HR Cannabis Policy and Watching the Watchers

blur-bud-cannabis-1466335.jpg‘Got to Get You into My Life’[i]

Paul McCartney’s love song to pot

With the legalization of cannabis, employers, companies and employees now wonder how to deal with this new chemical in the workplace. Although HR departments already deal with alcohol, nicotine and other recreational drugs, (and I refer to HR staff using these drugs to handle stress) cannabis challenges them even further.

 

The provinces intend to pass their own cannabis legislation. The Ontario Cannabis Act (soon to be renamed) prohibits recreational cannabis within the workplace. And unlike medical cannabis, there is no ‘workplace cannabis’ category exception.

 

Some federal departments passed their own requirements. The RCMP members cannot use cannot use cannabis within 28 days of a shift while some police use a fit for duty criteria. The Armed Forces use much more specific terms. Here members must not partake 8 hours before performing any duty. This increases up to 24 hours if they are handling explosive ordnance. I naively thought that all ordnance was explosive, but ordinary ordinance includes things like jeeps. Explosive ordnance includes things like ordnances that explode.

 

For the rest of the provinces one of the main criteria involves a safe work environment. Companies need to ascertain what THC levels would be appropriate for their particular type of work. However, we must add a note of caution as to watching the watchers. Legal counsel must ascertain if cannabis policies slant more towards enabling cannabis use by particularly hard working, overly stressed and easily swayed HR departments. And staff in general.

 

  1. Look for memos containing chaotic numbering systems.

If the cannabis memo from the HR department starts with a rambling introduction, and the rest of memo includes numbering systems similar to

Firstly…

Nextly….

Thirdly…..

Finallidly……,

then rest assured the duty to draft the memo should be sourced out to another department.

 

  1. Unusual Training Locales

Training seminars in tropical locations are nothing new. However, if HR insists upon going to local tropical greenhouses and conservatories, then the business planning sessions may not deal with your particular business and may deal more with hydroponics. Insist upon the rooms with no windows and open doors for informative PowerPoint presentations instead.

 

  1. The HR department becomes overly familiar with legislation

In this situation, not only does the HR department know the federal and provincial cannabis legislation better than the legal department, but HR also knows far more about regulations regarding neonics pesticides and fertilizer licensing procedures. Once again facilitating hydroponics.

 

  1. Occupational Health and Safety Compliance increases substantially

Normally, the proper use of safety glasses, white work overalls and plastic gloves should be encouraged as this increases workplace safety. However, if you see such a person wearing all this equipment in your downtown law office, and you know someone already removed all the asbestos from the ceiling, then you must investigate for a potential grow op.

 

  1. All of the Alcohol and Drug Policies have been reviewed and expanded

 

A review of existing policies needs to cover the proper and legal use of cannabis. If the next policy iteration includes new a process, various unknown ingredients and ends with the words “bake at 350 for 45 minutes”, then rest assured this is not a work related process. This could be a chocolate brownie cannabis delivery system process.

 

  1. Staff Benefits have been amended

Increasing staff benefits provide organizational motivation. If your organization includes a cafeteria, then be observant for subtle changes. A cafeteria express line which only handles ‘munchies’ enables cannabis use.

 

  1. International Travel

Needless to say, travel to the US with cannabis would be prohibited, as would admitting to using cannabis, investing in cannabis companies or even having a Bob Marley song  on your smart phone. However, be on the lookout for new travel costs under the designation of ‘Mule reimbursement”.

 

  1. Cannabis Use within certain limits

Other organizations have a range of 8 hours, being fit for duty, or 28 days depending upon the function. If the rule then becomes more like no partaking within 28 feet of the front door, then the rules may be a bit too lenient.

 

  1. Discriminatory Use

 

Continued use of medical cannabis depends once again on the job function. If the cannabis impacts on the person doing the job are unknown, then the employer only has to go so far in the duty to accommodate. However, look out for any discrimination if the HR policies mandate cannabis use for those in highly stressful, unpredictable and treacherous roles such as dealing with people constantly. Like HR staff. You may have a discriminatory policy.

 

 

 

[i]  “‘Got to Get You into My Life’ was one I wrote when I had first been introduced to pot,” Paul McCartney told Barry Miles for the 1997 book Paul McCartney: Many Years from Now.

 

The Cannabis Act

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Sittin’ downtown in a railway station

One toke over the line.

