to cover the risk of theft and pilferage. Experience under this coverage
has been most unfavourable, as the existence of insurance tended
to relieve shippers and carriers of concern for the safety of the
cargo. This, with the moral irresponsibility engendered by the
war, demonstrated the need of restricting or eliminating the coverage.
When accepted it is now frequently provided by indorsement
that only 75% of theft or pilferage losses will be paid.
Congressional Investigation.—In 1919 the Committee on the Merchant Marine and Fisheries of the House of Representatives and the U.S. Shipping Board entered upon an investigation of marine insurance in the United States. It early appeared that what the committee regarded as an unduly large share of American marine insurance business was placed directly or indirectly with foreign companies. On the ground that American marine insurance facilities should be developed to a point which would enable American companies to care for the commercial needs of the United States, the committee recommended that combinations of companies be legally authorized, and that the legislative obstructions, including taxation, which hamper companies in their competition with alien interests, should be removed. To provide increased facilities for hull insurance and the survey of losses, three marine insurance syndicates were organized with the approval and encouragement of the Congressional Committee. Syndicate “A,” which is a service syndicate for the settlement of losses, operates through the United States Salvage Association, Incorporated. There was likewise introduced a marine-insurance bill for the District of Columbia, designed to serve as a model for enactment in the states.
Marine-Insurance Contract.—In 1917-8-9 the American Hull Underwriters Association adopted certain new forms of marine-insurance contracts which have come into general use, not differing widely from the old forms but adapting them to American conditions.
American Bureau of Shipping.—Increased activity in extending the operations of the American Bureau of Shipping has placed at the disposal of American marine underwriters improved facilities for the classification of risks.
Casualty and Miscellaneous
Workmen's Compensation.—The substitution of the principle of workmen's compensation for that of employer's liability in the United States (see Labour Legislation) gave rise to an entirely new form of insurance by which insurance carriers assume the obligation of employers to pay compensation to their workmen. Workmen's compensation insurance occupies a peculiar place. The insurance carrier is placed in the position of an administrative unit in a scheme of social welfare. Its duties involve relieving employers of undue risk, insuring the payment of compensation to employees, and assisting in the prevention of industrial accidents. In this form of insurance also there are found the only examples in the United States of the extensive application of state-managed insurance. In 6 states the so-called state funds are given a monopoly of workmen's compensation insurance, in one state there is practically a monopoly, and in 9 states the state fund competes with private carriers. The growth of this type of insurance followed the increasing acceptance of the compensation principle, until in 1920 the carriers collected some $200,000,000 in premiums, more than twice the amount of the entire premiums paid for all kinds of casualty insurance in 1910. It was by far the most important of the lines of insurance written by casualty companies.
Workmen's compensation insurance is written largely by stock-insurance companies, but the organization of state funds, mutuals, and reciprocals has intensified competition for the business. Fortunately competition is in large measure regulated by coöperative action and state regulation, so that it had not the disastrous effects which might otherwise have developed. It undoubtedly improved the service offered to policy-holders.
Regulation of premium rates by the state was from the first an important factor in the compensation business, which is held to be affected with a greater public interest than are most other types of insurance. At first this regulation took the form of approval of rates as to adequacy, with the purpose of requiring carriers to collect sufficient premiums so that there might be no question of their ability to pay claims to injured workmen. Largely through the operation of competition, approval as to adequacy has involved approval as to reasonableness since rates charged in individual cases tend to be the lowest permissible. The measurement of the hazard of workmen's compensation insurance as expressed in terms of rates is peculiarly difficult. In the first instance the carriers had no experience of immediate value. Even after experience was acquired it was difficult to make use of it, because of the great variation in laws and conditions among the states and because of the frequent changes in the laws of each state. Further, each industry and each plant should be rated on its peculiar hazards.
