THE GOVERNMENT FIRE INSURANCE PROPOSALS.

Evening Star, Issue 11598, 11 July 1901, Page 4

THE GOVERNMENT FIRE INSURANCE PROPOSALS.

SOME LOCAL OPINIONS. In view of the Government proposals to add fire insurance to the many businesses now being undertaken by the State, we have obtained the opinions of experienced local fire insurance experts upon the probable effects of such an experiment. Mr H. E. Williams, manager of the National Insurance Company, replied as follows :

What has been the effect upon fire insurance companies of large fires in the Australasian colonies during the past five or she years? Mr Williams: The barest margm of profit. During the first seven months of the present year heavy fires in New Zealand have swept away the premiums received without allowing anything for working expenses. The josses are almost too-recent to need a reminder. The largest was- lr Auckland ear.y in January—£Bo,ooo. Bu; perhaps the most useful lesson given is that of the fire in Wellington which burnt twenty-three dwellings, notwithstanding the strenuous efforts of an un-to date fire brigßae,' showing that water and wide streets combined will not stop a fire fairly started when a gale is blowing. South Australia in one single fire has paid out more than it receives in one year’s premiums. The experience of Victoria has been better durmg the past two years than previously. That colony had had a disastrous experience for seven years, culminating m the fire m Flinders lane, for which omn ™ SUran £° co ®P aaies paid about £700,000. People here are somewhat stert.ed by the fire in Sydney yesterday (Hordern s), for which the companies concerned will pay out, probably, a quarter of a mihion ; but the fire in 1890, starting at Hibbs, Shallard’s. swept away £400,000. Fires of from £20,000 to £IOO,OOO have beer numerous enough in each colony. Since the beg.nning of the year New South Wales has paid more for losses than it has received in premiums. Is there any foundation for the statement that existing firo insurance rates are exoessive.- Mr VVUliams: The average rate ruling during the past year is only one penny *?- lgher than il was in 1893. That, 1 think, disposes of the popular statement that ruling lates of private companies are excessive. The companies aimed at a rearrangement of rates on the experience . ,T ar ' OUS , . Ciasse s of risks—rates which 'jVS” d all > ins hrer and insured le I have stated. What do you think of the proposal of the Government to enter into the fire insurance business?—Mr Williams: That, is a question to. which only a general answer can be given. Competition in fire insurance, as m everything else, has its limits. The results to private offices already in the business are not too satisfactory. a r£/ 0U fch ? k ’ fc . he Government appoint a strong and experienced manager of the proposed department, the business will prove successful?—Mr Williams: How can a man at the head of a Government insurance department be strong unless he is ent.rely independent of political pressure? He would require to be as free from such pressure as a Supreme Court Judge. Unlesa that; is the case there can be no doubt that in the settlement of losses by fire political influence would be used, and that you can understand, would not be desirao*e.

Most of the companies doing insurance business have large reserves accumulated during years when competition was not so keen. They derive considerable profit from the investment of these funds. Does mat not place them in a more advantageous position to compete than the GovernS eB LTv Uld b ® without Ach reserves?— Mr Williams: Oh; the Government could ft li,ha I i, haV u no donbt ' B efc over that difficulty by borrowing for reserve purposes and then taxing the public. In the course of further conversation Mr WiLLams said Yon may have read that Mr Hogg has given notice to introduce the bottlers f Fire Insurance Bill, which will empower the Superintendent of,the Advances to Settlers Office to insure all property mortgaged by him. He stated that oqoo, ™ wers bad P aid “ four years ±,0,921 in premiums, and received in settl,en'e"t, o o | losses £6,522, leaving a balance of £,,,399, which might have been saved to the settlers. For many years companies have calculated that‘the unearned premium on risks current amounts to 40 per cent, of the net income—an obvious liability, for you cannot consider money earned until a policy Las expired. There is a tendency now to set the liability down at 50 per cent. But taking the lower estimate, we arrive at £3,568 as the unearned premium of the business referred to by Mr Hogg—an absolute loss of £1,169, even assuming that the business he proposes can be carried on without cost. Another gentleman well known in fire insurance circles informs us that his strongest and most emphatic objection to the Government proposal is its compulsory nature. This he considers an “ advance ” in interference with the liberty of people to do business with whom they choose which is simply astounding. Ho thinks the proposal to compel every man who owns a house to insure with the Government, notwithstanding that he may be insured with a private company, a most iniquitous thing. Referring to this phase of the_ question, ho said: “If that principle is nght in fire insurance, why not apply it to jife insurance and every other business that the Government may enter upon ? Once sanctioned there is no knowing where that kind of thing may end. It is pure and unadulterated State Socialism of the most pernicious kind.'*