Brewer and Shipley

 

Things surely change. Or at least circle back to where they first started. Of course, I refer to the Cannabis Act, which allows the legal use of marijuana subject to various conditions and regulations. I suggest reading the act before celebrating any newfound freedoms since you need to focus. Speaking of which, this now allows the federal government to focus its legislative powers against an even more addictive, notorious and dangerous drug. Sugar.

 

How will cannabis legalization affect Canadian Society? Recent stats suggest that five million Canadians use cannabis at least once a month. We could expect perhaps a 20% increase after legalization.  This column intends to examine this question over a four part series, more or less depending upon how the home grow-op works out. However, by maintaining focus, we intend to cover the history, the legislation, the potential impacts, and some guessing on what the future might hold.

 

Firstly, how did most of us become so conservative (old-fogie)? Cannabis can be found in various forms throughout various millennia. Cannabis use dates back to at least the third millennium BCE when the plant was valued for its use for fiber, food, medicine and for its psychoactive properties in recreation and religion. Hemp fibers could be found in 10,000-year-old Chinese pottery. For the record, industrial hemp contains far less of the psychoactive drug THC. So like members of the senate, cannabis has been around for a while.

 

In Canada, drug regulation started back in 1908. Here Mackenzie King, then DM of Labour, produced a report, which culminated in the Opium Act. This same King instead partook in spiritualism and mediums to stay in contact with the deceased. Once again showing that drugs were not required for mind-expanding exercises.

 

Shortly after this, a type of moral panic began. Emily Murphy contributed to this panic somewhat through her writing The Black Candle. Some of her writings under the pen name Janey Canuck made their way into McLean’s. Including some dubious stereotypes and questionable anecdotes, she pushed for the cannabis ban. Under the chapter “Marahuna-A New Menace” she points out there are three ways out from the regency of this addiction:

“1st-Insanity, 2nd-Death, 3rd-Abandonment. This is assuredly a direful trinity…”

 

She leaves us on the triceratop’s three-pointed horned dilemma. We would only point out that this appears to be have been written before Canada imported the letter ‘J’ from other members of the commonwealth, and the title bears a striking IP infringement by a later contender…Lucas’ “The Phantom Menace”. We assume no cause of action exists since at least 20 years have passed since its release. Mind you, some still harbour the thought of a legal process to eliminate Jar Jar Binks.

 

Other historians such as Catherine Carstairs question Murphy’s ‘contribution’ towards the war on drugs. More than likely the prohibition came from when the Director of the Federal Division of Narcotic Control returned from the discussion for control of the drug at the League of Nations. This should not be confused with the DC Justice League. Although those superheroes would have a tough time since the drug use problem would appear to be so diffuse. Beyond Superman. Perhaps Wonder Woman?

 

Cannabis finally made the big leagues by being included on the restricted list with the 1923 Narcotics Drug Act. As with all legislation, you would think that this then solved the problem, but use of cannabis continued to grow along with the number of prosecutions.

 

Of course, no discussion of an ethical dilemma would be complete without acknowledging “Tell Your Children!”, or even more regretfully known as “Reefer Madness”. Produced by a church group in 1936 as a morality fable, Dwain Esper purchased the film, and by adding some additional salacious scenes, showed it on the exploitation circuit. Admittedly, I did not even realize that this was a thing until I looked it up. But in any event, critics ranked it as the worse movie ever made. The movie dramatizes how marijuana use leads to madness, murder and mayhem. The movie resurfaced as a satire for cannabis policy reform. The new colorized version now has color of the exhaled smoke reflecting the emotion of the person, green, purple etc. Pretty awesome.

 

In the 60’s, the drug culture surged owing to the hippie psychedelic ethos at time. This conclusion sprung from the Senate Special Committee on Illegal Drugs. Considering what the senate probably looked liked at the time, sprung probably does not capture the situation. You should insert whatever verb comes to mind when a rusty machine attempts to move forward on something. Crank perhaps.

 

The medical case for cannabis made its way in the Ontario Court of Appeal in R v. Parker. The Supreme Court in R v. Malmo-Levine and R v. Caine in 2003 confirmed that the federal government had the authority to criminalize cannabis. This was unanimous which is equivalent to the court saying ‘Of course the feds can legislate this. What have you been smoking?’

