1940: Insurance

All lines of insurance showed progress in 1940, partly because of the impetus given to business by the defense preparedness program.

Life Insurance.

In life insurance, sales were slightly in excess of last year. Size of policies has shown some decrease, but there has been a wider diversity of coverage with greater interest being shown in Group Life and Accident, Group Pensions, Hospitalization, Death and Dismemberment contracts. Insurance study of the temporary National Economic Committee at Washington (popularly called the Monopoly committee) having been concluded, life insurance companies awaited with interest the report of that committee which is headed by Senator O'Mahoney. Following the hearings it was announced that there would be no report until after the election. In the meantime, more than 150 life insurance companies filed with TNEC a long memorandum discussing some of the testimony which had been introduced by Securities and Exchange Commission, the fact-finding medium of TNEC. The life companies felt that the hearings had been conducted without opportunity to bring out all the facts. Their memorandum told their side of the story, and Senator O'Mahoney promised it would be printed in the report of his committee as part of the record.

War Risk Insurance.

Uppermost in the minds of life insurance home office underwriters, actuaries, and some of the State Insurance Departments has been the subject of war clauses, and because of the speeding up of preparedness in the United States, increase in armed forces and the draft legislation, the entire subject of war mortality and war risk has been re-examined. At the last annual convention of the National Association of Insurance Commissioners, that body expressed the belief that, if practical, there should be uniformity in war clauses. Following the convention companies have made an intensive study of the war clause situation, with meetings of committees and joint meetings with state supervisory officials. The year ended, however, with very little having been done by individual companies in adopting a war clause for general use. One reason for this has been some lack of uniformity itself in the State Supervisory Insurance Departments, partly for statutory reasons.

In the meantime, American life companies are closely studying war clauses adopted by Canadian companies. While these clauses have shown some variety in their wording, in general they either make provision for the automatic termination of the benefits in the event of 'engaging in military, naval or aeronautic forces' of any country, or in the event of 'engaging in military, naval or aeronautic service in time of war.'

With respect to those in the Canadian active service forces most of the Canadian companies at the present time are following the practice of treating the total disability and double indemnity clauses as subject to automatic termination upon the date of the insured's enlistment in military service or any similar occupation requiring full time service. On the other hand, some of the companies, under their particular clauses, have indicated that they are prepared to continue coverage so long as the insured is engaged in service within Canada or Newfoundland, provided, however, that hostilities do not occur within these territories.

So far as policyholders serving with the non-permanent active militia or similar part-time services are concerned, the wording of virtually all the clauses appears to be broad enough to provide for the automatic termination of the benefits upon engaging in such services. However, in view of the part-time nature of the duties involved, most of the Canadian companies are following the practice of having an informal supplementary agreement completed or a simple letter furnished to the policyholder, providing for the continuation of the benefits regardless of such service, but subject as a rule to automatic termination upon the policyholder's joining any of the armed units requiring continuous full-time service.

Benefit Changes Contemplated.

One of the principal life insurance reports made in 1940 was by a committee composed of actuaries, representing State Insurance Departments, Actuarial Society of America, and American Institute of Actuaries, which contemplates changes in the nonforfeiture benefits. The plan suggested in the report, if adopted, will be developed on a basis which will recognize the nature of recent mortality and interest experience as well as incidence of expense. It will tend to eliminate the artificial connection between the determination of policyholders' equities and the calculation of reserve liabilities. Thus, it involves the basing of nonforfeiture on a different reserve standard than the standard used for the valuation of policy reserves. The principal objective in the long run will be to encourage companies to adopt more modern tables for reserve valuation purposes and to set up as rational as possible a basis for the nonforfeiture values which will take care of a more accurate incidence of mortality and expense.

Aviation Insurance.

Among the most important research studies in life insurance reported during 1940 was that of the Actuarial Society of America's committee on aviation statistics. Significant light was thrown on flying of paying passengers on regular schedule flight, the survey disclosing that the hazard of these flights is less than had been supposed and as a result some companies will now permit unlimited flying by paying passengers on scheduled flights. Death rate among airline passengers in recent years is .01 per 1,000 hours. Average trip is about 500 miles, and takes about 3½ hours. Private pilots as a group have had a recent annual death rate of 6 per 1,000. Pilots engaged in general non-scheduled commercial flying have had a recent aviation death rate of 10 per 1,000, with some tendency for the rate to increase among pilots with long experience, probably because of engaging in more hazardous kinds of flying.

Compensation and Pensions for Agents.

Life insurance companies during the year reported considerable progress being made in the matter of changing the scale of compensation given to agents, and a committee consisting of company officers and representatives of the agents made a report in Chicago in which a new scale of commissions was presented for the consideration of companies. One objective of the new scale is to spread the commissions which agents receive in such a way that the veteran agents will continue to get income from business which remains on the books and which they have serviced over a long period of years. At present time commissions on policies terminate after the policy has been in force ten years.

During the year development was also noted in pension plans adopted or being considered for adoption by companies, whereby agents will be given retirement allowances or pensions after having been in service of companies over a certain period of years.

Bonds.

The National Association of Insurance Commissioners adopted an amendment offered by its committee on valuations to the effect that one of the qualifications for amortization of bonds shall be that actual sales or bid prices of such bonds must reach 55 per cent or higher during each of the months of September, October and November.

Fire and Marine Insurance.

Activities of fire-marine insurance companies during 1940 expanded considerably in several directions as a result of the wars in Europe, Africa and Asia and the immense national defense program launched by the United States Government. Premium income was higher than in 1939, with losses not more than proportionately increased. Fire losses, which were expected to rise during the year and actually did show that tendency in the first quarter, have been somewhat under the figures for corresponding months of last year.

