THE PARADOX OF YOUR CAR INSURANCE: EVERYBODY LOSES
You're paying more —and insurance companies are losing money. There's no end in sight to the vicious circle of more accidents, more expensive repairs to damaged cars and injured riders. But a new plan would, at least, ensure every victim gets paid, no matter who's to blame
As THE WAILS of anguish from Canadians who own automobiles — five and a half million of us — are already signifying, auto-insurance premiums in 1965 are skyrocketing to new heights. On the average, according to the Canadian Underwriters Association, car insurance across the country will cost 15.3 percent more this year than it did in 1964, or something like twenty-six dollars more per car owner. The increase in rates will hit owners in every province except Newfoundland, where premiums will drop slightly, and Saskatchewan, where government insurance premiums will remain approximately the same. The great majority of car owners in Canada will pay more for the privilege of maintaining their status as motorists in 1965 than ever before.
But one corollary that does not follow from the distressing fact of rising premiums — though many disgruntled motorists insist it must — is that insurance companies are reaping greedy new profits from their auto underwriting. They aren’t; indeed, in their dignified corporate way, they are suffering almost as much as their customers. For the fiscal year 1964, the Automobile Committee of the Insurance Bureau of Canada recently announced to the industry, the deficiency that auto-insurance companies will show on their books because the premiums they charged in 1963 were not high enough will be $26.7 million; the deficiency for 1965, the bureau predicted, will probably reach twenty million dollars. (These figures do not include, of course, a company’s profits from other types of insurance, if any, or income from investing their premiums.)
Looked at from another angle, equally disenchanting for the industry, the IBC’s figures indicate that for every dollar autoinsurance companies took in in premiums in 1963, they paid out in claims and expenses $1.05, and the ratio of loss, it appears, will widen to at least thirteen or fourteen cents on the dollar when the 1964 figures are added up. No business makes money that way, of course, and enough insurance companies have decided in the last eighteen months that they’re losing too much money, that the rush to cut back auto underwriting or to get out of auto insurance altogether has taken on the proportions of a small stampede.
Probably the most telling results, in the long run, of the coincidence of these two factors — the rising auto premiums and the rising company losses — is the renewed assault that is being launched at the very heart of the insurance system by many politicians, by union leaders and increasingly by critics of auto insurance who have no particular axe to grind. Their criticism / continued overleaf
Here are widely varying 1965 car-insurance premiums in a dozen cities across Canada. The figures are based on a 1964 six-cylinder "big three" car, driven for pleasure or not more than ten miles to business, by persons not under 25. Coverage is $200,000 inclusive liability, $1,000 medical expenses, $25 deductible. (The Regina figure represents government compulsory insurance plus private insurance to bring coverage up to this level)
usually takes the form of two suggested joint reforms: one, that a system of car insurance administered by the provincial governments replace the present free-enterprise system; and two, that the legal principle of “fault" be eliminated from auto insurance, so that everyone who is injured as the result of an auto accident will be compensated for his injuries regardless of who or what caused the accident.
Saskatchewan’s present insurance system embraces both these concepts and, to critics of the free-enterprise system, it stands as something of a model. It's likely to remain a model and not become a reality for the other nine provinces in at least the immediately foreseeable future, despite the urgings of such persistent advocates of government insurance as the Toronto Star and a small but vocal section of the Canadian bar. But Ontario, it appears, may be on the verge of a reform that probably would be adopted in other provinces. A select committee appointed by the Ontario legislature, after a fairly exhaustive scries of hearings on automobile insurance in 1962, recommended to the government that a form of accident insurance be made a mandatory part of every insurance company’s automobile policies: under the proposed coverage all victims of auto collisions — even the victims who were responsible for them, provided they weren’t drunk at the time — would be compensated for their injuries, and in cases of death their relatives would be compensated, according to a government-prescribed scale of payments. The recommendation isn't law yet — it's still in the civil-service works — but it seems exactly the kind of creeping reform that's bound to find favor among politicians.
With the threat of this reform, and the additional bogey of government intervention staring the industry in the eye, it appeared close to an act of recklessness for auto-insurance companies to raise their premiums in 1965 as drastically as they did. It was hardly politic to annoy the motoring public this year if it could be helped. Well, it couldn’t — and. as it fortunately happens for the industry, the reasons for the rate increases, leaving aside the companies' growing losses. are substantial and persuasive.