 

The decriminalization initiative crept forward with the LeDain report in 1972 suggesting removing criminal penalties. In 2003, Chrétien did attempt to decriminalize possession by legislating that 15 gms and under would only result in a fine. However, this doobie attempt eventually went out. Dubious. I meant dubious.

 

On a bit of a somber note, we need to mention Huxley’s Brave New World. Written in 1931, he writes about a dystopian future based on technology and drugs, particularly Soma. “The perfect drug. Euphoric, narcotic, pleasantly hallucinant, All the advantages of Christianity and alcohol; none of their defects. Take a holiday from whatever reality you like, you come back without so much as a headache or a mythology. Stability was practically assured.” That is great writing. I wish I paid more attention in high school. Sorry Mr. Pratt.

 

In any event, Huxley was not so much writing about cannabis, as about humankind’s ability to be distracted from looking out for tyranny. So perhaps in between partaking, we should keep watching Trump and keep a firmer bloodshot eye on Ford. Notwithstanding.

 

photo by Michael Fischer

 

#cannabis

 

 

The facts, they are a changin

pexels-photo-204366.jpeg
It was a dark and stormy night. Or rather, the night darkness concealed the source of the intense storms. That seems much better. My wife and I waited for the storm to pass that evening before setting off to walk the dogs. The reflection of the street lights glistened off the wet streets.

All down the street, I could see small ridges. Upon closer examination, I could see that there were literally hundreds of night crawlers stretched out perpendicular to the road. The road friction made them stretch out to a tortured length of about a foot and a half. Normally plump, this condition thinned them out considerably. Night crawlers are earth worms on steroids.

Feeling some form of compassion for this Lumbricus terrestris, I started to scoop them up and toss them back on to the grass. Some worms can survive being cut in half but being half squashed flat by a truck did not seem very survivable to me.

Now, under normal conditions worms produce a fair bit of mucus. Adding torrential rains to that seems to add to mucus production as the worm exodus continued. I started to regret my misplaced compassion and tried to distance myself from my emotions. My wife just simply distanced herself.

I assumed the common knowledge that during intense rain storms worms attempt to escape drowning in their burrows. However, they breathe through their skin which needs moisture. So there may be a number of other reasons why they engage in such risky behavior of stretching themselves out on a busy road.

One good reason would be migration. Lots of rain would allow them to move great distances. However, half of them moved from the south to the north, while the other half moved from north to south. But, hey, they’re worms. The grass always seem more organic filled on the other side of the street it is said.

An interesting phenomena occurs when you experience a situation and learn some new facts about it later. I learned that another good reason worms travel is that they want sex. My recollection of the event now includes an added ‘ewww’ quality to it. And what better time to find a mate than when everyone else is stretched out in the same area. We have a beach here that seems to serve the same purpose for humans.

Although worms are hermaphrodite, male and females together, they cannot reproduce solely by themselves. They need a mate. I must have cast aside, and severely disappointed, several dozen night crawlers. Destined now to remain virgins they’re probably bitter. Unless that was going to be their choice anyway, and so that is perfectly ok.

This sex migration behavior can bring down planes. After a rain, worms like to stretch out wherever they can, including airport runways. Worms do not get sucked into turbines, but the birds coming to eat the worms can be. Particularly the flocking birds like gulls which tend to ignore whatever happens around them when they fight over food. So airport authorities tend to use fungicides to reduce worm populations.

Night crawlers contribute to the US current account deficit! Some politician should complain about this. If nothing more than the neat optics it provides. “Congress needs night crawler NAFTA negotiations!” Apparently $20 million of night crawlers are exported to the US each year with little or no USA content. A few years ago, the price leapt from $35 per thousand worms to $80 per thousand. Economics 101. Supply was tight, and owing to inelasticity of demand, prices skyrocketed. Worm futures may not have the panache of Tesla stock, but you would have made a fortune otherwise.

Fact

 

Federal tax reform debates suffer from the Rashomon effect

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The film Rashomon won an Academy Honorary Award in 1952 and is considered now one of the greatest films ever made. The film uses a plot device that involves various characters providing subjective, alternative, self-serving and contradictory versions of the same incident.

One can see the theoretical application of this plot device to the multi-varied perception of the liberal government’s changes to the taxation of Canadian controlled private corporations. Let’s just deal with the one plot device — the sprinkling of income.

