1942: Insurance

Life Insurance.

Notwithstanding the loss of manpower in the production field because so many agents are now in the war services, life insurance in force in all United States legal reserve companies at the end of 1942 reached the highest level in the history of the country. At the end of 1942 it was approximately $130,000,000,000 covering 67,000,000 policy holders. At the end of 1917, when the nation was in its first World War, there was $27,000,000,000 in force, insuring about 25,000,000 people. Average policy in 1917 was $1,080. Now it is $1,940.

Company Assets.

Total admitted assets of all United States legal reserve companies were $34,750,000,000 at the end of 1942. More than a quarter of these assets were invested in United States Government bonds. Increase in the companies' holdings of Federal securities during the year are estimated at $2,300,000,000. Nearly one-third of the companies' assets are invested in corporate securities, representing such essential industries as transportation, communication, power, light, water, gas, electricity and other vital public services to the industries that are turning out the essentials of war. Nearly one-fifth of the assets are invested in real estate mortgages.

Life Insurance and the War.

The principal development in the war-clause situation evolved from the recommendations of a special committee of the National Association of Insurance Commissioners which the state insurance department officials hoped would lead toward uniformity. Because of statutes of their states or official rulings of the past, some State Insurance Departments were not able to approve the clauses submitted by companies and this made it necessary for the companies to modify and reword their clauses by states.

In general the recommendations made to the Commissioners by their subcommittee were that the states should permit a clause providing in a general way for full recovery within home areas and for elimination of coverage outside of home areas, and for elimination of air hazard other than passenger flying. Outside of the home area, quite a number of companies are introducing exclusion for the first two years of the policy.

Since the recommendations of the commissioners' committee the tendency in the companies has been towards general adoption of war clauses following the broad lines of the commissioners' recommendations. By the middle of the year the set of principles advocated by the Commissioners resulted in some measure of uniformity and left less ground for competition in clauses.

A few companies have prepared to accept war hazard subject to payment of extra premiums, usually so high that it is questionable whether this is practical as a general proposition.

Civilians Exposed to War Risks.

The problem of underwriting the individual not officially in one of the armed services, but exposed to a war hazard was one which the companies had to face. As more states approved a two-year civilian travel and war provision this was solved in part, but special consideration was still necessary for Government officials, members of sundry 'field services,' writers and correspondents, ferry pilots, merchant marine employes, deep sea fishermen, etc. Most companies have felt that such risks can not be covered for the present but a few companies have quoted substantial extra premiums for various degrees of complete coverage.

Workers in Defense Plants.

One interesting problem has to do with workers in defense plants. It is natural that many of these workers present great and unusual hazards. War workers in heavy industry often come from easy peacetime jobs, and deteriorate in their new environment. Another problem for the companies is that of reinstatement of lapsed policies where the original issue did not contain a war clause.

Army and Navy Risks.

Companies have had to reexamine their rules for underwriting risks now in the Army and Navy. The Government's National Service Life Insurance is available to these risks up to $10,000 and free from war restrictions. Most companies discourage applications until the individual has the limit of $10,000 National Service Life Insurance.

Dividend Trends.

Some reductions in dividend schedules were made during the year and others have been announced for 1943. Certain companies will continue existing schedules, but the trend of dividends will undoubtedly be downward.

Policy Loans.

Policy loans which had shown tremendous increase during early depression years, reached an unprecedented low point in 1942. Disbursement funds flowing from the companies to policy holders, beneficiaries and annuitants were approximately $2,400,000,000 for 1942.

Federal Income Tax Law.

The 1942 Federal Income Tax Measure had numerous important angles of interest to life insurance buyers. Change which caused most concern to life insurance was that in the law which had permitted exclusion from gross estate of decedent for the first $40,000 of life insurance, together with a specific exemption of $40,000 allowed each estate regardless of whether the decedent had life insurance. In new law there is only a specific gross exemption of $60,000 applicable to all estates regardless of whether life insurance is present.

State Insurance Commissioners Program.

