INSURANCE RATES.

Evening Post, Volume LXIX, Issue 88, 14 April 1905, Page 5

INSURANCE RATES.

THE STATE AS A COMPETITOR. THE POINT OF ViKW OF TIIE COMP AN IKS. Tho question of (ire iiibuianco rates, which linn leconlly caused bo mudi discussion, was dealt with, by Mr. 11. M. Simpson, President of the Insurance Institute, ill an address delivered before Hie Il)b(ltUto lilbt lligllt. A (tor out lining I ho steps lending to Uio establishment of the State Firo Insurance Dcimi'lmeiit, Mr. Simpson dealt with the objections to tho companies' methods of combination. " There can bo no doubt," he said, " that the contention of those who object to the methods of companies is without puipcr lenou ledge or upprcoiation of tho dillicultieh in the way of arriving at a just estimate of tho degree of risk in each ease. Jt is interesting also to obsi'ivo that the position taken up by Parliament is at variance with insurance cthicH. It is usually accepted us an axium that, no one organisation conducting lire iiibiuunce can stand absolutely alone and that no oiio experience is so sufficiently exact or comprehensive as to be leliable under all conditions. The attitude, therefoie, was not only antagonistic to the companies upon the question of remuneration, hut was ;it variance with the principle of agreement and combination which is looked upon by the best authority as essential to the proper conduct of the business." It was impossible, tho Piesident continued, to arrive at the worth of nn individual risk of any class, because there wero thousands of premises to bo insured and nofc two of them identically alike in every feature. Pi'ior to attempting any Citimato of worth, some standard must iitKt bo adopted as to normal Or average risk, and this could only bo approximately ascertained after long years of tubulated experience. Tho advocates for fre© individual estimates and quotations ignored the fact that as no two risks were f|iiito alike, Ihoro was absolutely no experience of any lisle in so far us it was peculiar, for the exception could have no previous record. In free competition, with every ru>k falling to tho lowest bid, every out! must bo taken under value. The companies arrived at their rating by conference, and the prices wcio fixed by consultation and agreement, thus hecuring, as f.i- as could be, tho medium between extremes of opinion. Mr. Simpson then turned to the annual transactions of the companies, and stated that, while it might hu expected that differences inseparable from individual risks and classes v Quid be modified or disappear in the aggregate muss, tho experience of loss of all companies in New Zealand had varied nearly 10'J per cent, between one year and another. Homo companies oppntting in the colony had for a belies of years made monay, while othets h.id been unifoimly unfortunate. ''The public," he said, "not iiifreijuently look to tho results achieved by one or more of the successful offices as an indication of the inequity of the rating. ... On the other lmnd, if the results aro poor, it is accepted as an indication of want of ability on the part of the management." The action of the Legislature in creating the State Fire Insurance Department was a very sciious matter, bolh for those interested' in tho companies and also for the wclfnte of tho colony itself. On the one hand the c.ipiial of the bhareliuldois mid the livelihood of the employoo were at stake, and on the other tlioro was the question of tho -State embarking upon a measure of so Socialistic a tendency without liist ascertaining beyond any reat>onablc doubt that their premises vie sound and tho outcome reliable. A Select Committee of Parliament hud in 1002 enquired into tho livo insurance question, and had rt'portud against, tStato luletfcrcnce, and the question aroso as to how far s>uch legislutiuii might be carried in this or other dheitions. A Government Department cieated by tho will of tho people depended for itn existence, on the wishes of those iiidivulually benefiting by its operation, and under buoh circumstances it was impossible to anticipate thut any experience, however disabtiou.s,. would induco the electors to abandon tho position. Ho emphasised tho necessity of strength in insurance companies to meet the riik of conflagration, and this demanded -a sufficiency of premiums. The hUtory of fiio insurance was more marked by disaster than by success, yet the public appeared to look with jenlou&y upon the- accumulations of tho largo li'ro oflices, forgetting that they are the survivors of the many which started on t licit- career. Mr. Simpson drew ft comparison between tho totalisator and tire insuiancn business in this respect, limb they attracted investors because of tho possibility of gaining bomo of the winnings of tho fortunate minority. The Slate Department was in some respects in a bimilar position to tho uon -tariff companies of Great Britain, tvhich retained a freo hand for giving quotations, and which rarely succeeded. Tho President concluded by observing: — "H is not likely that tho twenty-five Associated Office's will ignore their history and experience and submit to dictation in rating from an organisation established for the benefit of tho assured public and depending for its existence upon their will. It would have been very desirable if questions of rate and method of underwriting in New Zealand could be discussed with out introducing or criticising tho action of tho Government with regard to public measures, bat it is not we who aro upon unusual ground, but it is the Government of this colony which has encroached upon a business which, possibly most of all, ought to bo loft to private competition and ability to work out its end in a legitimate manner." In tho discussion which followed tho rending of the paper, Mr. Hall said he thought fire insurance was one of those classes of business which should be spacially relegated to private companies, and was not a question for the State to w> dertako. Referring to the quwjlion of rates, he could not sco how the Govern- j ment was going to successfully compete with tho private companies which nad been established in the colony for so long, and that had had such great experience in thn assessment of risks. Mr. U. H. Harbroo congratulated Mr. Simpson on his paper. As an old fire insurance man he well remembered the time when the companies fell out some twenty years ago and woro nil fighting one another, and things were at s>ixos nnd seven*. In a little while, however, they came to an agreement juid arranged a. fixed tariff. Speaking of the reserves built up by companion, lie said that with the large conflagrations we had had during tho lost few years it wa» quite necessary that companies should provide for the future. They could not expect them to scoop in a lot of premium* and not have to pay anything out. They must look forward to a rainy day. Referring to the State Fire OlHce) of course, this was a now departure, and he did not know that they would be nioro successful than tho companies. When ho looked over the insurance returns he could not see with tho losw ratio on which the business was now conducted how they could possibly reduce rates 10, 20, or 33 per cent, and expect a profit. If a company nowadays could conduct a business on a 60 per cent, losg ratio nud a 34 pty cent, expense ratio, this including head ofllce expenditure, leaving 6 per cent, indemnity profit out of which it had to provide for exceptional losses, such as conflagrations

wnich Imve occurred in Boston, Lynn, Santa Fe, St. Johns, and Baltimore, it was considered to be doing as well as could be expected. Therefore, any great reduction in rates must mean a losa to the companies all round. Mr. (J. D, Morpeth raised tho question of what would the community do if tho companies doing business in New Zealand Meie to discontinue doing business in the colony. Thero was not the slightest doubt in his mind that the Stat« Firo Olfico was quite inadequate to undertake the fire inHuranco of (ho colony. One othor remark that Mr. Simpson bad mado drew his attention, and lh.it was with regard to insurance business having tho glamour of gambling about it. He did not think there should be any question of gambling at all. Of course they could not expect so close an approximation of results as in life insuranco, but ho hardly thought the question of gambling came in at all. He congratulated Mr. Simpson on his very able paper. Mi. Montefioro said that tic tariff had bwsn arrived at after mature consideration by experienced men. He deprecated tho attitude of hostility to the companies' building up reserves to meet the contingency of conflagration. There was a certain block in Wellington which if attacked by fire would result in a loss of two millions. Mr. 0. D. Morpeth suid that when the town of Aalsund, in Sweden (wlieie there is a State Fire Insurance Department) was destroyed, the whole of the Department's capital was absorbed, and it had to issue debentures to pay its claims. ' Mr. R. Dixon asked why, if the insurance business in New Zealand was not paying, the companies continued to do business here. Mr. Simpson briefly replied, and was accorded a hearty vole of thanks for his address.