Archives for August 2010

The Years Ahead

It’s been a while since my May 2009 post, whose title was: The consequences of printing money. What has changed since end of May 2009? Let’s try to review the two main ingredients that are influencing our economy: Government debts are increasing. Based in Switzerland – in the heart of Europe (geographically I mean since Switzerland is neither part of the European Union nor the Euro zone) – I was in the first raw to follow the Greek crisis. The lack of fiscal discipline and the absence of economic growth in Greece have contributed to put pressure on the Euro zone but eventually a new bail-out plan (at least a guarantee to launch one if needed) has been decided with the agreement of the German government. This test has demonstrated that the Euro currency system works well in good times but represents a weakness for Euro zone countries when some of their members are in a difficult financial situation as it is the case now not only for Greece but also for Spain, Portugal and some others. Stimulus packages have still to prove they work. The US counts on stimulus packages to boost its economy. Many policymakers thought the stimulus package decided following the 2008 financial crisis would help the US economy to get back rapidly to growth, which it temporarily did but it appears now that the overall economic situation in the US is deteriorating again. If we look at the industrialized world right now we can make the following statement: 1) European countries (at least the majority of them) and the US have serious concerns with relation to their debt level. Some European countries have decided to cut public spending like the UK, Greece and Spain. So far, there is not a clear trend to implement massive tax increase. 2) The US still continues its Quantitative Easing (QE) strategy. The Fed purchases the US government debt contributing to printing more money. Right now it seems that the debt level is not a priority for the US government. This situation leads me to ask myself important questions for the future: If there is no or very slow growth for a while how will governments improve their financial situation without increasing taxes? If they increase taxes will it contribute to kill any potential economic growth that is already predicted to be anemic? Is it possible to see a major government failure in the next 5 years? Government’s bail-outs of financial institutions have not solved the problem but just allowed them to gain some more time. But we should not forget that governments can print money but they cannot print jobs. There might be a no-exit path here unless governments address the chronic deficit and debt problems and together agree to restructure the international monetary system.

Does insurance need a Big Brother?

I happened to come across this article today about Pennsylvania state possibly using of road side cameras, number plate recognition software and an insurance database to automatically fine vehicles on the road without insurance. In the UK this type of technology is already in heavy use. Number plate recognition cameras and the Motor Insurance Database or MID fulfil this purpose. The UK’s Motor Insurers Bureau quoting figures of over 500 uninsured vehicles seized by the police a day through the use of the MID. It is worth noting the MID is not used to automatically fine individuals in the UK at present. Police are automatically alerted to uninsured cars by an in-car camera and can phone an insurance company to verify a customers insurance before seizing the vehicle. In addition, the City of London gains significant revenue from charging for car access to the city. The toll is called The Congestion Charge and uses number plate recognition technology to monitor and enforce the fee. Similar deployments have been made in other European cities to enforce various road laws, with Celent’s very own Karen Monks observing one in action in Florence, Italy. So in this time of economic uncertainty, where various US states are looking for cost savings and revenue streams – should insurance align itself with the Big Brother approaches to monitoring drivers? The number of uninsured drivers on the road has always been a significant problem and with household budgets under pressure the problem will increase. Dealing with this issue comes at a significant price though. The cost to the insurance industry of setting up such a system is considerable, especially one that can be reliable enough to automatically fine customers. Insurers not able to update the central database in a timely manner risk having their customers fined or if the UK method is adopted – stopped by the police while their cover status is checked over the phone. Once again timely data integration will have a significant impact on customer satisfaction. Whilst the insurance industry will resist the costs involved and customer advocacy and privacy groups will lobby against such moves it seems inevitable that automatic checking of vehicles status using number plates will eventually become a reality in most developed countries, if it is not already in place.