The first rates, which were largely a matter of judgment, were too high. Successive reduction and changes in conditions brought about a rate-level which in 1916 was seen to be too low. The state departments of insurance and the carriers realized the necessity of revising rates and of securing the widest possible basis of experience for the revision. Compensation rates for the entire country were revised in 1917 by the Augmented Standing Committee, a group representing all interests: companies, mutual companies, state funds, and state departments of insurance. The success of this conference led to the formation in 1918 of a continuing coöperative organization, representative of the same general interests. This organization, the National Council on Workmen's Compensation Insurance, conducted another general revision of rates in 1920. These rates, with certain detailed changes, were in effect in 1921. In addition to the national organizations, there were many state rating bureaus which have control over the making and application of rates in their respective states. All but one of these organizations coöperated with the National Council. Where exclusive state funds are in operation each state is, of course, a unit.
The rates of premium developed in the first instance were average rates for each industry. Further account must be taken of the variation from the average of individual plants within the industry. This is accomplished through the application of a system of merit rating, consideration being given in most cases to the loss experience of the individual plant and to the hazards of the plant as determined by inspection of its physical features. Provision is made in compensation acts for the payment of compensation in periodical installments. An insurance loss under a compensation policy may involve payments extending over a considerable length of time. To guarantee the ability of the carrier to make such payments it is necessary that a reserve be set up which shall be equivalent to their probable amount. Such reserves are required by state law, and the rules for their calculation have gradually been improved so that there was in 1921 little question of their adequacy.
Automobile Insurance established itself during the years 1910-21 as a major department of the business. Net premiums received during 1920 were estimated by The Insurance Field at $185,000,000. Full coverage under automobile policies involves several hazards, contracts being written to cover the risk of fire, theft, damage to the insured's automobile through collision, liability for damage to the property of others, and liability for personal injury. Fire and theft insurance are written by fire and marine companies, personal liability by casualty companies, while collision and property-damage insurance are written by both. In the West and South there are many specialized automobile insurance companies writing all forms of coverage. Combination contracts are frequently issued by a fire and marine company and a casualty company under a coöperative arrangement. The contract of each company is, however, independent.
The rapid development of this sort of insurance has carried with it serious problems, particularly in the fields of theft and collision where the moral hazard is peculiarly difficult to handle. Rates for these coverages are high, and losses so serious that in 1921 it was apparent that some means must be found to control the hazard. Both casualty companies and fire and marine companies had their separate organizations for discussion and for taking coöperative action on automobile problems. The two organizations coöperate closely in matters of common concern. In this way the contract and rating methods have gradually been developed. It seems probable that the loss problem will receive increasingly effective attention from these same organizations.
Accident and Health Insurance.—Premiums of approximately $92,000,000 were received for accident and health insurance in 1920. This was about three times the premiums of 1910, representing largely an increase in the business of casualty companies, although certain life-insurance companies have developed this field recently. Two new forms of contract appeared which are of particular interest. Accident and health insurance contracts may now be secured without provision for cancellation by the insurance company. Formerly contracts were written only on a one-year basis with provision for cancellation at any time by the insurer, and the bulk of the business was in 1921 still so written. It was the practice of the companies to cancel as soon as there was any evidence of a risk becoming undesirable; consequently, many individuals needing this type of insurance were unable to secure it. The new form insures the continuance of the coverage. Another recent development is group accident and health insurance, similar in its purposes and methods to group life insurance, described in a preceding paragraph. It is being used in many cases as supplemental to the limited coverage provided by workmen's compensation laws which apply only to occupational accidents. Many of the states have enacted standard provisions to be incorporated in policies, some of them compulsory and some optional. These laws have introduced an element of standardization into the contract but the schedules of benefits still remain bewilderingly diverse.
Other Lines.—During the years 1910-20 there were tremendous increases in the business of bonding and of plate glass, burglary and theft, and flywheel insurance. There were considerable increases in steam boiler, title, credit, and live stock, and a decrease in workmen's collective and employer's liability insurance.
Several new types of insurance appeared and attained positions of more or less importance. Among these are strike insurance, covering loss of profit and expenses due to strikes of employees; aviation insurance, covering hazards connected with the use of aeroplanes; weather insurance, covering loss due to interference by rain with public ceremonies, amusements, sales and other events; explosion insurance; crop insurance, covering the failure of crops to reach the marketable stage; riot and civil commotion insurance; and parcel post insurance, covering losses of parcels sent by mail. (R. H. B.)