Most notable life insurance action taken by State Insurance Commissioners during the year was their adoption of the generally designated Guertin report — named after Alfred N. Guertin, actuary of the New Jersey Department of Banking and Insurance — relative to a new mortality table in substitution for the old American Experience Table of Mortality and for revised non-forfeiture benefits. Critics had declared that the old mortality table, constructed by the late Sheppard Homans in 1868, had enabled companies to derive undue profits.

Some five years ago the attention of the various state insurance commissioners was called to this problem and a committee of actuaries representing the state supervisory authorities was appointed to study the question. After five years of research, numerous public hearings and the publication of two voluminous reports by the committee, the National Association of Insurance Commissioners adopted the last of these reports and approved the model legislation on the subject to be introduced in the Legislatures of all the states.

The program of proposed legislation provided for the promulgation of the Commissioners 1941 Standard Ordinary Mortality Table, constructed by the committee and reflecting insurance company mortality experience from 1930 to 1939, as the successor to the American Experience table; the revision of the standards of reserves to be maintained by insurance companies on their outstanding policies so as to give effect to the new table and to recognize the necessity of adapting the reserve standards to the investment situation as it is reflected in the income derived from invested funds and required for the maintenance of reserves; the revision of the surrender charge formula established in the laws of the various states designed to provide equitable cash surrender values or other non-forfeiture benefits to those who find it necessary to surrender their policies; and the simplification in some degree of the life insurance policy itself in regard to the definition of these equities.

In order to be effective, such a program requires uniform legislation in all the states. The uniform legislation prepared by the committee approved by the National Association of Insurance Commissioners, is planned for introduction under the sponsorship of the individual state commissioners into the various state legislatures in 1943. The proposed legislation is designed to be flexible as to the applicability of its provisions until 1948 when all policies thereafter issued must conform, to all its provisions.

Fire, Marine, and Automobile Insurance.

Fire, marine and automobile developments in 1942 generally were associated with the nation's war efforts, some more directly than others. The insurance industry has continued to cooperate fully with the Government in safeguarding industry from preventable fires, explosions, and hazards of all kinds.

Fire Insurance.

Although several large fires in war factories have occurred this year, their number and the dollar-value of destruction are much below expectations, considering the increased hazards associated with the nation's huge war production program. In the first two months of 1942 fire losses increased 28 per cent over the same months of 1941. For the balance of the year losses dropped consistently below the corresponding period of 1941 despite much larger dollar-value exposed to fire damage. One very large loss was in a Fall River warehouse where the fire companies had coverage on the rubber owned by Firestone. In this loss the Rubber Reserve Corporation was insured under ocean and inland marine. This loss was not due to sabotage. In fact, since Pearl Harbor there have been no large losses for which enemies of the war effort were responsible.

The New York State Legislature this year passed, and Governor Lehman signed, a bill providing for a revised standard fire insurance policy for this state, effective July 1, 1943. Thus ended a six-year campaign by the New York Insurance Department for modernization of the fire policy. The principal improvements in broadening protection consist of removal of restrictive provisions found in the present policy which for years have been almost universally waived by endorsement. The new New York policy is now under consideration in several other states, although it is difficult to foretell how many will adopt it. Arizona has acted to put it in operation there when it becomes effective in New York in 1943. The fire insurance rate level continues its downward trend throughout the country. Experience has been favorable on the whole for several years and the pressure for moderate rate reductions continues from many local and state governmental authorities.

Marine Insurance.

Submarine sinkings of United States and other United Nations vessels the first six months of this year brought heavy hull and cargo losses to underwriting companies under war risk policies. Marine insurance premiums rose rapidly this year but the losses far exceeded them. However, from the start of World War II in 1939 marine underwriting companies had been building up large reserves, due to an unexpected low loss ratio, and these funds served to cushion the losses sustained in 1942. As a consequence, the excess of losses paid over premiums received on war risk marine business in the United States markets was reported in November as amounting to less than $20,000,000. Much of the marine war risk insurance is now being written by the Insurance Division of the Government War Shipping Administration. During the first half of 1942 the WSA took over war insurance on practically all hulls and now is writing a relatively large share of the import and export cargo insurance. Government rates are much lower, on the average, than those charged by commercial marine underwriters. War risk rates, as quoted by underwriters, shot upwards in 1942, in some cases being as high as 30 per cent. Toward the close of 1942 rates were declining again, reflecting a decrease in submarine hazards in Western Hemisphere waters and some other sections of the world.

