbours and their houses burnt down on the same day (maybe one house caught the other on fire) the person who doesn’t buy insurance (there is the odd one out there) will not get a bill for the fire department charges. The person who has bought insurance will get a bill. I know, as an insurance company CEO, that if I take that coverage out of my policy, my policyholder is not going to get a bill. So they are no better off and they are no worse off if they had the coverage or if they didn’t have the coverage. The end result to the policy holder is that no money goes into their pocket and no money comes out of their pocket. So why keep a coverage in there [the policy] that offers no protection and no benefit to my policyholder in that situation? I can see companies looking at this a couple of ways and one of those ways is to simply take those coverages out knowing that your policyholder will never get a bill for fire department charges.

Would there be any long-term effects of taking that coverage out of the policies?

Ultimately it would put companies like Fire Marque out of business because it is targeted at insurance. If there is no coverage there is no bill. If companies unilaterally take the coverage out, then the whole program dies on the table. The reason why that probably will not happen occurs because contrary to popular belief, insurance companies need to pay claims because claims drive premiums. If you take those claims off the table then companies have to make their premiums lower and lower in the competitive market place. From an insurance companies’ stand point; if they have to pay out more claims, they get to charge more premium and premiums drive profit. I don’t think that situation[eliminating coverage] will happen, but I think independent companies will look at the situation and make a decision one way or the other knowing that there is no negative or positive effect on the policyholder.

You have publicly stated that you believe what Fire Marque is doing is legal, but in your opinion, do you consider it ethical?

I am in the insurance business and when you target something specifically at insurance; then I don’t think it’s a very fair thing to do. Using the situation I gave you before, when you have two homes that both had a fire… they both had the fire department come out …. they both had their homes saved… all the individuals were saved …. but only the homeowner who had home insurance got the bill (the one who did the right thing).

If the municipalities said they were going to charge enough in our taxes to cover having the fire department and having the equipment there, but if you call them out they were going to charge you regardless of the situation, then companies would compete on coverage to protect the policyholder. “You could get a bill and we [Company A] are going to include, in your package $5000 for fire department charges in case you get that big bill”. Policyholder A has a very modest home and maybe that’s good enough [$5000]. Policyholder B has a very large home and it could take more trucks or more time. They may need $10,000 in coverage. Company B may come in and provide $25,000 in coverage and you get that competitive process working.

In this situation where the policyholder will only be charged the level of insurance coverage they have in their policy and they won’t bill them more than that…. there is no disadvantage or advantage if our company has a limit of $1000 or $5000. The policyholder is only going to get billed the limit we have in the policy. That includes getting billed $0 if we don’t have a limit in there.

When the dust settles, do you think the homeowners will be upset with the insurance companies, the municipalities who put in the by-laws, or companies that operate like Fire Marque?

Fire Marque is a company that has created an opportunity for itself and an opportunity for the municipalities to get some extra income in. They are just doing what they are doing for those reasons. I think they have to be careful with some of the messages they give the municipalities. I think some of them are on the borderline of misinformation around the fact that policyholders won’t see any increases in their rates; how insurance companies go about rating; and some of those things are not up to date. I think the people in the community just need to challenge their local government on the program and make sure that they get good responses to their questions.

What would be your words of wisdom or warning to the municipalities when it comes to companies such as Fire Marque? Is there anything else you would want to say to the municipalities?

The people who buy insurance are the same people who pay taxes. What is the most economical way for that community to get more funding for their fire department? Is it through a program like Fire Marque or through direct taxation? I would say economically it is far better through direct taxation. I think people respect and understand fire departments [fighters] and they really have a trust in their local government, so if they raise some rates to provide the extra funds for the fire department, the community will understand. I believe the community would think that was far better than trying to get the funds through a program like Fire Marque.

As Alec pointed out, there may be more to the fire department charges then the municipalities have anticipated. The entire goal of writing this interview/blog post was just to bring awareness to the fact that there is more to consider than just retrieving money from insurance companies. To find out more information about Fire Marque you can visit their website, or you can contact us to find out what your fire department coverages are on your policy.

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