It is irresistibly true that there were in 1964 more cars on our highways than ever before, and behind the wheels of those cars there were more drivers who were having more accidents that cost more money to set right and that injured more people whose doctors charged more money to set them right. Indeed, there were also more highways in 1964 on which all of these gruesome events could be set in motion — close to half a million miles of new highway were opened up in Canada in 1964. In plain statistical terms, 1964 was the fourth year in a row in which the frequency of car accidents went up and the sixth consecutive year that saw the average cost per accident climb higher.
What these rising figures have meant to insurance companies, who foot the bills for the accidents, is that the average cost across Canada, excluding Saskatchewan, of bodily injury and third-party property-damage claims (which constitute the largest part of the companies’ payouts) has soared to an unprecedented height: in 1958, the average cost was $296; in 1963, $374; in 1964, it will almost certainly top $390. The average cost of collision claims has climbed about as steeply. In 1964, on a $ 100-deductible policy, collision claims will average slightly over $400 each.
The factors that have driven up property damage and collision claims — basically the cost of repairing your car or the car you ran into — can probably be boiled down to three key causes: car design, legitimate rising costs in garages and repair shops, and (insurance companies insist) dishonesty on the part of people involved in accident claims.
The first two are obvious. Starting with the 1950s, car designers presumably in giving buyers what they wanted also gave them products that were costlier to repair. Rising labor costs in auto shops and the rising prices of car parts have just as obviously helped make it more expensive to put a car back in operation after an accident. The dishonesty factor may seem at first glance
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Thanks to juries, life’s worth more
YOUR CAR INSURANCE
continued from page 11
less likely, but Jack Humphrey, president of All Canada Insurance Federation, in a recent public statement blamed a “generally eroding sense of morality and responsibility among people who drive cars” for at least part of the rising expense of automobile repairs. Some car owners, in short, have no qualms about cheating their insurers. The place where this dishonesty, as well as the faults of car design and the exploding cost of car repairs, is best studied is in a car-repair shop, and on page 40 of this issue of Maclean’s one perceptive garageman, Ray Stapley, offers his view of these phenomena from the inside.
Accompanying, or rather sweeping past, the rising costs of repairing damaged'automobiles in 1964 were the rising costs of repairing, doctoring, curing and rehabilitating the human victims of car accidents — and in cases of fatal accidents, the rising costs of burying the victims and compensating their survivors. Doctors’ fees, hospital costs, premiums for medical plans have climbed steadily in recent years. So have wages and salaries, of course, and this has served to boost claims for loss of earnings incurred by accident injuries.
But a more formidable factor in driving up personal-injury and deathcompensation claims has been the expansive attitude of modern juries. Juries actually determine the size of the settlement in no more than the two percent of auto-insurance claims that reach the courts, but their awards tend to set the standards by which the other ninety-eight percent of the claims are finally settled. And the fact is that juries nowadays are placing a higher value than they ever have before on human life. (They are probably encouraged in this trend by the action of all ten provinces in increasing the legal minimum bodily-injuryplus - property - damage coverage that every motorist must carry, in lieu of paying an extra charge for his car license, to thirty-five thousand dollars.)
Many insurance companies complain, sotto voce, that juries prefer to reward the “little guy” at the expense of the “big company” even if that means overlooking some of a case’s evidence, but large jury awards have become a fact of insurance life that companies must now live with, like it or not.
Another factor in raising insurance costs, one that insurance companies can blame on no one but themselves, is the fierce brand of competition that’s practised among auto under-
THE PRICE OF LIFE AND LIMB
A committee of the Ontario legislature proposes that this scale of compensation for injuries or loss of life, payable automatically to all victims of auto accidents, be made a part of every commercial auto-insurance policy.
Married Man Or Single Man With Dependents
18 YEARS to 59 YEARS
60 YEARS TO 69 YEARS
70 YEARS AND OVER
Plus $1,000 for each additional dependent.
Principal Sum $5,000 $3,000 $2,000
Married Woman Or Single Woman With Dependents 18 YEARS TO 59 YEARS 60 YEARS TO 69 YEARS 70 YEARS AND OVER
Plus $1,000 for each additional dependent.