The government takes the position that these tax advantages are in place to help Canadian businesses reinvest and grow, find new customers, buy new equipment and hire more people. Not surprisingly, people evidently use these corporate structures to reduce taxes by paying dividends to those family members at a lower tax bracket and not involved in the business. Mea culpa. The government perceives that these people are avoiding paying their fair share of taxes as opposed to investing in their business and maintaining their competitive advantage.

Of course, sprinkling income provides dividends to family members who may not have much to do with the corporation in the first place. The tax policy intended to spread income more among those involved with the corporation.

The government states that when the rules are used for personal benefit, they are not contributing to growing the economy. Rather, such practices undermine confidence in the economy by selectively giving away tax advantages and producing an unfair result.

The Canadian Bar Association takes umbrage to the government’s use of the term “loophole.” Loopholes are inherently legal, but they circumvent the policy intent of the legislation when corporations legally use tax advantages to make professionals more whole as compared to salaried employees. So let’s just call these advantages “loopwholes” instead.

We can use the Rashomon approach to examine taxes paid in Finance Minister Bill Morneau’s CCPC comparison discussion paper. Susan, an employee, earns employment income of $220,000 and pays her fair share of taxes totalling $79,000. We compare this to our business owner Bob earning a professional income of $220,000 and, through the sprinkling of tax loopwhole-ness, pays only $44,000 in taxes. Susan pays about 36 per cent of her income in taxes while Bob only pays 20 per cent, a $35,000 difference. One could easily think that there is only a 16-per-cent difference, but through the magic of Rashomon, we can see that Susan pays about 44 per cent more in taxes (35/79). If the loopwhole is lost, Bob becomes even more upset as his tax bill would increase 80 per cent (35/44).

The CBA, to the consternation of some members and now some former members, takes a political position against the removal of the tax loopwhole. The main argument appears to be that the loopwhole allows the corporate professional to earn the same amount as an employed individual since a corporate professional does not have paid vacation or an employer pension. The pension argument has an iceberg quality to it since fewer companies are providing pensions in any event, down to around 37 per cent of employees.

In comparing total compensation, HR professionals use a rough guideline that benefits can total 20 per cent of income once you include vacation, health and pensions. If we get back to fun with ratios, we can see that Bob’s tax savings of $35,000 comes close to this 20-per-cent premium ($44,000 normally).

A major argument for allowing professional corporations a tax break is the risk premium. A business owner has no guaranteed income, job security, paid vacation, sick days or retirement program. In addition, the owner must personally guarantee debt obligations and pay the entire cost of the Canada Pension Plan. Therefore, an owner should be entitled to a risk premium. As an example, the risk premium for stocks is arguably about five per cent, but this does not appear high enough for Bob considering the risk.

So, in a straight comparison, Bob should pay less tax in order to have close to the same total compensation as Susan, a salaried employee. Unfortunately, we drifted away from the actual question, dreamed about a logical fallacy and refuted an argument that was never made. The question is not how the tax system should make Susan and Bob have the same total compensation but rather how to limit the tax exemption for what it was intended, mainly using dividends to compensate those involved in the business and to help businesses reinvest and grow.

If we use sprinkling dividends as a loopwhole in order to make Bob’s total compensation the same as salaried employee Susan, we have passed the risk premium over to be paid by Susan by way of tax revenue foregone by exempting Bob. The risk premium should belong to Bob to be mitigated by higher revenue paid by Bob’s clientele or by reduced expenses, not lower taxes at the expense of Susan.

If a tax break is truly yours, then let it go. If it returns, then it belongs to you. If it doesn’t, then it never was.

 

Photo by rawpixel.com from Pexels

From a previous Canadian Lawyer Article.

The Cookie Conundrum

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Where would we be without social media? Physically, we would still be in the same coffee shop and talking to each other instead of passing or posting messages to one another. I wrote a short column on one of my favorite topics. Those little pieces of code known as cookies. There was some legal stuff in there that I edited out.

Do you know what your webmaster is busy baking?

Karma. I may have been a scoundrel in a previous lifetime. As penance, I voluntarily reviewed ten webpage privacy statements from five prestigious law firms, four somewhat intrusive social media organizations, and one highly regarded national magazine for lawyers in Canada. Did I say well written? That too.

Cookie policies range from the buried deep within the privacy cookie jar to the flashing K-mart end of aisle cookie sale. Cookies refer to the little malleted crumbs of text file code that websites place on users’ browsers that land on the organization’s webpage. These cookies do not contain any coding themselves, so they cannot transfer any viruses or other types of malware. But like real cookie packaging, you must read to the bottom of the ingredient list to determine what your system ingests.

