STATE FIRE INSURANCE

New Zealand Mail, Issue 1726, 29 March 1905, Page 29

STATE FIRE INSURANCE

THE NEW ZEALAND DEPARTMENT. AN OUTSIDE CRITICISM. Commercial men and insurers generally will be interested to learn how the State Fire Insurance Department recently established in this country is viewed by outsiders. For their information we reproduce the following article from the February number of the "Australasian Insurance and Banking Record," wiiose views we do not nenessarilv endorse. Our contemporary sa3'S: more than a year since the New Zealand Parliament authorised the establishment of. a State Eire Insurance Department, which has at last developed into a going concern, and opened its doors to the public on the 4th January last. The ueiay ill commencing operations has no aoubt been partly occasioned by the dimculties experienced in making the necessary preliminary arrangements, particularly with regard to reinsurance. These have, however, for the moment been surmounted, and the Government at last finds itself in a position to make a start.

It will be remembered that the State fire insurance project has been brought forward several times, and in various forms, during the past eight or nine years. The scheme finally adopted contains no compulsory clauses, but, broadly speaking, authorises the Government to compete for business ou such terms as they may see fit to offer. It was at one time stated in a semi-official way that the new department might be regarded merely in the light of an additional company seeking to secure a share of the business. However, owing to the fact that the State office is expressly debarred from entering into agreements with other companies with regard to rates, it was considered improbable that it would enter the field with no other purpose tfian that of friendly rivalry. This expectation has proved to be correct, for the new department has from the outset deliberately adopted the most aggressive tactics. In particular, before it had even opened its door 9, it altogether transgressed the bounds of what is usually considered legitimate business competition by systematic attacks on the agency connections of other companies. During the past few months many offices nave found that attempts were being made in various centres to capture their local representatives, and induce them to transfer their business and influence to the State office. Such methods ae these are wholly indefensible. They would be considered highly discreditable in the oase of a private competitor, and their

adoption by a Government organisation is certainly most unseemly. As regards tbe actual conduct of its business, the State Fire Office has, in the first place, gazetted regulations which are virtually a set of ordinary fire policy conditions. This is tantamount to an admission that the business is conducted by the insurance companies on sound and equitable lines, and that the cardinal principle that fire insurance is not a mere wager, but a contract of indemnity, cannot be safely abandoned. Of course, no one well acquainted with the business ever had the slightest doubt on this point, but it was made a grievance by some of those who clamoured for State fire insurance that the companies did not pay the face value of a policy, wiihout question, in case of loss. In that respect these malcontents will find themselves no better off than they were before. In the matter of rates the new department has announced that it is prepared to accept risks at a reduction of 10 per cent, on the rates provided by the tariff under which the companies have been working. Considering clio unsatisfactory results of business in New Zealand during the past few years, the wisdom of this step is certainly open to question, but still it : s a move which might naturally be expected from a new competitor determined to exercise a free hand. It has had the effect of practically forcing the insurance companies into a fighting attitude, and they have resolved to reduce their rates by per cent, for dwellings and other business in the same class, and by 10 per cent, in the case of other risks. It is not to be supposed that the condition of the business warrants these sweeping reductions, but the companies doubtless recognise that this, is a case where half measures would be of no avail. Unless they can retain their hold upon a reasonable share of the business, they might as well close their New Zealand establishments altogether. Many of them, wo can well believe, would not be very reluctuanc to take even that extreme step, wore it not that they are loth sever old-established ecnneccicns, and part company with officials and agents who have served them well, perhaps tor many years, and to whom the loss of their emoluments might be a serious inconvenience. For two reasons in particular we have always been strongly of opinion that, even if conducted on ordinaray underwriting lines, the State Fire Insurance Department would have but litti© prospect of success. In the first place its administration - will probably be very costly; and. secondly, it is more than likely that political influence will be brought to bear, both in connection with tlie acceptance of risks and the settlement of losses. To these difficulties . is now added the burden of unvemunerative rates, and the managers of tlie department have onlj- themselves to blame for the fact that they are starting under such particularly inauspicious circumstances. They might have commenced business by adopting current rates, relying on Government influence and the specious attractiveness of a triennial distribution of profits (if any be realised) to bring them a fair amount of business. In that case, though their presence misfit have been unwelcome, it would not have provoked a great display of antagonism. As it is, they have determined on a policy of under-cutting, and have none their best in various ways to undermine an established business. The most valuable portion of this is held, not by outside concerns, but by local offices, whose shareholders and policyholders alike enjoy the advantages and security afforded by those well-managed undertakings. These institutions nave extended tlieir operations to other parts of the world, just as some offices having their headquarters elsewhere have opened establishments in New Zealand. These latter fulfil an important public service by ottering facilities for covering large risks, and in addition thej’ - give local employment and contribute largely to the revenue in the shape of taxation. The so-called foreign offices, as well as the local companies, should have been considered worthy of encouragement and support, instead of which both have been made the objects of unscrupulous attack. Perhaps tlie most objectionable feature of the whole business lies in the fact that the scheme is not really designed to give the people the benefit (if there be any) of becoming their own insurers. To a large extent the department will be a sort of broker's bureau for sending money out cf the country. It was recognised from the first that the business could not be safely carried on without some provision for reinsurance, and this has been secured by an arrangement with Lloyd's underwriters. This association will, it is understood, carry a very much larger proportion of the business than that retained by the State office. The major portion of the premiums will be passed on to them, and though much of it will come back for the settlement of losses, the expenses attaching to this part of the business will be disbursed abroad instead of locally. It is indeed a singular spectacle to see the Government of a high protectionist country deliberately depriving its own people of employment by driving the work beyond its borders. The present position is unsatisfactory to the insurance companies, but they have ample resources to see them through a difficult situation which they are meeting in what is probably the only reasonable way open to tliem. In the meantime the public are reaping the benefit, though this advantage may not apply to risks subject in a large degree to the conflagration hazard. The companies are hardly likely to touch business of that class at lower premiums, if indeed they do not demand the substantial increase which recent Josses amply warrant. The State Department will probably not pursue its cutting tactics very far in this direction, though it has already claimed that the Government lias accomplished its object in getting an allround reduction in rates. If any credit attaches to an attempt to compel trading corporations in self defence to conduct their business at a loss, the Department is doubtless entitled to it. It is too soon to attempt to forecast tfce ultimate outcome of this new experiment, but the development of the situation will be watched with interest.