Automobile Collisions.

All insurance having to do with automobile coverage began to decline in volume with the elimination of new car sales and the gasoline and tire rationing. On Dec. 14 the National Automobile Underwriters Association announced reductions in collision rates to holders of A and B gas ration books.

Education in Insurance.

In a movement to improve the efficiency and educational standards of those engaged in fire and casualty insurance the American Institute for Property and Liability Underwriters was launched in 1942, sponsored by stock and mutual company and producer organizations. This Institute, which already has several hundred students enrolled in different sections of the country, offers a course of study based on college standards, and those who successfully meet all requirements will receive the designation CPCU, which stands for Chartered Property Casualty Underwriter. A similar higher educational program has been in successful operation in life insurance for many years. This educational course is in addition to the more elementary and fundamental program offered by the Insurance Institute of America through its various societies and study groups in the United States and Canada, in 1942.

Personnel Problems.

Due to the large number of men entering the military services this year, insurance companies, agencies, and brokerage offices are faced with serious personnel problems. Always an extensive employer in secretarial and clerical capacities, the fire insurance business is now undertaking to train women for production and underwriting tasks formerly handled almost exclusively by men. Numerous companies, agents' associations, and other groups are conducting courses for women, to equip them to handle the increased burdens imposed on the insurance industry because of the war.

Anti-Trust Indictments.

Toward the close of 1942 the United States Department of Justice sought anti-trust indictments against numerous stock fire insurance organizations, charging their operations were in restraint of trade. The action was originated before a grand jury in the Federal court at Atlanta. Ga. An indictment against the South Eastern Underwriters Association was secured in November at a time when the stock fire companies had moved to quash subpoenas calling for their records. The companies' motion argued that the Federal courts have no jurisdiction over insurance because the United States Supreme Court in Paul vs. Virginia had decided nearly eighty years ago that insurance was not interstate commerce, declaring, therefore, there could be no violation of Federal anti-trust laws. On Dec. 14 the Department of Justice formally abandoned further grand jury proceedings by filing stipulations withdrawing subpoenas against all associations except the South Eastern Underwriters Association, already indicted. The first hearing on that association is scheduled for Jan. 13, 1943.

State regulation of the insurance business has been operative ever since any form of regulation came into existence. The Federal action followed an investigation of insurance organizations undertaken in Missouri. Nothing beyond the taking of testimony has developed in the Missouri movement, but the attorney general of that state went to Washington early in 1942 and discussed the situation with the Federal Government.

Casualty Insurance.

Business developments in casualty insurance during 1942 were largely determined by the full impact of total war. The most important and perplexing single problem faced by the companies in this line was that of adjusting automobile liability insurance rates in recognition of the effects of new conditions, particularly reduced operation of private passenger cars so as to conserve gasoline and tires. Substantial reductions in rates were made for bodily injury insurance, based largely on judgment rather than experience, and the new rates vary according to the class of gasoline ration book held by the policyholder. This procedure made it necessary to suspend the previously adopted classification, the safe-driver reward, and New York preferred-risk rating plans as they could no longer serve the purposes for which they were designed.

In addition, standard automobile coverages have been broadened — mostly without additional premium charges — to fit the needs of the insuring public under changed operating conditions. New coverages have been devised at the request of Government agencies to take care of limited liabilities in connection with ride-sharing plans of employees and employers who do not carry the standard coverages. Drive-other-car coverage was also extended to apply to any type of automobile used by the insured in war and defense activities. Insurance at low cost has also been provided for school buses used to transport agricultural workers and for privately owned cars made available to transport volunteer civilian ground observers to and from their base. For those who have laid up their cars and suspended their owned car insurance or who no longer own an automobile, drive-other-car coverage has also been made available at low cost. The rates in effect are emergency wartime rates.

Miscellaneous Liabilities.

Volunteer War Workers.

