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.

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.

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.

1939: Insurance

Public Relations.

Public relations held center stage in insurance in 1939. In life insurance widespread interest in this subject resulted in the formation of the Institute of Life Insurance, of which Holgar J. Johnson, a Pittsburgh general agent, was elected president. In casualty insurance it took the form of added emphasis on all safety movements; and in fire insurance, of further broadening of contracts. In the two last-named divisions of insurance the tendency of rates was downward.

Emphasis on public relations in life insurance in part grew out of the insurance study being made in Washington by the Temporary National Economic Committee, popularly known as the monopoly committee. At hearings before the committee numerous chief executives and actuaries of life insurance companies were witnesses. TNEC began its hearings by examination of witnesses with respect to company administration methods by which directors were chosen, and explanations of the functions performed by directors. Next, it directed its inquiry into the cooperative conferences which company actuaries and other representatives hold in their inter-company relationships. This led up to examination of meetings which were concerned with consideration of annuity and group life insurance rates and practices, optional settlements, large risk acceptance regulations, policy replacement agreements and other subjects relating to the policy. At other meetings industrial insurance and insurance production methods were reviewed in great detail.

Insurance Studies.

In connection with the scientific end of life insurance the most important happening of the year was the presentation of the long awaited report on mortality by a committee consisting of representatives of the state insurance departments, the nominees of the Actuarial Society of America and the American Institute of Actuaries. The committee was the outgrowth of a suggestion made by George A. Bowles, Virginia commissioner, when he was president of the National Association of Insurance Commissioners, that there be a study of new mortality tables.

The committee made a study of all valuation standards for both ordinary and industrial insurance, for standardization or uniformity of nonforfeiture benefits, expense limitations, contingency reserves and miscellaneous forms of insurance and annuities. It also recommended legislative approval to provide for the use of any table of mortality approved by a state department and which meets suitable requirements laid down in the bill recommended by the commissioners. A model bill for presentation to legislatures, prepared by the committee, was subject of a hearing at the convention of the National Association of Insurance Commissioners early in December.

Special Clauses.

The outbreak of the European War brought to the fore the subject of special clauses in life insurance policies. Companies were slow to act in any way because of the neutrality battle which was fought in Congress. A special meeting of commissioners and companies was convened in Chicago in the fall, the objective being to consider whether there should be a uniform practice as to war clauses. As a result the topic was put on the agenda of the insurance commissioners and was considered by them at their convention in Biloxi in December. In the meantime, some companies adopted special war clauses to be used where there is an additional hazard, such as would apply to persons going to the war zone. Other companies handled the situation by charging extra premiums in special cases where the insured would be subject to a war hazard.

Industrial Insurance.

After a tentative revision of the insurance code of New York had been prepared, following reports made by the Department of Industrial insurance, hearings were held at the Department by the Piper Committee of the New York Legislature at which representatives of companies, the public, and labor organizations were present. All were encouraged to give their views about the proposed code and proposed amendments concerning Industrial insurance will be presented at the next session of the legislature. One set of hearings, covering the subject of Industrial insurance, paved the way for some amendments to the New York code. Among other hearings of the committee were those with respect to surrender value of policies, growing out of a measure to shorten the date when full reserve is available to policyholders. See also UNEMPLOYMENT INSURANCE; WORKMEN'S COMPENSATION.

Casualty Insurance; Surety Bonds.

In casualty insurance one of the most significant developments in 1939 was general recognition of the no-accident records of careful motorists by reduction in the cost of their automobile liability insurance. Both stock and mutual companies are now convinced that drivers of private passenger pleasure cars, 25 years old and over, whose annual mileage is not more than 7,500 miles, should enjoy a preferential rate. Automobile insurance, especially among heretofore uninsured drivers, is expected to increase as a result of this new program. A new $1,000 policy at low cost recently prepared for those who cannot afford $5,000/10,000 limits of auto liability insurance is another development. Another trend has been the broadening of casualty insurance coverage in such lines as owners', landlords' and tenants', various types of burglary and robbery insurance, plate glass and accident and health — without increasing the premium cost to the buyer. The sale of accident and health coverage has been stimulated by the non-profit hospital association plans and the non-profit medical indemnity coverage, neither of which is sufficiently comprehensive to replace the income protection afforded by insurance carriers.

