1941: Insurance

Life Insurance.

Subjects of most engrossing interest to life insurance companies in 1941 were war risk clauses, the continuance of low interest rates, studies of the level at which premiums should be fixed, the proposal of a standard non-forfeiture law and a standard valuation law, and the growth of pension trust and retirement plan propositions.

The war clause situation continued to change for some time after the nation entered the World War. Until that time companies held back from general use of war clauses, but once war was declared then life companies speedily began to broaden their action. At a meeting of the commissioners in New York City in December, a general decision of the State Insurance Departments was to permit each company to adopt its own clause instead of taking action for uniformity of clause. Clauses differ as to details. Prior to President Roosevelt's declaration of war a number of companies were using clauses up to certain ages, and with a maximum limit of coverage, differing with each company. After the nation entered the conflict, companies considered applying war clauses to all new policies issued, and by the end of the year a number of companies had taken that position.

Insurance Investments.

No improvement was seen in the rates of interest yield on investments by life insurance companies. One company specialized in the FHA loan market; some others also started buying a number of those bonds. One company which has a large institutional building project in Greater New York is engaged in two other large ones on the Pacific Coast, one in San Francisco and the other in Los Angeles. Companies have continued to sell many of the urban and farm properties in their portfolios which had been taken over because of foreclosure.

Of great interest in the insurance investment field was the action of three companies in buying the total $90,000,000 issue of American Telegraph & Telephone bonds. Because of the unfavorable reaction to this in the financial districts of the country, particularly on the part of investment houses and dealers in securities, there is a question as to whether this practice will be continued.

The decline in the yield on investments naturally brought under review the present rates being charged by the life insurance companies. During the year two of the largest companies announced the adoption of lower interest basis for premium rates and reserves. That means an increase in gross premiums, but also, in general, an increase in cash and non-forfeiture values.

Actuarial Committee Report.

A report of major importance during the year was that of the actuarial committee appointed by the National Association of Insurance Commissioners, of which Actuary Guertin of New Jersey State Insurance Department is chairman, which made a study of non-forfeiture and related matters. The proposals made by the Guertin committee embody both a standard non-forfeiture law and a standard valuation law. Those proposals grew out of the previous report of the Guertin committee in regard to the need for a new mortality table.

The proposed non-forfeiture law embraces an entirely new principle in regard to the minimum cash paid-up and extended insurance values to be required under the law. The new legislation would provide for minimum values based on reserves by mortality table and rate of interest, not necessarily the same as the reserves held and reduced by amounts related to initial expense, and varying according to plan and age. The committee has prepared a new mortality table based upon recent experience and known as the 'Commissioners' 1941 Standard Mortality Table.'

Life Insurance Guarantee Corporation.

Of great importance along the line of insurance company solvency was the action of New York Insurance Department in having formed the Life Insurance Guarantee Corporation, on whose board of directors is a representative of every life insurance company which has its headquarters in New York State. It was originally formed to prevent the failure of small companies. Should any company become so weak that the New York State Insurance Department would be obliged to take it over for liquidation, the other New York State companies will raise by assessment among themselves the necessary funds to maintain the weak company's surplus.

Trends.

One trend during the year 1941 was a noticeable increase in the larger sized policies, which are known as jumbo lines. Some years ago an unusually large number of policies of this type were written. Then the companies began to cut down on them, and during the depression the volume of submissions naturally decreased. Now, the turn is again in the direction of larger amounts. At that, however, these risks are being given an unusually close scrutiny and refused where incomes are of the speculative type and apt to fluctuate, if not to show great shrinkage after a time. Most companies are restricting the amount of Single Premium business that will be accepted from one source.

A growing number of companies entered the field of providing retirement plans for employees of industrial, business and banking organizations, opened special departments to handle this division of the insurance business, and allocated specialists able to discuss this subject of future economic status of employees with thousands of organizations. The plans embrace a wide variety of protection, some of them being linked with individual policies. Others fit in with already existing pension arrangements furnished by employers, and Group insurance also plays an important part in some of the arrangements. The contributory feature accompanies most of the programs and before the latter become effective the employees vote on whether they want the plan adopted. This balloting by employees has been overwhelmingly for adoption.

During the year life insurance production showed an increase, owing to the stimulus given to business by national defense projects which have resulted in widespread employment, and in many cases, in increased income. With the declaration of war this increase in sales of life insurance gained considerable momentum. Sales of annuities and of insurance for investment purposes showed a decline.

Fire Insurance.

Fire insurance in 1941 was definitely affected by the World War and the United States defense program. Because of the great industrial expansion the amount of insurance protection sold in 1941 by fire insurers increased considerably over 1940. This is true not only with respect to straight fire insurance on buildings and contents, but premium gains were reported by underwriters of automobile, transportation and marine risks. Increased prices of raw and manufactured products and higher wages for labor are translated into higher insurable values for both new and old buildings. Owners of all types of buildings are being cautioned to check on valuations so that their fire insurance may be adequate to cover repairs or replacement at the current high costs of materials and labor.

Late in November new rates and rules were provided for war risk and bombardment insurance covering buildings and other fixed property. Under the new rules, the war risk policy term is limited to two months and rates are based solely on location and construction, occupancy being eliminated as a rating factor.