Cookies come in two major flavors. Session cookies store information about user page activities so that users can easily pick up where they left off. Think of them as celery cookies. Light and non-fattening.

Compare these to persistent cookies which store user preferences. These websites allow the user to customize how information presents itself through site layouts or themes. These more fatty chocolate laden type of cookies adhere to the fatty midsection of your browser.

Cookies cannot be executed nor are they self-executing, but like real cookies, they can be insidious.  Or at least the information on them can be used maliciously. Similar to your personal profile, your browser history can show where you have been and what you have been consuming.

The cookie continuum provides a range of uses for various organizations.  The responsible and ethical approach entails clear descriptions of how cookies are deployed on their site. The privacy policy for the various law firms are conservative and straightforward. For legally trained individuals at least.

Canadian cookies delight the user. Most websites track usage, but some of the Canadian sites merely indicate that they ‘may’ attach cookies. This lite approach appears more like a digestive biscuit cookie. Good for gumming and easy to absorb.

US firms use Twinkie like cookies which look innocent and light, but the fat and sugar consumed have ‘persistent’ lasting effects.  The cookie policy for one large law firm broadcasts the use of cookies similar to the exclusion clause you learned about in law school. Red ink with arrows.  Here users see a banner ad at the base of the webpage warning about cookie usage. The banner clearly states that by using the website, the individual consents to the use of cookies.

These persistent cookies act like the classic Pac-Man game and capture information such as your operating system, browser software, IP address, and the full uniform resource locator. They do then load on the full calorie cookie which allows a number of features such as accessing secure areas of the website, analyzing information and tracking how you share content from the law firm website via social media or email, using sharing buttons provided by AdThis for example. Cookies always extract a cost.

Although the cookie usage seems somewhat invasive, you may be asking what does the Canada Anti-spam Law say about this. For certain types of programs, such as cookies, you are considered to have express consent without requesting it, so you can distribute (attach) cookies to users.

The Facebook Cookie policy portrays a sense of permanence likened to real cookies laced with trans-fat to extend shelf-life. Here, cookies provide for authentication, security, and advertising. The cookies allow Facebook to deliver ads to people who have previously visited a business’s website, purchased its products or used its apps. Fortunately the cookies allow Facebook to limit the number of times you see a particular ad. You can innately appreciate the benefits of seeing ads you would be interested in, but at some tipping point, the ads can come across as stalking. Do you want people looking over your shoulder to know what products or services you were researching the night before?

Cookies help businesses understand the kinds of people who like their Facebook page or use their apps so that they can provide more relevant content and develop features that are likely to be interesting to their customers. Ultimately, cookies help store preferences to provide customized content and experiences.

This ‘pull’ type of marketing experience benefits a potential client interested in receiving certain advertisements for relevant products. Perhaps seeing a sale on litigation services would finally convince that reluctant client to file that civil lawsuit?

Law firms have room to move up the cookie continuum to provide a more individualized website experience. Admittedly, clients may prefer not to open up their browser in a coffee shop and receive updates on the developing law of criminal fraud, but those showing interests in mergers and acquisitions may prefer to see a website customized on that basis. Cookies with sprinkles could be the next big thing.

Mallet

Photo by Daria Shevtsova from Pexels

In Blockchain we trust

bitcoin-blockchain-business-730569.jpgThe first thing we do, let’s disintermediate all the lawyers.

Imagine a world filled with absolute virtue where someone says they would do something and then actually did it. This level of trust reaches the pinnacle. If you wanted to buy a car, you would pay the listed price since that included the cost of manufacturing and a level of profit that everyone agreed would be appropriate for manufacturers. The bank would simply give you the money since you did say you would pay it all back in four years with interest.

But we are more of a trust but verify type of society. You have to search for comparable vehicles, generally haggle for the best price and sign pages of legal documents. Banks have you sign reams of paperwork and generally place a security interest on the car. The Bank also has to confirm the car is free of any liens. You then generally pay on time for the next four years. If you miss a couple of payments, then the bank may have to launch some proceedings for collection.

Blockchain promises to revolutionize the economy since a lot of this process outlined above simply disappears. Advocates claim that Blockchain immensely raises the level of trust in the system. Alternatively, one could argue that it removes the need for trust.