Child With Parent Living
4 YEARS AND UNDER
5 TO 17 YEARS INCLUSIVE
$ 250 $ 500
$350 for each person
Loss of two hands or feet, or sight of both eyes, or one hand and one foot
Loss of one arm above elbow, or one leg above knee Loss of one hand or foot, or entire sight of one eye
writers — “stupid competition,’’ one Ontario agency head glumly calls it. The recently retired federal superintendent of insurance, K. R. MacGregor. took the industry to task last year for just this failing in a fingerwagging lecture to a group of auto insurers. “I believe that the first urgent need,” MacGregor said, “is to return to sound underwriting practices, to stick to principles and generally to act like a mature, scientific industry rather than a bargain-basement store.”
Auto insurance, to cite one possible cause for the “stupid competition,” strikes the layman as a highly overcrowded field. "Millions of dollars are thrown away every year by the insurance industry,” says Donald MacDonald, who as the leader of Ontario’s New Democratic Party is a particularly critical layman, “thrown away in the effort to maintain the uneconomic superstructure of over two hundred companies involved in the dog-cat-dog competition to get the business.”
There are, in fact, in Canada some four hundred companies underwriting car insurance, and at least ten times that many agents and brokers who deal in auto insurance. The most seriously damaging result of this proliferation is that from among the companies there periodically emerges one company or company group that will launch a feverish drive for business volume and, to that end, will slash its rates to rock - bottom, and money-losing, levels. The maverick company’s action invariably upsets the entire car-insurance market, helps peg premiums at an unrealistic level, and eventually pushes the industry a little deeper in its sea of red ink.
This “normal” competitive situation was aggravated a few years ago by the entry into Canada of the directsell insurance companies, principally State Farm Insurance and Allstate Insurance. The direct-sell companies, so called because they deal directly with the car owner, could afford to cut their premium prices because they had no agency expenses, and, with no agencies, they could also afford to be more selective (“ruthless,” rival insurers called it) in choosing the kind of drivers they would insure. The oldline companies have traditionally felt an obligation to their agencies to accept all, or most, drivers the agencies send them, no matter how shatteringly bad the drivers’ road records might be. But the direct-sell companies could limit themselves to the good-driver market — at lower rates.
The battle for premiums between the two types of insurers, which took on the proportions of a world war in the United States, was more of a sniping action in Canada and has now settled into a grumbling truce. Nevertheless. before the direct - sell companies became a stabilized element in insurance, they did play their part in dislocating the insurance market.
Where this brand of competition has driven many companies is to the wall, backs first. The pinch has been felt throughout the industry. In 1963, the last year for which figures have been totaled, auto-insurance companies in Canada collected $382.881,626 in earned premiums and paid out $300,054,852 in claims and adjusting expenses. This meant that the indus-
try’s earned-loss ratio stood at 78.94 percent — but the ratio at which insurance companies calculate they will begin making money is 62 to 64 percent. This bit of arithmetical enlightenment demonstrated to many auto underwriters that 1964 was the year to get out of the auto-underwriting business. Phoenix Insurance Company of Hartford, a large, continentwide. American company, made that decision: it pulled out of all provinces west of Quebec. Pitts Insurance
Company, of London, Ont., a small, provincial, Canadian company, decided the same thing: it pulled out of auto insurance altogether. Global General Insurance stopped writing car insurance in Quebec in July 1964. and Bay City General underwent reinsurance in Ontario in December 1964. Zurich Insurance, tenth largest in Canadian premium volume in 1963, decided to cut back its auto underwriting in 1964. So did Merit Insurance.
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a direct-sell company, which was eleventh largest in premium volume in 1963 but suffered serious losses in that year and also in the following year.
Logically enough, then, it’s the “waste” thrown up by competition among auto underwriters that critics of the insurance industry single out as the taking-off point for their criticisms and their cries for reform. What will eliminate competitive waste, they argue, and, what’s more, will provide cheaper coverage for the car owner is a system of automobile insurance entirely administered and controlled by a government agency. Like, the critics always say, Saskatchewan’s carinsurance system.