Early to be stimulated by the European War was surety bond writing, particularly with the issuance of contract bonds covering aircraft concerns in connection with their production of large airplane orders for the governments of the United States and foreign countries. Federal construction has also given an impetus to contract bond premium volume. In the fidelity bond line protection has increased in desirability to employers due to the broadening of coverage.

Educational work in the casualty-surety field — particularly among agents — has been encouragingly intensified this year both by Insurance Societies (local members of the Insurance Institute of America) and by colleges and universities which in increasing numbers are adding insurance courses to their curriculums. Notable progress in fostering public good will has been made in 1939 by the casualty and surety business — the objective being to give the insuring public a clearer idea of the scope and usefulness of these major lines of business. Local insurance agents are the pivotal point in this program. Organized safety activity and tracking down of claim frauds are two outstanding examples of casualty insurance benefits enjoyed by policyholders. And the engineering facilities maintained by many of the larger multiple line companies which enable a systematic check-up of the physical condition of large industrial and manufacturing plants are regarded today as indispensable.

Fire Insurance.

The 1939 fire insurance trend toward wider protection for policyholders at generally lower rates was evidenced in several directions. With most new building — mercantile, office and residential — of high grade construction and with public fire protection maintained at a satisfactory standard, fire hazards have been further reduced and these changes are being reflected in lower premium charges for insurance. In many cities slum clearance programs are eliminating the dangers of conflagration. Fire insurance company and organization research departments are constantly at work devising ways to improve contracts offered to the public. Within the last twelve months there have been three notable examples of this. Just before the close of 1938 a new gross earnings insurance policy, for mercantile risks only, was put on the market. This type of coverage is also spoken of as business interruption and use and occupancy insurance. The new contribution form is more easily understood than older forms and this year has received a favorable public reception. For over two years fire insurance interests have sought to produce a satisfactory revision of the New York standard fire insurance policy. In June the National Association of Insurance Commissioners accepted the draft of the proposed modernized and simplified standard form and recommended its adoption by the individual states. The New York Insurance Department was a leader in the movement to amend the existing fire form in order to bring it up-to-date.

For several months the National Automobile Under-writers Association has been engaged in revision and modernization of the automobile policy written by fire companies, covering the hazards of fire, theft, collision and those listed under the comprehensive coverage endorsement. As with the new proposed fire policy it aims at simplification and clarification of terms and also contains clearer definitions of insured perils.

Further improvement of insurance educational facilities has been another development of the current year. Believing that those most adequately insured are those having a clear understanding of the fire insurance business, the companies, through the National Board of Fire Underwriters, and the producers, through the National Association of Insurance Agents and brokers' organizations, are broadening public relations programs. In Hartford, Conn., the Hartford College of Insurance began sessions. In numerous other states educational institutions have launched insurance courses, sponsored by units in the insurance business.

War Risk Insurance.

With the outbreak of the European War on September 1 American fire and marine insurance acted quickly to provide such additional insurance protection as then became necessary or may be required if this country should be drawn into the conflict. Even before September 1 the marine insurance companies in this country united to form the American Cargo War Risk Reinsurance Exchange, which accepts and divides among member companies war risk insurance on cargoes aboard vessels. As a result of this move individual underwriters are able to accept larger lines of insurance than was possible heretofore. For war risk insurance on hulls, insurance facilities have been broadened. At the present time there are being built in American shipyards vessels for the merchant marine and for the U. S. Navy with a total value in excess of $500,000,000. Most of these risks are insured with marine writing companies in the American market.

Insurance against land war risks is now available. Early in September the Explosion Conference, a fire insurance organization, made available policies protecting fixed property within the borders of the country against war hazards including bombardment. In addition the companies are offering a new vandalism and malicious mischief endorsement to existing riot and civil commotion policies. This latter protection is designed chiefly as insurance against enemy acts classified as sabotage.

To protect American policyholders, Lloyd's of London in September announced transfer to this country of $40,000,000 which is on deposit here as a fund to meet losses arising under existing contracts. Lloyd's is not admitted legally to write insurance in New York State or in many other states and the New York Insurance Department closely studied all questions raised by the making of this deposit. Finally Insurance Superintendent Louis H. Pink reached the conclusion that this move is a banking transaction only, a benefit to assureds while the war lasts, and does not violate New York insurance laws.