INSURANCE VALUATION

Taranaki Daily News, 5 December 1930, Page 6

INSURANCE VALUATION

I. RATES OF PREMIUMS PAID UNDERWRITERS’VIEW EXPLAINED DISCUSSION WITH THE CHAMBER. Insurable values were discussed at the quarterly meeting of the Taranaki Chamber? of Commerce at New Plymouth, last night. Complaints had been made that the insurance companies accepted premiums.on the face- value of properties, and then after a fire did not pay the full sum. Members of.the Underwriters’ As- ;•; sociation attended. Mr.,L.' M. Moss, president of the chamber, 'presided. • The' difficulties' of the underwriters Were outlined by- Mr.. C. Akers. Ift a full discussion the suggestion was made that the lending bodies who were, mortgagees of properties might co-operate with the insurance companies in. drawing attention to the need for the reinspection of over-valued properties. / ; “As underwriters,” said Mr. 'Akers, ■ *onr duty to‘our clients is to be fair and just" at all times in our business dealings with; them. Our obligation to the general % 'public is to'see -that. they duly appreciate the nature of our business. At times some hard things are gajd abbut insurance companies, but genV erally we are ■ inclined to ignore them. Is not this attitude of ours wrong? If - we are satisfied as to the justice of our. position and the soundness '■ of, bur practice—and I maintain that we a .re so sat'isfied—l■:feel we ■ are,, not fulfilling 1 our obligations unless’'we : give- a full and jeandid explanation of our,point of view.” In connection with policies of fire, insiirance, in respect of which a word of ('warning might not be out of place, there was the danger of confounding ; claims under them with claims under life insurance ■ policies, as regards the moneys assured thereby and payable thereunder. That warning, no doubt, was unnecessary for ‘the well-informed, who were: capable of comprehending the fundamental differences between the two kinds of policies, but to . others —-probably the majority—thut danger , had to be noted and reckoned with. ? • The. difference between the practice in the itwo cases‘arose:-from the ’.differ- ‘ ence in principle .between the two kinds of .policies. Contracts of fire insurance were contracts. of indemnity—contracts to provide against ■ the loss or damage which the assured might .-sustain by reason of the, occurrence of a fire,. but * policy of life‘insurance'was; not’-, a con-, tract of indemnity, in any-sense-of the ' ■ word, but was a contract to pay h, definite sum for the consideration named in ' the policy. ; AA'A'--; •■' -■ . THE GAMBLING ACT. . The Gambling Act- stipulated that no z person'should* recover more than he'had Ibst, or, in other, words, could not re-: cover more than the value of the property destroyed.. The functioning of the Gambling Act since 1774 might .be taken, said Mr. Akers, as an: official recognition of-the. fact- the. valued .fire policies. - were'not only, opposed'to the 1 sound and. generally recognised principles -of fire insurance, but were also contrary to public policy. It was not to the.advantage of the community- at large that anyone , should be in the .position of making a • profit out of a fire—-evenifit/was' be- ■ yond a. doubt that the loss. was : accidentil, and ,there was. no question of-moral ' -‘hazard. A-... A ' - i' r , . .A < ' From tho earliest .fire -insurance ■had been regarded as -a.ppnfractAto indemnify—it was an, agreement. put' , .the insured-up to: ;'ihe amiount ;.of the policy as nearly as possible'iq..the same position as if there i had - been - no fire. If, on the contrary, the insurer were ' liable. tot- pay the face value of/ a. policy withput question in case of loss' •put it.premium On fraiid?and greatly -in-; crease the cost of insurance. In the first place the-temptation to. realise on property that through deterioration or gen- , eral decline in values had become overinsured would, in many cases be irresistible arid'would lead to fires., becoming more numerous.’ Secondly, close.and ex-: pensive’' valuations, would be necessary before any; fire insurance could be grant-, ed with reasonable safety. • A. A';'*? ' A One of the : argumenta>mo§t -frequently used-'inifayour of making all fire insurance policies valued policies was that if the insurance company had. a&epted pre- . mium’ on a certain amount it’.should be 1 prepared to'pay that’amountthe oc- . curernce of the. contingency>.lnsured ] against. That sounded very .'plausible, but ignored the fact; the ■ the contract . made it-'clear .that : the bs'qm; ■ named was* the'limit but not the measure of what was payable./in' page''.of loss. That limit was fixed in the first. place ' by the policy holder, subject to the apr ' proval of . the company, and no one ,need pay premium on' a larger amount than he would be legitimately entitled to recover in case'of loss. A fire insurance '< policy was hot a wager in which a defi- ■/ nite sum was staked against the pre- - mium, but that was in effect the view of those who advocated' the . system of /valued; policies. . . . ■ ‘ DANGER OF. DISHONESTY. Another argument put forward was. that insurance companies did not, as a rule, insure the property for more than it was worth, and if .they did sp they must take the: consequences. This; would place companies at the mercy:of dishonest people and would entail greatly increased expense in inspections and valuations with a resultant, increase 'in premiums. ■ '; “Apart, however, from the question of moral hazard,” said Mr. Akers, “it is obvious* that-'it is impossible to fix permanent values for; fire insurance purposes, or, for the matter of that, for any other purposes. It would be difficult to, even fix a definite initial value, as in the erection of ,a building tenders may vary from,, say, £2000: to.-, £2500, a 20 per cent, difference between .‘the highest and lowest tenders..-'. iValueshof all kinds of property a re subject dp .fluctuation for one reason or other/- and the weakness of the effective usefulness, of any valuation is. that it is out of date very shortly after it is made.” “The companies do not like over-in-aurance,” concluded Mr. Akers. , - Mr. A; S. Clark endorsed the remarks of Mr. Akers. It was true that influences were brought to bear at times forcing insurance companies to give advantages they would otherwise withhold,.he said. The old rule was to grant, two-thirds of ' the value of 'the property. Then the company knew that the owner was carrying oneithird' of the risk, giving the company some security. . •' 7 ,-’ Mr. Clark explained that an ordinary policy was merely an indemnity ■ policy. A valued policy was one in which the amount of insurance was fixed >vhen the /policy was taken. : ; The question had first been brought up/ said Mr. J. McLeod, owing to the Experience -of local lending institutions. When they valued a building they might find their valuation the same as the in - aurance company’s, but after a fire the company paid much less than its valuation. ‘ The assessors afterwards: valued the property at much .less • than either the-Tending institution or the'insurance company. The object of the promoters fife fee. diKiigs® fei--