Undoubtedly you have heard of Bitcoin somehow in conjunction with Blockchain. Let’s ignore the bitcoin frenzy for now and focus on what drives it.

Blockchain comprises a continuously growing list of records called blocks. These blocks are linked together using cryptography that are resistant to data modification. So instead of a single ledger of transactions held by one organization, it is an open distributed ledger that can record transactions between parties in a verifiable way. One earlier block cannot be altered without the consensus of later blocks. There is no definite definition of Blockchain, but adherents are quite passionate about their own favorite.

Blockchains can be public or private. MasterCard’s Blockchain can’t be viewed and may not have any purpose outside of marketing since all of its transactions run through the existing infrastructure. This harkens back to the time when companies advertised they were Y2K compliant. Nice to have, eventually meaningless.

You clamber down the rabbit hole a bit more and you come across things such as smart contracts. The name again is a bit of a misnomer since the contracts are more of simple if this happens then that happens. Similar to if you have this much to drink, then you are going to feel that crappy in the morning type of logic.

Smart contracts are simply computer protocols intended to enforce the performance of a contract. They can be fully or partially self-executing. Once various conditions are fulfilled, assets are transferred and funds are released. This transaction is visible to all users but all parties remain anonymous.

We can look to Ethereum as having one of the better systems for establishing these smart contracts. Ethereum has its own cryptocurrency called Ether. In our car example the history of the car and the dealer’s transactions are on the Blockchain which is public and allow it to be checked by everyone. You contact your bank which has instant access to your credit history. The bank can transfer funds immediately and the dealer can arrange for the vehicle transfer by the time you get back from your test drive.

So long as you continue to authorize payments to the bank, all is well. If you decide to stop payments, then the car’s systems could be disabled the next time you try to start it. Welcome to the internet of things.

The Blockchain concept does have the potential to extend to all types of commercial transactions. House purchases could be reduced down to days from the existing weeks it presently takes. This would require a public ledger of real estate titles, planning permissions and certificates of title. Sweden’s land-ownership authority will be conducting its first Blockchain property transaction shortly. Presently, a three to six month transaction could potentially take hours instead. All that extra efficiency will have to come out of some intermediary’s pocket.

But you can see how the removal of intermediaries will eventually impact large swathes of job categories.  Any sort of job category that involves creating trust in a transaction may no longer be required. The Association of Certified Fraud Examiners strongly claim that Blockchain is no mere hype train. This is a strong endorsement which would likely have the effect of reducing the need for Certified Fraud Examiners.

One paper suggested that insurance payouts could applied to Blockchain. They suggested that an automated system could indicate if an insured fell within an area that was recently flooded. Insurance payments would then be automatically issued. I found this a bit of a stretch. For example, there would have to be complete pre-existing documentation of assets to show that my wife’s mid-century modern furniture was actually solid teak and not veneer. A point of full disclosure, I only found out this past year that mid-century modern was actually a thing.

Ultimately, Blockchain can be seen as a foundational change. There are immense barriers to adoption for businesses, government and individuals. The incorporation of Blockchain may take years.

From my own perspective, a major function of lawyers includes the trust but verify aspect. As real estate transactions become more blockchainish, then the role of the lawyer would be substantially reduced. This may finally drive away the concept of hourly billing into a strict transactional fee type of relationship with clients.

Harvard Business Review goes so far as to say intermediaries such as lawyers, brokers and bankers may no longer be necessary. Not so much a ‘the first thing we do, let’s kill all the lawyers’ as ‘let’s disintermediate all the lawyers.’ This may not have the same emotive content, but the result would be same, lawyer wise.

 

 

Photos by David McBee

Mogul Moral Hazard

cold-cool-man-47356 (1)Moral Hazard describes a situation in which one party becomes more inclined to enter into risky behaviors knowing that they are protected against the risk and the other party will incur the cost.

This came to mind when I finally went downhill skiing after a twenty year hiatus. Back in my high school and university days, my life revolved around skiing and planning to ski. Not that I have ever been seriously injured while skiing, but the possibility came top of mind recently.

Skiing has changed. I went to the rental shop and they pulled out these new innovations. The skis now have this parabolic shape. I remember reading about them years ago, but I was not aware of what they looked like up close. Bodacious comes to mind. The boots weren’t much different, thankfully.

There was an entire rack of helmets, so I picked up one these things also. Amazingly, back on the ski hill everything worked out. No one got hurt. This new equipment did make it far easier to ski and I was likely way more aggressive wearing the helmet.