Under Saskatchewan’s compulsory scheme, it’s true, a car owner receives some impressive benefits — among them: compensation for any injuries received in an accident up to prescribed limits and death benefits for an accident victim’s survivors up to live thousand dollars, regardless of fault in the accident; third-party liability protection for bodily injury and property damage up to thirty - five thousand dollars for each accident; comprehensive coverage, including collision, theft and fire, subject to two hundred dollars deductible. And for this, the car owner pays a premium, based on the model, year and size of his car, that ranges downward from a very modest maximum of fifty-three dollars for a 1965 sedan w'ith a onehundred-and-twenty-inch wheel base.
But. eminently generous as all this sounds, insurance companies point out with considerable relish that there are further charges that aren't revealed in a simple recital of premiums. Each driver in Saskatchewan, for example, must pay an extra driver's-license fee of two dollars, money that's earmarked for the insurance fund, and he pays another extra fee — more money for the fund — when he renews his license after conviction for most driving offenses. And, since the government’s coverage is a minimal thirtyfive thousand dollars and provides for a comparatively high two-hundreddollar deductible in collision insurance, insurance companies contend, with some justification, that anyone using his car reasonably often — who drives it more than, say, five thousand miles a year — will want to take out additional coverage— at, of course, an additional premium.
Costs the records don't show
Insurance companies are equally convinced that a government insurance scheme isn’t really economical from the administration side of the desk. Saskatchewan claims that it pays out ninety-one cents of every premium dollar to claimants and spends only an approximate nine cents on overhead, compared to a seventy-thirty ratio among corporate insurers. But, the companies argue, Saskatchewan’s figures don’t include adjustment costs and overlook the fact that irmch of the province's expense in administering their scheme is covered from general tax revenues, which are anted up by, among other citizens, the drivers of automobiles.
In any event, for the fiscal year
ending April 1964, the Saskatchewan Government Insurance Office joined its corporate brethren in their red-ink bath; Saskatchewan collected $10,621.000 in premiums, but, after paying expenses and claims, still showed a deficit of $752,000 on the year.
The truth probably is that the two schemes — Saskatchewan’s government insurance and the rest of the country’s private insurance — just cannot be compared. Saskatchewan’s plan, economical though it might prove in Saskatchewan, could hardly be expected to function as well in an area where automobile density and accident frequency are far greater than they are on the prairies — in Montreal or Vancouver or even Saint John. N.B., where, Canadian Underwriters Association figLircs show, the most accident-prone drivers in Canada perform. Insurance companies, as matters now stand, are probably correct when they contend that in most provinces other than Saskatchewan, government insurance, with the incredible bureaucratic jungle that would be necessary to administer it, would likely prove no more moneysaving than private car insurance is at its competitive worst. Indeed, as the chart on page 1 I indicates, a car owner in Brandon, Man., an area with about the same auto density as Regina, may pay less for the same coverage than a Regina driver would.
But if government insurance is a remote prospect, the days of the “fault concept” of auto insurance, at least in its present pure form, seem numbered. (The fault concept says, simply, that a driver who is responsible for causing an accident is not entitled to compensation.) Some legal thinkers believe that fault will disappear entirely from auto-accident claims and all victims will be paid through a government - operated scheme like workmen’s compensation. What is more likely, however, is that a modified form of compensation without fault will be introduced into each province under a plan similar to the one Ontario’s Select Committee on ALUO Insurance has placed before its government. The committee’s plan— supported, indeed drawn, by the All Canada Insurance Federation — provides that, under coverage to be made a mandatory part of all insurance policies, every accident victim will be recompensed after his accident for his injuries and losses according to a set scale of payments ($2,500 for the loss of an eye, $250 on the death of an infant, $35 per week during period of disablement); but at the same time the victim is to retain his right to sue for more damages in the courts — a right, incidentally, he loses under workmen's compensation — if he believes his injuries were caused by the negligence of another motorist. The proposal seems perfectly fair: most important, it would save a poor litigant, who normally hasn’t the resources to look after himself while the insurance companies and courts wrangle over his case, from the possibility of being outlasted and starved into an inequitable settlement.
It’s fair — and it may also be the first new. positive step in an industry that hasn’t been making anyone very happy in the last couple of years. ★