quent inspections-of properties by companies to keep the valuation on a. reas-onable-footing. Farmers not understanding the provisions of the Act might keep oh paying high premiums thinking that they , would be fully reimbursed. He' was more concerned, however, with town properties where the mortgagees t supposed to be reasonably covered, found they were not. covered at all. DIFFERENCE IN' VALUATION. The difficulty arose, ( said Mr. G. Duncan, in the differences between the owner’s valuation of the property, the mortgagee’s valuation anfi the insurance company’s valuation. The only was to .have more good faith shown by the mortgagees, who might come to the insurance companies, put their cards on the table and state that certain properties were over-valued] Insurance companies were not valuers—they were underwriters. Frequent inspections of outlying properties cost more than, the value of the premiums in some cases, said Mr. Akers. “How do. you tell what a place is worth when it is burnt and-there is not a vestige left?” asked Mr. McLeod. ■ There was an established rule with a fixed standard of depreciation, said Mr. Akers. i . “It does not seem quite in accordance with the ethics of. business,” said Mr. McLeod, “for companies to accept the same premiums knowing that the value of the . property is depreciating.” “The owner places the value on the building,’.’ said, Mr. Ackers. “Wh.o should know' its value, better "than the owner ?” Mr. McLeod thought the suggestion good that lending institutions should all co-opcrate with the underwriters in obtaining; the true values of properties. His bank, said Mr. R. Cock, had considerably oyer £300,000 - invested in mortgages in New Plymouth. The trustees had decided that the only, way to value the properties was to go and . see them' themselves. He had seen houses, that were not worth 25 per cent, of they' were insured for. They were asked to lend money on that valuation. Then. the underwriters paid much less after a fire. In-seven fires in New Plymouth. since Christmas,, in only one instance'had the underwriters paid; the full 20s.'in the ;£1 on their valuation. In some doubtful cases the: bank had written to . the underwriters,, asking if they would pay the full 20s. in the £1 if the. house was burnt. Some did not reply, but some said they would keep to that cover. ' A.'-bA ' ’T. .'; <

The whole' difficulty was Ihe misunderstanding between the owner and the insurer,said Mr. Thornton.. One of the questions/'asked’- the .’owner by'-the’-in-surarice>ageri£'.;wasAwhat/was the present The owner- griye valuation;- A- TJje insurance J.agerits. were;.,not valuers. The companies, however, had/been co-operat-ing with- .tjje-' Jfew" Plymouth.' Savings Bank?, and had/been] gbirig*. round. seeing over-valued' propertie.s; .It was. news to him Jthat t -had- told the bankjtha't - • they/wou-l’d agree jo pay the full vaduejn’ the; cases? Mr .’’.Cook had referred'/ro? ?■■ 7 /“ ■ . ■ -- ' The'inspection:;-of ; the property should tie J inqdebefqf ejthe. :fire; ■•not I after. it,’ said Mr. A. M. Purser. It was impossible to, ’valiie/'a ;place> aftbr it' had' been des-; troyed. . ’■ y.' ri.’'- A ; Ifc. Akers -'eiplained.’that -valued policies -were* given • only ' in marine • insur-'arice.;';-?’A/• -A-

Co.iild ’the’Sayings' Bank; have an exe-cytive''officer/-wjib could call’oh’the companies when the . bank knew a;: property was.. over-valiied.?. asked Mr. Duncan? IL the . eojripariies' agreed to that the bank, could’ report ■’ those; cases to the companies, said’ Mr.-CockA - Mr., Akers suggested that in* a case of over-valuing ’the'.'bank- should write to the company concerned and ask it to make a ( ■ '.' .. '