What Price Competition?

Fire-insurance companies were caught in a cross fire last week: in front attacked by Thurman Arnold's trustbusters; in the rear harried by the oldest and third largest of their own number, Insurance Company of North America. From both directions the charge was the same: that insurance rates are too high.

Last week in the nation's insurance center, Hartford, the big stock companies were keeping their powder dry. Pointing to a 36% reduction in average fire rates during the past 20 years, and untold millions spent for inspection services and education in fire prevention, they insisted that rates are not too high. They admitted that in 1921 they paid out 62.3% of the premiums collected to policyholders for losses, and that during the last ten years the ratio has fallen to between 40 and 50% (which has enabled them to show an average underwriting profit of 6.1%). But they point out that wartime may boost the loss ratio and operating costs, a combination which would surely cut profits.

Thurman Arnold's economic adviser declared loudly in Washington that the insurance companies were taking in $100 of income for every $38 paid out for losses. This, he said, was prima-facie evidence that the cards are stacked against the buyer and that rates are too high.

The attack of Insurance Company of North America may well have greater results: it represents the first crack to appear in many a year in the united front with which U.S. insurance companies have long gone about rate-making.

I.N.A.'s President John A. Diemand (elected last year) and its fiery Vice President Ludwig C. Lewis were brought up not in the placid field of domestic insurance, but in casualty & marine insurance, where there is active international price competition for business. Among the new ideas they want to introduce:

> To emulate mutual companies and pay participating dividends to policyholders in years of good profits. Such dividends are one way of reducing rates.

> To write insurance as it is done in Britain, where an insurance company does not insure a property but insures a man against the loss of his property, thus giving the character of the insured an important weight in figuring the risk. U.S. practice ignores the moral factor, and bases rates entirely on the location and type of property insured. (In three-quarters of the States it is now illegal to sell insurance for less than the standard rates established by rating associations, which are the same for all companies.)

> To cut the size of agents' commissions (they now go up to 20% and more), since the companies, having virtually given up price competition, have had to compete by hiring more & more high-powered sales men. Also to cut the number of agents (now over 350,000 in the U.S.), so that there will be more commissions for good agents.

> To reduce the costs of insurance by issuing $50 deductible policies (like those now issued for automobile casualty insurance), thereby getting rid of numerous small gyp claims which not only cost money but require costly steps to settle.

I.N.A. believes that a renaissance of real competition between insurance companies (instead of merely between agents) would be very healthy for the industry.

As evidence that fire insurance is stagnating today, it points out that, in 1920, the industry collected net premiums of $890,000,000, which was equal to $1.70 in premiums for every dollar it held in policyholders' surplus. In 1940, its net premium income was only $917,000,000 or only 62-c- on policyholders' surplus.

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