At the same time a revised vandalism and malicious mischief endorsement was promulgated, with revised rates downward for the most part. The new form is the practical equivalent of the old broad form and the previous limited coverage endorsement has been withdrawn. A simplified war risk exclusion clause has been provided for riot and explosion policies and is also incorporated in the vandalism endorsement. The new clause no longer contains the phrases that proved so questionable, namely, 'warlike operations' and 'the agent of any government.' The new clause is purely a denial of liability resulting from open hostilities or invasion. These particular changes are important because of the increasing amount of riot, explosion, vandalism and malicious mischief insurance being carried by industrial plants engaged in national defense work.

Fire, marine and automobile insurance losses also showed an increase in 1941, but it was not expected that loss ratios would be much higher than in 1940, and most fire and marine insurers showed profitable results on their underwriting experience. Two outstanding 1941 losses associated with defense efforts were the $15,000,000 fire destroying large stocks of rubber at Fall River, Mass., and the $2,000,000 fire in Brooklyn which resulted in the destruction of a pier and a vessel operating between New York and some of the new United States bases in the Caribbean. Both fires emphasize the danger of large losses when high valued goods are concentrated on piers or in warehouses lacking adequate fire protection.

Much is being done to reduce these abnormal hazards existing during the present emergency by the Insurance Committee for Protection of American Industrial Plants. This committee continued in 1941 to arrange for and supervise the inspection of hundreds of defense plants with a purpose of minimizing fire, explosion and sabotage risks.

Aside from war influences, fire insurance in 1941 progressed farther in the direction of lower costs and broader coverage. Fire insurance rates have been reduced in many sections of the country. But with losses now on the increase and the loss ratio itself turning upward, fire insurance rate reductions may become less of a factor in 1942.

The extended coverage endorsement, which combines several 'side-line' risks, including windstorm, explosion, oil burner smudge damage, falling aircraft and others, and which is attached to fire policies, is finding a larger market each year. Another step in the direction of broadening protection has been the legalizing in Rhode Island and several Southern states of the personal property floater, often called the householders comprehensive or 'all-risk' policy.

The Insurance Company of North America this year amended its charter to permit it to issue participating policies if and when it seems advisable to do so. The company has stated it has no present intention to act. The North America thus becomes the first of the large and old-established fire insurance companies in the East to give official consideration to the plan of changing net fire and other rates to policyholders through sharing of profits. Several stock fire insurance companies already use the participating plan, but they are not among the leaders.

Aviation Insurance.

In Aviation insurance facilities were increased during the year, more companies entering that field. Market for aviation insurance, exclusive of life insurance coverage, was in excess of $6,000,000 premiums for 1941. As there was virtually no aviation insurance before 1926, this premium volume is significant of the growth of the aviation industry as well as of the willingness of insurance companies to meet insurance requirements throughout this field.

Casualty Insurance.

The part played by the casualty-surety companies in the National Defense program this year has overshadowed the many other activities of these branches of the business. Generally speaking, progress continued to be made in bringing casualty insurance coverages in line with existing conditions and fitting both coverages and rates more effectively than ever to the insuring public's needs in a time of great stress and rapid change. The rate trend on the whole was downward, but as the year drew to a close the well-defined sentiment was that the companies were furnishing broadened protection under their policies at a premium cost based on rates which reflect less exposure than is being assumed today. In other words, more protection for less money.

Most notable example of casualty insurance cooperation with the Government is seen in the War Department's comprehensive insurance rating plan, announced in May 1941, and which has since been adopted for use in connection with cost-plus-a-fixed-fee defense projects by practically all departments of the Federal Government. By means of this plan, governmental departments have obtained needed liability and workmen's compensation insurance coverage on an 'at cost' basis through competent agents, brokers or insurance advisers, who work directly for the architect-engineer and receive a fixed fee for their services based on the premiums in a given project.

The casualty companies have also rendered valuable accident prevention and engineering aid to the Government in connection with national defense projects. Trained engineers and inspectors, equipped to cope with the many new demands for accident prevention, are now in governmental service.

From the fidelity-surety viewpoint the companies have been called upon to guarantee the completion of many national defense jobs — both on land and for the sea — in staggering amounts. This has meant temporary waiving of the usual underwriting yardsticks. Particular attention has been given to bonding of both contractors and sub-contractors engaged in war work. Non-defense activity, slowed down by the war, has prompted the companies to turn to development of lines other than contract bonds. But a big boom in the latter field is expected with the return of peace.

Unemployment Insurance.

See article on UNEMPLOYMENT INSURANCE.

War Risk Insurance.

Less than a week following the Japanese attack on Pearl Harbor on Dec. 7, all except one or two commercial insurance companies discontinued the writing of war risk insurance on property on land. This was in accordance with the custom of all the countries engaged in the war. With the closing of the private markets for air bombardment insurance the Federal Government announced creation of the War Insurance Corporation in Washington with a fund of $100,000,000 to provide 'reasonable protection' against losses resulting from enemy attacks on private property in the United States and possessions. The corporation was set up as an emergency step by the Reconstruction Finance Corporation until the Government in 1942 could work out something more permanent and inclusive.