Marine underwriting income has gained through writing of war risk premiums on extensive foreign trade shipments. Losses on this business are not generally higher than allowed for in the rates, it being remembered that only a small percentage of cargo shipments to the British Isles is insured against war risk by American companies. British vessels and cargoes are largely covered by the British Government War Risk Bureau.

A large amount of extra premium income is being derived by marine underwriters from builders' risk insurance on the hundreds of vessels under construction for the Maritime Commission and the U. S. Navy. Marine insurance companies are cooperating fully to supply this tremendous volume of protection.

Gradual and steady reduction of rates and broadening of coverages continue. This trend has been in evidence for several years and proceeds as insurance companies equip themselves to meet the more widespread demands of the insuring public. Fire insurance rates were lowered again this year on various classes of risks in many parts of the country, but total premium income, however, will show a gain because of the vastly greater production of industry, larger inventories of merchants, and widespread residential construction.

Automobile Insurance.

Automobile premiums written by fire-marine companies are rising this year as a natural by-product of the heavy sales of new cars. In early summer the National Automobile Underwriters Association made available to car owners in practically all parts of the country the new standard policy covering fire, theft, collision and comprehensive risks. This is a modernized and simplified contract, easier to read and understand than the old form and grants additional benefits to car owners without additional cost. Most insurance companies are today selling this new form.

Airplane Insurance.

The aviation industry now demands a huge volume of insurance protection, this coverage to insure buildings and planes under construction against fire and other hazards. Planes built for delivery to the U.S. Government or foreign countries are insured by the aviation manufacturers until title is taken by purchasers. Broader and more comprehensive aircraft hull policies for private plane owners in 1940 were placed on the market by the three American underwriting offices which write practically all the business done in the United States.

Legal Questions.

Further consideration was given this year in many states to the proposal for a more up-to-date standard fire insurance policy. Contracts in use throughout most of the country were written years ago and contain numerous restrictions today almost universally waived by endorsements. A proposed revised uniform fire policy was introduced in the New York State legislature at the 1940 session with the support of the Insurance Department and legislative leaders but was not pressed for passage when opposition was offered by fire companies arguing that a new policy would upset court interpretations of all existing provisions.

Insurance commissioners of numerous states appear to favor the proposed revised policy, but some are indifferent to it and a few are inclined to be hostile to a change. While the New York Insurance Department has stated it will seek passage of its bill in 1941, the fate of the measure remains actually in doubt.

Legality of the new fire insurance contract between the Home Owners Loan Corporation and the Stock Company Association is widely disputed. Prior to early in 1940 the HOLC insured with both stock and mutual fire insurers, homes upon which it holds mortgages in cases where the owners are in default on payments or do not exercise rights to place their own insurance. The HOLC this year asked for a new contract with lower net costs to itself. The SCA proposal was accepted and all HOLC insurance has since been placed with it.

However, this contract contains a provision for a 25 per cent payment of premiums by the SCA to the HOLC for numerous services. Several Insurance Departments, New York included, are of the opinion that this payment violates state anti-rebate laws and is discriminatory. Until a study of Government insurance practices is completed early in 1941 by the National Association of Insurance Commissioners final decisions by most states will be deferred.

Marine War Risk Insurance.

Marine war risk insurance rates have risen in 1940 to higher than 10 per cent on shipments to and from the British Isles and are much above those of 1939 on Asiatic, Mediterranean and African shipments. While American insurers are involved to some extent in the war losses occurring off the coasts of Great Britain and France, those losses are relatively small as most of the war risk insurance on cargoes to Britain is carried by the British Government Bureau.

Congress passed and the President signed a bill permitting the creation of a U.S. Government War Risk Insurance Bureau if the facilities of private insurers are found inadequate to meet demands for marine protection. The sum of $40,000,000 was appropriated to finance this bureau. However, private markets have so far been able to furnish complete insurance on cargoes and hulls. Foreign insurers admitted to this country are required to meet the same general financial requirements as domestic companies and their security is not affected by events in their home countries.

Casualty Insurance.

Casualty and surety company operations in 1940 have been particularly sensitive to problems created by the international situation. On the surety side of the picture the companies have been called upon to assume great liability in issuing performance and payment bonds on aircraft and industrial projects for national defense. Previous underwriting yardsticks have been laid aside, a patriotic attitude of helpfulness being the keynote. Already many millions of dollars in war contracts have been bonded, the liability being shared by many companies. Greatly accelerated industrial activity has brought payrolls to their 1940 peak with the result that Workmen's Compensation insurance is demonstrating greater usefulness. All branches of the casualty-surety business have been stimulated by war activity.

The year witnessed intensified effort by stock casualty companies to broaden coverage and lower premium costs. Today, a car owner can buy his automobile insurance, for example, at the lowest rates obtainable in recent years. Furthermore, the standard automobile policy has been revised and broadened. Careful drivers are being rewarded for their no-accident records. Widespread stimulation of safety and accident prevention has helped to bring about the low rates. Through the National Conservation Bureau casualty companies are spending more time and money in accident prevention and industrial safety.

In 1940 a number of new casualty coverages were introduced. Among them is the Comprehensive policy which, under a single insuring agreement, provides liability insurance on various risks that heretofore have been separately insured under individual policies. Unknown hazards are also covered under this new form. A healthy trend toward the making of surveys and analysis of a client's insurance holdings has also been evidenced by effort to give buyers better insurance protection for their money.

Crop Insurance.

See AGRICULTURE: National Farm Program; Crop Insurance.

Old Age Insurance.

See SOCIAL SECURITY.

Unemployment Insurance.

See SOCIAL SECURITY.