Fire Insurance

Fire Insurance.
Fire insurance in 1949 experienced another profitable year from an underwriting standpoint, with premiums moderately exceeding the record totals of 1948 for many companies and losses not expanding proportionately. The public shared in this continued prosperity as numerous leading fire insurers during 1949 announced stock dividends, also increased their cash dividends, and reduced rates on fire and automobile insurance in many states.
During the war years and the postwar period prior to 1948, the fire insurance business expanded its premium income tremendously, but from an underwriting standpoint the final results were not particularly profitable. Losses and expenses kept pace with premium growth, with the result that while company income and assets grew larger, surplus figures tended to shrink moderately. Then, in 1948, experience improved sharply, with companies showing profitable results far above the average of the last five or more years.
The twelve months ending Dec. 31, 1949, were about equally profitable. Fire insurance executives hastened to point out, however, that these results should not be taken as a base for future predictions, for underwriting results change quickly and tend to follow general business conditions in this country.
One of the major developments within the fire insurance business in 1949 was the preparation by nearly all large companies and groups of companies for multiple-line underwriting. With New York State having approved by law the writing of casualty insurance by fire-marine companies and fire-marine lines by casualty insurers, the work of integrating companies and personnel was well advanced in 1949.
Executives of companies were elected to hold identical offices in both fire and casualty units so that the rigid departmentalization which had existed in this country for many years by statute, until the recent changes in law, could be removed gradually.
Several large groups of companies announced mergers of smaller units, maintaining the trend of recent years toward fewer carriers under single ownership. Under state multiple-line laws and other statutes regulating insurance, there no longer existed the former reasons for maintaining large fleets of fire and casualty units.
Within the fire insurance business itself major problems centered around accounting studies under way as 1949 closed. These will provide statistics on expenses of doing business to determine whether some present practices are, or are not, on firm foundations. The insurance industry itself was sharply divided in its views. Some executives held that insurance rate discriminations in favor of large buyers of coverage were not unfair and were justified in the same way as were wholesale price discounts in any other line of business.
Opposing this theory were certain top executives who argued that although in past years the insurance business generally did grant discounts in rates to many large assureds, this practice was no longer legal since insurance became interstate commerce following the United States Supreme Court decision in the South-Eastern Underwriters Association case a few years ago, unless there were statistics to prove beyond any question that economies existed in connection with writing big mercantile and industrial risks which justified rate credits.
For the first half of 1949 a stalemate existed in writing multiple location fire insurance contents risks while the fire insurance industry and the state insurance supervisory officials debated the question whether rate credits should be allowed. The New York Insurance Department, headed by Superintendent Robert E. Dineen, led the battle to grant moderate rate credits. The majority of companies sought to get state approval of average rates without credits or debits for bad hazards. The National Association of Insurance Commissioners in June approved a compromise rate-credit plan and since then a few states have adopted such a formula.
However, in December several large groups protested this action by the New York State Insurance Department. Hearings were started by the Department, and it appeared as the year closed that the issue would be taken to high courts if the Department held to its approval of rate credits.
Also associated with insurance cost surveys was the question of whether discounts allowed on practically all three- and five-year term fire policies were too large. For years policyholders with three-year policies paid two and one-half times the annual rate and five-year policies cost four times the annual rate. The question was whether these rate credits, amounting to about 17 per cent on three-year policies and 20 per cent on five-year contracts, were in excess of savings made by insurance companies in being able to write a single policy for a term of years and collect the entire premium in advance. These discounts, in effect for over 70 years, were admittedly arbitrary and not supported by figures.
The term-rate problem was pointed up when several companies in recent years inaugurated annual installment payment plans on term policies, charging policyholders a service fee — including interest and cost items — of about 3 per cent over an almost equal division of the term premium by the number of years the policy ran.
For example, if an assured bought five annual policies at an annual premium of $100, his total cost would be $500. If he bought a five-year term policy and paid for it in advance his cost would amount to $400. Under the installment plans, which were opposed by a majority of fire insurers, the same assured could buy a five-year policy by paying $100 the first year and $78 at the inception of each of the following four years, bringing the complete bill to $412.
Opponents of installment premiums declared that if an assured bought annual policies for five years and paid $500, then he was being discriminated against unfairly by the person who bought a five-year term policy, paid for it in installments and was charged only $412. Those favoring installment plans argued that they were not changing the basic rate structure; they were charging a service fee for the installment privilege and that if any discrimination did exist it lay in the big discount allowed for term policies that were prepaid.
Consequently, the business and the insurance commissioners were conducting a study to ascertain whether these long-standing term discounts were justified or whether they should have been reduced so that if a term policy was financed the present large rate discrepancy would be narrowed to the point where no arguments would arise.
Sparking these drives to acquire figures to prove rate discounts, which were based on merit rating of individual risks or other factors, was the desire of the insurance business to avoid any clash with the Federal Trade Commission over possible violation of federal antitrust laws. Insurance desired maintenance of state regulation which was granted under Public Law 15 of Congress, without interference by the Federal Government to the extent to which the business was regulated adequately by the states.
At present the insurance business contends that the states cannot adequately regulate some of these long-standing rating practices until they have acquired from the companies the particular figures on premiums, losses, and expenses which will prove that rating has been conducted as it should be; or should be changed to conform to results of the cost investigations, due to be completed in 1950.
In the automobile field the carriers insuring physical damage risks — fire, theft, comprehensive, and collision — generally reduced rates late in 1949 by about 15 per cent. Premium income continued to increase rapidly due to the tremendous production of new cars and trucks which were sold at prices far above those of prewar motor vehicles which the new ones replaced. Due to rate increases made in 1946-1948, the income has exceeded the boosts in repair costs so that some reduction in premiums was considered justified.
Ocean marine underwriters had a fairly good year in 1949, although beset with the problems of declining premium income. With most E. C. A. cargo business being insured in countries of the foreign recipients, with many nations passing restrictive laws in order to bolster their own insurance companies, and with numerous countries faced with dollar shortages, American marine underwriters have not today the same field of free competition open to them as they had before the war. Through the International Union of Marine Insurance, which meets annually in Europe and of which the American marine market is a member, attempts were being made to bring about more uniform practices in marine underwriting for the benefit of all. Marine underwriters announced in 1949 their practical withdrawal from the war-risk insurance market in the event of hostilities between any of the major powers. The companies felt that it was not their province to assume huge losses which might occur from atomic bombs or other instruments of war. They have asked the government to pass a law creating a stand-by war-risk insurance bureau available for instant use in the event this country again goes to war. This bill was introduced in Congress late in 1949 but no action was taken. The ocean marine underwriters felt that it would be adopted in 1950.