I was quite ready to admit at the beginning of the day that I was a less than average skier considering all of the time that had passed, but after a couple of runs all of that confidence came back. Perhaps false confidence, but confidence all the same.

But this is where behavioral economics comes in. When it comes to activities such as driving for example, about 90% of people feel that they are better than the average driver. Almost no one wants to place themselves in the bottom half of drivers by suggesting that “yep, I’m far worse than the average driver.’ This suggests that people are far more confident in their abilities than statistics and the Darwin Awards actually show.

This raises the question of whether insurance induces people to engage in risker behavior than they would if they didn’t have insurance. For myself, I have perhaps an excessive amount life insurance at eight time’s annual salary in the case of accidental death along with some great long and short term disability. I don’t think having this insurance modified my behavior. I certainly wasn’t skiing eight times faster knowing that I would leave a very nice estate.

Moral hazard arises from asymmetric knowledge. One party knows more than the other party. In this instance, the insurer may not completely understand that I intend to engage in risk taking behaviours since mentally I still feel 20 years old. Emotionally, perhaps a bit younger. Physically, perhaps 3 times that. How can the insurer foresee that I might undertake some ‘dumbass’ skiing behaviours while my mental, emotional and physical ages are several decades apart? Perhaps that is already worked into their mathematical models.

This represents a type of ex ante moral hazard, or before the event. I am not a major fan of using an opaque terms of describing a vague concept. But this generally means that I change my behaviours based on the fact that I am now insured. Perhaps ex dumbass ante moral hazard captures the concept.

This compares nicely to the ex post moral hazard. After the insured event has occurred, you are more prone to claim insurance benefits exactly because they are available. Admittedly I use our health care spending account for this purpose. I spend a bit more to get the compressed lens for my glasses to avoid the coke bottle effect I would otherwise need to see what I am doing. I feel enabled.

Insurance companies do take steps to address this increase in use of insurance benefits by adding deductibles and co-insurance. Again behavioral economics tells us that people are twice as adverse to losses as they are to gains. Here we can see that insurance companies do recognize that the rationale person that traditional economic models rely upon does not exist except perhaps only the in the earlier fairy tale type of economic texts. But insureds would still be prone to take care to avoid incurring a loss since there is the frustration factor.

This frustration factor becomes apparent when claiming travel health insurance. My wife and I made plans for a bike trip in Asia. Being the prudent people we are, we purchased the complete trip cancellation insurance. This may be similar to purchasing the extended warranty which turns out to be a costly insurance premium for a low probable event. But buying trip cancellation is the easiest thing in the world. You put in the length of your trip, your age, price of the trip, your credit card number and off you go. You get a nice little brochure almost instanteously.

Unfortunately, my wife got ill just before the trip and had to cancel. Now, there is no way to fill in a claim form on-line. You have to download the policy and figure out how to fill in a claim. This necessitated printing out the form, photocopying receipts and physically mailing the entire package. The number of doctors visits increased since now we also had to provide written reports on why she couldn’t travel and how this was not a pre-existing illness.

Admittedly, this acts as a type of disincentive. Even as a lawyer, I found the amount of paperwork, and I mean actual paper, excessive. The 10 month time and effort to claim under the insurance exceeded the 10 minute time and effort to arrange the insurance. One would hope that the arrangement time and the claim time would be comparable. Fortunately, my wife are completely hung up on this completion thing and made this a personal project to complete.

Research seems to show that insurance does not increase the ex dumbass ante behavior. Insurance does seem to negate some preventative behavior that’s difficult to maintain. It seems to be easier to take drugs to alleviate diabetes than it is to avoid those sugary laced slushy drinks. Insurance does increase use of health benefits, but this may reduce even more costly medical intervention later.

Mark Twain in his speech on accident insurance had this to say.

“I have seen an entire family lifted out of poverty and into affluence by the simple boon of a broken leg. I have had people come to me on crutches, with tears in their eyes, to bless this beneficent institution. In all my experiences of life, I have seen nothing so seraphic as the look that comes into a freshly mutilated man’s face when he feels in his vest pocket with his remaining hand and finds his accident ticket all right.”

So insurance companies, and lawyers, face a discerning public. I am sure I should apologize to one group for placing those two groups together. But like anything, once you really need insurance, or a lawyer, you’re glad it’s there.

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+Source: pixabay.com