, ne3C t gentleman interviewed has had over 25 years’ experience of insurance business in all its branches, and he referred us to some tabulated particulars that appear in the ‘Australasian Insurance and Banking Record’ of February 19 of the present year. From this we gather that the particulars supplied refer to the revenue and expenditure of four New Zealand companies for five years to 1899. , The first company referred to (the Standard), after receiving £255,271 in premiums during the five years, showed a credit balance on underwriting of only £1,550, or a shade over one-half of 1 per cent, profit. The average of the dividends paid was 6| per cent., and the amount so distributed exceeded the underwriting bal* ance and income from investments, etc., by £3 500, the reserves being correspondingly decreased. The next company (the Now Zealand), after receiving £1,462,145 in premiums in five years, showed a credit balance on underwriting of £20,442, or a shade less than li per cent, of the premium income. Dividends paid awav averaged 11| per cent., and exceeded the underwriting balance and inrome from interests and rents bv some £9,000. the reserves being reduced by £13,000. The ’nterest on investments averaged onlv 4 per cent. The National Insurance Company of New Zealand took £442,752 in premiums in five years, and showed a balance on underwriting of £27,319, or a shade over 6 per cent. The company paid an even dividend averaging 14 per cent, on £IOO,OOO, while 4£ per cent, (equal to over 9 ner cent on canitnl) was drawm from £226,000 of invested funds. The South British received £1,064,279 in premiums in the five years, and showed a credit balance on underwriting of £49,742, or a shade over per cent, profit. The d’vidends paid averaged over per cent, for the period, a«d the increase in the reserves was £29,000. The interest on inve-t----ments averaged a shade over 4i per cent. The ‘lnsurance and Banking Record,’ summing up the results, says the four New Zealand companies received premiums amounting to £3.224,447 during the five years, that the underwriting credit balance n’ £99.052 (or a shade over 3 per cent.), that the interest received had been £207.251 (giving a return of a shade over 4 per cent, on investments), that £264,757 had been paid away in dividends, and that the reserve funds had been increased by onlv £IB,OOO. In concluding, the authority quoted savs :—“ Those results declare more eloquently than words can express that New Zealand as an urderwriting field stands very low in the scale, and the advocates for Government “interference in fire insurance would do well to give the figures their close attention.” In taking the figures of these companies,

our inipmaa<C,«aid, /itjjw&lfceilmrae -in mind' that: Niw Zealand is theft stronghold, and that they naturally have the pichr of the beet fire business offering, and as a consequence their results must be better than the: average of the othercompanies operating in fire business in New Zealand, and I can confidently assert that the average underwriting profit per cent, of the whole of the companies doing business in New Zealand will be much, less than that shown by the four local companies. The five years above mentioned embrace the period since the adoption of the fire tariff by the companies. What would have bein the result had the cutting of rates' which was general throughout New Zealand prior to the five years under review been continued? We ■ leave the question for the interested shareholders to answer. The figures show conclusively that the rates are not over-remunerative, for without considering the question of risk rtm to earn the 3 per cent, made by the four local companies, what commercial house would be satisfied with ■ such a result ? The losses incurred by the fire underwriting companies during the ‘ past twelve months exceed the premiums derived from New Zealand fire business.