In the miscellaneous liability insurance field wartime conditions also necessitated a new coverage to protect volunteer war workers from personal liability while engaged in civilian defense activities. It includes coverage for bodily injury, whether or not caused by accident, due to the rendering or failure to render first aid services. But bodily injury claims are excluded when due to the rendering of any professional services or omission thereof. Rates are low, and it is possible for such coverage, 'a' rated, to be obtained by a municipality, defense council or similar controlling organization for all its volunteer workers on civilian defense or war work projects.

Bicycles.

The restricted use of automobiles brought about in 1942 greatly increased use of bicycles and in consequence a program of both individual and family coverages was adopted, either including or excluding commercial use.

Burglary and Glass Insurance.

In the burglary and glass insurance line the important development was adoption of a war-risk exclusion which embraces certain all-risk forms of burglary insurance and new and renewal glass policies. The impact of the war, making itself felt in these lines from an underwriting standpoint because of the increasing value and scarcity of property, other than money and securities, is affecting loss experience. The result: more burglary insurance has been purchased.

Workmen's Compensation.

In workmen's compensation, interest centered around congressional action — which materialized in part — to protect industrial workers against war risk hazards while on duty. A bill introduced by United State Senator Claude Pepper (S.2412) became a law in December, and under its provisions workers on island bases are covered by the Government for injuries or death as a result of bombing or enemy attack. Benefits are paid up to an overall maximum of $7,500 exclusive of medical costs and funeral expenses. The portion of the Pepper bill which would have covered civilians in this country against war risk damage was 'still in committee' when Congress closed in December.

Money and Securities.

Shortly before the close of 1942, the War Damage Corporation announced its new war insurance coverage of money and securities, in vaults or in transit, which had been long awaited by banks, investment houses, large business concerns, municipalities, public officials, hospitals, etc. It represents the combined efforts of WDC, casualty and surety companies, bankers and stock exchange houses. Under provisions of the policy, protection will be given at reasonable rates for 'direct loss through damage to or destruction of money and securities owned by the insured or held by the insured in any capacity, which may result from enemy attack....'

Sureties.

Outstanding development in the surety field was the agreement reached with War Department officials at Washington, D. C. whereby contract bonds are to be required on war projects in most instances. Prior to this agreement the attitude of the War Department had been to waive such bonds wherever possible. Premium rates and commissions to producers under the new arrangement are at rock bottom. Little or no premium income has been developed this year from private construction sources as this activity is practically at a stand-still 'for the duration.'

War Damage Corporation.

Most important event in property insurance during the year was the opportunity afforded the public to obtain protection against property losses arising from enemy attack. This is made possible by the War Damage Corporation, a subsidiary of the Reconstruction Finance Corporation, with which the private insurance companies are cooperating and acting as fiduciary agents of WDC.

Six days after Pearl Harbor the RFC, with the approval of President Roosevelt, created a corporation with a capital of $100,000,000 to provide 'reasonable protection' against losses incident to the destruction or injury of tangible property, real and personal, resulting from enemy attacks.

By act approved Mar. 27, 1942, the RFC was directed to supply funds to the War Damage Corporation, upon request of the Secretary of Commerce, with the approval of the President, in an aggregate amount not to exceed $1,000,000,000.

To avoid the necessity of creating a complete organization to handle War Damage Insurance, the corporation entered into agreements with 546 insurance companies under which they undertook, as agents for War Damage Corporation, to offer War Damage insurance through the medium of their agents, brokers and branch offices. By this means the corporation is operating approximately 1,500 established offices.

By Dec. 1, 1942, 5,000,000 policies, covering more than $90,000,000,000 of property against damage which might be caused by the nation's enemies, were written, the coverage being all the way from that on a small dwelling to the huge coverages of the American Telephone & Telegraph Co., which carries $1,400,000,000 on its properties, and United States Steel, which has $1,200,000,000 War Damage insurance.

The regulations governing completion of applications for insurance and the issuance of policies pursuant thereto were so well drafted that the War Damage Corporation has found it necessary to issue only 16 memoranda to fiduciary agents, either interpreting or qualifying the regulations which became effective July 1, 1942. In addition, there were issued, effective Dec. 21, 1942, regulations governing completion of applications and issuance of policies covering money and securities through the facilities of certain casualty and surety insurance companies as fiduciary agents.

Crop Insurance.

See AGRICULTURE.